Vol. 980 No. 3
1. Deputy Michael McGrath asked the Minister for Finance the anticipated impact in monetary terms on tax receipts in 2019 and 2020 of a no-deal Brexit; the status of preparations for all Brexit scenarios; and if he will make a statement on the matter. [10145/19]
This question relates to the issue of Brexit. The Minister has provided updates on the potential consequences of a no-deal Brexit in the context of employment, economic growth and on deficit. Will he clarify the figure to which his Department is working in the context of the hit on tax receipts for 2019, in particular, and 2020? We have had a discussion on the Bill during the week and I ask the Minister to take this opportunity to update the House on the preparations for all Brexit scenarios.
My Department’s budget 2019 macroeconomic forecasts, endorsed by the Irish Fiscal Advisory Council, IFAC, incorporate, as a central scenario, that the UK will make an orderly exit from the EU with a transition period until the end of 2020. Moreover, the impact of this assumption is to lower the level of GDP by almost 2 percentage points. This in turn feeds through to the fiscal projections underlying the budget.
My Department recently prepared a preliminary holding assessment, issued on 29 January, based on an initial application of the most recent estimates. An update prepared by the UK’s National Institute of Economic and Social Research, doubled the projected impact of Brexit there. For Ireland, the no-deal impact is now assessed to be an economy of the order of 4.5% smaller than the 2019 forecasts and of the order of 6% lower than a no-Brexit scenario.
The assessment by my Department shows that on an aggregated level there would be a sharp deterioration in the public finances as measured by the general government balance. This top-down analysis incorporates the combined impact arising through both the expenditure and revenue channels. Accordingly, the budget balance is currently projected to turn to a deficit of 0.2% of national income with a further decline in 2020 from a surplus of 0.3% of gross domestic product to a deficit of 0.5%.
My Department is currently working with the Economic and Social Research Institute, ESRI, on a new assessment of the economic and fiscal impact of Brexit on Ireland. The ongoing ESRI exercise will estimate the tax and expenditure implications of a no-deal Brexit. However, as an indicative approximation of the revenue impact, the traditional estimated long-run relationship between nominal gross domestic product growth and tax revenue is a unitary elasticity. Accordingly, for every one percentage point change in nominal gross domestic product this is reflected in a similar relative change in tax receipts.
I thank the Minister for his reply. Will he spell out in nominal terms what the impact is expected to be in accordance with calculations by his Department and Revenue on tax receipts? He has explained that the surplus projection is expected to go to a deficit in the current year, which means his Department does have those figures. Can he spell out what it means in the context of tax receipts in nominal terms? Will he take this opportunity to update the House as to where we stand, from the perspective of his Department and the agencies under its aegis, particularly Revenue, on the question of Brexit preparedness in the context of customs officers, infrastructure developments at ports and so forth? Will he reassure the House that while, thankfully, a no-deal Brexit is looking less likely now than it was some weeks ago, it is still a scenario for which we have to be prepared and that we must prepare for all contingencies?
Regarding the Deputy's first question, the figures I have available to me are very provisional because we are only approaching the end of February. For me to be able to give the Deputy an exact read on how I believe tax revenue for this year will decline on the basis of a disorderly Brexit is very difficult to do, but I will be in a position to do this when the ESRI has completed its work.
On the Deputy's second question, I reconfirm that with respect to the figures I gave him on the Revenue Commissioners having 400 staff in place by the end of March, we will deliver that and we will be in a place to quickly recruit a further 200 afterwards. From a preparedness point of view, while the events of Tuesday were very significant, we still have to plan for the worst. From a land acquisition and infrastructure perspective, we are on track to be as best prepared as we can be for the end of March.
I ask that the Minister come back with the figures I am seeking at the earliest opportunity. His Department must have a rough approximation, otherwise he would not be in a position to say that we are going to go from a certain surplus to a predicted deficit, and he has put those figures on the record. I could work them out myself but I do not want to make a stab at doing so. It would be better if the Department gave us the actual figures. The Minister can come back to us on those.
In the context of the Brexit Bill we have been discussing this week, have the taxation measures, which are a very significant component of it, been cleared with the European Union in the sense that from a corporation tax point of view we are hoping to continue to treat the UK as a member state? Essentially, it would be tantamount to a member state such that the existing status quo provisions will continue, whereas other member states will not have a similar relationship with the UK in a post-Brexit scenario if it actually leaves the European Union. Can the Minister confirm that the taxation elements of that Bill have been cleared fully with the European Union?
Yes, they have been. The Department of the Taoiseach and the Department of Finance provided briefings to parties and Independent Deputies on the Brexit Bill last week. On Tuesday, the Cabinet agreed two further amendments I proposed to the Bill on the operation of duty free and the VAT refund scheme. That and all the other tax changes have been cleared by the Commission. I will make available to Deputies Michael McGrath and Pearse Doherty an official briefing on those two new amendments in order that they will be in a position to understand them fully before we debate them in the House next week, particularly as the version of the Bill on which they were originally briefed would not have contained them. I will make contact with both of them and other Deputies to ensure they are briefed on them before we debate them in the Dáil next week.
2. Deputy Pearse Doherty asked the Minister for Finance if a 25% cap on losses that can be carried forward by banks will be introduced in combination with a ten-year time limit on the use of these allowances; and if he will make a statement on the matter. [10012/19]
The offer the Minister made regarding the Report Stage amendments to the Brexit Bill is very welcome.
On the question I have before him, he will be aware that this is the annual reporting season for the financial institutions. We have heard some of those reports already with respect to mega profits being made on the back of very high interest rates and repossessions taking place within the banks, but we still have the scandal of banks not paying any corporation tax on their profits. I have put forward a proposal where we would cap the losses at 25% and that proposal stands. Is it time for the Government to consider a proposal of that nature?
Corporation tax loss relief is provided for under section 396 of the Taxes Consolidation Act 1997. It allows for losses incurred in the course of business to be accounted for when calculating the tax liability of a business. Loss relief is a long-standing feature of the Irish corporate tax system and is a standard feature of corporation tax systems in all OECD countries. It is available to, and claimed by, businesses in all sectors, not just those in the banking sector. In view of state aid rules, it is likely that any loss restriction would have to be broad-based, affecting all corporate entities, and this could have significant consequences across the economy.
As I have stated previously, I do not intend to change how tax losses are currently treated for Irish banks, either by means of a targeted restriction or a wider measure, because I am of the view that doing so would give rise to significant and negative consequences for the customer and for the Exchequer.
There would be an immediate and consequential negative impact as a result of the increased cost base for the banks being passed on to consumers in the form of higher fees, higher interest rates on mortgages and business and personal loans and-or lower deposit interest rates.
Among other consequences for the Exchequer, there would be a material negative impact on the valuation of the State's investments from any change in tax treatment of accumulated losses where the banks are concerned. It is critically important to understand that the State is getting value from those tax losses today through share sales. If we were to change our policy with respect to tax losses now, the State's credibility with investors would be damaged as it sold shares in the AIB initial public offering, IPO, on the basis that there were no plans to change this policy. It is worth noting that the banks are contributing to the Exchequer through the financial institutions levy introduced in 2013. In budget 2016, the payment of this levy was extended to 2021. It is anticipated that the bank levy could raise €750 million over five years.
Listening to the Minister, one would swear these banks were broke and that any tax they might have to pay, just as every business out there pays its taxes, they would have to absorb through higher interest rates and charges on the public just to keep their heads above water. The reality is very different. Bank of Ireland has reported its profits for last year. Its underlying profits amounted to €935 million and it is not paying a penny of corporation tax in this State. Permanent TSB told us that on the back of the sale of performing loans to vulture funds, it made a profit of €94 million last year. Tomorrow we will know the profits that have been made by AIB. We know that its profits for the first six months of this year amounted to €762 million, so total profit is likely to be in the same region as it was last year at €1.5 billion. These are some of the most profitable banks in Europe. Combined, these three banks have made approximately €2.5 billion in profit but have not paid a penny in corporation tax. There has been a change in the law in the past. The Minister changed the law to reduce the restriction and reduce the cap. Is it not time to ask the banks to do what every other business does and pay their taxes in a fair and timely manner?
We are treating banks the way we treat every other business. Every other business has the ability to treat its losses in a certain way. As the Deputy will be aware, the way losses are treated on the balance sheets of banks has an impact on banks' value and ability to perform. I did not indicate at any point that our banks are unprofitable. In many cases, they have returned to profitability. I want to use that higher level of profitability to create a means by which over time we can get back from these banks the money that was invested to save them. The Deputy was very critical of that decision at the time. As such, I would have thought he would support a strategy that allows us to get that money back. Changing this policy at this point would lose the money we have invested in these banks on behalf of the taxpayer. Crucially, even with the higher levels of profitability, it would result in lower lending and higher interest rates for customers, outcomes I want to avoid. If those things were to happen, the Deputy would also be critical.
The Minister's own research rubbishes what he says. It shows that the loss in the value of the three banks would amount to €480 million. Within 15 months my proposed cap of 25% would exceed the loss that would accrue. No other business that has incurred loss, whether it is the local hairdresser, the publican up the road or the local supermarket, was bailed out for its losses by the State. That is the what makes the banks different. We made up for their losses by transferring Exchequer money to them and now they want to benefit from the tax code. The reality is that we are an outlier in Europe and in the OECD, in allowing for 100% loss relief over an unlimited time. It is unjustifiable for the Minister to say it is okay for AIB not to pay a penny of corporation tax for 20 years. He again parrots the line from the industry that anything that changes the rules in this way will result in higher interest rates.
The Deputy's time is up.
I will make a final point. Bank of Ireland has signalled that it will increase interest rates for mortgages. I reported that bank to the Competition and Consumer Protection Commission, CCPC, for that because I believe it is the start of price signalling within the market. This approach to taxing them falls very short of the need to raise revenue.
The House has an order that determines the time available. Deputy Doherty consistently disregards the order. Will he please adhere to the time that has been laid down? If the time is not adequate for him, he should get his people to change it.
I appreciate that.
The research I published, which the Deputy referred to, also stated that the way taxes and losses are treated on the balance sheets of banks has a significant effect on those balance sheets. If we were to change that treatment, there would be consequences for the ability of the banks to meet the needs of customers in a more cost-effective way. The Deputy knows, of course, what would happen if we changed the tax treatment of banks' losses at this point. First, we would single them out from all other companies within the economy, which would have immediate consequences. Second, our ability to get back the money the taxpayer invested in these banks would be impaired. Again and again the Deputy has stood up and criticised the fact that these banks were supported by the taxpayer. I understand why. I would have thought he would be supportive of my efforts to get that money back.
3. Deputy Michael McGrath asked the Minister for Finance the priority measures he plans to implement in the coming months to address the cost of public liability and employer liability insurance; and if he will make a statement on the matter. [10146/19]
I assume that the Minister of State, Deputy D'Arcy, will take this question, which relates to insurance. It has been two years since the cost of insurance working group issued its report on motor insurance and a year since the report on employer liability and public liability insurance. There is a growing crisis in the area of business insurance. I will give an example when I ask my supplementary questions. I want the Minister of State to update the House on the key reforms that are needed to bring about more competitively priced insurance.
I thank the Deputy. The cost of insurance working group project culminated in the publication in January 2018 of the report on the cost of employer and public liability insurance. The report makes 15 recommendations with 29 associated actions detailed in the plan. The most recent progress update was published last November and shows that 18 of the 19 action points arising up to end of the third quarter of 2018 have been completed. It is envisaged that the next quarterly progress report will issue shortly. The vast majority of the total of 26 action points due for completion during 2018 overall have been carried out. Many of the recommendations of the report on the cost of motor insurance also applied to the area of employer and public liability.
I wish to highlight some steps that have been taken. Sections 8 and 14 of the Civil Liability and Courts Act 2004 have been amended to ensure defendants are appropriately notified of a claim submitted against their policy and to make it easier for businesses and insurers to challenge cases where fraud or exaggeration, respectively, is suspected. A protocol has been put in place between the Garda and Insurance Ireland in respect of the reporting of suspected fraudulent claims. The Personal Injuries Assessment Board (Amendment) (No. 2) Bill 2018 has been enacted. The Central Bank (National Claims Information Database) Act 2018 has been passed. I thank all the Deputies and Senators in both Houses who facilitated this legislation.
The Law Reform Commission, LRC, has been asked to produce a report on these Houses' ability to cap the level of awards. That has been agreed to. Senator Anthony Lawlor will bring legislation to the Seanad in the next couple of weeks that will give this House and the Seanad this authority. Moreover, the establishment of an insurance fraud investigation unit within the Garda National Economic Crime Bureau, GNECB, is being considered by the Garda Commissioner, as opposed to a stand-alone insurance unit external to the GNECB but within its parameters.
I thank the Minister of State for his reply. I will give the example of a play centre in Cork. I know what I am about to say be fact - there is no exaggeration. The play centre has made no claims in recent years. In 2016, its insurance was €3,500. In 2017, it was €5,500. In 2018, it was €10,000. Its renewal will happen in March and the quote it has received is for €18,500. That will more than likely put the centre out of business. As the Minister of State well knows, this story is repeated throughout the country. We have a crisis in employer liability and public liability insurance costs for businesses. Where are we with the CSO's collection of data on premium pricing in respect of business insurance? Where are we in terms of dealing with awards? In practical terms, where are we on the question of fraud?
I have met a large number of those involved in play centres. The issue is the level of awards. Claims are being presented that, to me, are spurious. If the incidents involved happened in the Deputy's brother's or sister's house, the claims would not be made. A major issue for business insurance is that if an accident happens or somebody gets a bump, scratch or knock of any nature, a claim is presented against the business. That is wrong.
The level of awards is a significant issue. I did not anticipate the Judicial Council Bill getting stuck behind the Judicial Appointments Commission Bill in the Seanad. The Minister for Justice and Equality, Deputy Flanagan, has put 70 plus hours in on that front. I have spoken to him. He will restart the Judicial Council Bill in the Seanad next month, which is a positive development.
I thank the Minister of State.
I apologise for going over time, but this is a crucial point. I ask all Members of both Houses to facilitate the passage of this legislation because it will allow the new guidelines to revise the book of quantum.
From a Fianna Fáil perspective, there is no issue with political support being provided. If the Government needs time in the Seanad, it should ask us. I will talk to our colleagues about providing our time in the Seanad to deal with the Judicial Council Bill.
It is two years since the first report was issued but, on the question of a fraud unit within the Garda, the Minister of State is saying that it is being considered. It was essentially recommended two years ago, yet there is no firm update as to whether it will happen. People want to know if it will happen and, if so, when. We lost a great deal of time in the argument about who would fund it, yet we still do not know whether it will happen.
The Minister of State is blaming the issue of awards completely. It forms part of the story, but I do not accept that a play centre's insurance bill increasing from €3,500 in 2016 to €18,500 in 2019 is completely down to awards. The data do not bear that out. If, however, the Minister of State attributes the main reason for premiums increasing to awards, where are we in terms of dealing with them?
It is the main reason. It is bigger than all of the other reasons combined. There is no question about that. I ask all parties to facilitate the passage of the Bill in the same way they facilitated the passage of the Insurance (Amendment) Act 2018 and the Central Bank (National Claims Information Database) Act 2018. I have always been generous in my praise for everyone who facilitated those, as they have been very helpful.
Regarding the Garda unit, it is not for me to tell the Commissioner how to allocate his resources. I have put to him the request that was put to me strongly by the finance committee regarding the establishment of an independent Garda insurance fraud unit. That will not be the case. Rather, the Commissioner has considered putting in place a section within the national crime bureau that will do exactly the same work. I am fine with that so long as the necessary work is done. I was critical of the Garda Síochána-----
It has not been committed to.
No, but he is considering establishing it quickly. I was critical of the Garda Síochána. In 2017, 400 cases of insurance fraud presented to it. None of them was prosecuted. That is not good enough.
4. Deputy Mattie McGrath asked the Minister for Finance the status of the proposal to allow credit unions to offer residential and commercial mortgages to their members; and if he will make a statement on the matter. [10011/19]
Will the Minister provide an update on the status of the proposal to allow credit unions to offer residential and commercial mortgages to their members? Specifically, he might comment on the status of some of the 27 recommendations in the report of the Joint Committee on Finance, Public Expenditure and Reform, and Taoiseach on the credit union sector. When the report was laid before the House, I understood the Government to be generally positive about allowing the sector the opportunity to become a co-operative movement that was fit for purpose in terms of mortgage and residential loans.
Credit unions are already allowed to offer mortgages to their members. Indeed, a number of them do. As of September, there were mortgages worth €171 million outstanding across the sector, representing a 17% increase year on year. However, the amount of mortgage lending that credit unions can engage in is limited by the Central Bank's lending regulations for credit unions, which allow only a certain proportion of a credit union's loans to be long-term loans due to lending maturity limits. These lending regulations have been under review since last October when the Central Bank commenced a public consultation. Reviewing these lending regulations is an important matter and one for which I have previously outlined my support, including in a letter that I wrote to the Central Bank Governor, Professor Philip Lane.
The proposed revisions to the lending regulations from the Central Bank contain a number of positive elements. The proposals change the basis of calculation for the limits from a percentage of loans to a percentage of assets, which is something for which the sector has been calling. The proposals would also allow larger and capable credit unions to do significantly more mortgage lending than is currently the case.
Based on the data supplied in the consultation paper, the proposals would allow in the first instance a sectoral capacity of €861 million for mortgages, which should be seen in the context of the €171 million of mortgages outstanding across the sector as of last September. This capacity would increase if applicable credit unions were approved for the higher limits. Were all credit unions with assets greater than €100 million to be approved for the higher limit, sectoral capacity could increase to a maximum of approximately €1.8 billion.
The Central Bank is in the process of reviewing the submissions received and expects to publish a feedback statement and draft regulations in the second half of 2019.
It is good to hear the Government acknowledging the powerful work that credit unions do in communities across the State. Were it not for credit unions, many more people would have suffered significant turmoil during the past decade.
In 2018, the Central Bank conducted a review of house loans in credit unions. This was the same year that the credit unions were voted the most highly regarded organisation in Ireland in the Ireland RepTrak report. That said, we can all acknowledge that engaging in lending for house loans represents a change in strategy for credit unions, one that requires a specific understanding of the risks associated with this type of lending. The credit union movement is well equipped to meet this challenge.
We should not forget that the findings of the Central Bank's residential mortgage arrears and repossessions statistics for quarter 2 of 2018 showed that accounts in arrears over 720 days constituted 42% of all accounts in arrears. That is a staggering figure. At €2.5 billion, this represents 91% of the arrears balances outstanding.
I thank the Deputy for recognising our acknowledgement of the credit union movement and the support that we have put in place for the sector in recent years. A review of whether it would be appropriate to allow the movement to play a larger role in the provision of mortgage loans is under way. I expect that work to come to an end later this year. It is appropriate that we allow it to conclude, given that the proposed increase in the movement's ability to lend would be significant. I expect to see draft regulations later this year, which the movement, other stakeholders and I will be in a position to evaluate.
The €2.5 billion represents 91% of the arrears balances outstanding. Non-bank entities now hold 61,446 mortgage accounts for principal dwelling houses and buy-to-lets combined. Of this number, 47,820 relate to principal dwelling house mortgage accounts.
These numbers provide us with important context for the argument to extend the ability of credit unions to provide residential mortgages. It is a very important context as these institutions are sure-footed. If we need to develop new methods of regulation specifically for credit unions, let us do that, but let us not have the Central Bank putting its claws into these people and keeping them down. They are of the people and for the people. Ní neart go cur le chéile. We should treat them the same way we treat the banks if there are similarities in terms of loans, etc. There is no one-size-fits-all regulation, so they need specific legislation. The credit union movement must be supported in playing the part it wants to play and has played since its inception. There has been a major voluntary effort in it.
The credit unions are being supported precisely because we are recognising the potentially larger role they could play in the sector. A review of this has been under way and it has been led by the Central Bank because it is the regulatory body for the credit unions. I met representatives of all the credit unions a number of weeks ago in my Department and it was a very productive meeting to review the different actions we are taking and the opportunities and issues that present. The Central Bank will conclude its work during the year and will then provide us with the ability to assess whether this move should happen in addition to the significant volume of mortgage lending that a number credit unions provide.
5. Deputy Eamon Ryan asked the Minister for Finance the analysis conducted on the possible implementation of a digital tax; and if he will make a statement on the matter. [10160/19]
I am very keen for the Minister, if he can, to share what analysis he will present in response to the OECD consultation document addressing the tax challenges of digitalisation of the economy. The digital tax is clearly centre stage for him, as a French Minister was here earlier in the week to discuss the matter. It is clear from the OECD that we will have to make a submission on the proposals for a digital tax by 6 March, which is next week. Whatever analysis the Minister has should be shared with the House and the process for our position should be transparent and open. I am keen to get access to that analysis.
The European Commission proposal for an interim digital services tax, which seeks to impose a 3% levy on the turnover of certain companies' digital activities, continues to be debated at a political level among member states. The Commission's own impact assessment of its proposed digital services tax estimated that the measure would yield approximately €5 billion per annum across all EU member states. If it is assumed that Ireland would receive a portion of the yield in proportion to Ireland's population, the estimated annual yield in Ireland from the EU proposal is €45 million. However, any such tax paid is likely to be deductible in calculating profits subject to corporation tax and this would reduce Ireland's corporation tax receipts disproportionately. Based on an analysis carried out by the Revenue Commissioners, introducing the EU digital services tax would reduce Ireland's corporation tax receipts by up to €160 million per annum, assuming full deductibility from taxable corporate profits for digital services taxes paid in the EU by companies taxable in Ireland. I shared this work with the Oireachtas Joint Committee on Finance, Public Expenditure and Reform, and Taoiseach in May 2018.
This week I met the French Finance Minister, Mr. Bruno le Maire, who has been a leading advocate of the proposals in this area. I reiterated my principled concerns on the issue but we agreed that French and Irish officials would work closely together on the matter at OECD level. Ireland recognises that further change to the international tax framework is necessary to ensure that we reach a stable global consensus for how and where companies should be taxed. I remain convinced that the OECD base erosion and profit shifting, BEPS, inclusive framework is the correct forum for this work to be carried out.
The OECD paper mentioned by the Minister is probably the central point of the Department's approach to this. It has set out a range of measures in the digital tax area, including user participation, marketing intangibles and significant economic presence provisions. We must put in our part of the consultation next week and go to Paris on 13 March or 14 March to engage in a wider public discussion. We have a significant digital industry here and these are not just brass plate companies. Tens of thousands of people work in the area and the Government must get this right so we can look after their jobs. It must also get it right to achieve tax justice, as the current system is not just. These companies can get away with paying minimal or almost no tax, and that needs to change. This is the key document in terms of what happens next and we must present our comments by 6 March. Will the Minister share that analysis with the Oireachtas so we know what is exactly the Government's position?
My understanding is the consultation process is public and I will share that information, assuming it does not undermine our ability to project our interests within the OECD. When the work is complete, as it will be in the coming days, and when we share it with the OECD, I will share all I can with the Deputy and the committee. I do not see any reason I would be unable to share it at all, given that it is a public process. The deadline referred to by the Deputy is very much an early part of a process that will take quite some time. I know from dealing with finance Ministers in other parts of Europe that there are many different concerns regarding the work under way in the OECD. I expect it will take quite some time to make progress on this matter, even within the OECD.
I would be concerned if it were to take quite some time. Our reputation as a state depends on us being seen to be progressive and willing to take this action. There is major public disquiet throughout Europe and the world because these companies have engaged in tax avoidance to such scandalous levels. We need to act now. The Minister needs to start correctly. This is an early part of a consultation but that process will not take that long, as it is due to be signed off next year. We must know our position next week. I appreciate that this is a public consultation but I ask that he share the submission with other parties on the same day he sends it to the OECD in order that we can be fully informed.
I am keen to hear the Minister's views on transparency. There is a concern that this will eventually be settled within the G20 but that is not a transparent process. We do not have direct representation on the G20, although we are represented indirectly through the European Union. The experience in the past has demonstrated that there is a closed room and we might not necessarily have control of what is said and goes on. Is that how the Minister sees it? Will it be decided within the G20? Where will this be settled?
It will take some time to do this work because of the complexity involved in trying to move this forward on a global level and the highly technical nature of it. The current timeline has the objective of a final sign-off by the end of 2020 and, after that, it will take at least two years to consider how the roadmap could be implemented domestically and internationally. Those kinds of timings are broadly consistent with what happened with the OECD BEPS process. That is the reason for my comment on timing.
The Deputy had a question on where this will be signed off. It will be signed off within the OECD. There is a target in place to be able to share a report with the G20 before the summer on the likely direction of travel. The sign-off mechanism for this will be within the OECD, and that environment is very different from that of the European Union.
