Recommendation No. 1 is out of order, being merely declaratory in nature.
Finance Bill 2006 [Certified Money Bill]: Committee and Remaining Stages.
NEW SECTIONS.
Recommendation No. 1 not moved.
I move recommendation No. 2:
In page 9, before section 1, to insert the following new section:
"1.—The Principal Act is amended in section 466A by the substitution of the following for subsection (2):
‘(2) Where in any year of assessment an individual proves that he or she is a qualifying claimant he or she shall be entitled to a tax credit (to be known as the ‘home carer tax credit') of a sum equal to the higher of the amount specified in section 472 of this Act.'.".
This recommendation proposes the increase in the home carer's allowance which was introduced a few years ago following the hubbub created after the introduction of individualisation. In a subsequent Finance Bill an attempt was made by the then Minister for Finance, Mr. McCreevy, to allay some of the fears and respond to representations possibly made by some of his colleagues. The home carer's allowance of €770 was introduced. My recommendation seeks to increase the allowance to give it parity with the PAYE tax credit.
I have spoken before in this House on finance and other Bills regarding the importance of carers in our society. They are a greatly undervalued body of people. This recommendation attempts to restore some parity for those people who perhaps deliberately step out from the workforce to look after dependants in the home, whether rearing children or looking after old, infirm or ill relatives. These people provide a great service to the nation and ensure that costs which would otherwise be incurred by the Exchequer are in many cases not incurred and placed as a burden on the State. The increase in the allowance, in the overall context of the amount of money carers save the Exchequer annually, would be a good return on investment. I ask the Minister to consider the recommendation.
This recommendation concerns the home carer's tax credit of €770 which under section 466A of the Taxes Consolidation Act 1997 is granted to married couples where one spouse works at home to care for children, the aged and incapacitated. The recommendation proposes that the amount of the home carer's credit should be the same as the maximum of the employee tax credit commonly known as the PAYE credit which by virtue of section 3 of this Bill, will amount to €1,490 in the current tax year. In other words the recommendation would increase the value of the home carer's tax credit by €720 per annum. It is estimated that to increase the home carer's tax credit as proposed would cost about €42.8 million this year and €63.5 million in a full year.
As I indicated in my Budget Statement last December, the total cost of the income tax and levy changes I made is €887 million in a full year, which is some 30% greater than the previous year's figure. The increases I made in the employee tax credit and the personal tax credit in addition to benefiting all workers, including the spouses to which Deputy Phelan is adverting, were to ensure that all those on the minimum wage are fully outside the tax net, and the measures removed from the tax net almost 52,000 low-income taxpayers who would otherwise be in the tax net this year.
The changes I provided for in the Bill are generous by any standards. I am not in a position to accept Senator Phelan's recommendation. The choices I made in the budget were fair and reasonable in the overall context. As I said, the overall tax benefits package was 30% greater than in the previous year. There will always be proposals or suggestions which are in addition or incremental to what I have announced in the budget. If people want me to provide €63.5 million in a full year for this recommendation, perhaps they might tell me what benefits they would like to reduce.
It might be useful if the Minister gave us some indication as to whether he is a fan of this particular tax credit. It was clear that his predecessor was not a fan and introduced it only in the wake of the individualisation debate as a necessary balm to keep the Fianna Fáil backbenchers at the time happy and off the airwaves. As far as I know, the allowance has not been increased since it was introduced. I am not a particular fan of the credit myself but I wonder about the Minister's feelings on the matter, or whether he sees himself increasing the credit in future years.
As I recall, the biggest opponents of individualisation came from the back benches in Senator McDowell's party, or indeed from the Front Bench.
I changed my mind.
This was despite the Labour Party claiming it is very much in favour of women participating in the workforce, which is what individualisation is trying to achieve.
Quite apart from the logical analysis one can ascribe to individualisation as a feature of the tax system, other societal values must be recognised. In my two budgets so far, in view of other priorities I have identified, particularly low pay, and widening the tax bands for all workers including families where more than one spouse is working, which have brought benefits to all families concerned, I have not made any change in the home carer's credit. Whether I do so in the future is a matter for consideration at any time.
I do not wish to wrong-foot the Minister but I had many disagreements with the previous Minister for Finance, Mr. McCreevy, about a range of tax reduction and reform measures — as he would call them — which he introduced, including this one. I have not changed my mind on any of them except this one. However, I have changed my mind on individualisation and believe that Mr. McCreevy was essentially right, and that it is a necessary measure to incentivise female participation in the workforce.
I understand we currently have about 59% female participation in the workforce, which is above the EU average of about 56%. It is appropriate, therefore, that we should recognise that for women, particularly from when they leave school or college until perhaps they have a second child, their participation in the workforce is, at 89%, very high. In that context, it may surprise the Minister to hear that I believe the individualisation process was the correct approach at the time and should be completed. I am going to approach the Minister from the opposite point of view and ask if, as a matter of principle, he intends to complete the process. As well as the home care credit standing still since he became Minister, so too has the basic principle of the individualisation process, which has remained half done or half undone.
I do not agree exactly with what Senator McDowell has said. He is correct that the home carer's allowance was introduced as a sop to backbenchers at the time of the introduction individualisation scheme. The Minister has pointed out that its amount at €770 has not been increased since it was introduced. If the proposal I have put forward were to be implemented the Minister says that it would cost €63 million per year. In the context of the efforts these people exert in the home by acting as carers, we should create parity for those who choose that option — in many cases it is not an easy choice to make as it is a selfless thing to do and this should be recognised. The purpose of my recommendation is to achieve a level of parity between those in that position and those in the workforce. For many people there is not an option. I agree with Senator McDowell that it is good for the economy that there are such high levels of participation by women in the workforce. However, this recommendation was designed to address those who do not have that option. The Minister has said we should look for areas from which we can get the €63 million to pay it. With all due respect, that is part of his role as Minister for Finance. There are ample areas where he could find that money. In the overall scheme of the Finance Bill it is a relatively small amount of money and would provide significant relief for those who find themselves in this position.
In reality the point of proposed recommendations in a Seanad debate is simply to allow particular mattters to be discussed. There is no question of the Minister changing his budgetary arithmetic at this stage. I would always have been a supporter of the individualisation process because living in a household of women of different generations, it seemed to me that there was a sharp generational divide in that any woman under the age of 40 who was in the workforce strongly supported it. Once joint income was above a certain level in practice the parties paid the higher marginal rate which acted as a disincentive. I am glad that Senator McDowell and the Labour Party have come around to a progressive——
I am speaking for myself here——
A Seanad parliamentary party.
I accept that Senator McDowell has always spoken honestly and to a degree for himself rather than for the Labour Party. Nonetheless, I compliment him on coming to a progressive position on this issue. Nowadays older women are going back into the workforce. In Government Buildings I once had a secretary who had been forced to leave the Civil Service on the marriage bar and returned under a special scheme organised by the Department of Finance and public service in her late 50s. I can accept, without any difficulty, the fact that the Minister had other very good priorities.
In regard to the point raised by Senator Phelan, when responding to an identical proposal made in the other House the argument that the commitment to those families should be equated with increases in the home carer's credit is flawed. Significant improvements in take-home pay have resulted from the budgetary measures being provided for in the Finance Bill. Finite resources mean choices must be made. The spokesperson in the other House would claim I am spending too much money. How he is going to square that with his prospective Labour Party partners over the weekend will be interesting. The choices made in the budget were designed to take minimum wage earners out of the tax net completely this year.
As regards the question of putting a complete individualisation structure in place, one has to consider that in the context of the priorities at any given time. The cost of doing it would be in the region of €720 million which is a significant amount of money, quite apart from anything else one would want to do in terms of widening the bands or whatever.
Is the Minister committed to it in principle?
I am not committed in principle to completing the individualisation process. I will consider year on year whether and how I progress it, given the priorities at the time. One thing I have learned from the experience is that it was right to move towards this with caution and to recognise there are societal attitudes and situations that have to be taken on board while at the same time ensuring we facilitate participation in the workforce to the maximum extent possible. We have also to take into account the societal reality that people want to see in the tax system. Some people's choices are deemed by some to be devalued by going for a pure individualisation model. That is a strong contention that was made at the time and there was a response to it which, I think, met the requirements of the situation while not undermining the move made by the Minister in the initial phase.
Recommendation, by leave, withdrawn.
I move recommendation No. 3:
In page 9, before section 1, to insert the following new section:
"1.—The Principal Act is amended by the insertion of the following new section 15A:
‘15A.—(1) In any year of assessment where monies are paid to any state or other body in respect of which the individual making such payments would be entitled to a tax credit or an allowance for income tax the Minister for Finance may direct that such state or other body shall make a return of such payments made by such persons in such format and shall be determined by regulations as shall be made by the Minister for Finance to enable a tax credit or deduction to be made or allowed.
(2) In respect of any such information provided to the Offices of the Revenue Commissioners no liability shall attach to the Office of the Revenue Commissioners or otherwise for failing to provide such tax credit or allowance to the person who made the payment.'."
This recommendation is designed to open up areas where a form of refund at source of tax allowable expenditure could be extended. A number of tax reliefs are refunded from source, for example, mortgage interest relief. Some of the reliefs are not taken up to any great extent, the most significant being the relief available on bin charges. More than 1 million people pay bin charges nationally, yet the take up on the relief is less than 200,000. Approximately three quarters of those who pay bin charges do not avail of the relief. There may be reasons for that but certainly there is a significant shortfall in numbers. The intention of this recommendation is that the refund at source practice be extended to reliefs other than those to which it already applies. Perhaps the Minister has a view on whether this can be adopted at some time in the future and if the Government intends to extend this initiative to other areas. I look forward to his response.
The Senator is proposing that where moneys are paid to State agencies that would subsequently qualify for tax relief, the Minister would make regulations that would require such State bodies to make returns of all such payments. The purpose of the return appears to be to facilitate the Revenue Commissioners in granting the appropriate relief to the taxpayer.
Regarding an amendment on the same point in the Dáil, the Senator's colleague, Deputy Bruton, referred to the possibility of granting relief in some instances by way of tax relief at source under the TRS system. The return proposed by the Senator would considerably increase and complicate the burden of administration on the PAYE system. It would also involve State agencies in determining whether clients qualify for tax relief, which is a function proper for the Revenue to determine. To involve State agencies in this area would have the likely effect of significant numbers of claimants being given relief in error which would subsequently have to be withdrawn. Checking the validity of claims would also increase the administrative burden on Revenue.
I would point out that Revenue is currently developing a self-service facility for taxpayers, particularly those dealt with under the PAYE scheme, which will greatly enhance their ability to make claims for relief by telephone or on-line. This will ensure that any necessary amendments can be made as soon as the individual taxpayer has identified his or her entitlement to it.
On the issue of trying to make sure that people make claims to which they are legitimately entitled, a considerable amount of work is being undertaken by Revenue to bring these matters to the attention of taxpayers. Ultimately, the responsibility for the tax return remains with the individual citizen. While every effort must be made to increase awareness, it is not possible to transfer the responsibility for submitting the tax return from the individual to the Revenue or some other agency. It is a matter for the individual to deal with but we must try to ensure that they are aware, to the greatest extent possible, of whatever reliefs to which they are entitled. The on-line system being introduced to the PAYE system will greatly facilitate that.
Revenue has greatly improved its mechanisms and customer support services in a range of areas, on which I commend it. I also noted recently that the Institute of Taxation in Ireland is also undertaking a major public awareness campaign as part of this pro bono effort to ensure citizens are aware of the six or seven most common reliefs sought and that they would have an understanding and awareness of their entitlements. This is being done through websites and documents which are being made available not only to practitioners but to the wider public through various communicative means. I welcome this initiative to promote the public good.
Various ideas have been put forward about this but the basic principles remain, namely, the responsibility of the individual for the tax return; and the availability of whatever means of communication technology are available, both by Revenue and others, such as the Institute of Taxation in Ireland and others who are prepared to try to ensure that to the greatest extent possible, people are not only aware of the general reliefs to which they should claim in all cases but also that they understand how to go proceed in the absence of them seeking the advice of accountants.
It is an interesting amendment because TRS has been one of the serious improvements in the way the tax system is administered in recent years. It would be useful if it could be extended to other areas where people frequently do not make claims.
As I understand it — the Minister can correct me if I am wrong — what currently happens is that if one takes out a mortgage with a financial institution, one is required to complete a TRS form which is then submitted to the Revenue. I assume it in turn contacts the financial institution involved and tells it that it should deduct at source and pay the tax to Revenue. I assume that is the way it works and, if so, there is no reason in principle it should not work with trade union subs, for example, or perhaps third level fees where people are paying a charge up-front which could be reduced by the amount of tax they would be likely to get back in any case.
I can envisage administrative problems but it strikes me that it is a serious improvement of real benefit to taxpayers when they do not have to pay over the full amount. Effectively, they pay it over tax free. Is any work going on in Revenue or within the Department to determine whether the system could be extended because it would be useful if that could be done?
The points they raise on this issue is that for TRS to work it requires a small number of payees related to the number of payers. In other words, if a large number of people are paying a small number of agencies, the TRS system works but it does not work as well if there are different ranges and rates of service charges among local authorities. There is not a uniform entitlement.
The Senator's point about trade union subs is one that could be examined. From memory, the Revenue is open to considering in what way the TRS system could be more widely used in the areas where it has already been rolled out successfully. As the Senator said, it works well in mortgage and health insurance but there are not many other suitable areas as far as Revenue is concerned but we will keep the extension of it under review. I understand there are not any plans for extending it but I will bring the issue of considering where TRS might be worked in other areas to the attention of the Chairman of Revenue Commissioners when I meet him again, as I do fairly regularly during the course of the year.
This is not an idea to which Revenue is closed. It is a question of finding a system that is suitable where there is a small number to whom the payment is made and a large number who are required to make the payment. That is the best way it works because there are not so many outlets to which it is being paid. The local authority system is not uniform in that respect and therefore would not work.
Is recommendation No. 3 being pressed?
No.
Recommendation, by leave, withdrawn.
I move recommendation No. 4:
In page 9, before section 1, to insert the following new section:
"1.—A person, none of whose taxable income is chargeable at the higher rate, who makes a pension contribution within the limit set out in section 779 of the Principal Act, shall be entitled to receive a tax credit contributed to the pension scheme equivalent to relief at the higher rate.".
One of the most controversial tax reliefs available concerns the area of pension provision and it tends to be one of the more inequitable examples of relief. This recommendation seeks to bring some degree of equity to those people on lower incomes who make provision for their pension into the future. By the nature of the relief, those on higher incomes who make larger contributions will get a higher relief.
In the four years I have been a Member of this House the area of pensions has been discussed on numerous occasions. Over half the working population does not appear to make any provision privately for their pensions and will be dependent on State pensions. The purpose of this recommendation is to encourage more people on lower incomes to make provision for their pensions. At the top end of the scale a person can earn up to €247,000 and get relief for pension contributions at up to 42%, which means that the taxpayer contributes €41,500 each year to that person's pension. If we compare that to the fact that many people are not making contributions or being encouraged by the system to make any contributions, it identifies an imbalance that should be addressed. Perhaps the Minister has some proposals to address that imbalance into the future.
This recommendation is concerned with contributions to occupational pension schemes by those on lower incomes. It seeks a tax credit to be contributed by the Exchequer to the individual's pension scheme equivalent to relief at the higher rate of tax of 42%. I take it this tax credit is to be instead of relief that the individual may be getting at the standard rate, assuming they are in the tax net.
A proposal similar to the one in the recommendation was made in the recently published national pensions review. The Bill provides for a once-off incentive for those lower paid with SSIAs, who are in the savings habit, to invest their SSIAs in pensions. Further work is ongoing.
The question of pension provision in the longer term is a separate one. The national pensions review produced by the Pensions Board provides a good base for the consideration the Government is giving to the overall pension situation but that consideration is a work in progress. Referring to the review, the chief of the Pensions Board stated:
Detailed analysis and costing of the pension situation are at least as important as the recommendations and should continue to be used as a frame of reference going forward. The Board understands that further decisions must be made in the context of employment interests, competitiveness and overall economic and social considerations....
The Pensions Board, therefore, acknowledges that its analysis and recommendations must be considered by the Government in a wider context. The Government has taken no position on any of the recommendations in the report at this stage, pending that continuing work.
The wider policy issues raised by the Pensions Board will require further and ongoing examination by the Government. Decisions about pensions are far-reaching, long term and go to the heart of our tax structure. I presume Senators will want the Government to complete the necessary analysis before proceeding. While this recommendation is also in the Pensions Board review, which was published before Christmas, it is the subject of continuing further analysis and consideration. I am not prepared to accept the recommendation until that work is complete.
Recommendation, by leave, withdrawn.
Recommendation No. 5 is out of order as it involves a potential charge on the Revenue. Recommendation No. 6——
A Leas-Chathaoirligh, should that not have been mentioned in the letter I received from the Cathaoirleach?
I understand the Cathaoirleach notified the Senator in writing.
He did not.
I have been notified in writing. I accept that the Cathaoirleach effectively carries out an administrative function in the House but he has ingeniously managed to rule out of order all my recommendations, including some recommendations which were permitted in the Dáil.
The Senator knows he can query those rulings with the Cathaoirleach.
I also know there is no point querying things with the Cathaoirleach.
The financial powers of the Seanad are different from those of the Dáil.
Perhaps these recommendations are being ruled out of order simply because there was so little notice but we only had 18 hours from the end of Second Stage last night. There has always been a certain flexibility with regard to recommendations on the Finance Bill because almost anything can be construed as a charge on the people or on the Exchequer. It is impossible to deal with the Finance Bill without making a charge on somebody. There must be a certain amount——
Senator, the Cathaoirleach ruled in accordance with precedent.
I understand that the Leas-Chathaoirleach cannot change the Cathaoirleach's ruling but a little common sense is required. Almost any recommendation put down for the Finance Bill can be ruled out of order; it is possible to find some way of doing it. I am disappointed the Cathaoirleach has managed, particularly in such an extraordinary fashion, to rule everything out of order.
Can I raise this issue when speaking on the section?
It is an important issue and in the letter from the Cathaoirleach I did not receive a notification that this recommendation was to be ruled out of order.
I can give the Senator some latitude when discussing the section.
Senator McDowell is correct. Every recommendation I have put down today could be construed in that way. Indeed, the Minister referred to the €63 million that would be required to pay for one of the recommendations. Of course, they place a demand on the State. That is the nature of the Finance Bill. Everything could be ruled out of order if that is the standard applied.
Not everything was ruled out of order.
All my recommendations were ruled out of order due to being a charge on the people.
I wish to raise this issue——
We must deal with the recommendation.
Recommendation No. 5 not moved.
Recommendation No. 6 has been ruled out of order as it involves a potential charge on the people.
Recommendation No. 6 not moved.
SECTION 1.
Question proposed: "That section 1 stand part of the Bill."
The issue I wish to raise has been raised on a number of occasions by different Senators. It is a commitment given by the Tánaiste, who was the then Minister for Enterprise, Trade and Employment, regarding the closure of the Comerama factory in Castlecomer, County Kilkenny, three years ago. At that time, the Minister gave a clear commitment to Members of both Houses——
That is a specific matter and it has nothing to do with section 1, as the Senator is well aware.
It has. In fact, it is covered by section 1. The Minister gave a clear commitment at the meeting that the terms of the Redundancy Payments Act 2003 would be extended to include the 169 workers who lost their jobs in Castlecomer in December 2003.
Could this not be raised on the Adjournment?
It has been raised on the Adjournment.
Senator Phelan, there are other ways of raising the issue.
It has been raised on the Adjournment on several occasions and has been raised previously on the Finance Bill. I daresay it will be raised again in the future.
I am sure it will.
I am using this opportunity to raise it again. The commitment was clearly given by the Tánaiste and she reneged on it——
I have given the Senator plenty of latitude to highlight the issue.
——despite the efforts of many elected representatives in my constituency. It was obviously a significant loss for the town of Castlecomer but this particular issue——
I have given the Senator a great deal of latitude at this stage.
The Leas-Chathaoirleach will be interested in this issue.
It has nothing to do with section 1.
The workers in Castlecomer took their redundancy in December 2003 because they were given a commitment by the Tánaiste that they would be covered by the terms of the new Bill. They could have continued in business until 1 January if they had known that they would not be covered by that Bill. They were deliberately conned by the Tánaiste in this regard and we have tried every avenue to highlight it. Senator Browne and I have raised it several times on the Adjournment, the Order of Business, the Finance Bill and with all legislation brought before the House by the Department of Enterprise, Trade and Employment. It has been brushed under the carpet each time, including by the current Minister, Deputy Martin. Perhaps the Minister is not in a position to give an answer——
I must protest. This is irrelevant to the Finance Bill and we have limited time to discuss the Bill.
I have given Senator Phelan a great deal of latitude. I must call other Senators. Does Senator McDowell wish to speak?
I will speak on the next section.
I agree with Senator John Paul Phelan. We are blue in the face raising this matter. Why was it ruled out of order? Was it because of the possible cost implications?
It was ruled out of order because it would put a charge on the Revenue. The Seanad has no function when there is a potential charge on the Revenue.
Can I take it that this amendment would have been accepted in the Dáil?
That is a matter for the other House.
It is irrelevant to the Finance Bill.
It is not.
The Senator is talking about the Redundancy Payments Acts.
With all due respect to Senator Mansergh, at meetings I have attended it was suggested that the way to rectify this wrong is through an amendment to the Finance Bill. That is what we are trying to find out today. We are aware that the Seanad has limited powers in terms of amending the Finance Bill but could this have been done on Committee Stage in the Dáil? Will the Minister give a commitment that he will examine this matter seriously and seek to rectify the wrong in the context of next year's Finance Bill? A total of 14 Oireachtas Members——
The Senator has made his point. It is not covered in this section.
——and trade unionists all say they heard this. Will the Minister take on board the points we have made today on this issue and do something in next year's Finance Bill? Who does he believe, the Tánaiste or his back bench colleagues?
Senator Browne, that is immaterial to the Bill.
It is not immaterial; it is a very relevant point.
The amendment has been ruled out of order. On Second Stage yesterday Senator Browne, untypically of him, quite unfairly asserted that my parliamentary colleagues, Deputy McGuinness and Deputy Nolan, given their membership of the Joint Committee on Finance and the Public Service, had it in their power to put down an amendment to the Finance Bill which would have been accepted by me. That is without any foundation or truth. The fact that this charge or assertion was made speaks more about the issue than, perhaps, the case itself. It clearly has a local political flavour that is being indulged by the two Fine Gael Senators.
It has local political flavour for the people who lost their jobs.
On 12 December 2002, following the announcement of the closure of the Comerama factory with the loss of over 160 jobs, the Tánaiste, together with officials of the Department of Enterprise, Trade and Employment, met with a SIPTU delegation representing the Comerama workers. From the official minutes of that meeting it appears that the main concern of the workers, many if not most of whom had already been made redundant six months previously, was that if a deal on enhanced redundancy rates under partnership was made, it should retrospectively apply to the workers concerned.
The official note of the meeting prepared by the official attending stated:
An Tánaiste said the talks were ongoing in relation to the statutory redundancy issue. She gave an undertaking that if the legislation is changed she would do everything she could to ensure that the Comerama workers would be included in any amendment. Following that meeting, legal advice was obtained from the Attorney General effectively stating that the enhanced statutory redundancy payments require legislation in order to be brought into effect, and that if the payment of a statutory redundancy lump sum is a legal requirement on employers, it could not be imposed on them with retrospective effect. Employers are entitled to due notice — usually about two months — of the intention to require them legally to pay enhanced rates. That legal position was communicated to the Comerama workers.
We regret the fact that the workers in theCastlecomer plant lost their jobs. The fact is that 154 of them had been made redundant long before the new rates of redundancy came into effect in May 2003. They received substantially more than the then statutory rate in a settlement with the company. In fact, the amounts they received were in excess of the new enhanced statutory rates. Thirteen workers made redundant by the company liquidator since May 2003 were paid the new enhanced statutory rates by the Department. However, these amounts were less than the settlements received by the 154 workers who were made redundant before the company went into liquidation and received ex gratia payments.
There are no legal provisions for making additional payments from the public purse either to the 154 workers or to those made redundant by the liquidator. The alleged precedents which have been cited as analogous cases have been examined and the conclusion is that the circumstances involved were completely different from this case. The workers in Irish Shipping and in the hospitals trust were State and quasi-State employees who, having given exemplary service over many years, were rewarded a small, extra-statutory payment by their employer, which was the State.
The workers in Castlecomer gave exemplary service as well.
Comerama workers were never employed by the State and in any event, received substantial ex gratia severance payments in settlements with the company. The meeting between the Tánaiste and some former Comerama workers took place almost six months before the coming into force of the Redundancy Payments Act 2003. In that period, approximately 12,000 other workers were made redundant throughout the economy.
It would not be possible to make special legislative provisions for any particular group of workers. If these 12,000 people were paid the new statutory redundancy rates, the difference between the old and the new rates would cost around €75 million. Everything possible was done to ensure that the workers got their full statutory redundancy entitlements. No commitment was given, nor could a commitment be given, to enhance retrospectively statutory redundancy payments. The Minister met with SIPTU officials and discussed all the issues raised, especially that of ring-fencing. It is not considered possible to facilitate the award of redundancy payments to one set of workers without extending them to many other workers before the new enhanced rates are introduced.
Senator Mansergh pointed out that there is an ongoing dispute concerning the levels of redundancy payments made to different groups in the factory. Redundancy payment issues are primarily a matter for the Minister for Enterprise, Trade and Employment. In view of some of the misrepresentations that have been ascribed to my Government and constituency colleagues, it is important to put those facts on the record.
Is section 1 agreed?
Can I have a chance to respond?
No. This matter has nothing to do with the Finance Bill 2006. Is section 1 agreed?
The Minister has spoken at length on it.
The Minister replied on the recommendation. Is section 1 agreed?
No.
He never answered the question on whether this issue could have been dealt with when the Bill was going through the Dáil.
Is the Senator surprised that I spoke at length on the issue?
I have no problem at all. That is outrageous.
Question put and agreed to.
SECTION 2.
Recommendations Nos. 7 to 9, inclusive, are related and may be discussed together.
I move recommendation No. 7:
In page 10, line 6, column (1), to delete "€32,000" and substitute "€34,000".
The Government's key priority in its programme for Government was to reduce the proportion of the workforce paying tax at the top rate to 20%. The Minister referred to this yesterday on Second Stage. Roughly 33% of the workforce currently pays tax at the top rate. Recommendations Nos. 7 to 9, inclusive, seek to reduce that number to the 20% commitment given by the Government. The current figure is €32,000, which is little more than the average industrial wage. That wage has increased significantly and the Minister outlined this yesterday in his opening speech, but it is inappropriate that such a high proportion of the workforce would continue to pay at the top rate. It certainly flies in the face of the commitment given in the programme for Government that the figure paying the top rate of tax would be reduced to one in five of the workforce. Will the Minister introduce measures in the next six months to allow that proportion to fall dramatically?
I have no doubt that Senator Mansergh will state that average wages have increased and that the Government could not have foreseen that economic circumstances would be as they are now. However, I feel that the Government could have foreseen that. Every indication was there in 2002 that economic growth would continue at a reasonable level in the future and that as a result, incomes would increase steadily. How could the Government have been so far off the mark in its commitment to ensure that only 20% of the workforce paid tax at the top rate?
Forgive me for commenting that these recommendations are obviously out of order, notwithstanding that amendments of this kind have always been allowed in this House. Senator Mansergh is right in that all we can expect to achieve in this House is to have a reasonable debate about issues during the course of the two and a half hours available to us. None of us is naive enough to think the Minister will change the contents of the Finance Bill 2006 at this stage.
I just want to get a sense of where we are going on the issue of the standard rate band. It is stated Government policy to reduce the number of people paying at a marginal rate of 42% to 20% and this has been repeated in social partnership agreements. I have never been concerned about the marginal rate, as the percentage of people's income that is paid in tax is much more important. However, it is stated Government policy and as the Minister knows, the trend has been that more people are paying at the marginal rate every year. Is he committed to reducing the proportion to 20%? What timescale does he envisage for this? Is it a matter of basic principle or is it a matter of urgency?
The other issue that arises in the context of the standard rate band is the issue of individualisation. The Minister was extraordinarily careful in his last summing up. I hope I do not paraphrase him incorrectly, but I think he said that he is not committed in principle to doing it, but would review it at each budget. That is close to accepting that he does not regard individualisation as a principle, but is simply a matter of pragmatic consideration from time to time. Is he committed to arriving at a situation where individual bands exist for the standard rate? I appreciate that he will not do it next year, but if he remains in his position in a couple of years' time, would he see this as something to achieve?
The Minister for Finance would not be doing his duty if he did not maintain the maximum flexibility for the future, including any unforeseen circumstances that might arise. I applaud him for not making commitments that would tie him down unduly. There is the old chestnut of indexing bands. It is far better that the Minister for Finance increase bands by more than the rate of inflation some years, as on this occasion, and less at other times when circumstances demand it. I do not believe that a Minister for Finance from any of the parties opposite would act or react any differently were they in Government.
The 20% target that Senator Phelan has emphasised dates from 1997 rather than 2002, but it too is a question of priorities. Great improvements have been made in the tax system and the level of take-home pay. We have moved from the situation where people sometimes went onto the higher rate when earning slightly less than the average industrial wage. This may be implicit in Senator McDowell's remarks. If one focused on bringing down the tax rate to 20%, one would skew the budget from an equity perspective. It depends on whether one's priority is to keep low-income people outside the tax net, ensuring that budgetary gains are enjoyed mainly by those on low or lower-middle incomes, or further up the scale.
The Senators opposite would be the first to criticise the Government if, when examining budgetary tables, they saw that percentage increases in income were larger further up the income scale. Election commitments and programme aims are important, but they should not necessarily override everything else. The Minister for Finance should act in the interests of the country and its people and not necessarily fetishise commitments made in good faith. Rigorous pragmatism is required. I entirely applaud the Minister. The 20% target is a long-term aspiration. I doubt how easily or quickly it will be reached, and to a degree I even share Senator McDowell's position, in that I am not certain that it is vitally important.
I very much take Senator Mansergh's point in this regard. I agree with maximum flexibility and seeking to implement our programme to the greatest possible extent. If any party could tell me that it was able to implement every aspect of its programme within the period that it had set itself, I would buy its members a pint. That is not a big prize, but if they took a drink, I would do so. That is not to detract from our commitments. There is a genuine effort to implement the programme on all fronts, and we are enjoying great success in doing so.
I will stick to taxation issues, since those are what we are here to discuss. An Agreed Programme for Government stated the following regarding taxation:
The parties remain committed to the achievement of the taxation objectives set out in Action Programme for the Millennium. Over the next five years our priorities with regard to personal taxation will be to achieve a position where all those on the national minimum wage are removed from the tax net; to ensure that 80% of all earners pay tax only at the standard rate; to use the potential of the tax credit system to effectively target changes and to pursue further improvements in the income tax regime if economic resources permit.
The programme further states the following, "We will keep down taxes on work in order to ensure the competitiveness of the Irish economy and to maintain full employment."
Those statements are governed by an overarching commitment in the programme for Government on the need to pursue responsible fiscal policies and maintain the public finances in a healthy condition. The Sustaining Progress social partnership agreement states the following regarding taxation, in paragraph 3.3.2:
The scope for changes in the tax system to facilitate economic growth and employment creation will continue to be considered, as will the incentives for those on low incomes to take up employment. At the same time, the need to pursue responsible fiscal policies and maintain the public finances in a healthy condition will guide all taxation policy decisions.
It continues as follows:
. . . to the extent that there is any scope for personal tax reductions, progress will continue to be made over the three budgets contained within the lifetime of this Agreement towards removing those on the minimum wage from the tax net, moving towards the target where 80% of all earners pay tax at not more than the standard rate.
Taking those specific commitments and the context of the programme for Government and the Sustaining Progress social partnership agreement into account, to some extent the 80% target has been the victim of other successes, notably exempting taxpayers altogether. From one in four of a lower number, one in three of 2 million taxpayers has been removed from the taxation net. That is a greater step towards social justice than simply considering our having 80% of people on the 20% rate paramount.
Hear, hear.
I have stated that they are set out in order of priority. If one considers the spirit of what we are trying to achieve and my predecessor's introduction of the tax credits system, which gives the same value to every taxpayer regardless of remuneration, one sees that it is much fairer, since those at the lower end of the scale gain proportionately more from the tax credits system than from the tax allowance system. That is an indisputable fact, and I am very proud that a Fianna Fáil-led Government was involved in making those fundamental changes to our tax system, which everyone has now accepted.
Many spoke about it and got the opportunity to do something about it, but in different circumstances. I will not admonish anyone but say that when responsible we proactively made those changes. If one goes back to the 1997 commitment that 80% of people would be on the standard rate, one sees that under the tax allowance system that was an easier target to achieve than under the tax credits system. There are people present with detailed knowledge of how that works out without my going into greater detail. Those are facts regarding tax administration and its impact.
The criticism in the other House was aimed at nailing me on the 80% target. I could have gone in that direction to the exclusion of other targets if it had been the paramount consideration. Had I done so, I would now have 200,000 more low-paid people paying tax who are currently outside the tax net. I stand by my choice. I had several objectives, and the Sustaining Progress agreement is the most up-to-date statement of public policy on the issue. As well as removing people on the minimum wage from the tax net, we wished to move towards the target where 80% of all earners pay tax at the 20% rate.
It is not the position of other stakeholders that I must achieve the 80% target by the time this Government's tenure has ended, should it serve its full term. There is an understanding that those issues and priorities are not mutually exclusive. Progress has been made on some, and I stand by the far more definitive statement of tax policy that those on the minimum wage should not pay tax regarding its statutory level in 2005. From Easter 2006, the minimum wage will be increased as a result of the partnership process, and I have again removed those on it from the tax net. Whether one can do so while the minimum wage continues to increase is a matter for priority and decision by the Government and the Minister for Finance at any given time. People might ask why I am not extolling it as a principle. For example, Senator McDowell stated my response to individualisation does not suggest I regard it is as a principle while the Fine Gael spokesperson stated the 20% target should be regarded as a principle. One man's principle, therefore, is another's pragmatism. In the context of the matrix involved and the impact tax changes have, particularly in the area of personal taxation, the overall thrust in my two budgets is clear.
The increase in the PAYE tax credit is another indication of how I can help thousands of workers in manufacturing industries that came to Ireland in the 1960s, 1970s and early 1980s. They are in the most exposed sector of the economy and we hope they will be a feature of our industrial landscape for as long as possible. The means by which I significantly increased the PAYE tax credit based on representations by trade union leaders and others, including my party colleagues, indicates where I stand on how low paid workers can be helped and ensures we make a contribution towards the competitiveness of their firms by exempting them from PRSI requirements by increasing the threshold to €400 per week. No specific commitments were given on those issues in the programme for Government but they were brought to my attention based on legitimate representations during the preparations of budgets, which I addressed.
I am prepared to be judged on the choices I made and future Ministers for Finance may make other choices. Members of the Opposition parties may take a different view if they take up my responsibility. That is fine because that is part of the democratic debate in which we are involved but I can stand over what I have done as a greater promoter of social justice with an emphasis on those at the lower end of the scale. In the times in which we live those in the higher and middle income groups are able to cope. They are in a much better position than previously while others, for a variety of socioeconomic reasons related to qualifications and opportunity, are not remunerated as well and do not have wider choices. One then decides to help them to a greater extent proportionately. When someone says I did not help him as much as someone on a lower income, I reply that is my choice and he can make a decision to support me afterwards. That is my choice and it is the right choice.
The ESRI stated it was the most progressive budget in years in this regard, which is precisely what I tried to achieved, and I stand over that. I can do that in better times than might have been the case for previous Administrations but I will not get into that debate. However, I can stand over the choices I made in the circumstances given the room for manoeuvre. This year's tax package is 30% higher than that for 2005. If we spent all the resources we used in the past four budgets on band widening alone, more than 200,000 fewer income earners would be outside the tax net today. As a result of what was done, more than 740,000 earners are outside the tax net, which equates to more than one third of all earners. A total of 360,000 were outside the tax net when we took up office. The number of people who do not pay tax has increased by 280,000. While that is good, it also suggests that a significant number of people are not on very high wages. We should, therefore, do whatever we can to assist them relative to those who are remunerated at a higher rate.
The assertions that the Government is not doing enough on taxation and we do not have a low tax economy do not stand up to scrutiny. More than one third of earners are outside the tax net in 2006. Assertions made about the numbers paying the marginal rate of tax have often been articulated but what matters is the tax a person pays. Since 1997 the average tax rate, i.e., tax, PRSI and levies as a proportion of income, has reduced significantly for all income earners. The average tax rate for a single average earner has reduced from 27% to approximately 15%. If that is not regarded as significant, I do not know what is.
With regard to tax bands and inflation, in budgets 2005 and 2006, I increased the bands by more than double the projected rate of inflation for those years. The bands have increased by between 10.8% and 14.3% whereas cumulative inflation for the two years is projected at 5%. In budgets 2003 and 2004, when we faced a much tighter budgetary environment, we chose to devote available resources to those on low incomes, helping us to move towards the current position where those on the minimum wage are outside the tax net completely. That move began during my predecessor's tenure, although his position has often been misrepresented. In international terms, Ireland is acknowledged as having the lowest tax rates on labour in the European Union. The more recent 2005 edition of Structures of the Taxation Systems in the EU, published by the European Commission, points this out. In addition, the most recent data available from the OECD highlights that in 2004 Ireland had the lowest tax wedge in the EU for a single person on an average wage and one of the lowest in the OECD. A low tax wedge makes it easier for employers to take on new employees. Our unemployment rate is half the European average and Members will be aware of the difficulties across the channel this week. They are no coincidence in terms of how the taxation system impinges on employability and the ability of employers to take on more workers.
The principal factor has been the significant increase for earners taken out of standard rate taxation and exempted from income tax altogether. Progress has been made in the other areas, although perhaps not as much as I would like, but one cannot do everything. It is important to send the right message.
The Minister has missed the point. I complimented him in the House on the evening of the budget and his efforts to remove those on the minimum wage from the tax net should be applauded. When he made a similar change in this regard in the previous budget, my colleagues and I pointed out it would only take effect for a number of months until the national minimum wage was increased but he rectified that in this year's budget, for which he deserves credit.
His argument make no sense. The Government entered into a commitment that it would remove those on the minimum wage from the tax net and it also made a commitment that only 20% of earners would pay tax at the top rate. At a time of unparalleled revenue buoyancy with billions of euro generated in tax surpluses every year, a choice did not have to be made to meet both commitments as the money was available. I appreciate 20% is an arbitrary percentage but approximately 33% of earners are still paying tax at the top rate and the Government is not moving nearer to honouring its commitment. This is not a zero sum game. The Minister was not faced with removing those on the lowest rung of the income ladder from the tax net or delivering on the commitment to reduce the number paying tax at the top rate. Given the additional billions of euro generated annually in tax revenues, both objectives could have been realised but the Government decided its priorities lay elsewhere, which meant increases in public expenditure across a range of Departments. Along with colleagues I sought this for Departments where increases in expenditure were necessary. However, there are many Departments where increases are unnecessary and where good money is thrown after bad on a daily basis.
I applaud the efforts of the Minister to remove those on lower incomes from the tax net. Everybody agrees that is the most effective way of improving their lot. The notion that it was an either-or situation does not stand up when one realises the pot of money available to the Minister continues to grow exponentially each year and the Minister has real options with regard to addressing a number of issues. He is in an enviable position because he has resources at his disposal available to none of his predecessors. The Minister has made some positive moves with regard to lower income earners. However, I do not accept his argument that it was a case of either-or. Both objectives could have been realised.
I do not expect the Minister to say he will proceed as I have suggested and that tomorrow he will succeed in having 20% of the workforce paying tax at the top rate. However, I would like some indication that we will move towards that commitment.
I thought at first that Senator John Paul Phelan was making the argument that a commitment should take precedence over equity.
That is not what I was saying.
I accept that. What he was saying was that the Minister did not have to make choices. That completely ignores the macro-economic context. The Minister has increased expenditure in the Revised Book of Estimates to the order of approximately 13%, and tax concessions of €900 million were provided. If we put more than a certain amount into the economy, we run a significantly higher risk of causing inflation. Also, a substantial move of 20% would cost several hundred million euro or more.
While there are many demands on the economy, a certain amount of prudence is required. There is much criticism, including from the Fine Gael Party, that the economy is being run unduly in accordance with electoral cycles. Senator John Paul Phelan urges us to accentuate that.
Not at all.
That is the effect it would have. If we put too much money into the economy we find that a year or two later we must cut back. We want steady progress rather than jerky, stop-go policies, particularly of the kind related to elections.
Many economists, having regard to economic cycles, argue that the Government should be running more of a surplus than it runs currently. Senator John Paul Phelan's argument ignores the macro-economic context of running an economy properly and prudently. Therefore, the case has not been made.
The Minister has set out his priorities in an interesting way and I have no quibble with them. Can we take it that the commitment to reduce the higher rate of tax from 42% to 40% is also not a priority?
I invite the Minister to go a little further in terms of the PAYE tax credit. In principle I do not have a difficulty with this, but there is a problem, as the Minister knows, with regard to those who do not pay PAYE tax, principally people who live on pension income who do not get the increase in tax credit when it is focused largely on the PAYE tax credit. I appreciate we can get around this difficulty to some extent through exemption limits, and this has been the approach. However, this leads to a difficulty when people earn just above the exemption limit. While I do not have a problem in principle with increasing the PAYE tax credit, there is an inherent problem for people on pension income who do not get the benefit of that credit. We should not lose sight of that.
I wish to make a further point. It was not a case of either-or. We more than doubled the tax band to improve the lot of people within the tax net as well as making the decision to exempt those on the minimum wage outside the tax net. We did not just decide to improve the lot of one section of the community to the exclusion of others. We did, however, crystallise the particular commitment I have outlined from the programme for Government and the social partnership agreement as indicating a priority direction I felt needed to be completed, based on the promise my predecessor had made on making up to 90% of the minimum wage exempt from tax. He did considerable work in terms of tax reform during his highly successful tenure of office.
On the argument of the tyranny of the percentages, it should be borne in mind that in looking at the percentage of cases paying tax at the higher rate, it is more appropriate to talk in terms of income earners rather than taxpayers. In that regard we are talking not only about those who pay tax in a given year but also those who are exempt from taxation. The alternative approach, which considers only those who pay tax in the year, fails to take account of progress made in removing those on lower incomes from the tax net. Also, as I said earlier, under a tax credit system, the more people who are exempted from tax, the higher the percentage of taxpayers in the top rate, even if there is no increase in numbers.
We should look at it in that respect and apply the commitment. If we take more people out of the tax net, by definition the percentages paid by those in the tax net increases, even though the volume of taxpayers has not increased. This illustrates how we can sometimes slip into a rather superficial argument and not see the wood from the trees.
Considerable progress was made in the years 2000 to 2002 in reducing the percentage of income earners paying tax at the higher rate. By 2002, a position was reached where fewer than 27% of income earners paid tax at the higher rate. After budget 2005 that figure has risen to a projected 33.2% who will pay a higher rate of tax this year. However, with rebasing of the Revenue Commissioners' cost model, that has decreased slightly to 32.85%. With incomes forecast to grow in 2006, the position is that if there is no change to the value of the standard rate band, 36.3% of income earners are likely to pay the higher rate of tax this year. The changes we have made have taken more than 3% out of the higher band into the standard band.
These are the facts of the matter. Income growth must also be taken into account. We have a tax system which rewards people who work and incentivises them to earn more without being hammered on the tax end. Making the decision on the widening of bands which brought everyone on the average industrial wage onto the 20% band rather than people on the marginal rate having to pay tax was another priority or benchmark which helped govern the shape of the budget in terms of personal taxation. This was another example of how we tried to ensure that people on the average industrial wage should pay the 20% rate and was an intermediate posting towards the greater objective of getting 80% eventually paying tax at the 20% rate.
What we will do in the third of the three budgets for which I have responsibility during the tenure of this Administration is a matter on which I will decide closer to the time, based on the returns and what the priorities of Government are deemed to be. We are a collective authority and there are pressing needs for continued investment in public services, not simply in resource terms but also in terms of reforms and service delivery models that are better than what we have achieved thus far. That requires the agreement of social partners and stakeholders.
Indeed, it is a test of the quality of our social partnership to be able to move beyond the commitments about reform of the delivery of public services to actual implementation and instigation on a sustained basis. It is an enormous challenge which has yielded many benefits to date. It has brought moderate wage increases, an ability to create room for manoeuvre for tax reform, increased employment and a sustainable basis for prosperity and social inclusion. We need to ensure that the social partnership model can deliver real reforms in public service delivery and an ability to be open about it.
I am concerned by some of the discussions I hear and some of the points raised because of difficulties that have arisen in recent months, which have prompted an understandable reaction but one from which we must move on. We need to be open about the role that the public and private sectors can play in delivering better services for our citizens. Everyone, whether trade union members, workers, company directors, self-employed people, professionals, trades people or whatever, uses our services and we need to provide a better quality of delivery than we have at present. It is a collaborative, co-operative process on which we all need to deliver.
There is too little preparedness to take on professional bodies and professionals in this country and too often emotional blackmail is utilised, as I saw when I was Minister for Health and Children, in an effort to obfuscate the issues, with people continuing to advocate the status quo plus rather than real change in terms of work organisation, methods and practices to deliver the quality of service people are entitled to expect. This is especially the case given the level of resources that they as taxpayers and we, as a Government, are willing to provide for the provision of such services. Regardless of who is in Government or Opposition in the next few years, that reality will not change.
We need to establish real methods of change in terms of public service delivery. That is a fundamental requirement if social partnership is to be deepened and widened in our society and I say that as a committed proponent and supporter. I hope it can be achieved, despite the background difficulties before negotiations began on a proposed new agreement. It is to be hoped that progress can be made in the coming weeks.
With regard to the specific point, it is not a question of either-or. This is a work in progress in terms of the commitments we have made but there is an overarching context. Decisions on improving the delivery of public services, providing further tax reform or greater tax equity will have to be made on the basis of maintaining a responsible budgetary position. The fact that newspapers and media outlets throughout Europe are looking to the Irish model as being one which should be followed or considered by other countries which are far more powerful and resource-rich than we are, indicates that we are on the right track, although not every problem is solved, not everything is right and there are deficits which we have identified.
One can talk about €700 million or €800 million that could have been put back into the economy and the pockets of taxpayers but, as Senator Mansergh pointed out, that would have a consequent impact on inflation. The potential inflationary impact of increased spending on the economy is a consideration that must be borne in mind by all Ministers for Finance.
We have given significant priority to our infrastructural deficits. Our Transport 21 ten-year plan was dismissed as having no real prospect of success. Ambitious it may be, but it is costed and a lot of work went into its preparation——
They are guide prices.
I hope we can proceed with its implementation.
We cannot have it every way. People may say we are not spending enough money in certain areas but fiscal policy involves a taxation policy and an expenditure policy and we are committed to a balanced overall budgetary position. Such a position gives us sufficient room for manoeuvre, as we had in 2001 and 2002. People had been saying that we should not have been building up surpluses but when the international recession came, the cushion of those surpluses allowed us to get through that difficulty successfully. Any comparison one makes with any other European Union country will confirm that. I now have five or six colleagues within the euro area alone who are in breach of their Stability and Growth Pact 3% deficit commitments.
We have sufficient room to manoeuvre in the event of imponderables happening. They exist, even as I am aware of the arguments in the NCB report. It describes an idyll and suggests that all will be well, regardless. There are imponderables related to exchange rates with the dollar and sterling and a range of other areas for which I do not have the answers. I am also sure that the benign international environment painted in that report is at the most optimistic end of the scale. The more measured ESRI report gives three options of what growth rates will be which is perhaps a more realistic assessment.
This economy does not run on automatic. Many long-term decisions are being taken by this Administration, rather than being sucked into exclusively electoral considerations, although if they are honest, all Governments will admit to giving some cognisance to electoral considerations. The National Pensions Reserve Fund, the Transport 21 plan, which is a ten-year outline for capital expenditure, the strategic innovation fund for the university system and the child care programme, which involves a significant investment of €2.5 billion over the next five years, are all indications of attempts by the Government to meet immediate priorities and address long-term structural issues.
There will be other such issues, particularly care of the elderly, given our changing demographic profile, social changes, and shifts in parental and family support systems. Traditional solutions will not necessarily suffice in the future in terms of care of the elderly. The home setting may not always be the most appropriate option. We are all aware that the situation is fluid and has very serious implications for the Exchequer.
It is necessary to take all of these issues into account, as well as the fact that we are connected to the world and there are many imponderables, which is important given our exposure as an open economy. While we have enjoyed a good position in recent years, we cannot simply fritter and throw money like confetti to appease every demand that is cogently made from the narrow parameters in which it is promulgated. We must look at the whole picture. We are working towards specific objectives. Some we have already achieved, others we are continuing to work towards.
Next year's budget will give a final picture for the purposes of the remainder of the term of this Administration. Regardless of whether we meet specific commitments, even if people do not want to put them into the overarching context in which they are put, both in the programme for Government and in the Sustaining Progress agreement, the record of the last two Administrations is one of very solid achievement.
Is the recommendation being pressed?
No.
Recommendation, by leave, withdrawn.
Recommendations Nos. 8 and 9 not moved.
Section 2 agreed to.
Section 3 agreed to.
NEW SECTIONS.
Recommendations Nos. 10 and 11 have been ruled out of order as they are merely declaratory.
Recommendations Nos. 10 and 11 not moved.
Section 4 agreed to.
Section 5 agreed to.
SECTION 6.
Question proposed: "That section 6 stand part of the Bill."
We were commenting earlier on the ingenious nature through which the Cathaoirleach has ruled all my recommendations out of order. I do not propose to spend any more time on it.
There are reasons they have been ruled out of order.
What is the total number of taxpayers claiming tax relief on trade union subscriptions?
It is good and increasing. I gave them on Committee Stage in the Dáil but cannot give them today as I do not have the exact figures. If I recall, it was a couple of hundred thousand people. The details can be forwarded to the Senator. Again this year, I have increased the relief.
Question put and agreed to.
Sections 7 to 10, inclusive, agreed to.
SECTION 11.
Question proposed: "That section 11 stand part of the Bill."
If one is claiming relief for interest on borrowings, one must be registered under the residential tenancies legislation. Assuming a taxpayer makes a claim on his or her annual return, is there a cross-check by the Revenue to see if the individual is registered with the Private Residential Tenancies Board?
My understanding is that it is back-registered. Under the legislation, an individual making such a claim will be required to provide confirmation of his or her registration with the tenancies board.
Do the Revenue Commissioners cross-check the presented certification?
It will be the obligation of the taxpayer to register with the Private Residential Tenancies Board, which will confirm the registration in writing. That is then be produced to the Revenue Commissioners.
Question put and agreed to.
Sections 12 and 13 agreed to.
NEW SECTIONS.
I move recommendation No. 12:
In page 19, before section 14, to insert the following new section:
"14.—The Principal Act is amended in section 462—
(a) in subsection (1), by the deletion of paragraph (b), and
(b) in subsection (2), by inserting the words ‘unless in the latter case, one or other does not have a taxable income’ after the word ‘wife’ at the end of the subsection.”.
The effect of Senator John Paul Phelan's proposal would be to broaden the focus of the one-parent family tax credit to apply not only to lone parents but also to cohabiting couples with dependent children where there is only one earner. The Senator wants the tax code to recognise the circumstances of couples in cohabiting arrangements.
The purpose, however, of the one-parent family tax credit is to target relief at lone and widowed parents raising children on their own. If support of the tax system were to be provided to cohabiting couples, it would not be appropriate to seek to do so by broadening the provisions of the one parent family tax credit. Where a couple cohabits, each partner is taxed as a single person and each is entitled to the tax credits at the standard rate band appropriate to single persons.
On Committee Stage in the Dáil, I indicated that the issue raised by the Senator is wider than the tax code and extends into the area of social policy. The working group which examined the treatment of married and cohabiting couples and one-parent families under the tax and social welfare codes reported in August 1999. It was sympathetic in principle to changes in the tax legislation to address the issues raised relating to cohabiting couples. It recommended the options it set out should be further considered.
However, it also acknowledged that a key issue is whether tax law should proceed ahead of changes to general law. Various developments have been made in the area. A consultation paper on the rights and duties of cohabitees was published by the Law Reform Commission in April 2004. The tenth progress report of the Oireachtas All-Party Committee on the Constitution, entitled The Family, was recently published. The Minister for Justice, Equality and Law Reform recently announced his plans to establish a working group to examine the area of civil partnerships and to prepare options on the various legislative choices available to the Government. Ultimately, decisions will be taken by the Government on the matter.
Child benefit is the main instrument through which support is provided to parents in respect of qualifying children. This is available to parents who are either single, cohabiting or married. The Government has substantially increased child benefit since coming into office. Overall expenditure has increased by over 300%, from €500 million in 1997 to €2,044 million in 2006.
The Government has initiated a five-year strategy to address child care, involving measures to increase the supply of child care places. These include increases in statutory paid maternity leave, the payment of a tax free early child care supplement from €1,000 per annum to parents with children under six years of age, and an income tax exemption for childminding, provided it is carried out in the minder's home and the income does not exceed €10,000 per annum.
I view as problematic and unwise a situation where changes in the tax code relating to the treatment of couples would set a headline in advance of developments in other relevant areas of public policy, for example in the legal recognition of relationships other than married relationships.
Under the circumstances, I am not prepared to accept the Senator's recommendation. No data on the circumstances of cohabiting couples are readily available. Such data would facilitate an accurate estimation of the cost of extending the one-parent family tax credit to cohabiting couples, if I was minded to do so. It is assumed that approximately 25,000 couples may be in a position to qualify for the proposed credit. The cost would be approximately €40 million per annum. The figure is based on the assumption that approximately one third of the estimated number of couples who are cohabiting would be eligible to benefit. It is, however, a rough estimate for indicative purposes only.
Recommendation, by leave, withdrawn.
I move recommendation No. 13:
In page 19, before section 14, to insert the following new section:
"14.—The Principal Act is amended in section 469—
(a) in subsection (1), in the definition of ‘health care’, by deleting the words ‘but does not respect of include routine ophthalmic treatment or routine dental treatment’, and
(b) in subsection (2), by the deletion of that subsection and substitution with the following:
‘(2) Subject to this section, where an individual for a year of assessment proves that, in the year of assessment, he or she defrayed health expenses incurred for the provision of health care for any qualified person, the individual shall be entitled, for the purpose of ascertaining the amount of the income on which he or she is to be charged to income tax, to have a deduction of the amount made from his or her total income.'.".
This recommendation seeks to extend the reliefs available for medical expenses to include routine dental and ophthalmic treatment. In recent years, these treatments have become expensive. While specific repair work of a dental and ophthalmic nature is covered by the relief, routine treatment is not. What would be the cost to the Exchequer if the scheme was extended?
I support the recommendation as one who is old enough to remember campaigning for the extension of ophthalmic and dental benefits to the wives of insured workers. It is often underestimated how important this area is in preventive medicine. Whatever it would cost the Exchequer, it would be nothing compared to how it would benefit the citizens in preventive treatment.
The recommendation relates to section 469 of the Taxes Consolidation Act 1997 which provides tax relief for certain un-reimbursed medical expenses. The relief is granted in respect of qualifying expenses which exceed €125 in a year incurred by one qualifying individual and in respect of such expenses in excess of €250 in a year incurred by more than one qualifying individual. The effect of the recommendation would be to remove the minium amounts to be incurred and also to extend the relief to expenses in respect of routine dental and ophthalmic treatment.
This particular relief has been available since 1967 and has always been intended to provide relief where medical expenditure was significant. It was never envisaged that all outlay, irrespective of the type of treatment, should be covered. In this regard, I should point out that had the minimalist amount of €50 for qualifying expenditure, which was put in place at the inception of the relief in 1967, risen in line with increases in the consumer price index it would amount to approximately €900 in today's values. That would suggest that anything above €900 should be paid for by oneself. As I have said, the actual amounts are €125 for a single person and €250 for married or two qualifying individuals.
Following consideration of a similar proposal in the other House, I understand that the recommendation is aimed at making it easier for taxpayers to claim tax refunds to which they are entitled. While I support that aim, I do not accept that extending the scope of the relief in the manner suggested would necessarily achieve the objective. While certain exclusions apply, as at present, or if all medical expenditure as proposed were covered, it would hardly be a factor in whether a taxpayer makes a claim for the relief. The claim forms, MED 1 for medical expenses and MED 2 for non-routine dental claims, are straightforward and fully explained so their completion should not present difficulties. Indeed, they are the claim forms most frequently requested by taxpayers.
It is estimated that to give effect to both aspects of the Senator's recommendation would cost in the region of €90 million in a full year. Approximately €50 million of this relates to the proposed removal of the minimum threshold for a claim to qualify for relief, while the remaining €40 million relates to the inclusion of routine ophthalmic or dental treatment.
The de minimis thresholds are intended to exclude a certain amount of expenditure from relief, given that the relief is intended to assist significant outlay only. In all the circumstances, therefore, I am not in a position to accept the recommendation.
Is the recommendation being pressed?
Yes.
Question, "That the new section be there inserted", put and declared lost.
SECTION 14.
Amendments Nos. 14 and 15 are out of order as they involve a potential charge on the Revenue.
Recommendations Nos. 14 and 15 not moved.
Recommendation No. 16 is out of order as it is merely declaratory in nature. That means it does not extend or amend existing law and its sole purpose is to elicit information, which could be obtained by other means such as tabling a motion on the Adjournment or making a freedom of information request. The same applies to recommendations Nos. 10 and 11.
Recommendation No. 16 not moved.
Question proposed: "That section 14 stand part of the Bill."
While I do not wish to argue about it, I must say that I am somewhat frustrated. The amendments I proposed sought to restrict the amount of tax relief available to a small number of people who have large pension funds by reducing the amount of the standard pension that would be available as part of an ARF. The amendments I proposed sought specifically to reduce the €5 million threshold to €2 million and the once-off, tax-free lump sum payment from €1.25 million to €500,000. It is beyond me how such proposals could become a charge on the people. Let us not go there, however. I will argue their merits, if I may, in the context of the section.
The review of the pension provisions was carried out internally within the Department. It is a fine section which is well set out and the job was well done within the Department. Its findings, however, were pretty scandalous.
When we changed the pension provisions five or six years ago, some concern was expressed that there could be abuse of this kind but none of us imagined that it could be quite as systematic as it has proven to be. The Department found in its review that of the approximately 1,000 ARFs in existence, there was little movement within the vast bulk of them. Rather than providing a more flexible way of organising a stream of income, most of them have simply become a fund into which money is stashed tax free and allowed to accumulate value tax free, no doubt with the intention sooner or later of being passed on by way of inheritance, which is also tax free. That is the way in which these ARFs have been used. The Minister has, quite rightly, moved to ensure they will in future be used for their intended purpose, namely, to provide a stream of income or a pension. That, after all, was the reason for the provision. In that context, I find it surprising that the Minister has opted for such high limits.
Elsewhere in the section an indicator is given of a multiplier of 20 as being the relationship of the annuity that would have been provided by a certain sum. Working on that rough basis, a fund of €5 million would allow for an annual stream of income — a pension or an annuity — of approximately €200,000. That strikes me as being pretty extraordinary. I do not see why the State should seek to revise the measure of quite generous valuable tax incentives it already gives, in order to provide such high pensions. People who can afford six-figure pension streams per annum can well afford to do so without the benefit of tax relief, at least on the marginal amount. Therefore, I do not think that a figure of €5 million, or anything remotely close to it, is justified.
The same argument applies pro rata to the lump sum. If people can afford to take out a lump sum payment of €1.25 million when they retire, should we really seek to give them tax relief to that extent? I have no problem with people getting a generous lump sum when they retire but a figure of €1.25 million is far too high.
I read the Department's report in detail and I know the motivation for the notional distribution figure of 3% but I wonder if it is high enough to produce the desired result. I know that figure will be phased in over a period of three years but it seems to me that people are using funds to acquire and assimilate assets, rather than to provide themselves with a pension. I am not sure that they will be diverted from that intent by a notional distribution of just 3%. Perhaps it will have the effect the Minister expects or hopes for but I am not sure that distribution figure is sufficiently high to produce that effect. I would like to hear the Minister's comments in that regard.
I wanted to support the amendments tabled by Senator McDowell.
They have been ruled out of order.
I understand that. As regards the section, I wish to compliment the Minister on the measures he has taken to try to eliminate in some small way the abuse of tax relief incentives for pensions. That is one of the abuses that has been used by wealthy people. Neither the current Minister nor any of his predecessors intended this type of tax relief to be used for that purpose. Tax incentives for pensions encourage people to pay into their pension funds, which is admirable. So many debates have taken place both here and in the other House about how we can provide for future pensions. What we have done to date, however, has not done anything to increase the number of people who have their own occupational schemes. Rather, the tax incentives have been abused by wealthy people to put money by for themselves.
I recognise that the Minister has reduced to €1.25 million the maximum tax-free lump sum for draw-downs from a pension fund made on or after 7 December 2005 but that is still an outrageous figure. I would have supported Senator McDowell's suggestion in that regard. Having a cap of €5 million on a pension fund for tax purposes is also far too high. Who are we trying to encourage or incentivise? We should be trying to incentivise the ordinary worker to provide for his or her pension. The money that could be saved in tax relief would be better spent on those people who are on State pensions. Can the Minister inform the House how much tax relief on pensions cost the State in 2004 or 2005? At least one individual drew down approximately €25 million as a tax-free lump sum. I am glad the Minister put a stop to it, but what did it cost in either 2004 or 2005?
We were unable to obtain from the Minister's Department the information about this individual, we got it from the Indecon report and that is not good enough. A parliamentary question was asked by a Member of the other House — we are unable to do so — regarding the largest amount any individual drew down as a lump sum. However, the Minister was unable to provide the figure.
In his next budget the Minister should reduce the amount that can be drawn down as a tax-free lump sum. It should be at least half of what is provided for at present. We will see greater savings in 2006 now that wealthy people can no longer avail of this tax incentive. It will be interesting to see the amount of savings made at the end of 2006. What is the value of allowing people to take out a tax-free lump sum? We know what it is in monetary terms to the wealthy. Financially, it is extremely worthwhile, which is the reason people used it. There was nothing illegal about what they did but it was an abuse.
We must consider the ordinary middle-income worker. We want to ensure he or she will have an adequate pension on retirement. I appreciate that the Minister must obtain information but it is difficult——
I want to have answers for the Senator on the issues she raises.
It is difficult to make a point when I know the Minister cannot listen with both ears.
I apologise.
We want to ensure ordinary workers will have adequate pensions when they retire. Will the Minister outline his views on allowing those workers to withdraw 25% of the funds into which they paid during their working lives tax free on retirement, thereby reducing their funds by 25%? Does it serve the workers well?
We are concerned about the low incomes people will have to live on when they retire. One way to increase the pension is by doing away with the drawdown of the 25% lump sum, thereby keeping the pension fund at 100%. It will ensure people have a larger pension on a weekly basis. While this may not be popular, most people use their lump sum to put new windows on the house, pay for a son or daughter's wedding or take a nice holiday. That is welcome, but it is not what a pension is supposed to do. A pension is supposed to look after a person in old age. Will the Minister comment on whether we should examine this issue? I advocate that we do so.
We will have further debates on pensions in the House. Unless we can ensure that we can provide protection for pension schemes, fewer people will pay into them because far too many people have found the pension fund they paid into over the years was worth little when they came to retirement. If we want to provide incentives we must consider how we will protect such schemes.
I must declare an interest as I have a small self-administered pension. The change made by the Minister is interesting and I welcome it. As was stated, this area has been subject to exploitation. I will not use the word "abuse" because Opposition spokespersons fail to remember that apart from the 25% tax-free lump sum provision, the rest of pension is a deferral of tax because tax is paid as money is drawn down from the pension fund. It is not paid when it goes in.
Some comments made regarding the maximum figure of €5 million were wide of the mark. Most people who have self-administered pensions retire at 60 or have provision within the pension to do so. I checked this with people dealing with pension funds. The annuity rate is approximately 2% to 2.5%. Putting €5 million into annuities means paying €100,000 per year. For senior company executives on €200,000, €300,000 or €400,000 per year that is not an overly significant amount.
Those of us in these Houses and those who work in the public service are fortunate because we have pension facilities and remuneration which cannot be bought in the private sector. For example, the purchase of a pension fund with €5 million would yield only a modest pension and would not be the equivalent of the kind of pensions available to those in the public service, which are index-linked. That must be borne in mind. The public sector has made an enormous contribution towards creating the policy climate which contributed to economic growth. It must also be stated that many in the private sector worked extremely hard, invested money, took risks and undoubtedly also made a significant contribution.
I do not agree that the figure should be further reduced nor that the 3% should be increased because that is the type of return obtained on the annuities market. On the question of abolishing the 25% lump sum as suggested by Senator Terry, we must remember that most employers have moved from defined benefit schemes to defined contribution schemes. That is the pot of money which will be there not just for executive workers but also for industrial blue collar workers. It is an incentive for people to participate. Less than 50% of our working population is in pension schemes. It is necessary to keep it attractive to increase that percentage. With demographic changes, it will become a significant problem in the future. I suggest we maintain the figures.
As it is probably too late to make changes at this stage, next year the Minister should examine the 3% distribution from the ARF applying from year one. The lump sum drawn down could maintain the person for a number of years. Reference has also been made to those who may have planned to retire at age 60, but because of the economic situation or their good health, they will continue to work until age 65. An argument could be made for a deferral period before distribution from the ARF would be triggered, such as a certain number of years or reaching age 65 rather than 60.
Tremendous improvements to pension funds have been made in the past decade. To some extent what happened in the United States, where people accumulated a considerable amount of wealth, may have influenced our course of action. My aspiration is that people in Ireland continue to accumulate wealth and that our children and grandchildren will have a better quality of life and far more assets than we do. That is how the country is progressing and we should facilitate it through the policy decisions we make.
I agree with the remarks made by my colleague, Senator Jim Walsh. It may be puritanical to state that the 25% lump sum may not be withdrawn. People are entitled to a little financial flexibility and to make choices when they retire. A good point was made on the difference between public and private sector pensions, which counters the argument that the figures are too high. The Minister deserves to be complimented on introducing the limits because the accumulation of vast crocks of gold has come to our attention. That is fine but does not need State support. The limit of €5 million is generous and I would not contemplate increasing it soon. It is not wise to change such figures every year. There must be a degree of predictability so that people can plan. Now that this decision has been taken it should be left as it is for some time.
Prior to the budget, funds were being built up on a fully tax allowable basis and were capable of being distributed tax free or of attracting a long-term tax deferral. Now, however, there is a limit on the size of the fund which can be built up and on the size of the retirement lump sum which can be taken tax free, and there is no longer an option to use ARF structures for long-term tax deferrals. The new fund limit must be seen in this light.
Arriving at such a figure is a matter of judgment; some will think it fine, others that it is either too generous or too restrictive. One must consider that the return on annuity yields is running at approximately 3% or 4%. That is taxable in the hands of the pensioner at his or her marginal rate. The 3% enforced distribution per annum from the ARF corresponds to this annuity figure.
Given increased longevity rates a pension fund of €5 million less a lump sum of €1.25 million, or one quarter of €5 million, would give a male retiring at age 60 an annual pension of approximately €110,000 for life, which is significantly less than Senator McDowell's estimate of €200,000. A male retiring at age 65 would receive an annual pension of approximately €135,000. Based on the most recent Central Statistics Office data, the average life expectancy in 2001 for a male aged 60 was 19.2 years and for a male retiring at age 65 was 15.4 years.
There is a general consensus now that life expectancy will continue to improve and the CSO assumes that by 2030, average life expectancy for a male aged 60 will be approximately 25 years. The annual pension of €110,000 is not a large amount in that respect, given that almost 87,000 persons have a gross income of over €100,000 per annum now. That is where the judgment call lay. We had to take account of the need for an adequate pension and to what extent we would assist in providing that through our pension relief system. Thereafter, if people wish to add to that fund they can do so without the support of the tax system. It is not an exact science but it is necessary to determine the level of incentive one should provide, to provide for a deferred tax payment, as Senator Jim Walsh said.
In response to Senator Terry, the ability to take 25% of the fund tax free is not new. It is a long-standing benefit and this Finance Bill is the first ever to put a cap on the tax free lump sum. It may not be a sufficiently stringent restriction for some but it is more progress than was made by any previous Administration and should be acknowledged as such. There is the question of people's entitlement to make that judgment, namely, whether they want to take out the 25%, as most do, or decide that they will live for another 25 years. That has been part of the carrot approach to encouraging people into private pension provision.
We are attending to the wider question of how to popularise the national pension review, with supplementary pension provision beyond statutory entitlement for ordinary workers. That report, which was issued before Christmas, was a work in progress and was acknowledged as such by the chief executive. The Government must take account of many considerations before deciding on the ultimate long-term policy. I advocate popularising pensions to all income groups.
The special savings investment account, SSIA, was a precursor to the general pension review for pensions policy. It provides people with €1 for €3, up to a maximum contribution of €2,000 to €2,500 by the State, for a maximum €7,500 from their SSIA proceeds to put into pension provision in order to begin a process of contribution in this area. The next logical step is to build on the benefits that people will have derived from the SSIA experience because one should seek to incentivise people, particularly those on the standard tax rate to consider this as a means of continuing a habit taken up by over 1.2 million account holders, as a result of the initiative of my predecessor, Mr. McCreevy. The Opposition regarded this as too generous but that is what informed my thinking on the sum.
These are significant changes for the better compared with the past situation. The fund limit of €5 million should be seen in the light not only of being limited but of reducing the opportunities to avoid or defer tax within the fund. Whether one could have picked a limit lower than €5 million is a matter of balance and judgment.
Increased longevity is a great bonus for those who live in the modern developed world but combined with low interest rates and modern lifestyle aspirations it gives rise to the need for the accrual of surprisingly large pension funds to provide for retirement. If a male enters a scheme for an index-linked pension, plus 50% widow cover, he will receive an annual pension of €110,000 for life on retiring at age 60. Some people might find that relatively low but that is because of the yield now available from such annuities.
I have moved to close off the real abuses of the system. I have left plenty of leeway for individuals to make a good living, provide for a good pension and be in a position to put money in to our economy throughout their retirement because the tax will paid. Even if it goes into the ARF, the notional system of assessment ensures that those who use the pension relief would make a contribution during their retirement to the economy, although they have retired from active participation in it.
People who have been hoarding this provision as a result of my decisions in these areas can and should expect to pay their share of tax on their pensions when the time comes. I will keep the situation under review so that any new abuses can be closed off should any emerge.
I thank the Minister for his response and do not wish to dispute further the figures he has produced.
Will the Minister comment on the finding in his Department's review that essentially, these approved retirement funds, the ARFs, were not being used to produce an income flow, that only 6% of all ARFs in existence had been disturbed, in terms of distributions taken from them, and that most seemed to have been in terms of the lower value funds, with the upper value funds remaining untouched? The stark conclusion of the report is that ARFs have allowed the diversion of retirement provision into simple tax-advantage savings schemes for those who do not need to produce a regular income statement or stream.
The conclusion from the Department's own review is that ARFs are not being used at all for the purpose for which they were intended. That must surely be a source of concern to us all.
The assumption was that when ARFs were initiated as a means of long-term pension provision, the annuities would begin to flow when people reached retirement age and that the tax would be paid. Using sophisticated taxation lawyers and other such individuals as we have in this country, people sought another mechanism to further defer taxation and perhaps ultimately transform it into a capital gains tax liability in terms of an inheritance tax issue on the basis that the person who built up the pension never took out the annuities, or was not in mind to take them out — and obviously did not require them, given the size of the lump sums involved and the tax-free element.
They are using the funds to buy assets which they are then enjoying. There is some restriction on that now.
The point I make is that the job of a governance mechanism at any time must be to see where the objective or foreseeable benefits are not flowing. One makes the changes necessary to stop a practice which was not envisaged when the arrangements were initially put in place. As far as its introduction was concerned, it was a bona fide provision, and once it became clear from the Revenue investigation that there was another use of ARFs, not envisaged when support was given to their introduction, we sought changes, and I am making the changes in a transparent way.
Senator Terry made a point about the lump sum figure. That figure emerged from the Revenue investigation rather than from the Indecon report. Those compiling the report made reference to it, which is when it came to our attention. Confidentiality rules apply to Revenue in terms of not being able to move beyond that. When the Revenue was compiling a list in order to see how they were operating, it came across two instances where the tax-free lump sum was of the order of €25 million. We have now brought in a limit of €1.25 million, so the Government has acted on the basis of what has emerged.
Question put and agreed to.
SECTION 15.
Recommendation No. 17 in the name of Senator John Paul Phelan is ruled out of order as it is merely declaratory in nature.
Recommendation No. 17 not moved.
Section 15 agreed to.
Section 16 agreed to.
SECTION 17.
Recommendation No. 18 in the name of Senator McDowell is ruled out of order as it involves a potential charge on the Revenue.
Recommendation No. 18 not moved.
Recommendation No. 19 in the name of Senator John Paul Phelan is ruled out of order as it is merely declaratory in nature.
Recommendation No. 19 not moved.
Question proposed: "That section 17 stand part of the Bill."
On Second Stage I spoke about the importance of the changes in the tax relief schemes which would benefit high income earners. I agree with the attempts being made by the Minister to have high income earners improve their own situation by these schemes, but he recognised in his reply last night that they will also affect philanthropy. While the universities, the National Gallery, some hospitals and other institutions have benefited from very generous contributions from high income earners, we will not be in the same position after 2007 to have similar benefits from people who earn over €250,000 annually. That would probably seem a lot of money to most of us here, but is not so to many wealthy people in the country.
We have been encouraged within the universities to look at the American model whereby funds are raised from private sources and we have been quite successful in this at home and abroad. However, this initiative will affect us. In his reply the Minister said it was essential these tax relief schemes were looked at across the board, but he also said he would look at the area of philanthropy. Before this section of the Bill comes into play in 2007, I hope the Minister will see some way in which he could remove the provisions which will seriously affect our powers of fund-raising in the universities.
I had always thought we would be able to raise a great deal of money from our alumni, perhaps €1,000 from each of them on occasion, but this has not been so. We have had to rely much more on very generous, rich people to give us money. We will be seriously affected by the Finance Bill measure, as will our next-door neighbours in the National Gallery and some hospitals too. I hope that before 2007 the Minister will see some way in which this section could be ameliorated — the best word I can think of — so that what the Government is promoting on the one hand will not be spancelled on the other hand by making it impossible to get money from these people who have been so generous to us in the past.
I am sympathetic to the objective of a greater habit of philanthropic donations but beyond a certain point they do not necessarily have to come from individuals, because almost all wealthy individuals are connected to companies and institutions where perhaps the same restrictions would not apply. I accept the argument the Minister gave yesterday that it is difficult to make exceptions in a particular area, but it also seems to me that the provision allows scope for very considerable generosity — nor does all generosity have to be concentrated in a single tax year.
Senator Mansergh points out that certain people are associated with companies, but some companies do not like individuals giving what they would perhaps see as the company's funds to what they would describe as a pet project, and would feel it is a private matter.
Perhaps we need to encourage a different corporate ethic such as exists in the United States.
Yes, but not all corporate entities are private, and shareholders sometimes have funny views.
I made positive remarks about this section on Second Stage and repeat them today. It is a well worked-out section. However, I am trying to figure out how it will work in terms of the capital allowances. My understanding is that only those who have historically built-up capital allowances from before we introduced the cap would be in a position to exceed half their income, based on the sort of limits in place in the section. We are talking of people who availed of the urban renewal scheme back in the 1990s, and so on and, as someone described it, the "long tail" of that continuing into the future. The section allows for rollover and my recommendations sought to do away with that into future years.
Are we not just then rescheduling historically built-up capital allowances so that the tax benefits to individuals over the course will be the same anyway? We are engaging in some optics here. We are saying they will pay tax this year but the tax benefit to them of the capital allowance is simply being rescheduled over a long period of years. They are not at a serious disadvantage in that sense which I why I tabled the recommendation. It leads to discussion to say that some of the capital allowance should be lost by introducing that cap.
I have some sympathy for where Senator Henry is coming from. When we use the word "philanthropy" perhaps we should be more careful to define exactly what we mean. Philanthropy, as I understand it, is wealthy individuals or corporations giving to good causes. We are not just talking about that; we are also allowing wealthy individuals or corporations to give to good causes and to get a significant top-up from the Exchequer. They get to pick the pet cause and the Exchequer gives them a huge amount to subsidise it. I am more jaundiced than perhaps most people might be about allowing that choice to individuals. If the State is to give donations to universities, or whatever it might be, the State should just give them the money and make the decision for itself rather than have the decision made by wealthy individuals.
Many are offshore.
Perhaps that is too jaundiced a view. I understand where Senator Henry and the other university Senators are coming from and the view they express.
The consideration raised by Senator McDowell in his last point is a real issue. I can see both sides of the argument. At the end of the day I want to achieve an objective where, through the specified reliefs provision, we do not have high income individuals who pay no tax. There is a wider confidence issue here in terms of equity in the tax system that we need to keep to the fore in our minds. That means that if one is a high earner, regardless of how genuine or philanthropic one is, to what extent does it assist the standing of our tax system if people who have made profits and have remuneration should not make any contribution in taxes? As a public representative for the past 22 years it would be difficult to find many in my constituency who would believe that is a principle worth shedding. Therefore, everybody in our society who has a taxable income should pay tax. In our taxation system, there are, quite rightly, tax incentives in respect of certain public policy initiatives which can be availed of and which promote certain levels of activities in certain areas of the economy which we have decided on, and voted upon democratically, even if at times we disagree on either their extent or their appropriateness. It is all legitimate and in accordance with the compliance culture being promoted. One then gets to the point of saying we must keep those principles. One may ask about the people who want to make donations. How can one argue against it? I have no problem if people want to use up some of their 50% remaining income that will attract specified relief; they can do so. As has been stated by Senator McDowell they can roll it over a number of years.
If one takes up all the reliefs available and one has a further good idea, which is to provide a donation to, for example, our august institution down the road, which Senator Henry would greatly support, is the Senator saying that should supersede the principle I am trying to establish, whereby every citizen who has an income would pay income tax, if the outcome is that the size of the donation is such that it would reduce the tax liability to nil? There is an argument for saying one should make that exception. What I want to establish is the first principle I have enunciated, that one would pay tax if one has a taxable income. No matter how clever one is, one will not get away with not paying tax. Everyone must be seen to make a contribution, allowing for the fact that one should also rightly avail of tax reliefs. As I said here yesterday, the great majority of our tax incentives and tax reliefs are availed of by the majority of taxpayers and the amounts are there for everyone to see. More than 85% of total tax reliefs are availed of by ordinary taxpayers. Mortgage interest relief, medical expense relief and so on are, quite rightly, availed of by hard-pressed working families. We have to be careful to ensure there is not an undermining of all the good compliance work being done and all the excellent tax administration that is taking place by a headline issue which offends people's common sense that some very wealthy people do not pay anything while everyone earning more than €14,200 or €14,400, the minimum wage, is in the tax net. It is very hard to explain that to ordinary people and even to extraordinary people.
My view is that one must abide by the principle that everyone must pay tax every year to the tax man. After that the choice is open to those who have the wherewithal to consider using the tax reliefs that are available, including donation relief which is not excluded. The points that have been raised here are about residents of this country who use up their reliefs in respect of every area of relief that is available but now wish to make a donation relief. That is the issue. That is a far narrower contention than the idea that there are many who have been deprived of making significant donations. I do not belittle the genuineness of those who have wealth who make substantial donations. Yes, they obtain a relief for it. Given the size of the donations concerned perhaps it helps direct that level of income into that area. One can make the argument for and against the issue. I do not believe it is motivated simply by the provision of tax relief. We should not differentiate between those who donated €100 out of their wage packet of €400 when they saw the tsunami disaster on St. Stephen's Day 2005 as against €100,000 donated by a person who can claim donation relief thereafter. When one gets into that area one is undermining the whole purpose of the exercise. In trying to be fair to everybody I have proposed a solution which does not meet every situation but meets the great majority of situations, consistent with the principles one is trying to enunciate and establish in the taxation system generally.
The principal donors to the universities are currently non-resident and for that reason the new section should not impact on the philanthropic activity of these individuals. That is not to say there is not a philanthropic culture in its infancy here even if for obvious reasons we have not had a culture of much wealth here in the past. Some people have approached me about this issue, not on their own behalf, and have asked, given the levels of wealth that have been established, if there a philanthropic mechanism we can devise that will ensure that people who have created much wealth will have a view as to what is the responsible inheritance to leave to their children. A significant amount thereafter could be directed towards the public good if we can find a mechanism that would encourage that to happen in a more systemic way than simply an ad hoc individual approach. That is a public policy issue that is now coming to the fore and requires much careful consideration. It is an issue I did not move on in this budget for various reasons because I have not formulated a view on how one might try to proceed along those lines in a way that is not misinterpreted or misunderstood. It is something, however, to which we should all give contemplation because there is a great deal of wealth in the country and it may be the case that in future years we will miss opportunities to direct much of that wealth towards public causes we would all support and which would benefit society. That is something that would not have been on our radar screens in the past. It is a question of examining the comparative models elsewhere with a view to determining whether there is a place for it in our system.
I make that more general point in an effort to outline the context in which this discussion is taking place but having listened to the views of the contributors to the debate in the other House, we had to come up with a unanimous view as to whether one should include or exclude it. That is a better approach when one is introducing the changes I am bringing forward to establish in the public mind the principle in the system in the first instance. We can then decide how it is working out. I am not closing off the prospect of trying to accommodate genuine situations in the future but it is better not to send mixed messages. We should allow people to see what one is trying to do from year to year and not try to do everything in the one year.
Question put and agreed to.
Sections 18 to 21, inclusive, agreed to.
SECTION 22.
Question proposed: "That section 22 stand part of the Bill."
This section relates to the termination of the stallion tax exemption, which by the time it ends on 31 July 2008 will have been in force for almost 40 years and is probably one of the most successful tax incentives ever introduced here, as the Cheltenham Festival showed where we not merely won the Gold Cup but places one, two and three plus nine other races.
Our equestrian industry is at its peak and it represents the equivalent of multinational firms in counties like Kildare and Tipperary. It gives a good deal of employment, something that was well recognised by the late Labour Deputies, Joe Bermingham and Michael Ferris, when they produced a report on the subject. It can be argued that the relief has existed since 1939 when there was a fairly nominal form of taxation. In 1969 it was introduced in the context of what proved to be a very temporary removal of farm incomes generally from tax but that was reinstated four or five years later.
The Minister and the Government came under a good deal of pressure from Brussels to the effect that this was a state aid although that is a distinctly arguable point because if we abolish it and allow losses in what is a highly speculative business — losses under the current system are not allowed to be set against tax — what is supposed to be a state aid could in fact become a state aid in terms of this State having to allow losses which could be met in any given year. By all accounts the sums of tax due are fairly minimal and the amount of actual tax foregone on the figures available to us is very modest when one considers the support for other industries which do not give as much employment. It must be remembered that the vast majority of the raw materials are bought here.
Perhaps this question has to be seen in more than one context. The Minister spoke earlier under a previous section about everybody paying a certain contribution even though this relates to an activity rather than an individual. One needs to consider seriously the issues on which one should come into confrontation with Brussels. An overly confrontational approach on a number of fronts can have its disadvantages rather than advantages.
The Minister, in his Budget Statement, said he would be entering into discussions — I am paraphrasing his comments — with the industry because this provision leaves a loose end. It indicates what will cease from 31 July 2008 but it does not indicate what will take its place. It is clear that every country has different ways of supporting its horse breeding industry, and that must be done because it is not necessarily an inherently profitable activity. It is a highly-speculative one but it is one that has brought great honour and advantage to Ireland and it provides prosperity in places which otherwise might not enjoy it.
I urge the Minister to bring his discussions with the industry and, inevitably, with Brussels to what I hope will be a satisfactory conclusion because this is not just a national matter. We are now part of the European Union and this is a flagship industry we have developed that is recognised by other countries. It is a flagship for the European Union, not just for Ireland. I am aware the Minister fully appreciates the importance of the industry and I am confident he will work out an appropriate regime to take its place which will consolidate the position that has benefited from 40 years of a fantastic visionary incentive.
I do not agree entirely with Senator Mansergh but I agree in large part with the point he makes. This sector has benefited from this relief over the past 30 or 40 years and it is a flagship industry for the country. The Senator cited a few examples of where we have had great success in this area. The point he made at the end of his contribution is correct in terms of what is contained in the Bill. It leaves a large gap in terms of the future for people involved in the horse breeding sector. It may be that this relief has come to its natural conclusion but I urge the Minister, in the deliberations that will take place to determine the type of regime to be put in place in the future, to keep some mechanism in place to support the horse breeding industry. It is a vital component of life in many rural parts of Ireland. I represent a rural constituency. Like Senator Mansergh, I am on the agricultural panel in the Seanad. I represent Carlow and Kilkenny, a part of the country where horse breeding is a significant industry. I urge the Minister to consider this aspect when examining this area in the future.
The outrage people felt about the tax free status of stallion fees was directed at the few large corporate entities in this country that are involved in that sector. However, some mechanism must be put in place to protect the thousands of others who are involved in horse breeding on a far more reduced scale. I am not interested in sheltering the Coolmores of this world——
We should not rage at success. Coolmore Stud is the largest in the world. Should we not take pride in that instead of raging against it?
I am not raging against anything but there should be some taxation on the huge profits that are made by some of the larger stud farms from the exemption for stallion fees. That would be equitable and it would be consistent with what the Minister has said. However, the smaller operations should continue to have an exemption in some shape or form.
Coolmore is certainly a flagship enterprise for the country and I respect the fact that it is a serious employer in the Senator's constituency. However, if we are seeking equity across the board, the expectation that there would be a tax charge on those fees is a real and proper one. Nevertheless, Senator Mansergh is correct that it is a speculative business for the vast majority of people in the industry. Small operations are greatly exposed and we should ensure they are protected. If we were to bring the full rigours of the system to bear on those people, many of them would not be able to operate in the future and only the large scale operations, such as Coolmore, would remain. That would be detrimental.
Horse breeding is a flagship industry for this country and I do not wish to see anything undermine it. However, in the interests of equity and fairness, a change had to be made. Now we must examine what the Minister will propose to put in place for the future and, in that context, there is room to ensure that the majority of people involved in this sector are looked after.
I was watching the school children who were in the Visitors Gallery a few minutes ago and wondered what they were thinking. I am not sure they all had the presence of mind to appreciate that they were witnessing a seminal contribution from Senator Mansergh on the issue of equine sex. Certainly, the blank faces that were to be seen indicated they did not.
There is no point covering this ground again. The Minister is aware of the views my party has articulated in recent years on this issue. However, is the debate over or is it just beginning? The Minister has been clear about his intention to put in place some type of replacement allowance, relief or incentive. I assume he will go to the Commission relatively soon about this because it takes an age to get these things approved. Perhaps he will give an indication of what basis there will be for the new relief. I see from Mr. Murphy, the official accompanying the Minister, that he will not.
I agree with Senator Mansergh that we should be proud of the Irish horse breeding industry. It has developed from being a cottage industry 40 or 50 years ago to being a world leader now. I was in Australia recently and, for the second time in the last five years, I did not get an opportunity to see the excellent facilities Coolmore has there. It also has facilities in Kentucky as well as Tipperary. The horses are doing far better than the hurlers in Tipperary.
Alas.
Long may it continue.
Rather than being provoked into a response to Senator John Paul Phelan, Senator Mansergh should be aware that the inveterate love between Kilkenny and Tipperary probably motivated some of Senator Phelan's comments about Coolmore's success. The difficulty for a Kilkenny man to acknowledge Tipperary's success should never be underestimated, and vice versa.
With regard to the position of Senator McDowell's party, despite Deputy Burton's contentions to the contrary, my decision was not motivated by the fact that some have been seeking to remove this relief with a zeal I have often found difficult to comprehend, given the undoubted benefits that have derived to Ireland Inc. as a result of the development of the horse breeding industry in this country, and the tax exemption for stallion fees was no small contributor to that. It was simply because the EU Commission, having received a complaint about this relief three years ago, investigated it and discussed it with the Irish authorities, who tried to explain the various points in favour of this industry in terms of its widespread benefits for not just a small number of talented, world class leaders in the industry but for the many more throughout rural Ireland who have been provided with a family income. This is evident in the number of other stallions available and standing elsewhere, the number of mares that are brought here to stay and foal and the thousands who work in the racing industry. People should not underestimate the tremendous success of racing.
I also had to eliminate the exemption for stud fees for greyhounds, the poor man's horse. My family has had a close association with the greyhound industry for many years so my late father would not be too happy with me if he were alive to see it removed. In fairness, it was introduced by former Deputy and Minister for Agriculture, Ivan Yates, at the instigation of Bord na gCon. We have seen the tremendous success which that industry has enjoyed. It is one of the really great successes for a semi-State body in recent years, matching the excellence of the horse breeding and horse racing industry.
The report suggested that it did not make much difference in the greyhound industry.
In the same way as there was a trop de zèle in some political parties in this country about the exemption, there was also a trop de zèle in the EU Commission. I used all my persuasive and diplomatic skills, to no avail, to get it to look beyond what I considered to be a narrow, legalistic approach to this issue. Thankfully, in the European Council meeting last week we were successful in suggesting in one of the conclusions that state aid rules be examined in a global context rather than in an internal context.
The European horse breeders association, representing stallion owners throughout Europe, lobbied the Commission on this issue and asked it not to take the view it took on the tax exemption in Ireland because of the impact that could have on the European horse breeding industry. The real competitors are not in Europe but in Australia and America. In fact, many people consider that world class stallions standing in Ireland is an important part of their job in developing the breeding industry in France, Germany, Italy and elsewhere in Europe. Their mares can come to Ireland instead of being sent in transport airplanes to Kentucky or Australia. That is the reality of the industry. It is a global industry and Ireland is a world leader in it.
It is with reluctance that I had to take this step. The reason I talk about the need for a replacement scheme is that I am convinced that if there is one area where a tax incentive has proven itself, it is this one. The Indecon report, admittedly on behalf of Horse Racing Ireland, referred to a cost of €3 million per year. The Revenue Commissioners have come up with returns which have become available as a result of changes in tax information brought in by my predecessor to try to get a handle on this issue. The suggestion was made that hundreds of millions of euro were being denied the taxpayer, but the maximum potential cost is €7.1 million. There will also be offsets which will bring that figure down even further.
We have built a world class industry through tax incentives on the basis of an annual cost which would be less than €7 million and more in line with the Indecon estimate of €4 million, which was portrayed at the time as being a self-serving report. That was a serious castigation of a very professional and widely sought-after consultant company in this country and elsewhere. I could not find out who made the complaint to the EU Commission or what the motivation was behind the complaint, but a situation has been brought about whereby something that was of huge benefit must be removed by me because I have been informed by the Commission that it would uphold proceedings against Ireland if I did not withdraw the exemption.
The Commission based its decision on preliminary findings and I was given the legal reasons on state aid as to why that was the case. I tried to explain the context and I asked for a comparative cost-benefit analysis before we went down this route. Unfortunately, the Commission was adamant that this file was opened and had to be dealt with in the way suggested. I have decided to do so on the basis that the Commission would then discuss with me how to replace this exemption with something that would have a similar effect, be it through a depreciation allowance system or whatever. The Commission made the point that under state aid, the exemption must be of a general character throughout the whole agricultural industry. I would then have to seek tax exemptions for boars, bulls and other four-legged animals. The whole thing was crazy.
We are where we are. I did not make this change for any politically correct reason.
Perish the thought.
It was imposed upon me by the European Commission and by nobody else. Unfortunately, the adverse publicity and the unwarranted assertions that were made about the nature of this industry detract from the high regard in which it is held internationally. We should be proud of that rather than begrudge it. It helped create the atmosphere which has culminated in us being told what to do in this area. I am not convinced at all that it is the right decision, but I have no option but to carry it out.
Section 35 of the Finance Act 2003 provided that details of exempt income from a number of sources, including from stallion stud fees, would be returned to the Revenue Commissioners. This information was included for the tax year of 2004 in the personal income tax returns file in October and November 2005. In the case of companies and corporation tax returns, the information was filed up to the end of 2005. It is regrettable that people are being triumphalist about the fact that this is going. It is part of the street theatre that passes for politics in this country, just like the ritual mention of the tent in Galway, which is where I am supposed to decide the budgetary framework, tax incentive schemes, pension reviews and so on.
We did not mention it all.
We really need to stop the nonsense. I cannot even get a decent tip in Galway when I go there. It is getting to the stage where I might not go there anymore.
Why do they not just get rid of the tent?
The Senator is welcome to come into the tent anytime and have a look around. The argument has been made for years about golden circles and millions being salted away. Unfortunately, this is due to the personal agenda of the man who brought forward the scheme originally. If someone else did it, there would not have been a word about it.
Has the Minister been on to the Commission with a reply to the scheme?
No, we will be doing so soon.
Question put and agreed to.
Section 23 agreed to.
SECTION 24.
Question proposed: "That section 24 stand part of the Bill."
The next ten sections or so deal with the termination dates of the various schemes. We are beyond the point at which some of the expenditure has been incurred, so I presume we have an idea about the number of new schemes that are likely to be sanctioned before the end of the scheme.
Can the Senator repeat that?
I am looking at the next ten sections. I do not expect the Minister to give this information if he does not have it, but how many schemes are likely to qualify between now and the end of the termination date?
We have transitional arrangements for existing schemes.
I meant new projects rather than new schemes.
I am informed that there is a detail in the two studies that will give the Senator an indication of continuing activity in the pipeline projects.
It is a relatively small number of projects.
There are other schemes that will not proceed even though planning applications were put in before 31 December 2004. When an end date was suggested, many people came forward with projects that were in their back pocket for the day when they might be required. However, the hotel industry is an example where we no longer have under-capacity. Many in the construction industry who might have been interested in such projects would proceed with them in the absence of hotel management contracts that ensure the proper running of those hotels. It is not just a question of building them, but of running them profitably with a return to the investor.
Some projects will get through and will be of benefit, but for every planning application submitted, we will not see a project emanating in each case. The market will determine those that will go ahead and those that will not. In the absence of the consideration of market conditions, many of those projects that are tax-driven will not go ahead. We will try to give the Senator a more up-to-date response in due course.
Question put and agreed to.
Sections 25 to 33, inclusive, agreed to.
NEW SECTION.
Recommendation No. 20 in the name of Senator McDowell is ruled out of order as it is merely declaratory in nature.
Recommendation No. 20 not moved.
Sections 34 to 39, inclusive, agreed to.
SECTION 40.
Question proposed: "That section 40 stand part of the Bill."
This is the——
We do not have time for further debate on this. As it is now 5 p.m., I am required to put the following question: "That sections 40 to 130, inclusive, Schedules 1 and 2, and the Title are hereby agreed to, that the Bill is reported to the House without recommendation, that Fourth Stage is hereby completed and that the Bill is hereby returned to the Dáil."
Question put.
The Committee divided: Tá, 28; Níl, 18.
Tá
- Brady, Cyprian.
- Brennan, Michael.
- Callanan, Peter.
- Cox, Margaret.
- Feeney, Geraldine.
- Fitzgerald, Liam.
- Glynn, Camillus.
- Hanafin, John.
- Kenneally, Brendan.
- Kitt, Michael P.
- Leyden, Terry.
- Lydon, Donal J.
- MacSharry, Marc.
- Mansergh, Martin.
- Minihan, John.
- Mooney, Paschal C.
- Morrissey, Tom.
- Moylan, Pat.
- Ó Murchú, Labhrás.
- O’Brien, Francis.
- O’Rourke, Mary.
- Ormonde, Ann.
- Phelan, Kieran.
- Scanlon, Eamon.
- Walsh, Jim.
- Walsh, Kate.
- White, Mary M.
- Wilson, Diarmuid.
Níl
- Bannon, James.
- Bradford, Paul.
- Browne, Fergal.
- Burke, Paddy.
- Burke, Ulick.
- Coghlan, Paul.
- Coonan, Noel.
- Feighan, Frank.
- Finucane, Michael.
- Hayes, Brian.
- Henry, Mary.
- McDowell, Derek.
- McHugh, Joe.
- Norris, David.
- Phelan, John.
- Quinn, Feargal.
- Ross, Shane.
- Terry, Sheila.
Tellers: Tá, Senators Minihan and Moylan; Níl, Senators McDowell and J. Phelan.
Question declared carried.