I welcome the Minister of State at the Department of Finance, Deputy Martin Mansergh, to the House.
Finance Bill 2009 [Certified Money Bill]: Committee and Remaining Stages.
Section 1 agreed to.
SECTION 2.
Recommendation No. 1 not moved.
I move recommendation No. 2:
In page 6, line 41, to delete "€15,028" and substitute "€18,304".
For the sake of clarity, will the Minister of State explain why the Minister for Finance reduced that figure from €18,304 to €15,028?
The Senator seeks to reinstate the exemption limit which applied in respect of persons aged under 65 years for the period from 1 January 2009 to 30 April 2009. The exemption limit was reduced in the supplementary budget to increase the yield to the Exchequer from the income levy in the current year.
An individual with an income of up to €18,304, who would have been exempt from income levy, will now be required to make a maximum contribution of €203.78 to the Exchequer this year. Persons with income in excess of this amount always would have had a liability to pay the income levy.
A single individual with an annual income of €18,304 would pay income tax of less than €1 on that income. With earnings of €352 or less per week, such an individual is exempt from both PRSI and health contributions. The health payment, therefore, amounts to only 1.11% of the gross income of the individual. Where the individual has a full medical card, he or she is still able to avail of the exemption arising as a result. Similarly, it should be noted that the income to which this exemption applies is only after any social welfare entitlements have been disregarded. Persons who are solely dependent on social welfare payments have no obligation to pay the income levy.
To accept the Senator's recommendation would cost €25 million in 2009 and €50 million in a full year. The income levy, as currently structured, is highly progressive. Those who pay most are those who can afford to pay, while the most vulnerable in society are protected in so far as possible. In view of these circumstances, I am not prepared to accept the Senator's recommendation.
The measure affects approximately 250,000 people on low incomes, which is a substantial number.
While that is correct, the effect is minimal.
It will cost almost €200 in a full year, which is almost equivalent to one week's pay for such persons.
I support Senator Twomey's recommendation. The figures speak for themselves. While it may not be much money to have, it is a hell of an amount of money to give away.
Recommendation put and declared lost.
I move recommendation No. 3:
In page 7, between lines 42 and 43, to insert the following:
"(1A) Aggregate income shall not include capital allowances for sole-traders, farmers and other self-employed persons for investment made to comply with environmental obligations.".
The recommendation relates to self-employed persons who must pay the income levy. It is proposed that the costs incurred by sole traders and self-employed persons should be disregarded because they relate to turnover rather than income.
As the Senator will be aware, the income levy has been introduced as a measure to help stabilise tax revenues. The levy applies across all income streams and is determined on an individual basis at progressive rates, depending on the financial circumstances of the individual. To maximise the yield from the levy and ensure it is applied in a similar fashion across all sectors, it does not allow for tax shelters and incentives to be used to minimise the amount particular sectors should pay. Such exceptions as have been allowed have been in particularly vulnerable areas such as redundancy payments, medical card holders, the aged and those in receipt of social welfare and similar benefits provided by other Departments.
The recommendation seeks to grant special treatment to those individuals who invest in capital assets to satisfy environmental requirements in the particular sector in which they are trading. This would be contrary to the general thrust of the policy underpinning the income levy and would place certain taxpayers in a preferred position over other taxpayers. The tax system already provides reliefs in respect of such capital investments, allowing the investor to write off in full the relevant cost of the investment over a defined period against income tax.
It should be noted that the acquisition of assets for use in a trade normally results in an increase in the asset wealth of the business and the possibility of the owner disposing of this asset for a gain at a later date. The intention of the income levy is that taxpayers should contribute based on their personal circumstances and ability to pay. It is for this reason that the levy is being applied on the gross income of individuals without granting relief for deductions such as pension contributions or capital allowances. In the circumstances, it would be difficult to justify granting a special concession for individuals investing in their businesses. This is particularly the case given that taxpayers in employment have no such opportunity to limit their exposure to the levy.
The cost of the Senator's proposal cannot be estimated with any accuracy. However, not allowing deductibility of all capital allowances increases the yield from the levy by approximately €70 million in a full year. For this reason, I cannot accept the recommendation.
Recommendation put and declared lost.
I move recommendation No. 3a:
In page 10, between lines 3 and 4 to insert the following:
"(2) The Minister will review the application of the income levy to employees' remuneration in respect of employers' contributions into their PRSAs and will report to both Houses of the Oireachtas, within one month of the passing of this Act, on the feasibility of exempting employer contributions into PRSA schemes from the income levy.".
I apologise for the convoluted nature of the amendment. It has been an education for me to compose the amendment in the Bills Office where I received some assistance in the past hour. The recommendation would not result in additional cost as it would require the Minister only to review the application of the income levy. I have worded the recommendation in this way to enable the Minister to accept it.
The recommendation reflects a view expressed to me by a person who works in the pensions industry advising on all elements of pensions, including traditional PAYE pensions and personal retirement savings accounts or PRSA schemes. His position is not one of narrow self-interest but arises from his belief that an inadvertent mistake has been made with regard to the income levy. The levy is unfair to employees who have PRSA arrangements and the problem could be rectified if departmental officials were to take time to examine it.
The problem which needs to be addressed is that employer contributions into PRSA schemes have always been treated in the same manner as contributions into traditional pension schemes, in other words, they are treated as if there were no benefit-in-kind implications. The position changed with the introduction of the income levy, with employer contributions to PRSAs now deemed to be subject to the levy. While the reason is technical, it relates to the manner in which the legislation on PRSA contributions was framed. Reverting to the original position would cost little. For this reason, I ask the Minister to carry out a review of the matter and return to the Houses within one month. I am confident he will give serious consideration to changing the current provisions as I do not believe this outcome was intended. My informant tells me that almost everyone with whom he has discussed the issue has stated it was not intended. I urge the Minister of State to accept the recommendation.
The income levy applies to all emoluments of an employment, including anything treated as a taxable benefit in kind. I am advised by the Revenue Commissioners that an employer contribution to a personal retirement savings account, PRSA, is chargeable to income tax in the hands of the employee as a benefit-in-kind under section 118 of the Taxes Consolidation Act 1997. As the income levy treatment follows the income tax treatment, the employer's contribution to the personal retirement savings account will also be subject to the income levy.
Section 778 of the Taxes Consolidation Act 1997 provides that an employer contribution made to an approved retirement benefit scheme or a statutory scheme is not to be treated as an emolument of the employee for income tax purposes. Again, in terms of income levy treatment, any employer's contributions to such schemes will not be subject to the income levy. If the income levy treatment was to be changed as regards employees' contributions, there might be a need to examine the underlying income tax treatment. The Minister will consider the issue in the overall context of what should be the appropriate income tax and income levy regimes for the future. As matters stand, I cannot accept the recommendation.
I thank the Minister of State for considering the recommendation. I will accept the position he had taken provided the Minister examines the issue. I deliberately worded the recommendation in this way to enable the Minister to review the issue with a view to achieving the objective I seek. I believe the problem I highlight is an unintended anomaly which the Minister will agree to address.
Recommendation, by leave, withdrawn.
Section 2 agreed to.
Sections 3 and 4 agreed to.
SECTION 5.
I move recommendation No. 4:
In page 11, line 48, after "2009" to insert the following:
"unless it can be shown that the person had occupied the house as their principal private residence in the past 3 years".
The recommendation relates to people who will lose mortgage relief if they rent out their home. A number of people who lost their jobs have chosen to rent out their homes. When such people rent out their house they lose their mortgage interest relief. An allowance should be made for a person who must rent out their house owing to financial problems. Such a person should be allowed claim mortgage relief and at the same time rent out his or her house for three years to assist him or her to get through the present crisis. We are assisting far bigger institutions with far greater sums.
There also has been much debate in this House about those on fixed-rate mortgages. Some speak supportively on the matter but will not vote for it. I do not see much coming from the Government to help people who are distressed financially because of the present crisis and this would be one measure that might assist such people.
I wish to add a word of support for Senator Twomey. This is a recommendation that is worthy of consideration. The wording to be inserted is quite correct: "unless it can be shown that the person had occupied the house as their principal private residence in the past 3 years". It seems this is a recommendation that would be capable of being accepted.
This recommendation was discussed as an amendment during the passage of the Bill through the Dáil. The effect of the recommendation would be to exclude from the new restriction on the amount of interest that can be deducted in computing a person's taxable rental income, interest paid by individuals who had occupied a house as their principal private residence before that house was rented out for residential use.
I understand the Senator's concern primarily relates to possible situations of hardship that might arise given that, in current economic circumstances, people may be losing their jobs while still having large mortgage repayments to meet. Individuals who find themselves in such a situation may well be looking to other possible sources of income to keep up those repayments, including the possible renting of their home.
While individual's may have options to help defray the cost of mortgage repayments, short of vacating their homes, such as the rent-a-room relief scheme, such options may not be suitable in every situation. Certain individuals who have lost their jobs may well decide to move back in with parents or perhaps with other members of the family to rent their home.
The immediate financial benefit from such a course of action is obvious as they move from having to fund the mortgage from their own resources to having it wholly or mainly funded from rental income. In that regard, if the individual concerned is unemployed, it is highly unlikely he or she would be in the position of having to pay tax on net rental income on foot of the reduction in interest deductibility announced in the budget.
A single person getting the top rate of jobseeker's benefit, which is currently just over €204 per week, would need to be in receipt of net rental income in excess of €7,676 per annum before he or she would pay any tax. This is because his or her personal and PAYE credits would act to absorb any income tax chargeable on his or her combined social welfare and rental income up to €18,300. In the case of a married couple with one earner who is unemployed, the position would be that they would have to be in receipt of net rental income of close to €10,000 before income tax would be payable. It is highly unlikely that the letting of a property in the city would give rise to net rental income of those amounts. For these reasons, I am unable to accept the recommendation.
In his response, the Minister of State has taken a scenario where someone has no income and, therefore, no taxes to pay. However, the reality is that at the height of the Celtic tiger, which is when one would have bought a house if one had been living in it for the past three years, young couples would have mortgaged themselves to the hilt on their double incomes to purchase a house. If one of those individuals were to lose his or her job, it would force the couple to move back in with parents because of the difficult financial constraints on families. Anyone who has lived in their own house for three years will not move back in to live with his or her parents for a small financial saving. The people who have got that independence for a couple of years would like to keep it.
I am getting the sense through this crisis that the Government is not that bothered if it harms the ordinary man and woman who pays certain taxes and who is affected by this crisis when compared with the largesse it has granted to parts of the financial services. A few issues such as this have arisen. There is this option. There is also the option on fixed-rate mortgages where the Minister of State need not necessarily abolish the full fixed-interest mortgage but could make it 50:50. The Government is giving nothing to cut the ordinary taxpayer some slack. That is up to the Minister of State, however, if that is the way he wants to do it.
Needless to say, I reject the underlying imputation there. I had a person in my clinic on Saturday last who was in exactly the situation described by the Senator. He had lost his job, although he hopes to get one reasonably shortly, but his wife is still in employment. He did observe that his annual mortgage interest payments had reduced from approximately €18,000 in September 2007 to a little over €12,000 today. No doubt the mortgage interest burdens of many have reduced. He was on a tracker mortgage which is one of the most favourable arrangements at present.
Where people, even those married with children, move back into their parents' homes, in certain circumstances that is done on a temporary basis. Indeed, it has happened in my own family but not for reasons to do with unemployment.
Recommendation put and declared lost.
Section 5 agreed to.
Section 6 agreed to.
SECTION 7.
I move recommendation No. 5:
In page 17, between lines 40 and 41, to insert the following:
""(1A) From the 21st of May 2009 any application for this relief shall be accompanied by an analysis conforming to guidelines set by the Revenue Commissioners demonstrating that the social benefits of the project exceed the social costs.".".
This is the part where the Minister is talking about getting rid of capital allowances for certain health care facilities. In some respects, the Government has accepted it must row back significantly on what was its core health policy for a number of years, that is, the co-location of private hospitals and giving tax relief for their construction while at the same time refusing to develop the public services in a way that would have been expected during the height of the Celtic tiger. Before the Government does this, when it looks at the benefits of what it is getting rid of, it should also look at the social cost in terms of the services which will not now be provided.
This recommendation proposes that applications for tax relief in respect of registered nursing homes, convalescent homes, mental health centres and private hospitals be accompanied by a social cost-benefit analysis conforming to guidelines to be drawn up by the Revenue Commissioners. As I understand it, the intention is that tax relief would not be available for a project where, on the basis of such analysis, its social benefits do not exceed its social costs.
As mentioned by the Minister during the Dáil debate on a similar Report Stage amendment, the then Minister for Finance requested independent economic consultants, Indecon, to undertake a detailed review during 2005 of the property related, including health related, tax incentive schemes in existence at that time. The consultants recommended that the schemes for nursing homes, convalescent homes and private hospitals be continued as there was a need for ongoing investment in those areas. It can be taken from this that the external consultants regarded the potential benefits from each of these schemes as exceeding the potential costs.
The scheme for mental health centres only came into effect on 23 January 2007 and therefore was not part of that review. However, it should be noted that a condition with which a qualified mental health centre must comply before getting certification from the HSE is the provision of data to the HSE for onward transmission to the Minister for Health and Children and the Minister for Finance to allow for the ongoing assessment and evaluation of the costs and benefits arising from the overall scheme.
A key recommendation of the Indecon review was that the costs and benefits of any proposed new tax incentives should be assessed prior to their introduction. The then Minister for Finance announced in budget 2006 that he would implement this recommendation as far as appropriate. That was considered appropriate in the case of the mid-Shannon corridor tourism investment scheme. The Goodbody Economic Consultants group was engaged to carry out an assessment of the costs and benefits in advance of the scheme's introduction. The schemes of capital allowances for registered nursing homes, convalescent homes and private hospitals were introduced before the consultants carried out their 2005 review and made their recommendation on carrying out cost benefit analyses. On the basis that they recommended that these schemes be continued, it can be taken that they concluded that the benefits would outweigh the costs.
The Minister for Finance is terminating the schemes and, as he stated in the Dáil, there seems to be no point in requiring a cost benefit analysis to be carried out at this late stage. He also mentioned that where it is considered appropriate, this kind of analysis should and will be carried out before the introduction of a new scheme and not when a scheme, which is in operation, is being wound down. The Revenue Commissioners are not the competent authority to draw up guidelines on how to carry out a cost benefit analysis of tax incentive schemes. Revenue's role is to administer the tax system and to collect the appropriate tax due under the law.
The examination of projects, be they on roads or nursing homes, can be an artificial exercise. The figures derived from cost benefit analyses often depend on one's assumptions. In many instances, such an analysis is not as scientific as it purports to be. In my observations and experience, I am sceptical of the recommendation, in addition to the reasons previously stated.
In 2005, the Minister for Health and Children, Deputy Harney, announced that co-location was Government policy to deliver additional beds in the health care system. She refused to fund a large number of beds in the public system and instead opted for that to be done through co-location. Her reasons were that co-location would occur more quickly than public hospitals could be built and that it would be more cost effective. The Minister defended this policy, but the Minister of State has called it a bad idea.
I support Senator Twomey as I am disappointed by the Minister of State's lack of confidence in cost benefit analyses. I agree that assumptions must be made, but those of us fighting against over-regulation, who have argued strongly for such analyses, very often find there is Government reluctance towards anything that smacks of delay. Europe, however, now insists on cost benefit analyses despite the doubts about assumptions that may have to be made.
The recommendation is worthy because it demonstrates that the project's social benefits exceed its social costs. I am unsure as to whether that is regularly the case. I support the recommendation.
The underlying tenor of my reply was that there is little point in undertaking a cost benefit analysis at the stage at which the schemes are being abolished. Where a cost benefit analysis is required in any area of the economy by EU or domestic law, it must be done. In addition to the futility in the case used in my example, I have some scepticism.
Unlike Senator Twomey, I do not believe that co-location was a bad idea because it is being abolished. That does not follow. Given his background in the medical profession, he has more knowledge of these issues than I do, but part of the rationale for co-location was that there were heavily subsidised private beds in public hospitals and we needed to change that situation. Contrary to how the matter has been portrayed, particularly by the left, as a conservative or reactionary measure, co-location was a progressive measure. I have debated the matter in the House as a Senator and a Minister of State. Perhaps we should have opted for something akin to the national health system in the 1940s. The vested interests of the medical profession defeated that move and brought down a Government of which Senator Twomey's party was a part. For better or worse, we have a hybrid system in which approximately 50% of the population is insured and 50% is covered by the public system.
Obviously, economic circumstances have drastically changed since 2005. A considerable amount was invested in private hospitals, the most striking of which is the Beacon Clinic on the M50 in Sandyford. A general principle that should apply to all governments but in respect of which all governments have been slow in acting is that all incentives should be for a limited period. Otherwise, they cease to have a stimulating effect and cost money. The best incentives achieve effects for three or four years. Senator Twomey's party leader introduced the seaside resort scheme as the Minister for Tourism and Trade. It lasted for a period of years, then ceased. In no circumstances should incentives exist indefinitely. They are usually introduced to stimulate activity, after which they should cease.
Recommendation put and declared lost.
Section 7 agreed to.
SECTION 8.
I move recommendation No. 6:
In page 17, between lines 48 and 49, to insert the following:
""(1A) From the 21st of May 2009 any application for this relief shall be accompanied by an analysis conforming to guidelines set by the Revenue Commissioners demonstrating that the social benefits of the project exceed the social costs.".".
This addresses the same issue as recommendation No. 5, although I am sure the Minister of State will not accept this recommendation either. We should clarify a few matters. I have never had a problem with hospitals like the Beacon Clinic. They are stand-alone clinics and have to survive on their own, even if they do receive certain tax credits at times.
The co-location policy was very different because it tried to marry a private system onto an inefficient public system, using the same consultants in both hospitals. The Government rushed through that deal, which would cost the taxpayer significant amounts of money.
After it was done and the contracts were signed, the Government then began negotiations with the consultants. There was an attempt by the Minister for Health and Children, Deputy Mary Harney, to use Aneurin Bevan's statement in her negotiations with the consultants. She attempted to stuff their mouths with gold. The Government has also back-tracked on that contract.
It was quite an expensive contract and did not deliver much in the way of improved services for ordinary patients in the public health care system. When we have time to look at what the Minister, Deputy Harney, did regarding co-location and consultants' contracts, one will realise she was being very foolish with taxpayers' money.
The same reasons I adduced regarding the previous recommendation apply here. We have to think ourselves back to the very different economic and financial context of 2005. It seems to me many financial incentives introduced over the years by all Governments, especially during the past 20 years, have been designed to encourage people with money to invest in facilities, including socially deserving facilities and those which have employment benefits during construction.
As I said in my previous contribution, for such incentives to be effective, they need to be relatively short-lived. Other incentives were being phased out at the time this was introduced. We are now in a situation where individuals and organisations up to and including the wealthiest in society have experienced substantial losses of income and wealth. The State has also lost a lot of revenue. A very rigorous attitude will be needed to deal with any tax incentives of this type, hence the reason for the abolition of this particular one.
I was the spokesperson for health and children for Fine Gael when this policy was first announced by the Minister, Deputy Harney, and was consistent in my objections to it because I always believed it would not work and was not the best way to use taxpayers' money or allowances or re-shape the health service. It is regrettable to be proven right in hindsight.
Recommendation put and declared lost.
Section 8 agreed to.
SECTION 9.
I move recommendation No. 7:
In page 20, subsection (1), between lines 12 and 13, to insert the following:
"(a) by the insertion of a new subsection (1A) as follows:
"(1A) From the 1st of July 2009 when banks issue a statement of interest, they will show the amount deducted in Deposit Interest Retention Tax.".".
I see no reason people who pay DIRT could not be informed in a statement they receive from their bank of the amount they pay every year. I heard some of the debate in the other House earlier, but the bank statements do not show, in full, the amount of DIRT people pay.
Banks and other credit institutions are required to issue annual statements in respect of accounts with a balance in excess of €20 unless otherwise agreed with the consumer in writing. The question of whether information on the amount of deposit interest retention tax deducted from interest payments should be included on these annual statements was considered by the Financial Regulator in 2006. Following consultations with the industry, the regulator considered the imposition of such a requirement would involve implementation costs and concluded he could not introduce this requirement without the general agreement of the industry.
Following further discussions, the regulator included the provision in chapter 3 of the consumer protection code that where tax is deducted from interest paid, the statement will provide information on the tax deducted, or inform consumers how they may obtain a certificate detailing the tax paid.
At present this is catered for in section 262 of the Taxes Consolidation Act 1997 which requires a financial institution to issue a separate statement containing information on deposit interest retention tax when requested to do so by an account holder. This information should include the amount of interest paid, the amount of DIRT deducted, the net amount of interest paid and the date of the payment.
A provision whereby such statements are issued on request strikes a reasonable balance and ensures a statement is issued only to those account holders who wish to have the information. However, in light of the Senator's amendment, I will request the regulator to consider the matter further.
Recommendation, by leave, withdrawn.
Section 9 agreed to.
Sections 10 to 12, inclusive, agreed to.
Recommendation No. 8 not moved.
Section 13 agreed to.
Sections 14 to 22, inclusive, agreed to.
NEW SECTION.
I move amendment No. 8a:
In page 52, before section 23, but in Part 3, to insert the following new section:
"23.—(1) Section 11(1)(a) of the Principal Act is amended by substituting “21 per cent” for “21.5 per cent”.
(2) Section 11(1)(d) of the Principal Act is amended by substituting “10 per cent” for “13.5 per cent”.”.
This is to deal with stamp duty on second-hand houses. This recommendation was given to the Minister of State and I would like to hear his views on it to see if he considers it a worthwhile option to get the second-hand property market moving in light of the number of people in the sector losing their jobs. The website, www.daft.ie, stated the stock of unsold second-hand houses has risen to approximately 60,000 from 20,000 at the beginning of 2007. It is quite clear there is a need to stimulate this market and one way to do so is to cut stamp duty. Ireland has one of the highest rates of tax on house purchase in the world. This would be a worthwhile measure to try to see if we could get this market moving again.
I think we may, in some instances, be confusing where the recommendations fall. I do not accept the Senator's recommendation. In the October budget, the Minister for Finance reduced the top rate of stamp duty on commercial property from 9% to 6%, which applies to all non-residential property valued at more than €80,000. In the Finance (No. 2) Act 2007, his predecessor, who is now Taoiseach, reduced the stamp duty payable on residential property and abolished it for all first-time buyers of residential property. While the Minister, Deputy Lenihan, has decided not to change property stamp duty rates at this time, all tax measures are considered as part of the budget process and will be reviewed in light of the changing economic position. Any recommendations which may be made by the Commission on Taxation will also be taken into account.
The Minister has, however, taken a measure in this Bill to stimulate the residential property market. Section 24 of the Finance Bill provides for a new exchange of houses scheme under which a person selling a new residential property can take a second-hand residence in exchange or part exchange and not have to pay the stamp duty on the second-hand property until the earlier of the date he or she sells the second-hand property or by 31 December 2010, the date the scheme ends. The intention of the scheme is to free up the overhang of completed but unsold new property with the consequential impact on employment.
A person selling the new house and accepting the second-hand house may decide to sell that house, to renovate it before sale or to rent it out. Even though the individual buying the new property might not be a first-time buyer, if he or she intends to occupy that property as his or her principal place of residence for five years, he or she will not have to pay stamp duty on that new property unless it is over 125 m2 in area, in which case a reduced rate of stamp duty applies. This relief for non-first-time purchaser owner-occupiers buying new property was introduced in 2007.
A consequence of accepting the recommendation, which I presume is unintended, is that the payment of a premium on foot of a grant of a lease for residential property would remain taxable at the higher rate, that is at the current rates of 7% on amounts from €125,000 to €1 million and 9% on amounts more than €1 million. Given that it is estimated that the changes covered by the recommendation would cost approximately €130 million, it is difficult to see the rationale for the proposal. I cannot accept the recommendation.
There has been a slight mix-up in that we have discussed the wrong amendment.
We know.
We realised that.
Recommendation No. 8a has been moved but we have discussed No. 8b. I will allow further discussion of No. 8b when we come to it.
Recommendation No. 8a is fairly self-explanatory. It is just a question of changing the VAT rates to ones that will work for people in business.
On the increase in the standard rate of VAT in budget 2009, as the Minister for Finance previously stated, it appears that the timing of this increase, given the subsequent temporary reduction in the UK rate, may have sent the wrong signal to consumers. However, given the current Exchequer deficit position, the policy decision of increasing the standard VAT rate continues to be necessary to support the public finances.
We are borrowing to fund day-to-day public services, which is unsustainable as future generations will be required to pay higher taxes unless we correct our public finances. We must remember that although the UK cut its standard rate of VAT from 17.5% to 15% on a temporary basis from 1 December 2008 to the end of 2009, at the same time it increased excise duty on alcohol, cigarettes, petrol and diesel to off-set the 2.5% reduction in VAT on those items. Consequently, there was no reduction in the price of these products in Northern Ireland as a result of the reduction in UK VAT.
The recommendation to reduce the standard rate to 21% and the lower VAT rate from 13.5% to 10% would cost the Exchequer more than €1.1 billion in a full year. In the current economic climate, these VAT changes would be too costly to implement. This was part of a ten-point plan put forward by the Fine Gael candidate in the Dublin South by-election. I commented that the figures did not add up. Furthermore, as a small open economy, many of our goods and services are imported, especially in the case of those at the standard rate. Cutting the VAT rates could benefit the economies from which we import more than it would benefit us. In other words, while it might help the consumer, it would not necessarily be the most effective way of helping our economy.
There are means of stimulating the economy outside of the VAT system. The Government is providing a long-term fiscal stimulus through capital investment of approximately 5% of GNP, which is twice the average in the European Union. This fiscal stimulus will not only support jobs in the short term but will also add to our long-term productive capacity. Automatic stabilisers such as social welfare payments provide a de facto stimulus to the economy. In regard to temporary or permanent reductions in VAT, while the UK has temporarily reduced its VAT rate, this is not the approach being adopted by most other member states. It seems likely that, given the difficulties also being experienced in the UK public finances, the restoration of the VAT rate as legislated for will go ahead. If there were any change in that situation it would unlikely be for long. The UK potentially has a larger deficit to address than ours, now and in the near future.
The Minister of State is saying the Government is spending too much so we must tax people more. Common sense would dictate that the Government should try to rein in its spending better also. The policy decision was made in the budget that the Government would favour more taxes rather than controlling its spending as a way to solve the current crisis. The Government's justification for that is nonsensical in that the implication is that VAT really applies to imports, which are mainly purchased by the consumer and, therefore, it does not contribute that much to the economy, and it is all right to increase VAT. That is evident in the Border counties where one can see that due to the variations in VAT consumers have chosen to flock to Northern Ireland to the detriment of business in Border counties. There was a need to be innovative and to show flair. The Government failed to take the tough decisions that were necessary to counteract the serious damage to our economy, especially the consumer economy.
At any rate we did not put up the VAT rate to 35%, which is what happened in 1983-84 when the first great Border influx took place. Travelling across the Border has far more to do with the exchange rate than it has to do with VAT rates. There has been a net 3% change in the VAT rate. At one time the change in the exchange rate was in the order of 25% from approximately 68p or 69p to the euro to where it is now, at approximately 87p or 88p. That is the fundamental objective reason, not the variation in the VAT rate.
It is very easy for the Opposition to make general statements of principle that one should concentrate on reductions in expenditure rather than taxation. If Senator Twomey's party was in government with the Labour Party it would have to do the same as we are doing, namely, tackle expenditure and find new sources of taxation because some of our sources of taxation, such as capital taxes, in particular stamp duty and corporation tax, which have been buoyant have to a great degree dried up, not completely, but compared to the previous position. For a period they put us in the happy position of being able to reduce borrowing, increase expenditure and cut taxes. I well remember the debates of the 1980s when there was a constant lament, particularly from Labour parties in government, at how little corporation tax and capital taxes were producing. That is one of the reasons we have set up the Commission on Taxation. I doubt the Senator is saying he is not interested in what the Commission on Taxation has to say. I would put it to him that his party must consider and evaluate where new sources of taxation are to be found.
There have been very considerable cuts in expenditure and those are ongoing. My own office had a budget last year of about €720 million, but that has been cut by 25% to under €500 million. That has happened across many Departments. The problem is that Fine Gael is very specific about where taxes should be reduced, such as in this recommendation, and quite extraordinarily vague about where expenditure should be cut. Fine Gael is not behaving any differently from any other Opposition party in the past, but while in theory the party has access to the books, it takes the view that it is its responsibility to put the opposite point of view to the Government. I respect that, as it is roughly the division of labour. The idea that the party can be vigorous on expenditure and that there would be no necessity whatever to raise taxes will not hold a moment's water if and when it returns to Government.
There have been many predictions of the future by Ministers today but the Minister of State's prediction of a Fine Gael and Labour Government has been the most passionate we have had. He must some concerns about that option. I cannot really speak for Labour Party policy but some of Fine Gael's views on accountability, transparency and value for money over the boom years of the Celtic tiger often won us no friends. If these views had been taken on board, we probably would not be in the mess we are in today. We can fight it on that rather than saying we are opposing for the sake of opposing. We have also put across very good policies in Opposition and they have been taken up by the Government as it recognises their worth. The Minister of State may be passionate about what he thinks on this, but I am afraid he is misguided.
Recommendation put and declared lost.
Sections 23 to 26, inclusive, agreed to.
NEW SECTION.
I move recommendation No. 8b:
In page 59, before section 27, but in Part 4, to insert the following new section:
"27.—Schedule 1 of the Principal Act is amended by substituting the following for paragraph (2) inserted by Part 1 of Schedule 5 of the Finance Act 2008:
"(2) Where paragraph (1) does not apply and the amount or value of the consideration for the sale is wholly or partly attributable to residential property and the instrument contains a statement certifying that the consideration for the sale is, as the case may be—
(a) wholly attributable to residential property, or
(b) partly attributable to residential property,
and that the transaction effected by that instrument does not form part of a larger transaction or of a series of transactions in respect of which, had there been a larger transaction or a series of transactions, the amount or value, or the aggregate amount or value, of the consideration (other than the consideration for the sale concerned which is wholly or partly attributable to residential property) would have been wholly or partly attributable to residential property:
for the consideration which is attributable to residential property, 0 per cent of the first €125,000 of the consideration, and 2 per cent of the balance of the consideration thereafter but where the calculation at a percentage rate results in an amount which is not a multiple of €1 the amount so calculated shall be rounded down to the nearest €.".".
This is something on which we will have to take a chance. When we talk about cutting stamp duty to 2%, the Minister of State tells us that it is up to 7% or 9% at the moment. There is very little happening in this section of the housing market. Many people in this area are losing their jobs, and not just estate agents. This sector of the economy is dead to all intents and purposes. It is not moving and nothing is happening. Things can done on a temporary basis but there is a need to do something to stimulate this section of the economy. A flat rate of 2% of something is better than 7% or 8% of nothing. That is the way the Minister for Finance should look at this. The Minister of State talks about doing innovative things. Let us do this and let us see if we can improve things quickly.
We have all addressed this on the last recommendation on VAT. It is yet another revenue cutting measure and there are no proposals on where the revenue would be made up. I am taking at face value the Fine Gael position that the deficit should not be increased, even in the short term, and if anything, reduced more than the Government is planning. No credible explanation of how this is to be done has been provided.
It is easy to understand how this can be done. Monthly transactions for second-hand houses were running at around 7,000 per month, but that has now dropped to 3,500. This market is slowing down and will gradually die away. There is always a bit of unpredictability. Fianna Fáil politicians are the best people to understand unpredictability. The Minister of State's former boss told us two years ago that anyone talking down the economy should go and jump in the river. With more than €100 billion borrowed two years later and with exposure to the taxpayer, Fianna Fáil should not lecture anyone about unpredictability.
There is a certain chance in many things we do. This is one of them. The Minister of State can reject it with the same dead hand of the Government that is too long in office and is too afraid to make a decision and do something that might be in any way radical. The Government is considering buying junk bonds for €90 billion, yet this Minister of State is worried about lost revenue that may come from this proposal which will be running into a few million euro.
Our estimates are much higher than that. The Commission on Taxation will be studying how property should be taxed, including any knock-on implications that may have for stamp duty. There may well be a case for reviewing how property is taxed in the round, but I do not think that should be done as a piecemeal exercise as contained in this recommendation.
Recommendation put.
The Committee divided: Tá, 16; Níl, 24.
Tá
- Bradford, Paul.
- Burke, Paddy.
- Buttimer, Jerry.
- Coffey, Paudie.
- Coghlan, Paul.
- Cummins, Maurice.
- Donohoe, Paschal.
- Fitzgerald, Frances.
- McCarthy, Michael.
- McFadden, Nicky.
- Norris, David.
- O’Toole, Joe.
- Quinn, Feargal.
- Regan, Eugene.
- Ryan, Brendan.
- Twomey, Liam.
Níl
- Brady, Martin.
- Butler, Larry.
- Callely, Ivor.
- Carty, John.
- Cassidy, Donie.
- Corrigan, Maria.
- Daly, Mark.
- Ellis, John.
- Feeney, Geraldine.
- Glynn, Camillus.
- Hanafin, John.
- Keaveney, Cecilia.
- Leyden, Terry.
- MacSharry, Marc.
- Ó Domhnaill, Brian.
- Ó Murchú, Labhrás
- O’Donovan, Denis.
- O’Malley, Fiona.
- O’Sullivan, Ned.
- Ormonde, Ann.
- Phelan, Kieran.
- Ross, Shane.
- White, Mary M.
- Wilson, Diarmuid.
Tellers: Tá, Senators Maurice Cummins and LiamTwomey; Níl, Senators Camillus Glynn and Diarmuid Wilson.
Recommendation declared lost.
Sections 27 and 28 agreed to.
Recommendations Nos. 9 and 10 not moved.
Section 29 agreed to.
SECTION 30.
Question proposed: "That section 30 stand part of the Bill."
County managers are paid an annual salary of approximately €165,000. How are their payments calculated when they retire after completing their seven years? It has been speculated that some are paid a gratuity of three years' salary. It would be shocking if a county manager was paid €500,000 on retirement. Will the Minister of State indicate whether that is indeed the case?
The Senator has raised a matter that is not in the Bill and I would need notice of his question before responding. I can reply to him by letter but I do not have information on his query immediately to hand.
Will the Minister of State indicate at the earliest opportunity whether it is true?
We are discussing the Finance Bill and the Senator's question does not appear relevant to that Bill.
As we were speaking about the cost of things, I thought it was relevant.
With all due respect, we could be discussing anything under the sun here.
We should really.
I am here to discuss the Finance Bill. The Senator's question is not related but I will pay him the courtesy of responding.
I appreciate that.
Question put and agreed to.
Sections 31 and 32 agreed to.
Title agreed to.
Bill reported without recommendation and received for final consideration.
Question put: "That the Bill be returned to the Dáil."
The Seanad divided: Tá, 23; Níl, 16.
Tá
- Brady, Martin.
- Butler, Larry.
- Callely, Ivor.
- Carty, John.
- Cassidy, Donie.
- Corrigan, Maria.
- Daly, Mark.
- Ellis, John.
- Feeney, Geraldine.
- Glynn, Camillus.
- Hanafin, John.
- Keaveney, Cecilia.
- Leyden, Terry.
- MacSharry, Marc.
- Ó Domhnaill, Brian.
- Ó Murchú, Labhrás.
- O’Donovan, Denis.
- O’Malley, Fiona.
- O’Sullivan, Ned.
- Ormonde, Ann.
- Phelan, Kieran.
- White, Mary M.
- Wilson, Diarmuid.
Níl
- Bradford, Paul.
- Burke, Paddy.
- Buttimer, Jerry.
- Coghlan, Paul.
- Cummins, Maurice.
- Donohoe, Paschal.
- Fitzgerald, Frances.
- McCarthy, Michael.
- McFadden, Nicky.
- Norris, David.
- O’Toole, Joe.
- Quinn, Feargal.
- Regan, Eugene.
- Ross, Shane.
- Ryan, Brendan.
- Twomey, Liam.
Tellers: Tá, Senators Camillus Glynn and Diarmuid Wilson; Níl, Senators Maurice Cummins and Liam Twomey.
Question declared carried.
When is it proposed to sit again?
At 2.30 p.m. on Tuesday, 9 June 2009.