I am not addressing you, Senator Cummins. I am addressing a general point that has been made in public debate. They are doing a grave disservice to the employment opportunities of children in this country in the future if they believe that an unsustainable level of public expenditure on salaries, pensions, transfer payments and benefits can be sustained at the expense of future generations of Irish men and Irish women. Senator Phelan also drew attention to the question of the reductions in expenditure.
In regard to dental benefit, this is part of the treatment benefit scheme provided by the Department of Social and Family Affairs and is funded from the social insurance fund. The treatment benefit scheme was restricted in the 2010 budget with entitlements under the scheme limited to medical and surgical appliances and the free examination aspects of the dental and optical benefit schemes. This restriction, which the Government will review in the context of budget 2011, is part of the Government's efforts to achieve savings on expenditures from our social insurance fund. The retention of the free yearly examination will still provide for the detection of disease at an early stage.
The dental treatment services scheme is a demand-led dental treatment service for adult medical cardholders, which was introduced in 1994. The service is offered by 1,275 dentists who hold a contract with the Health Service Executive. In the past five years expenditure in the scheme has risen by approximately 60%. In 2009, expenditure reached over €86 million. That is an increase of €22.60 million over the 2008 expenditure figure of €63.4 million.
The reduction in that expenditure in 2010 reflects the imperative to achieve overall reductions in public expenditure while providing essential and developing health services to patients and the public. The Minister for Health and Children and the HSE are currently examining proposals to contain expenditure at the 2008 levels.
Senator Twomey also raised the question of the pensions of general practitioners. I am not completely clear on the difficulties being raised by the Senator in this area but as he said, he might clarify the issue with my officials and I will examine it. I am aware that the Revenue Commissioners published a briefing document on their website last year on the issue of tax relief on pension contributions. If it helps, I can arrange for the Senator to have a copy of that article.
Senator Twomey referred to primary care centres. A recommendation relating to primary care centres has been tabled for Committee Stage at which time, with the Chair's permission, I will respond to the Senator's comments. On the tax treatment of locum general practitioners, there has been no change in the long-standing Revenue practice in regard to determining the tax status of locums working as substitutes in general practices and other medical areas. The position is that notwithstanding that an individual may in regard to engagement be described correctly or otherwise as a locum, the Revenue approach is to examine all of the facts and circumstances of each case having regard to the code of practice for determining an individual's employment or self employment status and having regard to relevant case law on the subject of a contract of service, in the case of an employed person, and a contract for services in the case of a self employed person.
As a consequence of a recent appeal commissioner's determination in this area, the Revenue, through various forums, has given renewed publicity to its long held position on the tax treatment of locums engaged in the field of health care and pharmacy. Essentially, the distinction between a contract of service and contract for services is at the heart of the Revenue law treatment of income under the different cases. There is a long established case law governing this matter. It turns on the precise characteristics of the particular relationship between the particular locum and particular medical practitioner or pharmacist in the case of a pharmaceutical operation. It is a matter which has always been determined on a case by case basis. It is difficult to see how it can be addressed in a legislative manner. I am aware the appeal commissioner's decision has given rise to considerable debate within the medical profession. However, it does turn to a determination that is made on a case by case basis.
Senator Twomey also raised a number of issues in regard to residents and domicile in the context of the domicile levy. It is no longer possible for an individual to avoid a significant capital gains tax liability on company shares by becoming non-resident for a temporary period. The Finance Act 2003 provides that an individual who becomes non-resident for a period of not more than five years and while non-resident disposes of a shareholding equal to or greater than 5% of the issued share capital in a company or of a market value greater than €500,000 will be liable to Irish capital gains tax on the disposal on his or her return to Ireland. The Finance Act 2006 prevented individuals avoiding Irish capital gains tax by transferring shares to spouses who became temporarily non-resident.
Senator Twomey was anxious to give some leeway to non-resident individuals who wish to invest in the country. Non-residents are only liable to Irish tax on Irish sourced income and Irish specified assets. For an individual to be liable for the domicile levy he or she must be a citizen of Ireland and domiciled in Ireland. The levy provisions contain a measure whereby the Revenue Commissioners may give an opinion to an individual who is considering making a significant investment in the State as to whether or not that individual would be likely to be regarded as an individual who is domiciled in and a citizen of the State in a relevant tax year. This should facilitate the individuals to whom Senator Twomey referred.
Senator Twomey also asked about the potential yield from the levy. While the number of non-resident individuals who file an Irish tax return is known, many of them will have a foreign domicile or are not Irish citizens. The levy only applies to individuals who have Irish located assets worth €5 million or more, with Irish income in excess of €1 million and an Irish tax liability of €200,000 or less. No correlation is currently made between an individual's income tax liability and the value of his or her Irish assets. For these reasons, it is not possible to estimate the potential yield from the levy.
With regard to the availability of short term hire cars, it is not obvious as to what market failure, if any, could contribute to a shortage of such vehicles and would require action by Government. In the past, there was part relief for VRT on cars used to service short term self drive contracts, including cars hired on contract for 35 days or less. However, arising from Revenue audits, there was strong evidence the scheme was being abused by the sector. Following consultations with various parties in the car hire sector, legislation to phase out this relief was enacted in December 2008. It must be recognised that the short term car hire sector made considerable savings on VRT liabilities by switching more of the rental fleet to lower CO2 emitting vehicles. Indeed the cost of new cars has reduced. With the July 2008 rebalancing of the VRT system, the average VRT paid on new cars has for example between the first half of 2008 and now reduced by more than 30%. An attempt was made in previous financial legislation to facilitate this particular sector through the provision of a VAT relief. The difficulty was that the relief in itself became the subject of widespread abuse and the vehicles concerned were not used exclusively for tourist purposes. I accept a difficulty exists. However, the difficulty stems from the nature of the tourist trade in Ireland where demand for such vehicles is greater for a limited period of the year than for the remainder of the year. Clearly, this matter will be a priority for the Department of Arts, Sport and Tourism.
Senator Twomey also raised the impact on the public finances of the initiatives being undertaken in the banking sector, a legitimate and important question which is quite distinct from the issue I addressed earlier in my speech. As I have made clear previously, it is likely that some institutions will require additional capital to absorb the losses arising from the transfer of their impaired assets to NAMA and to maintain appropriate levels of capital. I have also made it clear that to the extent that sufficient capital cannot be raised independently or generated internally the Government remains committed to providing such banks and building societies with an appropriate level of capital to continue to meet their requirements in a manner consistent with EU State aid rules on the credit needs of the Irish economy.
As Senators will be aware, a total of €11 billion in capital has been to date provided to the three largest banks, including Allied Irish Bank, Bank of Ireland and Anglo Irish Bank. Any further capital provision to financial institutions will, of course, be undertaken in a manner which minimises the impact on the public finances having regard to the options available for such capital provision in any particular case. Senators will appreciate that such investments are not undertaken to bail out the banks but to maintain our systemically important financial institutions with appropriate capital levels to prevent greater costs for the economy and taxpayer.
In response to Senator Twomey's points on developers transferring assets to their family members, the NAMA legislation makes provision in relation to various scenarios in regard to the collateral and assets underlying the loans that will be transferred to NAMA. I am not in a position to comment on any specific case. However, I do want to point out that the legislation provides NAMA with the extensive range of enabling powers it requires to protect taxpayers and to ensure the optimum outcome for the State. Section 211 provides that the High Court may declare disposals of assets of debtors and associated debtors to be void if the court is satisfied that the effect of that disposal is prejudicial to the acquisition by NAMA or a NAMA group entity of one or more bank assets and it is just and equitable to do so.
On Senator Coghlan's points, over-capacity in the hotel sector is complex and ideally requires a market response over time. I will respond further on this matter later. NAMA is being established to remove land and development loans from the balance sheets of the relevant credit institutions. The majority of hotel loans generally fall into the category of commercial property loans and will only be transferred if they are associated loans. It has been stated time and again that NAMA will in the first instance purchase loans from participating financial institutions. It only acquires property in the context of enforcing security if and when the need arises in respect of non-performing loans. In the interim, with regard to the transfer of loans to NAMA, section 66 of that legislation provides that applicant institutions must continue to administer, service and deal with all the loans that are eligible for transfer in the same manner as would a prudent lender.
Senator Alex White suggested that I was perhaps indulging in wishful thinking when I suggested our economic position is improving. I beg to disagree. There are indications that the economy is stabilising. Car sales are up and the decline in retail sales is slowing. In addition, industrial production improved in January. This will help our export performance. The live register data indicates that the unemployment rate declined in February. While that decline was modest, it is moving in the right direction. Most economic commentators now expect that the economy will bottom out in the first half of the year with positive year on year growth expected in the second half of the year. This was my Department's view on budget day. The indicators published since are consistent with this forecast.
Senator Coghlan spoke about the hotel sector and its difficulties. This is a complex area in which a number of factors are involved. They may be summarised as demand and cost issues, difficulties in accessing credit and over-capacity. Any change in the claw-back part of the tax incentives would have to comply with State aid rules and be approved by the European Commission before proceeding. It is by no means clear that these changes would obtain the necessary EU State aid approval and if they did the condition attaching to any changes could be restrictive. The claw-back provision is a feature of all property schemes and not alone hotels. Senator Coghlan also referred to the need for funding for certain heritage properties and in particular for Killarney House. The properties mentioned are already in the ownership of the State and managed by the Department of the Environment, Heritage and Local Government with the assistance of the Office of Public Works. Therefore section 28 would not apply to such properties. However, I understand the Minister for the Environment, Heritage and Local Government has recently indicated that his Department in conjunction with the Office of Public Works is close to finalising a programme in respect of essential repair works for Killarney House and that funding is being provided for these works in the current year.
I note Senator Ó Brolcháin's comments on the uses of tax reliefs and the need to keep them under review to ensure they are still relevant. I disagree with Senator John Paul Phelan in suggesting the Bill does nothing for job creation. When I outlined the key measures in the Bill earlier I referred to a number of measures specifically designed to assist in this area.
Senator Dearey welcomed the extension of the scheme of accelerated capital allowances for expenditures incurred by companies on energy-efficient equipment to additional technological categories and especially to the catering and hospitality sector. Senators Coghlan, Mooney and Norris also referred to the difficulties facing the restaurant sector and this scheme will be of assistance to that sector. I remind Senators that this scheme has been extended to additional categories of equipment each year since its introduction in the Finance Act 2008.
Senator Mooney suggested applying a lower VAT rate to restaurants to boost the sector, but this would be very costly to the Exchequer. It was an option I examined in the lead up to the budget. It is important to note that the restaurant and hotel sectors already enjoy the reduced rate of 13.5%. This compares favourably with the United Kingdom treatment of tourist and catering services where such services are subject to a standard VAT rate of 17.5%. In addition since 2007 businesses can recover VAT on conference-related accommodation expenses and in the budget excise duties on alcohol products were reduced by approximately 20%, which should assist hotels and restaurants as well as other sectors of the alcohol industry.
Senators Norris, Burke and Twomey also mentioned that the date from which the windfall tax applies had adverse effects in particular circumstances and cases. As I mentioned, I do not propose to discuss particular cases because the measure will be discussed in more detail on Committee Stage as a recommendation has been tabled for debate. All legislative measures, including tax measures, need to commence on a certain date and there will always be cases affected by proximity to the date. Senator Twomey made the point that the windfall tax rate will only apply to any portion of the gain which is attributable to the decision to rezone land. If a draft development plan is announced which shows that a parcel of land is to be rezoned, the land may increase in value as a result of that announcement. Such an increase in value is not attributable to the rezoning decision as such and would therefore not be subject to the rate. Any increase in the value of the rezoned land which is not attributable to the rezoning decision will not be subject to the 80% rate.
On Committee Stage in the Dáil, Deputy Bruton proposed an amendment to the windfall tax to remove a particular heritage property from the scope of the tax as an isolated case. Senator Coghlan has now argued that two further properties should be exempt from the scope of the tax. This underlines the point that the exemption proposed could not simply apply to a single property so the isolated case argument does not stand up.
I understand Senator MacSharry's concern regarding the potential application of the windfall tax rate to what he described as "brownfield sites". However, the three conditions as set out in legislation must be met before the rate will be applied. These conditions are that the land must have been rezoned after 30 October 2009, the land must have been sold after 30 October 2009 and a gain must have been realised.
Senator Norris also expressed regret at the necessity to make public bodies subject to VAT in accordance with the recent European Court of Justice judgment. In order to comply with the judgment, the Value-Added Tax Act is being amended to provide that public bodies, including local authorities, are made subject to VAT from 1 July next where they engage in activities that could lead to a distortion of competition with private operators. Although some services will become liable to VAT such as waste collection, landfill and recycling services, off-street parking and toll roads, many other services operated by public authorities will remain exempt from or outside the scope of VAT, such as the supply of water, education, health and passenger transport, parking fines, and fees for passports and driving licences. Community and sporting facilities will remain exempt for the present, giving time for a more complete examination of the issues, including an analysis of how the new rules might best be implemented.
I thank Senator Quinn for his broad support for the thrust of the Bill. I note that he referred to research and development and, of course, there are enhancements to the research and development tax credit scheme in this Bill as there have been in most of the Finance Bills that I have taken through the Oireachtas. One significant advantage of our research and development tax credit scheme is that it is open to all companies operating in Ireland, both multinational and indigenous, to benefit under the scheme on the basis of increasing their expenditure on research and development and availing of a tax credit of 25% on that increased expenditure.
Senator Paschal Donohoe also referred to the research and development tax credit scheme and the need to encourage "spin-out" activity from research and development. He gave examples of where that is already happening and referred to the recommendations he is sponsoring on Committee Stage to encourage this activity further. I am aware of the recommendations and, of course, the detail of the recommendations was subject to significant debate in the other House. I look forward to further debating the issue on Committee Stage. While I have undertaken to examine the proposals contained in the recommendations further, there is already a tax incentive in place to encourage the types of spin-out and asset-transfer examples given in his speech. This is the scheme of capital allowances for the provision of intangible assets which was introduced in section 13 of Finance Act 2009.
I welcome the support given by Senators MacSharry, John Paul Phelan and others on the extension of mortgage interest relief for those who bought at the peak of the housing market. The extension of mortgage interest relief will help those who purchased in 2004 or later and the transitional measures may act as a stimulus to those who wish to enter the housing market at this stage. I emphasise my commitment to remove this relief altogether by 2018 which will provide significant savings to the Exchequer.
I thank Senators Hanafin and White for their supportive remarks and I agree with them that it is crucial that we try to develop an environment which encourages the growth of sustainable jobs in an export-orientated economy.
Senator Mooney asked for more details on the national solidarity bond. In announcing the bond in the budget, I said it would enable ordinary citizens to contribute to economic recovery and development. As I indicated at the time, the new bond will not be used to fund additional spending. It is an addition to the existing range of State savings schemes for retail investors administered by the NTMA such as savings bonds and savings certificates. It will add diversity to the State savings schemes by allowing retail investors to invest for a period of up to ten years with a redemption bonus on maturity in addition to the interest payable annually. The redemption bonus will be exempt from income tax while the annual interest will be subject to DIRT. The State savings schemes have long been a cornerstone of Exchequer financing. Investors in them know that they are investing in a State-guaranteed product. They also know that their investment is in turn helping the State to finance the spending it undertakes to promote the economy, provide for its capital investment programme and create employment.
To address a point raised by Senator O'Toole, the Department of Social and Family Affairs has recently clarified the position on the PRSI treatment of approved retirement funds. These approved retirement funds are not pension schemes and are instead retirement funds. Under current legislation, withdrawals from them are liable for PRSI at class S. In terms of imputed or deemed distributions, the amount chargeable to income tax is also liable to PRSI at class S. While this is the current position, the PRSI treatment of approved retirement funds remains under active consideration by the Department of Social Protection.
As regards Islamic finance, I thank all Senators, in particular Senator Boyle, for their appreciation of the importance of the financial services industry to this country. It continues to buck the trend even in this difficult economic climate with employment holding up at 25,000. That is despite the difficulties in the domestic banking sector. My job is to ensure that in the face of the competitive threat from established and emerging markets, the International Financial Services Centre is enabled to remain competitive in all areas.
Senator Cummins introduced a somewhat more contentious note in his contribution and suggested that the general trend of Government policy did not support the assertions the Government was making in that regard. Anyone who examines the position can see we have certain innate advantages which brought us a period of substantial economic advance and which remain, including a young highly educated and flexible workforce, a substantial knowledge-intensive industrial base, a business and innovation-friendly tax system and membership of the biggest trading bloc in the world, recently renewed by the overwhelming "Yes" vote in the referendum on the Lisbon treaty. Members of both Houses must note the regular commentary from other countries on our handling of the recession. Despite much of the criticism expressed in this House today, the fact remains that the president of the European Central Bank, Jean-Claude Trichet, has made the point this year that in the case of Ireland very tough decisions have been taken by the Government and rightly so. A colleague of his in the governing council recently stated that the Irish measures are courageous and are going in the right direction. The French Finance Minister, Ms Christine Lagarde, recently said Ireland had set the high standard other countries must follow. The German Minister for European Affairs stated: "I think there is a deeply rooted trust and confidence in [Ireland's] ability to sort out its problems ... There is a fundamental belief that the Irish are going to solve it." These political assessments abroad are supported by reputable international economic commentators. The chief economist of Citibank, Mr. William Buiter, one of the most respected economists in the world, described Ireland's intelligently designed approach to restoring fiscal stability as a model of how to do things. I appreciate Senator Cummins did not agree that it was such a model but it is interesting that people outside the country see clearly that we are moving in the right direction. Mr. Martin Wolf, chief economics editor of the Financial Times, said last month that he admired very much what the Irish policymakers had done and that they really seemed to understand the implications of being in a monetary union. He said Ireland was the only country in this situation that did. He added that the Irish policymakers had dealt with this issue more seriously and reasonably than any other euro member.
There is an extraordinary international consensus among commentators, institutional advisers and those in political positions of responsibility that the Government, faced with the extraordinary storm of the last 18 months, has taken the correct decisions in very difficult economic circumstances. This has restored a great deal of the international confidence in the county that was so absent at the beginning of the crisis. Confidence is a fragile plant which must be nurtured very carefully. We must translate this growing and obvious international confidence into faith in ourselves and our strengths to tackle the different economic problems we face. We can tackle them. Whether it is a question of the provision of fiscal incentives, the resolution of the banking crisis or, above all, creating jobs and renewing every sector of the economy, the prerequisites are that we are competitive, that the public finances are in sound shape and that the banking system is capable of supporting credit in the real economy. The Government has taken decisive steps in all these directions and will continue to do so.
Before concluding, I would be obliged if, in accordance with Standing Order 131, the Cathaoirleach directed the Clerk of the Seanad to make the following corrections to the Bill: in page 32, lines 34, 36 and 39, to include the words "of subsection (1)" before "apply" and "applies" respectively, to identify that the paragraph references pertain to subsection (1); and in page 159, to correct the indentation of lines 42 to 47, inclusive, to the level of paragraph (b) above.
I thank Senators for a constructive debate.
