I welcome the Minister of State, Deputy Brian Hayes.
Finance Bill 2013: Second Stage
I thank the Leas-Chathaoirleach for giving me the opportunity to come to the Seanad once again to take Second Stage of the Finance Bill 2013. When he introduced the Bill to the Dáil, the Minister for Finance, Deputy Michael Noonan, noted that he was pleased to do so at a time when we could be more optimistic. That was just one month ago, but even since we have seen further signs of economic recovery, of which I am sure Senators are aware. We all know that the State has been through the most severe downturn in its history, but I believe, as does the Minister, that we can say with confidence that we have begun to turn things around, due in no small measure to the sacrifices of the people. As a Government, we have made many difficult and sometimes unpopular decisions, but we are beginning to see that these decisions have been worthwhile. We are on track to bring the budget deficit below the target of 3% of GDP by 2015. The banks have been recapitalised and regained access to borrowing markets. The economy is expected to record growth in 2013 for the third straight year. For last year as a whole, a GDP growth rate of 0.9% is projected, with the Department of Finance expecting the rate of growth to increase this year to 1.5% and further strengthen in the medium term. The strong performance of net exports also means that the current account for the balance of payments is back in surplus. In fact, a current account surplus of just over 3% of GDP is projected for 2012, rising to over 4% in 2013.
Our progress is reflected in investors' confidence in our ability to successfully tackle our economic and budgetary problems. The yield on the 2020 Irish Government bond has fallen from a level of 14.9% over 18 months ago to under 4% at the start of February and we are all aware that the National Treasury Management Agency, NTMA, was able to successfully re-enter borrowing markets last week and issue a benchmark ten year bond at very favourable rates of just over 4%.
On the fiscal side, the public finances have stabilised and the budget deficit has started to decline. This year the general Government deficit will be reduced further to 7.5% of GDP. In order to meet this target, budget 2013 introduced a package of adjustment measures, totalling €3.5 billion, and the Government is well aware that these measures will impact on citizens on both the tax and expenditure sides.
However, sustainable public finances are a prerequisite for sustainable growth and job creation. That is why, as Senators are aware, the Government has worked so hard at a European level to ensure that we achieved a deal in relation to the promissory notes and the progress announced recently in terms of lengthening the maturities of our European loans.
As we now turn to the Finance Bill itself, I will restate the point, already made by Minister, that despite the progress that we are making in relation to fiscal and banking matters, the Government still considers unemployment to be unacceptably high and the biggest and most important challenge that we must address. The Bill should be viewed as one element of a wider strategy to support economic activity that is complemented by the Action Plan for Jobs 2013 which the Minister for Jobs, Enterprise and Innovation published recently.
The Bill begins to implement the ten-point tax reform plan announced in the budget. This plan includes measures such as reforming the three-year corporation tax relief for start-up companies, increasing the cash receipts basis threshold for VAT, amending the close company surcharge to improve cash flow for SMEs and extending the foreign earnings deduction for work-related travel to certain additional countries.
Senators may be interested to note that the public consultation on taxation of micro enterprises which was also a part of this plan has closed. The submissions received are being assessed and analysed by officials of the Department of Finance and the Revenue Commissioners with a view to helping to cut compliance costs and make starting a business less daunting for ordinary people.
I add that the introduction of the new JobsPlus scheme later this year will provide grants for employers to encourage them to employ individuals who have been on the live register for longer than 12 months. Two more pro-employment measures which I might highlight for the House are the amendment of the key employee provision of the research and development tax credit regime and the extension of the employment and investment incentive and the seed capital scheme.
I now turn to the Bill but of course I cannot cover every individual measure in the time available. The Bill comprises 108 sections, two Schedules and 177 pages. We will have an opportunity tomorrow to go through some of it, if Senators wish. It is a significant piece of work and not only by officials and legislators. Measures are not simply devised in Merrion Street. Rather, they represent the product of much discussion and dialogue across all Departments, with representative organisations and with individual citizens. I have chosen to highlight some measures which I think may be of particular interest to Senators.
Part 1 of the Bill deals with the income levy, universal social charge, income tax, corporation tax and capital gains tax. Section 3 provides for the changes to the universal social charge announced in budget 2013, which applies the standard rates of USC to those aged 70 years and over, as well as to medical card holders, both PAYE and self-employed income earners, who have income in excess of €60,000 per annum.
Section 5 relates to the key employee provision of the research and development tax credit, the amount of time an employee must spend on research and development in order to qualify is being reduced from 75% to 50%. Sections 6 and 45 amend sections 71 and 29, respectively, of the Taxes Consolidation Act 1997. These amendments counter potential avoidance mechanisms in relation to non-domiciled individuals.
Section 8 gives effect to the budget day announcement that maternity benefit payments will be treated as taxable income with effect from 1 July 2013. As is the case with all social welfare payments, maternity benefit payments will continue to be exempt from the USC and PRSI.
Section 9, which was inserted on Committee Stage in the Dáil, extends mortgage interest relief for additional tranches of loans that are drawn down in 2013 for building or improving a principal private residence, where the first part of such a loan was drawn down in 2012.
Section 10 provides for an extension of the foreign earnings deduction for work related travel to a number of African countries. We introduced this last year and it has been a novel commonsense proposal in terms of encouraging the export industry but specifically agrifood exports into parts of the world where we had not previously gone.
Section 13 makes a number of changes to provisions on benefits in kind, while section 14 deals with various issues related to ex gratia payments, including the abolition of top slicing relief which the Minister also announced on budget day. Section 16 makes changes to the basis of assessment for rental income or profits sourced from outside the State.
Section 17 provides for pre-retirement access to funded additional voluntary contributions. Section 17 relates to a concern that was raised in the House last year to which the Minister has responded to allow the withdrawal on a once-off basis of 30% of the value of additional voluntary contributions.
Section 18 includes two new provisions which apply to individuals dealing in or developing land. Section 19 provides for changes to the scheme of tax relief for donations to approved bodies as announced by the Minister in the budget. Section 12 relates to stock relief and extends the general 25% rate and the 100% young trained farmer rate of stock relief to 31 December 2015. The Bill also extends the definition of registered farm partnerships.
Section 21 relates to film relief. Following a review by the Department of Finance, film relief will no longer be available to investors in qualifying firms. Instead, a payable tax credit will be paid directly to a producer company which will benefit significantly and support the industry. The Minister is setting the rate for the credit at 32%.
The extension of and changes to the employment and investment incentive seed capital schemes are set out in section 22 of the Bill. Section 23 increases deposit interest retention tax, or DIRT, by 3% as announced in the budget. Section 24 reduces the tax credit available for donations of heritage property to the State from 80% of the market value to 50%. Section 28 increases the amount of group expenditure and research and development activity excluded from the incremental basis of calculation from €100,000 to €200,000.
Section 30 relates to the living city initiative. This is a pilot scheme and it will be confined to certain designated areas for the moment. On foot of the requirement to obtain EU state-aid approval, the provision will be subject to a commencement order. Amendments to the Taxes Consolidation Act 1997 are made in section 31 to establish an accelerated capital allowances scheme pertaining to the aviation sector.
Section 33 amends the close company surcharge rules and increases the de minimis amount of undistributed investment and rental income which may be retained by a close company without giving rise to a surcharge from €635 to €2,000. The same increase will apply in respect of the surcharge on the undistributed trading or professional income of certain service companies.
Section 34 extends the three-year corporation tax exemption for start-up companies which has been a key feature of what we have attempted to do in this and previous budgets. Section 39, introduced on Committee Stage in the Dáil, contains a technical amendment to provisions on the exit tax rate for payments to companies from life insurance products and investment funds.
Section 40 increases the rates of tax applying to life assurance policies and investment funds by three percentage points with effect from 1 January 2013. Section 41 provides for the introduction of a tax regime for real estate investment trusts, or REITs. The Minister for Finance took into account concerns expressed by Deputies on Second Stage and introduced on Committee Stage two new investor protection measures to the REITs regime. These measures will provide additional safeguards for REIT investors without adding cost or complexity to the regime. They provide for a debt-equity ratio which restricts the level of borrowings within REITs and for a good-asset test which requires that a minimum of 75% of the assets of a REIT are assets of a property rental business.
Section 43 provides for a capital gains tax, or CGT, rate increase from 30% to 33% as announced on budget day. All capital taxes went up in the budget from 30% to 33%. Section 47 relates to changes in CGT relief introduced in last year's Finance Act for individuals who dispose of agricultural assets to their children and certain other individuals. Section 48 provides for the relief from CGT for farm restructuring which measure was announced in the budget.
Section 49 gives effect to the increase in the rates of tobacco products tax which, when VAT is included, amount to 10% on a pack of 20 cigarettes, with pro rata increases on other tobacco products. The section also provides for a further increase of 50 cent per packet of roll-your-own tobacco.
Section 51 introduces a new section in mineral oil tax law to provide for partial relief by way of requirement for auto diesel used in the course of business by qualifying road haulage and bus operators. This was an important issue on which road hauliers had campaigned hard for the past 12 months and which the Minister conceded in the budget. He extended it to bus operators, which was an important additional relief for that sector of tourism and transport.
Section 52 amends the general provisions of excise law, including provisions to ensure repayment of overpaid excise duty does not result in unjust enrichment. Section 56 provides for the indictable offence of the illicit production of tobacco products, as well as the offence of selling or the delivery of unstamped tobacco products. Section 58 gives effect to the increase in the excise rate of alcohol products tax, inclusive of VAT, which amounts to approximately 10% on a pint of beer or cider and a standard measure of spirits and a €1 increase on the standard bottle of wine.
Section 61 provides for a number of amendments in preparation for the commencement of the solid fuel carbon tax with effect from 1 May this year as the Minister announced in the budget. Section 63 gives effect to the revised system of VRT which was also announced and is effective from 1 January this year.
Part 3 of the Bill deals with VAT. I will not go through the individual sections because they are straightforward.
Part 4 of the Bill deals with stamp duties in sections 79, 80, 82 and 83 which Senators can read. Part 5 of the Bill deals with capital acquisition taxes, in line with the measures the Minister announced in the budget, whereby all of the capital taxes have moved up three percentage points from 30% to 33%. That is dealt with in sections 85 and 90.
Part 6 of the Bill deals with miscellaneous provisions in sections 94, 96, 100, 102, 103 and 105. We can deal with these provisions in greater detail tomorrow.
The Bill forms an important part of the parliamentary and legislative year. It will bring us closer to achieving our deficit targets by the end of 2013. The Government is adamant that we must be below a budget deficit target of under 3% by 2015 and the adjustment required in the context of the budget is a key requirement for Ireland's comeback. We are doing very well in what is required, but that is a difficult story to tell the people because while at the macro level things are improving significantly, at a micro level people do not see it in their daily lives, as we know from the lives of our constituents.
The task we face in the Bill and other measures the Government will announce is how to provoke the domestic economy. How do we have growth-friendly fiscal consolidation as the Europeans call it? Some might describe that as a contradiction in terms. On the contrary, we have shown that since 2008 the previous Government and this Administration have effectively taken out €28.5 billion in that period, yet we have seen growth in the past three years at twice the rate across the European zone. If one looks at the matrices of the 27 member states and even of the 17 eurozone countries, growth is flat-lining in Spain, France and Italy. Some shocking examples of the tragedy of the recession are unemployment rates of between 24% and 26% in some member states. There are quite a few crumbs of comfort and one is in the data for unemployment in the State. Having been stubbornly high for so long, at 15%, it has been on the way down in recent months and now stands at 14.2%, which is far too high for this economy.
The No. 1 task of the Government for the rest of this year and beyond is to give an opportunity to people, at the micro level, to get back to work, get the economy working and provoke domestic demand. By doing that, we can return to the kind of growth rates we all want to see. Budget 2013 is an essential part of that and we present it with confidence to the House.
I must apologise for having a cold. I welcome the Minister of State to the House. Notwithstanding the difficulties, having someone with the experience of Deputy Michael Noonan as Minister for Finance, ably assisted by the Minister of State, is something I welcome. As a nation, we are lucky to have him. Naturally, the targets remain the same for both sides of the House and what divides us politically is how the ends are achieved.
There were choices available in the Finance Bill. The standard banter in both Houses refers to how the troika insisted on this or the memorandum of understanding dictated the other. I have attended our delegation's meetings with the troika on numerous occasions. In each meeting, the troika is specific on the fact that the bottom line must stay the same and how one arrives at the bottom line is up to the Government of the day. In addition, the previous Government is in the past and our job is to hold the current Government to account. Notwithstanding that, and taking us back to the Order of Business, we cannot have the Taoiseach and the Tánaiste taking the spoils, receiving awards and appearing on Time magazine and taking the credit for bringing Ireland under control when the Minister for Finance, Deputy Noonan, described the late Brian Lenihan as a brilliant fiscal manager who had taken some bad decisions on banking. However, he did not blame him for that on the basis that he was provided with poor data at the time. We must acknowledge these things. We cannot celebrate the so-called deal for the Cypriots. How did Fianna Fáil manage to create a crisis in Ireland, Britain, France, Spain, Portugal, Cyprus, the United States, France, part of Germany and Japan? We have really left behind the GAA and the Catholic Church if our focus------
There is a Fianna Fáil cumann in Japan.
-----has managed to dictate the pace in all of those countries. Whatever about the results in last year's season, this is about this year's season. We must adjudicate on the games, tactics and resources that player managers are using at this moment. In that context, there were choices to be made on the Finance Bill. We put forward budget proposals. Some were the same, some provided alternatives. Some decisions are unavoidable but in other cases there were clear choices.
Regarding the universal social charge, 3% or more was expected on incomes over €100,000. Far from being a measure that would bring down the house, people in that income bracket were ready for the increase. They expected it to happen. The Labour Party was pressing for the measure and it did not materialise, which clearly led to some banter behind closed doors. It was a missed opportunity. Additional funds could have been provided to offset some of the more difficult measures for families. Rather than hitting the families, we could have brought in income otherwise.
The Minister for Transport, Tourism and Sport, Deputy Varadkar, seems to agree with, and has put to Cabinet, the idea of a levy on off-licence sales of alcohol. Nothing has materialised since he did so. I have a personal view on suicide prevention and a policy paper I wrote suggests the money should be spent specifically on that area of mental health. An amount of money, €120 million, is available in that area.
I refer to the application of the property tax. There could have been a fairer way and this has been outlined in previous debates. The principle underpinning the tax is not the issue. In 1977, the people were done an injustice by Fianna Fáil in government, although the manifesto of every political party in that general election proposed something similar. That Government did not do us a good service. We needed to reform how the tax was applied and calculated rather than abolish it but we did not and Governments have been paying for it since. The regions have suffered because they were unable to finance their own development. They have been dependent on the proximity of a Minister to bag a capital project in their area, no matter which party is in government. I do not mean that as a criticism of this Government specifically or to absolve previous Governments regarding their management.
I refer to mortgage arrears. I have pushed this issue, even when I sat on the Government benches. The Minister of State will acknowledge there was much behind the scenes support for my Family Home Bill in 2011 but when we debated it in the House, it was rejected by only three votes. The Minister of State said during the debate that there was no issue, the code of conduct was going exceptionally well and there was no cause for alarm. However, the issue has seriously worsened. We have had the Cooney and Keane reports and any amount of commentary nationally in the House and on the airwaves as interest groups and so on called for measures to be introduced. The reality is in recent weeks the Government has handed full control to the banks. Senator Barrett, myself and others have joked in the House in the past few years about the mythical back stairs that seems to be for the exclusive use of developers and bankers. One wonders whether there has been a virtual seat for the banks at the Cabinet table.
Given what was announced last week, all that needs to be done is to appoint a banker to the Cabinet because the proposals put them in full control. I am sure Members are receiving representations throughout the country about this. Today, acting as an intermediary, I was asked by people in mortgage arrears with a particular bank to be considered for its mortgage-to-let product against my advice. However, that is the only product they feel they can afford. I said I would ask for this on their behalf. The bank came back and said it was not prepared to consider the proposal but that it would allow for a reduced payment for a further three months during which time it expected the people to pay down secondary debt and then be in position to meet full repayments on the mortgage. That is a fantasy. This was superficial and not a real engagement to tick the boxes for the regulator or the Government and whoever else oversees the sector. This interaction will be repeated but now the code of conduct has been amended and the good protections regarding contact by financial institutions and so on have been removed. Those in distress can effectively be plagued to agree a solution designed by the bank. How many people have been offered a solution whereby 40% of the loan will be warehoused for 20 years? Most people in difficulty are aged between their late 20s and late 40s. Not many of them have been told that having paid off ten years of a 25-year mortgage, they are a good bet because they or their partners will get a job again and the mortgage can be extended to 25 years. It would help the banks because it would be more profitable for them at the end of day but it would be a major help to the people in difficulty with the knowledge that they can keep their home. Senator Hayden has been correctly vocal about the rights of people renting in the buy-to-let sector where there will be a focus on repossessions. A receiver will immediately move to get tenants out in order that the property can be sold because investors want to buy with vacant possession.
I acknowledge that macroeconomic indicators are coming into line but at what cost? There were, and are, choices but the Government does not seem to be grabbing them. There is banter in the House during debates as well as justified criticism and constructive criticism.
The Minister and the Minister of State enjoy the support of everyone in reaching the targets set. However, can we start pushing people out front in the solutions we ought to use? The precedent set in Cyprus is not a good sign for this country's corporation tax rate or burning depositors, with senior bondholders, rather than protecting them.
I welcome the Minister of State to conclude the debate on the Finance Bill 2013 between today and tomorrow. It is the crucial legislation in raising revenue for the State.
On Senator Marc MacSharry's points on the 2008 Irish bailout package, Cyprus's deal was deemed so unacceptable that there was not one single vote in its parliament in favour of the package. That should have happened here when the troika came knocking on our door. The deal done at the time of our bailout was so harsh and unacceptable that the Government which has taken up the mantle from the previous Government has tried to reorganise many of the conditions imposed. It has been successful in having the repayment period lengthened and the interest rates reduced. The conditions of the deal were so bad that both Houses of the Oireachtas at the time could have legitimately voted “No”. We also see it in the ways the troika has allowed certain terms to be changed such as the arrangement for the promissory notes. We have also been told there may be further deals in the offing.
In 2008 €34 billion in revenue was raised through taxes. This year it is projected that €43 billion, with €1 billion in rates, will be raised. In five years there has been a significant increase of €10 billion in the tax take coming out of individuals' pockets, corporations, retailers and many other businesses. The public spend in 2008 was €49 billion, while this year it will be €48 billion. All of the adjustments are being made on the side of the tax take. Some may not be pleased about where we stand with expenditure on social welfare, owing to the fact that there are so many more out of work, or in servicing the national debt. While we are making cuts in Departments, we are spending more in these two specific areas. Individual spending is also tight. Even those who always had money to spend now find it tight. This, in turn, impacts on economic growth and without growth, the show will be over. This also goes for Europe and member states. In the United Kingdom the budget projected economic growth of 0.6% this year, which makes one wonder.
The big salaries in the public sector, as well as those in the private sector, are unjust. There was much discussion earlier about the pay of the chief executive of Bank of Ireland, Mr. Richie Boucher. I am not referring to him, but to the pay of the 1.8 million workers in the private and public sectors. We are told about their gross pay, but there is no discussion whatsoever of their net pay. We keep hearing about fat cats and greedy civil servants. After they pay their taxes, however, there are not that many who are in receipt of €450 and €850 in take-home pay. I accept that take-home pay of €850 is large.
I am saying take-home pay of €850 is in the region of €100,000 per annum but when taxed the figure is reduced and a person on that income would not take home 50% of it. That is the reality. I am keen to see a discussion and debate about the real moneys that are going into people's pockets, that is, net pay. I have made this point on several occasions and I am bored repeating it but I believe I must continue to make it. There is a gap between people who are working and those who are not working but the reward for those working is not enough to bridge the gap. I am not referring to impoverishing people who are not working but I am suggesting that people must be rewarded if they get up and go to work. A significant quantity of people do not take home €500. Such people go to work but it costs money to put a car on the road and to tax, insure, fuel and service it and so on. There are no tax breaks or anything else in this Bill for people who must commute.
The Pobal HP deprivation index published some time ago shows that the area of most deprivation now is the commuter zone. I am keen to see some target based on those who commute. I live in Gorey, some 61 or 62 miles from here. The number of people on the N11 travelling north every morning is remarkable. I would go so far as to say that many of those people are in the territory to which I am referring, that is, with a take home pay of €500. To put a car on the road and get here and home every evening costs a great deal of money.
Everyone should be focused on this issue because these are the 1.8 million people, the worker bees, who are keeping the economy going. They will bring in €15 billion in income taxes in this calendar year as well as paying their share in VAT, excise and other payments. People who work contribute perhaps in the region of 60% to 65% of the total but it is difficult to put a finger on the exact figure. I am not discounting others who are paying taxes but I am saying these people are at their limits and there is no more left in terms of taxing these people or increasing excise for the fuel for the cars they drive to and from work. The people in the country who are being most ignored in the debate on taxes are the workers and at some stage we need to refocus on them.
Many people refer to the fact that there is no wealth tax. We are getting close to a rate of 40% for capital gains tax and 40% for capital acquisitions tax and other taxes dating back to the pre-McCreevy era, when it was at 40%. The figure has increased from 30% to 33%.
Section 30 includes the living city initiative. I welcome this section as a pilot initiative but we need to broaden it. I have commented on the commuter zone. Some areas in the commuter zone are larger than some cities. The population of Waterford is 40,000 but some of the commuter zone towns are almost as big. However, for historical reasons we chose to ignore these commuter towns. The Pobal HP deprivation index has indicated that the commuter zone is the most deprived and we should focus on it. I am referring to crucial sites that will be of real benefit in the regeneration of certain areas, sites that represent a huge negative. I am not referring to going crazy as we did in the past with property-based tax incentive schemes but there are areas that need something. I do not suggest I know for certain exactly what that something is but we cannot continue to ignore it or allow those areas to stagnate or stay as they are, because within a period they will begin to reverse or go backwards. It is even more difficult to stop an area declining when it starts to decline, and some already have.
I welcome the retention of the position whereby social welfare payments will be exempt from the USC and PRSI. I made the point about the gap between those who are working and those who are not. I believe we should not impoverish people who are not working. However, we cannot ignore the fact that at the peak of the boom there were 140,000 people who did not work. We were bringing in tens of thousands of people from outside the European Union to work here. We choose to ignore this because it is an unpleasant fact. I made the point that there are not 440,00 people unemployed in the State - just 300,000 - because the 140,000 who were not working then are still not working, but they get the same payment as the person who has worked for the past 30 or 35 years and who has paid contributions and paid income tax, health levy and other levies that existed before being combined in the universal social charge. How can it be legitimate and just that those people who never worked are in receipt of the same payments as people who have worked for decades? Under the old stamp system, the more one paid in, the longer one got paid, but the regulations have changed.
It is important that Fianna Fáil does not go "Dallas" on us. Deputy Micheál Martin cannot be like Bobby Ewing and step out of the shower and ask if what happened in the past five years was just a dream. It was no dream. Some people are living a nightmare because of the actions of Fianna Fáil and a senior Minister in that Government, Deputy Martin, cannot just choose to ignore that. This is not "Dallas" for many people. These are difficult times and not much fun.
I welcome the Minister of State to the House. I agree with how Senator Marc MacSharry started and acknowledge the fine work done by the Minister, Deputy Michael Noonan, assisted by the Minister of State, Deputy Brian Hayes. As the Minister of State said, the Government has made many positive changes at macro level. What we are hoping now is that people will be able to feel that in their day to day lives.
Senator Michael D'Arcy spoke about the gap between those who are working and those who are not and suggested that work needs to pay off for people. As the Minister of State knows, many of my concerns for the next year or so relate to the need to see the impact of the changes at macro level. How will they impact on the working poor and their children? Will we need more changes in order to increase the gap between the income at which decisions are made in order to protect people and the income people make from their work? That may be what we need to do. I wonder how many days or months should go by before such changes are felt at the micro level. What are the targets, particularly in the context of poverty, to which we need to attend? I acknowledge the work that has been done and hope the change the Department hopes for will follow.
I wish to focus the rest of my remarks on the miscellaneous section towards the end of the Bill. Part 6 deals with issues that are critical for a significant minority of our people. I note that significant work has been done for this minority in the past couple of years. My comments, therefore, will look both backwards and forward. This all started when we debated the final Stages of the Finance Bill in 2011, when I put forward a number of recommendations seeking to achieve parity between same sex and opposite sex couples in the tax code.
The Minister graciously agreed that I had identified a disparity with regard to tax relief on maintenance payments. The tax relief on maintenance was available to a spouse in marriage at the time of a deed of separation or a judicial separation. In the case of civil partners, tax relief on maintenance payments was not a possibility until annulment or statutory dissolution. That meant there was a significant time differential between the time married couples and civil partners had to wait before tax relief kicked in. The Finance Bill 2012 subsequently provided that when a civil partnership breaks down and a legally binding agreement between the parties is drawn up, this agreement can be recognised for tax purposes. It was a creative resolution. The Finance Act 2012 placed civil partnerships on the same footing as married couples in so far as it accepted that following the break-up of a relationship, people may continue to live under the same roof while being considered separately for income tax purposes.
While these changes sound quite technical, they are very significant for a huge minority of our people. Almost a year after I pointed out the inequalities that led to these changes, I identified further areas of inequality between civil partnership and civil marriage during the debate on the Finance Bill 2012. The Minister kindly gave an undertaking that the remaining gaps would be addressed in as far as constitutionally possible. The welcome changes necessary to fill these gaps are contained in the Bill before the House. They resulted from an exchange between the Department of Finance, the Revenue Commissioners, the Office of the Attorney General and me. I express my sincere gratitude to the Minister, his Department, the Revenue Commissioners and the Office of the Attorney General for examining my recommendations and for meeting me and the taxation expert and barrister, Dearbhla Cunningham, who has assisted me in bringing about these changes. When the Minister of State spoke, he did not mention the three significant changes that are involved in section 103, which is in Part 6 of the Bill.
I was trying to leave time for everyone else.
I will note one or two of them if that is okay. Maintenance payments made to a former civil partner for the support of a child after a separation will not be treated as income and therefore will not be subject to tax. That is a very good thing. It is one of the big changes. The second change amends the Taxes Consolidation Act to ensure that in a break-up situation, the transfer of property between civil partners under a deed of separation will no longer be subject to capital gains tax. The same thing applies to married couples under a deed of separation. The third change amends the Capital Acquisitions Tax Consolidation Act 2003, under which there is a tax benefit when assets are moved between people who are related to each other. The 2003 Act sets out what types of relationships can avail of these benefits. The amendments being made in this legislation will ensure that the civil partner of a person's child will be included for these purposes. If a person wishes to gift assets to the civil partner of his or her child, the civil partner would receive the gift at a more favourable rate as a result of this measure. This is currently the case for the spouse of a child. When all of these changes kick in, they will enable parity of treatment between civil partners and married couples. I welcome the changes being made in this Bill, which constitute a major achievement on the part of the Government.
When I first raised these issues a couple of years ago, I expressed concern that the children of civil partners were not receiving tax treatment equivalent to that received by the children of married couples. The civil partnership Act does not recognise a legal relationship between a civil partner who is a parent and the non-biological child he or she is raising. The Act does not extend to civil partners and their children the same legal rights or responsibilities that are automatically accorded to married couples. It is interesting to note that the Finance Act 2012 and the proposed Finance Bill both acknowledge the relationship between a non-biological child and the parent who is raising him or her by providing for parity of tax treatment between such a child and the child of a married couple. The Revenue Commissioners have indicated, in effect, that the tax treatment of the children of civil partners should in all circumstances reflect the treatment of the children, stepchildren and adopted children of spouses. I welcome this progressive development.
On the issue of constitutionality, given we had to work within the parameters of constitutionality in terms of these changes, we do not yet know if marriage equality is prohibited under our Constitution as the Supreme Court has not yet interpreted on this question. It may be the case that marriage equality could be provided for by the introduction of legislation, and I note that a Bill recently launched by Senator Bacik would certainly help this process. In a matter of weeks, as the Minister of State knows, the Constitutional Convention will examine and vote on the question of marriage equality. For the moment, we do not currently have parity between opposite sex couples and same sex couples in our laws, although I know that one day we will. In the meantime, nearly 1,000 couples have entered into civil partnership since it was introduced in 2011. These changes will have a very real impact on the day-to-day lives of these couples and their families, for which I am very grateful.
It is important to remember that the Government is not presiding over a giveaway budget in the way previous Governments were fortunate enough to do. It is also fair to recognise there has been criticism of this budget, in particular criticism around the taxing of maternity benefit, extending the universal social charge and so forth. It would be wrong for us to sit here in a self-congratulatory way and not acknowledge there is discontent in regard to some of the provisions of the budget. At the same time, it is also important, particularly during a Second Stage debate, to highlight some of the important things that are contained in this budget. I believe quite strongly that this budget does pave the way for improvement in the economy. In particular, I believe it is a pro-business budget designed to stimulate job creation. Some of the measures in this Bill will be of particular benefit to Ireland's SME sector, which is a welcome departure given the SME sector is responsible for 70% of all of the jobs in this country. While we will be discussing this in more detail tomorrow, the Bill does set out quite clearly the details of the ten-point tax reform plan and the two additional measures in the Bill which the Minister of State outlined and which have been particularly welcomed by SME sector representatives. It can be said that this budget is positive for business. It clearly shows this Government is willing to take innovative measures to stimulate business and encourage job creation.
As I said, there are aspects of this budget that people do not like. This is not unusual when a Government has to make savings in the way this Government does. However, I believe the measures that have been imposed in the budget have been fair and the measures that have been included in the Bill are, as a result, also fair. This is evidenced by the breadth of the attacks that have been made by the Opposition on the Bill, particularly in the focus among some of the Opposition groups on the so-called tax on childbirth. As a woman and a mother myself, I would like to make a brief comment on this. The current arrangement gives - I want to emphasise this - additional benefit to working women. There is no denying that having a child is an expensive time and that people incur additional costs, but those costs are no extra on a working woman than they are on an unemployed woman or on a woman who stays at home and whose husband is at work. The situation is that we have an anomaly in our tax code and what we are doing in this Bill is removing that anomaly. I would like to see benefits extended to all women in some form in recognition of the additional costs that are incurred on the birth of a child. I ask that this be made a priority when this country is put back on its feet. At the same time, I will not stand over an anomaly just because it benefits one particular group of women when other women are excluded from a similar benefit.
It is important that, irrespective of the financial condition a country is in, budgets have to be about reform, and as a corollary, therefore, Finance Bills also have to be about reform. I believe there are positive steps in this budget. In particular, I would like to highlight, as I did last year, the increases in capital taxes. I believe it is fair to say this country has for too long been dependent on personal income tax as the chief form of personal taxation. We have had the local property tax as a way to remedy this, although I must say it would have been better if the current Opposition had introduced this at a time when we had the money to replace the tax on earnings from work at the same time, in order that it would have had a neutral effect on its introduction.
However, we are not fortunate enough to be in that position.
Aside from taxes on property, there are other forms of taxation that are also very important in spreading the tax burden. The measures contained in this Bill, which raise capital gains tax and capital acquisitions tax by 3% and continue the trend of last year's budget of bringing taxes on unearned income into line with taxes on earned income, are to be welcomed for a number of reasons. It is important to restate this because there seems to be a level of amnesia about what went on in this country. The halving of capital taxes by a previous Fianna Fáil Government played a significant part in the promotion of a "get rich quick" culture which dogged the Celtic tiger economy and encouraged speculation in property over investment in real job creation. Why would anyone spend years developing a patent when one could buy an apartment off the plans and sell the benefit of the contract without ever doing a day's work?
More importantly, it is important that the tax system be fair. A tax system that requires those who have the resources to earn through investment by purchasing shares or who inherit wealth to pay less than those who earn their living through employment is not a fair system. This Government must continue to equalise the manner in which tax is levied on income, regardless of whether that income is gained through investment, inheritance or employment. It is not right to tax someone who works an extra hour in a factory or in a front-line job such as a garda more for every extra hour worked than someone who makes money trading in shares.
The Minister has indicated in respect of the property tax and the Finance Bill that he is willing to take on board the comments made. I congratulate Senator Zappone because I know from previous debates on this matter that she has fought and campaigned long and hard on the issue of the tax status of same-sex couples and has worked extremely hard to promote through every available opportunity the constitutional rights of same-sex couples. I very much support her and congratulate her on her achievements.
I also welcome measures in this Bill that are very progressive. I wish to highlight the introduction of real estate investment trusts, REITs. Effectively, REITs allow investment in property to be owned collectively in a company structure. Individual shareholders are liable for income tax on income distributions from the REIT and must pay capital gains tax on share disposals. This is a very welcome development in which I have been very interested for many years. There is no doubt that the Irish property market has taken a severe hit in the past few years. There is little or no appetite at the moment among individuals to invest even at a time when values are very good. REITs have worked well in other countries, particularly in the US and the UK, because there is capacity to invest collectively in property which spreads the risk over a portfolio and arguably - the evidence supports this - improves property management. While most of the commentary on REITs since the budget has focused on them in the context of commercial properties, there is even larger potential in the residential area.
As we know, the Governor of the Central Bank and the Minister have indicated that there should be repossessions in the buy-to-let market given the levels of arrears in this sector. I have raised concerns on many occasions in this Chamber as to what impact repossessions will have on tenants living in these repossessed properties, bearing in mind that one in every five families now lives in a rented property and risks severe disruption if these repossessions are not handled properly. There is incredible opportunity for the buy-to-let properties to be bought by a REIT which would bring professional property management to bear on these situations, providing a clear benefit to the country. REITs should be encouraged in this context.
I also welcome the living city initiative which makes provision for new urban renewal schemes for the refurbishment of Georgian buildings in our cities. These schemes are to be introduced on a pilot basis in Limerick and Waterford, but I agree with Senator Michael D'Arcy that they should be expanded into the wider construction sector. The position in that sector is extremely difficult. The sector is running at a figure of approximately 3%, but in any normal developed economy, it should be in the region of 10%. I accept that urban renewal schemes attracted a bad name during the 1980s and I am well aware that some of the buildings constructed in Dublin, for example, are the slums of tomorrow, if not today. On previous occasions I referred to the plight of town centres. It is truly shocking and depressing to witness their degradation. In the context of the willingness to enter into further consideration of schemes such as those to which I refer, I ask the Minister of State to examine the possibility of including town centres. Perhaps we might establish a living town initiative before the level of degradation becomes so severe it cannot be countered.
I am a great believer in the tax code being used for community gain. Rents are rising and those on low incomes are finding it very difficult to access certain properties. In the same way that we use tax incentives - I refer, for example, to section 50 initiatives - to provide student accommodation, I strongly request that consideration be given to using similar incentives to make rental properties available to those on very low incomes. A great deal could be done if tax incentives were used for the benefit of society. There are many legitimate ways in which the tax code can be used.
I will end on a somewhat negative note. The Minister for Finance, Deputy Michael Noonan, indicated in the Dáil that he could not consider poverty-proofing budgetary measures on an extensive scale because of the number of staff that would be required to achieve this. It is extremely important that we work to poverty-proof the measures that will be contained in future budgets. If it proves necessary to redeploy staff in this regard, that should be done.
I welcome the Minister of State. On the Order of Business the Leader was asked to emphasise to him and the Minister for Finance, Deputy Michael Noonan, the importance of deposit insurance. Both Megan Greene who we introduced to the Minister when she attended an international conference last year and Professor Christopher Pissarides, the Nobel prize winner from Cyprus, have stressed the importance of such insurance. This is part of the crisis management in which the Minister of State, the Minister for Public Expenditure and Reform, Deputy Brendan Howlin, and the Minister for Finance have been engaged for the past two years. We have been trying to stop the rain coming in through the roof, but we must also look at some of the remaining architecture. We must ask what happened to the deposit insurance which was supposed to have been in place throughout the European Union and also why it is necessary to repeatedly engage in carrying out emergency repairs.
By way of explanation and apology, I point out to the Minister of State that the final draft of the Bill reached Senators after the deadline for recommendations. As a result of the fact that the numbers of some of the recommendations may change, we may appear to be at even greater cross purposes than usual in our discussions. This is explained by the fact that we have just had a long weekend and no one can be blamed for what has occurred. I certainly do not wish to lay the blame at anyone's door. I much prefer the use of the word "recommendation" as opposed to "amendment" when it comes to discussing the Finance Bill. Recommendations give rise to a much more reasoned debate and do not simply involve trying to put the Government out of office or whatever else we might attempt to do in the context of how we normally operate.
In the context of the difficulties in which the country found itself and from which the Government, with the support of the House, has been trying to extricate it, there was a certain amount of groupthink involved. It was groupthink in favour of construction. On reading through the Bill, I became concerned by the fact that a certain level of groupthink continued to obtain. There are certain sections which we will discuss in detail on Committee Stage in which the Government is continuing to seek to bolster the construction industry. We must be extremely cautious because we did this previously and it did not work. In fact, it wrecked the country. Why are concessions included in respect of shops established adjacent to the Georgian areas contemplated in the living city initiative? As Senator Michael D'Arcy indicated, the reason there are no shops is an additional €10 billion has been levied in taxation. Providing subsidies in order that people might establish shops next to buildings which happen to be old does not appear to make sense.
Why is there a subsidy for a building in which to hold aircraft? The aircraft sector in Ireland is booming. How did it manage to get this concession in the Bill? It makes me fear that a feature of the Finance Bill, as Senator MacSharry and others have observed, is that lobbyists prevail. We need the promised legislation on lobbyists who were previously far too influential and after reading the Bill I fear they have been at it again. Why is film relief still provided?
I appreciate what the Minister of State and the Minister did on issues such as the promissory notes in an effort to shore up the creaking European edifice. We had a domestic problem which needed attention and to which several Senators have referred. I note that the Minister of State is nodding in agreement. The Culliton review pointed out that Ireland had far too many tax lawyers and accountants who had been too influential. There is a defensive note in the Minister of State's contribution that indicates that it was not all written on Merrion Street. I think those involved on Merrion Street should get out more and meet people. I was delighted to hear the Secretary General of the sister Department, Mr. Robert Watt, say at the Statistical and Social Inquiry Society of Ireland last week that he intended to get involved more with economists. He is leading by example.
The old property-based economy did not work. The system allowed people with more tax lawyers and accountants to obtain special tax breaks for themselves. As the Minister of State knows, we never quantified them. We did not conduct a regulatory impact assessment or a cost-benefit analysis. That has to end. We cannot have a system which benefits a handful of individuals and imposes huge costs on the rest of us when we are trying to balance the books. There is a need for a lot more regulatory impact assessments of proposals.
The Bill has two sections dealing with research and development. An bord snip nua tried to find out the results of Ireland's massive investment in research and development, but it could not get an answer. A report on innovation was published in 2010 in which Mr. Colm McCarthy again asked when we would we see a return. The amount of money poured in is unknown to us because it is done by way of tax breaks, rather than by direct expenditure. Society needs to know whether these schemes are worthwhile.
I question any attempt to push up the price of land or property. I am worried about the old sections 17 and 19. Section 21 in the old numbering provides for tax breaks for hotels, guesthouses and self-catering accommodation and we bankrupted the country building empty hotels. I, therefore, beg the Minister not to start again. I ask him to ensure some new thinking in the Department. These measures start small and are very difficult to correct. We are then back into bubble territory in which so much damage was done in the past.
Section 30 provides relief for industrial buildings for commercial aircraft. I do not know why this relief is provided for, although I appreciate what Senator Aideen Hayden said. Why should the Government become involved again in giving tax breaks for property? We have to get the economy, as well as the banking system, away from this. It is still a system based on property. We made that mistake with disastrous consequences for the country. Let us not go there again. I look forward to a full and comprehensive debate on Committee Stage tomorrow.
The ideal characteristic of the tax system is that it should be equitable. As Senator Michael D'Arcy said, it should not distort the position on work. I was worried to see in the Mangan report the models for various forms of child benefit schemes. The benefit proposed for those on family income supplement would have left two thirds of the working poor worse off. This issue must be examined immediately. I am concerned that Mr. Dan O'Brien has noted that during the boom we reclassified many unemployed persons as recipients of disability and invalidity payments, thereby precipitating the increase, more than in any other country in Europe, in the number of houses in which nobody worked, even in a time of full employment.
Did we massage the figures? I do not think so. Perhaps generously we increased the number of people receiving disability and invalidity allowances but that had horrendous consequences later on. Senator Michael D'Arcy made the point that we need a gap between those people who work and those who do not take home pay.
The Mangan report is really weak in the way that it evaluated the family income supplement. As Senators will know, IMF studies show that Ireland spends more on social welfare, public pay and capital expenditure than other OECD countries. In order to refocus the economy we should examine those provisions in order to redress the balance. It is important that the tax system is not used to repeat the mistakes that harmed the country so much.
A former director general of the IMF now works in the University of Cambridge, Mr. Vito Tanzi. He is no relation to the much missed Mr. Paul Tansey who reported so eloquently and whom I wish was alive to comment on the Irish economy. Mr. Tanzi outlined why most countries are in trouble with their public finances and gave solutions. He quoted a former chief executive of Solomon Brothers as stating "laissez-faire is all well and good until something goes wrong." Perhaps we should make allowances and make the decision that if businesses are too large to fail then they are too expensive to rescue. The Department and the Government should say that the businesses have failed a market test and are at an end.
Mr. Tanzi was also concerned about the growth in lobbying. A lobbyist can prove that a handful of people will benefit so proper cost benefit analysis is never carried out now. We should ask ourselves whether the remaining 4.5 million people in the country will be worse off? We need legislation because it is too easy for lobby groups to succeed in this country. The casino banks did us no favours. The complexity of the tax system also means that the arm of the tax lawyer and accountant is completely unproductive. Therefore, we need some simplifying measures.
Mr. Tanzi expressed his concern at the growth in the number of lobbyists at the end of his book. We need a new beginning for this aspect of finances. I appreciate that the Government has been distracted by having to hold the entire system together. However, I am disappointed that the Finance Bill is so old hat and does not evaluate the outcomes. The country is short of money so we must ensure that the people who have been given tax breaks in the Bill are worthy recipients. It is impossible to tell unless we conduct more analysis and that is why we asked for the regulatory impact assessment.
The Bill should be referred, as the IMF intended, to the Irish Fiscal Advisory Council because we need to hear more views and guard against repeating mistakes. Some of the provisions in the Bill were contained in Finance Bills from ten years ago and look where they led us.
I thank the Leas Chathaoirleach for allowing me extra time. I also thank the Minister of State.
I thank the Senator.
I welcome the Minister of State to the House and thank him for his overview of the Bill and explanation of the various sections. I appreciate that we will have more time to deal with them individually tomorrow.
I welcome the living city initiative. It will be a successful project for urban regeneration. It is a constructive and targeted intervention that has the potential to make a real and substantial difference to an area that requires regeneration of which there are many, particularly in Waterford and Limerick where the pilot projects will commence. The impetus behind the initiative is to provide a tax incentive to people who are brave enough to restore an old church or property in an area designated part of the living city initiative. Incentives will only be available if the person intends to live in the restored property as an owner-occupier and as such is not suitable for speculative development. I welcome the initiative.
Ireland has a significant stock of Georgian houses and many are in areas that have seen a high level of dereliction, decay and deprivation. The cities of Limerick and Waterford have suffered greatly in recent years and merit inclusion in the scheme. I want the pilot scheme extended to some of the core areas in Dublin which have a substantial stock of vulnerable Georgian housing in areas of intense deprivation, in particular the north Georgian core area around Mountjoy Square and Parnell Square. The residential area has suffered significantly from urban decay and would benefit from targeted regeneration.
I understand a range of local and national groups are supportive of the extension of the pilot scheme to this area, including the Mountjoy Square Society, the Irish Georgian Society, the Dublin Civic Trust, and our own colleague, Senator David Norris.
I understand from the Minister's comments in the select committee and in the Dáil that he fears an extension of the pilot scheme at this stage to this area of Dublin could jeopardise the State aid payments for the entire scheme. I am not sure I follow that logic. If the scheme is targeted properly by reference to defined criteria, it should be possible to submit the scheme for approval, with some area of the capital included, provided the objective criteria for inclusion of the areas by reference to levels of deprivation are clear. I urge the Minster to engage with the relevant groups in the area to determine whether progress can be made rather than allow another period of dereliction and decay to endure. A scheme such as this could be a real impetus for regeneration in areas requiring renewal and, as we are aware, these areas certainly fall into that category.
On the question of the appointment of receivers, I am concerned about the trigger-happy tendency on the part of some banks that is prevalent in some instances to appoint receivers to businesses in circumstances in which there are viable alternatives. I do not wish to comment on high profile cases before the courts, but it strikes me that a new approach in this area is needed. For example, is there a role for the Credit Review Office to hear a submission from a business owner who believes the decision to appoint a receiver is premature? Mounting a legal challenge to a well resourced bank can be a daunting task for most distressed businesses, and I suggest some alternative mechanism is urgently needed to put a check on banks that behave unreasonably in that regard.
In this climate, nobody deserves to be taken to court without any notice. That is happening to many people, and it is wrong. I know of one case where the business owner thought he was getting on very well with his bank but, without any notice, the bank took that person to court. That should not happen. That is the reason the Credit Review Office could be useful in putting a break on those matters. It is about protecting the jobs. When that precipitative action happens, it jeopardises jobs. I know of another case in which more than 100 people were employed but three of them took fright and left immediately when this happened. Unnecessary damage is being done to businesses. It upsets staff, which is understandable. In the case of hotels and so on, it has an effect on bookings and even weddings, which are very good business. Those losses must be curtailed by avoiding such precipitative action because when it happens, it further limits credit. We should take this issue very seriously.
We spoke earlier about the frightful damage being done to our town centres throughout the country in the way planning departments have allowed projects to go out of towns to the disadvantage of town centres. The living city initiative is bringing this to my mind. That is an area we must examine also if we are to have vibrant towns, to which we pay so much lip service. Perhaps there could be a focused approach in that regard also.
I welcome the Minister of State. The Finance Bill is the single most important item of legislation in the legislative year, along with the Social Welfare Bill, and we would do well to carefully consider its contents. Things are looking a little bit brighter, but we need not overstate what is happening. It is our third year of growth. Exports are doing well. Our reputation is much enhanced and investor confidence has returned. We have had deals on our promissory notes and our other euro debt. We sold CoCo bonds and sovereign bonds recently. We returned to the markets successfully, and we are about to get rid of the bank guarantee. Those are good developments but, in addition, we need a deal on legacy bank debt, which I believe we will get after the German elections in September. All of those developments are irrelevant, however, when we consider that unemployment is the main crisis facing us. If the high level of unemployment is not reduced, the benefits we are trying to achieve in this Bill - and every other Bill we bring to the House - will not be felt by real people, so to speak, which is the reason we are here.
An hour and 25 minutes ago I had a conversation with a young man who is unemployed. He was self-employed during the boom years. He has a wife and a four-year-old daughter. He told me he cannot afford to buy clothes for his four-year-old girl. That is shocking, and it is a terrible thing to happen to anyone. That is the reality facing him and many other people in our society. When we debate the Finance Bill we must not forget the real stories and the real people. If that young man is listening to me he would ask whether the Bill we are discussing here will make a difference to him and his family, including his little girl. We must acknowledge - the Minister acknowledged it in his opening statement - that while the macro-indicators are positive, and I have outlined how positive they are, the micro-indicators are not being felt in our communities. We must keep that in mind and do everything we can to focus on it.
The answer I would have to give this young man is that unless we can close a €13 billion deficit, which is a shocking figure considering we have already taken over €20 billion out of the economy, nothing will make any difference to us. I have heard suggestions that we could introduce a higher rate of tax for higher earners or even a higher level of universal social charge for higher earners. I have some sympathy for that argument, and there may be some scope to do that. However, if we were to try to close the deficit by taxation measures alone, we could put 20% onto all tax heads in the next budget, if we were happy to do that, but it would destroy the economy. We must find a balance between cuts and revenue-raising measures. That is a dreadful decision to have to make. Dreadful decisions have been made, and further dreadful decisions will be made, but we can avoid making those decisions. The Labour Party and Fine Gael have a history in that regard. The Minister will recall being told about the time in the 1980s when we, as a Fine Gael-Labour Party Government, failed the people of this country by postponing those decisions, and the result of that was ten years of stagnation.
In terms of what we need to do now, we need to make the decisions. If I were to say anything to that young man, his wife and his little girl it would be that we must make the decisions now. The worst is probably behind us, but a considerable effort will be needed to achieve the benefits of the recovery that is ahead of us. I welcome the senior Minister, Deputy Noonan, to the House. He said some time ago that if we do things right the economy is ready to spring forward and the benefits from that will accrue to everyone.
This young man told me he would do anything for his wife and family. We would all do that. He also said he wanted to make a difference. I had prepared a great speech for this debate that would touch on all the wonderful topics of our time but having spoken to this young man I tore it up and asked myself if there is a real possibility that we, as politicians, are forgetting the reason we are in these Houses. Do we really understand the decisions we make and the impact of those decisions on the lives or ordinary people? That young man might make a difference - he probably has - but when we are arguing over the detail of this Bill on Committee Stage tomorrow we should remember that none of us in this Chamber has ever been faced with the prospect of being unable to buy clothes for his or her four-year-old. That is a shocking indictment. We should remember that. This is not the usual Second Stage speech, but it is no harm to remind ourselves of the reason we are in this House.
The Minister is very welcome.
Ar dtús cuirim fáilte roimh an Aire ar ais go dtí an Seanad. While there are six Parts to the Bill and 108 sections, I can assure him I do not wish to speak on the 108 sections. He will be pleased to note that I wish to refer to three, in particular, the sections dealing with SMEs, the local property tax and the rebate to HGVs and bus operators.
The Bill builds on the SME supports introduced in the budget and includes a number of new measures to support SMEs. These are welcome. The SME sector is close to my heart. I believe it will be the driver of economic recovery in every county across the country and the Government is committed to supporting this key sector. I am delighted to acknowledge this fact. The SMEs are the key provider of jobs across the country and with more than 250,000 private sector jobs lost between 2008 and 2011, it is this sector that will lead the recovery in the domestic economy and will create the jobs to make the serious inroads into our all too high unemployment levels. Our unemployment figures are still far too high as I have stated on a few occasions.
Each of the measures included in the Bill is designed to help this critical sector to trade, to grow in new products and in new markets, to sustain existing and, most important, to create new jobs. If each of the SMEs was to create one job - I am not sure of the total number of SMEs in the country but it is in the region of 200,000 - that would be 200,000 or if 50% was to create one job, it would be in the region of 100,000, one can imagine what that would mean to the economy.
These initiatives will build on the supports that are available through Departments, agencies and the measures introduced to support credit flow into the SME sector. The Minister's initiatives to improve credit flow are to be applauded. It is fitting that the Government should do everything in its power to support small and medium enterprises to grow and develop. The Minister is doing so. The ten-point tax reform plan introduced and announced in the budget includes measures to make a real difference to the SME sector such as reforming the three-year corporation tax relief for start-up companies, increasing the cash receipts basis threshold for VAT, amending the close company surcharge to improve SME cashflow and extending the foreign earnings deduction for work-related travel to certain additional countries, including countries in Africa. The key employee provision of the research and development tax credit regime is amended to reduce from 75% to 50% the proportion of time such an employee must spend solely on research and development activity to qualify for the credit. The amendment should assist small and medium enterprises to avail of the provision.
The Bill includes a small number of amendments to local property tax. The changes apply in specific circumstances. The local property tax as it applies to the vast majority of taxpayers is unchanged. An amendment to provide an exemption for properties affected by pyritic heave is being finalised. It is proposed that where a property has been certified to standards specified by the National Standards Authority of Ireland as having been affected by pyritic heave, an exemption from local property tax can be claimed. That is rightly so. The deferral of local property taxes will be permitted in circumstances in which the personal representative of a deceased person's estate is responsible for payment. The deferral is for up to three years to allow for the administration of an estate without causing cash flow issues for personal representatives. The deferral is for a limited period to avoid creating an incentive to deliberately delay the administration of an estate to avoid the payment of local property tax. Any increase in the chargeable value of the property arising from expenditure on modifications to accommodate a disabled person may be disregarded, which is welcome. Properties owned by local authorities and approved housing bodies will be deemed to be valued in the lowest valuation band for the first valuation period.
The Bill also gives effect to the auto diesel excise duty relief for licensed and tax compliant hauliers which was announced by the Minister in his Budget Statement. Following further consideration, the relief will be extended to bus and private tour operators. Will it apply to the national carrier, Bus Éireann, from 1 July 2013? To be parochial, I come from the most scenic part of the country, the Cooley Peninsula, where there are a number of HGV and private bus operators. Having made several representations and been on delegations, I commend the Minister for listening to us at an early stage. The provision is of great significance to HGV and bus operators. More than 300 people in my part of the world work in heavy goods and bus operations. The provision will be a great boost and create jobs for HGV and bus drivers and bring more tourists to the most scenic peninsula in the country.
I acknowledge the significant contributions the Minister for Finance, Deputy Michael Noonan, the Minister of State, Deputy Brian Hayes, and their departmental officials have made to the compilation of the Bill. Cúpla mí ó shin, dúirt an tAire liom go mbeimíd "all right" agus sin mar atá sé. Go raibh maith aige.
I welcome the Minister to the House and acknowledge the comments by Senator Gilroy about the importance of listening to real stories about the real experiences of people in the real world. As legislators and elected representatives, it is important that we are able to listen to people and relay and record their stories in the Oireachtas to ensure their plight is known.
There are 11 specific references to the principle of fairness in the Fine Gael and Labour Party programme for Government. On the formation of the Government, we were told it was committed to forging a new Ireland built on fairness. We were promised that by the end of the Government's term, Ireland would be recognised as a modern, fair, socially-inclusive and equal society supported by a productive and prosperous economy. We were told that the Government was committed to tackling the economic crisis in a way that was fair, balanced and which recognised the need for social solidarity. Despite these clear commitments, the Bill presented to us today is anything but fair. The Minister's second Finance Bill embeds his second budget and, like its predecessor, its impact will be to increase poverty and inequality in Irish society. Recently released statistics show that child poverty in Ireland is among the worst in the EU and is increasing. This is not just my view. The Economic and Social Research Institute produced reports on each of the Government's budgets which demonstrated that more income is being taken from the less well-off in society while the upper echelons are being protected. Even in the worst days of its Government, Fianna Fáil did not have the brass neck to so brazenly hit the poor while protecting the wealthy.
While some people will have doubted Fine Gael's commitment to fairness, many believed that a Government including the Labour Party would ensure that whatever pain was introduced would be focused on those most able to pay. ESRI reports have shown that the most regressive budgets introduced since the start of the economic crisis in 2008 have been those crafted by Fine Gael and Labour Party Ministers. There were alternatives. Senator MacSharry mentioned earlier that there were choices. A long list of organisations presented fully-costed alternative budget proposals. Sinn Féin produced an alternative budget and parliamentary questions record our costed proposals, bar the wealth tax. The proposals crafted by Sinn Féin and other organisations representing the people about whom Senator Gilroy spoke earlier were ignored. Senator Michael D'Arcy mentioned that there were some positives in the Bill and it would be remiss of me to ignore them. The increase in capital gains and acquisition tax is to be welcomed, notwithstanding that it is too modest. The additional restrictions on some tax avoidance schemes are also positive although much more could have been done. The excise duty relief for hauliers and transport providers is a very necessary support for a very important sector of the economy which is genuinely struggling. However, these measures cannot outweigh the overwhelmingly negative impact the budget will have on ordinary people.
Before the Minister entered the Chamber, Deputy Brian Hayes spoke about the macro versus the micro picture and said that things were looking better in terms of the former. The effect is just not trickling down to the micro level and people's ordinary lives. Members, including myself, will have been out knocking on doors in the Meath by-election. Elections give one the chance to connect on a more personal level with the people one represents. Just this morning, I knocked on a door and the woman who answered told me that her belt was getting tighter while the wealthy seem to be getting fatter. People are suffering and it is having a knock-on effect in terms of confidence in public representatives and institutions, including the Oireachtas. Significant increases in indirect taxation through excise duties and certain tax treatments are going to take much-needed spending power out of the pockets of low and middle-income families.
This will take much-needed spending power out of the pockets of low and middle income families. It will make their lives harder, as we all hear from ordinary people, and will damage the businesses that rely on them for trade. Although there are measures in the Bill aimed at SMEs we have to consider what taking money out of people's pockets does to the domestic economy and the spill-over effect on small businesses and trade.
Taxing maternity benefit for new mothers, adoptive benefit and the health and safety benefit are clear indications of this Government's priorities. It will push many struggling families further into financial hardship while protecting wealthier people. There is no third rate of income tax for high earners. There is no real wealth tax, not even the moderate increase in the universal social charge for high earners as proposed by the Labour Party. This Bill does not demonstrate the fairness mentioned 11 times in the programme for Government. This legislation is unfair. Poverty and equality proofing of future budgets would go a long way to address many of the inequalities so far brought forward. Families and the domestic economy are hurting which hampers our social and economic recovery. That is why we will be opposing this Bill.
I have one question for my own information, if the budgetary process is being brought forward to October this year will there be another Finance Bill by the end of the year or will it be introduced next January?
It will be this year.
I thank the Senators for their comments during what has been an interesting and informed debate today. I am sorry that I was not here for the whole debate but the Minister of State from my Department, Deputy Brian Hayes, substituted and left me some notes.
This Finance Bill marks another step on our journey to economic recovery. As the Minister of State noted earlier we continue to see signs of economic recovery. Things have begun to turn around. It is worth looking again at some of the statistics: we are on track to bring the deficit below 3% of GDP by 2015, our banks have been recapitalised and regained access to borrowing markets. The economy is expected to record its third straight year of growth in 2013. For last year as a whole GDP growth of 0.9% was projected and my Department expects growth to increase this year to 1.5% and to strengthen further over the medium term. The signs are positive. We know, however, that there are no quick fix solutions. Our progress to date has been hard won and we still have some way to go. As the Minister of State remarked, it is difficult for people to see this progress yet at the micro level. As we continue to resource the sustainability of the public finances this Government has also been mindful of protecting the emerging economy. We outlined several steps in budget 2013, including the ten-point plan for SMEs but we must acknowledge that for the moment Ireland is in a programme of financial assistance. We have made firm commitments to bring down our deficits to sustainable levels by 2015. These we have consistently achieved.
We are endeavouring to be fair, to ensure that the burden is spread. We know that when marginal rates of tax are very high jobs are lost. Indirect and capital taxes have a less adverse impact on employment. That does not mean that the wealthy should not carry the principal burden of the tax. I remind Senators that the OECD has consistently assessed Ireland highly for its progressive taxation system. It is estimated that in 2013 the top 5% of income earners will pay 44% of the total income tax with those earning €50,000 or less, as 78% of income earners, paying 19% of the total. Furthermore, it is estimated that 841,000 individuals, some 40% of the income tax base, will be exempt from income tax.
Unemployment remains our biggest challenge and that is why so many of the measures in the Finance Bill 2013 are aimed at maintaining and creating employment, particularly in the SME sector which is one of the key drivers of the economy. That is why it is important that the Bill begins to implement the ten point tax reform plan announced in the budget. This plan includes measures such as reforming the three year corporation tax relief for start-up companies, increasing the cash receipts basis threshold for VAT, amending the close company surcharge to improve cash flow for SMEs and extending the foreign earnings deduction for work-related travel to certain additional countries.
The Bill should also be viewed as just one element of a wider strategy to support economic activity. It is complemented by the action plan for jobs 2013 which the Minister for Enterprise, Jobs and Innovation, Deputy Richard Bruton, recently published.
I will now address the points raised by Senators today. As always on these occasions the debate was wide-ranging and matters were raised which go well beyond the Finance Bill and its contents. I am sure Senators will understand if in the very limited time available to me I will concentrate on addressing issues which relate directly to the Bill and to the policies it reflects. I thank Senators MacSharry and Zappone for their words of encouragement and I agree that we all seek to achieve the same outcomes but perhaps in different ways. Senator MacSharry implied that the Government had missed an opportunity to raise revenue by increasing the USC rate by 3% to 10% on those earning in excess of €100,000 per annum. The position is, however, that there is already a 10% rate of USC which applies to the income of the self-employed in excess of €100,000 per annum. To increase the USC rate of charge by 3% to 10% for PAYE income earners with incomes in excess of €100,000 would have the effect of increasing the top marginal rate of tax for such individuals to 55%. This relates to the points raised by Senators Michael D’Arcy and Zappone regarding the need to ensure that there is some reward for work. Marginal tax rates are very important because they influence individual decisions to work more or indeed to work at all. The OECD working paper, Tax and Economic Growth, indicates that there is also "the possibility that high top marginal rates will increase the average rates paid by high-skilled and high-income earners so much that they will migrate to countries with lower tax rates resulting in a brain drain which may lower innovative activity and productivity". High marginal tax rates may also incentivise a greater level of tax evasion and contribute to the development of a shadow economy.
Senator MacSharry also suggested that we have a choice with regard to being apply a levy on certain alcohol sales. Legal advice was received on the proposal which found that it would be likely to breach EU directives on alcohol taxation. I thank Senator Zappone for her welcome for the changes set out in section 103 and in particular for drawing my attention and that of my officials to the omissions. I welcome Senator Hayden's comments supporting the introduction of REITs to the Irish market, the two particular issues the Senator highlighted, the risk spread benefits of collective investment and the potential for improved professional standards in the rental property market are two of several significant benefits which it is hoped that the REITs will bring to the Irish market. I thank Senator Hayden also for her comments clarifying the equity principles behind the taxation of maternity benefit. The description of this measure as a tax on childbirth by certain Members of the Opposition is disingenuous in the extreme. Income tax can of course be applied only to income and only those individuals or couples who have sufficient incomes to attract a liability to income tax will be affected. I note also her support, and that of Senator Michael D’Arcy, for the living city initiative.
In response to Senator Barrett's concerns I emphasise that the REITs regime is not a tax relief. It can be better understood as a structural reform of property investment structures allowing for lower risk sustainable long-term investment. In fact the overarching objective of the REITs regime is to remove a tax bias caused by a double layer of taxation which has typically discouraged collective investment in the property through a company. Senator Barrett asked why the aviation sector measures are included in the Bill. These measures were included in order to encourage employment intensive companies engaged in the maintenance, repair, overhaul and dismantling of commercial aircraft to set up here. Ireland is already a major global centre for aircraft leasing. This provision will further enhance its attractiveness.
With regard to the employment and investment incentive, EII, the hotel sector currently employs 51,000 individuals. Since the downturn in the economy, approximately 100 hotels have been placed in receivership or have ceased trading. Access to funding will permit hotels to invest in refurbishment and enhancement. In order to qualify for EII, hotels must be considered to be tourist traffic undertakings and, as such, will be required to have three-year development and marketing plans approved by Fáilte Ireland.
Senator Barrett also raised the issue of cost benefit analysis in respect of the research and development tax credit. The Senator may be interested to know that the Department of Finance has already announced a comprehensive review of the tax credit, which will take place throughout 2013. The terms of reference of the review have been published on the Department's website. One of the central purposes of the review is to ensure the research and development tax credit gives value for money to the Irish taxpayer and, accordingly, a cost benefit analysis will be included.
I appreciate the views of Senator Quinn in respect of tax-exempt access to additional voluntary contributions, AVCs, and access to the main pension fund. However, contributions to AVCs benefitted from marginal tax relief when invested. We must also strike a balance between access to funds and ensuring people are encouraged to make adequate provision for their retirement income.
Senator Gilroy referred to the case of a self-employed person with a four-year-old child whose business failed, leading to severe problems. These cases are extremely difficult. In seeking to remediate them through the tax system, we need to make sure we do not widen the problem and create a bigger problem for other families. We are in a programme and trying to work our way out of a bankrupt situation. In that respect, we are still running a major deficit and so every concession made on tax must be made at the expense of another set of taxpayers. Any concession made, whether the measures suggested today or others, can only be achieved if I tax somewhere else. Senators must remember that.
The debate here and in the other House tends always to highlight the very difficult cases of individuals. There are some very difficult cases for individuals but by highlighting these one tends to forget the generality of cases, which one cannot personalise in the same way. In trying to correct the hard case, one damages the general situation and that is one of the dilemmas. It is a question of judgment whether one taxes this or does not tax that. At present, we are in a position of very difficult choices but as the economy continues to grow and as we work our way out of this, I hope we will be positioned to give relief to those most in need where we will not need to raise taxes elsewhere so that we can use the fruits of growth to relieve the difficult situation of our poorest families and to move on. I hope the economy will grow and continue to grow. It is growing this year, it grew last year and the year before. If we could get greater growth rates, many of our problems would be solved at a quicker pace.
We will return on Committee Stage and I look forward to a debate on the detail of the Bill. I thank the Senators who contributed to the debate and we will deal with the specifics later.
- Bacik, Ivana.
- Brennan, Terry.
- Burke, Colm.
- Clune, Deirdre.
- Coghlan, Eamonn.
- Coghlan, Paul.
- Comiskey, Michael.
- Conway, Martin.
- Cummins, Maurice.
- D'Arcy, Michael.
- Gilroy, John.
- Hayden, Aideen.
- Henry, Imelda.
- Keane, Cáit.
- Moloney, Marie.
- Moran, Mary.
- Mulcahy, Tony.
- Mullins, Michael.
- O'Keeffe, Susan.
- O'Neill, Pat.
- Sheahan, Tom.
- van Turnhout, Jillian.
- Zappone, Katherine.
- Barrett, Sean D.
- Crown, John.
- Cullinane, David.
- Heffernan, James.
- MacSharry, Marc.
- Mullen, Rónán.
- Ó Clochartaigh, Trevor.
- Ó Murchú, Labhrás.
- O'Donovan, Denis.
- O'Sullivan, Ned.
- Power, Averil.
- Reilly, Kathryn.
- Wilson, Diarmuid.
When is it proposed to take Committee Stage?