Recommendation No. 1 has been ruled out of order because it involves a potential charge on the people.
Finance Bill 2013: Committee and Remaining Stages
I move recommendation No. 2:
In page 11, before section 5, but in Chapter 3, to insert the following new section:
“5.—The Minister shall within 3 months of the passing of this Act prepare and lay before Dáil Éireann an analysis of the tax increases in this Act, and the total of tax increases and spending cuts of Budget 2013, setting out the continuing impact on people based on their gender, income, age, marital and disability status.”.
During my Second Stage speech yesterday I referred in detail to fairness as the reasons we were opposing the Bill. We do not believe the Finance Bill 2013 is fair. This is not based just on my reading of the Bill but on that of the ESRI, which has reported on the distributional impact of the measures contained in the Bill and what this means for ordinary people.
The purpose of recommendation No. 2 is to provide evidence that demonstrates the impact of the measures contained in the Bill on various groups in society, in particular those already disadvantaged because of the policies that have been implemented in this and in previous budgets. The recommendation effectively requires the Minister to produce an equality impact assessment of the budget, based on gender, income, age, marital and disability status.
When a similar amendment was tabled on Committee Stage in the Dáil, Deputy Noonan indicated his willingness to consider the substance of the proposal. I would be interested to hear the progress that has been made in that regard. The best possible scenario would be for the Government to commit to equality proofing legislation prior to enactment. However, should the Minister fail to do this, the very least we would expect of him is to assess the impact of the proposals after they are implemented to see what effect they are having. That of itself could feed into further budgetary proposals.
I ask the Minister to consider this recommendation or to give an update on equality proofing?
I thank Senator Reilly for tabling this recommendation. Her colleague, Deputy Doherty, and I had a long discussion on the benefits of impact assessments, including equality analysis and formulating and evaluating tax policy. I gave him an assurance that I would ask one of my political advisers to look at ways in which equality analysis could be done, especially to examine the Scottish model which was a particular interest to Deputy Doherty. This recommendation is very similar. Let me repeat that I have asked one of my advisers to look into it, but I cannot accept the recommendation at this time.
When does the Minister expect his adviser to report to him on this issue? When will we see the outcome of his adviser's research?
I have asked him already to look at the Scottish model and to report back to me. Normally it would take a couple of weeks to come back to me on something like that. I will communicate with Deputy Doherty, if the Senator is agreeable or would she like me to send her the information separately?
No, that is fine.
- Barrett, Sean D.
- Cullinane, David.
- MacSharry, Marc.
- Mooney, Paschal.
- Norris, David.
- O'Sullivan, Ned.
- Ó Clochartaigh, Trevor.
- Quinn, Feargal.
- Reilly, Kathryn.
- Wilson, Diarmuid.
- Bacik, Ivana.
- Bradford, Paul.
- Brennan, Terry.
- Burke, Colm.
- Clune, Deirdre.
- Coghlan, Eamonn.
- Coghlan, Paul.
- Cummins, Maurice.
- D'Arcy, Jim.
- D'Arcy, Michael.
- Gilroy, John.
- Harte, Jimmy.
- Hayden, Aideen.
- Healy Eames, Fidelma.
- Henry, Imelda.
- Keane, Cáit.
- Kelly, John.
- Landy, Denis.
- Moloney, Marie.
- Moran, Mary.
- Mulcahy, Tony.
- Mullins, Michael.
- O'Keeffe, Susan.
- O'Neill, Pat.
- Sheahan, Tom.
- van Turnhout, Jillian.
- Whelan, John.
Recommendation No. 3 is out of order.
I welcome the Minister to the House. I express my appreciation of what he said on Second Stage yesterday about the research and development issue and the note on the Department's website seeking a cost-benefit analysis of all that area. This was called for by an bord snip nua and by those who responded to the innovation task force. The State has been spending a significant amount of money in this area, both in tax breaks and in direct expenditures. An bord snip nua found academic articles to be the main output. Those who believe in it are very strong advocates, as I am sure the Minister's Department has found, but there is also the need to establish value for money. It is an important step by the Minister and his officials to commission this research. It is time to see the results now because, as the Minister said on Second Stage, the Exchequer has serious financial problems which must be dealt with and every penny has to be accounted for.
My concerns about the proposal is that the Minister is reducing from 75% to 50% the amount of research and development being undertaken. This might result in less research and development being undertaken. He is lowering the threshold so more people might undertake R&D but the key people might do less. The old section 27 will come under the review. I was trying to set the review in that it is an area where I think the fiscal advisory council should be involved and the regulatory impact assessment procedure should be used. There is serious concern and the Minister is quoted in some of the literature. These tax breaks are not costed properly. We do not know if the benefits exceed the costs and I welcome the exercise in this regard. Tax breaks are used by multinational corporations to seriously reduce their tax liabilities. The EU is looking at this practice. The Economist has written about it and the Starbucks case has surfaced in the UK. We have to know what these measures cost and this has not been the case heretofore.
I have seen references in the literature about international tax avoidance lawyers and accountants where they are referred to as fiscal termites, because of the damage they are causing to the tax base in many countries. International tax avoidance is a serious problem. I sometimes fear the growth of these tax schemes. Many of these special tax measures, often worth billions of dollars to some industry or even to a specific company, find their way into these laws and occasionally surface, surprising everyone, even those who had inserted them or lobbied for them. That is Mr. Tansi's analysis of why lots of exchequers are in financial difficulties.
While I appreciate the cost-benefit analysis commissioned by the Minister - I wish him well in that exercise - we need to have the fiscal advisory council involved and we need to revitalise the regulatory impact assessment, particularly where the tax base is being eaten by the termites. I strongly defend and support the Government with regard to the rate of 12.5%. However, if people are further eating away at the 12.5% rate, it presents problems for the Exchequer.
I abide by the ruling of the Chair in that my recommendation No.1 was ruled out of order because it would impose a charge upon the people. The object was the exact opposite. I was hoping my proposal would benefit the Exchequer. I think the Minister's cost-benefit analysis falls into that category also. It will benefit the Exchequer. Value for money is a vital consideration which everyone in this House shares. I share the Minister's aspirations in that regard. That was my concern about section 5 as it stands.
I thank the Senator. I will read a portion of my speaking note which covers the issues he has raised.
Regulatory impact assessment is a tool used to assess the impact of increased regulation arising from legislative change. The key employee provision in this section does not apply automatically to companies. It is available where companies elect to avail of it. As such, it cannot be construed as imposing additional regulatory burden on companies. I do not see that the regulatory impact assessment would be an appropriate fit for this particular issue.
As for the suggestion that the Irish Fiscal Advisory Council would carry out an assessment of the tax credit, such an assessment would significantly expand the mandate of the fiscal council. It would require a much larger resource in terms of both staff and budgetary allocation. It would be likely to impede the fulfilment of its core functions. I am reluctant to move in that direction also.
Despite this, as I have stated in the various discussions during the passage of the Bill through the Lower House, I am cognisant of the need to ensure that appropriate cost-benefit analysis is undertaken in respect of tax expenditure measures. This is the reason I announced a comprehensive review of the research and development tax credit regime as a whole, which is taking place over the course of this year. The terms of reference of the review have been published on the Department's website and interested parties are encouraged to make a submission. One of the central purposes of this review is to ensure that the research and development tax credit gives value for money to the Irish taxpayer. It is intended that this report will be published in due course.
I will share with the Senators the background to the change to the key employee regime proposed in section 5 of the Bill. When the key employee provision was originally introduced in the Finance Act 2012, it was very tightly drawn to ensure that the scope for misuse was minimised. The definition of key employee was constructed with that objective in mind. As I pledged when introducing this section, we have been monitoring closely the interest in and uptake of this provision. As part of this process, my Department has received feedback relating to the operation of the key employee provision. One particular aspect that has been brought to our attention is that the 75% threshold for time spent on research and development has put the small business sector at a particular disadvantage as it is less likely that small firms would have sufficient resources to allow an individual devote as much of his or her time to research and development.
When speaking on the issue on Committee Stage in the Lower House, I said it is important that the small business sector is not disadvantaged in this way, especially with regard to its ability to attract and retain employees with key skills in innovation. It was never intended that the definition of a key employee would discriminate against the small business sector. It is therefore important that this change is made as soon as possible to rebalance the playing field between the small and large business sectors in the area of research and development.
To delay the change in the manner suggested in the original recommendations would have this effect.
We share the same objectives on this section. We are trying to get a growth economy back. We all share that view because we all know the situation that the Minister has had to deal with since he came to office.
I wish to comment on the institutional structure for which the Minister has the expertise because he is a former Chairman of the Committee of Public Accounts. We are quite good after the events but then it is too late, the money has been spent and the cost overruns have taken place. As everyone knows, economists have dwelt on the question of whether the Comptroller and Auditor General should conduct an audit. I would have given a wider range of functions to the fiscal council. After all "fiscal" refers to taxation and the section deals with taxation. Debates on forecasts are interesting but the section is about resource allocation. At this time we are imposing house taxes and getting into hot water about special needs assistants, respite care and all of the other things. Therefore, we must ensure that everything we do in the Finance Bill has a guarantee that the benefits will exceed the costs, otherwise the national debt will increase and will continue to do so. I am worried about the institutional structure because so much of the institutions that presided over our getting into trouble in this country still exist. We need to change their corporate culture and develop an emphasis on value for money just like the Minister urged for research and development. Everything contained in the Finance Bill is of vital necessity.
The Minister said that this project will be tendered out on the relevant website. I hope that his Department will develop the role quickly because the Exchequer and taxpayer are under siege and we have a rescue operation by the troika. The old emphasis that the Department of Finance had has been undermined by social partnership and lobbying. It must be restored and re-emphasised because it is more important than ever as we are close to reaching the taxable limits as far as most people are concerned. In addition, the property tax will take more money out of the economy. Therefore, we need a value for money focus and that is the purpose of the amendments.
I hope that the Minister will develop the thinking behind research and development evaluation. Quite an amount of money has been spent on the sector and it is time we saw results. A euro spent on research and development could yield better returns elsewhere. All of these initiatives must compete in the Minister's bailiwick to see which ones are worthwhile. The role played by the Department of Finance is more vital than ever given the amount of borrowing that we are all trying to address. I thank the Minister for his response.
Like many activities in public administration, we are always measuring the inputs during debates in the Dáil and the Seanad but we must start measuring outputs and outcomes. We are moving into that space. The Department was pretty good at that but it has been pre-occupied with crisis management in more recent times. Now it has returned to measuring outputs and outcomes which is important for the allocation of resources, on which I agree with the Senator.
I thank the Minister for that welcome news and statement.
The section deals with the maternity benefit issue and my party opposes the section. As I said and tried to convey to the Minister of State at the Department of Finance, Deputy Hayes, here yesterday, nobody doubts the difficulty of the job that the Department has in trying to manage the loaves and fishes but there were clear options. The cut in maternity benefit was an unnecessary option in our view. The pressures that the recession places on women are clear and the income, far from financing luxuries or excesses, was vital for the additional demands of motherhood. I do not wish to delay the House because we all want to get through the various amendments and Senator Reilly also wishes to make a point.
My party opposes the section for the reasons outlined by the Senator. As I addressed the matter in my Second Stage speech yesterday, I will not reiterate that only to say that my party opposes the section.
We have a different view and evaluated the provision carefully. Our priority in social protection measures is to maintain the level of the base rates of payment. A lot of things were given when times were better. When there was a lot of money around Finance Ministers had a certain amount of largesse to distribute, sometimes for worthy causes and other times to simply buy votes in the run-in to elections. When one examines the provisions to make savings then one must make choices. The choices that we made were that where there were extras which are difficult to justify, the priority was to maintain basic rates of welfare.
The position with the maternity benefit is that right across the public sector, women who are having a baby get fully paid and the maternity benefit is additional. The way it works is that the employer adjusts down the salary and the amount of maternity benefit makes up the same gross salary. As the maternity benefit is not subject to income tax the net position of all public servants who are on maternity leave is that they have more money when they are on maternity than if they were at work. In the private sector that varies quite a bit. Some private sector employers do not pay salaries when women are on maternity leave. If that is the case then probably many of the women do not pay tax either so get the full benefit of their maternity benefit. It depends on how much of their tax credits they will use up in the year in question. There are varying impacts.
Overall, in terms of having to make very difficult choices, this is one that we made and I know that some people disagree with it. That is the situation. The full yield in a year is about €40 million. Do Senators remember how divided they were here when debating the Social Welfare Bill, particularly an issue that amounted to €26 million? The vote was very close and all of the Taoiseach's nominees voted against it. That legislation dealt with about €26 million. When one must make a choice like this there is quite a lot of money involved. We have tried to be fair, not to be hard on any particular sector and to be even-handed. When choices like this must be made then maintaining the basic rates of welfare is the priority.
I agree with the section. Yesterday, I heard the Minister of State, Deputy Hayes, say that the section refers to a list of countries submitted to the Minister for Finance by the Minister for Agriculture, Food and the Marine, Deputy Coveney. It is a list of countries with which Deputy Coveney expects to derive substantial agricultural trade. I did not know what the list was when I first saw it and I was concerned that a case had to be made for the list. I gather that the Minister of State made his comment following advice from Deputy Coveney. Therefore, I do not object to the section.
The section deals with the increased student contribution. I am conscious of what the Minister has said about having to make difficult choices. As we said on Second Stage, the bottom line remains the same probably for all sections of the House but what divides us politically is how that is achieved.
I do not want to be facetious but when the Minister was the Opposition finance spokesman I recall him asking the question, "What have you got against the third child?". I am sure the Minister recalls it. It was humorous, and accurate, at the time because a cut in child benefit for the third child was being contemplated. In terms of making choices to increase the third level student contribution, colleagues such as Deputy Ruairí Quinn and others signed pledges that this was a red line issue. We have these increases now and over a period of four years there will be a significant increase. It is difficult to reconcile that and issues such as maternity benefit taxation with the decision not to opt for those who are in a better position to sustain a small hit, such as the 3% proposed by the Labour Party as well as Members on this side of the House. It is difficult to reconcile some of these issues, particularly for students when the cost of keeping a student from, say, Sligo in UCD or another college in Dublin is approximately €9,000 a year in terms of rent, food and other costs. I regret that other options could not have been taken in that regard and it is for that reason we oppose the section.
It is a follow-up by the Department of Finance on a decision being made by the Department of Education and Skills. The decision by the Minister for Education and Skills was that the student contribution will be increased by €250 this year, next year and the year after. That was to ease the financial constraints on the third level sector in that students would make a bigger contribution to funding the universities and the third level colleges. I believe that is justified. The measure in this Bill is consequential on that to maintain the same tax position because there is not much point in raising an additional fee charge to help fund the universities if it can be claimed back in tax. The rate of tax that applies here is the standard rate of tax and therefore if one takes 20% of €250, the argument is about €50.
A point of information that should be given also is that Senator MacSharry appears to be selectively ignoring the third level grant aid of €336 million from the State to people who are entitled to grant aid. For Senator MacSharry's information, 60% of students do not pay registration fees. It comes out of that €336 million.
Recommendation No. 4 is in the name of Senator Darragh O'Brien.
I move recommendation No. 4:
In page 22, before section 15, to insert the following new section:
“15.—The Principal Act is amended in section 469(1) under paragraph (f) of the definition of “health expenses” by deleting the words “or similar treatment prescribed by a practitioner” after the word “physiotherapy”.”.
Currently, section 469(1) of the principal Act requires that in order for a patient to claim reimbursement for physiotherapy costs, the patient must be referred for physiotherapy by a general practitioner. This amendment, if adopted, would allow a patient to claim the expenses of physiotherapy treatment regardless of whether he or she is referred by a GP. When one considers the cost of attending a GP for a referral, common sense would suggest that what is needed is a physiotherapist rather than a €50 visit to the GP followed by the expense of the consultation and treatment with the physiotherapist. We would like the Minister to examine this because in some instances unnecessary expense is being put on patients seeking treatment, without the necessity of going to a GP. This will allow us rely on people's common sense and judgment.
The Minister should examine this amendment. I am interested in hearing his reply but my common-sense analysis of what Senator MacSharry has said is that this should be reviewed.
Our difficulty is the open-ended nature of the facility being provided. If people can go privately to a physiotherapist, as they do, and make an unlimited number of appointments, they can claim back that cost for tax purposes. It is open-ended. I would find it very difficult to even cost it. In terms of the control on it, it is allowable provided the GP says, by way of prescription, that the person needs physiotherapy. That is a reasonable position since the relief is tied to medical expenses anyway.
I support Senator Michael D'Arcy. Will the Minister ask his officials to consider some way of making it a little less open-ended? Having to be referred consistently through a GP for what is sometimes an obvious problem is, in a sense, restrictive practice, and the cost of going to a GP these days is fairly prohibitive.
It is open-ended, but we are not talking about a tax rebate for people who decide to go to a masseuse for a back massage. If that were the case I could understand the argument that this had the potential of having a queue of people seeking this relief. None of us would knowingly incur the expense of going to a physiotherapist if it was not needed. I will not delay the House on the issue but common sense should dictate that this is a no-brainer.
Does the Minister have a figure for 2012? I understand the point about it being open-ended but a registered physiotherapist will not bring people back for treatment if it is not required, no more than a GP would send someone for physiotherapy if it was not required. I ask the Minister to examine this because in doing so it would be helpful for Members on all sides of the House.
I have figures on the relief for health expenses from 2004 to 2009. In 2004, the cost was €110 million; in 2005 it was €134 million; in 2006 it was €167 million; in 2007 it was €226 million; in 2008 it was €267 million; and in 2009, tax relief for health expenses other than nursing home expenses is relieved at the standard rate; it dropped to €146 million. I will not make a commitment on it but we will have a look at it between now and the next Finance Bill.
I move recommendation No. 5:
In page 22, between lines 36 and 37, to insert the following subsection:
“(2) This section shall not come into effect until the risk equalisation scheme (within the definition of the Health Insurance Act 1994) is under the direction of the Central Bank of Ireland and fully compliant with the Central Bank of Ireland’s regulations.”.
My concern in tabling this recommendation is that this area has been in a state of disarray for some time.
Ireland resisted before the European Court of Justice the transfer of the regulation of health insurance as a financial service to the Financial Regulator. I gather the transfer has happened very recently. The Minister may have seen the reports that a completely different version of risk equalisation was proposed by both VHI and the Department when they went to see the regulator. My concern is that the previous system was overturned by a unanimous decision of the Supreme Court. The theory is that risk equalisation should help older people to acquire health insurance, but even that is disputed, as is the extent to which the payments are made.
The key evidence is in the Milliman report which found that VHI was far too concerned with telling everybody how many older members it had and far too little concerned about getting value for money. The report sets out that a treatment which would require under best practice 3.1 days in hospital was requiring 11.6 days. Susan Mitchell's recent material published in The Sunday Business Post on the price of drugs is also relevant. Are we financing high-cost producers and inefficiencies in a sector in which staffing doubled between the 1980s and the peak or is there a genuine risk equalisation payment? Staff numbers increased from 55,000 to 110,000. The Minister for Public Expenditure and Reform, Deputy Brendan Howlin, and the Minister for Health, Deputy James Reilly, are having great difficulty in reducing staff numbers to 103,000.
I put the marker down that we need to know what constitutes genuine risk equalisation in the field rather than to be told what it will take to keep VHI going. I have therefore proposed that the section should not take effect until a risk equalisation scheme has been decided by the Financial Regulator and the Central Bank of Ireland. I gather that Mr. Elderfield is taking an interest in it. The previous system of risk equalisation was a source of cost inflation and damage to the Exchequer and appeared to be designed to protect a State health insurance company while damaging its competitors. We must find out what exactly Mr. Elderfield makes of a risk equalisation scheme before we endorse what is going on now given that it has been exposed to so much criticism, in particular in the Milliman report.
The Central Bank of Ireland is the regulator for prudential and solvency purposes. Typically, insurers, including private health insurers, must satisfy various appropriate prudential requirements. These requirements apply generally to all insurance and financial services companies and relate to matters such as financial operation and investment policies. The Health Insurance Authority, or HIA, is the independent regulator for the private health insurance industry. It is the statutory body charged with the administration of the risk equalisation scheme under section 11 of the Health Insurance (Amendment) Act 2012. It has been proposed in the past to merge the HIA and the Central Bank. I assume it is in this context that the Senator envisages the risk equalisation scheme coming under Central Bank direction. Such a proposal requires careful examination, in particular in regard to how it would fit in with the commitment in the programme for Government to move to a system of universal health insurance.
As outlined in Future Health; a Strategic Framework for Reform of the Health Services 2012-2015, the universal health insurance market will be subject to regulation. A new insurance fund will have an important role in directly financing and centrally controlling some health care costs while managing risk equalisation payments. The future role of the HIA and the delivery of its functions in the universal health insurance system are matters which will be considered by Government as detailed proposals for universal health insurance are developed.
The permanent risk equalisation scheme introduced by my colleague, the Minister for Health, Deputy James Reilly, has EU approval and the HIA as the appropriate statutory authority has responsibility for the risk equalisation fund and the administration of the scheme. I presume the Senator's intention is to prevent or postpone the commencement of the permanent risk equalisation scheme but it is already in place by virtue of the Health Insurance (Amendment) Act 2012. The import of the section before the House is to put beyond doubt that the standard-rate income tax credit is based on the premium net of any risk equalisation credit which is a position similar to that which obtained during the interim risk equalisation scheme when the standard-rate income tax credit was net of the former age-related income tax credits. The section, therefore, has no bearing on the commencement of the risk equalisation scheme and the Senator's recommendation would not have its presumed intended effect. Therefore, I do not propose to accept the recommendation.
I thank the Minister for his response. I hope we will continue to make progress in this area. What we are finding out from the Milliman report about excessive hospital stays and from journalists about the excessive cost of drugs means this area must be monitored continuously.
I move recommendation No. 6:
In page 23, before section 17, to insert the following new section:
"17.—The Minister for Finance shall, as soon as may be after the passing of this Act, prepare and lay before Dáil Éireann a report on the provision of early access to pension benefits in certain limited circumstances including employer paid contributions, regular employee contributions, self-employed personal pensions and Personal Retirement Savings Accounts.".
The Minister will have seen this proposal in the Dáil. It is something he should consider. While the possibility of people withdrawing funds from their pensions to assist with current difficulties is a welcome initiative, it has been put forward in too narrow a way. The recommendation proposes increasing the range of pension assets which can be accessed for the various people who have made contributions over the years, rather than to stick to the limitations currently envisaged. We would like the Minister to consider the recommendation.
The recommendation was put before the Dáil in the form of a proposed amendment. It proposes the preparation of a report on pre-retirement access to all forms of pensions savings in certain unspecified circumstances. The proposal is prompted by the inclusion in section 17 of provisions for limited pre-retirement access to additional voluntary contributions, or AVCs. I made clear in my Budget Statement and during the debate on the issue in the Dáil that the AVC access provisions being introduced in the Bill are restricted and temporary in nature. My intention is not to incentivise pre-retirement access to pensions savings but rather to enable and facilitate access in a limited way without damaging core pension provision. For this reason, AVC draw-downs will be liable to tax at the marginal rate and the provisions will apply only to a percentage of those contributions together with any proportionate investment return made by pension scheme members over and above the regular or compulsory pension contributions under scheme rules. In this way, pre-retirement access does not impact on an individual's core pension savings or entitlements. To provide otherwise would have damaging implications for the individual and the State down the line. The protection of core benefits could not be guaranteed by less restrictive arrangements for pre-retirement access to pensions savings.
As regards the preparation of a report on the matter, I pointed out in the Dáil that at the request of the Government's Economic Management Council, or EMC, an ad hoc group was established in 2012 under the chairmanship of the Department of Social Protection to consider the idea of allowing people to access their pensions savings before pension age to assist them to pay down debt. The ad hoc group presented a detailed report to the EMC in September 2011 which concluded that the principle of pensions savings being locked away until pension age should be maintained. The interdepartmental group on mortgage arrears also examined the issue of early access to pensions and did not recommend such an approach. A copy of the report to the EMC can be sought by Senator MacSharry from the Minister for Social Protection.
In addition, the OECD has carried out an independent review of long-term pensions policy in Ireland on behalf of the Minister for Social Protection. I understand the report on foot of the independent review is being prepared and will cover, inter alia, the issue of pre-retirement access to pensions savings. The report is expected to be finalised shortly and will be presented to the Minister for Social Protection, Deputy Joan Burton, who will decide on appropriate publication arrangements following its consideration by the Government. The developments I have outlined deal adequately with the requirements set out in the Senator's recommendation.
I believe that the developments I have outlined deal adequately with the requirements of the Senator's recommendation.
I have mixed feelings about this provision because as I understand it pre-retirement access excludes self-employed sole traders and unlimited partnerships, persons who can contribute only to personal pensions or PRSAs. I have often listened to Senator Crown advocate very strongly the idea that self-employed people should be able to access their pension funds for good reason, not least because access to credit now is extremely restricted, as we know from many reports that have been published. I am, however, somewhat glad that it is not possible to do so because I cannot help feeling that under the personal insolvency legislation there would be an enormous incentive to put pressure on self-employed people in particular to access pension funds, which would have a negative impact on the security of self-employed people in old age. Would it be possible to keep this matter under review in order that if it continues to be difficult for those in small businesses, particularly self-employed people, to access credit, some access to pre-retirement funds would be considered, with safeguards in the context of the Personal Insolvency Act?
I agree with Senator Hayden. Many people in small businesses are trying to access whatever funding they can get their hands on. Some are in defined benefit contribution schemes and defined contribution schemes, which are different. It is very difficult for them to access that money from defined contribution schemes. They have to put the money into a defined benefit scheme rather than being able to access it. Some of those people have told me they need the money to start a business or to keep a business going but they are told that they must put it into an ARF or defined benefit scheme. Is there anything that can be done to enable these people to access to their money? I appreciate and commend the Minister's efforts to enable people to access part of their AVCs in a way that will not affect their pensions. That is a very good move which was suggested by several Senators. Is there any mechanism or proposal to allow access to defined contribution schemes?
One of my concerns when I introduced the provision to access AVCs was that once access to AVCs was made legal creditors, particularly banks, would force people to access them to pay off debt. This is exactly what the Senators have said. The same considerations apply to any more general access to pension savings. The considerations would be, on the one hand, to protect the contributor in order that he or she would have an adequate pension but, on the other, to protect the State because if people in contributory pension schemes were to withdraw their contributions they would not have benefit and the State would have to pick up the tab later in the form of non-contributory pensions.
The best way to approach this is to await the publication of the OECD study which the Minister for Social Protection has sought. Among the terms of reference is to advise on whether access to pension savings would be appropriate and to lay out the terms of the debate. When that report is published in the next couple of months we may return to this subject and see what can be done.
Recommendation No. 7 in the name of Senator Reilly is out of order because it involves a potential charge on the people.
Recommendations Nos. 8 to 13, inclusive, are related and may be discussed together. Is that agreed? Agreed.
I move recommendation No. 8:
In page 27, lines 8 to 26, to delete subsection (2).
As recommendations Nos. 8 to 13, inclusive, were tabled in the Dáil, I will not labour the point. They oppose the proposed changes to the taxation of the approved retirement funds, ARFs, and the approved minimum retirement funds, AMRFs. Will the Minister explain further to his response in the Dáil why he is not accepting these recommendations? Our problem concerns the negative impact of these changes on those with low to average pension funds. Will he address these concerns? The recommendations seek to restore the status quo which, although not perfect, was better than the changes proposed in the Bill.
As recommendations Nos. 8 to 13, inclusive, relate to subsections (2) and (6) of section 17 of the Bill as passed by Dáil Éireann, I propose to deal with them together. These subsections deal in one way or another with the temporary rescinding of certain of the provisions included in the Finance Act 2011 relating to the ARF access conditions which were introduced in the context of the extension of the ARF option to all defined contribution occupational pension arrangements at that time.
The impact of the Senator's recommendations, if accepted, would be to continue with the more challenging conditions attaching to accessing the ARF option which my changes are designed to ease for a transitional period and which will have the greatest impact on those with modest pension incomes and modest pension savings.
I received many representations, including from the Pensions Ombudsman, about the fact that the Finance Act 2011 increase to €18,000 per annum in the guaranteed pension income requirement for ARF purposes, and to €119,800 in the maximum set-aside amount for AMRF purposes, were introduced without the provision of adequate transitional arrangements. It has been put to me that it is unfair that many individuals who had been planning for retirement based on the original requirements of the legislation were suddenly faced, and indeed continue to be faced, with having to meet much more stringent conditions without any time to prepare for them. This is why I have decided to reinstate the old limits of €12,700 and €63,500 in respect of ARF options exercised on or after the date of the passing of the Finance Act 2013.
It is intended that the higher guaranteed pension and set-aside limits introduced by the Finance Act 2011 will be put in place again in three years time which will give individuals preparing for their retirement after that period time to adjust to these more stringent higher requirements.
I gave a very detailed explanation of the background and rationale for the changes I am proposing to Deputy Pearse Doherty on Report Stage in the Dáil and that explanation is in the Official Report. For the reasons outlined I do not propose to accept the Senator's recommendations.
I move recommendation No. 9:
In page 29, subsection (6)(b)(i), line 40, to delete "€12,700" and substitute "€18,000".
I move recommendation No. 10:
In page 30, subsection (6)(b)(ii), line 1, to delete “€12,700” and substitute “€18,000”.
I move recommendation No. 11:
In page 30, subsection (6)(b)(ii), line 3, to delete “€63,500” and substitute “€119,800”.
I move recommendation No. 12:
In page 30, subsection (6)(b)(ii)(I), line 6, to delete “€63,500” and substitute “€119,800”.
I move recommendation No. 13:
In page 30, subsection (6)(b)(ii)(II), line 15, to delete “€63,500” and substitute “€119,800”.
Recommendation No. 14 has been ruled out of order on the basis that it involves a potential charge on the people.
My objective was to save the Exchequer money rather than being adjudged to have cost it money. I am concerned about the section, which was previously section 17 in the explanatory memorandum and deals with people dealing in or developing land. It provides them with loss relief where the decline in the land value has been realised by way of a disposal prior to the claim being made. We are taxing houses. I do not know the amount because that is not how we publish the Finance Bill. What will this cost? Should we not be trying to cure Ireland of land speculation and try to get the economy over a very bad property bug? Is there a moral hazard element here? People lost money in buying and selling land and they certainly cost this country dearly if we go through the accounts of Anglo Irish Bank and Irish Nationwide in particular. They polluted the entire banking system. We do not pay out on losing lottery tickets or betting slips. If people lost money buying and selling land in the past decade in Ireland, they are among the least worthy people to give tax breaks to. This morning, I heard a spokesperson for the Irish Farmers' Journal talk about the concerns about land prices escalating, when we are trying to promote agriculture rather than the purchasing and selling of land. It is a concern when we try to increase agricultural output. Are we giving tax breaks to people who lost money selling land? If so, why? Is it not part of what got us into the mess the Minister and everyone in the House is trying to cure Ireland of? If people lost money on land, the prices paid were ludicrous by any standard and there is a moral hazard in giving an undertaking to such people that they can write off the losses for tax purposes.
Referring to the recommendation ruled out of order will give us context. The recommendation sought to amend section 381(a)(2) inserted into the Taxes Consolidation Act 1997 by section 18 of the Bill. The new section 381(a) concerned one of two measures contained in section 18, both of which relate to those engaged in the trade of dealing in, or developing, land. The other measure concerns debt forgiveness and the tax consequences that flow from it and affects all those engaged in dealing in or developing land either actively or passively. The new section 381(a) relates to the restriction on loss relief for individuals taxed as dealers or developers in land but who are not actively engaged in the trade. The restrictions apply where the loss arising from the interest on debt incurred to finance the purchase or development of land held as trading stock, which is deducted but not paid, or from a decline in the value of land held as trading stock where the loss in land value, has not actually been realised.
The Senator's recommendation seems to be going a step further in that he appears to propose that the facility to apply for loss relief against other income provided for under section 381 of the Taxes Consolidation Act 1997 should be denied in respect of any loss arising from the write-down in the value of land held as trading stock by the individual concerned, irrespective of whether loss is realised or not. The reason I have introduced the restriction on section 18 is that I have been made aware by the Revenue Commissioners of instances in which significant loss relief against other income, giving rise to very large repayments of tax, have been claimed where, for example, losses in land had not been realised. To some extent, the problem arises because of the accruals basis of accounting, which provides that expenses are recognised when they are incurred rather than when they are actually paid. However, I have no desire to deny taxpayers the long-established facility of setting losses incurred in one business activity against income from other sources so long as the loss has actually been suffered before doing so. The Senator's recommendation clearly goes beyond what is necessary to deal with the specific problem identified to me by the Revenue Commissioners. For that reason I did not accept the amendment.
I thank the Minister for his response. One of the differences between New Zealand agriculture and ours is that their land prices are much lower and output is much higher. Do we need, in general, to disincentivise land purchasing by people who do not use it for any purpose? Why does land cost so much in this country? Is there a fiscal privilege bound up in it? Was the Irish land and property fixation not what got us into this mess? To what extent was it fuelled by fiscal privilege? At a time when we are taxing small houses, we are exempting land purchase transactions. There is a reference later in the Bill to €3 million worth of land and property being passed on. It is a wider Irish economic problem on which the Minister might reflect in the coming years. It is important to reflect on why we have these high land prices and a land fixation. Did we cause it by putting fiscal privilege into land purchase? If people made losses, my attitude is that it is a real moral hazard. We are doing it in other areas, such as write-downs on mortgages, which the Minister and the personal insolvency body will deal with. Is it time to lose the land fixation?
I support the principle of what Senator Barrett is saying. A very good report a decade ago or so showed that 90% of the development land in the greater Dublin area was held by a very specific and small number of developers. There is a note of caution for the future that, when we are looking at tax policy and fiscal policy, we should make sure we do not encourage or permit the situation to happen again.
I move recommendation No. 15:
In page 38, line 5, after “submits” to insert “for approval,”.
This is a very brief recommendation and I hope it is not contentious. It proposes that certain documents must be submitted to Teagasc.
Teagasc should not be viewed as a postbox but should exercise some discretion and approve of the contents of a plan. It should have a role in examining how these moneys are spent. There should be some requirement for the taxpayer to know what Teagasc made of a submitted proposal?
If I were to accept this recommendation that business plans be not just submitted but approved, it would require Teagasc to establish an approval process for those claimants of stock relief who had not previously submitted a business plan. In some instances, it may also render ineligible for purposes of claiming stock relief, business plans already submitted to Teagasc or the Minister for Agriculture, Food and the Marine for any other purpose. Such a requirement would also go beyond what the European Commission has stipulated as part of its approval process. Consequently, it would be more onerous on applicants. I believe it does not add anything to it.
Regarding the broader context of farm partnerships, the single farm payment is also considered in this. This means two farmers in partnership are disallowed from setting their payments aside when merging their farming units. It needs to be examined to ensure more flexibility in order that single farm payments will be guaranteed until 2020. This is an issue that could be in the next Finance Bill.
I appreciate the Minister’s points but what is the point of having Teagasc involved if we do not get its expert views? We can think about what we intend Teagasc to do in this regard over the year. It has much expertise and could help bring agriculture forward. I thank the Minister for his response.
Recommendation No. 16 has been ruled out of order as it involves a potential charge on the people.
I move recommendation No. 17:
In page 49, between lines 1 and 2, to insert the following subsection:
“(2) This section shall only come into operation following a cost-benefit-analysis by the Minister of Finance indicating superior tax revenues to those foregone as a product of this section as a by-product of increased economic turnover and/or increased employment.”.
I will not press this recommendation because the term “cost-benefit analysis” has been mentioned already and is now on the agenda. Its provisions were dealt with by the Minister on Second Stage.
Recommendation, by leave, withdrawn.
I believe I have drawn a short straw in addressing this section with a Senator from Killarney in the Chair. Section 22 provides for tax relief for the managing of a property used as a hotel, guesthouse, self-catering accommodation or comparable establishment. Is this not part of the problem from the past where we gave fiscal privilege for the construction of hotels? It did not do much for tourism which declined dramatically after 2007. Why start this again? Is there a cost-benefit analysis of the relief? Will it undermine existing businesses which have struggled through?
I was surprised to see such a relief in the Bill as hotels and other such establishments have low occupancy rates which are only just starting to recover. When they do, the hoteliers will make more money and presumably will not be looking for tax breaks and subsidies from the Department of Finance. Why embark on another round of these breaks, particularly when the Irish Hotels Federation pointed out the last such breaks damaged the industry and the taxpayer? One also sees the inflated prices being charged for hotels in the Dublin area. Is the market solving the problem? One hotel in Kerry which cost €25 million was recently sold for €5 million while another hotel there went from €40 million to €10 million down to €4 million. As the market will solve these problems, should a hard-pressed and overburdened taxpayer be invoked again?
This is another reason cost-benefit analyses and regulatory impact assessments should accompany the Finance Bill. I am certainly willing to be persuaded about the benefits of this tax break. If there had been more accompanying documentation, I would have been delighted to read it and respond to it. On issues of property, land prices and the hotel sector, we are reheating policies which have done serious damage to this economy in the past, damage which the Minister spends most of the hours of the day trying to correct. Why are we embarking on another round of these breaks?
This scheme will not be available to hotels in difficulty. Hotels will only be eligible where they have a three-year marketing and development plan approved by Fáilte Ireland. The operating or management of hotels, guesthouses, self-catering accommodation or comparable establishments will now qualify under the existing scheme, the employment and investment incentive and seed capital scheme. The hotel sector employs 51,000 individuals. Extension of the incentive to cover investments in this sector will help to sustain these jobs and potentially create additional employment.
Since the downturn in the economy, approximately 100 hotels have been placed in receivership or ceased trading. Many hotels which were potentially profitable were unable to continue trading without some restructuring of their debts. Attracting third-party investments will make it easier to achieve such restructuring. Establishments will only qualify where they are considered to be tourist-traffic undertakings and, as such, will be required to have a three-year development and marketing plan approved by Fáilte Ireland. I will review the measure in two years’ time.
The scheme is extended to 31 December 2020. When introduced, the incentive retained the original expiry date for the business expansion scheme of 30 December 2013. The extension of the incentive is subject to state-aid approval by the European Commission. In that regard, it is important that an application for the extension of the incentive be made without delay. As this extension is contingent on EU approval, commencement is subject to ministerial order. I announced the extension at this time to provide certainty to those small and medium-sized enterprises, SMEs, that may avail of the scheme. It will also facilitate the application of the European Commission for state-aid approval and receipt of such approval without any requirement to suspend the incentive.
The employment and investment incentive and seed capital scheme came into operation on 25 November 2011. At this point, I do not have a full year’s statistics available on the impact of the incentive yet. However, an ex-ante economic impact assessment was completed by my officials before the incentive was introduced. The assessment was published on the Department’s website and indicated not only could this incentive be an important source of funding for SMEs but the companies which availed of its predecessor, the business expansion scheme, created significant numbers of jobs.
Given the current constraints on the availability of credit the continuance of the incentive is important for SMEs. We are continuing up to 2020 for industry in general and we are extending it to the tourist facilities for the reasons I have outlined.
There is some sense in what Senator Barrett has said but equally we cannot ignore the fact that there are 51,000 people employed in the sector. I am wondering aloud. Can more be done to benefit the sector in the overall scheme rather than being targeted at an individual hotel or business? What if we had greater joined-up thinking? To paraphrase the line from the Kevin Costner film "Field of Dreams", if people have a reason to come, they will come. People come to the Acting Chairman's area for certain reasons but there are other areas in the country where there is no facility or reason for people to come. Potentially, if we set about a greater joined-up version of thinking, some of the tax incentives could be applicable to and spread the benefit to a new facility somewhere else. I suggest much of this should be targeted in specific areas. Is there something that could be done in that way that is more sustainable, rather than targeting individual businesses?
Is the Senator dropping his opposition?
I thank the Minister for his responses, as always. The material prepared for us by the most helpful Oireachtas Library & Research Service when the Minister for Transport, Tourism and Sport, Deputy Varadkar, was here discussing The Gathering indicated that there has been a serious decline in value for money in Irish tourism. I am unsure whether that can be made up by giving the sector fiscal concessions. I would welcome at some stage an Irish private sector that would actually put money into the Exchequer rather than always having the begging bowl out, particularly in the context of so much demoralisation that has taken place down the line with people who are trying to cope with tax bills and so on. I am beginning to question whether we need a private sector which is always in and out of the Department of Finance looking for tax breaks, grants and so on. If someone stays in a proprietor's hotel, he gets to keep the money. That is the incentive.
The product and price have deteriorated. The Minister for Transport, Tourism and Sport, Deputy Varadkar, said it has come back, but at a great cost. The sector had to introduce vast reductions and so on. It is an unusual sector in that it wants the State to do much of its marketing. At least other companies do not call on the State to sell their products for them. It has been making undue demands on an Exchequer which, as we saw earlier, had to move in this very Bill to tax maternity benefit and so on. We could do with a little less begging-bowl conduct from the Irish Hotels Federation, IBEC and the construction industry. We are trying to cope with an Exchequer which has far more pressing demands from low-income people. I realise the measures might eventually translate into employment gains but certainly we are encouraging bad habits by the so-called Irish private sector, which always seeks out the Exchequer as a resort for running its businesses. We need a little more entrepreneurship than that. I will not press the recommendation but I am surprised to see the measure because tourism is probably going to revive after some self-imposed penalties related to over-charging and bad value for money. For a hard-pressed taxpayer to be invoked in the recovery of the sector sends out the wrong signal when everyone else is having to make sacrifices. I will not press the recommendation.
Recommendations Nos. 18 and 19 in the name of Senator Barrett are out of order because they involve a potential charge on the people.
I wish to comment on the cost benefit analysis. The Minister is conducting a cost benefit analysis in order that we are ad idem on it. I am not pressing the point because the Minister has decided to do the cost benefit analysis on research and development, which I welcome.
Recommendation No. 20 in the name of Senator Barrett is out of order because it involves a potential charge on the people.
I thank the Leas-Chathaoirleach for his ruling. I was seeking to save money. I supported the commercial sections relating to living in the city but there is a question about building grants for commercial buildings in certain areas. Had we not gone ahead with that, it would have saved money. Anyway, I appreciate the ruling of the Leas-Chathaoirleach. The retail sector was discussed here yesterday. The reason retailing is in difficulty in town centres is largely due to all the factors we have been discussing in the House. We have had to take an extra €10 billion out in taxation since the recovery programme began and that is why people do not have money for shops. Giving people fiscal privilege to build shops near Georgian houses does not seem to me to be a good idea and it would not have cost money had we withdrawn the fiscal privilege. That is my view but I will not press the recommendation. It seems to me that what started out as people living in Georgian houses has extended by the second half of the section to more construction subsidies for shops in cities which already have ample empty shops, unfortunately, as we know. This goes back to the general macro problem that the Minister and his Department have been trying to deal with. However, one cannot solve that by giving tax breaks to people to build new shops in what were previously Georgian areas because we already have a surplus of them.
I welcome this section, which contains the living city initiative. It is a good initiative. It is fairly restrictive and relates to Georgian houses only. In Waterford the vast majority of the Georgian houses are in a fairly good state of repair. Is there any intention to extend the scheme to pre-1900 houses? There is a significant stock of these buildings in my city and they could certainly do with incentives such as those envisaged for Georgian houses.
I am surprised that there are not more Senators in the House, because during recent weeks people have been crying out for incentives for town centres, decrying the fact that they are derelict and so on and calling for tax incentives. I am surprised that the Members who have raised those issues on the Order of Business on a constant basis are not here to discuss the Finance Bill with the Minister now that they have the opportunity to do so, rather than calling on the Minister to come in for this, that and the other. The opportunity is here now but, unfortunately, people are not availing of it.
Is there an intention to extend this to pre-1900 houses in some of the areas referred to in the Bill? I compliment the Minister on introducing this initiative which, I believe, will benefit the areas referred to.
As one of those who spoke loudly and vociferously about the degradation of our towns and the level of damage being done during the recession to them, I welcome this opportunity to bend the Minister's ear on the issue.
I welcome the living city initiative as it is a timely reminder of some of the positive measures that were taken in a similar vein during the 1980s. During the 1980s, for example, tax incentives were used to prevent the destruction of the inner city of Dublin. I know we could look back at some of the properties built during that period and say that many of them were not the kind of dwellings we would like to live in, particularly some of those built along the quays by some developers. However, if we cast our minds back to Dublin in the late 1960s and 1970s, there is no doubt that without the measures taken during the 1980s, the city would be in a much worse position.
Philosophically, I disagree with Senator Barrett. The debate so far has been very one-sided and is very much along the lines that any interference with the market is a distortion and should not happen. The market is not perfect and it is our duty not to allow it to have free rein. If the market had free rein, people would be living on the streets because they would not be able to afford housing. I believe the time has come to take stock of where we are today and to decide that as a result of the imperfections of the market, it behoves us to take certain steps to remedy the exigencies of the market. Therefore, I ask the Minister to consider some developments to follow on from the living city initiative.
First is an initiative to try to reverse some of the significant and serious damage that has been caused to some of our towns. Recently, I had reason to drive through Arklow and some of the towns of Wicklow and Wexford and found it truly shocking that so many businesses have closed down in these towns. A few green shoots and a few extra bob into the economy will not solve the problem. There are deeper issues, such as upward-only rent reviews. It is not just the fact that people do not have money in their pockets; there are other difficulties and problems. I believe the tax code could be used productively to try to relieve some of these difficulties.
There is an issue coming down the line in regard to housing. Every time there is any mention of providing help or assistance to the construction sector, Senator Barrett gets up to argue against it. It is like a red rag to a bull. However, it is normal in any developed economy for the construction sector to constitute approximately 10% of the economy. Our construction is way below that level at approximately 3%. We are in serious danger of having a sector that will not be able to respond to increased demand when the economy recovers. It is not just a matter of when the economy recovers. Statistics show, particularly our recent census statistics, a significant rise in population at a time when we have no social housing being produced by local authorities and no private sector housing supply. As Senator Barrett knows, the difficulty with regard to construction is that it cannot be turned on and off at will. It is something for which we must plan.
We now have a difficulty with rising rents and people on low incomes who cannot access housing. I urge the Minister to consider seriously the use of the tax code to alleviate this, bearing in mind that a construction sector that falls below a certain point is a danger for any developed economy. It would also be useful to use the tax code to stimulate the construction of housing specifically for people on low incomes. I am not just talking in terms of voluntary housing associations. I suggest commercial construction using the REITs mechanism be introduced in the legislation to incentivise housing for people on low incomes.
The problem with this scheme is that it is far too narrow. Yesterday, on the Order of Business, we had a number of calls from Senators in the House for a debate on town and city centres generally that would look at creative interventions that could be made to help regenerate towns, villages and cities across the State. I am doing some work for the Oireachtas Joint Committee on Jobs, Enterprise and Innovation with regard to developing a jobs action strategy for the regions. In any of the conversations I have had with local authorities, the need to regenerate town and city centres is a major issue. I agree with Senator Barrett that the main problem is that the macro issues of retail spend and footfall are down. This obviously has an impact on city centres. The issue of upward-only rents is also a significant issue, has an impact on the retail sector and must be dealt with.
Some creative pilot schemes have been put in place to deal with some of the issues. Carlow, for example, has a pop-up policy which is a creative way of encouraging businesses to showcase new ideas, enterprises and opportunities. It allows them to present themselves for a couple of weeks by giving them the use of a free space or empty building. I hope that policy is successful. We must go beyond the limited proposal in this Bill and look at ways of supporting the regeneration of town and city centres across the State. Any lift in the economy, better budget choices by the Government and putting more money in people's pockets will be a large factor in terms of the regeneration of city centres.
The initiative in this Bill relates to the regeneration of Georgian houses, but we should also consider the regeneration of housing stock in general. Many regeneration projects in Limerick, Waterford and Dublin, such as in Moyross in Limerick, have been put on hold, but those regeneration projects should go ahead. These are the kind of initiatives on which the Minister should focus at budget time because they create jobs and provide a social dividend for communities which are suffering. We should regenerate the housing stock that needs to be regenerated and create jobs in that area. I would like to see money going into those areas. This would create opportunities for small entrepreneurs and contractors but would also support social cohesion and community development. It seems odd to many people that we would include a scheme for the regeneration of Georgian housing, but not continue with regeneration projects in housing estates in many urban areas.
On the broader point of constantly looking at creative, innovative ways in which we can support town and city development, this is something we would all support. I hope the Leader will facilitate a wider debate on this important issue in the House. There is more to be discussed in that regard, including retail policy and out of town developments such as shopping malls. These issues must all be part of the wider issue of planning and retail policy. I hope the Minister will respond to these points.
I agree with much of what has been said, but disagree with some points made. Senator Barrett makes a valid point that the days of providing tax incentives to do something that is unsustainable, just because we would like nice old houses to be retained, is questionable at a time when we are bringing forward tax increases of the order of €44 billion for this calendar year, having risen from €34 billion in 2008.
I agree with Senator Hayden with regard to the construction sector. We must get those previously involved in the sector, mostly men, back working. Many of these people will not retrain but will rot for the rest of their lives unless we get them back working in the sector. However, I disagree with Senator Hayden that we need to build more housing, because there are thousands of unoccupied houses in the country. The last census indicated there were approximately 200,000 homes unoccupied throughout the country. I made a point earlier in the context of the incentive for hotels and guests.
I do not know that I am in favour of a town zone. Prices immediately increase in areas that benefit from tax incentives. The same thing happens when grant aid goes into many areas. The construction sector gobbles up the moneys that are made available and there is no actual benefit. I am in favour of projects that encourage people to go to city centres to do business, to work in jobs, to avail of entertainment facilities or for similar reasons. It should be up to each town or city to come up with such projects. Rather than specifying a zone and saying "there you are lads, off you go", we should act in a clever and strategic way by making it possible for voluntary groups and local authorities, etc., to get involved in projects that benefit from tax breaks.
I will give a good example. Wexford County Council was based at a number of sites throughout the town of Wexford before it built its fine new premises. Business has been affected since they all moved to the new location, which is approximately a mile from the town centre. That is what happens. I am using that as an example. We have a duty to keep premises, facilities and projects in our town centres. I am not sure whether we need to focus on shops. We can focus on other things.
I thank everybody who has contributed to this interesting debate. I am not sure anybody has the complete answer. We have to try. We can see what is happening. There is a real problem with cities and towns throughout the country. The centres of our cities and towns, with exceptions like Dublin, Galway and Cork, are dying. I am not sure what the answer is. I am not sure what degree of answer these initiatives will supply.
It is not correct to say the Government is abandoning other regeneration projects. The regeneration of Moyross, which was mentioned by Senator Cullinane, is moving ahead far more progressively than it was in the past. The Minister of State with responsibility for housing, Deputy Jan O'Sullivan, gave the keys of new houses to 30 or 40 residents two weeks ago. Now that the first phase, which merely involved the demolition of houses, is over, that project is delivering by rehousing families in modern accommodation.
The problem in Limerick was aggravated by the fact that three local authorities - Limerick City Council, Limerick County Council and Clare County Council - were making planning decisions. As part of the merger of the two main local authorities, the headquarters of the new authority will be located downtown at the new City Hall. The real problem is the doughnut effect, whereby the city centre is derelict as a result of activity being allowed to move to the outer suburbs, which happen to be administered by a different local authority. The planning decisions that were made by that authority drove the doughnut effect and aggravated it more.
When we assessed the main towns in Ireland, we found that Limerick and Waterford came at the bottom in terms of all social statistics. We decided those cities should be prioritised in the event of any intervention. We have provided documentation in support of this decision. I do not know whether the approach we are taking will work. The idea is to create living cities again. We want to provide incentives not to developers but to people who might be prepared to refurbish houses to live in. Unlike under section 23, the tax benefit will accrue to the owner-occupier rather than to the developer. People who live in cities need small shops and retailers. The owner-occupier is being incentivised under this aspect of the tax break as well.
This scheme is being introduced on a pilot basis. If it is successful, we will consider extending it to other towns and cities. It would be difficult to get EU permission for a wider scheme. That is why we have assembled this scheme in such a limited way. While the area of Georgian architecture on the south side of Dublin has been well developed, some of the Georgian architecture in the Mountjoy Square area of the north inner city is not in very good condition. I know that an application to operate a pilot scheme in the capital city would not get through Brussels. We are more likely to get this pilot scheme though because we have statistics to show that the Georgian areas of Waterford and Limerick are in a pretty bad state.
We intend to enact these provisions now before undertaking a cost benefit analysis in support of our efforts to overcome any state aid problems at European level. If Europe signs off on the scheme, it will be available from 1 January 2014 - it will be an issue for the next calendar year - and then we will see how it works. If it works, we will be prepared to extend it to the centres of other towns. If it does not work, we will have to try something else.
There is no denying that there is a problem in this regard. It will not be remediated by the market. If we rely on market forces, the place will fall down. The market solution would be to allow the place to fall down and move to a low-cost environment on the edges of the city. Such locations have certain advantages, such as flat fields, low cost bases and free car parking around supermarkets, that are not found in cities. Intervention is needed because the market will not solve it. We hope this set of interventions will help. We will monitor and measure this initiative as we go along. If it works, we will be prepared to extend it.
One can complain and whinge forever. If one stands back to look at problems for too long, one will allow them to continue to get worse. One has to try possible solutions. I do not think every solution will necessarily work. We have to try solutions to the problems we see. We have to give it our best shot. That is the position. We are not bringing back a raft of tax incentives like section 23 for developers. That is not the purpose of this initiative. Its purpose, as suggested in its name, is to create living cities where families live and to ensure the shops and ancillary services they need are provided within that environment. I hope it works. If it does, it does. If it does not, we will have to try something else. If it works, we will expand it from the pilot phase to other locations.
I move recommendation No. 21:
In page 69, subsection (1), lines 17 to 27, to delete paragraphs (m) and (n) and substitute the following:
"(m) in section 278(6) delete all words after "Any allowance which under subsections (1) to (4) is to be made otherwise than in taxing a trade shall be available primarily against” and substitute "all other income.".".
We might call the scheme being introduced in this section the Shannon Airport scheme.
It applies to all airports.
I accept that. I am arguing that airports should be allowed to offset investment against all income, rather than rental income only. The Minister acknowledged in his comments in the other House that this amendment is being made to assist Shannon Airport, which is fine. I want to make it clear that all Senators on this side of the House are supportive of Shannon Airport. Ireland needs Shannon Airport to be strong. If it receives the right supports, it can act as a real economic driver for that region and help to ensure the regions contribute to the national effort in a sustainable way. Some of the measures the Government has announced to help Shannon Airport are to be welcomed in that context.
As the Minister is aware - we have corresponded on it - I have a lodged a complaint with the Directorate General for Competition in Brussels regarding the supports that were announced for Shannon Airport. I have made the specific argument that the supports, in isolation, will upset the balance of competition that naturally exists between Ireland West Airport Knock and Shannon Airport. I have suggested that something proportionate should be done to assist Ireland West Airport Knock and allow it to contribute to the national effort and act as an economic driver for the north west. Nothing near the level of support that is being afforded to Shannon Airport would be required.
Frankly, all Governments have looked at the north west as something of a pain.
It is seen as a case of "The north west is crying for supports again" or "The north west is lobbying for investment again", whereas the reality is that, if examined strategically, the north west can make a very significant contribution to the national effort and, not least, begin to cover its own costs.
The performance of Ireland West Airport Knock in recent years has been acknowledged by the Minister, Deputy Varadkar, and others. With €160 million in supports in the last ten to 15 years, we have seen Shannon's business drop 63% whereas, with supports of some €15 million for Ireland West Airport Knock, we have watched business there increase by close to 350%. The Minister very kindly corresponded to me that the amendment he made in the Dáil spread this out and opens it up to all airports. However, given the importance of rental income, it is only an airport like Shannon, considering the gift of all of the rent roll of Shannon Development to that airport, which would have the income to write that investment off. In many ways, therefore, it is like giving oars to Ireland West Airport Knock and a speedboat to Shannon Airport, and then saying "Look, anybody can win this race". The reality is that without the tools to perform to potential, there is no question that one of the two will be a burden on society and on the nation rather than being a net contributor and an engine for growth.
I reiterate that I am all for Shannon Airport but I have used the vehicle of a complaint to DG Competition to highlight the need for the Taoiseach to effectively do something for his region in the same way the Minister is so admirably doing something for his region in the context of Shannon Airport. I believe it is possible to do that, as I have said to the Minister in private, by announcing an investment programme along the lines outlined by the board at Knock. Following the complaint, a senior delegation met the board and there is an agreement to examine a way forward in the coming weeks. I hope that will culminate in the announcement of an investment programme, not to throw good money after bad into a project that will not produce dividends but to acknowledge the strategic role this can play. To reiterate, if necessary, more can be given to Shannon but something proportionate must be done for Ireland West Airport Knock in order that, together, both can ensure the western seaboard, in particular the south west, can act as a driver and contributor to the national effort in a sustainable way, where historically it has not been in a position to do so.
While I have gone off on a bit of a tangent to provide context, this amendment effectively asks that all income be included by way of write-off on any investment that might be made. To go further, although it is not encompassed by this amendment, while we are restricting the write-offs that are available to higher earners, if people are prepared to invest in projects such as this and there is a net gain to the taxpayer, the community and the country as a whole, we should try to facilitate it.
This section introduces a scheme of accelerated capital allowances for the construction and refurbishment of certain buildings and structures for use in the maintenance, repair, overhaul or dismantling of commercial aircraft. The tax relief, which will apply under this scheme, will commence by ministerial order and will operate for five years from the date of the order. The relief will apply not only to the hangars which are required but also to the tear-down pads and other facilities that are necessary for this sector to develop.
The effect of the Senator's first amendment would be to remove this section from the high earners' restriction, which seeks to ensure a minimum 30% rate of income tax is paid by high earning individuals. In the programme for Government, a commitment was made to reduce, cap or abolish property tax reliefs and other tax shelters which benefit very high income earners as well as the implementation of a minimum effective tax rate of 30% for very high earners. Therefore, this is an amendment I cannot accept.
The Senator's second amendment is not entirely clear. As drafted, this recommendation would impact way beyond the specific capital allowance regime being introduced in this section. I will assume that he wishes the amendment to apply only in the context of this section, such that there should be no restriction on the use by investors of capital allowances against all income in respect of qualifying investments. Currently, the allowances can be set against the investor's rental income in the first instance, with sideways set-off against other income restricted to €31,750. To remove this restriction would not be in keeping with Government policy on the use of capital allowances applied to passive investors in various incentive schemes over the years. It would also impact upon the changes made in the Finance Act 2012, which terminated the carry forward of unused capital allowances beyond the tax life of the building. This recommendation would effectively restore the position in the property market that obtained previously and caused such difficulties. As a result, I cannot accept this recommendation.
I do not know where the Senator is getting his briefing but the incentives for Shannon and other airports have absolutely nothing to do with rental income or the setting off of rental income. I do not know where his briefing is coming from but it is fiction - there is no basis to it. The incentives for development of an industry to refurbish aircraft at any of our airports, whether Knock or Shannon, is an incentive for private investors who put their money in to build hangars and ancillary facilities. It has nothing to do with the Shannon Airport Authority investing any income it might have. The rental income on rent rolls at Shannon was needed for the running of the airport and it will not be invested. In any case, it is not yet clear what the corporate structure of the new airport authority will be. In normal circumstances, as a public agency it would not be in a position to avail of tax incentives. I do not know where that briefing is coming from.
The advantage that Shannon Airport has is that it has commenced the activity already. The second biggest Russian airline, Transaero, has just commenced refurbishing there and has taken over an Aer Lingus hangar. To develop the industry further, incentives to provide hangars and pads are needed. Whether this will work or not is, again, an open question. However, the exact same incentives apply to all the other airports. The only impediment to development in smaller airports is the length of the runway. Obviously, if one is refurbishing large aircraft, one needs the runways to be sufficiently long to fly in and fly out. Therefore, while it will not apply to the little regional airports where runways are short, the runways at Knock are quite long.
In the Dáil, Deputies from the west, from Mayo in particular, said there was a possibility of activity at Knock, which would be the dismantling of aircraft and the recycling of parts of aircraft. Therefore, the word "dismantling" was brought into this section in the Dáil to allow for that activity, which the management in Knock says it is can attract in. However, if one wants to get engaged in full refurbishment and can attract in the investment, the same rules apply whether it is Cork, Dublin, Knock, Shannon or anywhere that has a runway long enough to land the aircraft.
I hope we can develop an industry here that we did not have before. We have a huge aircraft leasing industry based in Dublin and a massive proportion of the world's leasing of aircraft is now financed out of Dublin. Again, we have certain advantages on aircraft refurbishment. If one has under-used airports with fairly open skies, one can fly in and fly out. It is like heavy industry - it is that kind of work. It would be of great benefit if it can be done.
The Minister mentioned regional airports. I will be so bold as to remind him there will be an application from Waterford Airport to extend and expand its runway. The Minister mentioned the importance of having runways of a particular size to ensure there is sufficient capacity for larger numbers of aircraft, perhaps up to 100. A lot of investment has been made in the south east, including Waterford, in recent times, and to the Government's credit it has supported investment in the Viking Triangle in Waterford city centre. The tourist triangle of Wexford, Kilkenny and Waterford and a regional south-east proposition and marketing plan is being undertaken by Fáilte Ireland to make it happen.
The Senator might be moving off the flight plan at this stage.
One of the impediments will be the size of the airport and its ability to deliver. The Minister mentioned earlier that some parts of the country are struggling and underperforming in comparison to other parts. We have problems everywhere. There is no doubt that those problems are magnified in Waterford and the south east. The same is true of Limerick and other areas. The importance of getting the funding for the airport in Waterford is massive. Again, when this application comes before the Government, I hope the Minister and the Minister for Transport, Tourism and Sport will look favourably upon it and see it as one of those critical interventions that must be made to help that part of the State.
As the section does not mention any airport, it applies to any airport.
We will be pressing the amendment. While I appreciate it is open to any airport, it is written for Shannon. I still hope that in the coming weeks appropriate cognisance can be taken not of what the whining west is looking for but rather what it can contribute if provided with something of a level playing field. Measures like this one in terms of how they are constituted and based on the template that has been provided to Shannon and not to Knock put one person very much in the slow lane and the other very much in the overtaking lane so we will press the amendment.
Does Senator Barrett wish to contribute?
No, I do not wish to speak to the amendment.
Senator MacSharry has just chosen to ignore everything the Minister said. It is unfair. We come in here and have fairly good debates. The Senator has chosen to ignore the specific line that this is available to any airport. He has managed to assume the position that the west is getting done over. It is not, because it is available to the west if it chooses to take it up.
It is a matter for Senator MacSharry whether he wishes to press the issue.
I will press the issue. The Minister does not have the final say. We are not in a school classroom because one can articulate a view. I could equally say that the Minister has manifestly not listened to what I have said. I very specifically pointed out that while it is open to people in the west as it is to people on Arranmore Island if they want to build an airport, the reality is that one airport has got a rent-roll that is significant.
As the two Senators are not ad idem , I will put the question.
Nevertheless, the reality is that one airport has a significant rent-roll in the context of this, namely, Shannon. That is the airport for which it is written. As the Minister said so in the other House, a basic acknowledgement from me-----
The Senator is choosing to ignore-----
- Bradford, Paul.
- Brennan, Terry.
- Clune, Deirdre.
- Coghlan, Paul.
- Comiskey, Michael.
- Cullinane, David.
- Cummins, Maurice.
- D'Arcy, Jim.
- D'Arcy, Michael.
- Gilroy, John.
- Harte, Jimmy.
- Hayden, Aideen.
- Healy Eames, Fidelma.
- Keane, Cáit.
- Kelly, John.
- Landy, Denis.
- Moloney, Marie.
- Moran, Mary.
- Mulcahy, Tony.
- Mullins, Michael.
- Noone, Catherine.
- O'Keeffe, Susan.
- O'Neill, Pat.
- Ó Clochartaigh, Trevor.
- Sheahan, Tom.
- van Turnhout, Jillian.
- Whelan, John.
- Barrett, Sean D.
- Leyden, Terry.
- MacSharry, Marc.
- Mooney, Paschal.
- Norris, David.
- O'Sullivan, Ned.
- Power, Averil.
- Wilson, Diarmuid.
I welcome the Minister of State, Deputy Brian Hayes, to the House.
I also welcome the Minister of State. I thank the Minister, Deputy Noonan, for his thoughtful and thorough replies to the debate. We are trying to get things done better in the country, which is the spirit in which the debate is being conducted.
I am against tax breaks for airlines' hangars. I do not know what market failure it is supposed to be addressing. We have extremely profitable airlines. In fact, the world's most profitable airline put in on St. Patrick's Day the world's largest international order for new aircraft this year. The leasing business is prosperous. When Guinness Peat Aviation, GPA, was in its hay day, it created many millionaires. This tax break is for highly profitable airlines to buy hangars in which to keep their aircraft.
This section of the Bill proposes that extremely rich individuals can reduce their tax liabilities by subsidising hangars, which will presumably be built at high cost by the construction industry, which is in the know in this regard, and rented to highly profitable airlines. I oppose the section because I do not know why we got involved in this type of enterprise. However, I will not push the matter. We cannot subsidise everything out of a bankrupt economy. It seems that the aviation sector is doing splendidly.
If it knows there are subsidies available, it will be only delighted to meet the Minister for Finance, Deputy Michael Noonan, and the Minister of State, Deputy Brian Hayes. What is the point? Government subsidies are intended to help those on low incomes to survive, but this is a case of high net worth individuals getting tax breaks in respect of the provision of hangars for airlines. The leading Irish airline is worth about 35% more than the leading American airline. It is a highly profitable business. Why at a time when we are introducing a tax on houses in which people live are we giving it subsidies to house aircraft? This is one of several strange aspects to the Finance Bill, given the difficulties faced by people throughout the country. However, I do not propose to push the recommendation to a vote.
I understand there was a substantial discussion with the Minister on the scheme of accelerated capital allowances for the construction and refurbishment of certain buildings and structures. The general disposition of the Senator in all of these matters is why at a time of difficulty and when there is very little money around we are making arguments in favour of expenditures in one area as opposed to another. The Minister has already indicated that what we are trying to do by way of a range of tax heads is encourage investment. The argument is that the proof of the pudding is in the eating in that if as a result of a tax break, we generate more economic activity, it must be in the interests of the State. This is a competitive area. States across the world introduce these types of measures as a means of trying to encourage economic activity in a particular area. That is notwithstanding the substantial businesses that have grown in this country in recent years.
I do not propose to rehash all of the arguments made on the previous section. There is a justification for these accelerated capital allowances. We believe this to be in the long-term interests of the recovery of the country.
I thank the Minister of State. When all other impositions were made on society, we protected the 12.5% corporation tax rate. I am sceptical of those who continually come back for more. These are deserving boys who are extremely rich individuals with a low tax liability. I appreciate the Minister of State's point that the purpose is to develop the country. However, the Government tends to dish out chunks of the tax base without analysis. As stated during the earlier discussion, there is a need for a cost benefit analysis of all these measures, including how much they are costing and if jobs are being generated, in particular at a time when the Government is making cuts to the numbers of special needs assistants, respite care services and putting a tax on small houses and so on. We give tax breaks to rich people willy nilly.
The difference between Ireland and other countries is that some of them are not bankrupt. I am not too sure I would support this measdure if we had a surplus in the Exchequer. We must assess our priorities. However, I thank the Minister of State for his response.
I agree with Senator Sean D. Barrett. On the basis of the arguments made by him, it seem there is already sufficient incentives for business in this area. For them, business is booming. They are all profitable and do not need stimulatory encouragement, although they will seek it if is available. As I understand it, this relates to the refurbishment of aircraft hangars. What happened to our interest in cultural matters? These piddling businesses in Limerick and Waterford are part of pilot schemes. There is clear and direct information, confirmed by Government policy, that the refurbishment of core Georgian areas of our cities brings in a fair amount of revenue. There is no doubt about this, yet the Government continues to fiddle around with pilot schemes. Restoration in my area is, by and large, complete. People they will be hit by higher property tax as a result. The Government is not encouraging new people to come in. My area aside, areas such as North Frederick Street, Blessington Street, parts of Mountjoy Square and Gardiner Place are almost derelict. The Government is doing nothing about this, but it is prepared to incentivise the refurbishment of aircraft hangars, which is nonsensical. Senator Sean D. Barrett is right that in relation to all such measures, there is a need for a cost benefit analysis in order that we will know if jobs are being created. I do not believe they will. Is Mr. O'Leary a Fine Gael supporter?
I doubt it.
He is not. Is he a Labour Party supporter?
He is his own supporter.
He is perhaps a Sinn Féin supporter. There is no reason, even the most venal, to give these incentives.
Mr. O'Leary is a well known socialist.
There is no programme for Government commitment in this regard. In fairness, the previous Government commenced the process of restricting the amounts of tax forgone in these areas. The Government does not propose to return to the mad cap spree of offering tax breaks for everyone. There are arguments for targeted relief if one believes there is potential for job creation. Ireland has been hugely successful not only on the aircraft side of the business but on the leasing side. This is now an international hub for such activity, which justifies this measure. We see the potential for significant engineering works and resulting jobs in the economy. Members will be aware that the aviation sector is expanding vastly and if we do not move on it, others will. Ireland is a small, open and highly deleveraged economy and people look very closely at what happens here. There are arguments in favour of having targeted and focused tax reliefs in areas in which we believe there is potential for job creation. That is what we are doing with this measure.
For the benefit of Senators Sean D. Barrett and David Norris, the high earnings restriction of 30% which applies across the full range of reliefs of this nature applies in this case. It is not a matter of people squirrelling away their tax liabilities as a result of building a hangar. On the contrary, the 30% rate applies in all circumstances. The Government stands over this measure.
Will this provision facilitate a successful effort which, sadly, was taken to pieces, namely, the refurbishment not of hangars but aircraft? There were several companies involved in the reconditioning of aircraft. I understand a tiny fragment of that business remains at Dublin Airport and it would be worth investing in. Team Aer Lingus was gobbled up by Swiss Air and it resulted in huge job losses. Will this measure allow for the redevelopment of that activity?
Yes. As I understand it, there is massive growth in this area. The reconditioning of aircraft is huge business. Growth is expected to be in the region of 35% in the next ten years. Given our success in the leasing area, we see the potential for developing this industry. As I understand it, the aim is to provide facilities for SMEs involved in the repair, overhaul and dismantling of aircraft.
To answer the question, it may be a potential Team Aer Lingus on a minor scale. Even if we could get a small percentage of this business, there are jobs in the area. "Yes" is the answer to the question.
I thank the Minister of State for his answer. I am not happy to stab Senator Barrett in the back and agree with the Minister of State. I am sorry about that.
What is the purpose of the exemption for the Pharmaceutical Society of Ireland from taxes proposed in the section?
My understanding is that it is a non-commercial semi-State body and the corporate tax regime does not apply. The exemption is in that area.
I apologise as that is a mistake. There was some renumbering and I did not change the detail. I am not opposing section 40.
Recommendations Nos. 22 to 26, inclusive, are out of order as they involve a potential charge on the Exchequer. The section is opposed by Senator Barrett.
There were a number of recommendations ruled out of order and there was a discussion in the Dáil between my party and the Government. The recommendations would simply tighten the criteria for the operation of the section.
As the recommendations have been ruled out of order, we should not really be discussing them.
I am speaking to the section. We wanted to ensure the people who should benefit see that benefit.
There is a worrying part of the explanatory memorandum indicating that the real estate investment trust, REIT, may carry on other "residual" businesses. The clause that alarms me is that "the tax exemption applies only to the income and chargeable gains of the property rental business." We discussed earlier with Senator Hayden the danger that we return to where we were when "the tax exemption applies only to the income and chargeable gains of the property rental business." These tax subsidies to property have caused so much trouble in the past and precipitated the problems that the Minister of State, the Minister for Finance and the Minister for Public Expenditure and Reform must deal with on a daily basis, and which this House must confront.
Are there early warning systems or safeguards in place? I appreciate the points made by my good friend, Senator Hayden, that there may be shortages in the property market but this would mean we are going back so soon to a system which did so much harm to the country. The Minister, Deputy Noonan, could brief the Minister of State on that issue. My fear is that land and property speculation has been extremely damaging, and we should allow prices to fall even further. There is a concern that tax exemption for properties is detailed in the explanatory memorandum for this section. Do we need such a provision again?
From 2003 onwards we found it difficult to shut off these systems. Are safeguards built into this in order that we will not precipitate another property bubble, as we probably had the world's worst property bubble, apart from South Africa, according to The Economist? That was fuelled by fiscal privilege and I am concerned about the impact of it in this section.
I warmly welcome this provision in the Finance Bill, which is a positive development. I have personally championed REITs for many years. This is not a property subsidy, and it is important that Senator Barrett understands that. Effectively, this will be a company structure allowing property to be owned in an effectively collective fashion by shareholders. This would tax the income of the company in the hands of the shareholders and not in the hands of the company itself. In other words, capital gains tax would be paid by the shareholders on the transfer of their shares and income tax is paid by the shareholder in the hands of the shareholder.
This allows a more efficient and transparent process, facilitating better property development and corporate governance. It puts property on an equal footing with other forms of traded commodities through the Stock Exchange. It is a positive development which will open the Irish property market to international investment in a way that has not been done in the past. The signs are positive with regard to the interest of international investors in Ireland on foot of a qualified recovery in our fortunes.
Having mentioned all the positives, I will address a point made by Senator Cullinane relating to the various limits mentioned in the recommendations put down by Sinn Féin that were not accepted. What is being proposed under Irish REITs is similar to the examples in the UK; I would not seek amendments at the moment and would prefer an attitude of waiting to see the results. The only area Sinn Féin did not address with a recommendation was loan-to-value ratios, which in Ireland would be 50% but in the UK is 40%, and I would have argued for a recommendation in that respect. We can adopt an attitude of waiting to see how the process transpires.
I will put a concern to the Minister of State in the same way I put previous concerns to the Minister for Finance, Deputy Noonan. All of the interest so far in REITs comes from the commercial investment sector and relates to retail or industrial property, for example. I would very much like REITs being developed for residential property, particularly with NAMA holdings. I mentioned before that NAMA currently owns 10,000 properties in the residential rental sector, and there would be a perfect opportunity to transfer a large body of residential properties to REITs. That would bring the advantage of much more professionalism into the rental sector, as we have seen a lack of professionalism because of what is termed in Australia the "mom and pop" market. Most Irish rental properties are owned by people with one or two properties, leaving the market subject to rises and falls, with rents going up and down. That is unacceptable as one in five families in the country live in rented properties. We cannot keep taking the rises and falls we have seen with rented properties, and the property portfolio of NAMA presents an ideal opportunity to transfer a significant volume of properties into a REIT structure.
Promoting REITs in the residential sector would require some form of push from the Government. That flies in the face of everything Senator Barrett believes but we cannot let the market rip, whether that rip is on the way up or on the way down. I have noted that when the market is rising out of control or falling out of control, economists say we should let the market find its natural level. I am not in favour of that because too many ordinary people fall victim to the market finding its natural level.
REITs are most welcome but additional measures will be necessary to encourage investment in residential property. As I said to the Minister, Deputy Noonan, I am very concerned that we will see a very significant property shortage in urban areas in the not too distant future. The famous overhang in the Irish market is all very well if we can persuade people to move to Monaghan, Cavan or some other Border counties, but there is no overhang in urban areas such as Dublin, Cork or Galway and it is expiring rapidly in other urban areas. I very much welcome this measure but it should be taken a step further.
I thank the Senators for their observations on this section, which deals with REITs. It was made plain in the Budget Statement that this would be in the Finance Bill. This is replicated in approximately 35 other countries that have sustainable investment in rental property. It is something in which we see potential for sustaining the property market after what has been an extraordinary shock.
On the point raised by Senator Hayden, the truth is that we do not have one property market in Ireland, but hundreds of property markets. If one lives in Dublin there is a variety of difference in price between west, south and north Dublin, and that is replicated across the country. Whether we like it, our futures are inextricably connected to the market getting back to some kind of sustainable level. Nobody wants to see the type of unsustainable house price and commercial price inflation that developed in this economy over a decade or so. The objective is that if we can establish through REITs and other measures a sustainable basis of investment in rental property, that will be in the long-term interest of a property market that has traditionally not treated people in the rental sector or the rental sector itself as an investment in the way it should have.
The REITs are effectively taking out what is a double taxation agreement. At present, if one is a company one pays from the investor side and one also pays on the corporate side. By equalising the pitch, as it were, one creates opportunities for businesses, both big and small, to invest in property as a long-term investment. That must be in the interest of a sustainable Irish property market into the future.
Senator Cullinane asked very pertinent questions. I realise his recommendations cannot be dealt with, but perhaps I can help in this regard. His party put forward a number of suggestions on Committee Stage in the other House, and the Minister, Deputy Noonan, brought forward two specific amendments to deal with the issues Deputy Doherty raised. One was on the question of dead equity, which was dealt with by the Minister through additional protections. The point made by Senator Cullinane is correct. We must ensure there is protection for people if they go down this route. As a result of the observations his party made on this and the improvements that were made consequently, we are satisfied we have dealt with that in so far as we can.
I am aware of Senator Barrett's views on this issue. They have been well argued and articulated not just in this House but in many other fora over the years. It is a position of letting the market settle where it settles and we will see what happens. The dilemma in this case is that so much of the economy is predicated on the construction industry, a sector that went from 20% of GDP down to approximately 5% today. I was speaking at a conference earlier this morning about trying to encourage public private partnerships, PPPs. There is extraordinary interest in the Irish PPP market, given the fact that we were not in this space for the last few years. However, because the risk to the sovereign is diminished, people now see Ireland as an opportunity for public private partnerships. We must get the property industry stabilised and moving in some shape or form, because tax and other revenues for the State are predicated on transactions in that sector.
We see the REITs as a logical development for investment in the rental sector for both large and small companies. I agree with Senator Hayden that it is not an incentive or subsidy. It removes a lacuna that has been in place for a long time and which has really not helped the sustainability of the rental sector in Ireland. Our rental sector is out of kilter with the rental sectors in other western European countries. We appreciate that home ownership in this country is very strong, but we must have a sustainable market for investors who wish to invest in the rental sector. We very much hope that section 41 and the establishment of REITs is a step in that direction.
Recommendation No. 27 is out of order as it involves a potential charge on the people.
The section deals with capital gains. First, I welcome the increase. It was one of the positive intiatives in the budget, but we wanted the Government to go further. In our alternative budget submission to the Government we called for an increase to 40%, a return to the rate that existed before Charlie McCreevy cut it to 20%. The Minister often asks us for alternatives when we criticise the Government for cutting various allowance, and we bring forward proposals. This was a practical one that could have been implemented. In fact, had the rate been increased to 40% it would have raised €160 million, a very significant amount of money when one considers some of the cuts that were made in the budget. While we welcome the fact that this increase has been included in the Finance Bill, we do not want this to be done by stealth. It should be done in one swoop and brought back to 40%. Does the Government intend to increase the rate to 40% in next year's budget? If so, would the Minister accept that the additional income of €160 million would be important and might negate the need for cuts in some services or would prevent cuts in areas such as child benefit, disability payments and mobility payments, which were part of the budget?
Again, I welcome the fact that there has been an increase, but the Minister should have gone further. The extra income that would have been generated would have meant fewer cuts being required in some areas.
The history of the increases and decreases in capital gains tax rates dates back to when Albert Reynolds was the Minister for Finance. He introduced what was seen at the time as a very radical reduction in the capital gains tax rate, against the advice of the Department of Finance. He argued at the time that a great deal of capital had been locked up and that reducing the capital gains tax rate unlocked this capital, stimulated investment and generated more income than was the case under the status quo. Has the Department carried out any analysis of what would be derived from increasing the tax or returning it to where it was at 40%? What are the views of the Department on increasing capital gains tax, particularly in the context of a depressed economy?
I would have expected Sinn Féin to support the increase in all the capital taxes that we announced on budget day. It was not so long ago that capital taxes in these areas were 20%.
As a result of this Bill, it will be an increase from 30% to 33%. It is worth pointing out that in 2009, CGT was 20%. We then increased it to 22% and it went from there to 25% and then to 30%. It is now 33% in line with all the other capital taxes we announced in the budget. It is also worth pointing out that the estimated yield from this measure this year is €50 million.
Senator Cullinane asked about the Minister's position. I am always loath to give the Minister's position when he has yet to put through this year's budget, not to mention next year's one. However, all these issues will be kept under review. It is a fair and equitable argument that those who make money on the transaction of substantial holdings or on taxes should pay a little more and it is being done in a fair way. At the time of the budget, we pointed out that this was an example of those with more having to pay more. If we did not do this, we would be left in a situation where we would have to raise income tax. As the firm view of the Government is that the best way to keep people at work and to create the environment where it pays to work is not to increase tax on work, we have to look at other means of taxing. We have proposed these increases in the three areas of the capital taxes.
We will keep these matters under review. The net issue is always whether there is a guarantee that one will get more tax in by increasing tax. That is an ideological question which has been around since the time of Jesus Christ himself. The whole objective of increasing tax is to get more tax in, in particular in circumstances where there is a deficit. If one increases a tax to an exorbitant level, human nature being what it is, people will do strange things and will react in different ways. We will keep these matters under constant review but the basic argument behind the increase in CGT from 30% to 33% is to help us bridge a gap in the fairest and most equitable manner possible.
Does the Minister of State have the figures in respect of the yield from the increases from 2009 to 2013, inclusive? Has there been a significant increase in the tax take from CGT which correlates with the increases which he has outlined?
It is a good question. Ideological or not, it is worth pursuing a little bit. Is there a Laffer curve with an optimum rate of CGT? Sometimes it is not possible to arrive at the optimum figure immediately. Do we know what the optimum figure is? Has any analysis been done on this?
I suspect it is economic activity. I do not have access to the figures but we can obtain them.
I am sure the Minister of State's officials can tell him that there has been an increase in the yield which correlates with the increases in CGT since 2009. He has been able to give us the increases in the tax rates.
I can confirm for the Senator that there has been an increase in the yield but I cannot confirm the quantum. However, we will get that for him as soon as possible.
Recommendation No. 28 in the name of Senator Barrett has been ruled out of order as it involves a potential charge on the people.
There is a certain amount of mystification as to how reducing a tax break from €3 million to €1 million will cost the taxpayer money. As always, I was actually trying to save the Minister some money. A few minutes ago, the Minister of State praised the increase in capital gains tax; why, therefore, are we giving away €3 million tax free? The explanatory memorandum states that this section ensures relief from capital gains tax to apply to disposals where the consideration is €3 million or less. The Minister of State praised capital gains tax a few minutes but we are giving away €3 million. It is a general feature of the Bill and I think we will have to remedy it for future years.
What is the case for this? It cannot just be slipped in towards the end of a very long Bill. Part of the economic analysis would be that in robbing Peter to pay Paul, one would easily get Paul's support. Somebody will be €3 million better off. I am not sure that Paul is a deserving person. He is obviously very rich, because I do not know anybody who has walked off with €3 million tax free, quite a successful lobbyist - lobbyists have done damage to this country - and well got in lobbying circles. He could be a large landowner or a high net worth individual. I do not know anybody who could benefit from this.
The problem with all these tax breaks and grants is that they are capitalised in higher asset prices anyway; therefore, one is making it more difficult for somebody who does not have €3 million to give away. Outside that circle, the price of the assets will go up and that precipitated asset bubbles before, as the Minister of State has said.
We are saying to the people in the smallest houses to pay their property tax but this section offers €3 million tax free. I did not know the Exchequer was so full of money that we were giving away €3 million. Who is this for? It stresses the need for the cost benefit analysis and the regulatory impact analysis. I would admire the brass neck of anybody who could emerge with €3 million from the Exchequer when the rest of us are being called upon to bear more burdens. Why is this €3 million man so deserving?
Could I reply to Senator Mooney's earlier question?
That was on section 43.
Senator Mooney asked me a very pertinent question on CGT and he will be delighted to hear we have found the information. The yield in 2002 was €415 million, which is about the same as it was in 2011 but it is up from €347 million in 2010. In the past two years, it has gone up from €347 million to approximately €415 million. The current yield only represents 13% of the CGT yield of €3.1 billion in 2007. We are only taking in 13% of what was taken in in 2007. It really highlights the degree of the collapse.
What rate was it at that time?
It was 20%.
How many million euro?
It was €3.1 billion in 2007. Last year, it was €415 million and we are expecting an increase of another €50 million; therefore, we are expecting €460 million or €470 million which is slightly more than 10% of what it was in 2007.
Could I just-----
I do not want any comment. The Minister of State was just giving information to the House.
To qualify the information, do we have any figure for the level of activity which generated those figures vis-à-vis 2007? We know the revenue is 13% but the level of activity would indicate what effect the increase in the rate would have made.
It was the last year before the collapse in 2007, which was the high point in terms of yield. I will see if we can get more precise information. GDP fell off a cliff by 12.5%.
I might put my speaking note on section 47 on the record to make sure all my ducks are in a line. This section amends section 599 of the Taxes (Consolidation) Act 1997, which deals with CGT retirement relief on the disposal by individuals of business and agricultural assets to their children and certain others. The Finance Act 2012 introduced a limit of €3 million on the value of disposals qualifying. It is not the case that someone must have €3 million in his back pocket; it is on the value of disposals qualifying for the relief from next year by individuals aged 66 and over.
Section 47 ensures that relief from CGT will apply to disposals of qualifying business or agricultural assets by individuals aged 66 or over on or after 1 January 2014, where the consideration for the disposal is €3 million or less in terms of the total value. This section also provides for the aggregation of the consideration of disposals made on or after 1 January 2014 by such individuals in the disposal. It is a €3 million lifetime limit.
My understanding is that the section is to encourage farmers to move their farms on to younger farmers. It is not a question of a subsidy or a tax break but an encouragement in terms of economic activity and viability of agriculture land.
The downside of this is that all of these tax breaks are capitalised in higher land prices. We mentioned earlier that one of the differences between Ireland and New Zealand is that New Zealand pulled all these subsidies and grants out and the price of land fell, leading to new people entering agriculture. We are making land more expensive and, therefore, people cannot get into it. That is part of the row the Minister for Agriculture, Food and the Marine must cope with over the level of subsidies attached to agriculture in Ireland that are not related to production. It refers to more than agriculture but to have €3 million worth of assets to dispose of is an achievement in itself. How they managed to get this tax break I do not know.
What this shows is that future finance Bills must have the arguments made in full before they are published and we get them. While these sessions are useful, it would be beneficial if we could see in a measured way if there were deserving cases given all that is going on in the country. I will not press the recommendation, but section 48 is along the same lines. The fact some people get the right to dispose of €3 million worth of assets free of capital gains tax when we are pursuing people with much small incomes for much heavier burdens indicates that finance Bills must be taken in a wider context in future.
The wider context is that we are encouraging those of an age who want to transfer their business to a younger member of the family to do so in a way that encourages additional economic activity. I heard the Senator's remarks that this could inflate land prices but all of the evidence suggests that land prices are on the way up not as a result of this, but because the agrifood area has seen substantial growth in recent years and there is a significant demand for produce. We are seeing this growth around the country in response to that. If ever there was a market governed by the principles of Senator Barrett, it is this area. I have noticed an increase in land prices due to the substantial improvement in the agrifood sector which is encouraging more and more people to go back on the land in the most efficient way possible.
I am not an expert in this but we took this position in the previous budget to encourage the timely hand over of an asset like this as a means of encouraging younger people in a farming family or elsewhere to move the asset forward. It has been successful thus far.
Without the benefit of this measure, someone who had the property or business to transfer would have to pay large duties and debts. Instead of investing in the future and expanding the business, he would have to pay money to the State. That would lead to a downward spiral rather than the tax break for the younger farmer. That is the primary reason this has been in place for a long time and why the Irish agrifood sector is achieving the targets in Harvest 2020, a doubling in certain areas. If they had to spend money to pay transfer duties, that would not happen.
The 66 year olds concerned should have a better view of the future generation than to require a €3 million tax-free exemption to pass on businesses to their offspring. I thank the Senator and the Minister of State but we must consider how some people manage to get these concessions. Is there any production anyway? Why would a farmer hate the next generation so much that he will not hand land over unless he gets a €3 million tax exemption? Do we need such people?
I have been facilitated, for which I thank Senators opposite and the Minister of State.
Senator Barrett's argument is valid and should be taken into consideration. We have seen in other areas of the Finance Bill that those on lower means are being unfairly targeted for tax to be taken from them while this section gives leeway for the better off to have to pay more and the Senator's suggestion should have been taken on board.
This is a means of encouraging the transfer of productive land to a younger generation. It is not a question of hating the younger generation; on the contrary, it is a question of cherishing the younger generation by moving assets along. Land can often be difficult to move along and there is no reason to believe doing this will infuse a new opportunity that currently exists in the agrifood area. This is a targeted measure and we do not accept the suggestion that it is a subsidy of some sort. This has led to transfers and that must be in the interests of the industry of the whole.
This is the same argument. Reading from the explanatory memorandum, the new section gives effect to relief from capital gains tax where Teagasc has certified that the sale, purchase or exchange of agricultural land was made for farm restructuring purposes. Full relief from capital gains tax will be given. This is not the 66 year old, it is a more general application. Land prices are booming and this should be a source of income for the Exchequer, not a source of tax-free capital gains being given away. We have a very severe law for many people as we necessarily restructure the public finances but landowners seem to have a remarkable ability to influence the contents of the Finance Bill and this is another example of that. I will not press the issue because the Minister of State has been most helpful when we have raised these issues, but I welcome Senator Ó Clochartaigh's remarks.
The section is opposed by Senator Reilly. I call Senator Cullinane.
I am not he but Senator Ó Clochartaigh. It must be the glasses that are confusing the Chair.
I am sorry, it must be the Galway air.
That is it, we both have that austere air about us.
What is interesting about Senator Barrett's contribution to the discussion on the previous section is that we think there is a certain lack of imagination in this year's Finance Bill as the Government is once more taxing the old reliables, cigarettes, drink and petrol.
Are we discussing section 49?
Yes, excise duties. We have just debated a section that impacts on people with relatively greater wealth than the type of people who may smoke cigarettes and so on. This section is very punitive on people from a lower socioeconomic background. The statistics show the majority of people who smoke cigarettes come from a lower socio-economic background and the effect of this section is to take money out of the pockets of the end consumers. This is the opposite of what we should be doing, which is to boost the economy. We want people to have disposable income and money in their pockets. This section will hammer lower income households once more. It is a return to taxing the old reliables instead of using a little bit of imagination.
I note the Irish Cancer Society suggests that we demand that cigarette prices be increased. It must be pointed out, however, there is the option of targeting the cigarette manufacturers for tax as opposed to the consumers. Again the Government has chosen not to do that.
We believe the Government has again chosen to implement measures that hit people who have less money in their pockets. This will be detrimental to the overall consumer spend in the economy which will have a knock effect on the retail sector. These are the grounds for opposing this section.
While I understand the view expressed by Senator Ó Clochartaigh, the other dimension is the cost to the State as a result of people smoking. Statistics across the world show the only way to combat smoking, which leads to lung disease is by increasing the cost of tobacco. I know the practice of illegal importation of cigarettes from other parts of the world causes difficulties for the Government. The loss of excise revenue to the Exchequer is substantial. One argument is that if the Government keeps increasing the price of cigarettes, people will go to illegal outlets to buy them.
I fully support the Government's action to increase excise duty. In fairness, although I am not sure it is doing so for altruistic reasons, all governments are aware of the impact of smoking on health. As the cost of cigarettes rises, it is less likely that people will start to smoke and therefore are less likely to get smoking related diseases. This will be of incalculable benefit to society and to the Exchequer.
First, will the Chair confirm that section 48 was agreed to?
Yes, section 48 was agreed to. We are on section 49.
This section deals with the age old issue of excise on cigarettes. When the Minister for Finance makes this proposals on budget day I often wonder whether he is doing so for the purpose of raising money or improving the health outcomes for people in the country. There is a symbiotic relationship between the two.
Section 49 increases the rates of tobacco product tax, which when VAT is included, amounts to 10 cent on a packet of 20 cigarettes with a pro rata increase on other tobacco products and with an additional 50 cent on the 25 gram packet of roll your own tobacco. As a result of the budget increase the price of a packet of 20 cigarettes in the most popular price category has increased to €9.90. The excise duty component of this price is €5.57. The total tax, inclusive of VAT, is €7.31. The excise duty component of this increase is 49 cent. This measure is expected to raise €25 million in a year.
It has been a long-standing policy objective of this and the previous Government to use this measure as a means of collecting more tax as well as trying to discourage people from smoking. There is strong evidence that the more expensive the habit gets, the more people will try to break from it. That is notwithstanding the difficulties within the economy concerning the illegal trade, importation and distribution of cigarettes. We keep a close eye on that illegal activity as do the Revenue Commissioners.
Nobody likes to impose additional taxes on people but in the circumstances this manages to hit the objective of increasing revenue in this area while at the same time achieving the long-standing commitment to do what we can to encourage people not to smoke. Happily, in this regard the Department of Finance and the Revenue Commissioners agree with the Department of Health.
I take on board the points made by both Senators but as the Minister of State has outlined the rationale behind the section, it is a money raising exercise by the Department of Finance. I do not think its introduction is for health reasons. If this money was being collected for health reasons, it would be ring-fenced and put into a heath budget that would support organisations such as the Irish Cancer Society and other organisations in doing the work they need to do. We all want to reduce the number of people who are dying from cancer every year. The money generated by the excise increase will go straight into the coffers of Government. The increase in the cost of a packet of cigarettes is a certain deterrent but it is disproportionate in that it will hit those on lower income much more. If somebody on a lower as opposed to a higher income is smoking 20 cigarettes a week, the proportion of his or her income taken up in excise duty is higher. This is a disproportionate tax which mirrors many of the other measures introduced in the Finance Bill.
We all want to see a decrease in the numbers smoking, we want to see a decrease in the number of hospital bed-days to treat people with cigarette smoking illnesses. The Minister has stated clearly this is a revenue generating measure. I would prefer the Government to look at other options, such as taxing the cigarette companies that are making significant profits as I believe it could have found a measure to collect €25 million from these companies as opposed to hitting the already hard-hit consumers.
When two policy objectives coincide, one being revenue raising and the other a public health issue, that is a happy coincidence. I find Senator Ó Clochartaigh's argument astonishing because taken to its logical conclusion, we should be lowering the price of cigarettes. It is an astonishing argument. It is a happy coincidence that we can raise revenue and achieve a public health objective. This is worth supporting.
Let me comment on Senator Gilroy's remarks.
With all due respect Senator Ó Clochartaigh, I do not think it is appropriate to have a back and forth argument between two Senators, will the Senator address the Chair or the Minister.
A Leas-Chathaoirleach, we are not calling for a decrease in the price of cigarettes. The point we are making is that to increase the duty on cigarettes as opposed to taking the step to tax the company that is making significant profits are very different measures. People are not spending as they do not have much disposable income. To increase the duty on cigarette will reduce their disposal income, particularly those on lower incomes.
If it is a health measure, can the Minister of State indicate whether the Department of Finance will consider ring-fencing this €25 million to be spent in the cancer services area of the health budget?
Tax goes into the large hole that tax goes into
It is a big black hole.
We pay for nurses and teachers, etc., from the tax we receive.
We pay for Senators also.
I should say, wearing my Department of Finance hat, that I am not generally in favour of ring-fencing. Given that we have a monthly deficit of €1 billion, we have to keep all our options open. The key argument in favour of this decision, as made by Senator Gilroy, is that it meets two objectives at once. Senator Ó Clochartaigh asked whether we should not tax these companies. Perhaps that point would be better made on Capitol Hill with reference to the large tobacco plantations of North Carolina and South Carolina. I have been to various parts of the country recently, but I have not seen any tobacco plantations growing in the nice fertile soil of east Cork or elsewhere. My understanding is that no substantial manufacturing in this area takes place here. Is there any manufacturing at all left in the country?
I am not sure Senator Ó Clochartaigh's goals can be achieved, unless he is suggesting that Ireland should impose some extrajudicial form of taxation on tobacco plantations of the Carolinas. We have to be honest about the unfortunate reality for people who smoke. We are sending a clear message to people that they should do their best to desist from smoking because it damages their health. The State has to pump an enormous amount of money into the health care system each year as a consequence of the damages and dangers caused by smoking.
I welcome the Minister's of State's interesting lesson on the tobacco industry. I am aware that we do not have many manufacturing companies here. I learned when I was in Canada recently that there are many such companies there. I note that the Minister of State has a huge team of advisers with him. At the last count, there were 16 of them in the ante-room. I am sure a mechanism could be found to tax companies that are making huge profits from the sale of cigarettes in this state. It is worth examining. I ask the Minister of State to come back to us on the matter.
All of these matters are kept under constant review.
Absolutely. At the same time, consumers on lower incomes are suffering.
Subject to those stringent observations, we will conclude our consideration of section 49.
As recommendations Nos. 29 to 31, inclusive, are related, they may be discussed together.
I move recommendation No. 29:
In page 111, between lines 43 and 44, to insert the following:
"(c) a person, other than a person referred to in paragraphs (a) or (b) who engages in own account haulage, that is a person who does not require a road haulage licence under section 2 of the Road Traffic and Transport Act 2006 but who nonetheless operates a heavy goods vehicle with a maximum permissible gross laden weight of not less than 7.5 tonnes and who engages in the carriage or delivery of his or her own goods in his or her own vehicle, driven by himself or herself or his or her employees,".
These recommendations relate to the proposed rebate scheme. Many of us on both sides of the House have been calling for such a scheme for many years. I am glad some progress is being made in this regard. Naturally, we do not feel the proposed scheme goes far enough. We have particular concerns with regard to the licensing requirement that will govern who is permitted to participate in the scheme. As the Minister of State will be aware, operators in the agrifood sector are exempt from the road transport licensing provisions. It is extremely unfortunate that those who transport food produce for primary manufacturing will not be eligible to benefit from the proposed rebate scheme because they do not need to hold road haulage licences. The 80% of produce that is exported is making a substantial contribution to the national recovery. I think this should be considered seriously. We should also be prepared to cater for people outside the agrifood sector who look after their own deliveries and have their own trucks. I cannot imagine that their exclusion is in line with the spirit of this legislative measure. I hope the Minister of State will look favourably on this proposal.
In addition, my party would like the rebate of 7.5 cent per litre to be increased to 15 cent per litre. Some 15,000 trucks are involved in international deliveries from Ireland on a weekly basis. I estimate that the vast majority of those who drive the trucks source their fuel elsewhere because it is not in their interests to source it here. If it was worth their while to get their fuel here, that would have a net benefit for the economy. Given that 80% of agricultural produce is exported, as I have said, we could make significant gains by trying to ensure those who drive the 15,000 vehicles I have mentioned embrace this scheme and get their fuel here rather than abroad. I think a gain can be made in this regard. I hope the Minister of State will consider these two issues, which can be dealt with and solved quite easily. The positives that will be gained if these recommendations are accepted far outweigh the negative effects of allowing the status quo to continue.
I thank the Senator for his remarks. A "qualifying transport operator" for the purposes of the repayment scheme is defined in the proposed new section 99A(1) by reference to the provisions of national and EU law under which transport operators are required to be licensed. Recommendation No. 29 proposes the extension of the relief to "own account" operators. In introducing this rebate of excise duty on auto diesel, the Minister was seeking to reduce the costs of small businesses that are driving export-led growth. He also wanted to assist the tourism industry in the year of The Gathering. I am conscious of the costs involved for the Exchequer and the risk that such a scheme could be open to abuse. One means of facilitating compliance is to restrict access to the scheme to tax compliant and licensed operators. I do not believe "own account" operators are in competition with hire and reward operators, for the most part, because most of them by their nature provide transport services for their own products. While I appreciate that companies have reduced their overheads as far as possible, "own account" operators have a greater facility to incorporate transport costs within the overall cost of their products. My main concern in this area is to ensure the risk of fraud under the rebate scheme is minimised. The requirement to hold an operator's licence from the Department of Transport, or an equivalent licence recognised under EU law, is a significant element of the compliance regime in this regard. Accordingly, I cannot accept the recommendation.
The proposed recommendation No. 30 would add two EU regulations, in the areas of food hygiene and livestock transport, to the provisions referred to in the Bill as it stands. The two regulations set out requirements for the transportation of animals and food products, but they do not set out any transport licensing requirements. The transport licensing requirements as they stand are adequate and comprehensive for the purposes of this section. Therefore, I do not propose to accept the recommendation. Recommendation No. 31, which seeks a doubling of the relief, cannot be accepted on budgetary grounds because it puts all the risk of price increases in auto diesel on the Exchequer and would be unacceptable at this time. The Minister, Deputy Noonan, made the point in the other House that we have gone as far as we can in this section to help people in the haulage area for whom transport is a lifeline. We want to provide an even playing field with regard to the competition they face abroad. We also want to get some funds back into the country. We know that auto diesel tourism is a reality.
The amendments made by the Minister in the licensed operators area have been very significant. I was struck by the arguments I heard from that group about the significant investments they have to make in their coaches and buses in the interests of the Irish tourism product. This important product is a key export. When people come to this country on coach tours, they want to sit in buses and coaches with good specifications. The point has been made that the exponential increases in the cost of fuel in recent years have made it increasingly difficult for people to purchase new vehicles.
This has made it increasingly difficult for people to purchase.
We conceded on the question of the haulage industry and in fairness to the Minister he has gone even further. Having listened to the arguments made by tour operators and coach tour industry, he tabled an amendment in the other House. That is as far as we can go without raising the possibility of an abusive regime emerging because one cannot attach this to licensed operators. I ask the Senator to understand the Government's position and accept the degree of flexibility we have shown. Unfortunately, we have minimal scope for flexibility because we do not have money. The arguments have been well made in respect of the haulage industry and coach tour operators but that is as far as we can go because we are limited in what we can do.
I will respond briefly as I do not wish to intrude on Senator MacSharry's territory. The Minister of State's comments on coach tour operators are very important. For a long time, we had in place a Bord Fáilte certification regime and the side of tour coaches featured a shamrock. I gather this part of the tourism sector did not contract when many other parts of the sector declined. People believed that having people travel around the country in buses was a strange form of tourism and asked whether individualism was not about to take over. The coach tour operators have done well under the legislation. I note the Minister of State's comments in that regard.
On the freight side, the choice facing a firm is to do this work itself or hire in a haulage company. In the past, almost all transport was own account, for example, the breweries had their own transport fleet. Up to 83% of transport was done by companies internally and hired haulage was deliberately restricted in an attempt to shift traffic to the railways which did not work. The former Minister, Mr. Peter Barry, opened up competition in 1998 and I understand the percentages have changed, with hired haulage companies have a market share of roughly 70%. The measure will still distort competition, depending on whether a firm undertakes its own transport operations or avails of a concession that is only available to licensed operators. This may give rise to a competitive element.
I appreciate the Minister of State's comments on the general shortage of money and difficulties of enforcement. At least licensed hauliers are in the licensing system and there is a strong quality element involved. Approximately one third of freight movements will not benefit from the measure given that companies providing their own freight transport account for 30% of the transport market. Those are my thoughts on the matter.
As Senators have stated, will the dairies have in-house fleets. They could easily obtain licences because they have high standards of vehicles and should qualify. The result could be that the hired haulage share of the market will increase to beyond 70% as companies seek to qualify for the scheme. Firms may continue to reduce in-house transport fleets to qualify for the assistance available under this measure.
The Minister of State's comments are unfortunate, although I accept that criteria must be followed to give people access to the scheme. Tax compliance is one issue and the Revenue Commissioners will have the relevant information in that regard. Vehicles will be taxed. Surely it is possible to amend the Taxes Consolidation Act to require that for compliance purposes a company must declare the number of vehicles it operates. Enforcement will then dictate whether someone is entitled to access the scheme.
As the Minister of State correctly noted, we are depending on the export market to help us get out of our economic problems. Far from saving the State money, this measure will reduce the competitiveness of companies that make their own deliveries. Some years ago, while visiting Berlin, I saw a Gilbeys truck deliver the company's products, which include Bailey's Irish Cream. It is unfortunate that the Minister of State does not see the benefit of extending the measure.
Everything has the potential to be abused and all schemes may give rise to fraud. That is the reason we have law enforcement. One does not legislate to facilitate criminals or refuse to give the good guys in the transport business a fuel rebate because one fears the bad guys will try to exploit the measure. There is no doubt the bad guys will try to exploit the law. The purpose of enforcement is to weed them out. For this reason, it is not acceptable to refuse to act for the reasons given.
While I fully appreciate that money is not available and I am aware that there is a major issue with tax foregone, 15,000 vehicles top up on fuel as soon as they arrive at their destination abroad and fill up again just before making the return journey to Ireland. I am sure this practice results in the loss of a large amount of tax, albeit one that is difficult to quantify. I accept my proposal carries risk but one must at least make a stab at addressing this issues. One must speculate to accumulate, as it were. While there are many positive aspects to the scheme, it is unfortunate that it does not cover the kind of ground it needs to cover. The proposal to extend it would make it more attractive and produce more dividends, specifically from the 15,000 vehicles which are being filled up with fuel elsewhere.
While I broadly support the amendment, I have a number of questions. Has this measure been costed by the Department? What would it cost the Exchequer to introduce the proposed scheme? We heard examples of larger, multinational companies transporting and using their own transport sections for haulage purposes. A number of smaller Irish companies, notably in the food sector, which use their own transport to deliver goods are struggling. This scheme will make it more difficult for them to compete. One could contend that large companies will conclude it is preferable to hire in licensed hauliers to deliver their goods because they will receive a rebate that is not available to businesses that use their own transport. This may result in a shift towards larger companies using outside firms to do their haulage in order that they can avail of the tax break. Such a scenario will have a knock-on effect on transport jobs within large companies. If the saving is not significant, it may transpire that one is robbing Peter to pay Paul.
I appreciate the Government does not have sufficient resources to extend the scheme. However, achieving a short-term saving may result in a greater loss down the line as jobs are lost among those employed directly by companies to transport goods. If company X lets go of its drivers, gets rid of its trucks and hires in a licensed haulier to do its deliveries, the Government will end up paying the rebate to the licensed haulier. It would make good business decision for a company to use an outside company. The quid pro quo for this scheme may not be delivered. I am interested in learning the precise figures associated with it.
Our estimate is that the cost in a half year would be €35 million and €70 million in a full year. While these figures may not seem large in the context of a budget of billions of euro, they are certainly large in the context of the calculations on which we base the budget. We have closely examined this issue and EU regulations are key it. We cannot do something that is so left field that it will discredit the entire system. We do not want to create new lacunae that will allow people to effectively offset tax. The key issue is the operator's or equivalent licence from the Department of Transport, Tourism and Sport.
Senator MacSharry asked that we take a risk. I believe in taking risks provided they are calculated and proportionate. The way in which the relief has been framed focuses it on those who are going through an especially difficult time, notwithstanding the difficulties other people are facing. As I stated, some of this can be offset in terms of where the costs of particular products are. This measure is focused exclusively on those who are in the haulage industry and those operating buses and coaches. We have an open mind.
I move recommendation No. 30:
In page 112, between lines 6 and 7, to insert the following:
"(e ) a person who holds a Community Licence within the meaning of Regulation (EC) No. 853/2004 of the European Parliament and of the Council of 29 April 2004,
(f ) a person who holds a Community Licence within the meaning of Regulation (EC) No. 1/2005 of the European Parliament and of the Council of 22 December 2004;",
I move recommendation No. 31:
In page 112, line 25, to delete "€75.00" and substitute "149.00".
This section is opposed by Senator Kathryn Reilly.
This section deals with the rates of tax on alcohol products and alcoholic beverages. We had a similar argument in the case of cigarettes. This is another revenue grabbing exercise against people who drink alcohol. I would be one of the most vocal Senators on these issues and raised on the Order of Business today the cost in respect of those who drink to excess or have problems with alcohol. Although we would all support measures to decrease drinking, the problem with this tax measure is that it is not proportionate. Those on lower incomes will pay the same extra amount on their alcoholic beverages as those on much higher incomes. It is more punitive for those on a lower income who have suffered many other cuts. It defeats the purpose in trying to kick-start the economy because money is being taken from the pockets of those consumers in the lower income brackets who spend what they have in the local economy and, therefore, less will be spent in local communities. It is a very unimaginative proposal to go back to the old reliables and hit those who have paid enough already. It will be easier for a person on a higher income to continue drinking as much as he or she wants, whereas it will be a deterrent for those on lower incomes because they will not be able to afford to drink as much. I, therefore, ask the Minister of State to reconsider the issue and consider more imaginative proposals to bring in the income he wants to raise.
I disagree with the Senator. It is good that higher rates of tax will apply to higher volumes of alcohol. The same applies to smoking. There is the argument that we should ensure, if does more damage, that it will cost more. It is a prohibitive way of trying to prevent people from doing damage to themselves, even though they choose to do it. I do not agree with the Senator, but it is a flat statement that only persons in a certain socioeconomic group drink or smoke. People in every socioeconomic group smoke.
I did not say that.
From this Chamber to the wealthiest and the poorest, people drink and smoke. It is welcome that one will pay a higher rate of tax on alcohol products.
I welcome the recent decline in the level of alcohol consumption and, in particular, the benefits in terms of road safety. As the Minister of State is aware, about 650 people used to be killed on Irish roads each year, but we got this down to around 160 last year. The more responsible use of alcohol and the price increase will help in that regard. I support the Minister of State in this instance. The minimum pricing proposal will enrich the industry. If we are to increase the price of alcohol, the Minister of State and the Minister for Finance, Deputy Michael Noonan, should be the recipients, not the industry. The industry campaigning with abstainers for a minimum price of alcohol is bizarre. I think the original pub licensing regime was based on the fact that the Irish Parliamentary Party had persuaded the British Government that as there were fewer pubs in Ireland, the Irish were more sober. It certainly made the publicans much richer. If there is money to be raised in this area, it should go to the Exchequer and no minimum price advocate should be entertained.
The Minister for Finance, Deputy Michael Noonan, mentioned when discussing an earlier section, in respect of a proposal made in our budget submission, of which the Minister for Transport, Tourism and Sport, Deputy Leo Varadkar, appeared to be in favour at the Cabinet, the possibility of a levy on lid-on or off sales, but it did not materialise. My personal view - Senator John Gilroy agreed with me - is that the money should go towards suicide prevention measures and dealing with mental health issues. The Minister said there was a European dimension that prevented us from doing this, which is a matter of concern. This is an area in which, not necessarily to penalise the drinks companies or consumers, harnessing what might be positive consumer sentiment would contribute to the ring-fencing of an amount of money when, effectively, people were making a purchase to enjoy themselves. A general vox pop I have carried out demonstrates very positive views. Various figures have been bandied around as to what amounts of money would be raised. The vintners say it would be up to €200 million, but I think it would be closer to €120 million. That €120 million would cover the entire €88 million required for the suicide prevention policy which we submitted in recent weeks and €22 million would be left over for the accelerated roll-out of A Vision for Change. I am sure the Minister of State at the Department of Health, Deputy Kathleen Lynch, would be delighted with that amount of money and I genuinely believe the public at large, if informed, would listen. This is not a tax forgone issue, rather it would be a levy that would be specifically ring-fenced for this area. Senator Sean D. Barrett spoke about the success of the National Roads Authority in reducing the number of deaths on the roads. This could form part of the panacea or solution to this problem. If there is a European Union angle that prevents it from happening, the issue should be prioritised at the Council of Ministers. I am sure the proposal would find favour Europe-wide if we were to say this was a measure we could embrace. If there is an aspect of an EU directive on competition or other law that would prevent it, the Council of Ministers, during the Irish Presidency, could remove it and harness what could be a vehicle to harness public sentiment by ring-fencing a contribution specific to an area, while people enjoyed themselves in the depths of the recession. This proposal could find favour and raise much needed funds for a critical area.
In the light of some of the statement made, I do not think the statistics show that less alcohol has been consumed in recent years. However, the trends in drinking alcohol have changed. What they show is that people are not drinking in bars as much as they used to, but that there has been a huge increase in off-sales and sales through retail outlets. What has increased dramatically in the past couple of years is the abuse of alcohol and the number of people presenting at alcohol addiction services. As I mentioned on the Order of Business, it is great when two Department come together, in terms of their thinking, such as the Department of Health and the Department of Finance in dealing with certain issues. I wish that could happen in dealing with finance issues now and again. Certainly Departments do not think on the same lines.
In HSE West, for example, some €22 million has been spent on acute services in Galway hospitals because of the increase in people showing up with alcohol related problems and the number of bed nights these people have had to be kept in hospital. However, the money being spent on the preventative aspects of this problem is being cut back and the services are being curtailed. As a result, the problems increase. Senator MacSharry suggested some form of ring-fencing for these funds and I agree the Department needs to consider that. Perhaps there are initiatives that need to be put in place. If we are serious about reducing the amount of alcohol related problems in communities, funds must be made available to them. However, once again this proposal is a blunt instrument that is being used, purely in order to bring in moneys for the Exchequer.
I appreciate that people all across the socioeconomic spectrum drink and that people with problems are not limited to any specific group. However, the point I have been trying to make is that the proportionate amount of tax a person pays relative to the amount of money he or she has in his or her pocket is greater if the person has less money in his or her pocket. If people are on a lower wage and the tax on their drink is increased, that will hit those people harder than those on a higher wage. That is the reason we believe it is a disproportionate tax and that to try to cloak this increase as a measure to curb drinking is a fallacy. The increases in the cost of drink over the past number of years have not caused a reduction in the number of people showing up at alcohol addiction centres across the country.
There is so much talk about alcohol on this Bill that we are in danger of becoming inebriated.
With regard to the remarks made by Senator MacSharry, the Minister has spoken about this publicly and would like to find a solution to the issue. He makes a compelling case with regard to what would happen if we were not able to obtain funds in this area which could be used for the purpose of running the type of campaign he would like to run. The legal advice is that the lid-on argument or some kind of tax on container use would lead us to fall foul of the EU directives in this area. Needless to say, we cannot move in a direction where legal advice is clear we would not be successful. However, we are looking at other means of doing it. We have asked the industry to look closely at the issue also. I assure the Deputy we have an open mind as to how we can achieve the objective all sides would like to achieve here, because this is a serious issue which affects every part of our country. On Senator Barrett's point, the Minister has expressed his strong opposition to below-cost selling, which fuels the consumption of alcohol in an irresponsible and disproportionate way. We have a responsibility to address this, but the issue is how to address it and we are examining that closely.
This section has provoked an interesting discussion on the objective of section 58. The expected yield from the increase is approximately €180 million in a full year. That is a lot of money in any man's language and is a significant amount of additional revenue. Therefore, if one was to go against this, one would need to provide an alternative source of income. Excise duty on beer has not increased since 1994. Budget 2010 reduced the excise duty on a pint of beer by 12 cent, so this increase of 10 cent leaves the excise duty on beer below the pre-budget 2010 level. The increases in the tax on alcoholic beverages are proportionate. Wine goes up by €1 and beer has increased by 10 cent, but I will not draw any conclusions with regard to who drinks what.
There has not been an increase in this area for some time and we believe that in the context of where the country is, it is necessary in trying to close the deficit that this sector makes some contribution. The additional revenue raised from this increase is not insignificant, at €180 million for a full year.
I thank the Minister of State for his response. I would like to come back to him with his logic on a previous section, where he rightly pointed out there were no tobacco companies in Ireland. However, there are alcohol companies here which are making substantial profits. Has the Minister considered taxing companies as opposed to taxing consumers directly? Would that bring in the projected €180 million? We understand that certain amounts of revenue must be raised from different sources. However we suggest that this measure directly targets consumers and takes the money straight from their pockets, leaving them no choice in the matter. If the Department is going after the money made in the drinks industry, why does it not go after the companies themselves?
We have seen in the past how the drinks industry has used increases in excise, VAT and so on to add its own additional surcharge also. Therefore, even if we taxed the industry, it would pass those increases on to the consumer. All we would be doing would be adding another level of administration and offering the drinks industry the opportunity to add its own surcharge on top.
Exactly. This is the historic argument. Recently I visited Midleton and I noted that the sale of Irish whiskey, in the context of the export market, is up by 30% in a year. A new vat has been ordered in Midleton and there is to be more production in other parts of the country. A whole cottage industry has been established around Irish whiskey and the branding of it. This brings us back to the point made by Senator Barrett. He spoke about the poor old Irish Parliamentary Party and there was a lot of sympathy for what it had to put up with at the time - all these new fellows who turned up in 1918 and so on. What happened was that when we gained our independence in one fell swoop, the British Empire turned upon us. Irish whiskey was the dominant brand at the time, but Scotch took over as a consequence of our independence. Of course, we were not helped by prohibition in the United States. I am glad to see that in the context of the export market, Irish whiskey is now taking a much more substantial part of the international whiskey market. As a result, this will bring more tax revenue to this country and more jobs and once again Irish whiskey will regain the place it lost in 1921.
This section relates to the extension of the carbon tax to solid fuel. The manufacturers tell us this means a tax of approximately €2.50 on a bag of coal and 50 cent on a bale of briquettes. Over the course of a year of average use, this is expected to cost a family an extra €130. Fuel poverty is an increasingly serious issue in this country, particularly among the so-called middle classes, those with negative equity, high mortgages and so on. With the cost of oil and other fuels, these people cannot afford to heat their homes. Members will be able to relate to this due to the fact that people have been coming to their constituency offices over the past year with these problems. We see sights now we have never seen before, such as people with smaller containers at filling stations where kerosene is for sale buying small amounts to heat their homes.
Earlier, when the Minister, Deputy Noonan was here, I said that while nobody doubts the difficulties faced by governments in trying to put a budget together in difficult times like these, there were options available to the Government. One wonders what the return will be to the Exchequer on this increase.
Nobody can tell me that the fine officials we have outside and in here and the Ministers and Ministers of State could not come up with a more imaginative approach than this. The back boiler is being called on more than the central heating system these days and this will only add to the difficulties for people who are struggling to heat their homes. I ask the Minister of State to indicate how much it is estimated this will produce in a year and whether it would not be possible to look to other measures instead. This measure should be removed from the Bill because it is unnecessary and draconian.
I echo a lot of what Senator MacSharry has said. We have actually called for a debate on poverty in this House on a number of occasions but have yet to have that debate. People are experiencing levels of poverty in Ireland that have not been seen before. Poverty is affecting householders who have never previously found themselves unable to pay for the very basics, such as heating. Certainly, while one might argue that cigarettes and alcohol are optional, heating one's house is not an optional extra. We have seen instances of people dying in freezing cold houses in recent years in this State. We know that people are living in very cold conditions and are finding it very difficult to cope. Adding extra taxation to coal, peat briquettes and other solid fuels is not the way to go and the Government should be ashamed of itself for bringing in this particular measure. It will particularly affect lower and middle income households. I attended a meeting in Galway on Friday last about burglaries and the rate of household fuel theft is going through the roof. Ruthless villains are actually drilling into people's oil tanks and stealing their fuel. That is indicative of how difficult the situation is for families.
One cannot consider this measure in isolation but in combination with the other costs that have been introduced such as the property tax and so forth. As a result, people are really struggling. This is a measure which my party cannot support in any way. It is very detrimental. I know the Minister of State read the Sinn Féin pre-budget submission in great detail, for which I thank him. There were other options available to this Government to raise money. The Government could have gone after the money that wealthy individuals and companies in this State have but it chose not to do so. It has, yet again, gone after the people who are already carrying too much of the burden. This measure is a step too far and I call on the Minister for Finance, even at this late stage, to rethink it.
It is worth putting a number of facts on the record in connection with section 61, which I understand Senators are opposing. From 1 May 2013, an increase in price of €1.20 is proposed in the case of a 40kg bag of coal and 26 cent in the case of a bale of peat briquettes, based on current prices. This represents, in the case of coal, an 8% increase and in the case of briquettes, a 6.7% increase. The argument we are making for this relatively high increase, in percentage terms, is reflected in two facts. First, there is currently no excise duty applying to these fuels, prior to the carbon tax. Second, these are the dirtiest fuels available. Solid fuels have the highest carbon content of all fossil fuels and there is an environmental argument at play here in terms of why we are pitching this as we have.
In fairness to the Minister for Finance, what he said on budget day and since then is that this will only come in after the winter period, from 1 May this year. Also, he is phasing it in over a two year period. The charge will be €10 per tonne this year, from 1 May and then €10 per tonne next year, in May 2014. He is spreading the effect of this over a two year period, in view of the comments made by colleagues about the difficulties being faced by people.
It is also worth saying that we have a national fuel scheme which provides €20 per household per week over a 26 week period from August to April. That money will continue to be paid, obviously. That is not an insignificant amount and the budget for the fuel allowance scheme for this year alone is estimated to be €210 million. The scheme provides help to those who need it and that is the way it should be. To date, since 2000, more than €115 million has been paid in grant support towards 270,000 upgrade measures in 110,000 homes under the better energy warmer somes scheme.
Therefore, from an environmental perspective and on the basis that excise duty did not apply up to now, the increase is relatively sharp but we have mitigated that somewhat through the phased increase over a two year period. Also, the fact that the measure will not take effect until after the winter should make some difference to people. Having said that, I do appreciate the points Senators have made. We do not want to do this but in the current circumstances, where we are trying to balance the books and get a fair spread across the various tax headings, we were left with no other option.
Regarding paragraph (f) of that section, dealing with diplomats and their coal, presumably the Department was told to insert that by the EU, whereby ambassadors are exempt from the so-called coal tax. Are our ambassadors exempt in other countries? How did this arise? Again, they hardly strike me as a particularly deserving class of persons to have their coal tax-rebated.
Yes, there is an EU-wide agreement for an exemption. Our diplomats are exempt abroad too.
This section deals with increases to VRT and motor tax. The Minister of State will be aware that the automobile industry is on its knees. Representatives of that industry suggested that VRT and motor tax be decreased but the Government has chosen to increase them. In that context, I ask the Minister of State to indicate what he thinks the knock-on effect of this will be on the motor industry here. That industry was thriving once but we have seen countless garages close across the State in recent times. Car sales have dropped enormously and the Department is in danger of shooting itself in the foot with this one. An increase in VRT could reduce car sales even further and therefore negate any potential extra income that might have been generated for the State, not to mention the potential for further job losses in the motor industry.
It is worth saying that the Minister has already introduced changes for vehicle registration for 2013. I was in this House responding to a Fianna Fáil Senator on the issue of reclassification for cars registered in 2013. Concern was expressed about the number 13 and some people's belief that it would be the year of Armageddon and so forth.
Deputy Mac Lochlainn said that in the other House. The Minister of State is referring to a Sligo man as opposed to a Fianna Fáil man.
The Minister for Finance responded to the industry's concerns and to calls in this House for a change. It is worth saying that issues discussed on the Adjournment are picked up on and ideas, such as the 2013 -1 and 2013 - 2 classification, can be transposed into legislation.
Section 63, in addition to providing for necessary amendments to vehicle classification, also provides for the changes in VRT rates for new vehicles announced in the budget. It is anticipated that the proposed increase will raise some €50 million for the Exchequer over a full year. The decline in new car sales combined with increased competition in car prices and consumer moves towards buying cheaper and cleaner cars has resulted in a fall in VRT yields from €1.4 billion in 2007 to less than €400 million in 2010. That is a fall of €1 billion over a three year period.
I do not wish to oppose the section now. My query related to a re-numbering problem. It is an exemption from tax and I am in favour of those in general. Therefore, I will not press the point.
I move recommendation No. 32:
In page 141, to delete lines 36 to 43 and in page 142, to delete lines 1 to 18 and substitute the following:
“(a) in respect of relevant contracts renewed or entered into on or after 1 January 2013 and on or before 30 March 2013, €0 in respect of an insured person;”,”.
This relates to a stamp duty imposed on health insurance transactions being increased from €285 to €290. I imagine the increase will not change matters much, although there has been a large exodus of customers from this area. I believe we could raise the same revenue by an ad valorem tax.
Let us consider the figure of €290. I gathered some quotes from the health insurance business. For example the VHI one plan plus is €957 and, therefore, the tax would be 30% of that. The VHI HealthSteps gold plan comes in at €320 but the tax is 91% of that. The VHI First Plan Plus comes in at €1,336.99 and the tax is 22% of that. It is a flat rate of tax regardless of the health insurance expenditure. I realise there is some moderation and the Minister of State referred to a high-cost provision but broadly it is a flat-rate tax. This may drive people out of the lower end of the market. The VHI HealthSteps gold plan costs €320 and therefore a €290 tax is a 91% tax on it.
If people pay more for health insurance and move up to more expensive plans why should the tax rate fall? For next year could be Minister of State see whether a percentage rate on health insurance transactions to raise the same revenue could at least reward the schemes which achieve the economies which we all want in the health service and which drive down the price? In this case for lower priced plans the tax rate goes up which seems to me to be contrary to what the Houses seeks in respect of what is a very expensive health service. The health insurance scheme has been driving away customers although it is part of the Government's plan to bring about a system of universal health insurance. It is a regressive form of tax to have the same amount charged regardless of the price. Clearly, this leads to a higher share of the low-cost product and that is the problem I have with it. It is not so much a matter for today, but will the Minister of State consider in future raising the same revenue by a percentage tax, calculated to bring in the same revenue, and which will charge more to high-cost plans and less to budget plans?
I thank the Senator. It is widely accepted that community rating, which is the cornerstone of private health insurance in Ireland, cannot survive without risk equalisation. This was the justification for the Minister for Health, Deputy Reilly, introducing on a permanent basis the risk equalisation scheme for the Irish market late last year. The Health Insurance (Amendment) Act ensures that in the interests of societal and inter-generational solidarity the burden of the cost of health services is shared by insured persons by providing for a cost subsidy between the more healthy and less healthy, including between the young and the old. The risk equalisation credits are funded through a stamp duty levy payable by open market insurers in respect of each insured life, and thus ensures that the scheme is self-financing. It is something of a circular flow - the money comes in and it is given back to them for the purpose of equalising the risk. That is my understanding.
The rates recommended by my colleague the Minister for Health, Deputy Reilly, and approved by the Minister for Finance, Deputy Noonan, are set out with the sole aim of providing the necessary funding for risk equalisation credits while not incurring a deficit or surplus in the scheme. The specified rate for the period 1 January to 30 March, inclusive, is maintained at 2012 rates to allow insurers time to trade in to the new scheme.
The combined effect of Senator Barrett's recommendation would be that no health insurance levy would be payable in 2013. Presumably, this ties in with some of his earlier recommendations to section 15, whose object was that the permanent risk equalisation scheme would not come into effect until the scheme is under the control of the Central Bank. However, the scheme is already in place by virtue of the Health Insurance (Amendment) Act which was introduced late last year and provides that no levy is payable in 2013. The recommendation would mean there would be no funds available to pay the risk equalisation credit which was introduced via the Act of last year. Once the Act was in place there was a corresponding responsibility to collect revenue to fund what is required in this circumstance.
Senator Barrett has put forward a novel and interesting proposal which we may need to consider more closely in the fullness of time, because it is effectively introducing the same rate of tax throughout the whole system. One would have to do some type of actuarial analysis to determine whether the funds raised from that would help to fill any deficit in any of the insurance companies over a period of years. We will consider it more closely but for our purposes today we must remain loyal to the section and to the intention of the section, which is to provide the funds necessary for risk equalisation.
I thank the Minister of State and will not be pressing the recommendation. He has presented the issues well and fairly. There is a duty among the rest of us to help old people. That is the meaning of risk equalisation. However, the duty to help the old people is distributed in a bizarre way which actually hurts hardest the poorest people in the working group.
It is distributed in a bizarre way which actually hurts the poorest working people hardest. When Mr. Elderfield took over regulation of this sector the press releases showed that the Department and VHI seemed to have completely different interpretations of the meaning of risk equalisation. We will be keeping a close eye on all measures to do with risk equalisation.
The Minister is compelled by the legislation to impose a tax on working people in order to support the old and this measure has wide support. However, how much of it goes to supporting inefficiencies in the health service, which are fairly legendary at this stage. For example, the person who chooses the plan called HealthSteps gold will pay €320 and the levy on that is €290 which is 91% of the cost. If one were rich enough to go right up to First Plan Plus Level 2, the tax rate drops to 22%. We all share the burden to look after old people but those among the working population who can barely afford health insurance must pay the most in terms of the percentage rate because it is a flat rate charge.
This is really a matter for the Minister for Health but because it is a stamp duty it falls under the Taxes (Consolidation) Act and is dealt with every year in the Finance Bill. The Department of Finance is merely obliging the Minister for Health to provide for the funds required for the purposes of the exercise. The last thing any of us want is to segment the market in such a way as to make it virtually impossible for older people to get health insurance. I agree with the Senator that we have seen significant increases in this area in recent years. He makes a valid point that the people who are opting out are those of a working age who cannot afford to meet their payments because they are under pressure. This is a wider issue for the Minister for Health. May I suggest the Senator consider tabling a Private Members' motion on the matter.
Does Senator Barrett wish to pursue this matter?
No, I will not pursue the recommendation.
Recommendation No. 33 in the name of Senator Darragh O'Brien has been ruled out of order as it is outside the scope of the Bill and is also declaratory in nature.
Question proposed: "That section 91 stand part of the Bill."
While I appreciate that the recommendation is not acceptable to the House I ask that the Minister would look at it under the miscellaneous section. When discussing section 30 in particular there was a general debate on that section when some Members were asking for enhanced schemes for the likes of Moyross in Limerick, which is going well. Senator Norris and others made the case for parts of Dublin and other cities that have become dilapidated. The Minister was not open to that. He said that he would be amenable to making provision for people to refurbish their existing homes rather than building houses themselves. Had our recommendation been applicable here, that is what it was trying to do. The Minister of State referred to the greener homes scheme. If people were incentivised in some way to convert the garage, do up the room, convert the attic, build a conservatory, whatever it is, this would allow those works to be tax deductible, which would increase the tax take, not least in VAT on materials and also from the labour. The black economy is benefiting from these jobs because people are paying cash and there is no tax benefit for the Exchequer. That is the intention of my proposal. Perhaps in the general spirit of the miscellaneous section the Minister might try to give this proposal some thought in the year ahead. It was alluded to in the debate on section 30.
Thank you, Senator. We will consider that proposal.
This section deals with anti-avoidance measures which in my view will become a major part of modern public finance as it develops. I refer to the growth in the number of tax lawyers and accountants, the Starbucks case, the artificial movement of transactions between countries. The Economist recently published a headline, Wake up and Smell the Coffee, over a report about Starbucks and its tax problems. Jim Stewart in TCD reckons that very few firms actually pay the 12.5% rate because they have enough lawyers to reduce that rate. I am not so sure that is in the public interest. I note that on 5 December 2012, the European Commission proposed to clamp down on corporate tax avoidance. I note the headline in the Irish Independent on 18 January 2013, Noonan Fears Reputational Damage over Double Irish Tax Avoidance. I support the Minister in that section. Given that tax avoidance is now a major industry we need to have the means to combat it. Unfortunately, it has become a feature of the way international business conducts itself by artificially locating transactions in low-tax jurisdictions, to the cost of the Exchequer. I note all the difficulties which the Minister and the Government must confront every day. Tax avoidance is an activity which the Department should counteract with all possible commitment because the people who want to avoid paying tax are certainly putting a lot of energy into this.
I am on the record of the House as saying that the €4 billion collected in corporation tax is €4 billion out of €44 billion of the total tax take for 2013. The firms which I assume the Department of Finance are hiring are the same firms that the corporations are hiring to tell them how not to pay the tax. The Department is hiring them to tell it how to get them to pay the tax. It is ironic that these are same four of five firms who specialise in taxation law. I have a concern that we are asking the citizens of the country to pay more. We have said we are at the upper limits on income tax, VAT and excise duties. The rate of corporation tax is 12.5%. I asked the Minister if it would be a case of scaring the horses if we were to consider raising the corporation tax rate. His answer was that it was better to leave it alone. I am happy to leave it alone if they pay the 12.5%. However, if they are not paying the 12.5% I think we should send a very clear message that we want to do the right thing. Leave it at 12.5% but pay the 12.5% and do not go beyond the beyond with what I think was called the Irish-Dutch double stepper---
I am not sure if the term is "sandwich" in that respect but while it is legal, it is only barely legal. We should clearly point out to the taxation firms which advise the corporations that if they want to play this game we will have to look at things differently. That message should be sent out strongly from here because we cannot keep asking the citizens of the country, Joe citizen and Josephine citizen, to pay more in VAT, income tax and every other tax that is being charged. While the corporations are very welcome here and they pay €4 billion in corporation tax, they cannot use these avoidance schemes to the extent that they do.
I add my voice to that of those who have spoken on this section. I have raised this issue several times in the House. As has been suggested, there is fear in government such that the multinationals, the 12.5% rate and existing system are not to be touched. Following a parliamentary question that was asked some months ago, it is evident that the effective tax rate paid by multinationals who come under the 12.5% rate, which presumably would include indigenous companies who benefit from the 12.5% rate, is effectively between 5% and 6%.
The Minister of State is aware that there are very strong moves, initiated by the British, the French and Germans, to address this issue. The Chancellor of the Exchequer wrote a strident letter to the Financial Times about three weeks ago in which he made it quite clear that they would not tolerate the Starbucks scenario any more. As the Minister of State will be aware, France has had difficulties with Google and the Germans have also weighed in on that. I am anxious to establish what is happening here in this respect. Something must be going on within the Department of Finance on this issue. The Minister of State is not unaware of what is going on in the outside world. He is aware of what is happening. Has he done any investigation as to what will be the impact of this Europe-wide initiative by three of the most powerful economies in Europe which are obviously going to tackle this issue once and for all? The Osborne letter makes it quite clear that they are not going to allow this to slide. They are going to go after this. The Starbucks issue is a scandal. If that was happening in this country, I wonder whether this or any Government would move on it or would it put forward the argument that Starbucks is providing employment, paying taxes and operating within the law. Starbucks admitted it has not paid any tax for however many years it has been operating in the UK. That can be measured up against what was stated by the Department of Finance in response to a parliamentary question, namely, that the effective collection rate is between 5% and 6% and I understand the remainder is being written off through royalties and other tax shelters. As Senator Barrett has said, a team of tax lawyers comb through every dot and comma and every line of the tax legislation to maximise the return for their clients, and that is their job.
I echo what has been said. This is not an attack on the multinationals. We embrace the multinational companies that have located here. They provide much needed jobs in this economy. It is an extraordinary achievement for a small country of this size on the periphery of Europe to have located within its borders some of the biggest pharmaceutical companies and high-tech companies who have set up their European headquarters here. Time and again we have been told that while the corporation tax is an element in this respect, it does not represent the totality of it. I would be curious to get the Minister of State's response to those comments.
This debate has raised a number of very interesting issues. I agree with Senator Michael D'Arcy that on different levels citizens have paid a great deal and it is very unfair to go back to them looking for more of a take when these very sophisticated multinational companies are using whatever mechanism is necessary to try to avoid paying a fair amount of tax. Fairness is what this budget and Finance Bill should have been about. If there are legal companies or tax advisers acting as advisers to both poacher and gamekeeper, that is a very serious issue. Surely there must be some sense of a conflict of interest if they are working on both sides of that divide, and that should be looked into.
I note that part of deal that was imposed on Cyprus by the troika affected its corporate tax regime. The Government and the Minister for Finance were part the agreement and arrangement in terms of the Council of Ministers who agreed to those recommendations being put forward and that deal being done in Cyprus. It is very hard in one sense to sit here defending the corporation tax rate in Ireland while we are going out to Europe agreeing to deals where the corporation tax of other member states can be tinkered with, diluted or changed. Surely the Minister of State must be concerned about that in that the EU poachers might come looking for more of a change to our tax rate system.
This is a very interesting discussion. On the general issue, taking account of Senator Barrett's point, we must work together with other counties to make sure this practice is stamped out. No one country on its own can deal with this issue. We will work with our EU partners, even during our Presidency, on initiatives which are already in the field. For instance, the base erosion and profit sharing initiative is something we at an EU level want to get over the line and to agree is an important file, but whether its completion occurs during the time of our Presidency is another matter.
It is worth saying that we have a very transparent corporation tax rate. Our effective rate is within half a point or sightly more of the full 12.5% and that is not the case in other countries. What one sees is what one gets in Ireland. One pays the tax, it is straightforward and it is across the board. Admittedly, there are some write-offs, particularly in areas such as research and development, which has the benefit of making sure that activity is enhanced and supported in the country. The central point is that this is not a blank sheet of paper in the circumstances that one has to work with other countries, particularly in terms of rooting out avoidance. This is an issue where companies use different tax codes for the purposes of minimising their tax liability in one country or another.
The Minister, Deputy Noonan, is on record in that respect, particularly regarding the work of the OECD, with which we have worked very closely. The entire agenda of the OECD in recent years has been based on this very issue, namely, the way countries make it absolutely clear to the international community that through measures such as double taxation and other agreements it can show that a fair and proportionate amount of tax is being taken in the area of corporation tax. It is worth saying that the corporation tax rate, in terms of the yield, is approximately €4 billion. At the height of the boom it was approximately €7 billion. That shows the degree to which economic activity has reduced in recent years.
The stated position of the Government and the Department of Finance is to work with other countries and if other countries or groups of countries put forward a proposal to us, we will consider it in due course. I note that in the Chancellor of the Exchequer's statement to the British Parliament the other day he is now proposing to reduce corporation tax rates in the UK to 20% over a period of years. The net issue here is that taxation is still the preserve of the 27 member states. I want to be frank and honest with colleagues. I have attended some of the ECOFIN meetings and there are divisions in Europe as to how we go forward and that was seen in the FDT debate on financial services transaction tax. There will always be a competitive advantage from one country to the next. What we need to do is to minimise the avoidance and I fully agree with the Senator's remarks on this issue. This issue is not specific to section 91, I hasten to add, but this was an interesting debate nonetheless.
- Bradford, Paul.
- Brennan, Terry.
- Clune, Deirdre.
- Coghlan, Eamonn.
- Coghlan, Paul.
- Cummins, Maurice.
- D'Arcy, Jim.
- D'Arcy, Michael.
- Gilroy, John.
- Harte, Jimmy.
- Keane, Cáit.
- Kelly, John.
- Landy, Denis.
- Moloney, Marie.
- Moran, Mary.
- Mulcahy, Tony.
- Mullins, Michael.
- Noone, Catherine.
- O'Keeffe, Susan.
- O'Neill, Pat.
- Sheahan, Tom.
- van Turnhout, Jillian.
- Whelan, John.
- Barrett, Sean D.
- Leyden, Terry.
- MacSharry, Marc.
- Mooney, Paschal.
- Ó Clochartaigh, Trevor.
- Power, Averil.
- Reilly, Kathryn.
- Wilson, Diarmuid.
Is it agreed that the Bill be returned to the Dáil? Agreed.
We are opposing the Bill being returned to the Dáil.
It was agreed to.
No, it was not agreed to.
I will put the question again to be fair.
- Bradford, Paul.
- Brennan, Terry.
- Burke, Colm.
- Clune, Deirdre.
- Coghlan, Eamonn.
- Coghlan, Paul.
- Cummins, Maurice.
- D'Arcy, Jim.
- D'Arcy, Michael.
- Gilroy, John.
- Harte, Jimmy.
- Keane, Cáit.
- Kelly, John.
- Landy, Denis.
- Moloney, Marie.
- Moran, Mary.
- Mulcahy, Tony.
- Mullins, Michael.
- Noone, Catherine.
- O'Keeffe, Susan.
- O'Neill, Pat.
- Sheahan, Tom.
- van Turnhout, Jillian.
- Whelan, John.
- Barrett, Sean D.
- Leyden, Terry.
- MacSharry, Marc.
- Mooney, Paschal.
- Ó Clochartaigh, Trevor.
- Power, Averil.
- Reilly, Kathryn.
- Wilson, Diarmuid.
I take the opportunity to thank the Minister. He spends a large amount of time in this Chamber, rather than sending a Minister of State, unlike other Ministers.
The point is noted.