Finance Bill 2016 [Certified Money Bill]: Committee Stage

We are dealing with recommendations, rather than amendments, considering the constitutional position.

Section 1 agreed to.
SECTION 2
Question proposed: "That section 2 stand part of the Bill."

This section sums up the budget, the choices this year and the fact that the wrong decisions were made. The rhetoric is about investment in public services but in section 2 we have the real intent of this Bill, which is to slash taxes. We will see an example of that later with capital acquisitions tax, CAT. It is not a matter of the €335 million of fiscal space this year or even the €390 million cost on the full year of these cuts. It is the €5.6 billion we are foregoing that we could bring in by 2021 simply by not making any change to the universal social charge, USC.

The Government's policy, supported mostly by Fianna Fáil, is to abolish this tax in the coming years. The Department's income reform plan laid out a number of options while a response to an FOI request by my colleague, Deputy Pearse Doherty, revealed that the Department drew up a few options to replace the revenue lost. These included an option to increase property tax sixfold while also increasing commercial stamp duty, CGT, CAT and other stamp duties. Other options were to increase both rates of income tax by 5% and a range of measures relating to indirect taxes such as increasing the excise on petrol and diesel by 18 cent per litre, on a pint of beer by €1.50 and on a glass of spirits by €1, and increasing each VAT band. The response stated the USC is progressive, and important in maintaining a broad tax base, and the better off would benefit most from its abolition. The Minister will tell us his plan is to phase out USC but it is worth putting on record what his Department says about the real cost in the context of other taxes.

The income tax reform plan lays out three plans for phasing out USC. The Minister has more or less followed the first option in year one by reducing rates. Even if he followed that plan for the next three years, he would expend much of the €1.7 billion fiscal space but not come close to abolishing the charge. Has he a plan to abolish it? At what point did he change his tune? His comments on the charge went from, "I should point out that it was never intended that the USC would be a temporary measure", to, "It was introduced as an emergency tax"; it cannot be both.

I recall when USC was introduced. I was self-employed as an accountant for many years and I received many calls from accountants and people who were earning about the penal nature of the charge. It is levied on gross income without deductions. I have always viewed it as a wartime economic tax given the symbolism associated with it and the context in which it was introduced. Over time, we have to find a way to eliminate it. That cannot be done overnight but the measures proposed in the legislation address people on low incomes. The two lowest rates will reduce by 0.5% under the section, which is welcome. We are on a voyage to find a sustainable means to eliminate USC. It is penal for all groups and it affects all the people we represent across parties. People want the charge gone and I hope that can be done in a sustainable way. I very much commend the section.

Whatever the origin of USC and whether it was an emergency matter, it has the effect, together with income tax, of forming the basis of the marginal rate of tax that many people face. Senator Kieran O'Donnell mentioned the self-employed, of whom I am one. I do not make a plea in respect of myself but I do so on behalf of many other people in the self-employed category. They face a number of discriminations in the taxation system. If somebody who is self-employed hits the top rate of tax, USC and PRSI, for every hour they work after a certain period or every additional day they work or weekend they work, 55% of what they earn goes to the State. It cannot be right that people who, in many cases, are struggling to keep firms going, have taken enormous risks and taken borrowings to establish businesses that employ others - I refer to people such as small electrical contractors, not the fat cats who are regularly assailed - should face a 55% tax rate at the margin of their incomes. The margin matters because it is the basis on which an electrical contractor will decide whether he or she will go for another contract, do some more work, employ more people, take further risks and the like. If the tax system makes the State a 55% partner in all those decisions as far as the gains are concerned with no risk in respect of any losses that can arise, not to mention the additional risks such people are taking, including the risk of going bust or the nightmare of having banks withdraw working capital, credit arrangements and so on, it is immensely penal.

I fully appreciate that the tax system had to be made much more severe to remediate the financial crisis the country fell into but Sinn Féin points out that the changes made in the section have implications for other taxes and the Department of Finance has pointed out the tax consequences of reductions in USC. I accept that is sometimes the case but other measures should be considered by the House later when we get to the question of CGT. In Kildare House in 1997, I recall former Deputy, Charlie McCreevy, and I proposing by way of an amendment on Committee Stage of the Finance Bill that the CGT rate should be reduced from 40% to 20%. I do not say this to be critical of the Department but the stock rejection of this was that it was a foolish idea and it was unfair on ideological grounds. Ultimately, when Charlie McCreevy became Minister for Finance later that year and took the opportunity in his first budget to make the reduction, the yield from the tax increased by 550%. We come up against the law of diminishing returns in the context of taxation. The current CGT rate is too high. Many transactions are not happening because people say, at the end of the day, that they will not give 33% of the value of a transaction to the State. The 20% rate had the advantage of stimulating activity. The odd few people emigrated to avoid even that rate and perhaps something should be done to stop them. We know who I am talking about but few enough people begrudge the State 20% on a capital gain. The yield increased when the cut was introduced.

I do not accept the proposition that we are always engaged in a zero-sum game in respect of taxation and rates. A 55% combined rate of tax, PRSI and USC for the self-employed has serious effects on their motivation and willingness to take risks and to expand their businesses. Likewise, tax rates such as 33% on capital gains are counterproductive.

The proof of the pudding was when Charlie McCreevy reduced the rate from 40% to 20% and the yield went up five and a half times. We should learn from that. I am not making an ideological point but saying that while it is possible to have ideologically driven tax rates, their yield can be depressed. I favour section 2 and the thoughts that lie behind it. I do not believe it is a step in the wrong direction. It could go much further. We should take an overall view of our tax rates to see whether they are inhibiting or encouraging economic activity. For this reason I beg to differ with the Sinn Féin views expressed here to the effect that any diminution in pay related social insurance, PRSI, or the universal service charge, USC, is socially counterproductive. It is necessary to consider the marginal rates, the effects on marginal decisions, on growth and on investment and so on when considering where the rate should be.

This has the appearance of a pre-election manifesto for the reformed Progressive Democrats.

I would be premature in my announcements.

As the Minister for Finance said in his Budget Statement, high marginal tax rates act as a break on employment. They discourage people from taking jobs and emigrants from returning. Resources available to the Minister in this budget were limited. In line with the programme for Government, he has chosen to focus the budget 2017 income tax package on low and middle income earners, building on the steady progress made since budget 2015 in reducing USC. For the third budget in a row, he is reducing the top marginal rate of tax on income up to €70,044 per year and, subject to the passing of this Finance Bill, this marginal rate will stand at 49% from January 2017. It should be remembered that as recently as December 2014 the marginal rate of tax for a single individual on all income over €33,800 was 52%.

This section amends section 531AN of the Taxes Consolidation Act 1997 to give effect to the USC changes announced on budget day. These changes are a continuation of the process of progressively reducing the marginal tax rate on low and middle income earners in a manner that maintains the highly progressive nature of the tax system. The aim is to make it more attractive to return to work and to stay in work, to ensure that work rewards individuals adequately and to encourage emigrants to return home. Therefore, the 1% rate will go down to 0.5% the 3% rate will go down to 2.5% and the 5.5% rate will go down to 5%. There is also a small but important increase in the ceiling on the band on which the reduced 2.5% rate of USC will be payable from €18,668 to €18,772. This increase will ensure that the salary of a full-time worker on the minimum wage will remain outside the top rates of USC. These changes will cost €355 million in 2017 and €390 million in a full year. In addition, the section also contains a minor technical amendment to the week 53 changes that were introduced last year. This is to make it clear that only one extension of the rate band can be granted in years in which an employee has 53 pay weeks, notwithstanding that an individual may have two separate PAYE employments in that year.

To respond to some of the specific comments raised by Senators, no one ever proposed abolishing USC overnight. The paper the Senator cited was speaking to the effect of what one might have to do if it was abolished overnight, but no one ever proposed it. That was the thought experiment but it has never been part of the Fine Gael Party's thinking or the Government's thinking on how we might reduce the high tax burden on people.

To respond to Senator Michael McDowell, the tax burden is too high. No one should have to give more than half of their income each week to the government. The Government is working to make that a reality for everyone who works and it is particularly important that we do it for the self-employed as well. Several steps have been taken in this and the last budget to make sure that is the case but we recognise there is still a way to go. If the Senator reads the income reform and the tax strategy group papers, published earlier this year, he will see this is an innovation in how both Houses of the Oireachtas can scrutinise and debate budgetary decisions in advance of budget day and do that in line with new resources for parliamentarians. Having a dedicated committee and an office for budget scrutiny, which is only getting off the ground this year, together with these publications and increased transparency in the Department of Finance, means that into next year we can have detailed debates on our overall tax strategy in advance of budget day, such that Government, each Opposition party and individual Members in both Houses can be informed and have the space to debate their ideas and proposals.

In response to Senator Kieran O'Donnell’s points about the progressive nature of the changes we are making, we have always sought to reduce USC and the tax burden in a progressive and fair way. It is equally important that we do so in a sustainable way. The changes in this section do that.

Question put:
The Committee divided: Tá, 26; Níl, 9.

  • Burke, Colm.
  • Burke, Paddy.
  • Butler, Ray.
  • Buttimer, Jerry.
  • Byrne, Maria.
  • Clifford-Lee, Lorraine.
  • Coffey, Paudie.
  • Coghlan, Paul.
  • Conway, Martin.
  • Daly, Mark.
  • Davitt, Aidan.
  • Feighan, Frank.
  • Hopkins, Maura.
  • Horkan, Gerry.
  • Lawless, Billy.
  • Lombard, Tim.
  • McDowell, Michael.
  • McFadden, Gabrielle.
  • Mulherin, Michelle.
  • Noone, Catherine.
  • Ó Domhnaill, Brian.
  • O'Donnell, Kieran.
  • O'Mahony, John.
  • O'Reilly, Joe.
  • Reilly, James.
  • Richmond, Neale.

Níl

  • Conway-Walsh, Rose.
  • Gavan, Paul.
  • Humphreys, Kevin.
  • Kelleher, Colette.
  • Nash, Gerald.
  • Norris, David.
  • Ó Donnghaile, Niall.
  • Ruane, Lynn.
  • Warfield, Fintan.
Tellers: Tá, Senators Gabrielle McFadden and Catherine Noone; Níl, Senators Paul Gavan and Niall Ó Donnghaile.
Question declared carried.
Sections 3 to 8, inclusive, agreed to.
SECTION 9

I move recommendation No. 1:

In page 22, between lines 42 and 43, to insert the following:

"(26) The Minister shall, within three months of the passing of this Act, prepare and lay before the Oireachtas a report on the effectiveness of the Activate Capital development finance for residential redevelopment schemes under the Ireland Strategic Investment Fund and set out the options for a sustainable finance model for the construction of new residential homes.".".

I discussed this with some of the officials in the past day or so. It seeks a report within three months of the passing of the Bill to be prepared by the Minister and laid before the Oireachtas. The report would deal with the effectiveness of the Activate Capital development finance for residential redevelopment schemes under the Ireland Strategic Investment Fund, ISIF, and set out the options for a sustainable finance model for the construction of new homes. The recommendation is quite self-explanatory and just asks for a report within three months on the effectiveness of this part of the Bill.

The ISIF informs me that to date in 2016, Activate Capital has provided site and working capital finance for the delivery of more than 1,200 new homes. Activate Capital's pipeline for new home construction funding is strong, and the consistent feedback from developers and builders is that this specialist form of residential development lending is valuable in helping kick-start the housing market. By way of context, whereas the ISIF has provided financing for Activate Capital, it is a private commercial entity. The ISIF does not hold equity in it and nor does it involve itself in the management of the entity. Senators will, of course, be keenly aware that the ISIF cannot disclose any third party commercially sensitive information. As would be expected for projects of this nature, there is participation and equity upside if projects are successful in order that the fund and, by extension, taxpayers share any gain alongside the project promoter.

I broadly accept the intention behind the recommendation and will request the ISIF to produce a report on its investments to support the delivery of housing, including Activate Capital and other investments, within three months of the enactment of the Bill. Given this commitment, I ask that the recommendation be withdrawn. I hope Senators agree that an amendment of this type is not, strictly, appropriate to the Finance Bill.

It is a recommendation.

Yes. I accept the Minister of State's bona fides. I will be happy to withdraw it.

Is the Senator withdrawing his recommendation?

Yes. I have done so after accepting the Minister of State's comments.

Recommendation, by leave, withdrawn.
Question proposed: "That section 9 stand part of the Bill."

We will oppose section 9 of the Bill. The help-to-buy scheme was a bad idea when it was first proposed, and after the Central Bank's changes, it is a really stupid idea. This scheme will add fuel to the fire and it will not add to supply. It will just boost demand, drive up prices and only help developers and banks. Unlike others, my party is unambiguously opposed to it. We had the farce of Fianna Fáil telling us it was opposed to it on Committee Stage in the Dáil and then arguing for it to be extended.

When the scheme was launched, the Minister responsible for housing, Deputy Simon Coveney, stated he did not want to hear any academic arguments. One does not need to be an academic to know what effect free money has when there is a limited supply. This is a reckless idea that harks back to the worst ideas of Fianna Fáil's reign. This might be the last chance to stop it. I urge all Senators to block this section.

Question put:
The Committee divided: Tá, 24; Níl, 12.

  • Ardagh, Catherine.
  • Burke, Colm.
  • Burke, Paddy.
  • Butler, Ray.
  • Buttimer, Jerry.
  • Byrne, Maria.
  • Clifford-Lee, Lorraine.
  • Coffey, Paudie.
  • Coghlan, Paul.
  • Conway, Martin.
  • Davitt, Aidan.
  • Feighan, Frank.
  • Hopkins, Maura.
  • Horkan, Gerry.
  • Lawless, Billy.
  • Lombard, Tim.
  • McFadden, Gabrielle.
  • Mulherin, Michelle.
  • Noone, Catherine.
  • O'Donnell, Kieran.
  • O'Mahony, John.
  • O'Reilly, Joe.
  • Reilly, James.
  • Richmond, Neale.

Níl

  • Bacik, Ivana.
  • Conway-Walsh, Rose.
  • Devine, Máire.
  • Gavan, Paul.
  • Humphreys, Kevin.
  • Kelleher, Colette.
  • Mac Lochlainn, Pádraig.
  • Nash, Gerald.
  • Ó Céidigh, Pádraig.
  • Ó Donnghaile, Niall.
  • Ruane, Lynn.
  • Warfield, Fintan.
Tellers: Tá, Senators Gabrielle McFadden and Catherine Noone; Níl, Senators Paul Gavan and Niall Ó Donnghaile.
Question declared carried.
SECTION 10
Question proposed: "That section 10 stand part of the Bill."

Just as we discussed with the help-to-buy scheme, evidence appears to be best ignored in the view of the Minister. The Revenue Commissioners tell us that in 2014, 302 people availed of €5.9 million in tax relief under the special assignee relief programme, SARP. That is an average of almost €20,000 in tax that 302 people, who already are very well paid, did not pay because of this scheme. The only figures we have on job creation or retention are from the Department's report in 2014. It states that of the 12 people who availed of the scheme in 2013, only five jobs were created and six jobs were retained. The same report stated that there was also a lack of measurable evidence that the scheme had resulted in an increase in foreign direct investment, or the roll-out of new projects. It further stated that under the scheme it is not mandatory to create jobs to qualify for the SARP. The facts do not support this scheme. Unfortunately, it is another classic ruse whereby Fine Gael hands out tax subsidies to its wealthy friends.

The most recent report on the special assignee relief programme in respect of the 2014 tax year showed that 302 employees availed of it in that year. It also showed that 126 jobs were created and 708 jobs were retained as a result of the incentive. The cost of the scheme to the Exchequer in 2014 was almost €6 million. Section 10 provides for the extension of the programme as announced on budget day. The Minister, Deputy Michael Noonan, decided to extend the incentive until the end of 2020 and to announce it early to provide certainty for potential investors in Ireland. That is particularly important following the UK vote to leave the European Union.

Question put and declared carried.
SECTION 11
Question proposed: "That section 11 stand part of the Bill."

I do not wish to speak to this section which my party is opposing.

Question put and declared carried.
Sections 12 to 17, inclusive, agreed to.
SECTION 18

I move recommendation No. 2:

In page 38, between lines 5 and 6, to insert the following:

"(3) The Minister shall, within three months of the passing of this Act, prepare and lay before the Oireachtas a report on application of tax liabilities on an individual within a farm partnership deemed under tax law to have ceased farming.".

This recommendation calls on the Minister for Finance to prepare and lay before the Oireachtas a report on farming matters. The Minister of State and I will both acknowledge that neither of us has any great farming background.

The Senator comes from leafy south Dublin.

Many people in the area are involved in horticulture.

They keep small animals in their small gardens.

I am more than interested in horticulture, but I am not an expert on farm partnerships. I will give an example to explain where this amendment is coming from. If there is a farm partnership between a son and his retired father who remains in the partnership, the father will be taxed as if he were a farmer even though he has ceased farming. I would appreciate it if the Minister of State and his officials could look at the tax implications of someone within a farm partnership ceasing farming but still being taxed as a farmer.

I believe the Senator had an opportunity to engage with officials on this matter. There has been some confusion since the registered farm partnership regime replaced the milk production partnership regime. Revenue is currently preparing a booklet on the taxation issues around registered farm partnerships, including the implications of the cessation rules. This is due to be published before the end of the year. On that basis, I do not propose to accept the recommendation.

Is the recommendation being pressed?

No. I accept the Minister of State's response.

Recommendation, by leave, withdrawn.
Section 18 agreed to.
Sections 19 and 20 agreed to.
SECTION 21

I move recommendation No. 3:

In page 40, between lines 3 and 4, to insert the following:

"(3) The Minister shall, within three months of the passing of this Act, prepare and lay before the Oireachtas a report on the breaking of the link between the rate of DIRT and the rate of exit tax from life assurance policies, including the impact of this on life assurance savers.".

This is another recommendation that is looking for a report to be prepared. DIRT is being reduced but the exit tax from life assurance policies is not. I have spoken to officials about this matter. The DIRT rate, which has increased enormously in recent years, will be reduced from 41% to 39% in 2017 and to 33% by 2020. Interest rates are very low. Very little interest is being earned by depositors. The DIRT rate was traditionally linked to the rate of exit tax applicable to life assurance investments. The yield from the exit tax on such investment projects has increased dramatically in recent years. I am proposing this amendment to highlight the fact that there will now be discrimination between different savings and investment products. There has not been that difference before now. As I have alluded to, returns on many savings products are close to 0%. There is also a 1% stamp duty on life assurance investment products. I am asking for a report to be produced to highlight the consequences of discriminating against people who are saving through different investment instruments. Although the differential is small, it will get larger as the Government reduces the DIRT rate to 33% if the exit tax is left at 41%. The 2% DIRT reduction will cost €9 million in 2017. The Minister has indicated that it will cost €14 million in a full year. What would have been the extra cost if we had extended the reduction to the life assurance products I am asking about? I understand it would cost €11 million to extend the DIRT rate adjustment to these savers. I would like to hear the Minister of State's response.

This matter was discussed at length in the Dáil. The Department's view is that a report prepared within three months of the passing of this Bill is unlikely to reveal anything we do not already know. The issue is not a lack of desire to reduce the rates of exit tax and other taxes that have previously been linked to the rate of DIRT, but the not inconsiderable cost of moving all the rates in tandem. Those costs are on the record. When Deputy Michael McGrath proposed similar amendments during the Committee and Report Stage debates on this Bill in the Dáil, we discussed this matter and I gave a commitment that it will be considered as part of the tax strategy group process in advance of next year's budget and Finance Bill. Deputy Michael McGrath accepted that this would achieve the effect desired under his amendments and withdrew them on that basis. I am happy to repeat this commitment to Senator Gerry Horkan today. I hope he will agree that this commitment will achieve the effect desired in his recommendation. The tax strategy group papers were published in July this year. This was the first time this was done. We will be publishing such papers again as part of the budgetary process for next year and this issue will be considered in that context.

Is the recommendation being pressed?

No. I am happy to accept the Minister of State's response.

Recommendation, by leave, withdrawn.
Section 21 agreed to.
SECTION 22

Recommendations Nos. 4 and 5, in the name of Senator Alice-Mary Higgins, have been ruled out of order because they involve a potential charge on the Exchequer.

Recommendations Nos. 4 and 5 not moved.

I move recommendation No. 6:

In page 45, between lines 30 and 31, to insert the following:

"(iv) for which there may be no shared ownership, or control, in the State or internationally, between the qualifying company and the recipient of any interest or other distribution payable.".

This recommendation draws on the work of Deputy Stephen S. Donnelly during the Report Stage debate on the Bill in the Dáil. It attempts to break any potential shared ownership between a vulture fund in Ireland and a loan that it receives. As internal loans can be used to move the profits of vulture funds offshore, it is important for us to ensure financial manoeuvring does not allow internal loans to look like independent loans, even though they are all actually owned by the same parent company. I will not press this amendment today, as I intend to resubmit it on Report Stage, but I would like to get a response from the Minister of State.

I thank the Senator. The tax code taxes people on the profits they earn. Profits are calculated after taking account of deductions incurred wholly and exclusively in the course of the business from which the profits arise. The tax code does not generally disallow a transaction with a connected person, simply because it was with a connected person, if that transaction is carried out on the same terms as a transaction with an unconnected person. Section 817C is a marked example of where the tax code does distinguish such transactions. The avoidance of this specific anti-avoidance provision can trigger the 30% tax avoidance surcharge that was introduced in the Finance Act 2014. Interest paid to a connected person is deductible only in calculating the profits of the trade where, on receipt, that interest would be part of the taxable profits of the trade of the connected person. The issue of interest deductibility is currently under review internationally; for example, in the context of the recent EU anti-tax avoidance directive. This directive, which was agreed by member states following the ECOFIN meeting of 17 June last, contains five significant corporate tax anti-avoidance measures, one of which relates to interest deductibility. Broadly, the interest limitation rule proposes that the tax deductions for interest a company can claim are limited to 30% of its earnings, subject to certain exemptions. The interest limitation rule must be implemented by member states by 1 January 2019. However, its provisions may be deferred until 2024 for countries that already have strong targeted interest rules. Therefore, I cannot accept the Senator's recommendation.

I acknowledge the presence in the Visitors Gallery of the Minister for Public Expenditure and Reform, Deputy Paschal Donohoe, a very esteemed former Member of this House who has risen to great heights. We are honoured that people like the Minister visit the Chamber to observe the workings of the Seanad. He has not forgotten his alma mater.

Is Senator Lynn Ruane pressing this recommendation?

I will withdraw it and resubmit it on Report Stage.

Recommendation, by leave, withdrawn.
Section 22 agreed to.
SECTION 23

Recommendation No. 7, in the names of Senator Rose Conway-Walsh and others, has been ruled out of order because it involves a potential charge on the Exchequer.

Recommendation No. 7 not moved.
Section 23 agreed to.
Section 24 agreed to.
SECTION 25

I move recommendation No. 8:

In page 71, between lines 33 and 34, to insert the following:

"(3) The Minister shall, within three months of the passing of this Act, prepare and lay before the Houses of the Oireachtas a report on the offset of losses, carried forward from preceding accounting periods, for which relief is available in succeeding accounting periods, setting out the costs of tax foregone and the merits of any alternative to the current treatment of those losses.".

This is a slightly modified version of an amendment to the Bill that was proposed by Deputy Joan Burton on Report Stage in the Dáil. It requires the Minister to compile a report on the practice of companies using previous accumulated tax losses to forego paying tax on profits now. I understand that this use of losses is a feature of many tax systems. Indeed, it is most likely that US President-elect Donald Trump used this vehicle to potentially avoid paying federal tax in the US for much of the past 15 years. However, I suggest that in the context of such significant losses in the financial services, property and construction sectors during our own economic crash, it seems inequitable for companies to be able to use those losses to offset tax obligations now. I think a report in this area would be useful. I would like to hear the Minister of State's thinking on the issue.

I thank the Senator for raising this issue. We had an extensive debate on it in the Dáil on Committee and Report Stages and I do not want to repeat comments that were made there. For the sake of brevity, while I do not propose to accept the recommendation, during the debate on the issue in Dáil Éireann, the Minister, Deputy Michael Noonan, undertook to make a more expansive note available to Members. I will ask the Department to make that note available to Senators as soon as it is ready to do so.

Is the recommendation being pressed?

No. I will withdraw it until Report Stage.

Recommendation, by leave, withdrawn.

Recommendation No. 9 is in the name of Senator Alice-Mary Higgins.

I move recommendation No. 9:

In page 71, between lines 33 and 34, to insert the following:

“(3) The Minister shall, within eight months of the passing of this Act, prepare and lay before the Houses of the Oireachtas a report in respect of the effective tax rate paid by companies in Ireland with recommendations to increase that effective tax rate including a consideration of the introduction of minimal effective tax rates.”.

I am moving this recommendation on behalf of my Civil Engagement colleague, Senator Alice-Mary Higgins. The Department of Finance report on effective tax rates of corporate tax in Ireland 2014 noted that our effective corporate tax rate was between 2.2% and 15.5% depending on which of the eight models was used. The effective tax rate is a better measure of the actual level of tax paid than the headline rate because it takes account of the existence of tax reliefs, credits and the differences in the taxable base.

It is really important that we get a report from the Minister on the effective tax rate paid by companies in Ireland. We saw with Apple that the effective tax rate could have been as low as 1%. Day after day, people from all sides of the House come in here and raise issues of concern such as halting sites that are fire traps, women waiting for months, even years, for gynaecology appointments in Cork or children going to bed in bed and breakfast accommodation. The response we tend to get when we raise these issues is that there is not enough money, the budget is tied up or that our proposals are completely unaffordable. The reality is that these things are not unaffordable. We can build better halting sites, we can hire more doctors and consultants and we can build tens of thousands of the much needed social houses, but we have decided not to do so. These choices are made on the floor of this and the other House. We have decided that instead of investing in the people, we want to cut taxes.

The cuts to USC in budget 2017 will cost us €335 million. Think of all the homes, hospitals and halting sites we could have built with that one tax cut alone. When it comes to corporate tax, we need clarity on the effective rate being paid in order that we can examine the choices on offer. We need guidance on how to increase the effective tax rate and consideration needs to be given to the introduction of a minimal effective tax rate to stop the repeat of the giveaways of 1%. That is why I urge Members of the House, both those in government and those aspiring to be in government, to support this sensible recommendation from Senator alice-Mary Higgins.

I thank the Senator for the recommendation. This work has been done very recently. In April 2014, the Department of Finance published a technical paper on effective rates of corporation tax in Ireland. The paper was jointly written by the Department of Finance and Mr. Seamus Coffey of UCC to ensure the work was as objective as possible. The paper contained a comprehensive analysis of the issue of effective rates of corporation tax paid and it was prepared in order to provide clarity around the seemingly conflicting figures that are frequently quoted. It is an excellent resource for those seeking to understand what can be a complex technical issue. I will endeavour to make sure copies of the paper are made available.

In the interest of brevity, the paper found that the effective rates of corporation tax, as measured according to statistics from those two sources, are reasonably close to the headline rate of 12.5% and that the difference is mainly accounted for by double taxation relief and a small number of other reliefs including the research and development tax credit. The paper was based upon the analysis of effective rates across a ten-year period and, therefore, does not need to be re-examined on an annual basis. On the basis of that extensive analysis, the Department is comfortable that companies in Ireland are paying the appropriate rate of corporate tax on profits generated by those companies in Ireland. It is important to make that detailed reported available to Senators and if they would like to follow up with it at a later stage in the course of next year we can discuss it then.

Is the recommendation being pressed?

No, but we will resubmit it.

Recommendation, by leave, withdrawn.
Section 25 agreed to.
Sections 26 to 35, inclusive, agreed to.

Recommendation No. 10, in the name of Senator Gerry Horkan, has been ruled out of order as it involves a potential charge on the people.

Recommendation No. 10 not moved.
Section 36 agreed to.
Sections 37 to 44, inclusive, agreed to.

Recommendation No. 11, in the name of Senator Gerry Horkan, has been ruled out of order.

Recommendation No. 11 not moved.
Section 45 agreed to.
NEW SECTION

I move recommendation No. 12:

In page 93, after line 35, to insert the following:

“Value-Added Tax in respect of charities

46. The Minister shall, within three months of the passing of this Act, prepare and lay before Dáil Éireann a report on the introduction in 2017 of a capped Value-Added Tax compensation scheme for charities with reimbursement to commence in 2018.”.

This recommendation is looking for a report and much of the work has been done in the Department of Finance. There was a working group involving officials, members of the Irish Charities Tax Reform Group and a representative of EY, Ernst & Young, which completed its report last year. It looked at various options around a VAT compensation scheme that would be capped. It is estimated that about €77 million a year is paid by charities in VAT, which obviously eats in to what they are fundraising in the first place. The working group examined a number of different models including UK, Dutch and Danish schemes. We are asking the Government to look at the concept of charities and the VAT they pay and if it can be reimbursed. Charity status is something that is used in a very broad way. Ireland's highest earning charity is St. Vincent's Healthcare Group - it is defined as a charity. This recommendation proposes looking at a capped value-added scheme for charities that are paying large amounts of what they fundraise back in VAT.

As the Minister, Deputy Michael Noonan, mentioned in his recent Budget Statement, he has asked his officials to engage again with the working group the Senator referred to with a view to reviewing the options available to provide compensation for charities as regards the burden of VAT while being mindful of fiscal constraints. I understand officials have already met the Charities Institute Ireland in that regard. I ask the Senator to withdraw the recommendation. I will bring forward a report on the issue, which we will make available to the Senator on completion.

Recommendation, by leave, withdrawn.
Sections 46 to 52, inclusive, agreed to.
SECTION 53
Question proposed: "That section 53 stand part of the Bill."

Section 53 is opposed by Senator Rose Conway-Walsh and others.

In the context of reducing fiscal space, Brexit and the unknown quantity of a President Trump, the Minister chose in the budget to cut €22 million of tax through CAT. In 2014, this would have benefitted 2,128 people in terms of the group A changes. We have, as we have discussed, a dwelling house exemption which I agree with and a tax-free threshold of €280,000 on acquisitions from parents to children. A report on the first quarter prices from daft.ie shows that in every one of the 26 counties except Dublin, that threshold is above the average asking price for a house. It is twice the asking price of an average home in County Donegal.

Prices are increasing and I accept that until there is a supply they will continue to do so. Even in Dublin, the average price only exceeds the threshold on the southside, in south County Dublin and in the northside of the city. I understand the emotional argument for the inheritance of the family home to be something the State does not get involved in, but that adds to inequality. The capital acquisitions tax is about more than houses. What we have here is the Minister increasing the threshold at which a very wealthy person can inherit a valuable asset at a lower level of tax. It should not be a priority of a Government and a Minister who is blaming the fiscal rules for not being allowed to spend on capital or services. This cuts to the heart of the matter. Only this morning, a colleague questioned the Minister of State at the Department of Health, Deputy Marcella Corcoran Kennedy, on why there are not 96 beds in University Hospital Limerick, yet instead of Fine Gael and Fianna Fáil, in unison, prioritising what we really need in terms of decent public services, we have tax cuts for the wealthy.

What is involved here is a suite of tax cuts for the wealthy in the context of capital acquisitions tax, inheritance tax and the universal social charge, USC. The Minister cannot have it both ways. Either he believes in decent public services in which we invest or he opts for the neo-liberal model of tax cuts, which leads to people waiting on trolleys and dying in our hospitals. That is the political difference between us. I make no apology for saying that we do not believe there should be tax cuts in this budget. We believe public services should be prioritised. We will challenge the Minister to explain to people, especially those in the area I come from in Limerick, the reason why we cannot get the 96 beds the management at University Hospital Limerick want at a time when he believes we can afford tax cuts for the wealthy.

For the purpose of gift and inheritance tax or, as it is known, capital acquisitions tax, CAT, the relationship between the person who provided the gift or inheritance and the person who received the gift or inheritance determines the lifetime tax-free threshold, which is known as the group threshold. There are three such group thresholds, called the A, B and C thresholds, and this section 53 provides for increases in each of them. The programme for Government provides for an increase in the category A threshold to €500,000. This change represents a step in the direction towards fulfilling that commitment.

The Minister, Deputy Michael Noonan, has provided for these changes in recognition of the ongoing increases in residential property values and the ensuing impact on beneficiaries who receive properties as part of a gift or inheritance. I emphasise that these property price increases are happening across the country, not just in Dublin. As a result of these increases, beneficiaries are increasingly faced with considerable CAT liabilities on inheriting such properties. Considerable concern has been expressed to the Department in that regard. The Minister also took into account changing circumstances where inheritances can often be from those in the category B and C thresholds. Those thresholds have also been adjusted.

Many individuals, as well as Deputies and Senators on all sides, have contacted the Department regarding the considerable shock that people experience at being faced by such liabilities on inheriting property, be it from parents, close family members or others. The increases announced in the budget, and now being legislated for in this Bill, represent the maximum increase possible at this time in light of budgetary resources available. Further changes will be considered for future budgets if resources are available.

The House will also notice that the Minister has asked it to agree changes to the availability of the dwelling house exemption, for the most part restricting its use significantly. While I am happy that there are general reliefs available, I am also prepared to change legislation where there are unintended uses of such legislation.

The standard rate of CAT in respect of gifts and inheritances taken on or after 6 December 2012 remains at 33%. There are no plans to change that rate.

Question put and declared carried.
Sections 54 and 55 agreed to.

Recommendation No. 13, in the name of Senator David Norris, has been ruled out of order.

Recommendation No. 13 not moved.
Section 56 agreed to.
Sections 57 and 58 agreed to.
NEW SECTION

I move recommendation No. 14:

In page 109, between lines 17 and 18, to insert the following:

“59. The Minister shall, within four months of the passing of this Act, prepare and lay before the Houses of the Oireachtas a review in respect of the current policy of marginal rate private pensions tax relief and how it relates to national pensions strategy for Ireland including stated national goals on closing the gender pension gap and increasing pension coverage for those on lower to median incomes.”.

Similar to the previous recommendation, I am moving this recommendation on behalf of Senator Alice-Mary Higgins. In terms of the issues outlined, for the corporate tax rate we have choices to make when it comes to the provision of pensions. Currently, people can get tax relief at the highest or marginal rate on private pension contributions. This should be reviewed and a report presented to the House, particularly on the way those tax breaks relate to the national pensions strategy and in the context of our goal of closing the gender pensions gap, which is a staggering 37% and increasing, in pension coverage for those on lower incomes. I expect the Minister of State to indicate that a recommendation is not needed to get a report but this is the only way to ensure that it will happen.

The pension system in Ireland is composed of two main pillars. The first is the State pension system and the second involves supplementary pension arrangements provided through a variety of arrangements that are incentivised and regulated by the State. The State has historically encouraged individuals to make provision for their retirement in order to supplement the basic State pension payments to which they may be entitled. The policy of marginal rate tax relief for pension contributions is of long standing and has been a key incentive in encouraging supplementary pension provision over the years. Under this approach, individuals can obtain income tax relief at their marginal tax rate on contributions made by them, or on their behalf, to pension schemes and personal pension plans, subject to age-related percentage limits and an overall annual earnings cap.

Calls continue to emanate from various sources for changes to the marginal rate of tax relief on pension contributions, including scaled reductions in relief towards the standard rate of income tax or the complete removal of the relief. The rationale for these proposals varies – from those who regard the relief as overly favouring the higher paid to certain advocates who consider that the supplementary pension system in general only ever serves the higher paid and that the savings that could be made from significantly reducing or abolishing reliefs in this area should be used, for example, to improve the State pension arrangements.

I have a detailed note for Senator Alice-Mary Higgins on her recommendation. I propose to give that note to Senator Colette Kelleher in advance of Report Stage and Senator Alice-Mary Higgins can decide whether to resubmit the amendment at that point.

The Government is seeking to develop a universal retirement savings system. Work is ongoing on this project in the Department of Social Protection and I do not wish to pre-empt what the final shape of that system might be. However, the core target group for a universal system would be lower and middle income earners. The Department of Finance is working with the Department of Social Protection as part of the work of the universal retirement savings group project. In the circumstances, I do not consider it would make sense to conduct a separate exercise along the lines suggested in the Senator’s recommendation in respect of marginal rate private pension tax relief. This would not represent optimum use of the Department’s resources and I cannot, therefore, accept this recommendation. I will, however, give a further detailed note to Senator Alice-Mary Higgins in advance of Report Stage.

I accept the detailed report and that a copy of the report on the effective tax rates will be circulated. We will withdraw the amendment for now, but we may resubmit it.

Recommendation, by leave, withdrawn.
Section 59 agreed to.
NEW SECTION

I move recommendation No. 15:

In page 110, after line 17, to insert the following:

"Betting duty and remote licence for racecourse bookmakers

60. The Minister shall, within three months of the passing of this Act, prepare and lay before the Oireachtas a report on the treatment of racecourse bookmakers under the Betting Acts and the application of remote licences and the betting duty on racecourse bookmakers.".

This recommendation recommends that the Minister, within three months of the passing of this Bill, shall prepare and lay before the Oireachtas a report on the treatment of racecourse bookmakers under the Betting Acts and the application of remote licences and the betting duty on racecourse bookmakers. This amendment does not deal with large bookmakers who have many shops, it specifically relates to bookmakers on racecourses. The Betting Act 2015 does not mention racecourse bookmakers or the on-course market. The law requires licensed bookmakers to take out remote licences if the remote turnover bets conducted by telephone, online or by other telegraphic means exceeds 10% of their business or €250,000, whichever is lower. Activity on a betting exchange is regarded as remote turnover. The cost of a licence is €5,000 per annum for bookmakers with a turnover of less than €60 million. Over 60% of the 128 active racecourse bookmakers have a total annual turnover of less than €500,000 and many of them cannot afford this cost. Traditionally, racecourse bookmakers have been exempt from betting duty, which is not applied to bets struck where an event takes place. The report we are seeking would examine the possibility of reinstating this exemption, so it is to examine the tax treatment, licences and betting duty as regards on-course bookmakers.

The Minister, Deputy Michael Noonan, gave a commitment on Committee Stage in the Dáil to review the operation of the betting tax regime as part of the 2017 tax strategy group process. If the Senator agrees to withdraw the recommendation, I will ensure this area of on-course bookmakers is also examined as part of that process.

Is the recommendation being pressed?

No. I am happy to accept the Minister of State's response.

Recommendation, by leave, withdrawn.
Title agreed to.
Bill reported without recommendation.

When is it proposed to take the Report Stage?

Report Stage ordered for Tuesday, 13 December 2016.
Sitting suspended at 2.10 p.m. and resumed at 3.30 p.m.