I welcome the Minister of State at the Department of Finance, Deputy Michael D'Arcy, to the House.
Finance Bill 2017: Second Stage
Last month when the Minister for Finance, Deputy Paschal Donohoe, made his Budget Statement he said that this was a budget to safeguard our national finances and to help rebalance our economy. It was a budget to promote fairness and provide for modest but sustainable improvements in people’s lives. Many of the measures to help us achieve those goals are contained in the Finance Bill 2017 which we will discuss today and I would like to set the scene by looking at some of the Bill's key components. In order that we can have as much time as possible for our discussion, I will be as brief as I can. I do not propose to go through the Bill section by section. Instead, I will focus on particular sections which I think may be of interest to Senators. I will also describe some of the measures introduced on Committee and Report Stages in the Dáil.
In budget 2018, the Minister is continuing to fulfil the Government’s commitment to make steady and sustainable progress in reducing the income tax burden, with a particular focus on low and middle income earners. He has been very clear that his intention is to preserve a broad and stable income tax base. Therefore, in order to ensure that he does not narrow the tax base, the USC measures to be introduced in section 2 of this Finance Bill focus on reductions to USC rates while maintaining the current entry threshold to USC of €13,000. In section 3 of the Bill, the Minister is increasing the entry point to the higher rate of income tax by €750.
As part of the reform agenda, the Minister also intends to establish a working group to plan, over the coming year, the process of amalgamating USC and PRSI over the medium term. Throughout this process, the income threshold of €13,000 will be maintained as the general point of entry to the new amalgamated charge. A key objective of the group, and of the Minister for Finance, is that this process does not narrow the tax base but ensures that our personal taxation system is both competitive and resilient in the future. He aims to set up the working group after the passage of the Finance Bill and it will include officials from all relevant Departments and agencies.
Section 7 of the Bill provides for the introduction of a 0% rate of benefit-in-kind taxation on electric vehicles. While this relief is provided for in the Bill for an initial period of one year, the Minister has made it clear that the zero rate will remain in place for a period of time, a minimum of three to five years, sufficient to incentivise the uptake of electric vehicles. This section also provides for a tax exemption from benefit-in-kind when these vehicles are charged in the workplace.
The Minister and I are conscious of the challenges facing small and growing businesses around the country due to the changing international environment. Research has shown that employee financial participation can be effective in increasing competitiveness and helping companies to attract and retain staff in a competitive labour market. Therefore, section 10 of the Finance Bill provides the details of the new key employee engagement programme announced in budget 2018, which will support small to medium enterprises in their efforts to attract and retain key employees in a competitive international labour market. This programme will facilitate small to medium enterprises in providing key employees with a financial incentive in the form of share options linked to the success of the company.
Section 12 of the Bill introduces a scheme of accelerated capital allowances for the construction of buildings and structures for use in the provision of child care services or fitness centre facilities by employers to employees. The scheme also provides relief for expenditure incurred on related equipment. The rationale for introducing this relief is to help tackle the cost and availability of child care facilities, both of which have been cited as barriers to work. The measures will also support the Government’s vision for a healthy Ireland by supporting the provision of fitness facilities by employers. The tax relief will not commence immediately, as approval by the European Commission from a state aid perspective is required, on foot of which the scheme will commence by ministerial order.
Section 13 introduces a new, time limited deduction for pre-letting expenses in order to encourage owners of vacant residential property to bring that property into the rental market for a minimum of four years. Section 16 reflects an amendment which the Minister brought forward on Committee Stage in the Dáil in respect of the employment and investment incentive. This is to ensure that it is consistent with EU general block exemption rules on eligible investors so as to ensure that private investors in the scheme are independent of the management of the company.
Sections 23 and 30 together form a package of anti-avoidance measures being introduced in order to deal with a number of specific tax avoidance schemes which have been uncovered by Revenue. Essentially, the schemes involve converting what should be taxable income payments into capital payments in order to avail of the lower capital gains tax, CGT, rates. The potential charge to capital gains tax is then often avoided by the use of CGT reliefs such as retirement relief and entrepreneurial relief, resulting in funds being extracted by shareholders entirely tax free or at a significantly reduced tax liability. It is unfair that some individuals are engaging in these tax avoidance structures solely to take advantage of lower tax rates. This leads to unfair outcomes and puts other taxpayers who do not engage in such avoidance arrangements at a competitive disadvantage. The Minister is therefore taking steps to counter these avoidance schemes.
Section 25 amends section 291A of the Taxes Consolidation Act 1997 to limit the deduction for capital allowances for intangible assets and any related interest expense, to 80% of the relevant income arising from the intangible asset in the accounting period. This measure was recommended in the Coffey review in order to ensure some smoothing of corporation tax receipts over time. It applies in respect of capital expenditure incurred on intangible assets after 11 October 2017.
Section 33 provides for a change being made to section 604A of the Taxes Consolidation Act 1997. This ensures that CGT relief in respect of chargeable gains made on a disposal of land or buildings which were acquired between 7 December 2011 and 31 December 2014, will now apply where the asset involved has been owned for at least four years, with the full relief applying from the fourth to the seventh anniversary of acquisition and tapering off thereafter. As things currently stand, that is before this amendment, no relief from CGT on any chargeable gain made on disposal of qualifying land and buildings was available until seven years after acquisition. A full relief was then available at the seventh anniversary and a taper applied to the relief thereafter. This measure is being introduced at this time to incentivise the release of additional development land and buildings onto the market so as to help boost the supply of new housing, sooner rather than later.
A similar measure in section 19 of the Bill removes the five-year exemption which applied to capital gains arising on the disposal of Irish lands that have been held by an Irish real estate fund for more than five years.
Sections 34 and 71 allow that the leasing of agricultural land for solar panels will be classified as qualifying agricultural activity for the purposes of specific CGT and capital acquisitions tax, CAT, reliefs subject to certain conditions. CGT retirement relief and CAT agricultural relief will now allow solar panels on agricultural land to be considered qualifying assets. In order to ensure that genuine agricultural activity will continue to be carried out on the farms concerned, no more than 50% of the total farm holding can be used for solar panels. This will maintain the overall objective of agricultural relief in particular. This might also be an appropriate point to mention another agriculture related issue. Following discussions with the Minister for Agriculture, Food and Marine, the Minister for Finance has committed to undertaking an update of the 2014 review of agricultural tax measures ahead of next year’s budget. This will include a particular focus on the issue of income stabilisation. The issue of data collection relating to the operation of schemes will also feature and there will be engagement with all relevant stakeholders.
Sections 35 to 47, inclusive, of the Bill relate to the taxation of sugar sweetened drinks. Senators will be aware that the Minister announced in the budget that he would be introducing such a tax in April of next year, subject to approval from the European Commission, to coincide with the introduction of a similar tax in the UK. The tax will apply to non-alcoholic, water and juice-based drinks which have an added sugar content of 5 g per 100 ml and above. Sugar sweetened drinks with less than 5 g of sugar per 100 ml will be outside the scope of the tax. If the sugar content is 5 g or more but less than 8 g per 100 ml, a tax of 20 cent per litre will apply and for sugar sweetened drinks with a sugar content of 8 g or more, the rate will be 30 cent per litre. These figures are inclusive of VAT.
Section 60 gives effect to a number of measures relating to stamp duty. The rate of stamp duty applicable to conveyances and transfers of non-residential property is increased from 2% to 6% as of 11 October 2017. Transitional provisions apply for purchasers with binding contracts in place before 11 October and where the instruments for the transfers are executed before 1 January 2018. The end date for consanguinity relief is extended for another three years to 1 January 2021 while the upper age limit of 67 years for availing of this relief is removed. The rate of stamp duty where consanguinity relief applies is being fixed at 1%. The threshold above which residential leases are chargeable to stamp duty is increased from the current €30,000 to €40,000 per annum. This higher threshold should ensure that the vast majority of renters will not be liable to stamp duty.
Section 61 of the Bill provides for a stamp duty repayment scheme for land purchased for the development of housing. This is to ensure that the increased rate of stamp duty does not contribute to house price inflation. The scheme will also provide a stimulus to the timely delivery of much-needed new residential accommodation. The scheme has a number of conditions that are designed to ensure that only those builders and developers who provide completed housing units within a reasonable period of time can qualify for a refund of the difference in the amount of stamp duty payable at the rates of 2% and 6%.
Section 67 allows a farmer to claim relief from stamp duty where he or she both sells and purchases land for the purpose of consolidating an existing farm holding, subject to a number of qualifying conditions. Where the qualifying conditions are satisfied, stamp duty will be paid only to the extent that the value of the land that is purchased exceeds the value of the land that is sold. A reduced rate of 1% will be charged on the excess, if any, of the purchase value. A number of qualifying conditions must be satisfied before the relief can apply, the most important of which is that Teagasc must issue a certificate stating that a sale and purchase or an exchange of farmland was made for farm consolidation purposes.
I said at the outset that I would be brief so the last item to which I will draw to Senators' attention is section 76. Over the last year Revenue has committed significant resources to a PAYE modernisation project. It is the most significant review of the PAYE system since its introduction in the 1960s and will result in a move to a real time PAYE system from January 2019. This section introduces a number of technical provisions necessary to give effect to the new processes, including two preparatory changes having effect from 2018.
I look forward to hearing Senators' views and of course, we have Committee and Report Stages coming up where we will have an opportunity to discuss matters in more depth. I understand that in advance of Committee Stage a briefing with officials is being scheduled for any Senators who may wish to attend. I commend the Bill to the Seanad.
I thank the Minister of State. I now call on Senator Diarmuid Wilson who has eight minutes.
I welcome the Minister of State to the House and thank him for his contribution. I am contributing to this debate on behalf of my colleague, Senator Horkan, who is unavoidably absent this afternoon. Fianna Fáil will be supporting this Bill on Second Stage but will be submitting a number of amendments on Committee Stage.
I welcome the opportunity to speak on the Finance Bill 2017. The Bill puts many of the announcements made on budget day on a legal footing. This, the second budget under the confidence and supply arrangement, has a greater than 2:1 split between services and tax reductions. It will be the second progressive budget in a row after five regressive budgets by the previous Fine Gael-Labour Party Government. Fianna Fáil is curbing the right wing policies of Fine Gael and has its stopped its US-style approach to taxes. Our focus has been on ensuring that tax reductions are focused on low and middle income earners and on maintaining a 2:1 budget ratio that emphasises services. We also demanded that pensions and all social welfare payments be increased by €5 for the second year in a row. Fianna Fáil wants to ensure the delivery of action on housing, health and Brexit. We are not interested in spin. In contrast, this Government is so obsessed with spin, particularly under the current Taoiseach, that it has allocated €5 million to the strategic communications unit in the Taoiseach's office, as alluded to on the Order of Business this afternoon by a number of colleagues.
It is clear that the key test for this budget, or indeed any budget, is the delivery. Building houses, slashing hospital waiting lists and improving public services must be the real, on the ground results of budget 2018. We have taken measures towards these aims. The National Treatment Purchase Fund, NTPF, for example, will have an allocation of €55 million in 2018. The Indecon report illustrated what Fianna Fáil has been saying since the cruel and callous cuts in 2012 were applied to lone parents. We have made a step towards correcting this cut. Separately, retaining the mortgage interest relief will benefit up to 420,000 people. Our continued role in the confidence and supply arrangement is based on progress in these key areas. The budget is only a set of announcements; what matters is delivery.
The Government has increased stamp duty on commercial property from 2% to 6%. This includes agricultural property. As a result of Fianna Fáil's influence, however, the relief on the transfer of farms to relatives was loosened. Consanguinity relief reduces stamp duty to 1% for inter-generational transfers of farmland. The current limit, where the transferring farmer had to be under 67 years of age, is to be removed. The Finance Bill also provides that where a contract was agreed before 11 October 2017 and will be executed before 1 January 2018, the stamp duty will remain at 2%. The Coffey report, to which the Minister of State alluded, recommended that capital allowances on intangible assets be restricted to 80% and this will be implemented under this legislation.
Fianna Fáil has called for a reduction in USC for middle and low-income workers. Last year, we succeeded in getting a reduction in all three bands. Again due to the confidence and supply agreement, this year there will be a reduction in the 5% and 2.5% rates and an increase of €600 to the band to €18,772. This will benefit more than 1.8 million people including married couples earning over €13,000. We believe this is the fairest way to reduce tax. The Government has announced an increase in the standard rate tax band by €750. While we are supportive of this measure, it will only benefit people earning more than €33,800, leaving everybody else untouched. Mortgage interest relief has also been extended. We believe that we are the only party that pushed for the extension of this relief because of what it would mean to nearly 420,000 people. These people and families bought houses when property prices were at their peak. They have suffered worst from negative equity whereby the mortgage exceeds the value of the house. Housing is a key part of the confidence and supply arrangement and Fianna Fáil budgetary negotiating priorities. It is receiving a €500 million capital increase, an additional €148 million for the housing assistance payment, HAP, scheme and an additional €18 million for homelessness services. However, there is no affordable housing scheme, which must be addressed by the upcoming capital plan.
With regard to health, boosting the National Treatment Purchase Fund by €55 million to tackle hospital waiting lists was a key Fianna Fáil demand in the confidence and supply arrangement. We have secured a reduction in the prescription charges for those under 70 by 50 cent to €2 and in the drug payment scheme threshold from €144 to €134, as well as an additional €435 million for the mental health service in order to achieve service levels proposed in A Vision for Change.. There will also be an increase in personal assistance hours, home help hours and home care packages.
In education, there will be a reduction in the pupil-teacher ratio from 27:1 to 26:1. Additional funding for the DEIS schools meals programme and additional career guidance posts also will ensure that each school is equipped to help their pupils reach their full potential. Increasing the threshold for postgraduate grant eligibility was a central Fianna Fáil demand. It will help to expand access to fourth level education. Fianna Fáil will stand by the commitments we made in the confidence and supply agreement. We did that last year and we intend to do the same this year. We will engage in robust debate throughout the course of this Bill and I indicated to the Minister that we intend to submit some amendments on Committee Stage.
I reiterate that we will be supporting this Bill on Second Stage and I look forward to the Minister's reply.
I thank Senator Wilson. I call on Senator O'Donnell who has eight minutes.
I welcome the Minister of State, Deputy D'Arcy, to the Chamber once again.
I spend a lot of time here.
He is a frequent visitor. He obviously likes it here. The budget has been in place for virtually two months. The hallmark of a budget is to set in place an overarching vision and framework of where a Government is at. Operating with limited resources, a budget should be about what one wishes to achieve with the resources available. First, that should be about spreading those resources in the fairest way possible. I see Fine Gael as party that is very much pro-enterprise. We want to create an environment where people create jobs. It is not a sin to create a job. Equally, we have to look after workers and we also must look after less well-off people who have fallen on troubled times. We must ensure that people do not fall through the cracks and that they can come back.
On those measures, and with the resources available to us, dealing with the issue in terms of being pro-enterprise and in respect of families, we have sought to push measures to expand the standard rate bands. The Minister of State, Deputy D'Arcy, was very much to the forefront in highlighting this prior to the budget and was trying to push its inclusion in the budget. I welcome the mortgage interest relief. I see that as the start of a process in which we look at all times to take the pressure off hardworking families. I agree with my colleague Senator Wilson, who admirably stepped into the shoes of his colleague, Senator Horkan, and delivered his contribution with aplomb but the issue really is that the-----
That is a compliment to Senator Wilson.
Yes, absolutely. The humble politician is an oxymoron in its own way. The issue is the standard rate of tax and I look at it as entailing a series of measures. It cannot be done overnight but what was put forward in this budget was that the Government will seek to do that and, to follow in that vein, to increase the standard rate bands. It makes absolutely no sense that someone who is on a salary of approximately €35,000 pays a 40% rate of tax. If one adds USC, it is just below 50%. It makes no sense that someone who is working receives just about half of every euro he or she earns. That has to change and I welcome that change. I also welcome the increase in social welfare benefits. I do not consider increasing tax bands and increasing social welfare payments to be mutually exclusive. We must look after all sections of society. Within the context of social welfare payments, we seek to create an environment where it is not a disincentive to work and where it is perceived as a measure for people that should be temporary. For some people, it will be permanent such as those who have disabilities across a range of areas. We are also looking to create that environment.
On the business side I welcome the retention of the 9% rate of VAT for the hospitality sector. I certainly believe there is a need to look at and review it in terms of hotel beds. One sees it in Dublin in particular, where rates are very varied. There is a need to conduct research on that and examine whether it is being abused. In rural areas where businesses are trying to survive, it certainly made an enormous difference at a particular point in time and still serves a purpose. We must make certain that it is not open to abuse for various sectors. There are questions to be asked about the hotel bed sector.
Other issues arise in respect of the measures that were brought in. The amalgamation of USC and PRSI is being looked at. It is extremely important that people see that they get something back. There is a perception among the public to the effect that PRSI payments serve only one purpose, which pertains to the State pension, and that USC serves no purpose. It was brought in effectively as a "war time" tax . It was punitive in the way it was applied to gross income. If we are amalgamating the payments, we have to show that the public is getting a return in various forms for that payment. The State pension is one such return. While benefits have expanded across a range of areas, that particular theme should continue. The pension review also factors into that, as it makes no sense that someone who starts much earlier in life in a job can get a lower pension than someone who starts later in life. We have to find a way to square that circle. We see it continually where through no fault of their own, people started to work at 16. Perhaps others had the benefit of going to college - their family could afford it - and they may not start working formally until the age of 20 or 21.
The four years for which the person who started at 16 worked could result in him or her getting a lower pension because the number was being averaged. If there is a move towards total contributions, basing it on what one pays is a fairer system. I have seen occasions where there was a cohort of women in particular who were in jobs in the public sector that they were obliged to leave and, through no fault of their own, some of them do not qualify for pensions. I feel very strongly about it and hope this will be factored into the review of the USC and PRSI amalgamation. People will accept change as long as they see benefit in it and not change for change's sake alone.
An item which came up in the area of enterprise was an amendment intended as an anti-avoidance measure for management buy-outs, MBO. The Minister of State is probably aware of it. It was discussed on Report Stage in the Dáil in respect of bona fide MBOs. I note that it was accepted and there is a statement of practice coming from Revenue for bona fide management buy-outs. That group includes, for example, people who have engaged in farm consolidation, where a reduced rate of stamp duty applies. I am looking at succession in this regard. There should not be a situation in respect of someone who joined a small company and worked with it over many years and where the original owner is nearing an age where he or she wishes to retire or sell on to that person. That is a bona fide management buy-out because that person has grown with the company. I may touch on that on Committee and Report Stages since it has come up.
I want to touch on-----
Will the Senator make a concluding remark?
Yes. I look forward to the measures for affordable housing and, more specifically in the context of Georgian Limerick, I look forward to the Limerick living city initiative. I will discuss it on Committee and Report Stages. There were two aspects. Tax relief was brought on for the living city initiative. There is a very slow take-up in Limerick. We are a Georgian city. Limerick city centre cannot return to vibrancy unless we address Georgian Limerick. The footprint of Limerick city is comprised of Georgian houses. We have only had nine take-ups of tax reliefs recently with an owner-occupier in one case and the rest being rental properties. I might discuss that on Committee and Report Stages. I intend to bring representatives of Limerick City and County Council to meet the Minister, Deputy Humphreys, shortly to discuss heritage grants to boost Limerick but I may want to look at tax measures to see what can be done. There may be a need for a review or for special treatment because, of all the cities in Ireland, the real Georgian city, considering the proportion of houses concentrated in the city, is Limerick, my home city. I look forward to Committee and Report Stages and thank the Minister.
The Commencement debate might be a good mechanism for the Senator to use to address that since the Georgian part of the city is an important issue.
This Finance Bill, which puts into practice the measures announced in budget 2018, is another result of the effective coalition, recently matched up again, between Fianna Fáil and Fine Gael. It is a missed opportunity, where tax cuts were championed ahead of investments in key services that could begin to address the crises in health, housing and education. Apart from the objections Sinn Féin had to prioritising tax cuts over much needed spending, I will highlight several measures that could have been introduced on Committee and Report Stages in the Dáil, which could have increased revenue for the State and would have seen a more equitable tax system in place. That USC and income tax cuts of €335 million are being made at a time when we have a housing emergency and a health service that is creaking at the seams is inexcusable. These are political decisions and many people are gobsmacked by them.
I note that Fianna Fáil did not support the amendment in the Dáil to ensure that farmland was excluded from the threefold increase in stamp duty up to 6%. Does the Minister of State have an update for me on this point, as promised to my colleague, Deputy Pearse Doherty? Fianna Fáil had an opportunity to support this amendment yet it abstained. It was amusing to see that as the Finance Bill passed through the various stages in the Dáil, Fianna Fáil Deputies could be seen scurrying down to get into the Chamber in time to abstain. If the current crisis has shown us anything, it is the true nature of the dysfunctionality in Government.
My colleague, Deputy Pearse Doherty, also tried to ensure that many of our pillar banks, which were bailed out by the taxpayer, pay their fair share of tax. The banks confirmed before the Joint Committee on Finance, Public Expenditure and Reform, and Taoiseach, that they have 20 years to go before they will pay any tax. The Minister says he waved a big stick at the banks over the tracker mortgage issue. That seems to have worked well for the scary Minister, Deputy Donohoe. He has the chance to show a bit of backbone in this Finance Bill by removing this loophole and taxing them. It is intolerable that this Finance Bill does not end the tax break for the banks. AIB is on course for a €1.5 billion profit this year. Bank of Ireland made €1 billion last year. That is more than €300 million on the basis of 12.5% tax. It makes no sense that we would waive that, especially when taken with the fact that we still refuse to collect the €13 billion owed to us by Apple. How much longer can the Government claim that time is needed to solve the housing and health crises?
Recently the term "single malt" has come into the public domain following an excellent report by Christian Aid but this information is not new and has been in the public domain for some time. It is infuriating when Ministers pretend to be amazed that these tax structures exist when they legislated for the increase in the cap on intangible assets to 100% and are fully aware of the outworkings of Ireland's double tax treaty network. Does the Minister of State agree that reports of us providing a zero tax rate on billions of euro of multinational profits is bad for our international reputation? Why did the Government not accept the Sinn Féin amendments in the Dáil? As drafted, the Finance Bill will only apply this cap to assets onshored from 11 October 2017. That means the hundreds of billions transferred here in recent years, especially at its height in 2015, can be still be used by companies to potentially neutralise their corporation tax.
This is totally unacceptable and I welcome recent comments from Mr. Seamus Coffey. He recommends that the Government's new cap on the write-down of intangible assets apply to all assets as opposed to the Government's proposal, which grandfathers the new measure, meaning that the 80% cap will only apply to intangible assets acquired post budget. Due to the proposed cap not applying to all intangible assets, the State is missing out on a huge amount of corporate tax revenue that might not materialise in the future. Seamus Coffey further notes that if the cap applied to all claims, existing and new, then the additional corporation tax to be collected in 2018 could be up to €1 billion using the 2015 figure published by Revenue and estimates from that time used by the Department of Finance, as opposed to the €150 million the Government expects to raise. It is €1 billion compared with €150 million. We are paying for these onshore assets because they count towards our GNI, pushing up our EU contribution. We leave these companies to pay no tax through their intangible asset write-downs and the State is picking up the tab for increased contributions to the EU budget due to the tax-free earnings many of these companies have from intangible assets. The State makes payments of approximately €200 million per annum to the EU budget as a result of this gross income, which makes no contribution to Ireland's national budget. Over a ten-year period, this would result in payments of approximately €2 billion. We divert money from potential spending programmes to pay for the associated EU budget contributions this untaxed income requires each year, as well as an increase in the EU budget contributions counting towards the fiscal space.
The Government must amend its current proposal to include all intangible assets to safeguard our tax base and ensure the State is not unnecessarily picking up the tab for increased EU budget contributions related to tax-free multinational corporation activities.
The Government needs to amend its current proposal to include all intangible assets, safeguard our tax base and ensure the State is not unnecessarily picking up the tab for increased EU budget contributions related to tax-free multinational corporation activities. The Seanad affords the opportunity to consider the Finance Bill again in light of all the debate in the Dáil over the past few weeks. It is vital that the elements of the Bill that seem to let some of the highest earning companies off scot free in terms of tax be examined again. When I meet people, they are incredulous over the fact that Bank of Ireland and AIB will wait 20 years until they pay any tax. It is not too late. Sinn Féin will be offering amendments again to this Bill. We will not support it in its current form. It is predictable and it is a missed golden opportunity to regain tax revenue for our people.
Let me draw the Minister of State's attention to an Oxfam report, Blacklist or Whitewash, which was published yesterday and listed Ireland as one of four EU states that qualified as a tax haven according to the EU's own criteria. Oxfam highlights that corporate taxes lost worldwide amount to €84 billion per year. A third of this amount would be enough to pay for universal, global essential health care. This stands in sharp contrast with Ireland's worldwide reputation as a leader in humanitarian work and development work, delivering essential services worldwide. It also highlights the lack of joined-up thinking between our taxation policies and our commitments to the elimination of poverty, both nationally and globally.
Our role in tax avoidance is also out of line with our commitments under the sustainable development goals, SDGs, which the Irish Government played a key role in brokering. Under the SDGs, we are committed to working in global partnership to address inequalities between and within countries. Specifically, we have agreed on the following: "By 2030, progressively achieve and sustain income growth of the bottom 40 percent of the population at a rate higher than the national average". Can the Minister of State offer his assurances that the Bill he presents here today delivers on this commitment?
I would like to raise a question about two specific aspects of the Bill. First, I note that for the key employee engagement programme, KEEP, there is a budget of €10 million allocated, yet I am concerned that this figure does not include an estimate of the revenue that will be lost to the Exchequer as a result of tax foregone under this scheme. What is the net effect of this measure? I am also concerned that the Government's outline for this scheme does not provide a sufficient mechanism to monitor it, including the level of uptake from the scheme and a calculation of the indirect cost to the Exchequer through foregone revenue.
Schemes such as this need rigorous analysis and scrutiny to ensure that all costs are taken into consideration. Such analysis needs to be freely available, to both the Oireachtas and the wider public. I wonder if the Minister of State could share his thoughts on the net effect of the measures, in addition to the basic cost to the State. We need to be careful to avoid implementing a scheme that could result in an upward transfer of wealth and make income inequality worse rather than bridging the gap between rich and poor. We must be very wary of tax deals that could narrow the tax base, which base is vital for investment in public services such as housing and health services.
The second issue I would like to raise is the cost to the Exchequer of the knowledge development box scheme. This scheme, which offers tax breaks for companies for investment in research and development, should also be subject to rigorous scrutiny and a cost-benefit analysis. It could impose a heavy cost on the Exchequer. I urge the Minister of State to consider how the scheme will be effectively monitored, how companies that participate in the scheme will demonstrate its value, and how the costs to the Exchequer will be calculated both before and after. It is important to ask whether this revenue lost would be better spent on investment in research through our public universities and research institutions, driving research excellence and retaining innovation within the public domain and ensuring that it serves the public good.
It was disappointing to note that this year's budget did not deliver on the Government's commitment to gender and equality auditing or an accompanying equality statement. I call on the Government to deliver on this commitment, not only as part of the budgetary process but also in the delivery of the Finance Bill. This offers both accountability and transparency regarding our commitment to the elimination of inequality - economically and between genders. This is consistent with what we in the Civil Engagement group have been calling for regarding accountability, transparency, sustainability and long-term thinking. I thank Senator Alice-Mary Higgins specifically for her hard work on this point in particular. We are calling for fairness in taxation. We are a low-tax country at a time when we have major unmet needs across all sectors, be they associated with the disabled, children, older people, those will mental health problems or those requiring addiction services. We need to meet our international standards and commitments and reflect on this.
I welcome the Minister of State to the House. He is a regular here. It is always good to see him.
I welcome many of the provisions in the Finance Bill. They have been outlined very eloquently by many in the House, including our own spokesperson. I am disappointed, however, that an exemption from the local property tax is not being extended to people in Mayo with pyrite in their homes and people in Donegal with mica in their homes. With regard to pyrite, the exemption already exists for homes in Leinster. It has been officially established that there is a problem with pyrite in Mayo and I do not understand why what has been done for people in Leinster cannot be done for people in Mayo. I appreciate that the Minister of State was in the House last week dealing with a Commencement matter I raised but it is not good enough to tell people to revalue their property. One has to treat people equally. The problem is more serious in blockwork than in foundations, which is where the pyrite is found in Leinster.
We must always consider those for whom Christmas will be bleak. I want to highlight, in particular, the cohort dealing with vulture funds or hedge funds. I want to single out one vulture fund in particular, namely, Promontoria. It has come to my attention on a number of occasions. Businesspeople, professionals and farmers are trying to deal with it. "Trying" is the operative word.
Over Christmas, as with August, the courts go on holidays for a few weeks. This seems to result in an escalation in the number of proceedings that Promontoria issues. In the run up to court holidays, people may find it difficult to get lawyers. People are slapped with proceedings. I refer to cases where, to my mind, people are making a very real effort because they do not want to be declared bankrupt and want to sort out their affairs. I encountered a case that really highlighted to me what is occurring. It is the case of a professional man who, as with a number of others, got into debt. He has been able to reach a financial arrangement with several banks but he cannot deal with Promontoria. He made an offer to it and it did not even make a counter-offer. In my experience of proceedings, trying to sort out cases, mediation and negotiations, I have never heard the like. Now the individual has been slapped with a High Court summons requiring the full amount owed. If he is declared bankrupt, none of the other creditors will get paid at all.
One of the vulture fund's tactics is to require people to go to Belfast to visit an office. The man working there is a former Scotland Yard agent. I do not want to be crude in this Chamber but must state that he introduces himself to people when he sits them down by saying, "I am a prick but do not mind that". It proceeds from there. That says it all. I am raising this because an increasing number of people have been complaining about their dealings with Promontoria.
A number of issues arise in this regard. The vulture funds are unregulated. What engagement is there between the Department and these vulture funds? They are supposed to have a special relationship manager for debtors to deal with, yet the debtors do not get to know the identity of that relationship manager, unless they get to go to the North and meet the unsavoury individual I have mentioned. For the most part, the vulture fund I referred to operates through its agent, Capita. It is most unsatisfactory. The fund does not seem to want to hammer out deals. It seems to want to put people to the pin of their collar. What are we doing for these people, who are making a genuine effort? How are the vulture funds controlled? How are they taken to task?
What meetings are taking place between the Department or officials in the Department and Promontoria? The irony of it is that this particular professional had told me that he had just paid €80,000 in preliminary tax while Promontoria, as I understand it, pays next to nothing in tax. Is this person supposed to go to the wall when he is trying to sort out his affairs? This is repeated throughout. People cannot seem to get a handle on these vulture funds. They need to be taken to task, and I would appreciate any information the Minister of State has on that.
I would also like to see some advancement on the pyrite issue, including a redress scheme, so that people can be informed of the work that is going on. I know that the Department of Housing, Planning and Local Government is working on it. I would like people to know that there is work going on in the Department of Finance to try to help people who have pyrite and mica in their homes.
I thank the Minister of State for being here this afternoon. We are dealing with very important legislation which will have an effect on the future development of our country and the city of Cork. I want to speak about Cork in particular. We have allocated €155 million to the city of Cork for the acquisition and building of more than 624 housing units, and I want to focus on that for a moment. There is a whole of Government approach to Rebuilding Ireland, and I hope that as part of future Finance Bills and budgets we can look at how we can incentivise the private sector to build. I attended a briefing with Cork City Council yesterday morning where its social housing ambitions and plans were discussed. However, the city council is almost building more houses than the private developer, and that cannot be right. A balance must be struck. In particular, in Barrack Street, part of Douglas Street and in the inner city of Cork, we can have a scheme to encourage living over shops and encourage regeneration through tax incentive schemes. Those schemes have existed in the past, but they can be brought back again to incentivise and acquire lands and buildings. In certain sections there are problems with capital allowances and stamp duty, but this is about ensuring we take the investment we have made in Cork, for example, the public realm in Barrack Street, and incentivise either the local authority or a developer to intervene and make it habitable. Vast parts of that area of the city are not inhabited. As part of the national capital development plan, or Ireland 2040, we have an ambition and strategic vision for the development of Cork, and I want to ensure that with a combined approach, working with local government, we will see an emphasis on collaboration to develop more social housing in Cork.
It is also about ensuring that the city of Cork, and the county, has the ability to reach its full potential in the context of increasing employment in order that the shared vision can be realised. We are talking about having a total population of 500,000 in Cork by 2050 and having 120,000 jobs in Cork in the next 30 years. That requires a facilitation by Government, which should have a collaborative approach with other stakeholders to ensure that we have sufficient infrastructure. Cork should also be designated as a complementary city or location to Dublin. It is also about Cork being connected.
I want to promote the idea of Cork as a place of opportunity. Cork city and county council put together a joint statement which outlined a vision and a roadmap for the future. I am a small bit concerned about one area, and that is the issue of aviation. The Dublin Airport Authority, DAA, is the umbrella body which drives Cork Airport. The airport has experienced huge success in recent years, and Niall McCarthy and his team deserve immense credit and praise. However, it is critical that the transatlantic route is continued, especially in the off-season. As the Minister of State knows, load factors are difficult to estimate, but we need to ensure that Cork Airport, the second largest airport in the country, supporting 4,500 jobs, has the support to promote and market the North American route. It is not just about key infrastructure and investment but also about having a focus for the future. Central to that is the airport and the transatlantic flights.
This is about people and having the economic conditions in place in terms of housing and office space. It is also about connectivity in a global sense, allied to business development and innovation, and governance and marketing. I hope that as a consequence of what we are trying to achieve through the Action Plan for Jobs, Rebuilding Ireland and Ireland 2040, we can do that in Cork.
I will try to go through the submissions one by one. I do not know enough about the aviation point raised by Senator Buttimer. I will try to get some answers if possible.
Housing, especially social housing, was something of a recurring theme in the Senators' submissions. I am glad to hear that people are also talking about affordable housing. There is a problem with housing, and much of the focus is on the purchase of property. However, I believe that the private rental sector is the area where we have the biggest problem. Rents have doubled, and people who are earning decent salaries cannot afford to rent a house. If somebody wants to buy a house, according to the property pages in any newspaper, they can pay from €100,000 to €3.1 million. He or she may not get what he or she wants, but that choice is there for quite a few people. However, perhaps expectations need to be lowered.
The local property tax exemption for pyrite buildings was brought up by Senator Mulherin last week. In 2018, there will be a review of local property tax. That is the place to progress this matter. We must ensure that those areas where there are problems with houses and blockwork, similar to what happened with pyrite in Leinster, are the areas where the exemption will apply, such as in Mayo and Donegal.
I will not mention any individual vulture funds, but the legislation is in place since 2015. The funds are not regulated, but the service agents which operate on behalf of the funds can be regulated. That has been in place since 2015. The exact same laws and regulations apply for financial institutions. The laws that apply to the banks also apply to the vulture funds. That message has got lost for quite a few people. One of the initiatives I have taken was meeting the Banking Payments Federation of Ireland, BPFI, a number of months ago to put across my opinion that it was not doing its job well enough. Many Members of the Oireachtas, whether in the Lower House or this House, are trying to work on behalf of their clients, and while they may manage sometimes to get people on the phone, at other times they do not even get to speak to someone on the phone and are told that they will be conversed with by letter and not by email. I asked the Banking Payments Federation of Ireland to consider putting in place a structure where Members of Houses of the Oireachtas, who represent the public and who have an issue with a bank can deal with the account with the BPFI - all of the banks and the service agents. They should not be told that somebody else has to be spoken to about it or that it is a matter for the credit line further up the chain of command. Instead, Members of this Oireachtas should be able to meet the right people in order that some form of a deal can be hammered out.
It is not concluded, but I am working on that.
In response to Senator Black, I will raise a couple of issues. This country is not a tax haven. I want to be very clear on that. I ask people to stop repeating the easy line that this country is a tax haven. There are some groups of countries that like to say that if a country levies taxes below a certain threshold it is a tax haven. Put it into context. We choose in this jurisdiction to have a low corporation tax, but we have high income taxes. That is our choice. Why do we do that? We do not have a large number of corporations. It is as simple as that. So we charge a rate of 12.5%. That is the nominal rate. The effective rate is about 10.5%. Our primary deductible is research and development. There are other jurisdictions with a much higher rate than ours. Some of them have twice the rate. Some of them have three times the rate. However, there are countries that have multiples of our nominal rate and a lower effective rate. Do not be fooled by what is being said by some.
I want to touch on Senator Devine's point about the Comptroller and Auditor General's report. She refers to a rate of 1%. That is correct, it is the correct rate of tax for those countries. We have tax arrangements with 73 countries so that there is not a double taxation of income. That is a structure that is in place with countries all over the world. The UK has tax arrangements with 140 countries. We have a much smaller number than them, and that is appropriate. I will name some Irish companies; Kerry and Glanbia. There are 100,000 people in the United States who are employed by Irish companies based there. Those companies pay tax in Ireland, because that is their domicile. There is a flow of income in both directions, not just one. However, everybody talks about only one direction. For 11% of those companies to pay a rate of 1% in Ireland is correct and appropriate. Glanbia, Kerry and so many others have thousands of employees in the United States and pay their taxes here. Nobody talks about that. Everybody says we are a tax haven because they only pay 1%. That is appropriate, correct, and in line with other tax jurisdictions.
Tax avoidance was referred to. We absolutely do not support tax avoidance. We have done everything we can in the base erosion and profit shifting, BEPS, process within the Organisation for Economic Co-operation and Development, OECD. The world is globalised. Companies are not based in a single country. I went to the International Monetary Fund, IMF, meeting last autumn in Washington DC. As an example of what I am talking about, a Boeing airplane is made in 47 different countries. It is finalised and assembled in the US. The Bombardier airplane in manufactured in about 52 countries. Some 3,000 Bombardier staff work in Northern Ireland. That is the globalised world we live in, and yet people are saying that we are doing something wrong. We are not.
Senator Devine always seems to get it wrong, she seem to get the wrong end of the stick.
I feel this is my day.
The ratio of tax cuts to spending was agreed at 2:1. It was agreed in the confidence and supply arrangement between the Government and Fianna Fáil. I want to put it into context. I absolutely support the reduction in income taxes. The quantum of money raised by income taxes has doubled since 2011. In 2011, the State took in €11 billion in income taxes. In budget 2018, we are projected to take in €21.5 billion. That is the great reconfiguration in this State. The income tax payers are paying the taxes. I repeat, income tax revenue has doubled. Senator Devine and her party are entitled to their view. I disagree with her. When the actual quantity of money has doubled, the income tax payers must be entitled to earn more money. Senator Wilson has heard me say this on so many occasions when I was a Member of this Chamber, as has Senator Bacik.
There is something very wrong with a tax jurisdiction where people on the average industrial wage pay the higher rate of tax. I have tried to get analysis of this done, and I think it happens in practically no other jurisdiction within the OECD. I have also made the point on several occasions that when I am out and about trying to encourage companies to come and locate here, the first thing that a lot of foreign direct investment prospects or financial institutions talk about is the point at which one pays the higher rate of tax. Not everybody is on €100,000, €120,000 or €130,000. A lot of people are on the average industrial wage. We begin paying the higher rate at lower earnings than anywhere else, and the reduction in income tax is something I absolutely support.
I want to touch on one other point. Senator Devine spoke about how horrified she was by the stamp duty increase. Her own budget submission proposed to double it from 2% to 4%, with a tax take of €190 million. I am sure she is aware of this proposed stamp duty increase. Is she not aware of it? That was Sinn Féin's submission.
Senator O'Donnell referred to the hospitality sector. That is the hard question that we are going to have to face at some stage. We have forgone a lot of money, but it was the right policy structure at the right time. One of the things that we have to do is increase stamp duty from the emergency period rate of 2%. Stamp duty was always 6%. On some occasions it was 9% or 11%. However, it is now at the normalised rate, which is a sustainable rate of 6%. I support that. We have to get back to normalised rates. At stage we will have to move the rate of VAT in the hospitality sector back from 9% to 13.5%, to put in place a sustainable tax base that will withstand external shocks, internal shocks, and every other type of shock.
Affordable housing is something I am very strong upon. As Senator Wilson knows, I am not the most political politician Members will come across. It is very easy for people in the Opposition to beat up Fianna Fáil. It should be given credit for putting in place a structure whereby the Government is allowed to act. It is very easy to step off the pitch and say everything is wrong, but everything is not wrong. We have come from a remarkable place where we were bankrupt and this nation did not have a shilling. One of the things that I knew would happen eventually was that the lag would catch up. There is a lag in housing, homelessness and other areas because we did not have the money to invest and reinvest. A lot of people in the Opposition beat up Fianna Fáil, but it chose to be responsible and ensure that a Government is in place, and it should be commended instead of being criticised for that.
I have touched upon the Coffey report, stamp duty and lower middle incomes. Regarding IT and intangible assets, we have made a change in line with the Coffey report to bring it from a 100% deductible to a 80% deductible. We have a figure of €150 million. I think that is a low-ball figure. Senator Devine says there is €1 billion it, but there is not. If we set the rates at the levels she is talking about, the property will go somewhere else. That is what happens. It is a globalised world.
Senator Wilson referred to affordable housing schemes. Members have heard me speaking about affordable housing schemes on numerous occasions. There is an anomaly concerning people who have average earnings. Where I live, the average industrial earnings are between €30,000 and €40,000. Those people are not in the space where they can afford to buy their own home. Where I come from, a three-bed semi-detached house costs €175,000. Do the figures and work them backwards and it is clear these potential buyers need an enormous deposit. That is not always available. In many cases parents are helping and people are working hard to save that deposit, but it is nearly impossible to do so with the rents that couples now have to pay.
It is nearly impossible for couples to save the deposit given the high level of rents. It is something that I pushed very strongly when I was in the Seanad and now that I am in the Department of Finance I am seeking to put in place an affordable housing scheme for people on average and low wages so that they can afford to buy their own home. Anyone who has heard the Taoiseach speak about the republic of opportunities will have heard that is one of the things he has prioritised also. How much time do I have left?
The Minister of State is within reason. I would be concerned if he went on for another half an hour.
I assure Senator O'Donnell that bona fide management buy-out transactions will not be affected but there is a tax avoidance scheme in operation and we want to deal with that. Senator Mulherin raised the mica issue.
I wish to make one other point about housing. We have a €6 billion pot for housing. We probably have a capacity issue in terms of how quickly we can try to encourage people out of the commercial property sector into the residential property sector. That is what this budget is about, namely, making land available, encouraging and enticing people who have land to make it available, so we can get moving on the construction of properties because the biggest issue we have is supply. We lost the last decade but we will be in a much better position for the next decade.
Before I put the question I welcome to the Gallery two young solicitors, one a young man from west Cork who trained in my office. Thankfully, I did not have to train him. They are Niall McCarthy and his friend from Clare, Martin Murphy. They are very welcome. It is their first time in Leinster House. Is Second Stage agreed?
- Boyhan, Victor.
- Burke, Colm.
- Burke, Paddy.
- Buttimer, Jerry.
- Byrne, Maria.
- Clifford-Lee, Lorraine.
- Coffey, Paudie.
- Craughwell, Gerard P.
- Daly, Mark.
- Daly, Paul.
- Feighan, Frank.
- Hopkins, Maura.
- Lawless, Billy.
- Leyden, Terry.
- McFadden, Gabrielle.
- Mulherin, Michelle.
- Murnane O'Connor, Jennifer.
- Noone, Catherine.
- Norris, David.
- Ó Céidigh, Pádraig.
- O'Donnell, Kieran.
- O'Mahony, John.
- O'Sullivan, Ned.
- Reilly, James.
- Richmond, Neale.
- Swanick, Keith.
- Wilson, Diarmuid.
- Bacik, Ivana.
- Black, Frances.
- Devine, Máire.
- Gavan, Paul.
- Mac Lochlainn, Pádraig.
- Ó Clochartaigh, Trevor.
- Ó Donnghaile, Niall.
- O'Sullivan, Grace.
- Ruane, Lynn.
- Warfield, Fintan.
When is it proposed to take Committee Stage?
Is that agreed? Agreed.