The Minister is very welcome.
Finance Bill 2018: Second Stage
I thank the Acting Chairman and apologise to him and to the other Members for being late. I was replying to parliamentary questions to the Department of Public Expenditure and Reform, which ran over time.
I am very pleased to be here with Senators and to bring the Finance Bill to the Upper House. In many ways this Bill reflects the progress we have made as a country and an economy but it also points to the further progress we must make and issues we need to address. It contains measures to improve living standards and to put in place policies that would have looked very unlikely a few short years ago. In this respect, the Finance Bill 2018 builds on progress that has been made. However, as Finance Bills must, it also contains a range of measures to raise revenue. As such, it reflects the careful consideration I as Minister have given to the competing demands posed by our budgetary requirements. It is always the case that any Minister for Finance must balance the need for care and caution on one hand with ambition on the other. I understand that all Senators have received a briefing document so I do not intend to go through the Bill section by section but I do wish to draw their attention to what I consider to be some of the key measures in the Bill.
I wish to look first at some measures that focus on the individual. In particular, I point to the income tax package contained in sections 2 to 5, inclusive, that gives effect to measures announced in the budget. These include: raising the entry point to the higher rate of income tax for all earners by €750; reducing the third rate of the universal social charge, USC, to 4.5%; and increasing the ceiling of the band at which the 2% rate of the universal social charge will be payable to €19,874. The home carer credit is being increased by €300 to €1,500, and the earned income credit is being increased by €200.
I now turn to some measures that are relevant to both economic activity and our wider society. I wish to highlight sections that relate to climate change policy and those that aim to enhance our corporate tax regime and our reputation. In support of climate change policy, section 9 of the Bill extends the benefit-in-kind exemption for electric vehicles until 31 December 2021. Section 39 extends the vehicle registration tax, VRT, relief for hybrid electric vehicles until 31 December of next year. In recognition of increasing concerns about air pollution and specific concerns about pollutants being emitted in high amounts by diesel vehicles, section 37 of the Bill provides for a VRT surcharge of 1% on diesel cars.
Senators will all be aware that my focus is also on having a corporate tax regime that is stable, legitimate and transparent to support continuing investment in jobs and the creation of jobs in our State. As part of Ireland's commitment to implementing the anti-tax avoidance directive, ATAD, I announced in budget 2019 the introduction of two new anti-avoidance measures, namely, an ATAD-compliant tax regime and new controlled foreign company, CFC, rules. These are designed to prevent the artificial diversion of profits to offshore entities in low-tax or no-tax jurisdictions. They operate by attributing certain income of a CFC to the controlling parent company for immediate taxation. They are primarily associated with territorial tax systems and therefore have not to date been a feature of our worldwide tax code.
The new ATAD-compliant exit tax regime will impose a charge to tax at 12.5% on unrealised gains where companies migrate or transfer assets offshore such that they leave the scope of the Irish tax system. It replaces a pre-existing, focused anti-avoidance exit charge with a new broad-based exit tax and was therefore introduced via financial resolution on budget night. The introduction of both these measures, in addition to the commitments to further action set out in the corporate tax roadmap published in September, clearly demonstrates Ireland's ongoing commitment to playing a significant role in international tax reform. These measures are set out in sections 27 and 32 of the Bill.
Next I wish to look at measures designed to support specific sectors. Income tax-based incentives have a significant part to play where market failures mean that additional support measures are necessary to deliver financing and reduce costs to businesses. This has been especially true in recent years, and a range of measures have evolved since the financial crisis to fill the gap. The changes in the Bill to the employment and investment incentive and the key employee engagement programme, KEEP, and the introduction of the startup capital initiatives demonstrate that we are responsive and can develop innovative solutions to emerging challenges.
Regarding section 26, I hope Senators will agree that film tax credits act as a stimulus to the development of an indigenous audiovisual sector. The section provides for a four-year extension to the credit. I am also introducing, subject to state-aid approval, a new short-term regional uplift for certain productions. The regional uplift will commence at 5% and will be phased out over four years.
Turning now to section 48, in order to promote lifetime transfers of land and encourage more young people to pursue farming, a full relief from stamp duty on the conveyance of farmland to young trained farmers is currently available, subject to conditions. This relief is due to lapse at the end of the year but the Bill provides for its extension for a further three years. In addition, section 21 extends stock relief for farmers for a further three years. I refer also to section 23 which sets out, as announced in the budget, the amount of interest that may be deducted by landlords in respect of loans used to purchase, improve or repair a residential property to be increased to 100% from 1 January 2019. This is a slight acceleration of the rate of restoration of the full value of the relief, which was due to increase incrementally to 100% by 2021.
Finally, I wish to turn to two measures that I know have provoked much debate. I refer first to section 43, which changes our 9% VAT rate to 13.5%, with the exception of newspapers and sports facilities. I reviewed this rate and published a paper on it in the summer of 2018. This review found that the objectives of the 9% rate had been met and that it is no longer needed in the current economic climate. This single change alone will result in additional revenue of €560 million in the first full year of operation, rising to well over €600 million across a full year. Section 35 of the Bill increases the rate of betting duty from 1% to 2% for bookmakers, while the rate of betting intermediary duty has been increased from 15% to 25%.
Betting duty contributes less than 1% of all excise duties and it is time the betting sector increased the contribution it makes to pay for public services. I look forward to hearing the views of Seanad Éireann. We will also have an opportunity on Committee and Report Stages to debate these matters in greater depth. I commend the Bill to the Seanad.
I welcome the Minister to the House and commend him on the excellent work he is doing in the Department of Finance. I am taking the place of my colleague, Senator Horkan, who is unfortunately unavailable to contribute to the debate on this Stage. The Senator looks forward to doing so on the other Stages of the Bill, however.
As the Minister stated, the Finance Bill 2018 seeks to place many of the announcements made on budget day on a legal footing. In accordance with the confidence and supply agreement, the Fianna Fáil Party will abstain in the vote on the Bill. As the Minister is aware, my party committed to providing stability during the Brexit talks and we will continue to do so during this crucial period. This is an especially crucial time for the Government of the United Kingdom. We will continue to act in good faith in the crucial weeks ahead. We are all hopeful of a conclusion to the Brexit negotiations that will be in the interests of the whole island of Ireland.
Fianna Fáil sought during the budget negotiations to provide stability and to address some serious policy issues, with a particular emphasis on housing and health. As a result of our participation in the negotiations, we have gained a new affordable housing scheme, an increase in the social housing budget, an expansion of the National Treatment Purchase Fund, an increase in homecare packages and higher capitation rates for schools. This budget is another step in the right direction. My party also secured an increase of €5 in social welfare payments. The total increase to pension payments, carer's allowance and unemployment assistance under the confidence and supply arrangement now stands at €15.
We have also secured an increase in the social housing budget and a €310 million package for an affordable housing scheme over the next three years. This includes a subsidy of up to €50,000 for building costs on State-owned land. This will make homes available at around €200,000 for those who qualify. In health, I am pleased to note we have expanded the National Treatment Purchase Fund and homecare packages.
Other parties have shown a complete inability to deal in economic reality. They issued pre-budget proposals which misrepresented the Government figures by up to €700 million in some cases. Their budget proposals broke European Union fiscal rules, potentially leaving Ireland open to major fines. They made no allocation for the potential costs of a no-deal Brexit or a trade war with the United States. Those other parties have no credibility on economic matters. My party has taken the more difficult path of responsible politics and worked to keep faith with our pre-election promises.
For Fianna Fáil, the two measures in the Bill that stand out are changes to the betting tax and the VAT rebate for car hire. The budget announced a 100% increase in the turnover tax for betting companies. While we understand that decisions have to be made to raise revenues, the 100% increase in turnover tax will hurt local and independent bookmakers first and most. They will be put under severe pressure while larger companies will simply divert resources from bricks and mortar to their online outlets. I urge the Minister to consider the independent bookmakers' proposal to shift some of the cost to a transaction tax that could alleviate some of the worst effects of this measure.
We also urge the Minister to reconsider section 37, which removes a VAT rebate for VRT paid on cars used by the car hire industry. This was announced recently and only became apparent when the Bill was published. It is difficult to understand why this provision was included as it will reduce the number of vehicles in the car hire sector, thus making Ireland a less competitive location for tourism. When visiting Ireland, 32% of holidaymakers hire a car. It could now cost between €5 and €23 more per day to hire a car, depending on vehicle type. Tourists who wish to travel outside cities and around the country or hire a car for a golfing trip could be subjected to an extra charge of €230. This will hurt peripheral areas and rural Ireland most. As we all know, these areas have already suffered enough in many respects.
I pay tribute to my party's spokespersons on finance, Deputy Michael McGrath, and public expenditure and reform, Deputy Cowen, for their important input into this budget. I thank the Minister. It is good to see him in this House again.
I welcome the Minister and thank him for his contribution. Perhaps it is possible to arrange to have it circulated, although I know it will also be published online. We are very lucky to have such an exceptional Minister and I acknowledge his great work and commitment. I say that as someone who is not a member of the Fine Gael Party and is not here to promote anyone. The Minister has a difficult job that is about prudence, balance and reason.
At a time when the Taoiseach is advocating tax cuts, both Houses are discussing major issues such as children going to school in prefabricated buildings, a major health crisis and people waiting for services. Millions of euro have been provided for extra staff and resources in healthcare but we are not seeing this at the other end. Waiting lists are not reducing and we have a crisis in healthcare, education and housing. Those are the three planks on which the Government will be tested. I will not discuss the issue of local property tax reform because that is a separate area of concern.
I ask the Minister to go on Google Images, as I did before coming to the House, and type in the letters "USC" followed by his name or the name of the Taoiseach. He will find pictures of the Taoiseach and himself holding up banners at train stations in Dublin before the election. There was no ambiguity about the words on the banners, which featured a promise and commitment to abolish the USC. I do not know what the Minister's long-term plan is in that respect. Does he still plan to have a new modified or adjusted scheme for pay related social insurance, PRSI, and USC or to merge the two schemes? We need to know what is the Government's plan and vision for the USC. Does the Minister still stand over the "abolish the USC" slogan on his banner? I am not scoring political points but there comes a time when we need to clear up the ambiguity. Is it still the objective of Fine Gael to abolish the USC? I note that some adjustments were made in the budget and the Minister mentioned them in his contribution. I ask him to comment.
I have no problem paying a large amount of tax as I am fortunate to have a job and to be healthy. I do not advocate reducing taxation until such time as we have our health services in order, we no longer have children in prefabs and we have resolved the housing crisis.
We have to be courageous. We have to say we want to have good health and education services. If we want to see the provision of social and affordable housing, we will have to pay for it. Those with the ability to work and who have the good fortune to have a job recognise this. I am not an advocate of cutting taxes for the sake of making people better off if, on the other hand, there is a range of people who have nothing.
I wanted to take advantage of the opportunity to say those few things. We need to be clear. Is it the Government's intention to phase out USC? If so, with what will it replace it? Is it its intention to reform PRSI? Is there any chance that it will merge the two? I seek clarity on that matter.
I congratulate the Minister on the job he has done. It is a difficult one and he has to resist many demands. I appreciate that he is doing so in observing how he operates, reading media reports and talking to people. He is not a walkover and not considered to be; rather, he is considered to be measured. That is the type of person we want to see in charge of the finances of the country. We need to be cautious about playing to popular demands and what is called middle Ireland. Suddenly we are asking what it is. Does it comprise the people who register to vote for certain political groupings? I am not interested in that but in having state-of-the-art health services and the provision of affordable and social housing. I am also interested in having state-of-the-art education services.
I acknowledge the ambitions of the Taoiseach and the Government to create a republic of opportunity, in which one gets up early in the morning and does a hard day's work. The time for words is over. We need to see action and services being put in place. I say, "Well done."
I welcome the Minister, Deputy Donohoe, as a former Member of this House and commend him and his officials for the fantastic work they do on behalf of the people and the Government. I wish him continued success.
I will deal with the budget in a structured and overarching way. I always assess budgets under a number of headings, including fairness. Ultimately, a Minister is responsible for dealing with issues with limited resources and has to consider how to use them in the most productive way. Parties have different philosophies. My personal philosophy which is very much in the mould of Fine Gael is to promote the creastion of an environment that is pro-enterprise, in which people can work and create jobs. In doing so they provide the necessary taxes for the Exchequer which allow the Government to deal with the most vulnerable and provide services. In the context of social welfare benefits, they allow it to deal with those who are most vulnerable or going through a difficult time. They allow it to put in place infrastructure for schools, health, education and myriad social services which have to be paid for. How are they paid for? They are paid for from taxes. That is my philosophy. I look to see if the budget is fair and believe this one is. It provides for increases in social welfare payments and reductions in taxation, not by as much as I would like, but it was done within the available resources. I favour the policy put forward by the Taoiseach, with the Minister, at the Ard-Fheis in which we aim to apply the standard rate of tax to an income of €50,000 or less for a single person and €100,000 for a married couple, while at the same time reducing USC and increasing the tax bands.
The two other areas with which I want to deal are Brexit and competitiveness as they are interlinked. I woke up at about 3 a.m. and thought the house was going to collapse. I am sure many others experienced the same. There were terrible storms. When I got up in Monaleen in Castletroy where I live, it was sunny, as it is every morning. The clouds had passed, but we have a cloud that is Brexit. I expect it to pass and that we will have very mild drizzle and a couple of sun showers, but, equally, we may have torrential rain. We must prepare for a hard Brexit and for that to happen we must be competitive. However, we are not competitive on the European and world stage in the rates at which people pay tax. Tax rates for the squeezed middle are too high when one considers people who are looking to purchase a house or educate their children. They move into the higher rate of tax on an income of just over €35,000 which is not big money. We need to change this incrementally. For the past two years the Government has provided for an increase in credits of €1,500, but I have no doubt that the Minister would have liked to have done a little more. If we are to compete on a stage with, for example, the United Kingdom and Germany where people move into the higher rate of tax at a much higher level, we will have to be competitive and it is not just about fairness. It is also about ensuring we can operate post-Brexit, while at the same time not losing sight of the fact that, when one knocks on doors and speaks to people, tax rates are too high for the squeezed middle. We will have to find a mechanism over time whereby we will do it in a sustainable way. That is why I very much favour moving to a figure of €50,000 for a single person and €100,000 for a married couple. With it has to come prudence on the spending side. It is about achieving efficiencies and ensuring people get value for money. For many years the Minister and I served together on the Committee of Public Accounts. A person earning just above €35,000 pays tax at the marginal rate of 40%. It would be too high at 47.5%.
It is critical that as a country we remain competitive and ensure costs will be kept to a minimum. It is also important for mobile workers, multinationals and Irish companies that in exporting to export markets that Ireland be competitive. I came from the ranks of the self-employed. I was self-employed as a chartered accountant for the bones of ten or 12 years and the self-employed were my bread and butter. It is critical that we try to achieve parity on earned income as quickly as possible. That is the intention. Feeding into this is the fact that one pays tax at the marginal rate at a figure of €35,000. Ultimately, we do not want the self-employed to be hampered by tax in creating jobs. We need to make sure that when they take people on, they will have more disposable income. If people pay tax at the standard rate on a higher income, it will make us more competitive.
I will address local issues in Limerick. The Minister referred to the increased tax credit for the film industry. In Limerick we have Toy Studios which are state-of-the-art. They were pioneered by the local authority, Limerick City and County Council. Recently there was a preview of Nightflyers on NBC.
I suspect that the Minister, as a science fiction buff, would have enjoyed it very much. The Minister was namechecked on the night and I have no doubt he will be invited to a preview. Ten episodes will be broadcast on a science fiction channel in America and it is hoped that they will also be broadcast on Netflix shortly. The film tax credit is very worthwhile.
I welcome last week's significant announcement relating to a fund of €13.5 million for both rural and urban regeneration, with €7 million for rural areas and €6.5 for urban areas, including city centres. Ten projects in Limerick will be funded, including Murroe community hub which is to receive €3.8 million. I have worked with that organisation for many years and the new hub will be a blueprint for rural regeneration. The hub is in a rural setting but has an urban theme because Murroe is a satellite of Limerick city. I expect it to be an enormous success. There are seven projects in Limerick city that will receive funding. The opera centre site will receive €1.84 million while O'Connell Street will receive almost €1 million. It is important that I do not leave out any of the projects. The world-class waterfront project and a virtual reality centre will receive €1 million and the Georgian quarter project will also receive significant funding. I would like to discuss the latter with the Minister at some point in the future to ensure that people come to live in the city.
I commend the Minister on this year's budget. I see it as part of the continuing process of building a competitive Ireland that is fair. The budget aims to look after people, particularly the vulnerable, ensure that people are not penalised by taxes on work and provide public services. Brexit looms and we must ensure that we maintain our competitiveness.
I thank the Minister for coming to the House to present the Finance Bill. While I am reluctant to disturb the Mills and Boon like love-in that has been going on in the House since this session started, there are some issues of which we must be mindful. The first of these is the fact that we have 10,000 people who are homeless and approximately 1 million people on waiting lists. We need to examine exactly what this budget is delivering which is only a few euro in people's pockets and even that has not been done fairly. The Government's own figures published on budget day recognise this fact.
The Fianna Fáil Senators in the House are constantly pleading that they have taken the more difficult path. The difficult path is the one that mothers, children and families have to take to the Capuchin Day Centre, to Society of St Vincent de Paul centres and to other charities to fulfil their most basic needs. That is the difficult path. Fianna Fáil representatives say they are economically responsible but putting Fianna Fáil and the term economically responsible in the same sentence is laughable. Last night, the Fianna Fáil councillors on Mayo County Council voted in favour of a 2% increase in the commercial rates for businesses. The small indigenous businesses that we constantly talk about are once again paying the price.
This budget means that a single worker on €20,000 per year will receive €14 extra per year as a result of tax changes, which is very far away from €5 per week. At €30,000, the same individual will get €39 per year but a self-employed married person on €70,000 gains €15 per week. Some gain more in one week than others gain in a whole year. I will not exaggerate the tax cuts. They were modest overall but the pattern is very clear. The Minister is set on chipping away at the tax base and repeating the mistakes of the past. I wonder if he will let us know how many other tax policies Fine Gael will devise. In a very short space of time we have had talk of abolishing the USC, merging the USC with PRSI and now we are being promised an increase in the tax bands. This is completely inconsistent and policy making on a wing and a prayer is very dangerous.
I will focus on some areas of concern with the Bill. The approach to the betting tax is wrong. Sinn Féin has consistently called for a greater level of tax on the betting sector, something from which other parties have run scared for a long time. When I worked in the betting industry in Britain, the tax rate in operation was 10%. A 10% tax was levied on every bet placed. Betting tax must be imposed correctly and fairly. We are all aware that the betting sector is unified in its position on this tax and has called for a gross profit tax to be applied. We need to look at that with fresh eyes.
The acceleration of the tax break for landlords is indefensible at a time when rents are increasing so much. Sinn Féin has outlined what is needed, namely, a freeze on rents, a tax relief equivalent to one month's rent and much more supply. This is the type of message a budget should deliver, one that shows that the Government knows what is going on in the real world and understands where the real need lies. Instead, what we have is the Government looking after vested interests once again.
The complete lack of willingness on the part of the Government to correct its mistake by failing to tax intangible assets onshored between 2015 and 2017 is arrogant. It has closed the door but will not clean up the mess. I welcome the fact that it has closed the door but we could have an additional €750 million for housing and health if the Government stood up to the multinationals for once and did the right thing. Likewise, it has introduced an exit tax, which is also welcome and is required under the agreements to which we have signed up. However, it has been set at 12.5% instead of 33%, the normal capital gains tax rate. This is most definitely a capital gains tax because it is taxing profits that have been made. There is no reason for setting it at only 12.5% but it was requested by one tax company and the Government has delivered.
Who can afford to pay more tax than the banks? It is pathetic that the Minister will not tax them, potentially generating €175 million to be spent on health and housing. Fine Gael actually changed the law so that the banks will not have to pay tax for up to 20 years. Why? The reason is that there is an ongoing bailout of the Irish banks by the Irish people. Government policy has been to put the banks first. All policy decisions on banking have been about protecting the banks above protecting the public. The Government is fattening up the banks for sale by letting them gorge on workers. Increased competition is required but so too is reform. This must include mortgage interest rates caps, taxing the banks' profits and a ban on sales of family home loans to vulture funds.
I welcome the extension of section 481 relief which is a key and central component of the film industry. There is no doubt about the benefits of this tax relief which is recognised by the vast majority of the industry. It should continue to be part of State tax policy into the future. Having said that, concerns about labour standards and tax avoidance in the industry must be addressed.
I am concerned at the deletion of subsection 949AG in the Principal Act through section 55 of this Bill. Some tax advisers are of the view that this deletion is unwise and I hope to have the opportunity to thrash this out with the Minister on Committee Stage.
The Finance Bill implements a bad budget and misses the opportunity to create a fairer Ireland. It does not deal with major issues like property tax reform or carbon tax plans. Fine Gael and Fianna Fáil cannot run away from their own tax and its logic of a tax based on the value of forever. Sinn Féin will, therefore, oppose the Bill.
I welcome the Minister to the House. There are many welcome measures in the Bill to which others have referred. Since they have already been spoken about, I will highlight a few of my concerns in respect of the Bill, particularly on taxation.
Others have spoken at length about the fact that the measures introduced and choices made on tax relief in the Finance Bill afford larger benefits to those on higher incomes because such benefits as accrue to those on lower incomes are also received by those on higher incomes who also receive the additional benefit. I will not go through the figures, but I am aware that some have said those on €175,000, for example, might have almost €600 more in their pay every year, whereas a low income worker would not. There are two concerns in that respect. First, it goes against the spirit of the sustainable development goals and our commitments under them which are very specific. Measures to address income inequality and increase incomes should be targeted by the Government to ensure greater benefit. This is not to rule out benefits further up the line. I believe target 10 of the sustainable development goals - I am not certain, but I will have the correct target number on Committee Stage - implies that the bottom 40% of earners should benefit disproportionately. We will speak about the social welfare budget and address the question of whether this has been tackled in it, but when we seek to be true to the logic, we need to follow through for workers. There is concern that there is a rolling wave of benefit that increases as one moves further up the scale. That is a concern, including in the medium term.
Reference was made to not repeating the mistakes of the past. The last action taken by the outgoing Government during the period of austerity was to reduce the top rate of tax. One of the first actions of the incoming Government was to provide effectively for a reduction. It is important that we do not make these mistakes again and that we do not, in what is a very unstable international landscape, engage in hollowing out. The Minister knows how difficult it is to increase taxes. In that context, I am concerned about the measures suggested in terms of a movement towards a threshold of €50,000, for example. It is a genuine concern. Currently, two thirds of workers are below the threshold. Two thirds have an income below the level at which they would be required to pay tax at a rate of 40%. Effectively, one could end up with only one quarter or 20% of workers on the higher rate, which is a concern. It is a concern in terms of hollowing out but also because so much of the narrative tends to focus on the private pension tax relief which we have mentioned before. I am aware that there is consultation under way on this, but there is a considerable problem with marginal rate tax relief that has not been addressed. It was flagged as early as the memorandum of understanding with the troika was produced. Even then it was being flagged as a concern, even by those with an austerity mandate. We know that €2.6 billion is spent in providing private pension tax relief. There is a debate in the Department of Employment Affairs and Social Protection, but it is of great concern to the Minister, Deputy Donohoe, because, overall, the concern relates to equality and gender-proofing which fall within the remit of his Department. It is a question of equity within the contributory and non-contributory pension systems. There is a proposal that might seek to push out the number of contributions required towards 40 years, which would not work for most people and leave nearly everybody on a reduced rate of pension, rather than 30 years, as had been anticipated under a total contributions approach. I refer to a scenario which is far from a doubling of 20 years, which is the current requirement. I refer to a very severe change in the basic safety net for every citizen. In that context, we need to re-examine critically the €2.6 billion spent in providing the private pension tax relief. This is not a debate solely for the Department of Employment Affairs and Social Protection; it is also one for the Minister for Finance, as the Minister with responsibility for reform and overall responsibility for gender and equality-proofing of the budget. I would appreciate it if he could speak more about the gender and equality-proofing of the budget and how he sees it being rolled out. It is due and to be furthered.
I notice that it is proposed that Ireland engage with the OECD in a green budgeting process. I join others in expressing disappointment in that regard. Simply signing up to an iterative process to consider green budgeting proposals in the medium term is not satisfactory and will not be sufficient. Given the significant cost to the Exchequer in 2020, owing to fines of hundreds of millions of euro for not meeting our climate change targets, it would be good if the hundreds of millions of euro were reflected in this budget. It would surely be better to spend the money in making actual changes - for example, the retrofitting of public housing - rather than simply paying it through a fine, which is what we face in 2020. In that respect, I regret that a carbon tax has not been introduced and that more concrete measures have not been put in place. While we may be part of the OECD process, it will not be sufficient in honouring our EU obligations.
As I am sure others have done, I will be approaching the Minister’s Department on green-proofing not only budgets but also the procurement process, in which his Department is interested. We need to ensure any public money spent is delivering in every respect possible, including in meeting our environmental targets. While the cost may not be attached to a particular project, the cost of not environment-proofing public procurement will be felt by the Exchequer and the State.
In the limited time I have left I wish to target three or four specific areas of concern. The KEEP scheme has seen a very low take-up. The current thresholds are now so high that I am concerned people could be getting up to €100,000 a year in share options without paying something close to income tax, as they would have paid in the past, and that instead they are instead it off to a large extent. That is a very serious concern if we are considering having a lower rate of taxation. We do not want to have a perverse incentive.
I am concerned about the exit tax. A rate of 12.5% has been opted for, rather than 33% for individuals, which rate had been examined previously. This is a wider question and we have to ask why we, as a nation, reward those who exit.
The question of company farming has been spoken about before. There are tax incentives for those who sell their company early rather than build it and grow it in Ireland. Multiple start-ups receive considerable State investment. Some succeed and then sell, at a very low rate of return to the State, and those concerned go back to the drawing board and receive grants again. Alternatively, we could look towards genuine innovation and at schemes that have been in place here since the 1990s, for example. One of the companies that won an innovation award last year was SkyTec. It involves a long-term and dynamic ongoing process of innovation.
I am very concerned about section 23. There is a serious danger of creating a perverse incentive by giving tax relief to landlords for refurbishment. We already know that refurbishment is one of the main reasons people are affected. If we create a perverse incentive that will intensify the process, we need to address it. We need to consider the question of eviction and the rises in rent that might be incentivised indirectly by the tax relief.
I urge the Minister to reconsider introducing tax relief for union membership, as was the case in the past. Union membership is a public good. Just like cycling a bike or anything else, it has benefits. As a member of the Joint Committee on Employment Affairs and Social Protection, I am aware that union membership has benefits to the State through a reduction in family income supplement and other payments.
On exemptions for sports organisations, I ask the Minister to consider a cap and the intersection of cultural organisations with tourism in that regard.
Limiting the period in which banks can write off profits against past losses is long overdue. It is an issue that must be addressed urgently. It is a hostage to fortune and we must have a time limit. The Minister's own report from 2017 indicates that losses in the short term, in introducing a cap, would be offset by a benefit to the State.
I welcome the Minister. I was becoming a little depressed in listening to my colleague from Sinn Féin. She fails to recognise the wage increases across the country in the past two or three years have resulted in increases for those on lower incomes.
We have also brought stability to this country in that unemployment has come down from over 15% to almost 5%, which is a huge change. We now have the highest ever number of people employed in this country. As a result of that we have more income coming into the State and can therefore pay for more services.
In paying for more services, one of my concerns is value for money. The Minister has heard me raise this before, and I will keep raising it. I refer to value for money in our health services. I am very concerned about the fact that we have taken on an extra 12,000 people in our health sector in four years. I have said, and will say again, that this is greater than the entire workforce of the Irish Army. I am concerned about the disproportionate way in which they have been taken on. Administration and management staff in the HSE have increased from more than 15,000 to more than 18,000. We have also increased the number of nurse managers from more than 6,000 to more than 7,600, which is an increase of 1,100 nurse managers. As I see it, we now have a problem in the HSE. Remember, it is the taxpayers who are funding this. Technically 25% of the entire HSE workforce is now in administration or managerial roles. That is another area where I talk about value for money. We do not appear to be able to recruit medical people. We have difficulty attracting GPs. Our GP contract is so important to making sure our front-line staff are able to deal with issues in the community rather than inside the hospital structure.
We have to look at the issue of value for money. I believe we have done very well on job creation, stability and delivering on services. We must also make sure that whatever money we pay to whatever Department is apportioned in the right manner. I am not convinced that is happening in the HSE and in the policy areas we are dealing with.
I wish to raise a second issue. I was at UCC yesterday. There was a discussion of capital investment in our universities and the needs in that area. I fully agreed with what was said. This is connected to the area of health. I refer to the number of medical students we are turning out in this country and the cost per medical student. I have worked out that it costs the State about €150,000 to bring a student through our university system from start to finish. We are not getting any return on that investment. Some 800 students qualify in medicine in Ireland per annum. The total cost over a five-year period is €120 million. I am a bit concerned that we are not getting a fair return on that investment of €120 million. Those are two issues of concern in medicine. We are spending quite good money on what we consider to be a long-term investment but we are not getting any return. It is something we need to start examining. When we highlight and prioritise third level education, which is very important, we must always look for the best return for the State. Members might consider other areas such as trades, the building industry, carpenters, bricklayers and people in that area. The Government has done a lot of work on that. If we put funding into that area, we will get value for money because that is the area where there is a shortage of people with major skills. It is very important that we do everything possible to assist in those areas.
I have outlined some of my concerns. There is another issue we must look at, though I know the Minister cannot deal with it in this Bill. I have met a number of building contractors. I have dealt with builders for more than 30 years in a legal capacity. I am very much aware of the cost of building. All of the builders say to me that they cannot build apartments in this country outside of Dublin because it is not cost-effective. We have to look at that. I was speaking yesterday to someone who is building office accommodation that will accommodate 3,500 people. He wants to build apartment blocks for some of the people moving into those offices. He said it is not financially viable. We should look at that issue. I know the Minister cannot do it in this Bill but it is something we need to plan for in the long term. There is a problem with building apartments, particularly outside of Dublin. The cost is too high so it is not economically viable. I ask the Minister to take those points into account.
Cuirim fáilte roimh an Aire, go mórmhór ós rud é gurb í seo an chéad uair dó Bille Airgeadais a chur os comhair an tSeanaid.
I welcome the Minister to the House on the first occasion he has appeared here with a Finance Bill. We recognise the important progress we have made in the economic fortunes of our country. As the Minister rightly said in his opening remarks, this is about improving the living standards of our citizens along with our competitiveness. It is important to acknowledge that we have made gargantuan progress as a country. It is incumbent upon us now as Members of the Oireachtas to ensure that we do not go back to the days of boom and bloom or boom and bust. Senator Boyhan is smiling at me. We remember Deputy Marc MacSharry's famous use of the former phrase. We can never go back to those days.
As part of our fiscal responsibility it is important to recognise that there are a cohort of people who require our support as a State. I refer in particular to special needs education, special needs provision and respite care. In distributing the largesse of the €17 billion health budget, it is important to provide for parents and for adults with severe and profound disability, who I believe are becoming a group forgotten by the State.
Equally, the measures the Minister has introduced in the Finance Bill 2018 to promote and incentivise work are to be welcomed. Yesterday, Senator Colm Burke and I attended a number of announcements in Cork. At the Dublin dinner of the Cork Chamber of Commerce last week there was a very supportive atmosphere and commentary on what the Minister and the Government are doing to realise the benefits of a growing economy. It has become a hackneyed phrase or cliché but it should not be. In this Brexit era, it is important that we look beyond the short term and the narrow focus of some. The prism that the Minister has adopted is one of responsibility, which is one to which we all subscribe.
Senator Colm Burke referred to housing. We had the same conversation with the same person yesterday. Some of the public criticism of the Minister for Housing, Planning and Local Government, Deputy Eoghan Murphy, is very unfair. It is not motivated by the desire to help find solutions but by attempts to score cheap political points. I know I am digressing, but look at the urban regeneration fund announced yesterday. It baffled me that in Cork's Evening Echo yesterday evening, there was not a scintilla of a line about the urban regeneration fund, which has the potential to be transformative not just for Cork city but for its periphery, the metropolitan areas around Passage West and Carrigaline.
I will finish on this point. In the last paragraph of the Minister's speech he made reference to betting duty. I must digress again for a second. The Minister has spoken before about gaming and gambling and about loot boxes. I raised a Commencement matter with the Minister of State at the Department of Justice and Equality, Deputy Stanton. I have had the pleasure of working with a young man, Mr. Eoin Barry, who has met the Minister of State and others.
Although it is not addressed in the Bill, the Minister is making changes to betting duty. In time, we must look at the issue of loot boxes.
I commend the Minister on the work he is doing and his stewarding of the economy.
I thank Senators for their contributions. I am conscious that the Finance Bill is a key part of budget 2019 but it must also be seen in the context of the expenditure decisions I announced on 9 October. I wish to address our current environment, refer to other budget decisions to put the Bill into a different light and respond to the points raised by Senators.
Our economy is doing well on an overall level and is making a difference to the living standards of many. However, there are many acute needs which we must meet, such as in the areas of housing, health and the new and emerging needs in schools. An approaching issue with which we must deal is that the international economic landscape is changing. Senator O’Donnell compared Brexit to the weather and asked if the cloud will one day lift. The challenge is that we are in a new climate rather than a new weather cycle. Issues such as the effect Brexit could have on our economy and changes in the global trading landscape such as President Trump standing by the commitment he made today to implement a broad set of tariffs on Chinese imports into the American economy fundamentally affect the trading world Ireland is in and because we are a small open trading economy that very much matters to us. Furthermore, there are significant changes in international tax policy afoot and under way. Many of the changes made by President Trump to American tax policy will, at worst, be neutral for Ireland but they are a sign of the change that is under way. There is a growing trend in many jurisdictions against which we compete to reduce their top line rates of corporate tax. The United Kingdom and France have indicated they wish to do so and the United States has done so. The environment within which we must be competitive and trade is changing.
The budget in its entirety put together a set of changes that means our national finances should be fully balanced by 2019. I indicated before budget day that I expected to go into next year with a budget deficit of 0.1% of our national income. It is now my expectation that our national finances will, at least, be fully balanced next year. In addition, we have decided to prioritise capital investment and investment in public goods, investments that will affect the resilience of our economy and the status of our society. We are increasing capital investment in our schools, homes and public transport next by €1.4 billion, an increase of 25% in investment in our public capital. That is a significant increase to deliver across a single year. Concerns are being raised regarding whether there will be sufficient workers to translate that level of investment into schools, homes and universities that we can afford to pay for at certain price levels. To say that this is a budget that does not deliver investment in those kinds of public goods simply ignores the fact that this is an increase of over 25% compared with where we are this year.
I acknowledge the ongoing constructive role played by Fianna Fáil in the budgetary process while it continues to oppose and challenge many other areas of Government. It is not to be sneered at that at a time when centrist politics is under such pressure in many other parts of Europe and the world, the main Opposition party has agreed three budgets with the Government and honoured those agreements. That is not something I take lightly. However, I continue to challenge Fianna Fáil and many of its claims and policies. We should not take the agreement for granted. Many claimed that we would not get to the third budget. I always believed that we would, and we have.
I point out to Senator Wilson that the clock is now ticking because when this Bill is passed through the Seanad and the social welfare Bill is passed through the Oireachtas we will need to make a collective decision on where we stand. That is something on which I and the Senator’s party colleagues are currently engaged. I understand the points he raised and will deal with them on Committee and Report Stages. He asked about the changes in regard to vehicle registration tax for the car hire and leasing section. I made those changes because the measure, which was implemented in the early 1990s, was costing €20 million per year, which is a very large allocation of taxpayers’ resources for a change that was meant to be temporary. I acknowledge that the change has caused concern and difficulty for some.
I thank Senator Boyhan for his view on what I am trying to do while I hold this office. It is not my policy to abolish the universal social charge, USC. I stated that on my first morning as Minister for Finance. Over time, I hope to try to integrate the revenue from the universal social charge into our social insurance system and to use it to continue to make a contribution to the funding of public services. If I have the opportunity to continue in this office for budget 2020 and beyond, it will not be my intention to abolish USC.
On his question regarding the demands on public services, the demands are great and real. I have experience of them within my constituency and see them in communities across the country. In regard to his point on housing, we will deliver 20,000 new homes next year. The economy will build 25,000 new homes next year. Between one in four and one in five of all homes built in Ireland next year will be built by the State. Although the Senator is correct to call out the crisis in some areas, I wish to emphasise that the investment that he acknowledged is leading to increased output in housing. That is happening and it is a factor in some of the changes in price levels we are beginning to see in the housing market. Similarly, he referred to health and the investment in health. Although I acknowledge the difficulty he raised, the survey on experiences within our health service showed that the vast majority of our citizens in the health service experience outcomes that they believe are good. There is far more to be done and further improvements to be made but we are building more homes and the majority of those in our health services acknowledge their experience to be satisfactory or good. We need to build on that.
To respond to the points Senator Kieran O'Donnell made, I believe in getting ourselves to the point at which someone on an average wage no longer pays the higher rate of income tax. It is fair to that person and, ultimately, will be sustainable for our economy as well. The reason I believe it will be sustainable for our economy is that I believe a bedrock of how we should reward someone is that if he or she is at an income of €36,000, which for many people is very much a normal wage against which they must meet all their outgoings, he or she should not be on the higher rate of income tax. My party and I believe this needs to change over time. There is a matter of fairness upon which we can make this case. I also believe that if this is done year on year, the measure can be affordable to the State.
To deal with some of the points Senator Conway-Walsh put to me, this is not a budget for vested interests or one that seeks to ignore the level of social need in our society. It is not acceptable to me that we have people who are homeless. This is the reason an additional €60 million has been made available for this year alone to invest more in services for people who are homeless. It is the reason we will have such increased funding made available for next year to invest in delivering more homes for people and providing the infrastructure to allow homes to be built on private land. I reiterate that for every five homes that will be built next year, at least one will be directly built by the State to meet the needs of people who rely on and deserve a State to support them and ensure they have the kind of safety net that a decent and rich economy such as ours should be able to deliver.
I reject entirely the Senator's claim that we are looking to narrow the tax base, given that hers is the party that is looking to abolish local property tax. As for her claim that we need to stand up to multinationals, they are the same multinationals that provide employment and investment in our economy. What I am looking to do is to get the balance right between having a tax code that is competitive and can attract and retain work in our economy, and dealing with many of the various issues that I know need to be addressed in international tax policy.
Regarding the points Senator Higgins put to me, she opened with her concerns about the income tax policy, which I have touched on. I take a different view from hers in that I believe there is an argument to be made that someone on an average wage in our economy should not already be on the higher rate of income tax. I do not believe, nor indeed did the Senator suggest, that this is some neoliberal attitude to income tax policy. This is an issue of fairness, and I think that budget by budget we can accelerate the kind of progress I have made over the past two years.
As for the points she made to me about gender-proofing of budgets, again, we might be able to deal with this as we move through the different phases of the budget in the House, but the issue she raises is perhaps best dealt with on the expenditure end of the budget. What we have done in our Estimates volume is picked out a number of expenditure areas which have then been considered through a gender prism to look at the outcomes they would deliver for men and women and their potential effects on children. We have picked out a number of policy areas and looked to interrogate them in more detail in respect of their gender impact. I am very much committed to building upon this because I believe that when we make policy decisions, particularly on expenditure, having this perspective in mind will help us to come up with better policies. I did not make a decision on carbon taxation on budget day. I believe we must build up a bigger consensus in our society on carbon taxation. Let us unpack what carbon taxation means. It means putting up the price of petrol, diesel and hard fuels the night of the budget. As the Senator knows, I am a member of a party that was willing to fight the fight on the role charges can play in altering consumption of water. We did not get many supporters when we made that charge.
I am going to approach the argument and the debate concerning carbon taxation with a fair amount of care, given the experience I went through regarding charging for water. The Minister, Deputy Bruton, has outlined our approach and I will work with him on it. It is to see whether we can reach agreement as to what the right level of carbon taxation is in the medium term across all parties. If we can reach this agreement, we will move step by step. I will approach that exercise with care while also recognising that carbon taxing over time needs to change. However, I think we need a more forensic debate as to what the consequences of this would be for citizens. The Senator made some points to me about KEEP, exit tax, landlords and bank losses. We can deal with each of these on Committee and Report Stages and I look forward to debating them with her.
Regarding the point Senator Colm Burke made about the level of administration we now have within the HSE, the issue I have dealt with over the past two years is that I am told by the HSE that we need this level of staff and investment in administration to allow nurses be nurses and doctors be doctors and to ensure that front-line medical professionals have the time and ability during their working day to do what they are trained and hired to do. If the Senator has a different view on this, however, which he clearly does, we will be able to look at it as we move through the budget. As for the point he made about the cost of building apartments outside Dublin, I am well aware of this and the point has been raised with me before. We have a difficulty in that we have price levels in Dublin which we all know are causing great difficulty and concern for citizens but we also know that outside of our cities we still have not hit price levels that make it affordable to deliver apartments in great quantities. One of the ways in which I want to try to address this is through the Home Building Finance Ireland, HBFI, legislation, which I think has passed through the Seanad in the past week. This might offer a way in which we can address the investment end of the equation. Ultimately, we must build homes sustainably and in more places than just our larger cities.
Senator Buttimer raised a number of different issues. He touched on our position on fairness and those who provide and depend on public services, particularly our most vulnerable citizens. All I can do is assure the Senator that as I make decisions along with my colleagues in Departments as to where we allocate resources, the needs of these vulnerable citizens are always uppermost in my mind. The challenge we have is how we can ensure that the very large figures now available to Departments, in particular the Departments of Health and Children and Youth Affairs, can move down into dealing with the issues that the Senator's constituents face so we can ensure that a stable economy is creating the resources for a good society, which is ultimately what my efforts are about, as I know his are.
I have two concluding comments to offer. I am struck by the degree to which the change in the 9% VAT rate has not been opposed or raised to date. This is a positive development.
We went through a period in which, because we were unwilling to reverse temporary changes to our tax code, we found our tax base was too narrow when we got into difficulty. In the previous two budgets, I have undone most of the key changes that were made to the tax code to stimulate economic activity in particular sectors. I did this because it is vital that we rebuild a base that gives us the ability to make changes to deal with difficulties in these sectors if we get into difficulty again. In particular, I have changed stamp duty on commercial property. I also changed the 9% VAT rate on the hospitality sector and made a host of other smaller changes. The changes to the 9% VAT rate and stamp duty on commercial property will be worth approximately €1 billion in additional revenue to the State in any given year. While people active and working in those sectors did not want these changes to be made, it is to the credit of the Oireachtas that individual Senators and political parties are willing to maintain a consensus on changing tax measures when circumstances change.
I will end where I began. While I believe the external environment will continue to allow us to make progress, it is changing. For this reason, having national finances that are balanced, increasing capital investment next year when we could have a great external shock and allowing current expenditure to grow in line with national income growth are sensible decisions for the economy. I commend the Finance Bill 2018 to the Seanad.
- Boyhan, Victor.
- Burke, Colm.
- Butler, Ray.
- Buttimer, Jerry.
- Feighan, Frank.
- Lawless, Billy.
- Lawlor, Anthony.
- Mulherin, Michelle.
- O'Donnell, Kieran.
- O'Mahony, John.
- Ó Céidigh, Pádraig.
- Reilly, James.
- Richmond, Neale.
- Black, Frances.
- Conway-Walsh, Rose.
- Higgins, Alice-Mary.
- Humphreys, Kevin.
- Mac Lochlainn, Pádraig.
- Ó Donnghaile, Niall.
- Warfield, Fintan.
When is it proposed to take Committee Stage?
When is it proposed to sit again?
Ar 10.30 maidin amárach.