Select Committee on Finance, Public Expenditure and Reform, and Taoiseach debate

Finance (No. 2) Bill 2023: Committee Stage

An Cathaoirleach

The purpose of this meeting is to consider the Finance (No. 2) Bill 2023. I welcome the Minister, Deputy Michael McGrath, and his officials.

I will bring some matters to the attention of members. Any member acting in substitution for a member of the committee should formally notify the clerk if she or he has not already done so. Divisions will be taken as they arise. Members must attend in person in the committee meeting room for the divisions, although they may attend the meeting generally remotely. Members attending this meeting in accordance with Standing Order 106(3) should be aware that, pursuant to that Standing Order, they may move amendments but cannot participate in voting on those amendments. Provisionally, this sessions is due to conclude at 5 p.m. or 6 p.m. Does the Minister wish to make an opening comment?

Minister for Finance (Deputy Michael McGrath)

I thank the Chair, all the committee officials and my colleagues on the committee. I look forward to our engagement in the next few days. I thank my team for all the work that has been done in advance.

Deputy Pearse Doherty

I welcome the Minister and his officials. I look forward to our engagement and to scrutinising this Bill in the next few days.

Section 1 agreed to.

SECTION 2

Question proposed: "That section 2 stand part of the Bill."

Deputy Pearse Doherty

Section 2 deals with the universal social charge, in particular the changes the Minister has introduced, including the increase in the 2% rate threshold in line with the minimum wage, the extension for the provision for medical card holders, which was coming to an end, as proposed by Sinn Féin, and the rate of 4.5% being reduced to 4%. As the Minister will be aware, the latter rate applies to individual incomes above €25,760. Hence, it has a distributional impact that benefits higher incomes more.

For example, if one is on €75,000, one's benefit from this measure alone would be €221, whereas if one was on €30,000, one's benefit from this measure would be €21.20, which is a difference of just over €200 from this measure for an income of €30,000 compared with €75,000. The Minister should bear in mind that the median income in this State is just above €30,000. There was a better way to deal with the reduction in tax for households, particularly with the universal social charge. The Minister would have seen our proposals where we would have abolished the lower rate, going from 0.5% to 0%, slashed the second rate from 2% to 1% and increased the entry point on the third rate to €25,959. The difference is that the distributional impact of such a measure would have the same benefit for somebody on €30,000 as for somebody on €75,000 or on more than that.

Will the Minister explain why he decided to amend USC in a way that benefits those who have, in some cases, twice the median income? They will have an overall benefit from this package of €292 whereas somebody just about on the median income has €92. Half of all workers will have a benefit of €92 from this change compared with what could have been done, which would be to make it more equal and fairer and have the same distributional benefit across income ranges.

Deputy Michael McGrath

I thank the Deputy. One has to consider the personal tax package in the round, including all its elements and the combined impact of all the measures. Over the last months, when I was considering what I would consider to be a fair and balanced personal tax package, we built it around three key pillars. One was the changes to the tax credits. We increased them by more than we did in previous years. We changed the standard rate band. The Deputy focused on the third area, the changes to the USC, which relate to this section. In a moment, we will talk about other elements of the income tax package.

Looking at the overall combined impact, the distribution is fair and balanced. It is predicated on a personal tax system in Ireland which is highly progressive. That progressivity is maintained even following the implementation of the budget 2024 measures. For example, even after this budget comes into effect, the top 1% of taxpayer units will pay 24.4% of total income tax and USC. The bottom 80% of taxpayer units will pay 21% of total income tax and USC. One has to examine the impact of all the measures in aggregate. On the table we published on budget day about the effective rate of tax for people on different levels of income in Ireland, it increases significantly in the higher income levels. That is a measure of the highly progressive nature of our income tax system which means that as one earns more, not only does one pay much more tax, but even as a proportion of one's income, one pays much more tax.

The key point is that the USC change has to be considered alongside the tax credits, where a €100 increase is proportionately worth more to somebody on low income than to somebody on high income. The people who are in the broad middle income bracket will benefit from the increase in the entry point to the marginal rate of tax. That gives a sense of what my thinking was in constructing the personal tax package.

Deputy Pearse Doherty

If the Minister wants to look at the overall tax package, the distributional impact gets worse. Under the section which we are dealing with, which is just USC, somebody earning just below the median wage in the State would benefit by €92.

As I said, somebody earning just below the median wage in this State would benefit by €92. Somebody earning twice that would benefit by €292. However, looking at the overall tax package, those numbers change to €292 for somebody just under the median and it would be €692 for somebody earning twice that. The gap actually increases not by €200 but by €400 when, as the Minister said, the other tax measures in the round are taken in. This is the issue. We look at the CSO data and at wages and weekly earnings. The median weekly earning in this State, according to the CSO, is €33,516. That means that half of workers earn less than that amount and half earn more than that amount. The difference here is that with this tax package somebody earning about that amount will benefit overall by about €292 whereas somebody earning twice that or, indeed, €100,000 will be nearly €700 better off. There is an unfairness in that regard. There is also a question in terms of why this would be done when other options are available, as we outlined. It only gets worse when you look at the overall tax package.

Deputy Steven Matthews

While we are on this subject matter, will the Minister elaborate on the minimum wage increase, which we have to take into account here, and on the reduction in the USC band? As I recall on budget day, it was estimated that a person earning around €46,000 a year would be better off about by €2,000 per year. Will the Minister include that in his responses?

Deputy Michael McGrath

I thank the Deputies. The point I am making is that looking at the combined effect of all of the changes and what it means for somebody in 2024, the effective rate of tax following budget 2024 for a person on €35,000 is going to be 16.2%. For somebody earning €75,000, it is essentially twice that rate at 32.3% and that increases further to more than 40%. For somebody on say €150,000, it is 42.2%. What the Deputy is essentially proposing is that somebody on a relatively modest level of income should get the same cash benefit as somebody earning a much higher level of income but given the nature of the progressivity within our tax system that ignores the reality that somebody earning more money as you go up the income chain is paying multiples in terms of tax. The way we have constructed the package with the combined effect of the three changes is fair and balanced. It maintains that highly progressive nature of our tax system. That is the right policy response.

In regard to the minimum wage worker and the circumstance Deputy Matthews raised, a full-time minimum wage worker will see his or her weekly net income rise from €397.85 to €442.10, which equates to a €44.25 or 11.1% increase in weekly net income from the 1 January 2024. This amounts to an annual increase in that person's net income of approximately €2,300. Of course, it does not take account of cost-of-living one-off measures introduced as part of the budget. It is estimated that 148,100 individuals will benefit from the increase in the national minimum wage.

Deputy Pearse Doherty

I am sure that at the start of Committee Stage of the Finance (No. 2) Bill 2023, we can agree on some of the facts that are known to us. According to the CSO, the median earning in this State is €33,516. That takes in part-time earnings. If we looked at full-time earnings, which would be unfair because many part-time workers are struggling as well, the figure would be €41,222. If we accept that average earnings are in that space between €33,516 and €41,222, does the Minister accept that his taxation measures benefit higher incomes more than those on average earnings? The facts are very clear. In terms of the USC, somebody on average income will be €92 better off whereas a higher income earner will be €292 better off.

Taking into account the Minister's tax measures, which we will come to later, somebody on an average income will be €200 better off while somebody on a higher income will be €600 better off. Does the Minister accept his tax package has, in the round, favoured high-income earners over average earners? If he disputes that, will he outline why?

Deputy Michael McGrath

We capped the gain at €70,000 so there is no additional gain beyond that. Often in debates, somebody on €150,000 or €200,000 gets quoted, not the person on €70,000. The Deputy can see from the distributional table the maximum gain is just under €900.

I can equally make the point that any person looking at how the budget impacted on them will look at it in the round. The Deputy seeks an acknowledgement that in cash terms somebody on a higher income of €50,000 or €60,000 benefits more in tax than somebody on €20,000 or €30,000. Yes, that is correct. Proportionally, it is not correct. It represents the fact that somebody earning a higher income is paying multiples in the amount of tax compared with somebody on a lower income. That speaks to the progressive system we have and which we have maintained in this budget.

Deputy Michael Collins

I move amendment No. 1:

In page 8, between lines 5 and 6, to insert the following:

“Report on abolition and replacement of universal social charge

3. (1) The Minister shall, within three months of the passing of this Act, produce a report on abolishing the universal social charge for all those who earn less than €70,000 per year.

(2) The Minister shall, within three months of the passing of this Act, produce a report on abolishing the universal social charge for all employees in the State.”.

We made it clear in our budget submissions that we felt the USC should be abolished, which is along the same lines of what the Taoiseach said a number of years ago when entering office. We are now into a second Government, as such, and the USC is still very much at the forefront. While I realise that high earners would benefit from abolishing the USC, it would also help many lower earners who are struggling. Many of them are young people who are working in the hotel sector, shops, cafes and so forth. They are finding it difficult to survive when so much is being taken out of their wage packets at the end of the week. We ask that the Minister consider abolishing the USC for all those earning less than €70,000 and to report within three months of the legislation’s enactment on abolishing the charge for all employees.

Deputy Pearse Doherty

As I have often stated, I do not accept the amendment being proposed by the Rural Independent Group or when it was proposed by the Fine Gael Party.

Amendment No. 2 calls on the Minister, as we have to do to allow these amendments to be in order, to prepare and lay before the Dáil a report on increasing the exemption limit for the USC from €13,000 to €30,000 and the distributional impact of such an increase. It is our view that one of the fairest ways to reduce the burden of taxes on hard-pressed families and workers is to deal with the exemption limits. As I discussed earlier, the USC has the benefit of having a distributional impact across the board. It benefits those on very high incomes in the same way as it does those on average incomes. It has that benefit. Dealing with the standard rate band throws up challenges and difficulties in that regard. We should be looking at the exemption limit to be increased over a period of years from €13,000 to €30,000. The benefit of that is that nearly half of all earners would then be exempt from the USC. All earners would benefit from the first €30,000 of wages being exempt from the USC. This is an important proposal. I want to put it on the record in case the Deputy is of the view that the previous proposals that were introduced by the Minister where he said that somebody earning over €70,000 does not benefit at all, is not the case. Those people will continue to benefit from this. It is just that the benefits do not increase beyond that point. Obviously, it would be the same with our proposal. Regardless of income, a person would benefit from the first €30,000 being exempt.

Deputy Ged Nash

This point is related to Deputy Doherty's amendment. It has been what I would describe as the convention since the Low Pay Commission was established that where adjustments would be required to the lower rate of the USC and to employees PRSI, they would be made on an annual basis to take account of national minimum wage increases and increases to the hourly rate. This is based on the commitment that when a minimum wage increase is delivered and agreed that as much of the increase as possible should go to the worker. Will the Minister take the opportunity to put on the record any commitment he has made, or any work that is going on in the Department, to take account of the expected rises to the minimum wage over the next two to three years to meet the living wage threshold?

Broadly speaking, if the Minister is prepared to discuss them, what USC or PRSI implications will there be for those increases ? What work is going on in the Department to continue to accept the convention that when an increase to the national minimum wage occurs, workers get to take home, if not all, as much of that increase as possible?

Deputy Michael McGrath

As I understand it, these amendments are grouped, so I will address them together. The Rural Independent Group has requested a report on the abolition of the USC for those earning less than €70,000 per annum and a report on abolishing the USC for all employees in the State. Deputy Doherty requested a report on increasing the exemption limit for the entry point to USC from €13,000 to €30,000.

By way of background, as colleagues will be aware, the USC was designed and incorporated into the Irish taxation system in 2011. It replaced two other charges, namely, the health and the income levies. The primary purpose of the USC was to widen the tax base and to provide a steady income to the Exchequer, to provide funding for public services. The USC is applied at a low rate on a wide base. This ensures that it is a stable and sustainable source of revenue for the State. For 2024, it is estimated that the USC will yield in the region of €5.4 billion.

On the specific proposal to abolish the USC for those earning less than €70,000, I am advised by the Revenue Commissioners that it is estimated this proposal would cost in the region of €1.47 billion in the first year and €1.68 billion in a full year. Assuming no other policy changes to the structure of the charge, it is estimated that in order to maintain the same level of revenue for the Exchequer and to ensure this is a cost neutral proposal, the 8% USC rate would need to be increased to 13.2%.

I would note that the estimations I have provided do not take into account any behaviour changes that could result from the significant increase in the marginal rates of taxation. By way of example, this proposal would have the effect of increasing the top marginal tax rates from 52% and 55%, to 57.2% and 60.2% for PAYE and self-employed income earners, respectively. As the Deputies will appreciate, high marginal tax rates can be a strong disincentive to work and could also cause harm to our international competitiveness. The considerable progress that has been made in recent years to restore our economy cannot be taken for granted, particularly given the challenges in the international arena that confront us at present. Exempting those earning up to the €70,000 per year, without any compensating revenue-raising measures, would considerably erode the tax base. The USC is an important and sustainable source of revenue for the Exchequer. The current exemption threshold for USC is €13,000 per annum, and it is now estimated that 37% of all taxpayer units will not be liable to USC in 2024. To further increase this entry threshold to €70,000 per annum would exempt approximately 88% of taxpayer units from USC. This would significantly narrow the tax base meaning only 12% of taxpayer units, or just under 415,000 taxpayer units, would pay USC.

The second proposal by the Rural Independent Group relates to abolishing the USC in its entirety. As I noted, the USC forms a very significant part of the tax base and to abolish it would result in an Exchequer shortfall in 2024 of some €5.4 billion. In the absence of this source of Exchequer funding, it would therefore be necessary to generate this yield from alternative sources. Both proposals give rise to substantial Exchequer costs and would expose our economy to significant risk in the event of a future economic downturn.

Turning to Deputy Doherty's proposal to increase the exemption threshold from €13,000 to €30,000, I am advised by Revenue that this is estimated to cost €185 million in the first year and €210 million on a full-year basis. This proposal would also significantly narrow the tax base by removing approximately 740,000 taxpayer units from the charge to USC. As I noted earlier, 37% of all taxpayer units are currently exempted from the charge. Increasing the exemption threshold to €30,000 would result in 57% of taxpayer units being exempt from USC. Ireland has one of the most progressive personal income tax systems which plays a crucial role in the process of income redistribution. Our redistributive tax system has been acknowledged by the International Monetary Fund, IMF, the OECD, and the Economic and Social Research Institute, ESRI. Deputies will recall that during the economic crisis, it reached a point where 45% of all income earners were exempt from income tax and that was unsustainable. It placed an unfair burden on those earners who were contributing to the income tax base, and exposed the vulnerability of the income tax system to economic shocks.

A broad-based progressive income tax system, where the majority of income earners make some contribution, but according to their means, is the fairest and most sustainable income tax system in the long run. Having regard to the impact of cost, competitiveness, and the consequential unsustainable erosion of the tax base, there is no justification to carry out further analysis of the proposals outlined by the Deputies and for these reasons I cannot accept these amendments.

Deputy Ged Nash

On potential adjustments to the USC on the minimum wage, what work is going on in the Department on that? I am assuming some work is going on in that regard because we know the pathway to a living wage has been accepted by Government this year arising from the recommendations of the Low Pay Commission.

Deputy Michael McGrath

As the Deputy acknowledged in his earlier remarks, in recent years we have adjusted the 2% USC band to accommodate the change in the minimum wage. That is the right thing to do to ensure, as the Deputy said, that those who benefit from the increase in the minimum wage get to keep as much of that benefit as possible. I certainly intend in the future, where possible, to continue with that principle. It is an important one. What we have done as a Government is agreed the minimum wage for 2024. The Deputy is well aware what the policy is in moving to 60% of the median hourly wage by 2026.

We will have to take it budget by budget, but the Department is well aware of the consequences in terms of impact on the USC. We continue to monitor and prepare for these developments as the minimum wage changes over the years ahead. For now, our focus is on 2024.

Amendment put and declared lost.

Deputy Pearse Doherty

I move amendment No. 2:

In page 8, between lines 5 and 6, to insert the following:

"Report on universal social charge

3. The Minister shall, within six months of the passing of this Act, prepare and lay before Dáil Éireann a report on increasing the exemption limit with respect to the universal social charge from €13,000 to €30,000, and the distributional impact of such an increase.".

Amendment put:

The Committee divided: Tá, 2; Níl, 6.

Tá

Conway-Walsh, Rose.
Doherty, Pearse.

Níl

Durkan, Bernard J.
English, Damien.
Matthews, Steven.
McGrath, Michael.
McGuinness, John.
O'Callaghan, Jim.

Amendment declared .

Sitting suspended at 2.46 p.m. and resumed at 3.16 p.m.

An Cathaoirleach

Amendments Nos. 3 and 4 are related and may be discussed together.

Deputy Ged Nash

I move amendment No. 3:

In page 8, between lines 7 and 8, to insert the following:

“Amendment of section 118 of Principal Act (benefit-in-kind: relief for bicycles)

3. Section 118 of the Principal Act is amended by the insertion of the following subsection after subsection (5G):

“(5GA) Where expenses incurred in, or in connection with, the provision of a bicycle or bicycle safety equipment are exempt from a charge to tax by virtue of subsection (5G), then such expenses are exempt if incurred again within four years, where they were incurred in order to replace a bicycle or bicycle safety equipment that was stolen.”.”.

This relates to the benefit-in-kind relief for bicycles. This and the other amendment taken in this grouping are issues I raised last year. The benefit-in-kind regime that applies to bikes involves exemption for four years but it does not include the extension of that exemption to anybody who may have a bike stolen. This week, I read that the Dublin Cycling Campaign states that in Dublin alone, 20,000 bicycles are stolen every year. That is a reality. I do not think there is anybody who has a bike who has never had a bike stolen from them. That is just a reality of life. If it is the case that your bike is stolen, you cannot enjoy the benefit of the scheme again until that four-year period elapses. The Minister might have a view on that and perhaps he can give us a sense of whether he would be prepared to accept an amendment.

Amendment No. 4, which is being discussed with amendment No. 3, looks at applying the scheme to cover school and college students as well. That would be a good initiative to ensure more children and young people take the bike for all kinds of positive reasons, environmental and health, and it would help to resolve traffic congestion issues.

I am interested in hearing the Minister’s perspective on those amendments.

Deputy Michael McGrath

In response to amendment No. 3, I note that the cycle to work scheme provides that employees can avail of the scheme once in a four-year period, as Deputy Nash said. This period was reduced from five years by the Financial Provisions (Covid-19) (No. 2) Act 2020. The scheme covers the cost of a bicycle, locks, chains and other safety equipment to deter bicycle theft, though I note the figure the Deputy put on the record of the number of thefts estimated to be happening annually. Any deviation from the current self-administration system would involve additional administrative procedures for either Revenue, the employer or both in relation to the verification of loss, theft, insurance recovery, etc. As this runs counter to the administrative simplicity of the existing provisions, it would not be appropriate to alter the existing scheme as proposed. Instead, it would be prudent for any person obtaining a bicycle under the cycle to work scheme to ensure the bicycle is covered by insurance.

In respect of amendment No. 4, I note that the cycle to work scheme is predicated on there being an employee-employer relationship in place since the scheme operates by providing an exemption from benefit-in-kind where an employer purchases a vehicle and associated safety equipment for an employee. It is assumed the amendment proposed by the Deputy would involve the employer of a student or a parent who is purchasing a bicycle on behalf of their student child for use in journeys to and from school. The technical and administrative details of how such a scheme would operate could be quite complex and could impact significantly on administrative costs. Amending the cycle to work scheme to include bicycles for use by students to cycle to school would add to the administrative burden on employers participating in the scheme and, as a result, might lead to less participation in the scheme. Furthermore, I would expect considerable deadweight on such a proposal, with people benefiting who would have purchased the bicycle in any event.

On balance, I do not think that it is appropriate to include provision for such a report in this Finance (No. 2) Bill and I do not propose accepting the Deputy's amendment.

Deputy Ged Nash

That is unfortunate. I will just speak to amendment No. 4 again. For most reliefs of this nature, when we look at benefit in kind, by definition there is a presumption of an employee-employer relationship. I will note that the rent tax credit for a student can be claimed by parents. The Minister is making provision for that. The same principle should apply to his consideration of this proposal, which would be welcomed by young people and parents and would get more people out of cars and onto bikes in an affordable way. The Minister mentioned a potential dead-weight impact. There are many reliefs that we can discuss here, and we will be discussing some later on, that involve dead weight. There would be an environmental and social benefit to the initiative I am proposing here.

To conclude on amendment No. 3, I ask the Minister to reconsider. The official figures suggest some 5,000 to 7,000 bikes are stolen every year. Dublin Cycling Campaign suggests it is closer to 20,000. I absolutely agree that people should do all they can to ensure their bikes and equipment are insured. That is not always possible for everybody. Lots of people who have their bikes stolen require them for work and may obtain them to carry out their duties and responsibilities. It is not an insignificant amount of money to shell out to buy a new bike, especially under circumstances where people on low and modest incomes are really struggling as they are at the moment. I ask the Minister to review the position on that and I may reintroduce both amendments on Report Stage.

Deputy Pearse Doherty

I understand the Minister's points about the simplicity of the scheme at the minute, bikes being stolen, Garda reports and so on. I do not want to focus on that point; I want to focus on the second amendment from Deputy Nash in respect of school and college, particularly the latter part. The school part would be challenging because every child could avail of it in that case and it would be difficult, and many children have bikes. However, there is a genuine point that Deputy Nash has made in respect of young adults who are cycling to college in the city and elsewhere, who may be from the country. We talk about congestion and about forming good habits in that respect. There is no better time. It is important to start very young but it is appropriate to encourage somebody who may not be on the bike any more to take up a bike and travel into DCU or UCD, or down to Cork or Galway. Under the existing scheme, qualifying journeys are described as being to and from a place of work. I do not think it would take too much imagination, where an employer is satisfied to do this, to allow for the bike to be purchased for a student in a qualifying third level institution who is going to travel to and from that place of work. The intention behind this scheme is about moving people away from carbon types of travel to environmentally sustainable types of travel. When we are talking about students, in most cases we are talking about third level institutions located in large towns and cities. It could only be of benefit. I just think there is merit in considering at least that part of what Deputy Nash said.

Deputy Michael McGrath

I thank both Deputies for the points they have made. My experience is that when it comes to the option of a child cycling to school, it is not the cost of the bike that is the deterrent but the safety of the route. That is why the Government and local authorities are investing a lot more money in safe cycling routes. Similarly, when it comes to cycling to college, it may be a factor for some but I think distance and safety are also a consideration, although less so, of course, because they are adults.

I might just add a few points. The scheme was reviewed by the Irish Government Economic and Evaluation Service and the staff in the Department of Transport. That was published two years ago in 2021. The review referred to a survey of scheme participants which provided evidence of some additionality from the scheme, but the review's conclusion stated:

...it is unclear how the scheme could be expanded to include them without fundamentally changing the model by which it operates. Expanding the scheme to these groups will likely require the development of an entirely new, more expansive scheme or a complementary programme targeted at these groups as the existence of an employment relationship is inherent to the nature of the current scheme as a benefit-in-kind exemption.

My honest assessment is that it would not be possible to do this within the parameters of the existing Finance (No. 2) Bill. However, I am happy to engage with the Deputy to see if we can explore this further. Given the complexity from an administrative and drafting point of view, it certainly would not be possible in the context of the current Finance (No. 2) Bill.

Amendment put and declared lost.

Deputy Ged Nash

I move amendment No. 4:

In page 8, between lines 7 and 8, to insert the following:

“Report on benefit-in-kind: cycle to school

3. The Minster shall, within six months after the passing of this Act, cause a report to be laid before Dáil Éireann on the design and cost of a scheme of exemption from a charge to tax on expenses incurred in the purchase of bicycles or bicycle safety equipment for use by school or college students on journeys between their home and school or college.”.

Amendment put and declared lost.

Sections 3 and 4 agreed to.

SECTION 5

Question proposed: "That section 5 stand part of the Bill."

Deputy Pearse Doherty

This section clarifies that there is no four-year rule in relation to Revenue being able to look back, which has always been the case or always was our understanding of the law as it applied to Revenue. Therefore, I have no issue with this clarification going into the finance Act. I ask the Minister to outline why this has now been introduced as a legislative change given that we expect this practice. Has this practice been challenged? Is it coming from a tax appeal? I ask the Minister to outline the background to this.

Deputy Michael McGrath

I will read the short note. Essentially, it arose from the PAYE modernisation review. The section provides for amendments to sections 990, 984B and 985G of the TCA 1997 to include a four-year time limit for pay-related employer assessments and refunds. A consequential amendment to section 531AOA of the TCA is also being made in respect of USC, to reflect the four-year time limit.

There are a number of provisions in the tax Acts which implement time limits. The general rule is that a four-year time limit applies to taxpayers when claiming reliefs for allowances and to Revenue when making assessments unless fraud or neglect is suspected, or no tax return has been filed. Although a time limit previously applied to pay-related employer PAYE refunds under section 865 of the TCA, the introduction of PAYE modernisation in 2019 has made this section redundant. This section clarifies in section 997 of the TCA that there is no time limit in respect of assessments on a chargeable person in cases where that chargeable person's income tax return is not filed or is incomplete.

In line with the rules for other similar measures, the amendments provide for a right of appeal. This will allow a taxpayer to make an appeal to the appeal commissioners where they feel aggrieved by an amended assessment or a refusal by Revenue of a claim for repayment. The amendments aim to provide clarity and certainty to both Revenue and the taxpayer in respect of historical tax liabilities and when pay-related employer assessments and refunds can be made, aligning the time limits with those for income tax and corporation tax provided for under the TCA. In effect, the introduction of modernisation in 2019 made the previous section redundant therefore we have to provide for it in the Finance (No. 2) Bill.

Deputy Ged Nash

We are on the question of PAYE assessments and refunds and release more broadly.

The Minister announced on budget day that he and the Revenue Commissioners intend to roll out a public campaign to inform people of their entitlements. I know from a reply to a parliamentary question I received from him last week that there are several hundred thousand tax units or individuals who have yet to make tax returns and potentially claim the various reliefs that might be available to them. It is believed the average refund in reliefs comes in at approximately €700 per year, which is not an insignificant amount of money, especially for people on low and modest incomes and especially at this difficult time in the middle of a serious cost-of-living crisis. When does the Minister intend to instigate that campaign? Will he provide the committee with an update on precisely what he plans to do with the Revenue Commissioners, because it would be a useful public initiative? This money goes unclaimed. The Minister put on record on budget day that probably close to €200 million has gone unclaimed for 2022. it is a significant amount of money. What does the Minister intend to do to raise awareness of the availability of the reliefs and the requirement for PAYE workers to do tax returns to obtain them so they can understand their liabilities and the position?

Deputy Michael McGrath

I thank the Deputy. It will be a Revenue-led initiative. Revenue has been developing it in recent months and my understanding is that it will be ready shortly. In essence, it will be a public information campaign to help build awareness about entitlements to certain reliefs, credits and exemptions. As the Deputy will have seen in the reply to his parliamentary question, every year people overpay a significant amount of money, and in some instances at least it is because of a lack of awareness of their rights and entitlements. Some private commercial companies provide the service - it is a valuable service - but Revenue recognises the need to raise awareness levels. I expect an announcement shortly.

Question put and agreed to.

SECTION 6

Question proposed: "That section 6 stand part of the Bill."

An Cathaoirleach

The section is opposed. I call Deputy Nash.

Deputy Ged Nash

The Minister will not be surprised to hear my concerns about the help-to-buy scheme articulated again. Since it was introduced in 2016 or 2017, it has cost the Exchequer close to €700 million. The Labour Party and others in opposition are of the view that there are better ways to spend limited public resources to ensure people are housed appropriately. I have said time and again that the scheme has a deadweight effect, that is, it encourages economic activity that would happen in any case. One of the impacts of the scheme is that developers chase the market. People might get the value of €30,000 under the help-to-buy scheme. There is evidence to show that the market just chases the subsidy. No one should welcome that. Obviously people who have benefited from the scheme will be pleased with it and delighted it worked for them. That is entirely understandable from an individual's point of view.

It is not only I who says the scheme has a deadweight effect. Mazars, which was engaged by the Department to undertake a review of the scheme, has also said so. I will quote the same passage I quoted in my Second Stage remarks two weeks ago. Mazars said about the scheme that it is "poorly targeted with respect to incomes, location, house prices and other socioeconomic factors. As a result, it has socially regressive impacts, there is a considerable deadweight associated with the expenditure". They are not my words. They are the words of Mazars. I know that officials in the Minister's Department have previously placed on record the advice they provided to his predecessor that they had concerns about the deadweight effect of this scheme. The scheme was due to be wound down, but it is now being extended for another year. There are better ways to spend public money to encourage home ownership and the availability of social and affordable homes. This is not it from a policy point of view.

Deputy Michael McGrath

I thank Deputy Nash. As he said, the help-to-buy incentive was announced in budget 2017 as an income tax incentive measure designed to assist first-time buyers with the deposit required to purchase or self-build a new house or apartment to live in as their home. The relief is only available in respect of new builds, with a view to increasing the supply of new housing and stimulating demand. To date, it has helped individuals and couples to buy or build more than 40,000 homes. In the July 2020 stimulus plan, the scheme was amended so that the level of support available to first-time buyers was increased to the lesser of €30,000, which was up from €20,000, or 10%, which was up from 5%, of the purchase price of a new home or self-build property or the amount of income tax and DIRT paid in the four years before the purchase or self-build. The scheme was extended in its enhanced form in budgets 2021 and 2023.

This section extends help to buy in its current form for a further year to 31 December 2025. This approach takes account of the need for certainty in the market pending an increase in new housing supply envisaged in Housing for All. The scheme is also being amended to enhance its interaction with the local authority affordable purchase scheme. This amendment will enable the use of the affordable dwelling contribution received through the affordable purchase scheme for the purposes of calculating the 70% loan to value requirement, thereby facilitating access for a greater number of affordable purchase scheme purchasers to the help-to-buy scheme.

The second amendment in this section places a statutory obligation on affordable purchase scheme purchasers to provide Revenue with a copy of their contract with the local authority, namely, the affordable dwelling purchase arrangement. This document is required to validate the applicant's eligibility for help to buy. The two amendments will be effective from 11 October and are being operated by Revenue on an administrative basis pending enactment of this Bill.

As indicated at budget time, it is estimated the extension of the scheme will cost in the region of €175 million in 2025, while noting that the support is demand led. The amendment relating to the affordable purchase scheme is estimated to cost in the region of €6 million in 2024.

As I mentioned in my budget 2024 address, the Government is committed to the Housing for All strategy. With this in mind, this section makes three amendments to section 477C of the Taxes Consolidation Act 1997 to give certainty to prospective homebuyers and to the market. Housing is a top priority. I confirm that the help-to-buy scheme will continue to be examined and, if required, additional changes will be considered next year.

Deputy Damien English

I support the extension of the help-to-buy scheme. It has been a significant scheme which has helped more than 40,000 people to buy a house since 2017. We have to remember why it was brought in in the first place. It was because there was a barrier to purchasing a house. People could not get a deposit and the supply was reflecting that, since that house type was not being built and therefore could not be sourced. The help-to-buy scheme was designed to try to encourage new builds and supply, which it has successfully done over recent years. I urge that we continue with it as a supply measure as well as assisting home ownership for a category of people who, without this scheme, might not be able to buy a house. It is not necessarily clear in any assessments that people would have been able to buy a house without this scheme. My clear view on this is that, from an early stage, in 2017, 2018, 2019, 2020 and onwards, houses would not have been built in the first place if this scheme had not been there, because it was tailored to try to encourage the houses to be built. In my view, it has worked extremely well. I welcome the changes the Minister is bringing, including the extension and the changes to accommodate those using the affordable housing scheme. It is only fair for that change to be made. I compliment that change and recommend we endorse it.

Deputy Pearse Doherty

Obviously, this is the Minister's first time taking the Finance Bill in his capacity as Minister. I would like to ask when he saw the light with regard to this proposal, because these are his comments when he was in opposition:

The question is whether the Government has got it right in the intervention it is making by way of the first-time buyer's tax rebate. We do not believe it has got it right. We believe this initiative-intervention risks making the position worse. We should learn from the lessons of the past.

He continued :

Our overriding concern is that this intervention will push up the price of new homes. We have been repeatedly told that the problem is on the supply side.

When did the Minister see the light and find out that those comments he made when in opposition were actually not true?

Instead of ending the scheme, it is planned to extend it further.

Deputy Michael McGrath

My party and I have supported the help-to-buy scheme for a long number of years. It is a vital support to homebuyers. When we look at the number of people who have managed to purchase their first home with that support, it is clear that the scheme plays an important role. It is alongside a range of other measures that we believe are working. We can see the increase in supply across this year, the positive data in terms of commencements, completions and planning permissions and the success of the first home scheme and the amount of drawdown under the help-to-buy scheme. We see more and more affordable purchase schemes being rolled out across the country. All of this is contributing to an environment where supply is increasing. The help-to-buy scheme plays an important role in that regard. That is why I confirmed on budget day the intention to extend it for a further year. I also indicated that I would examine it across next year to see if any changes are necessary. That is what I intend to do.

Deputy Pearse Doherty

Does the Minister know how much average house prices have increased since he took office just over three years ago? Does he know what that figure is?

Deputy Michael McGrath

I do not have that figure to hand.

Deputy Pearse Doherty

It is €60,000. That is how much average house prices have increased. The comments the Minister made in opposition to it during the budget statements are actually accurate because it is about the issue of supply. Forget about his comments, however. His Department commissioned an independent study in regard to this. The position is clear. The study indicates that the scheme promotes demand for new housing in a market where the problems that exist are unequivocally supply constraints. Concerns in this regard were expressed within the Department of Finance before the introduction of the help-to-buy scheme but no alternative to the scheme or any use of a tax expenditure mechanism for this purpose appears to have been considered. That makes it clear that this is not the proposal that should be pursued. The study also said there were concerns when the scheme was introduced and that it would be difficult to remove a scheme such as this once it becomes part of the operation of the market. It has clearly been the case that the scheme's operational life has been extended a number of times. Now the Minister is extending it again. The study further states that expenditure on the scheme far surpassed the projected values and is rising rapidly. It goes on to say that the scheme is poorly targeted with respect to incomes, locations, house prices and socioeconomic factors. It then states that the scheme has socially regressive impacts. The worst part is that because there is taxpayers' money involved, there is considerable associated deadweight with the expenditure aspect and the scheme is poorly aligned to spatial policy.

What does that mean? On foot of the money that has been provided and that the Government continues to peddle out, how many people has this scheme helped? The Fine Gael spokesperson just mentioned the same thing again. We have to deal with the facts, and the facts are very clear. The deadweight, which means the number of people who are getting this relief who do not need it in order to put together a deposit to purchase the house in the first place is significant. It is increasing year on year. In 2022, it was 53.3%. That means more than half of the people who avail of this do not need it, according to the Mazars report and to the Revenue Commissioners, as we look at the incomes. Yet, the Minister decided to extend the scheme. The independent report that his Department commissioned states that it needs to be phased out, that there should be a signal of intent that it will come to an end in 2024. The issues in terms of first-time buyers are very real but I make the point that the Minister's policies are pushing up prices further. There is no point jingling €30,000 here when half the people do not need it in the first place. However, the impact of it is that it is pushing up house prices for everybody.

The proof is in the pudding. Let us see the proof. It is there to see. House prices increased by €60,000 in the past three years. What does the Parliamentary Budget Office say? The independent Parliamentary Budget Office warned in 2022 that it increases the purchasing power for households while housing supply is constrained and will very likely lead to higher house prices. Such rising house prices are likely in turn to exacerbate affordability problems down the line. It goes on to say that this is more acute in areas particularly where the claims are highest in Dublin and the commuter belt, in Cork and elsewhere. The evidence indicates that the Minister's policy is wrong. The CSO tells us that since he took office, house prices have increased by €60,000 on average. The independent report that his Department commissioned advised this should not be extended, but should be got rid of by 2024, and he comes here and says let us extend it and ignore the fact that more than half of the applications are deemed to be deadweight.

The Mazars report also said:

The sort of policy uncertainty that has arisen with ongoing annual extensions without a clear picture of the longer-term policy environment is undesirable. To avoid this, it is recommended that the announcement of this extension should be accompanied by a clearly communicated acknowledgement that the issue that ... [help to buy] sought to address remains a difficulty and that a more appropriate policy mechanism will be designed to replace ... [it].

Let us deal with the facts here. Does the Minister accept, as Mazars has pointed out, that 53.3% is deadweight, that one third of all applicants had the full deposit, that another third had a portion of the deposit and that they have told the Minister not to extend this? If the Minister is going to extend it to 2025, as is his intention, what will he do after that? What is the policy rationale behind this? The Minister will say it is about increasing supply and all the rest, and that is what Michael Noonan argued when he brought it in. Then it was said it was actually to help affordability because everything we are doing is pushing up house prices, so we need to help people chase these house prices. When will the Government actually stop this? When will they wean people off this? What is the plan behind this? What does the Department have in mind? I know many of the Minister's officials argued against this. Many of his officials are critical of this scheme. Independent, commissioned experts are critical of this scheme. The independent Parliamentary Budgetary Office is critical of this scheme. People who are seeing house prices being pushed up are critical of this scheme. What is the plan? Clear up the uncertainty, because just extending it until after the general election is not good enough.

The Minister has a responsibility to set out the metrics he will use to measure whether this scheme should be extended. Will it be when we are building 40,000 houses? Will it be when house prices reduce? Will it be when house prices continue to increase and the penny drops that we have been doing the wrong thing all this time, that maybe we should actually look at supply instead of throwing more money at the issue, with everybody with an extra €30,000 chasing the same properties and queuing up to try to outbid each other? Please learn the lessons from the past. What are the metrics the Minister is going to use? Coming in here and doing the lazy thing of extending this for another year without any indication and completely ignoring the report and all the evidence we have is just ridiculous. He said they helped 40,000 people, but they actually did not. Some people did get help this year, but the Mazars report said the majority, 53.3%, in 2022 was deadweight and did not need this support. This is hundreds of millions of euro of taxpayers' money which should be going into building social, affordable and cost-rental homes.

An Cathaoirleach

I will call Deputy Durkan, followed by Deputies Nash and English.

Deputy Bernard J. Durkan

I am of the opinion that the various incentives in Housing for All, which have been referred to, are beginning to tell in the sense that more houses are being built, more people are buying houses and more people have bought houses in the past year. We can dress it up any way we like depending on whether we were in opposition or otherwise. Usually, in opposition, one tends to exaggerate the negative aspects and, in government, we are obviously bound to underline the benefits. There are still a couple of glitches in the marketplace.

One thing we should remember is this: when increased housing credit comes on the market, it drives up the price of houses. That is without a doubt. That is one of the things that has happened and there is nothing we can do about that unless we dramatically increase the supply at the same time. That will have a major effect. At this stage, the hunger for housing is huge and the demand is huge, and it will continue in that way for some time, for another couple of years. At the same time, however, it is not true to say that the action being taken is not having an effect. It is having an effect. The quality of houses and the number of houses being built has increased, is increasing and, obviously, is likely to increase.

The point is that there are a few people who are applicants who are still isolated, and they are the people who have been renting from, say, 20 years back.

They are now in a situation whereby the house has been sold because the market prices are at the top of the range. At the same time, those people have nowhere to go. The local authority is their only refuge and they have to have a local authority house. To my mind, it is unfair to expect them to start a mortgage at 50 years of age or 60 years of age and to expect them to have a reasonable repayment. It cannot be done. It is important we look at that, and I have asked about that in various parliamentary questions to a whole host of Ministers. I think it can be done, but it has to be done specifically targeting that group of people. It has to be done in the short term rather than the long term. What is happening now is because of, as I said, the house prices reaching their zenith. There are more and more people whose leases are ending, who are being told to end their lease, or whatever the case may be. The more that happens, the more the demand will increase and the greater the trauma for the people who are at the receiving end of it. We need to home in on that particular area and identify those people.

My other point relates to young purchasers. There are many young people who have a reasonable income, who can bat for themselves in the marketplace and who are doing so. That again contributes to the soaking up of the availability of supply. It comes back to the issue of supply, as I said in the beginning. It does require an accelerated supply which, in turn, will benefit all. It is hard to get there, but it is having results. The housing policies of the Government are beginning to work, albeit somewhat slower than we would like. However, the fact is they are beginning to work and without crashing the market in one way or another and without exhausting the availability of credit and finance. That is essential to all house purchasers. All in all, it is fair to say that things are progressing satisfactorily, but not as fast as we would like. I think the Minister has said that himself on many occasions in the past, but it is important to recognise and acknowledge that.

An Cathaoirleach

I call Deputy Nash.

Deputy Ged Nash

We are used to the Government of the day, whatever the colour of that Government is, describing itself as a responsible policymaker. In this case, it is the Opposition that is the responsible policymaker, because this policy is bananas from a public policy point of view. By the time this scheme is wound down, and it certainly will not be wound down between now and the general election because it is individually popular for those who have accessed it, it could have been knocking around for ten years. It is already costing approximately 50% more than was originally envisaged. The Minister is right that it is a demand-led scheme and that is in the nature of these kinds of schemes. The figure of €30,000 is baked into it and developers base their pricing structures for the still relatively limited number of new homes that are available on the fact that €30,000 is baked in. They are chasing the market and this subsidy.

I had the Minister down as an evidence-based politician, as somebody who takes evidence on board, undertakes research and is informed by the best principles of policymaking before he arrives at a decision, but I do not believe that is the case in this regard and in many other schemes for which he is responsible. It has inflated house prices. The evidence is there to show that. It has not dramatically increased private supply. We know, from looking at the massive increase in house prices, that the private market is not building anywhere near what ought to be the case to find some kind of equilibrium in the market. There are a lot of, by and large, young buyers who are chasing a very limited amount of supply. Being backed by a subsidy of this nature is not ultimately helping society. It might help individuals who may be happy to take advantage of this, and I understand why that would be the case, but it is very bad public policy and a bad use of taxpayers' money in the middle of a housing crisis.

I said it before and I will say it again, these resources cumulatively over a number of years would have been better deployed in developing social homes or a proper affordable housing scheme worthy of the name. The idea that this is being extended by another year to provide certainty is bizarre. It is being extended for another year because that is the timeframe for the holding of the next general election. There is a fear about making any decision with regard to schemes like this that would interfere in some way with the electoral cycle.

An Cathaoirleach

That is hardly unusual.

Deputy Ged Nash

Absolutely. It is common practice, but that does not make it right. For the Minister to say he is concerned about certainty suggests that we should be undertaking work to design the kind of scheme referred to earlier or the kinds of schemes which Mazars and others might have in mind that would appropriately address the problem. This is not appropriately addressing the problem; it is inflating the market and throwing money at a problem in a way that is simply not sustainable or responsible.

I will conclude by saying that it was always the case that the Government would portray itself as being responsible, but it is the Opposition that is being responsible parties when it comes to pointing out the problems with the scheme. The roles have been reversed, which is quite bizarre.

Deputy Damien English

I will make a quick comment on this. I have listened to a great deal of commentary about the help-to-buy scheme for many years and have seen many reports about it. Every report and comment nearly misses what we were trying to achieve. In that regard, this has been one of the most successful schemes we have ever had. Builders were building different types of homes for different customers and were not building the type of houses that first-time buyers were chasing back in 2016 or the ten years before that, because they did not believe that the demand was there. The demand was not there because people did not have deposits, could not get them together and could not raise the mortgages to pay for such houses. If anybody wants to go back to look at the supply of housing in those years, they will see that builders were building for those who were trading up or buying their second or third homes. They were not building the type of house that was needed by most first-time buyers. Any analysis will show that. This scheme was brought in to address that and to give confidence to a builder that they would have a customer who would buy that starter home or house. That is why the 40,000 houses delivered by means of that scheme may not have been built in its absence.

I would be against interfering. I absolutely accept the point about looking at long-term supply for schemes. There is nothing wrong with that at all. What we are trying to do with Housing for All is provide certainty to the housing market, which you cannot fix in one year and which you try to fix over five or ten years. You have to look at the supply of housing for the next ten or 15 years. Interfering today with something that might trigger a negative impact on the supply of a particular type of house would be wrong. The supply of housing is not fixed, and it will take a few more years to do that, regardless of who is in government. It takes time because we are trying to replace ten to 12 years of the loss of valuable housing. It is wrong to call it bananas and to interfere now with a scheme that is designed to deliver housing. There will be an endless argument over whether it has affected the price of a house by 1%, 2% or whatever, and that is another issue. The issue we need to focus on is supply. For a proper functioning housing market that will address the issue of housing once and for all, we will need to have every part of the market delivering. I refer here to social, affordable, private purchase, properties purchased for the purposes of renting out and build to rent. Everybody has to play their part or we will not fix the housing market. This policy and the help-to-buy scheme have had a major impact in a positive way on the supply of housing for the first-time buyer and should be kept for another number of years. It is fine in the long term if people want to change it. In the short term, however, until the supply of housing is fixed, we should not interfere with schemes that are working and delivering.

Deputy Michael McGrath

I thank the Chair and all of the Deputies for their contribution so far on the issue. For the record, I and my party campaigned in 2020 for the retention of the help-to-buy scheme. It was a commitment in our manifesto. There are new homes being built today which simply would not have been built if the help-to-buy scheme did not exist. I assume the logic of both Sinn Féin and the Labour Party is that if you get rid of the scheme, you will increase the supply of new homes. I assume they believe that the supply of new homes needs to increase. It needs to increase further, but I believe that the existence of the scheme is leading to the construction of more homes than would otherwise be taking place across our society.

I will deal with some of the specific points that have been made. The assertion regarding the increase in the cost of a new home completely ignores the reality of construction materials inflation, which has been at a record level in recent years as a result of the terrible war in Ukraine.

There should be an acknowledgement of that. Anybody who knows anything about construction or building homes will know that the cost of building a new home in Ireland has increased very significantly in recent times. We should also acknowledge that since the Mazars report was completed - I know we will discuss this issue in a while - very significant changes in monetary policy have resulted in interest rates increasing for many homeowners but also for prospective homeowners. This has made the prospect of securing a first home for many individuals and families more difficult than it was before. It is important that this point would be acknowledged.

We should also put the overall numbers in context. Last year, the proportion of successful help-to-buy claims versus total house transactions was approximately 11%.

We should also accept that for many people, the help-to-buy scheme does not give them €30,000. I have dealt with many individual cases in which, because of the amount of tax people have paid in recent years or because they have returned from abroad after emigrating and have only been here for the past one, two or three years, the amount they are entitled to is far less. We should not be saying it is €30,000 for everybody because it is not €30,000 for everybody. It depends on the level of income tax and deposit interest retention tax paid.

There should also be an acknowledgement of the change we are introducing around the interaction with the local authority affordable purchase scheme. I have had people in my office who, without this change, simply would not be able to buy the home, even though they have been successful in being allocated a home under an affordable housing scheme put forward by a local authority. There is no doubt about it that for many people the help-to-buy scheme means the difference between them being able to buy a home and not being able to buy a home.

This is not at the expense of the construction of social homes. We are providing over €5 billion in capital investment for 2024 through Exchequer funding, through the Land Development Agency, LDA, and through the Housing Finance Agency. If one looks at what we have done so far, one can see that 10,263 social homes were delivered last year. This is an increase of almost 12% on 2021. From a standing start, over 1,750 affordable homes were delivered in 2022. If one looks at the first home scheme, as of the end of the third quarter of this year, one can see we have had almost 2,600 approvals under this scheme.

In construction generally, a significant increase in new home commencements is continuing, with almost 24,000 homes commenced between January and September of this year. This is up 14% on last year. More than 22,400 homes have been built to the end of September, with the Housing for All target of 29,000 expected to be exceeded again this year. I believe we can point to progress. Do we need to do more? Absolutely, but if the suggestion is that the existence of the help-to-buy scheme is holding back supply, that is a logic I very much struggle to understand. I strongly believe the help-to-buy scheme is resulting in more homes being built. For many prospective homebuyers, it represents the difference between them being able to buy and not being able to do so. The idea that if we abolish it, in the absence of alternatives which I have not seen from either of the two parties opposite, it would increase private supply, is not a conclusion I would reach based on the evidence I have seen.

An Cathaoirleach

How stands section 6?

Deputy Pearse Doherty

I wish to go back in this discussion because the Minister did not answer any of the questions I had in this regard, perhaps understandably because the independent evidence, including reservations from the Minister's own Department, is stark. It does not matter how many times people say that the scheme works perfectly and that we should not interfere with the market - the fact is that we interfere with the market by providing additional credit at a time when the issue is supply.

I asked the Minister a question. What are the metrics he will use to continue to extend this scheme now? His Department commissioned an independent report, and Mazars asked him when it reported in 2022 to extend the scheme until 2024, signal that it was coming to an end and develop a new proposal, which, Mazars argues, would not be a Department of Finance-led proposal, that will support first-time buyers but recognise that this initiative has a significant deadweight. Since Mazars reported in 2022, the level of deadweight has only increased. When it reported in 2022, its report said there were 5,049 applicants who had a loan-to-value ratio of between 70% and 75%. Today that number is 7,499. It has increased by nearly 50% in one and a half years. Let us spell this out. They are people who can avail of a tax relief worth up to €30,000 and who have a loan-to-value ratio of as low as 70% and no higher than 75%. They have, therefore, at a very minimum, a deposit of 25% to purchase a house, and the taxpayer gives them €30,000 in order that they can contribute to this thing that pushes up house prices for everybody. Mazars asked the Minister and his Department very clearly, at the very least, and immediately, to increase the loan-to-value ratio from 70% to 80%. Why would we continue to provide support in the form of this generous tax relief to people who have the deposit - and more - to purchase a home?

The Minister might answer those two questions first.

Deputy Michael McGrath

The help-to-buy scheme is already legislated to be in existence until the end of 2024. What I signalled on budget day, and what I am proposing to enact here, is that it would be extended. I also indicated on budget day that I would examine the scheme across next year to see what changes, if any, might need to be introduced to it. Any such changes would take effect for 2025, but I will undertake some work across the year to examine that and to look at the evidence base once more.

It is worth making the point, however, that when the Deputy talks about loan-to-value and the percentage deposit somebody has, that does not necessarily bear a relation to his or her ability to service a loan or, based on existing interest rates, to make the necessary repayments on that loan to pay for the home he or she purchases. For many people it is undoubtedly the case that without the help-to-buy scheme, without the support that is there, and when one takes into account the other costs involved in purchasing a home, the increased interest rates and the increased mortgage repayments that people have to make, they simply would not be able to buy or sustain a home. Looking at the data since the scheme's inception, the majority of recipients of the help-to-buy scheme had a loan-to-value ratio in excess of 85%.

Deputy Pearse Doherty

Seriously, what the Minister is saying just does not make any sense. First of all, this has been going on, as Deputy Nash said, for nearly a decade. A decade ago interest rates were zero at ECB level and many customers were on tracker or fixed rates. Let us therefore be clear about this and have a proper discussion with regard to the facts. Mazars was very clear. The intention of this scheme is not being met. The independent budgetary office says it is pushing up house prices. The war in Ukraine happened, yes, but that is not the reason house prices were going up in the first year of the Minister's being in office or, indeed, the last years of the previous Fine Gael Government, which the Minister supported. House prices have been going up steadily, and it is because of measures such as this. Take somebody who has a 25% deposit. Look at the types of houses being purchased and the values of those houses. Over 30% of houses that are purchased using this scheme have a property value of in excess of €376,000. That is for a start. This was about helping people to get a deposit.

What Government Deputies say all the time when they try to attack Sinn Féin or other Opposition parties is that people would not otherwise have the deposit and so on. Now the Minister has changed the goalposts to people not being able to service their mortgages because interest rates have risen in the past year. This is despite the fact that the scheme has been in place for some time. He has parroted what every Minister for Finance has said on Committee Stage of Finance Bills, namely, "We will keep this under consideration and look at it next year to see if any other changes have to be brought forward". However, the Minister still will not answer my question, namely, what were the metrics he used to decide to extend the help-to-buy scheme against the advice of the independently commissioned report, which said that the scheme had deadweight of 53%? That deadweight has increased since the Department commissioned the report. Why did the Minister ignore Mazars's proposal to increase the loan-to-value ratio from 70% to 80% in order that at least the people availing of this tax benefit would not already have a deposit of 25% to purchase a house?

Question put:

The Committee divided: Tá, 6; Níl, 3.

Tá

Durkan, Bernard J.
English, Damien.
Matthews, Steven.
McGrath, Michael.
McGuinness, John.
O'Callaghan, Jim.

Níl

Boyd Barrett, Richard.
Conway-Walsh, Rose.
Doherty, Pearse.

Question declared carried.

SECTION 7

Question proposed: "That section 7 stand part of the Bill."

Deputy Pearse Doherty

I welcome the changes being made to benefit-in-kind for electric vehicles. This will have a big impact on some companies and individuals. Is there an upper limit to avail of this benefit-in-kind exemption and the €45,000? Is there an upper limit on the purchase price of the vehicle, which would be the open market value of the vehicle? Is it €50,000? Is this still there?

Deputy Michael McGrath

This section extends the €10,000 deduction for benefit-in-kind purposes applied to the original market value of a car or van in categories A to D as well as the amendment to the lower limit of the highest mileage band for a further year to the end of December 2024. These measures were originally introduced as temporary measures in the Finance Act 2023 earlier this year and they also apply to electric vehicles. In line with the original measure this extension does not apply to cars in emissions category E, which is the highest emission category.

The reason I am extending these measures for another year is because of the cost-of-living and inflationary challenges that our economy continues to face. I am also extending the tapering mechanism that provides benefit-in-kind relief for battery electric vehicles for a further two years, to end on 31 December 2027. What this means is that the current deduction of €35,000 to the original market value for battery electric vehicles will remain until 31 December 2025 and will then be reduced to €20,000 in 2026 and €10,000 in 2027.

Deputies should note that the combination of both measures means that total relief for battery electric vehicles for 2024 will continue to be €45,000. This is the €35,000 that is being maintained plus the broader €10,000 relief.

Deputy Pearse Doherty

My question to the Minister is whether there is an upper limit on the value of the car.

I thank the Minister.

Question put and agreed to.

Sections 8 and 9 agreed to.

NEW SECTION

Deputy Ged Nash

I move amendment No. 5:

In page 15, between lines 6 and 7, to insert the following:

"Tax credits, etc.: report on cost of indexation

10. The Minister and the Minister for Public Expenditure, NDP Delivery and Reform shall include in their Summer Economic Statement in each year a report setting out the estimated cost to the Exchequer of adjusting—

(a) tax rate bands and tax credits and allowances in relation to income tax, and

(b) benefits and allowances payable under the Social Welfare Acts, to reflect any changes in the All Items Consumer Price Index numbers published by the Central Statistics Office in the 12 months before the date of the Statement.".

This has to do with the indexation of tax credits and rate bands against inflation. In this case it is with regard to the consumer price index but there are various ways of approaching the question. Yearly inflation adjustment is done in tax systems throughout the European Union, in countries such as Sweden, Denmark, Finland, the Netherlands, Belgium, France, Slovakia, Norway and Switzerland. I understand that Germany does it every two years. This is to avoid what might be described as bracket creep. In other words, if income increases modestly people would not fall into a higher tax bracket and this in itself would be a positive. Austria will introduce the measure this year. It has considered it for a number of years and I understand it will do it this year. The mechanism it has adopted would trigger a two-thirds automatic adjustment for all brackets except the highest bracket. The remaining adjustments would, quite appropriately, be a matter for the political system.

I was rather taken by some research I read recently and a point made by the Tax Foundation. It stated this type of approach gives taxpayers more certainty and keeps politicians honest. It is an approach that is worth considering. A degree of reform of indexation as we might describe it has taken place this year.

The Minister has adjusted USC rates, bands and credits, as well as income tax bands and credits. For example, indexing for an average 3% pay increase could cost €700 million to €800 million for next year, not an insignificant amount. Such an approach, following what other progressive, sophisticated European Union societies are doing, takes the mystery out of the annual budget process. I accept decisions around taxation and redistribution are the meat and drink of politics and sometimes separate us in this House, philosophically and ideologically, for want of a better description. However, these are the kinds of questions that have been settled in other European states. It would be useful for this State to follow that progressive example.

As I said on Second Stage and on budget day when I put forward this proposition, it would be the mark of a mature parliamentary democracy and society to decide on a form of indexation of tax rates, bands, credits and allowances every year, to do that routinely and to do that as well in the context of the social welfare system. That would come at a cost but would be a good thing for our society. Then, on budget day and in the run-up to it, we could deal with the big questions and challenges the country faces.

The budget process seems to start earlier every year and, as currently designed, benefits only two sectors: one is the Government, whose members can spin away all summer and fly kites to their heart's content about what will be in the budget and what might not be; the other is the media, which has an obsession with what happens in the budget, when it is ordinary people who pay the price and are impacted by the decisions we make in these Houses every year. One way of signalling we have become a sophisticated, modern, progressive, responsible democracy is to settle these questions and have consensus around them.

This amendment asks merely for a report to be published every year in the summer economic statement setting out the established cost to the Exchequer of adjusting:

(a) tax rate bands and tax credits and allowances in relation to income tax, and

(b) benefits and allowances payable under the Social Welfare Acts,

It further asks that that would reflect any changes in the all-items consumer price index, or another mechanism to be settled. I am interested to hear the Minister’s position on the proposal.

Deputy Michael McGrath

The Deputy’s request for a report to be included in the summer economic statement setting out the estimated cost to the Exchequer of adjusting income tax rate bands, tax credits and allowances and social welfare benefits and allowances to reflect any changes in the CSO’s all-items consumer price index numbers is a broad proposal and extends beyond my direct remit as Minister for Finance. This is because the request relating to indexation of social welfare benefits and allowances is a matter for the Minister for Public Expenditure, National Development Plan Delivery and Reform and the Minister for Social Protection.

In relation to indexation of the tax system, the Deputy will be aware of the programme for Government commitment:

From Budget 2022 onwards, in the event that incomes are again rising as the economy recovers, credits and bands will be index linked to earnings. This will be done to prevent an increase in the real burden of income tax, to prevent more low-income workers being taken into the tax net because of no changes to the tax system and to ensure there is no increase in the number of people having to pay higher income tax and USC rates.

Significant progress has been made in delivering on this commitment. Budget 2024 was the third consecutive year with a substantial tax package that indexed tax credits and bands within the fiscal resources available. For example, in cumulative terms, the main personal tax credits have been increased by €225 from €1,650 to €1,875. The standard rate cut-off point has been increased by €6,700 from €35,300 to €42,000 for single persons. These changes have been carefully designed to ensure workers do not find themselves in a position where they pay more income tax solely because of wage growth inflation, while preserving a broad and stable income tax base to ensure our personal tax system is both competitive and resilient.

The Deputy may be aware that the personal tax review was published on budget day, which included a detailed analysis of indexation of the personal tax system in chapter 6. The report set out background information on indexation and the position in other jurisdictions, as well as options for indexation, such as indexation in line with wage growth, headline inflation and core inflation. Last year, information on indexing the tax system was also provided in the income tax-tax strategy group, TSG, paper. The costs utilised in these publications were taken from the Revenue Commissioner’s ready reckoner that specifically includes a cost for indexation of the personal tax system. I understand that the TSG paper on social protection-related issues may include similar potential budgetary options for consideration.

The information requested by the Deputy in relation to indexation of the tax system is already addressed in the personal tax review or the income tax-TSG paper. This is a practice that I will ask the Department of Finance to continue to consider as part of future reports, such as the income tax-TSG paper. As I have stated, indexation of the social welfare system is a matter for my Government colleagues, the Ministers, Deputies Donohoe and Humphreys. Therefore, I am not in a position to accept the amendment.

Amendment, by leave, withdrawn.

Section 10 agreed to.

SECTION 11

Question proposed, "That section 11 stand part of the Bill."

Deputy Pearse Doherty

This is another one of the Minister’s U-turns. His Government opposed any suggestion of a renter’s tax credit because, it argued, it would go into the pockets of landlords and rents would increase. Now we have seen the introduction of the renter’s tax credit at €500. Under this section, it will increase to €750 and be extended to parents who are paying for their children’s rent, room or digs accommodation. The problem is the original point the Government made was valid because unless rent increases are capped or frozen, rents will increase. Annual rents have continued to increase since the Minister took office. I think they have increased by about €5,000. Will the Minister explain his motivation and that of his partners in government for the U-turn on this tax credit? The Taoiseach has resisted the idea, saying it would be a direct transfer of taxpayers' money into the pocket of landlords. Does the Minister not accept that, without the restriction on further rent increases, this risk remains? Will he tell the committee the number of eligible renters the Department believes could claim the credit? How many have so far claimed it? Has the Minister considered measures to increase the uptake?

Deputy Richard Boyd Barrett

It is a gross understatement to say it is inadequate. What the Minister is proposing is a pathetic drop in the ocean compared to the rents and rent increases people are enduring. There is an extraordinary contrast between the landlord's tax break the Minister has given and the renter's tax credit increase. According to the Minister’s tax policy changes book, he has given almost precisely twice as much to the landlords in this budget as to the renters: a €160 million tax break to landlords as against €88 million. That is the cost, the Minister says, of increasing the tax credit to €750.

How does the Minister justify giving twice as much to the landlords as to the renters? Does he not agree that it is pathetically inadequate given the rents people are enduring? In my area rents are between €2,500 and €3,000 per month, and you would be lucky to find somewhere for that. They are skyrocketing, and it is completely impossible. Our favoured option is that the Minister would reduce rents by capping them and setting them at affordable levels. That is something he has set his face against. However, if he is not going to do that he should surely be giving assistance that is more than a pathetic drop in the ocean, and substantially less than he is giving to the landlords.

Deputy Michael McGrath

This section makes a number of amendments to the rent tax credit, which was introduced in Finance Act 2022. This tax credit is for those who pay rent on their principal private residence, or another property they use to facilitate their work or study obligations. The credit is being increased for the tax years 2024 and 2025 from €500 to €750 for a single person or from €1,000 to €1,500 for a jointly assessed couple. This increase aims to provide further support to those tenants who do not otherwise receive State support. Eligibility for the credit is also being extended to parents who pay for their student children’s rental accommodation, or in the case of the rent-a-room scheme accommodation or digs. This change will apply retrospectively to 2022 and 2023. Parents could previously only claim the credit in respect of their qualifying student children in the case of accommodation registered with the Residential Tenancies Board. A further amendment restricts claims for the rent tax credit by Members of the Oireachtas who receive certain allowances in respect of a related tenancy. The credit will continue to be available until 31 December 2025.

I will speak to the numbers. As colleagues will know, during last year's budget process when this tax credit was introduced, it was estimated that approximately 400,000 individual persons were eligible to claim the rent tax credit for 2022. The same figure was estimated for 2024. In terms of claims to date, I am further advised that as of 22 October 2023, some 300,958 rent tax credits have been claimed by more than 261,347 taxpayer units. This consists of 202,873 taxpayer units who made claims for 2022 only, 39,611 who made claims for 2022 and 2023 and 18,863 taxpayer units who made claims for 2023 only. The total amount of rent tax credit claimed for the tax year 2022 up to 28 September 2023 amounts to €133.59 million. The total amount claimed for the tax year 2023 to date amounts to €31.86 million.

Deputy Rose Conway-Walsh

I have a question for the Minister specifically on that rent tax credit. Without having a freeze on rents it will obviously have a limited impact. It is about equity for parents of students who are studying abroad, as too many of them are forced to do. This is the case in particular for the likes of veterinary, physiotherapy and other qualifications we desperately need in this country. They are not eligible for any rebate, concession or rent alleviation. Why is that?

Is he not concerned that we are creating inequity between students?

Deputy Michael McGrath

The reason is that the purpose of the credit is to provide an affordability support for renters situated in the State. That issue was considered when the tax credit was introduced a year ago. I decided not to revisit that, having considered the issue. The existing basis means that a credit will not be available in respect of a payment made for a residential property located in Northern Ireland, the UK or another EEA state, even if that property is used by a claimant as his or her principal private residence. I think that is the correct policy response. As the Deputy knows, when it comes to RTB registrations and so on, that relates to properties that are in the State. That is an important part of the provision of this tax credit.

Deputy Rose Conway-Walsh

I thank the Deputy. As I announced in my budget day speech, my Department will shortly be launching a public consultation which will form part of an in-depth review of share based remuneration in Ireland and part of this review will be the consideration of all the recommendations made by the Commission on Taxation and Welfare regarding share based remuneration. We are, of course, very much aware of what the commission has had to say in that regard and will consider all of those issues as part of the consultation which will be commencing shortly.

Question put and agreed to.

An Cathaoirleach

As agreed, we will take a break until 6 p.m.

Sitting suspended at 5.02 p.m. and resumed at 6.01 p.m.

Deputy Bernard J. Durkan took the Chair.

SECTION 13

An Leas-Chathaoirleach: Amendments Nos. 6, 10 and 11 are related and may be discussed together. Is that agreed? Agreed.

Deputy Michael McGrath

I move amendment No. 6:

In page 18, between lines 14 and 15, to insert the following:

“ ‘local property tax number’ means the unique identification number assigned to a residential property by the Revenue Commissioners under section 27 of the Finance (Local Property Tax) Act 2012;”.

Section 13 of the Bill provides for the temporary one-year mortgage interest tax relief I announced on budget day. Mortgage interest tax relief will be available to taxpayers in respect of their principal private residence in the State where the outstanding mortgage balance was between €80,000 and €500,000 on 31 December 2022 and the taxpayer is compliant with local property tax requirements. To claim mortgage interest tax relief, the taxpayer must file a tax return with Revenue. As part of this process, the taxpayer will be required to provide certain information to Revenue, such as the claimant’s name, address, eircode and personal public service number, PPSN. For operational and compliance reasons, it is considered necessary that the claimant is also required to provide the local property tax number. These amendments address this point. I would also like to make the committee aware that I intend to bring forward a Report Stage amendment in relation to mortgage interest tax relief to ensure that the section works as intended.

Amendment agreed to.

An Leas-Chathaoirleach

Amendments Nos. 7 to 9, inclusive, have been ruled out of order on the basis that there is a potential charge on Revenue.

Amendments Nos. 7 to 9, inclusive, not moved.

Deputy Michael McGrath

I move amendment No. 10:

In page 22, line 16, after “Eircode” to insert “and local property tax number”.

Amendment agreed to.

Deputy Michael McGrath

I move amendment No. 11:

In page 22, to delete lines 26 and 27 and substitute the following:

“(ii) the address (including the Eircode and local property tax number) of the qualifying property in respect of which a claim under this section is made,”.

Amendment agreed to.

Question proposed: "That section 13, as amended, stand part of the Bill."

Deputy Pearse Doherty

The Minister will be aware that I have campaigned for a long time on mortgage interest relief. I welcome that the Finance (No. 2) Bill 2023 has an element of mortgage interest relief but, like many good Sinn Féin ideas, the Government sometimes takes them and messes them up. We saw that with the renters' credit, where there is no freeze, therefore much of it ends up in the pockets of landlords. We saw it with other proposals that happened in the past as well. This is an example of one which could have been far better. We argued for 30% on the difference between interest rates charged in 2022 compared with 2023. It is remarkable how similar the Government's proposal is to what we put on the table, despite all the criticism. I am sure on budget night many people were trying to delete their comments because it is extremely similar in the nature of how it would apply. We argued that it should be 30%. The Government has introduced it at 20%. We argued that the maximum benefit should be €1,500, yet the Government brought it in at €1,250. I want to focus on the fact that so many mortgage holders will be excluded from the Government's proposal, which is cruel in the context of interest rate increases. The Minister spoke about the cap of €500,000, which is fine and I accept. I argued this last year. I told the Government to bring forward its own proposals. We have had to wait a year for them. It does not prevent high income mortgages from getting the benefit. The Minister said that in a debate with me on television, I think. I am sure he knows that is not true. Somebody with a mortgage of €2 million can still get this benefit as long as the remainder of the balance of the mortgage was less than €500,000 at the end of last year. I assume that is the proper reading of it. We need to be clear that is the case. If it is not, perhaps the Minister could explain that to me. I do not believe the Government has put a €500,000 cap on the mortgage as it was drawn down.

The key part I wish to focus on is that the Government has excluded mortgages with a balance of less than €80,000 at the end of 2022. Many people have a balance of less than €80,000. They are not wealthy individuals. They have seen their interest rate increase over and over. I gave an example on budget day and I will give it again. If somebody has a balance of less than €80,000 on their tracker mortgage, for example, the interest rate they will pay this year, compared with what they would have paid in June 2022, has increased by nearly €2,000. Despite the fact that it has increased by nearly €2,000, there will be no support for them under the Minister, Deputy McGrath's proposal. That is cruel. It is not acceptable. It must be dealt with. The Minister gave me figures on this when I asked for them. He said 137,800 people are possibly excluded from mortgage interest relief because their balance is less than €80,000. There are a lot of families and people who may have seen up to €2,000 increase in their mortgages. Some will have less of an increase. They get nothing under this proposal. This is despite the fact that somebody with a higher mortgage, who took out a mortgage more recently, may see their interest rate increase by a lower amount - €800 or €900 - will get that benefit of 20% relief. Yet, somebody who has had double that will not get it, just because their balance is less than €80,000. It makes no sense. When this was put to the Minister, he said they have more equity in the house. What is that to them, unless they remortgage their home? What is the point in that? This is an income shock for families. This is why mortgage interest relief is brought about. I do not understand the rationale behind why the Minister would exclude them, after all this time - the Government fought this tooth and nail for many months. Then, when it capitulated and brought forward mortgage interest relief, in doing the right thing, it decided to exclude 137,000 mortgage accounts because of their balance being below €80,000. It makes no sense to me. I know from emails I have received, which I am sure the Minister has also, of families in this situation in which they are locked out of this scheme because of this provision. It does not make any sense.

Deputy Michael McGrath

I will speak about the section first and can respond directly to a number of the points. This section inserts a new section 473(c) into the Taxes Consolidation Act 1997 to provide for mortgage interest tax relief, which I announced on budget day.

I appreciate that. I found it interesting that the Green Party Deputy was talking about Sinn Féin blowing the budget as he is discussing a measure that would not exist if it were not for Sinn Féin. Let us make that clear. You always know you touched a nerve when they have to resort to that.

I genuinely feel this is cruel. I appeal to the Minister to consider this between now and Report Stage. It is affordable to not exclude those others. This is just not fair. We all know people who are excluded from this. What if a family has a €2,000 increase in their mortgage? Some of these people are on low incomes and they budgeted their family income. This is a shock. I know I am repeating myself but I genuinely feel strongly about 130,000 people being locked out.

We will talk about targeting other things. There is no targeting for the landlords. The landlords are again getting more than the mortgage holders. The Government is spending more on the landlords than the mortgage holders under this proposal. It is not that the tax relief will only be given to the landlords if they have mortgage between specific amounts. All of them will get it as long as they continue to rent.

There are people who are really suffering. I say it is cruel because they thought after the tenth letter landing that there was some light at the end of the tunnel. That was then snatched from them and they were told they were excluded. There is targeting. I do not agree completely with the Minister’s proposal but it is very similar to my own. The target in my proposal is 30%. Not all of the pain will be eased. Mine is 30% and the Minister’s is 20%. The other targeting is the maximum a family can get is €1,500 under my proposal and €1,250 under the Minister’s. That is targeting. To target people just because their loan is less than €80,000 regardless of their circumstances and the fact they might not have money to put on the table or oil in tank is just cruel. It makes no logical sense and it is cruel.

This is a one-off measure easing the shock. I strongly urge the Minister to consider this again.

Having 130,000 people locked out of this is just wrong. As I said, the Government did the right thing in terms of moving on mortgage interest relief. It was very late in the day, but at least it is finally here. Excluding nearly half of the people from it is ridiculous. It is just not right. I feel strongly about this. There are letters on my computer from real people and families with real stories talking about the real pressures they are under in terms of how much their mortgage interest rates have gone up. One woman said she is €3,700 outside of the relief. She spoke about the hope the Minister gave her and how that was daft. She does not know where to turn. She has gone to the bank. I will not give all of her details. There are real families out there.

All of us in this room who have mortgages could benefit from this. If Deputy Durkan had a mortgage of €120,000 and his interest rate went up by €700, he would still get relief. However, somebody else will not benefit, simply because their mortgage is for €80,000. They may have lost their job or be struggling. They may have an injury or have fallen on hard times. They may be struggling to put their kids through college, but they will get nothing because of the arbitrary line which means nothing because it does not take into account the income of the family. Rather, it is about the loan in relation to the asset. It does not make sense.

I am very passionate about this issue. The Government has got it wrong regarding the cut-off point. I do not know whether that came from officials or the Minister, but it should be reconsidered as a one-off measure. Every Tom, Dick and Harry can get the energy credit. The owners of holiday homes and people with multiple properties lying empty were able to get the energy credit. When it comes to real impacts and shocks for families, we are excluding 130,000 people. I do not understand where the Minister is coming from.

Deputy Damien English

The original efforts to try to step in to help people were discussed during parliamentary questions in April or May. The Minister said he was willing to try to assist people. The conversation and context was about those who are being hit with massive rate increases, mainly those outside of the non-traditional banks and funds. The Minister was very clear that he was attempting to try to find some way to assist with that massive jump. That is why the measure is targeted. It might not suit everybody, but no matter who put forward a proposal around trying to assist people, everybody had different targets and levels of interventions.

There is an effort being made to try to reach those in difficult situations and spend the money in that way. That has been achieved here. We could all sit here and say that we want larger amounts, but we have to look at what this is about, namely, trying to help those facing massive rate increases and who have seen a massive difference in their monthly payments, rather than everybody else. We are trying to balance the budget. There are many other supports.

There will be elements of targeting. There have been some remarks to the effect that the assistance for landlords is wrong. That is linked to them staying in the market for four or five years. There is a reason for having targeted interventions. There are interventions that will try to help. Months ago, before anyone was calling for such a measure, the Minister said he was trying to see how he could reach those most affected by interest rate increases. That has been achieved in the Bill. Naturally, everybody wants more money. We have to be realistic, however, because we can only stretch the money so far. This is a fair attempt to do that.

Deputy Michael McGrath

When we draw up parameters for any scheme, there will always be criticism of where the parameters have been drawn. Deputy Doherty described his proposal as being targeted. It is not targeted; it has a limited benefit. There is a difference. He is essentially suggesting that people with a mortgage balance of €10,000, €20,000 or €30,000 and perhaps two or three years left should also receive taxpayer support in the form of mortgage interest relief, albeit at a lower level because the balance of the mortgage is much lower. That is not targeting. I do not believe that is an appropriate use of resources.

As Deputy English said, the group of people we are trying to assist are those who have been impacted the most. A range of €80,000 to €500,000 is appropriate. I accept the need for some element of targeting. We can continue the debate about where that threshold should be, but it is the right policy and I am happy to defend it.

Section 13, as amended, agreed to.

NEW SECTION

Deputy Pearse Doherty

I move amendment No. 12:

In page 23, between lines 8 and 9, to insert the following:

“Report on Mortgage Interest Relief

14. The Minister shall, within one month of the passing of this Act, prepare and lay before Dáil Éireann a report on the introduction of temporary mortgage interest relief, available in respect of mortgages on principal private residences, applied at source on a monthly basis and equivalent to 30 percent of the difference in interest paid in the relevant month relative to interest paid in the relevant month under the interest rate charged to the relevant mortgage in June 2022, capped at a maximum benefit of €1,500 per relevant household for the duration of the scheme or a period of 12 months, whichever is the lesser.”.

Deputy Michael McGrath

We have had a discussion on this amendment.

Amendment put and declared lost.

Section 14 agreed to.

SECTION 15

An Leas-Chathaoirleach

Amendments Nos. 13 and 14 are related and may be discussed together.

Deputy Ged Nash

I move amendment No. 13:

In page 24, lines 3 and 4, to delete all words from and including “the” where it firstly occurs in line 3 down to and including line 4 and substitute the following:

“the Revenue Commissioners shall—

(a) maintain and publish on their website a current list of the names and addresses of charities having CHY numbers, and

(b) in each year publish on their website a list of the names, addresses and CHY numbers of every charity on which a notice in writing has been served under subsection (7) in the preceding 12 months.”.”.

This concerns the area of income and corporate tax exemptions for various bodies, namely charities and sporting bodies. It is a simple amendment designed to introduce greater transparency. I note the proposed revisions refer to the fact that Revenue may publish lists of those benefiting from such exemptions. I would prefer if that read "shall" in order to put a positive obligation on the Revenue Commissioners to publish the names of those organisations that have an exemption withdrawn or are to benefit from significant exemptions. It is not a commentary on the policy provision, of which I am supportive. Rather, I believe we need greater transparency when it comes to matters like this. There should be a positive obligation on Revenue to publish the names of those that benefit. I propose that the world "may" be removed and replaced with the word "shall".

Deputy Michael McGrath

I thank the Deputy for his amendment. Section 15 makes two changes to section 208B of the Taxes Consolidation Act 1997, which contains the administrative provisions for the charitable tax exemptions provided for in sections 207 and 208 and the arrangements concerning overseas charities provided for by section 208A of the Taxes Consolidation Act 1997.

The first amendment provides that Revenue may withdraw the charitable tax exemption under either sections 207, 208 or 208A where it is satisfied that the charity is no longer eligible for the exemption. In such cases, the exemption will be withdrawn from the date which the charity was found to be no longer eligible. The amendment also provides that Revenue will inform the charities regulatory authority of cases where the exemption is withdrawn.

The second amendment provides for the publication of a list of charitable bodies that have received tax exemption under sections 207 and 208 and a separate list of all foreign established trusts that have received exemptions under section 208A. This amendment ensures that there is a legislative basis for Revenue to do this.

Deputy Nash has proposed two amendments to section 15 relating to the publication of the list of bodies who have received the tax exemption under sections 207, 208 and 208A of the Taxes Consolidation Act. Deputy Nash suggests replacing the word “may” with “shall” in relation to the publication of the list. This would impose a statutory obligation on Revenue to publish such a list, rather than giving it a legislative basis to publish the list. The wording proposed by Deputy Nash would also oblige Revenue to update the list every time a charity is granted the tax exemption, rather than update it periodically, which would place a further burden on Revenue which may not be achievable in real time. It is my understanding that, upon enactment of the Finance Bill, Revenue will publish the list on its website and update it periodically.

The Deputy's second proposed amendment to section 15 provides that Revenue would be obliged to publish a list of all of the charities which have been served with a notice that the tax exemption is being withdrawn. This would mean that the affected charities would have their withdrawal published potentially before they have had a chance to exercise their statutory right of appeal against the withdrawal of their exemption and it could therefore infringe on their legal rights. Section 15 will allow the public to check the published list of bodies which have the exemption at a given time.

Section 16 makes two changes to section 235 of the Taxes Consolidation Act 1997, which provides for an exemption from income tax and corporation tax on the income of certain bodies established for the purpose of the promotion of athletic or amateur games or sports. The first change inserts definitions of competitive sport, recreational sport and sport into section 235. The definitions are taken directly from the Sport Ireland Act 2015, and including them in this section is intended to provide clarity as to what bodies are eligible to apply for tax exemption. The section also inserts a grandfathering clause which allows bodies already granted the tax exemption under this section to retain it subject to the conditions under which it was granted. The second change provides for the publication of a list of bodies that have been granted a tax exemption under section 235. This ensures that there is a legislative basis for Revenue to do this.

Deputy Nash has proposed an amendment to section 16 as initiated. The amendment relates to the publication of the list of sports bodies which have been granted tax exemption under section 235. The Deputy proposes replacing the word "may" with "shall" in relation to the publication of the list. This would impose a statutory obligation on Revenue to publish such a list, rather than giving Revenue a legislative basis to do so. The wording proposed would also oblige Revenue to update the list every time an approved body is granted the tax exemption, rather than periodically update it as it currently does, which would place a further burden on Revenue which may not be achievable in real time. It is my understanding that Revenue will publish the list on its website and update it periodically. For these reasons, I do not propose to accept the amendments.

Deputy Ged Nash

I am happy to withdraw the amendment and might table it again on Report Stage.

Amendment, by leave, withdrawn.

Section 15 agreed to.

SECTION 16

Deputy Ged Nash

I move amendment No. 14:

In page 25, lines 6 to 8, to delete all words from and including “the” where it firstly occurs in line 6 down to and including line 8 and substitute the following:

“the Revenue Commissioners shall maintain and publish on their website a current list of the names, counties and games and sports exemption numbers of the bodies of persons that are approved bodies of persons.”.”.

Amendment, by leave, withdrawn.

Question proposed: "That section 16 stand part of the Bill."

Deputy Pearse Doherty

I have a question on the grandfathering provision. Will the Minister explain the types of bodies that would not be eligible for this that are eligible at the minute? I understand that no body will lose its status because of the grandfathering provision. I am trying to figure out who will be impacted by this.

Deputy Michael McGrath

I thank the Deputy. I will read a short note and will then add clarity on the specific question.

This section makes two amendments to section 235 of the Taxes Consolidation Act 1997, which provides for an exemption from income tax and corporation tax on the income of certain bodies established for the purpose of the promotion of athletic or amateur games or sports. The first amendment inserts definitions of "competitive sport", "recreational sport" and "sport". The definitions are taken directly from the Sport Ireland Act 2015, and including them in this section is intended to provide clarity as to what bodies are eligible to apply for tax exemption. The amendment also inserts a grandfathering clause which allows bodies already granted the tax exemption under this section to retain it subject to the conditions under which it was granted. The second amendment provides for the publication of a list of bodies that have been granted a tax exemption under section 235. This amendment ensures that there is a legislative basis for Revenue to do this. It allows the bodies already granted the tax exemption to retain it.

The insertion of a definition of "sport" into section 235 provides clarification about who may be eligible for this tax exemption. The definitions of "competitive sport" and "recreational sport" specify that to fall into the definition of "sport", the activities of the bodies must either provide for organised participation in a physical activity which improves fitness and promotes competition or provide for casual or regular participation in a physical activity which provides fitness, mental well-being and forms social relationships.

An Leas-Chathaoirleach

That is noted.

Question put and agreed to.

Section 20 agreed to.

SECTION 21

An Leas-Chathaoirleach

Amendment No. 15 is out of order as it involves a potential charge on the people.

Amendment No. 15 not moved.

Question proposed: "That section 21 stand part of the Bill."

An Leas-Chathaoirleach

The section is opposed by Deputies Nash and Doherty.

Deputy Pearse Doherty

This year, landlord tax relief is provided for. We talked about mortgage interest relief earlier and how the Minister would lock out 130,000 people with his proposal. It is important to remember that landlords are able to avail of mortgage interest relief of 100%.

The Minister has brought forward a proposal that provides twice as much money to landlords as to tenants, a proposal that provides more money to landlords than to mortgage holders. It makes absolutely no sense but it is typical of Fianna Fáil. This is the first time in a while that we have had a Fianna Fáil Minister for Finance, and voilà, he introduces a tax measure that benefits landlords. The worst thing is that it is not going to work. It is dressed up in the idea that it is about retaining landlords in the system, yet all the evidence, including from the Department, makes it very clear that taxation is not the reason landlords are leaving the sector. The Department makes it very clear, stating the taxation of rental income is often cited as a push factor for buy-to-let investors. It states that the way in which rental income is treated for tax purposes has in fact not changed and that personal rates of income tax have always applied to rental income. It states that landlords have benefited from the changes to the personal taxation system every year. It goes further by stating any favourable treatment of passive personal income, such as rent, would raise legitimate questions around social equity. That is the core of the issue.

Today, our party leader was addressing the Taoiseach regarding the housing crisis and the fact that schools cannot recruit 800 teachers. Some of those teachers are in Dubai and elsewhere because they cannot afford housing here. There is no provision coming from the Minister to help them. Managers in general hospitals across the State will talk about the difficulty in recruiting nurses. One will see many of our nurses in Melbourne, Sydney, Canberra, Toronto in Canada, and even in London. There is no provision to support their incomes. There are no sweetheart tax deals for nurses or teachers. For the first time, the Government has broken the link regarding how taxation is applied to rental income, which the Department says would raise serious, legitimate questions around social equity. It does exactly that.

The Department went on to say that the breadth and depth of argument necessary to support such a fundamental shift in policy has not been provided to the extent necessary to support such a significant change. More specifically, the rationale as to why passive income from property rental should enjoy a lower or preferential rate of tax than that applied to income earned, for example, has not been set out. The Minister should have listened to his officials. What Fianna Fáil has done, and what Fine Gael has been doing for the past several years, with the Green Party towing the line, unfortunately, has provided a benefit to landlords. This is not going to work. A former professor in the ESRI said it is the stupidest tax relief he has seen in years and that there is stiff competition. He is absolutely right about this.

Rental income has increased by 25%. Rents have increased by 25% since Deputy Michael McGrath became a Minister. The amount landlords can offset through mortgage interest relief has increased from 80% to 100%, yet the Minister comes forward with a proposal that benefits landlords once again – a proposal that will not only benefit them next year but also increase the following year and the year thereafter. More than likely, if the Minister is returned to government, he will try to extend it again and again.

Why are landlords cashing out? There has been research done on this. Landlords have given three reasons for cashing out. The primary one is that house prices have never been so high. As I stated before, €70,000 is the amount by which the price of a house has risen, on average, since Deputy Michael McGrath became Minister. Accidental landlords are cashing out as a result. There is also a tax reason because, when Fine Gael was in government, it brought forward a capital gains tax measure that means it is beneficial to cash out. At the core is an issue of equality. I genuinely ask the Minister why he would do what he is doing. He will argue that it is about retaining landlords in the market. The most a landlord would have to pay back if he or she left before the end of the four years would be €3,400. He or she would not get the last €1,000 if he or she left within the four years. Since the Minister took office, house prices have been increasing by about €1,700 every fortnight. Landlords would just have to wait a month to be no worse off. In two months, they would be better off because Fianna Fáil, Fine Gael and Green Party policies continue to push up house prices, as we have seen. Across Europe when interest rates rise, house prices normally reduce. This is happening elsewhere but not here because we have Fianna Fáil and Fine Gael in government.

Where is the targeting in this? How much will it cost? It will be €170 million, twice what is being given to renters and more than what is being given to mortgage holders? It is not going to work. The experts in the Minister's Department have told him this but he has completely ignored that. It is what Fianna Fáil does best: looking after landlords and not understanding the core of the problem and dealing with the core issue. Maybe the Minister can argue that the taxation of landlords has increased over the past year, that his Department's officials are wrong and that tax on rental income is reduced every year because of changes to personal income tax and because of the offset of mortgage interest relief from 80% to 100%.

Deputy Ged Nash

The Labour Party opposes this section and the initiative involved on the basis of the basic rule of thumb that a landlord should not pay less tax on his or her passive income or investment than a PAYE worker on his or her income. I do not believe the policy is sustainable, as has been said before, including by me. Assistant professor of economics Barra Roantree, who works in Trinity College Dublin, has referred to it as one of the most stupid reliefs in years, in the face of stiff competition, as Deputy Doherty has said and as I have said previously. There was no evidence available – quite the opposite, in fact – to indicate the relief would achieve what the Minister claims. It evidently will not. Deputy Doherty is right in that all the research is very clear on this.

When we speak to landlords in our representational work, we note there is no demand for the provision among them. It will not achieve the objective that the Minister appears to have set out for it. No advice I have seen suggests it would keep landlords in the market. The reasons landlords are leaving are manifold but they are not doing so for want of a tax relief of this nature. They are leaving the market because house prices are high, as Deputy Doherty said. The capital gains tax provision was introduced at a particular point for a particular reason and served a purpose, but I just do not understand objectively why the costly measure we are discussing has been introduced. It just does not make sense to me because it will simply not achieve the stated objective the Minister believes it will. That is clear and has been proven to be the case. It is an absolute waste of taxpayers' money, benefiting landlords above PAYE workers. The basic rule of thumb I would apply is that a landlord should not be provided with these kinds of reliefs and taxed differently than a PAYE worker.

Deputy Michael McGrath

I thank Deputies Nash and Doherty for their contributions. I said in my budget speech that for every tenant there has to be a landlord. In recent years we have seen a decline in the number of small investors in the market owning one or two properties. Some 86% of landlords in the market own one or two properties and they have a vital role to play. This section inserts a new section 480C into the Taxes Consolidation Act 1997 to provide income tax relief to individual landlords of residential rental property. The relief will reduce the tax due on residential rental income by up to €600 in 2024, €800 in 2025 and €1,000 in 2026 and 2027. The relief is capped at the individual’s tax liability on rental income from residential property. It will be calculated at the standard 20% rate of tax and will not include a disregard for USC or PRSI purposes. To avail of it, the property must be rented or actively marketed for rent at the end of the year in respect of which the claim is made. Eligibility for relief is dependent on the landlord having tax clearance and complying with their local property tax, LPT, and RTB requirements. Where a property is owned by more than one individual, relief will be apportioned between owners based on the rents returned by each owner. The relief will be clawed back where, within four years of the start of the first year in which relief was claimed, any of the landlords’ residential properties are disposed of or otherwise removed from the rental market. Relief is not available where the property is let to connected parties such as relatives. The rental sector in Ireland is not dominated by large institutional investors. The majority of landlords in Ireland are private individuals, owning one or two rental properties, often with a view to providing an alternative to a pension income in retirement. The purpose of this amendment is to support the continued participation of small scale landlords in the rental market, an objective being progressed through Housing for All, the Government’s housing plan to 2030.

No, I do not.

Deputy Michael McGrath

Yes, you do.

Deputy Pearse Doherty

No, I do not.

Deputy Michael McGrath

His party's rhetoric and promised policies are part of the reason some landlords are deciding to leave the market. Let us call a spade a spade. The Deputy's policy on the rental sector is to freeze the rents so landlords never get to put the rent back up again. They can never sell the property because he will ban evictions of all forms for however long and he will increase the tax. Sinn Féin even has it in its pre-budget submission that it would increase the tax on the rental sector

That is Sinn Féin policy. The party has absolutely no regard for the private rental sector. I am not sure it even recognises that there is a need for one. The Deputy believes that the State can do everything through the provision of social, cost-rental and affordable accommodation. We are doing a great deal and will do more into the future but that is essentially what the Deputy's party policy is. If he does not take my word on the need for a change in this area, I am sure he has heard of Focus Ireland. I believe this organisation knows a great deal more than he does or, indeed, I do about homelessness, about the private rental sector and about the role it is playing with regard to landlords exiting the market and the consequences that has for the real people he and I represent.

The Minister knows that is not it. We are in favour of a rent ban for three years. That is what he should do and what I would do if I was in his position. I would support tenants and would make a very clear decision to support tenants and not landlords at this point in time. I would make that decision. That is what I would do as Minister for Finance.

Deputy Michael McGrath

Bogus.

Deputy Pearse Doherty

We know that the Minister's priorities are about putting money into the pockets of landlords.

On the reform with regard to private rental income, the Minister should absolutely be doing that. Indeed, we will be proposing amendments in that regard. The fact is that those who rent in this city - the vulture funds - pay no income tax with regard to their rents and pay no CGT with regard to disposals, and yet the Minister is happy to smile over there and allow that to continue. It is absolutely obscene. The Minister mentioned Focus Ireland and the talks about the alignment between the corporate and the individual, yet these corporate individuals get far more and benefit so much under the deals the Minister is willing to continue with.

I asked a very simple question, which I believed we could start from as a base point, about the need to accept that the effective tax rate on landlords has gone down over the past ten years. This is a point which the Minister for Finance is unwilling to utter but it is simply a fact.

Will Deputy Doherty not wait for the answer? He knows full well that we are into repetition here. It is an important subject but it is not gaining any momentum from the continued repeating of arguments which have taken place many times before. I am saying now that there are ample opportunities to put down further amendments on Report Stage, if necessary, and to have a discussion on this again in the light of information which is available now and can be put to the committee. At this stage I must put the question.

Deputy John McGuinness resumed the Chair.

Question put: "That section 21 stand part of the Bill."

The Committee divided: Tá, 6; Níl, 2.

Tá

Durkan, Bernard J.
English, Damien.
Matthews, Steven.
McGrath, Michael.
McGuinness, John.
O'Callaghan, Jim.

Níl

Conway-Walsh, Rose.
Doherty, Pearse.

Question declared .

Section 22 agreed to.

SECTION 23

Question proposed: "That section 23 stand part of the Bill".

Deputy Pearse Doherty

On section 23, this is not a provision in the Bill but it relates to professional withholding tax, in particular in relation to the fact it applies to GPs in the HSE. The Minister will be aware that there are issues in regard to a tax ruling that has applied and transitional arrangements that the Revenue Commissioners are allowing to happen where income is assigned to the partnership as opposed to the GP that has the contract with the HSE. It is interesting that the Revenue Commissioners are allowing for provisions until 1 January, if there is no change, which there is not, in this Finance (No. 2) Bill.

However, there has been a change in the interpretation of the application of how this is being applied. Quite serious concerns have been raised by some GP practices that this could cause issues in terms of retention. I am not that familiar with this but I understand it may be connected with the new GP contract.

I ask this in consideration of the Finance (No. 2) Bill. I know the Minister is aware of it and he has spoken to his colleagues about it. Does something need to be done if a new GP contract is coming down the line to resolve or partially resolve the issue? In my home town people with serious pains cannot see a GP for a week after phoning the practice. The last thing we want to hear is that someone has been lost from the practice because of a change that will take place on 1 January. Notwithstanding that, I have read the detail of what is happening and the interpretation of the Revenue Commissioners that the contract is between the HSE and the general practitioner and therefore tax should be applied at that level. That being said, there is a crisis in GP recruitment and retention. Has the Government considered this? Deputy Jim O'Callaghan tabled an amendment that has been ruled out order so I thought this might be the opportunity to say a few words about it.

Deputy Damien English

We have all been contacted. I have not gone into the detail of it and I do not know whether it has been misunderstood or misinterpreted by some side, but reasonable GPs who provide a top-class service are concerned. This would impact the service they can provide. It seems to be impacting those who have gone to great efforts to be able to increase the service they are able to provide by bringing various GPs together. I assume this can be addressed in some way or clarified to allay fears, and the sooner the better because there is a lot of concern about it.

Deputy Pearse Doherty

I move amendment No. 16:

In page 31, between lines 17 and 18, to insert the following:

“Report on pension tax reliefs and subsidies

24. The Minister shall, within six months of the passing of this Act, prepare and lay before Dáil Éireann a report on the tax reliefs and subsidies applicable to pensions, including contributions and at drawdown, to assess their cost to the Exchequer and distributional impact.”.

The amendment seeks a report on the tax reliefs applicable to pensions, including the contributions and drawdowns. Tax relief on employee pension contributions costs more than €1.2 billion. That is not to say that at least some of that is not money well spent. There is a policy objective to encourage people to invest in their pensions and they are taxable on drawdown. However, more than 30% of the €1.2 billion in relief, or €378 million of it, was availed of by the top 3% of earners. We need to be conscious that, while pension tax relief is a good social policy and should be retained, the distributional impact is skewed. Some €378 million in tax relief going to the top 3% of earners should raise serious questions.

Our proposal, which is long-standing, is to reduce the earning limits for tax relief for employee contributions from €115,000 to €60,000. It is important the Minister understands this as he has claimed on a number of occasions that we would hit the pension tax relief of people earning €60,000. That is not how the earnings limit works. It is the that people can put a percentage of a certain portion of their income into a pension and still get full pension tax relief on it. Our proposal would still allow for an employee to avail of full tax relief on pension contributions of €24,000 per year. The average pension contribution in 2022 was less than €3,500. If the earnings limit is reduced from €115,000 to €60,000, people would still be able to put €24,000 per year into their pensions and get full tax relief on it. Few people are able to do that.

It is also worth noting that equalising the age-related percentage limits which increase with age to the highest percentage limit would be cost neutral. That is what we suggest. There is merit in doing this. There is a strong rationale and that is why we would continue to allow income earners to put up to €24,000 into their pensions every year and get full tax relief on that contribution. However, we need to look at the fact that €378 million of the €1.2 billion overall cost of pension tax relief goes to the top 3% of earners. It is disproportionate and needs to be looked at. The best way to do that would be to examine the issue in terms of the available subsidies, the tax reliefs available to pensions, the contributions at drawdown, the cost to the Exchequer and the distributional impact in a report to be laid within six months of the passing of the Act.

Deputy Michael McGrath

I thank the Deputy for tabling the amendment. On tax treatment of supplementary pensions, as the Deputy is aware, Ireland operates an exempt-exempt tax, EET, system. This means that contributions to pensions are exempted from income tax, subject to age-related percentage and income limitations, as mentioned earlier. Pension fund gains are exempted from income tax but income from pension drawdown is liable for tax. Where data are available on the cost to the Exchequer of tax relief for pensions, these data are publicly available and included in Revenue’s publication on the cost of tax expenditures as well as in the Department of Finance report on tax expenditures, which was published with the budget last month. With regard to a distributional analysis, I am advised by Revenue that prior to the introduction of real-time reporting, that is, PAYE modernisation, in January 2019, pension contributions were reported to Revenue at an employer level rather than an employee level. As the Deputy will be aware, while there were some delays in the processing and publication of the data following the implementation of the new system, Revenue has been publishing data and some more detailed analysis on its website as they become available.

The Department of Finance report on tax expenditure and Revenue's cost of tax expenditures publication both contain information on the cost to the Exchequer of tax expenditures, including tax relief for pension contributions. In 2020, the cost associated with tax relief for employee pension contributions was €1.154 billion. This is a significant cost but it is an important part of encouraging savings for retirement. Revenue informs me that more than 1 million employees made pension contributions at some point last year. In 2022, pension contributions made through employers by employees and employers totalled €3.6 billion and €2.6 billion, respectively. These include contributions to occupational pensions, additional voluntary contributions, AVCs, contributions to personal retirement savings accounts, PRSAs, and contributions to retirement annuity contracts, RACs. Those with higher incomes make greater contributions to their pensions, but the average share of income set aside in pension contributions is relatively consistent across the income ranges.

It is typically 3% to just under 7% and below the maximum age-related percentage thresholds which apply to pension contributions. However, I am aware of the importance of additional data in this area. The interdepartmental pensions reform and taxation group, which reported in November 2020, was tasked with a number of actions relating to the pensions roadmap, including proposals aimed at simplifying and harmonising the supplementary pension landscape and an assessment of the cost of State support for pension savings. The actions identified in the report are being worked through.

There are no data available on the uptake or cost to date of the scheme as the income qualifying under section 2160D of the Taxes Consolidation Act is not required to be declared by individuals on their tax return on the basis that there are potentially 55,500 eligible claimants. A typical claimant could expect to be paid approximately €300. We estimate that the annual cost to the Exchequer of the tax exemption in its current form is in the order of €3.6 million. That is assuming that 30% of taxpayers are at 50%, 60% are at 30% and 10% are exempt.

Question put and agreed to.

SECTION 29

Question proposed: "That section 29 stand part of the Bill."

Deputy Pearse Doherty

In relation to section 29, which again I support, this is just an extension until 2025. I presume it will be extended for many years to come. From a policy point of view, has the Minister considered looking at the accelerated allowances for other types of capital investment, particularly in relation to modern methods of construction, MMC, in housing to try to give that the boost it needs?

This is not only from a housing point of view. It is also from a less intensive carbon-type of construction as well as a more efficient point of view. Has that been looked at or would it be considered? I raise it because it should be considered.

Deputy Michael McGrath

I thank the Deputy. A review is ongoing by the Department of the Environment, Climate and Communications and the SEAI of climate policy considerations relevant to the accelerated capital allowance, ACA, scheme, that is the accelerated wear and tear allowances scheme. The SEAI maintains a list of energy-efficient equipment that qualifies for the scheme, known as the triple E product register. Details are available on its website. The outcome of this review next year will inform future policy decisions on this particular tax measure. We are expecting that review will conclude next year and we will consider the outcome of that in the context of this section.

Question put and agreed to.

SECTION 30

Question proposed: "That section 30 stand part of the Bill."

Deputy Damien English

On section 30 and the campaign around allowances not drawn down and reliefs, could the issue of farm safety also be strengthened in the public campaign as well? We are trying to get the message on farm safety out through loads of different channels. This might be an opportunity in that campaign from the Revenue Commissioners or the Department of Finance around allowances to push that as well.

Deputy Michael McGrath

That is a fair point. I will ask the officials at the Revenue officials to take a note of that point. The Deputy is raising the issue of the accelerated wear and tear allowances for farm safety equipment under section 30 as part of our public information campaign on claiming reliefs, exemptions and credits. Perhaps we could do some targeted work through the relevant publications in the agricultural sector in order to highlight that again.

Deputy Damien English

I thank the Minister.

Question put and agreed to.

Deputy Pearse Doherty

Is there a scheduled break due after section 31?

An Cathaoirleach

Yes.

SECTION 31

I have just added additional wording to clarify what I am bringing forward.

Sitting suspended at 8.16 p.m. and resumed at 8.32 p.m.

Deputy Steven Matthews took the Chair.

Section 32 agreed to.

NEW SECTION

Deputy Michael McGrath

I move amendment No. 17:

In page 38, between lines 13 and 14, to insert the following:

“Amendment of section 664 of Principal Act (relief for certain income from leasing of farm land)

33. Section 664 of the Principal Act is amended—

(a) in subsection (1)—

(i) in paragraph (a), by—

(I) the insertion of the following definitions:

“ ‘own’, in relation to farm land, includes holding a leasehold interest in farm land;

‘relevant lease’ means a lease of farm land which is for a definite term of 50 years or more;”,

and

(II) in the definition of “qualifying lessor”—

(A) in paragraph (ii), the substitution of “arm’s length, and” for “arm’s length;”, and

(B) the insertion of the following paragraph after paragraph (ii):

“(iii) subject to paragraph (aa), has owned the farm land referred to in that paragraph for a continuous period of not less than 7 years beginning on the date of the contract to purchase the farm land concerned.”,

and

(ii) by the insertion of the following paragraph after paragraph (a):

“(aa) (i) Subject to subsections (1A) to (1D), paragraph (iii) of the definition of ‘qualifying lessor’ shall apply to an individual who purchased farm land pursuant to a contract entered into on or after 1 January 2024 for a consideration equal to the market value of the farm land at the date of the purchase of that farm land.

(ii) The reference in subparagraph (i) to the purchase by an individual of farm land shall be read as including a reference to the acquisition by an individual of a leasehold interest in farm land under a relevant lease and the reference in that subparagraph to the date of the purchase shall be read as including a reference to the date on which a relevant lease in respect of farm land is granted.”,

and

(b) by the insertion of the following subsections after subsection (1):

“(1A) (a) Where an individual referred to in subsection (1)(aa)(i)—

(i) within a period of 7 years from the date of the purchase referred to in subsection (1)(aa), transfers the farm land, in whole or in part (in this subsection referred to as the ‘transferred farm land’), other than by way of purchase for a consideration equal to the market value of the transferred farm land at the date of the transfer, to a person (in this subsection referred to as the ‘transferee’) who is connected with the individual, and

(ii) it is reasonable to consider that the main purpose, or one of the main purposes, of the transfer referred to in subparagraph (i) is to avoid the application to the individual of paragraph (iii) of the definition in subsection (1) of ‘qualifying lessor’ in respect of the transferred farm land,

then—

(I) the transferred farm land shall be treated as having been purchased by the transferee for a consideration equal to its market value at the date of the transfer,

(II) for the purposes of subparagraph (i) of paragraph (aa) of subsection (1), a reference in that subparagraph to the date of the purchase shall be read as a reference to the date of the transfer, and

(III) paragraph (iii) of the definition in subsection (1) of ‘qualifying lessor’ shall apply to the transferee in respect of the transferred farm land and the reference in that paragraph to the date of the contract to purchase the farm land shall be read as a reference to the date of the transfer of the farm land to the transferee.

(b) Where, within the period of 7 years from the date of the purchase referred to in subsection (1)(aa)—

(i) the transferee transfers the transferred farm land, in whole or in part, other than by way of purchase for a consideration equal to its market value, to a person connected with the individual (in this subsection referred to as a ‘subsequent transferee’), and

(ii) it is reasonable to consider that the main purpose, or one of the main purposes, of the transfer referred to in subparagraph (i) is to avoid the application to the transferee of paragraph (iii) of the definition in subsection (1) of ‘qualifying lessor’ in respect of the transferred farm land,

then—

(I) the transferred farm land shall be treated as having been purchased by the subsequent transferee for a consideration equal to its market value at the date of the transfer to the subsequent transferee,

(III) paragraph (iii) of the definition in subsection (1) of ‘qualifying lessor’ shall apply to the subsequent transferee in respect of the transferred farm land and the reference in that paragraph to the date of the contract to purchase the farm land shall be read as a reference to the date of the transfer of the farm land to the subsequent transferee.

(c) Paragraph (b) shall, with any necessary modifications, apply in respect of any transfer by a subsequent transferee to another person as it does to a transfer by a transferee to a subsequent transferee under that paragraph.

(d) In this subsection, references to the transfer of farm land, in whole or in part, shall be read as including references to the grant of a leasehold interest in the farm land, in whole or in part, and, where the context requires, references to—

(i) the transferee shall be read as a reference to the person to whom the lease has been granted,

(ii) the person transferring the farm land shall be read as a reference to the person granting the leasehold interest in the farm land, and

(iii) the date of the transfer shall be read as a reference to the date on which the leasehold interest in the farm land is granted.

(1B) (a) Where, as part of, or in connection with, a scheme or arrangement—

(i) farm land is acquired (in this subsection referred to as the ‘acquired farm land’) by an individual on or after 1 January 2024 from a person (not being an individual) with whom the individual is connected,

(ii) the farm land is acquired by the individual other than by way of purchase for a consideration equal to its market value at the date of the acquisition, and

(iii) it is reasonable to consider that the main purpose, or one of the main purposes, of the scheme or arrangement is to avoid the application to the individual of paragraph (iii) of the definition in subsection (1) of ‘qualifying lessor’ in respect of the acquired farm land,

then—

(I) the acquired farm land shall be treated as having been purchased by the individual for a consideration equal to its market value at the date of the acquisition,

(III) paragraph (iii) of the definition in subsection (1) of ‘qualifying lessor’ shall apply to the individual in respect of the farm land and the reference in that paragraph to the date of the contract to purchase the farm land shall be read as a reference to the date of the acquisition of the farm land by the individual.

(b) In this subsection, ‘acquire’, in relation to farm land, includes the acquisition of a leasehold interest in farm land and a reference in this subsection to the date of the acquisition shall, in relation to farm land, be read as including a reference to the date on which a leasehold interest in farm land was granted.

(1C) (a) Where, on or after 1 January 2024, an individual purchases farm land pursuant to a contract entered into on or after that date, from a person who is not connected with the individual for a consideration that is greater or less than the market value of the farm land on the date of the purchase, then—

(i) the farm land shall be treated as having been purchased by the individual for a consideration equal to its market value at the date of the purchase, and

(ii) paragraph (iii) of the definition in subsection (1) of ‘qualifying lessor’ and, where applicable, paragraph (a)(i) of subsection (1A), shall apply to the individual.

(b) Where, as part of a scheme or arrangement entered into between an individual and another person in respect of farm land purchased by the individual pursuant to a contract entered into on or after 1 January 2024 (in this paragraph referred to as the ‘first-mentioned farm land’)—

(i) the individual acquires farm land from such other person (in this paragraph referred to as the ‘second-mentioned farm land’) in exchange for the first-mentioned farm land, and

(ii) it is reasonable to consider that the main purpose, or one of the main purposes, of the scheme or arrangement is to avoid the application to the individual of paragraph (iii) of the definition in subsection (1) of ‘qualifying lessor’ in respect of the first-mentioned farm land,

then—

(I) the second-mentioned farm land shall be treated as having been purchased by the individual for a consideration equal to its market value at the date of the acquisition of that farm land by the individual, and

(II) paragraph (iii) of the definition in subsection (1) of ‘qualifying lessor’ and, where applicable, subsection (1A)(a)(i), shall apply to the individual in respect of the second-mentioned farm land.

(c) In this subsection, ‘acquire’, in relation to farm land, includes the acquisition of a leasehold interest in farm land and a reference in this subsection to the date of the acquisition shall, in relation to farm land, be read as including a reference to the date on which a leasehold interest in farm land was granted.

(1D) Paragraph (iii) of the definition in subsection (1) of ‘qualifying lessor’ shall not apply in respect of an individual who enters into a qualifying lease by reason of the death of the individual’s spouse or civil partner and the spouse or civil partner jointly owned the farm land with the individual immediately before the death of the spouse or civil partner.”.”.

As I announced on budget day, this amendment to section 664 of the Taxes Consolidation Act will impose a seven-year holding requirement in respect of purchases of farm land on or after 1 January 2024, thereby restricting availability of the income tax relief in order that it does not become immediately available to such purchasers of agricultural land. In addition, it is proposed to introduce a number of anti-avoidance provisions to deal with situations in which the application of the seven-year holding rule could otherwise be circumvented. It is also proposed to amend section 664 to provide that the seven-year holding rule will not apply in specific cases where the death of a spouse is involved.

First, the amendment will change the definition of "qualifying lessor" to include a condition that an individual who purchases farmland must hold that farmland for at least seven years from the date of the contract to purchase the land. The amendment further provides that this seven-year holding requirement applies in respect of farmland purchased by an individual under a contract entered into on or after 1 January 2024 for a consideration equal to the market value of the land at the date of the purchase. The seven-year holding requirement will also apply in circumstances in which, instead of purchasing the farmland, the individual is granted a lease of the farmland which is 50 years or greater.

“(d) Paragraph (c)(vi) (in so far as it inserts subsection (16) in section 766C of the Principal Act) and paragraph (d)(v) (in so far as it inserts subsection (15) in section 766D of the Principal Act) of subsection (1) shall apply on and from the date of the passing of this Act.”.

Amendment agreed to.

Question proposed: "That section 33, as amended, stand part of the Bill."

Deputy Pearse Doherty

On the substantive section, this is quite a major change and one we have campaigned for as regards the research and development tax credit being increased to 30%. As to how this should apply, we have argued that it should apply to SMEs. This will apply right across the board for all companies. Like our earlier discussion about pensions, there has been genuine consideration of concentration of research and development tax credits in certain sectors in the past and how we can ensure that the SME and microenterprise sector is benefiting from and engaging in more research and development. This will affect all equally, but am I right to suggest that the motivation behind this is to offset the impact Pillar 2 would have on some of the companies that are in scope? The Minister might talk us through why the research and development tax credits would need to be increased by just below 30% in order for them to maintain the existing level of support, giving the new effective corporation tax rate that will come in at 15% or the top-up rate that will apply to them. I would like the Minister to discuss that in the first instance. Then I will come back on a number of points that are not connected.

Deputy Damien English

I would welcome any initiative to try to encourage a greater spend on research and development. I understand that is the motivation here.

We set targets in our various science strategies to reach a higher level of spend on research and development, both public and private, but we have not reached them yet when we compare ourselves with other countries that are where we would like to be. I welcome any incentives which encourage that and increase that expenditure. That will naturally lead to companies, including start-ups, locating, bedding in and developing here. The knock-on effect on job creation is also key.

Aside from the rates of research and development, the message needs to go through our organisations that we want to encourage more of this to find as many ways as possible for SMEs to avail of these credits and not be afraid to take them on. It is not always as simple to avail of them as people would think. They can be complicated. I would like to see the Minister send a strong message to our agencies, including Revenue, that we like to see companies using these credits, particularly SMEs, and putting them to good use for job creation, business expansion and growth.

Deputy Richard Boyd Barrett

I would like clarification on the rationale for this. If I remember the budget speech, it was to the effect that the Minister wanted to mitigate the impact of the changes arising from the OECD BEPS process and the increase in the nominal rate of corporate tax from 12.5% to 15%. I find it extraordinary that the Government dug in against any increases on 12.5% for years despite the super-profits being made. Profits are increasing exponentially for these corporations, and the effective rate is far lower than the Government is saying. There is an argument for some marginal improvement in the situation, which the Government grudgingly gives in to by raising the nominal rate from 12.5% to 15%, and then it finds a way around it by increasing the research and development tax credit, which will benefit the same small number of multinationals that make profits beyond the imagination of most human beings. Rather than making them pay a little more, the Government has sought - and explicitly stated, it seems - a way to ensure that they do not have to pay more.

What I find particularly incredible is that this is done in the name of research and development. At the same time, the Government spins this further tax giveaway on the grounds of research and development, the people who do research and development, that is, postgraduate researchers, have been marching and protesting outside Dáil Éireann, pointing out that they earn less than the minimum wage. What did the 10,000 PhD and postgraduate research workers without whom our universities would not function and would have research and development get? The vast majority got absolutely nothing. There was no additional budget allocation for them, even though commitments were made that a small group of them would get a small increase amounting to far less than they had asked for. Those were only the ones in receipt of stipends from Science Foundation Ireland and one of the other bodies. The vast majority of PhD researchers were getting zero in a situation where they earn less than the minimum wage. Some are getting nothing at all; others have to exist on about €9,000 per year. Then the Government wants to give another €27 million in funding that will overwhelmingly go to a tiny group of super-profitable multinational corporations which have more money than most human beings can dream of. That extra €27 million could be given to PhD researchers in order that they might have a living income, but it is being given to these guys instead. Maybe the Minister could tell us the latest figure for public expenditure on the research and development tax credit. The figure I have is that was €753 million per year up to 2021. The vast majority of that money goes to Google, Facebook, Apple and a small number of other companies. The Minister wants to give them another €27 million but there was not a cent extra in the budget - unless he wants to correct me - for PhD researchers. Honest to God, how can he justify that?

Deputy Michael McGrath

I have a short note which I will read and then I will answer some of the specific questions raised. This section amends sections 766, 766A, 766C and 766D of the Taxes Consolidation Act 1997, which relate to the research and development corporation tax credit regime. The purpose of the amendments is to maintain Ireland’s support for quality employment and investment in research and development and encourage new claimants and companies undertaking smaller research and development projects to engage with the regime. The rate of the research and development corporation tax credit is being increased from 25% to 30%. This increase will ensure that the net benefit of the tax credit is maintained for companies that are subject to the new 15% minimum effective tax rate and will provide a real increase in the value of the credit to companies outside the scope of the new Pillar 2 rules. I am also increasing the first year payment threshold from €25,000 to €50,000. This means the first €50,000 of an research and development corporation tax credit can be paid in full in the first year of the claim rather than being spread over the normal three-year payment window. This will be a valuable cash flow support to companies engaged in smaller research and development projects. These changes maintain the Government’s focus on enterprise supports for productive and innovative businesses in the State.

This section also provides for some administrative and technical changes to the research and development corporation tax credit regime. The first of these is the introduction of a new pre-filing notification requirement which will apply to companies claiming the research and development corporation tax credit for the first time and companies that have not filed a claim in the previous three years. The purpose of this pre-notification is to enable resource planning in Revenue to facilitate efficient processing of claims. In addition, there are a number of technical amendments following on from the introduction of new payment mechanisms in last year’s Finance Act to align with international tax changes.

These amendments clarify the position in relation to certain apportionments of costs and Revenue’s ability to examine claims; provide for the treatment of research and development credit where a successor company continues the trade and activities of a research and development company; and provide for additional reporting requirements in respect of carried forward research and development tax credits.

As to why the percentage is being increased, under the existing regime Irish corporation tax is in the form of a tax credit while under Pillar 2 it as regarded as a grant so, in effect, is taxable. In order to maintain the same net benefit, the increase from 25% to 30% is required.

On the payment to PhD researchers, the Minister for Further and Higher Education, Research, Innovation and Science, Deputy Harris, recently announced an increase in the PhD stipend provided by the competitive funding agencies under his Department to €22,000 per student per annum. This represents an increase of €3,000. He has said the Government remains committed to getting to €25,000. We have gone from €19,000 to €22,000, and the Minister is on record as saying that he hopes to finish the job by getting to €25,000 in subsequent budgets.

Deputy Richard Boyd Barrett

The group that got the increase, which is far less than they asked for and which would leave them still below the living wage, comprises a small minority of PhD researchers. The Minister should know this. The vast majority of PhD researchers are not in receipt of the stipends the Minister refers to and will not benefit.

There is no additional money for even that group in the budget. They are wondering where it is. What about the rest of them? There are 10,000 PhD researchers and they are really struggling. I have said this and I will say it again because, to me, it is important. One can choose to give research and development money for Apple to develop the iPhone 16.5 or whatever it is, or one could give it to our public universities to do research that might benefit society as a whole. I know which choice I would make. The Minister did not give me an answer about the most recent figure for the expenditure that is already going to research.

Deputy Michael McGrath

Is that tax expenditure?

Deputy Richard Boyd Barrett

Yes, tax expenditure for research and development. This is public money that we are spending. It is a tax expenditure. As of 2021, it was €753 million. I would like to know what is the most recent figure. I know corporate tax receipts and so on come in later and figures are a bit behind. I would like to know the latest expenditure on research. That is a huge sum of money, at three quarters of a billion euro. If I am reading the budget book correctly, the Minister is planning to give another €27 million on top of whatever is the latest figure. This is one of the largest expenditures we have and the Minister is giving extra, mostly to that small group of multinationals. They will be the main beneficiaries of this, while the majority of our PhD researchers, some 10,000 of them, are living in abject poverty.

Deputy Damien English

For the record, in my view, we would not be in the situation we are in as a country, with the employment levels we have, without investment in research and development and innovation. That is driving the activity in all sizes of companies. Without a doubt, there has to be research and development in both a public and private capacity. What we are trying to drive, from my understanding of all the various agencies, is a greater interaction and partnership of our public and private system. That should increase the level of terms and conditions for anybody involved in research and development. Having more spending and encouragement through incentives like this increases the spend and opportunities for anybody in the research community. It is not a case of singling out one company. Many of the companies I often hear mentioned in here are involved in some of our educational institutes and fund some really important research that leads on to innovation and job creation. Many interventions have a positive impact on climate change, the environment, health, people's lives and so on. There is much crossover with research and development.

I will speak on the research and development element. There is a theory somewhere that research and development should be abolished or minimised in certain circumstances, in order to be seen to be fair in respect of personal income for individuals involved. That is not the thing we should get into. The whole concept of research and development is to ensure we are competitive as an economy. Those who do not indulge in research and development are vulnerable. It is no good talking about it. We live in a competitive society. One could say there are shark-filled waters. All our competitors are investing heavily in research and development at present and will continue to do so. If we do not allow and encourage that to take place here, whereas six months or a year ago, everybody was saying we were the third, fourth, or maybe even the richest country in the world, that could disappear overnight. There are already signs of challenges on the horizon.

They have been repeated in recent weeks. It is hugely important we take account of that. Many major international companies now operating globally started in the garage at the bottom of the garden or wherever it was. If it were not for research and development, they would not have developed to that extent at all.

Deputy Pearse Doherty

I support the research and development tax credit. I do not agree with Deputy Boyd Barrett's comment that is an either-or scenario. The reality is that Ireland is way below par in investment in research and development. The fact we provide research and development support to companies should not be a reason not to invest in our universities, because I think the point being made is a very genuine one. We should be doing all of that. In comparison with other European countries we are well behind the curve in our investment in research and development. It is the type of investment across all the different ways that will benefit us in the medium to long term.

I looked at the statistics, and almost 200 claimants are getting less than €10,000. We need to foster these people. Not enough people or companies are involved in research and development at a small level. We have heard from others who are involved in research and development but sometimes the process or the application or the fact it could be called back is too much of a challenge and they are not even applying for it.

I am taken aback by the cost of this. The overall cost to the Exchequer last year of the research and development tax credit was €753 million for 1,600 claimants. If we increase the rate by 5% the cost of this will be an extra €27 million. Will the Minister explain how this is not linear in relation to the increase in the overall cost?

Deputy Michael McGrath

Deputy Pearse Doherty

Deputy Richard Boyd Barrett

Yes, but these points are being made, so for the record, I want to see more money being put into research and development. I do not want to see more money being put into the pockets of those 200 companies because they have enough.

I will make the point, when we consider all of this in the round, that there should be a general acceptance that our economy, and economic and industrial model is now very vulnerable to its over-reliance on a relatively small number of companies in a small number of sectors. I think pouring all of this public money into that same small group of companies is a mistake. We should be trying to significantly diversify our industrial base and research and development. What we are seeing is heavy concentration, and the Government is trying to maintain that concentration. I will make a larger point in terms of the relationship between the public universities and private industry in general. If you delve not too deeply into the origins of the success of some of that small group of big companies, you will find they have benefited enormously from the talent produced through public investment. Often the actual innovations and developments they commercialised were developments and innovations that came out of the public university or the State system. I am just saying.

Deputy Damien English

That is what we invest in. We are selling Ireland on the basis of talent.

Deputy Richard Boyd Barrett

I will also point out that there is a big contrast with the rest of Europe, in terms of how we are treating our PhD researchers in the public system. We are giving all the tax breaks to that few hundred companies, and our PhD researchers live in poverty. In Europe it is the other way round.

(Interruptions).

Deputy Damien English

They are two separate arguments.

Deputy Michael McGrath

I think Deputy Boyd Barrett is missing the bigger picture with this section and what it does. It maintains the existing benefit for the pillar 2 companies. The big winners in this section are the companies not in-scope of pillar 2. They benefit from the increase in the rate of the research and development tax credit, and they benefit from the doubling of the first year payment threshold from €25,000 to €50,000. The reason so many small companies do not engage in research and development comes down to cash flow and the ability to get support from the State to engage in it. That is the real story of this section. Yes, it is about ensuring we are not diluting the benefit of research and development for in-scope companies, because it is an important consideration for them when they are looking at their investment decisions. We are not just talking about a small number of companies. Of that 1,629 claimant companies in 2021, we believe almost 700 are in-scope of pillar 2. It is not a small number of companies. They collectively employ probably hundreds of thousands of people. It is an important issue for Ireland in terms of our attractiveness as a country for inward investment. The real story of this section is that the SMEs are the biggest beneficiaries.

Deputy Pearse Doherty

I will speak to the second part, which I did not speak to. While I support this section, the presentation of the costs is not true. This is a reduction for companies in tax liability that would otherwise be coming to us. It is €137 million. If we did not make this change in this section, the Exchequer would be €137 million better off. That is the cost of this section, and any other presentation of that is wrong. Notwithstanding that, I understand the rationale of what the Minister is doing, and the importance of this sector despite the concentration of the receipts we are dependent on and that it is retaining the cash benefit of the credit heretofore.

The first instalment threshold that a company can claim now is either 50% or €50,000, whatever is bigger. That is to be welcomed. While reading this section of the finance Bill I was thinking, "They will get there eventually." We have been arguing for these types of measures for a number of years now. There was movement last year when the timeframe was reduced. It is now 50% in year one. I agree that one of the biggest challenges for a company is cash flow. It was also Sinn Féin that put forward the argument for a 30% research and development tax credit. Six or seven years ago we put forward that the payable credits from three instalments in three years should reduced to one instalment in one year. It is a cash flow issue at the end of the day. For the Exchequer it is also a small amount of money. When we look at the concentration with regard to this tax credit, I think it is definitely worth doing. That said, I appreciate that what the Minister has brought forward is a move in that direction by allowing for 50% in year one. It is improving year on year. We really need to think about how we increase research and development in the SME and micro sector, especially the former. A lot of what is happening in the multinational sector mirrors the problems that they are not as active in terms of research and development as we should hope for. We need to keep that under review.

Deputy Michael McGrath

We will write to the committee on the costing. Given that the research and development credit is becoming taxable for in-scope companies in respect of pillar 2, it is reasonable to offset that and net it off. We will set out the basis. The costing is not something I was involved in directly. We will explain the figures and how they are arrived at.

Deputy Richard Boyd Barrett

Will the whole committee get that?

Deputy Michael McGrath

Yes.

Deputy Damien English

The info stages can include analysis of what will happen if we do not do this. The reason we have these credits and incentives is to unlock activity in the first place. Without them it might not happen. I presume there will be some sensitivity analysis about how if we do not do this it might lead to a reduction in the spend, which in my view would not be a good thing.

Question put and declared carried.

Sections 34 to 36, inclusive, agreed to.

NEW SECTION

Deputy Pearse Doherty

I move amendment No. 20:

In page 53, between lines 28 and 29, to insert the following:

“Report on establishment of Wealth Tax Commission

37. The Minister shall, within six months of the passing of this Act, prepare and lay before Dáil Éireann a report on the establishment of a Wealth Tax Commission to independently consider, having regard to the current taxation of wealth relative to labour, the merits, design and implementation of a net wealth tax.”.

I will be brief, as I know members want to reach section 39 before we conclude. The Minister will be familiar with this amendment, at least from his time in Opposition, and if he has followed this committee over the past number of years. It looks at a report on the establishment of a wealth tax commission to consider introduction of a net wealth tax in the State, which would apply to all forms of wealth with appropriate exemptions. I have outlined in different speeches where I think those types of exemptions should take place - agricultural land, active business assets, a portion of your home and so on. I note that the wealth tax commission in Britain was established in spring 2020 to provide in-depth analysis of proposals for a UK wealth tax working with a network of world leaders and experts including economists, lawyers and accountants to study all aspects of a wealth tax. It completed its final report in that same year and provided comprehensive insights into the establishment of a tax.

Given the question has not been studied or analysed in any great detail here in some time, and while we had the Economic and Social Research Institute, ESRI, report, it is now dated, it would be beneficial to establish such a commission, having regard to the issues raised previously.

Deputy Richard Boyd Barrett

I agree with this. As the Minister probably knows, I am a long-standing advocate of a wealth tax. We have always included it in our pre-budget submissions. It is long overdue that we introduce a wealth tax. I am sure the Minister is aware that Oxfam proposed something very similar to what People Before Profit proposed. In its calculations, it reckoned that imposing the wealth tax on those with accumulated wealth in excess of €4 million would generate €8 billion, an eye-watering sum of additional revenue for the Exchequer and therefore for housing, health and infrastructure and to address poverty. You can go through the list of good causes that amount of money could be put to to fundamentally transform many aspects of our society. It is a lot of money. In our budget submission, we proposed a 2% wealth tax on accumulated wealth, excluding the family home where it is worth less than €1 million. We estimated that would raise €5.9 billion; not as much as the Oxfam wealth tax proposal but a very significant amount of money as well.

It is worth commenting on the scale of wealth that exists in this country and how it is just leaping forward every year. It would come as a surprise to people who have been crucified with the cost-of-living crisis, the cost of housing and rent and so on that while they are getting poorer, our society is getting richer by a remarkable amount every year and the vast majority of that increase in wealth is concentrated in the hands of a very small group of people. Last year, net household wealth in the country as a whole exceeded €1 trillion - €508 billion worth of financial assets and €708 billion in housing assets, less €143 billion in liabilities. The breakdown of that wealth is important to note because I presume most of the liabilities are mortgage debt. When I hear the Government say it is all housing wealth, mostly people's houses and so on, actually, it is not far off 50-50 when the mortgages of ordinary people are excluded. The wealth tax we and Oxfam propose would exclude family homes. It would not be a tax on ordinary family homes. It would be a tax on those who own multiple properties, who have large property portfolios or who have vast amounts of financial assets, which make up about 45% of net household wealth, which increased just last year by €37 billion, and which have been going up by similar figures every year for about the past ten years.

We were only able to guess at the distribution of that €1 trillion and we argued again and again that we should have proper calculations of the distribution of that net household wealth. Fair play to the Central Bank, which is where I get my figures from, in December last year, it produced a report confirming the distribution we had extrapolated in our budget submissions for the past six or seven years, which is that the richest 10% in our society own 53% of that wealth. It is a staggering amount of money concentrated in the hands of 180,000 households out of the 2 million or so in the country. A bit like the corporate stuff we spoke about earlier, there is an absolutely staggering concentration of this enormous and ever-growing amount of wealth in the hands of a small group of people. If a 2% tax were put on their wealth, excluding family homes, it could generate a huge amount of money but they would not even feel it. With that level of income, they would probably generate a return on that level of wealth in excess of 2%. They would not even feel it but it would generate billions in additional revenue for the State and all the things for which we need money so badly. It is long overdue. I know this Government is very unlikely to embrace such a proposal but I do not see why it would not.

Deputy Bernard J. Durkan

I totally disagree with the contribution of the previous speaker. I disagreed with it all of last summer during the debate in the Committee on Budgetary Oversight. I remind Members that we had a wealth tax. It did not do too much for us. In fact, it had the opposite effect than has been suggested. It is an ideological thing that if somebody improves themselves and they accumulate wealth, the immediate response from some quarters is that they should be attacked straight away for it, penalised for it and put out of existence. That is an interesting theory. When that tax was introduced in this country, people got scared and left the country. A series of businesses closed down, for varying other reasons as well, and hundreds of thousands of people had to emigrate because we were no longer able to supply them with employment or ensure we had a vibrant economy. I do not believe the wealth tax was the sole problem but we have a much bigger population now and much bigger responsibilities. If anything goes wrong and we scare the people we expect to invest in the country, whether they be indigenous or overseas prospectors, we would be making a huge mistake. It will affect everybody. Much reference has been made to ordinary people. Unfortunately, the ordinary people who are so referred to are the people who will suffer most. That has been the case in the past.

On Oxfam, I watched its progress over the past number of years in the company of a certain Mo Ibrahim, who campaigned against the corporation profit tax in this country very vigorously all over the world and had the temerity to come to a committee meeting in the Oireachtas and have a go at this country for being a tax haven, as he said. He did not tell anybody he was in favour of aid for investment. In other words, he was big enough to offer aid to developing countries all over the world as long as he got investment returns for it. Effectively, what he was preaching was, for nothing at all, he was going to be able to have a good, happy and flourishing business as a result of offering aid. The aid was conditional on him having access to the investment he wanted. I am totally opposed to that. We should be opposed to that.

If we want to go down the road of diminishing the national pile to the extent that there is a little bit left for everybody, that is a grand old-fashioned theory but it does not work. It does not work in the business world. It did not work before. Do not forget the Soviet Union collapsed after 50 years. It just disappeared because there was no confidence in it. The money that was supposed to come from within the system was not generated within the system and, as a result, it collapsed. I am not saying this country is going to that extent but I would go very easy on this theory that all you have to do is hold out your hand and penalise those who make the effort of creating wealth. As a result, obviously, they have a high standard of living, but they also provide a lot of employment for thousands of people.

A few years ago, the Department of Finance produced a document, which the Deputy has mentioned in the past, showing that 80% or 90% of the wealth is in the hands of 10% of the population. It went on to say, however, that something like 75% of tax is paid by 10% of the population. That is the other side of the argument. Things are not quite how they look. On the creation of a wealth tax, the enticer is that it will not affect the family home up to a certain amount. It might not affect it yet but, in fact, it will affect it.

Deputy Ged Nash

I am sorry for being late for this element of the debate. I am conscious that I did not hear all the contributions but I imagine they were framed around the experience over countless years of debating, here and elsewhere, this particular proposition. In discussions about how we tax wealth, I am always intrigued, not by the division between left and right but by the divisions within the broad left about what constitutes wealth and how it should be taxed. With every due respect to my colleague who is sitting on my right, he is on my right in many cases, including on this issue, and to the right of People Before Profit and, indeed, Sinn Féin. Respect is due to the Deputies for defending this principle for years. They do not believe that homes and home ownership should be taxed. In fact, homes are our biggest source of wealth and the largest asset most of us will ever own. We cannot, by definition, have a wealth tax that excludes forms of taxation on assets like residential property, land and other non-productive assets. That is where I depart from my colleague, Deputy Boyd Barrett, and others. Most wealth in this country is held in assets, not in income.

The Commission on Taxation and Welfare produced a very detailed and comprehensive independent report last year, which we have yet to debate fully in the Dáil Chamber. There is a wariness, not just on the part of the Government, to adopt some of the firm and clear measures in that report. There is a reluctance on the part of some members of the Opposition to accept some of the very straightforward social democratic principles in the report, such as ensuring we maintain a broad tax base, which means retaining things like the universal social charge, taxes on property like the very modest local property tax and other measures. I have no difficulty whatsoever with the proposal before us if it makes a contribution to an open discussion on how we tax wealth. However, we must understand what wealth is and the form it takes in this country. I do not support any proposition that would narrow the tax base when what we need to be doing is making sure it is broad enough to invest in the public services we require and ensuring our tax system is sustainable.

Deputy Michael McGrath

The amendment seeks a report on the establishment of a wealth tax commission to be provided within six months of the passing of the Bill into law. As Deputy Doherty is aware, wealth can be taxed in a variety of ways, many of which are already levied here in Ireland. These include capital gains tax and capital acquisitions tax, which are, in effect, taxes on wealth in that they are paid by an individual or company on the disposal of an asset or the acquisition of an asset through gift or inheritance. There is deposit interest retention tax, which is currently charged at 33%, with limited exemptions, on interest earned on deposit accounts. We should not forget the local property tax, which is a tax based on the market value of residential properties. There is also stamp duty, which is charged on the transfer of shares, stocks and marketable securities of Irish-registered companies as well as on the purchase of property both residential and non-residential. It follows that any revenue raised from a wealth tax, no matter what form it takes, may not be additional to the existing forms of wealth taxation, as revenues from those taxes could be affected by the introduction of a wealth tax.

On the issue of household wealth, in September 2020, the Central Bank published a report, Household wealth: what is it, who has it, and why it matters. It presents the results from the household finance and consumption survey, HFCS, which collects data on households' financial positions. That survey was undertaken before the Covid-19 period but, in time, it will provide a starting point against which to benchmark the impact of the pandemic on household finance positions and consumption patterns. It reports that the survey data indicate an improved financial position and resilience for households prior to the Covid-19 crisis when compared with the situation leading into 2008.

In examining the topic, the Commission on Taxation and Welfare, which reported in 2022, identified challenges that would impede the implementation of such a tax. It concluded that a new tax on net wealth should not be introduced without first attempting substantially to amend Ireland's existing taxes on capital and wealth. As an alternative to introducing a new tax on wealth, the commission believes the more productive route is to re-examine CGT and capital acquisitions tax. These are existing taxes on wealth that have well-established but distinct bases and are well understood in their operation.

In addition to wealth taxes, the Government takes action against inequality through our tax and welfare system. For instance, the strong redistributive role of the Irish tax and welfare system is evident in the range of supports that were introduced to help mitigate the impact of the Covid-19 pandemic and in the series of measures designed to limit the impact of the current cost-of-living pressures. Ireland has one of the most progressive systems of taxes and social transfers of any EU or OECD country, which contributes to the redistribution of income and the reduction of income inequality.

I assure the Deputy that all taxes and potential taxation options are kept under constant consideration and it remains a priority of mine to ensure Ireland maintains its progressive taxation system. I do not see any additional benefit that might be gained from a commission of the type mooted in his proposal. Therefore, I cannot accept the amendment.

Amendment put and declared lost.

Sections 37 and 38 agreed to.

SECTION 39

An Cathaoirleach Gníomhach (Deputy Steven Matthews)

Amendment No. 21 is in the names of Deputies Ó Snodaigh and Ó Murchú.

Deputy Pearse Doherty

I will move the amendment on their behalf.

An Cathaoirleach Gníomhach (Deputy Steven Matthews)

Amendments Nos. 21 to 23, inclusive, are related and may be discussed together.

Deputy Pearse Doherty

I move amendment No. 21:

In page 71, between lines 23 and 24, to insert the following:

"(3) Section 481 of the Principal Act is amended in subsection (2)(b), by the insertion of the following subparagraph after subparagraph (iv):

"(v) a condition that the qualifying company shall, in respect of the qualifying film concerned, comply fully with the Copyright and Related Rights Act 2000 and the Directive (EU) 2019/790 of the European Parliament and of the Council of 17 April 2019,

(vi) a condition that the qualifying company shall make every effort to ensure that performers, writers, composers, artists and other film workers resident within the jurisdiction will not be subject to lesser terms and conditions regarding their intellectual property rights than persons resident outside the jurisdiction engaged in similar roles when employed on the same qualifying film, and

(vii) a condition that the qualifying company shall not require performers, writers, composers, artists or other film workers to sign away their rights to future residual payments for their work on a qualifying film, or to agree to a so-called ‘buy-out’ contract, as a pre-condition of working on the qualifying film.".".

Deputy Richard Boyd Barrett

These three amendments are all focused on the same issue. It is a matter I have raised many times, as the Minister knows. Since the previous Finance Bill, when we debated some of the issues extensively in this committee, the Committee on Budgetary Oversight has produced a report on the section 481 tax relief. That report includes a whole series of recommendations.

What the Minister has done in this Bill is take on board one of those recommendations, the one that benefits the film producers and that was requested by the film producers to raise the expenditure cap on the credit from €70 million to €125 million. The rationale they have put forward is that this will open up the possibility of bigger film productions and attract investment for bigger film productions. I do not really have a problem with that. I have to be honest and say I would rather we did it a slightly different way. A lot of the beneficiaries of this are big, very profitable film companies like Netflix, Disney and so on, rather the development of our own film industry. Having said that, I am for more money going into developing film production in this country. As I hope the Minister knows, the committee asked for many other things. It was quite clear in saying that the support should be conditional. A relatively small number of film production companies get the majority of the credit. Many companies receive it but, a little bit like our last credit, there are five or six companies that get most of it and do so again and again.

I will give the Minister an example that highlights some of the points we are concerned about. I went to the Workplace Relations Commission, WRC, recently in respect of one of the companies that came in to our committee lobbying for the increase of this cap. The company did not turn up at the WRC in a case taken by a worker who worked on one of the film productions funded under section 481. The company said it was not the proper respondent and that the designated activity company, DAC, was the respondent. According to the legislation, the DAC set up to make the film has to be a wholly owned subsidiary of the film production company. However, when an employee of the DAC takes the company that gets the relief to the WRC over unfair dismissal, the company says, "We know we set it up but we are not the right respondent because it is the DAC. We are not turning up, giving evidence or taking responsibility for the employee." The worker has no recourse. This is Russian dolls. It is absolutely unacceptable. It is happening repeatedly. I do not know how many times the Minister has been told about it but the Government does nothing about it. These companies sign undertakings which the Government has been forced to bring in as a result of the campaigning of workers in the industry. They say they will abide by this and that bit of legislation but they sign it with a big grin because they know it does not matter as it does not apply to them. At least, they argue it does not apply and there is no enforcement. Nobody bothers to check what is actually going on, even though the Government has been told again and again. There is simply no recourse for people who are victimised or blacklisted, who kick up over their employment rights. I will not identify the company or anything, but the particular person I went to the WRC with-----

An Cathaoirleach Gníomhach (Deputy Steven Matthews)

Please do not specify, Deputy. I do not want to discuss any live cases.

Deputy Richard Boyd Barrett

I am not mentioning the company or the individual. Without identifying them, I am simply pointing out that this person had worked for the same company in receipt of section 481 relief on multiple successive productions, all funded under the section. His representative group gave evidence to the arts committee here that there was blacklisting and lack of quality employment and training, and he was never re-employed, along with 40 or 50 of his colleagues. That was because they came in here and blew the whistle on film producers for not treating workers properly and not giving them the quality employment and training that is required as a condition for a tax credit which is worth about €100 million. I and the report are asking the Government, which is giving out this money, to require the film producer, who gets the money, to take responsibility for the employees. The Government must make it absolutely clear that they cannot hide behind these Russian dolls of DACs. It would be very easy for the Minister to do it; he should just demand it. The Government should make it a condition that people's service across multiple productions, even if there are multiple DACs, would be recognised by the parent company or the big Russian doll. The Minister could do it.

I thank the Minister for his engagement today and all his officials for their assistance. I also thank members.

Progress reported; Committee to sit again.

The select committee adjourned at 10.06 p.m. until 10 a.m. on Wednesday, 8 November 2023.

Select Committee on Finance, Public Expenditure and Reform, and Taoiseach debate - Tuesday, 7 Nov 2023

Finance (No. 2) Bill 2023: Committee Stage

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Select Committee on Finance, Public Expenditure and Reform, and Taoiseach debate -
Tuesday, 7 Nov 2023