Finance (No. 2) Bill 2013: Committee Stage

I welcome the Minister for Finance and his officials. The purpose of the meeting is to consider the Finance (No. 2) Bill 2013 which was referred to the select sub-committee by Dáil Éireann on 13 November. The sub-committee is required by the Dáil to report on its consideration of the Bill not later than Thursday, 28 November. The times by which the sub-committee must complete its consideration of specified groups of sections and the amendments addressed to these sections are determined by an allocation of time order made by the Dáil on 21 November. The order of the Dáil provides that any division claimed on the proceedings of the Bill must be postponed until immediately before the time set for the relevant guillotine or, if proceedings conclude before the time for the guillotine is reached, on completion of those proceedings. The putting of any question contingent on a postponed division must similarly be postponed.

Sections 1 and 2 agreed to.

Amendments No. 1 to 4, inclusive, have been ruled out of order as they involve a potential charge on the people.

Amendments Nos. 1 to 4, inclusive, not moved.

I move amendment No. 5:

In page 8, line 22, to delete “section 598A.”.” and substitute the following:

“section 598A.

(11) Subsection (9) shall not apply to a loan made after 15 October 2013 which is applied in paying off another loan to an individual used to defray money applied under paragraph (a), (b) or (c) of subsection (1), provided--

(a) the loan does not exceed the balance outstanding on the loan being paid off, and

(b) the term of the loan does not exceed the balance of the term of the loan being paid off.”.”.

Section 3 of the Finance (No. 2) Bill 2013 amends section 253 of the Taxes Consolidation Act 1997 which provides tax relief for individuals for interest on money borrowed to enable them to acquire shares in a partnership, or to contribute or advance money to a partnership.

The relief is being abolished for new loans from 15 October 2013 and phased out over a three-year period for existing loans with a cessation date of 1 January 2017. This Committee Stage amendment will allow a relief for new loans where the loan replaces an existing qualifying loan of the same value and term. This will allow borrowers to refinance at a lower cost, with a resulting saving for the Exchequer. I commend this amendment to the committee.

Do any members wish to respond?

Amendment agreed to.
Question proposed: "That section 3, as amended, stand part of the Bill."

I tabled four amendments to the section which have been ruled out of order, but for the life of me I cannot understand the reason. I mentioned this on Second Stage also. There is no point in challenging that decision - we have learned that from having had a few years' experience - but we come to the same point time and again. I introduced a Bill in the Dáil that was not out of order proposing a reduction in rates, which I was told we were allowed to do, and which would not pose a charge on taxpayers. In the four amendments I tabled to this Bill I proposed reducing the rate the Minister suggested, and my reason for doing that is that the business community is well aware that this measure is coming down the tracks. The Minister is providing for the relief to be phased out over a number of years up to 2017, yet no consideration is given to phasing in or out other measures the Minister has brought in through the Finance Bill - for example, the single carer's allowance for single fathers. They do not have four years over which they will lose that tax credit, yet some of the wealthier in society are being given a phasing-out period for this relief, during which the rate is being reduced from 75% to 50% to 25%. My amendments propose the phasing out of the relief over a shorter period, which would be fairer. I ask the Minister to consider amending the section on Report Stage to deal more quickly with the phasing out of this relief.

There is a bigger point at issue here - namely, that if we are to have a proper debate on the finance legislation, a change to the Standing Orders is required and also, possibly, a constitutional change. I have had 13 or 14 amendments ruled out of order. I tabled 32 amendments in total and I hope my amendments to later sections will be accepted by the Minister. I desire in some of my amendments to correct what are, in my view, errors or omissions in the Finance Bill, while in other amendments I disagree with the Minister's policy choice and direction. I ask him to take that on board if we are to have real political reform.

With regard to the section, as the Minister is the only person who can bring forward a proposal to reduce these percentages and phase out the relief more quickly over a shorter period, I ask him to consider doing that for Report Stage, when this Bill will come before the Dáil again.

The Deputy's amendments have been ruled out of order and I do not have the decision on what is in or out of order. That is in line with the rules of debate for finance Bills and that has been the position for as long as I have been here and longer. Even if the Deputy's amendments were in order, I could not accept them.

The time period proposed in the Finance Bill to phase out the relief is a reasonable one and there is no necessity to bring forward either the date for the phasing out of the relief or the rate at which the relief is phased out. It is in line with similar phasing-out arrangements for loans used to invest in companies. The reduced period proposed by Deputy Doherty in his amendments is unnecessary and would be unduly harsh on persons currently in receipt of this relief.

This issue is at the core of the debate as we commence Committee Stage and I hope the debate on it over the next three days will be fruitful. The Minister said that my proposal would be unduly harsh and that he is phasing out the relief. I welcome the fact that it is being phased out. The Minister has come to a decision that the relief is no longer acceptable and that it will be phased out, and because its abolition is unduly harsh he is providing for it to be phased out over a period up to 2017. Where is the consideration for separated mothers and fathers who are providing for their children? The ending of a relief such as that is unduly harsh. That is what the Minister has done, as set out in a later section of the Bill. As we kick off proceedings, I ask him how he decides what he considers to be unduly harsh. What are the criteria he uses in his Department-----

I will allow the Deputy some flexibility on this. I will be dealing with the Bill section by section. The Deputy is referring to a measure that will be dealt with later in the Bill this afternoon. If he wishes to refer to it once to make his argument that is fine, but if he wants to speak on his amendment, I will bring him back in when we come to deal with it.

The key point in this section is the phasing out of the relief, which I argue should be done in a more speedy fashion. How does the Minister categorise or measure what is unduly harsh for this group of individuals? From my viewing of later sections of the Bill, I know the same consideration has not been applied to other individuals who are unduly burdened through harsh measures in this Bill. I ask him to elaborate on how he decides what is unduly harsh.

Are the amendments in order or are they not? They are not.

Deputy Doherty is speaking on the section.

We are now dealing with the section, not the amendments.

I will allow some flexibility on this.

According to the Revenue Commissioners' annual report on the restriction for the tax year 2011, 29 individuals who availed of this relief were affected by the restriction. The amount of relief used by these individuals was €314,426; in 2010, 38 individuals were affected, using €764,550. It is a judgment as to what additional imposition can be placed on individuals. The most recent figures available are for 2011. The relief cost the Exchequer approximately €4 million. This relief is subject to the higher earner restriction, which limits the amount of relief that can be claimed in full by individuals to €80,000 in any one tax year before restrictions begin to apply. Obviously, the measure of what is harsh and what is not harsh depends on the people who are affected and the extent of the change being made in any one year. The precedents arise from reliefs in company law, where a similar time period applies. I suggest that what we are proposing is reasonable and what the Deputy is proposing, in my view, is unduly harsh, but he can argue the opposite.

The Minister need not worry; I will. I do not need encouragement to do that, but I welcome it. Can the Minister reiterate whether the total cost to the State of this tax relief is €4 million, and how many individuals benefited from it in the last year for which numbers are available?

The Revenue Commissioners' annual report for 2011 indicates that 29 individuals were affected.

So the State is adopting a policy of phasing out a relief for 29 individuals over a four-year period at the cost of €4 million, yet 17,000 individuals who are providing for their children lose their entitlement overnight.

There is a higher earner restriction on this as well, so the maximum relief that can be claimed is €80,000. We are not making it easier for these people. We are abolishing an allowance which they have. That is the purpose of this measure. The Deputy is twisting it around as if we were giving some kind of new relief to these people but we are not, we are abolishing it for the reasons to which the Deputy alluded. We do not think it is necessary in the tax code. We think it is giving an advantage to people in difficult times when the advantage is not needed. A lot of these measures crept into the tax code. Various people lobbied for various groups.

To precisely answer the Deputy's previous question, based on the 2011 taxpayers' data, it is estimated that the cost of the tax relief on loans applied in acquiring an interest in a partnership is approximately €4 million and it is availed of by approximately 1,100 claimants, but we are abolishing it, not introducing it. We are abolishing it over time to avoid undue hardship to the individuals who are claiming it. One could make a case that it was never justified in the first instance, but usually when we have reliefs such as this one that we want to abolish, we allow time to phase them out.

Is the definition of "undue hardship" in terms of these people categorised by the Department to the effect that they will find it difficult feed their children and to cover the cost of their education? How does the Minister define undue hardship? It will be interesting to have his definition of it as we deal with other sections in which he has not allowed a phasing-out period for measures but has changed them with immediate effect.

In phasing out schemes such as this, we looked at similar decisions made in the past. In particular, we looked at company law. A phase-out period would be quite normal when credits such as this are being abolished.

Because it is partnerships and companies, there is a question of the jobs of employees in companies. If one moves too quickly and affects the profitability of companies, then it has implications for employees as well. It is a matter of best judgment.

The full-year yield was to be €4 million per annum. Is that likely to be affected by the amendment the Minister is introducing, amendment No. 5, which allows for some reinvestment where the relief would continue? I accept the figures are quite immaterial.

If partners who were availing of this were in a position to re-finance at lower cost, the amount of tax they pay will go down as well. The amendment would benefit rather than cost the Exchequer.

Question put and agreed to.
Question proposed: "That section 4 stand part of the Bill."

Section 4 provides for the abolition of top slicing relief for such payments made on or after 1 January 2014. Lump sums paid as part of an approved occupational pension scheme are unaffected. What type of pension schemes are affected by this section?

In general, ex gratia payments solely. It would not apply to the lump sums on a defined benefit scheme such as those public servants and others would have.

Does it apply purely to private sector schemes? Would it have other implications?

One may get the occasional situation other than in the private sector where a settlement would involve an ex gratia payment but, generally, it applies to the private sector.

Question put and agreed to.

Amendment No. 6 is in the name of the Minister. Amendments Nos. 6, 8, 11, 16, 17, 18, 20 to 23, inclusive, and 25 to 28, inclusive, are related and will be discussed together.

I move amendment No. 6:

In page 9, to delete lines 10 and 11 and substitute the following:

" 'qualifying contractor' means a contractor who—

(a) complies with the obligations referred to in section 530G or 530H, as the case may be, or

(b) in the case of a contractor who is not a subcontractor to whom Chapter 2 of Part 18 applies, complies with the obligations referred to in paragraph (a), other than the obligations referred to in paragraphs (a) and (b) of subsection (1) of section 530G or 530H, as the case may be;".

This amendment and the associated amendments relate to section 5 of the Bill which introduces a new income tax relief for homeowners who carry out qualifying repair, renovation or improvement works on their principal private residence.

Amendments Nos. 4, 13 and 14 are the substantive amendments. Amendment No. 12 relates to the minimum threshold for entry to the incentive. Amendment No. 26 clarifies the treatment of grant, insurance or compensation payments and their interaction with the incentive. Amendment No. 27 sets out the LPT obligations of homeowners claiming the relief.

I commend these amendments to the committee.

Amendments Nos. 25 to 28, inclusive, are in the Minister's name as well. Does he wish to speak to amendments Nos. 25 and 28 as well.

I can give the committee a short note on all of them.

Amendment No. 6 is a straightforward amendment which clarifies that a contractor does not have to be within the Revenue contracts tax regime in order to carry out works under the incentive. It also clarifies a contractor's obligations in terms of qualifying under the incentive.

Amendment No. 8 is simply to improve the readability of section 2 and to clarify the transitional arrangements which apply in the period to the end of this year and also for the early part of 2016. Amendment No. 11 is purely a technical amendment.

Amendment No. 12 is in response to concerns which were raised on Second Stage about the entry point to the incentive. Accordingly, I am happy to say that I have decided to reduce the minimum threshold, from €5,675 inclusive of VAT to €5,000 inclusive of VAT. This means that a homeowner incurring the minimum expenditure of €5,000 will be entitled to relief of €595. The maximum relief remains €4,050.

Amendment No. 16 is a straightforward amendment. Rather than the contractor having to provide to Revenue the name of the liable person for LPT purposes for the qualifying residence, the contract will simply have to provide the name of the claimant.

Amendments Nos. 17, 18, 20 and 21 are to reflect minor drafting points.

Amendment No. 22 is a useful amendment which provides that a contractor must inform Revenue of the name of the individual who paid for the work carried out. This will ensure that only those entitled to the relief will be in a position to claim it.

Amendment No. 23 is a purely technical amendment arising from inclusion of a new subparagraph (v). Amendment No. 25 is to reflect a minor drafting matter.

Amendment No. 26 is an important amendment which ensures that the receipt of a grant, insurance or compensation payment is not taken into account in determining eligibility for the incentive. Such payments will only be taken into account in determining the amount of relief to which an individual is entitled.

Amendment No. 27 concerns LPT obligations. This amendment extends the obligations such that a claimant will only be entitled to claim relief if his or her LPT obligations are up to date, not only in respect of the qualifying residence for which relief is being claimed but also in respect of any other residential property for which the claimant is a liable person within the meaning of the LPT legislation.

Amendment No. 28 is a technical amendment. The subsection, as drafted, only refers to reliefs under the Taxes Consolidation Act 1997. However, reliefs under the Value-Added Tax Consolidation Act 2010 should also be included.

I commend the amendments to the House.

There are quite a number of amendments grouped here.

On amendment No. 8, subparagraph (c), where somebody carrying out works requires planning permission to carry out the works, qualifying work is deemed eligible if it is completed by 31 March 2016. Under the amendment, where the qualifying works require planning permission such planning must be granted by 31 December 2015. I am curious as to why that is the case. If I am carrying out works in a house, I can carry them out in February 2016 and still be deemed eligible but if I need planning permission to carry out those works, the planning must be granted before the end of the previous year even though the works would be completed within the time frame of 31 March 2016. Can the Minister elaborate on that and correct me if I am wrong?

The intention is that the scheme would end at the end of 2015 but we are leaving a period of tolerance for work to be completed, the test being that planning permission will be granted before the end of 2015, and then there is a period up to March 2016 to allow work under the planning permission to be completed. It is a concession rather than a restriction.

The section deals with work carried out until 31 March 2016. Would I be correct in stating that to be eligible under this scheme such work does not have to commence in 2015 and could commence in March 2016?

The Revenue will have to adjudicate on the margins of this. They will have to adjudicate on the time period as well as on the eligibility of the work. The test being put in is that planning permission must be granted prior to the end of 2015 and then work can be carried out up to 31 March 2016. We needed some cut-off point. We are using the cut-off point as the date that planning permission is given rather than the date the work is completed.

The reason I ask is to clarify. The Minister states it is up to interpretation of the Revenue. Is there a section which stipulates works incurred in January? What would Revenue have to do with it? Does the Bill allow for works to be carried out right up until 31 March 2016?

The Revenue Commissioners will be obliged to adjudicate on whether an applicant is entitled to the tax relief.

That is the job of the Revenue Commissioners, which will need assurances that the work will be completed and paid for by 31 March 2016. There are some small jobs for which planning permission is not required. If planning permission is not required, work must be completed by the end of 2015. If it is required, work can continue until the end of March 2016.

Another clarification I made - in respect of which an amendment was not required - is that the €5,000 minimum can comprise costs relating to different jobs. In other words, if one painted one's house and landscaped one's garden to include a water feature - in a rural situation, this might require connection to a pump house - each job could be registered separately by electronic means and would be eligible. The Revenue Commissioners have a role in adjudicating what is and is not contemplated and examining invoices in order to establish the value of the work and in the context of the timeframe. That is because what is involved is costly and it becomes more costly as it proceeds. It has been introduced as a temporary measure in order to stimulate the construction industry. It is not to be availed of indefinitely and we want it to come to a close at the end of 2015. However, a grace period is being provided up to 31 March 2016 in respect of the completion of and payment for work.

In the context of amendment No. 6 and the obligations referred to in sections 530G and 530H, will the Minister elaborate on the type of contractor involved?

The contractor will operate in the white economy and will be registered for tax purposes. Once he is registered for tax purposes, the work he carries out will be eligible for tax relief available under the scheme. However, contractors do not need to be registered with professional groups or to be within the relevant contracts tax regime. As long as they are registered for tax, they will be deemed to be eligible.

I just want to clarify that we are discussing the first group of amendments.

The group we are discussing comprises amendments Nos. 6, 8, 11, 16 to 18, inclusive, 20 to 23, inclusive and 25 to 28, inclusive. I presume the Deputy will wish to comment on the section when we reach that point.

I will be contributing on amendments Nos. 10 and 14, which are relevant to the section.

Amendment agreed to.

I move amendment No. 7:

In page 9, between lines 22 and 23, to insert the following:

"(c) which is a newly built property, previously unoccupied, but has been acquired by the individual for the purposes of occupation by the individual as his or her only or main residence on completion of the qualifying work and which is so occupied upon completion,

(d) any qualifying residence under the Living City Initiative will be excluded from qualifying for the Home Renovation Incentive;".

The home renovation incentive is a worthy but overly cumbersome initiative which needs to be revisited before Report Stage. However, we will deal with that matter when we discuss the section. In the context of what constitutes a qualifying residence, two criteria are laid down in the legislation, namely:

(a) which is owned by the individual and which is occupied by the individual as his or her only or main residence, or

(b) which has previously been occupied as a residence and has been acquired by the individual for the purposes of occupation by the individual as his or her only or main residence on completion of the qualifying work and which is so occupied upon completion ...

I wish to add two further subparagraphs to this provision, as detailed in the amendment.

The Living City initiative was introduced by means of the Finance Act 2013 and has been expanded upon further in the Bill before us. To say the least, it provides generous tax reliefs for refurbishing qualifying properties, which must, of course, be people's permanent places of residence. I am of the view that the reliefs involved should not be extended to the Living City initiative, with which I have a number of issues.

The main part of the amendment is that which relates to newly built properties. Under the Bill, a property will be eligible if it is a place of residence which was previously occupied and which, following purchase, is renovated by its new owner who will then take up permanent residency. The issue I have is that the provision is not made for people who want to buy residences that have never been occupied before and renovate them in order that they might take up residency. The Minister may well ask why we should do this and what would be the pitfalls involved. The danger is that houses that are half-finished and that are not residences could be purchased by individuals who will claim the tax relief in order to complete them. Under my amendment, which is carefully worded, in order to qualify it would have to be a newly built property rather than one which is half-finished.

I accept that taking account of individual cases does not make for good legislation, but I am aware of a person whose young daughter is wheelchair-bound and who has purchased a new property into which he intends to move with his family when the necessary renovations have been completed. Those renovations involve adapting the house for wheelchair usage. One could provide many examples of similar cases. Under the section, as it stands, the individual in question would not be allowed to avail of the home renovation incentive because the property he is purchasing has never been previously occupied. I have an issue with this aspect of the legislation and I want to amend it in order to make provision for people who purchase brand new properties which may need to be adapted for their use and which, upon completion of the relevant works, will be their permanent place of residence.

I do not proposed to accept this amendment. There are two elements to the definition of "qualifying residence". The first is that the residence is owned by an individual and is occupied by the individual as his or her principal private residence. The second is that it is a property which has previously been occupied as a residence. Where such a property is acquired for the purposes of occupation by an individual as his or her principal private residence and is occupied on completion of qualifying work, it comes within the definition of a qualifying residence.

The proposed amendment seeks, in the first instance, to bring newly built houses within the incentive. There are a couple of points I will make in this regard. First, the incentive is aimed at repair, renovation or improvement works. The reason for this is to facilitate homeowners in carrying out such works to their homes, while at the same time acting as a stimulus to the construction industry. In general, the only instance in which a newly built house would require works to be carried out would be in the fitting out of such a house to make it habitable. Fitting out is an intrinsic and essential feature of building a new house. Inclusion of that type of work under the incentive would in reality constitute deadweight and would not, in my view, provide added stimulus to the construction industry.

The second part of the proposed amendment seeks to exclude from the home renovation incentive any residence which gets relief under the Living City initiative. This matter is already covered by subsection (12), which stipulates that any expenditure on a residence which is covered by another tax relief is excluded from the terms of the home renovation incentive. In such circumstances, I think we can agree that the Living City initiative is not an issue.

The Deputy referred to a person - perhaps a neighbour or some other constituent - with a disabled child who wants to adapt a room in his house in order to make it suitable.

The aim is to stop people using this scheme to finish off a new house instead of adding to it. However, if somebody buys a house, as described by the Deputy, in the middle of next year and wants to change the garage into a room that is suitable for a wheelchair-bound child, any such works would be eligible for the scheme, provided they do not involve finishing or fitting out a new house in the normal meaning of that term. The scheme is intended to give additionality in construction work. If a house has not been finished, it should have been finished. That is the distinction. With a small time lag, the type of case the Deputy describes would qualify.

On an additional point, since 2004 all newly built houses are required to comply with certain building regulations on disability. While fittings may be added to a house afterwards, certain disability specifications, including door sizes and bathroom designs, must be met regardless of who will occupy the house.

We would not have to walk far from this building to find many buildings that were not constructed in compliance with building regulations. Unfortunately, such buildings are a scar on society. We have recently seen the consequences of this practice.

I understand the logic behind the restrictions. For example, I acknowledged the reason for restricting the incentive to previously occupied houses. It would be wrong if the scheme were used for carrying out works associated with unfinished or unfitted houses. The case to which I referred is not an isolated one. The only way the family in question would be eligible to avail of the incentive would be if they were to move into the house first, as this would satisfy the criteria on residence. However, they cannot move into the house because it is not suitable for their daughter's needs. In such cases, families may need to have works, such as a wheelchair ramp to the front entrance, completed to make the house suitable for the person with a disability. If the family were to move before such works had been completed, they would experience the discomfort of living in a house that had not been adapted to their needs. On the other hand, a family that buys a second-hand house could continue to rent or reside in their current accommodation while the necessary works are carried out to make the house fit for a wheelchair-user or person with particular needs.

The Minister indicated that the measure was targeted at homeowners. The scheme provides for two categories - namely, homeowners and people who are purchasing new homes that they intend to use as their permanent residence. My argument is that the provisions must satisfy individual needs. Some people who are trading up or down or moving into a new area may wish to buy a new house that may not be suitable for them. Such persons will only become eligible for this incentive if they move into the house before having the necessary works done.

Many of the empty houses that are on the market at low prices were previously occupied. Anyone purchasing one of these homes would immediately rip out the fittings because the house may not have been occupied for the past ten, 12 or 15 years. The Minister referred to deadweight. It is impossible to design a scheme that addresses all the examples I have cited. The scheme was not designed for persons who purchase a second-hand house and wish to repair a kitchen that is in poor condition. We must recognise that not all second-hand homes do not have appropriate fittings. Anyone buying such a house will immediately replace the fittings. Disallowing the scheme for the category of persons I have highlighted is wrong. One can change the wording. My amendment refers to a newly built property. It would be sensible to provide protection against potential exploitation of the measure. For example, the Minister could give the Revenue Commissioners the power to prevent people from availing of the incentive where they install fittings that were not previously in the residence.

The definition of a qualifying residence is flawed. While I understand the Minister's argument, it excludes some people, especially persons with a disability who need to renovate a house. We all know such individuals. The Minister cited the example of a room which may require an en suite bathroom or a house which may require a shower at ground level. It is wrong to disallow works to modify a shower for an elderly or infirm person in a newly built house while allowing its use for such works in a second-hand home. I ask the Minister to consider the amendment.

Works costing up to €5,000, inclusive of VAT, are eligible for owner-occupiers and potential owner-occupiers of previously occupied houses. The category to which Deputy Doherty draws attention is new houses that require modification for one reason or another. I want to avoid circumstances in which the owner of a new house uses this tax scheme to finish the house. It is the job of the original builder to finish a house and sell it on in what one would consider to be a finished state.

If the disabled person to which the Deputy refers was one of my constituents, I would point out that grants available for adapting houses for disability purposes would be of much greater benefit to the person than this scheme would be. We have not excluded any particular category. Grants are available for someone who buys a new house that needs to be adapted for a disabled relative or family member. These grants fall outside the scheme before us. That is the route that people in such circumstances should follow. I will re-examine the section before Report Stage to ascertain whether any deserving categories of homeowner are being excluded as a result of the way in which the scheme has been designed. As matters stand, however, I do not believe that is the case. Significant grants are available to adapt houses for disability purposes.

I broadly welcome the incentive. It is a positive measure which I hope will encourage people to carry out refurbishment and so forth. It may complement the pay-as-you-save installation programme about which there has been much discussion. It could link in very well with that scheme and is a much better-conceived incentive than others that will be discussed later. Sadly, I missed the discussion of a scheme provided for in section 2, which is misconceived as its beneficiaries could include people and large companies who are doing very well for themselves, rather than small builders, householders and so forth. The JobsPlus scheme and similar schemes are highly problematic. This, however, is a good thing.

The job of the sub-committee is to scrutinise and consider legislation. Deputy Doherty raised a valid point. He described cases in which adaptations are required to houses that have not been occupied previously with a view to assisting a disabled person. Another category of works also arises. As the Minister is aware, the census found that there are 320,000 empty houses in the State. Many of these will have lain empty for a long period before being purchased, whether from the National Asset Management Agency or someone else. It is possible, therefore, that they will have deteriorated in various ways.

The time lag could mean that somebody who seeks to purchase a house that was not previously occupied would be required to make adaptations to the house in order to make it habitable and, indeed, attractive. Might the requirement that the house have been previously occupied be a problem in this context? I take the Minister's point that we do not want to let the builder off the hook in terms of doing proper work but I can also think of circumstances in which an individual thinking of buying one of the many empty houses around the country may want to have work done on it to bring it up to standard given that it may have been sitting empty for a number of years.

If we go back to first principles, there are social and economic reasons for introducing a scheme such as this. The social reasons are to provide extra accommodation or better facilities in the family home for those who need them. The economic reason is to get people back to work. The live register includes a cohort of 80,000 people with skills that are primarily related to the construction industry. I do not believe all the retraining in the world will turn a lot of them into employees who are suitable for the IT or farming industries. We have to do something about the construction sector. That is the purpose of the measure.

I have previously said that standing still and doing nothing are not solutions. We have to try things out but we must also be focused and be able to measure the cost to other taxpayers of what we are doing. By and large, what we are doing is proving successful. Member may have seen the figures published by the CSO this morning, which indicate that 58,000 net jobs have been created between September 2012 and September 2013. That is more than 1,000 jobs per week. If we can keep that trend up, we will be getting there. However, we must also examine the categories. One of the categories comprises long-term unemployed people with building skills.

As I have already said to Deputy Pearse Doherty, if there is a gap that excludes some deserving group from the benefits of the measure, we will examine it between now and Report Stage. Deputy Boyd Barrett referred to an earlier provision in the section. That is not the extension of a relief; it is a restriction on a relief that previously existed. We are taking out reliefs that were misdirected, as well as providing reliefs that we think are better focused. In regard to the Deputy's plea on empty houses, many of the people who purchase empty houses are getting them very cheaply. They are already benefiting as a result of the recession. In the part of the country with the highest tranche of empty houses per capita, the upper Shannon Basin, most of the houses were built with the benefit of a tax incentive. We want to direct our focus where we can get the biggest social benefit and the highest economic activity. I do not think applying the measure to empty houses and carrying out works that should have been part of the original construction is the way to proceed. I am sympathetic to the case that Deputy Pearse Doherty made regarding special categories of people who need additional accommodation which may not be covered by disability grants. I am prepared to consider the issue, although it is not yet evident to me that such a category exists.

I support what Deputy Boyd Barrett said and ask the Minister to reconsider his position. The economics of supply and demand do not consider the morality of a situation. If there are benefits to be gained from encouraging economic activity on the margins, it may be worth considering houses that have lain empty or even incomplete for a number of years. It is preferable to complete them with contemporary economic forces and if it means that an incentive is required to erect hall doors and turn on the lights, it is probably a good idea.

I welcome that the Minister is open to investigating whether a category of people may be disadvantaged as a result of their exclusion from this section. He referred to the housing adaption grant, in which respect two issues arise. The first is that it is means tested, with the result that the grant is not available to households with incomes in excess of €65,000 regardless of whether the work involves a stair lift, a ramp or an additional room for a spouse or child. The second issue is that the person for whom the grant is sought must be occupying the house as his or her normal place of residence. This means the category of people to which I refer would not be eligible for the grant. These people are not currently living in a house that is suitable for their needs and they want to purchase a new house with, for example, a stair lift or a ramp. Such facilities are not provided in every newly built house.

I take the Minister's point in regard to ensuring the measure is not used to fit out or finish houses but how does one define a newly built property? In my head it is not just bricks and mortar; it is a property that is suitable for living in that has fixtures and fittings. Revenue has to deem that the work qualifies and the contractor has to provide Revenue with a list of the works involved. Revenue will, therefore, have sufficient tools at its disposal to see, for example, that a kitchen is being put into a house that never had one previously. As it is not a replacement feature, it is not eligible. However, a stair lift or a ramp may be involved, or else a room may need to be adapted to allow for a walk-in shower. They may be few and far between but there is a category of people who should not be excluded from this scheme. They can purchase a second-hand house and do all the work I have identified. As the Chairman noted, if they purchase a new house it may have to abide by the standards in any case so that, for example, the switches would be lower and it would be possible to bring a wheelchair into the bathroom. However, that may not be enough. There may be requirements for a walk-in shower, a ramp or a stair lift. The kitchen may need to be adapted so that people can access their presses.

I will not press the amendment now because we can investigate further its wording to ensure the measure is not abused but I believe the section as it stands is not accommodating a certain category of people.

Between now and Report Stage, I will examine the narrow category of newly built houses which might require some adaptation for the purpose of ease of living for persons with a disability.

Deputy Boyd Barrett made a point I did not answer regarding the combining of this tax scheme with various grants for insulating houses and warm home initiatives. The Deputy will see how it is combined later in the Act. Residual amounts after a certain allowance for the grant can be applied for tax credit purposes if they relate to the insulation of houses and the general area of grants sponsored by the Department of Communications, Energy and Natural Resources.

Amendment, by leave, withdrawn.

I move amendment No. 8:

In page 10, to delete lines 7 to 31 and substitute the following:

“(2) (a) This section applies to qualifying expenditure incurred on qualifying work carried out during the period from 25 October 2013 to 31 December 2015.

(b) Where payments in respect of qualifying work are made during the period from 25 October 2013 to 31 December 2013, those payments shall be deemed to have been made in the year of assessment 2014.

(c) Notwithstanding paragraph (a), where qualifying work, for which permission is required under the Planning and Development Act 2000, is carried out during the period from 1 January 2016 to 31 March 2016, then provided such permission is granted on or before 31 December 2015, that work shall be deemed to be carried out in the year of assessment 2015.”.

Amendment agreed to.

Amendments Nos. 9 and 13 are related and will be discussed together.

I move amendment No. 9:

In page 10, line 35, after “contractor” to insert “or a number of qualifying contractors”.

The wording in the Bill only mentions "contractor", so does not allow for multiple works to be carried out. The Minister referenced multiple works earlier on, and I gave the example where somebody could employ a qualifying contractor to put in a stair lift and then have a different contractor to build the extension out the back, and have a plumber qualifying contractor to do the shower. The total sum of all three pieces of work could be in excess of €5,000, so the entirety would be eligible but each individual contract would be ineligible because it did not reach the threshold. This allows for multiple contractors, instead of "contractor".

Under general rules regarding the construction of legislation, as set out in section 18 of the Interpretation Act 2005, a word importing the singular shall be read as also importing the plural. As a consequence, the suggested amendments are not necessary.

Amendment No. 12 by the Government makes it clear that it is a qualifying contractor or qualifying contractors. I am making it clear that the minimum threshold does not have to be reached by each contractor where a homeowner engages a number of contractors to carry out different works. So long as the aggregate payments reach the new minimum threshold of €5,000, inclusive of VAT, the homeowner will qualify for relief. This point was raised by a number of Deputies on Second Stage and I am happy to clarify the position in detail.

Why is the Minister introducing amendment No. 12 to include qualifying contractors, when the rule states that the singular implies the plural?

I thought it might help to explain things a little better.

Go back to your teaching days. Good man, Minister.

That confuses us a bit more. He has provided a bit of information that where there is a singular, it can be viewed as a plural in legislation, but he has gone to the lengths of identifying the plural in one of the subsections, and does that not ask questions about the other areas? For example, subsection 3(a), which refers to payments to a qualifying contractor, and subsection 3(e), which refers to an individual contractor as well, but the Minister's amendment has defined that this can mean "contractors" in subsection 3(d).

It is to give comfort and clarity. While the minimum is €5,000, inclusive of VAT, the work of three different contractors, such as plumber, painter and carpenter, can be aggregated. It is not just a qualifying contractor, but qualifying contractors. It is a clarification.

I welcome that, because that is what my amendment sought to do. However, the section the Minister is amending is in respect of the qualifying expenditure to a number of contractors, but subsection 3(a) on page 10 states, inter alia, the following:

Subject to the provisions of this section, where an individual (in this section referred to as ‘the claimant’), on making a claim in that behalf, proves that in a year of assessment he or she has made a payment or payments to a qualifying contractor in respect of qualifying expenditure to which this section applies...

Where the Minister is tabling amendment No.12 to allow for a number of contractors, he needs to include contractors in this subsection. This subsection talks about the individual paying a contractor.

It stated "the contractor". That could be interpreted as meaning that only one contractor could be used. When it states "a contractor", that quite clearly suggests that a number of contractors could be used. That did not need additional clarification.

The amendment was about the number of contractors, so I welcome the fact-----

Is that the amendment or the amendments?

I will withdraw them anyway.

Is that plural or singular?

Amendment, by leave, withdrawn.

I move amendment No. 10:

In page 10, to delete lines 39 to 42, and in page 11, to delete lines 1 and 2 and substitute the following:

“(i) in the year in which the qualifying work was carried out by an amount which is the lesser of—

(I) the specified amount of the payment or payments, and

(II) the amount which reduces the income tax of that year of assessment to nil,”.

This amendment relates to the period of time in which the claimant can receive the benefit of the tax credit. The section is currently constructed so that in the two years after the year in which the work is done, the person will get the benefit of the tax credit. Why is it necessary that no credit at all can be given in the year in which the work is done? If there is a solid logistical or practical reason for that from a Revenue point of view, why does the benefit have to be spread out over the subsequent two years, as opposed to the single tax year in the year immediately following the year in which the work is done? We need to make this as attractive as possible to encourage people to avail of it, so perhaps the Minister could give us the logic behind that.

The net effect of this amendment is that it would bring forward the availability of the relief by one year and it would also double the cost of the scheme in year one. This incentive represents a measured response to the significant downturn which has been experienced by the construction industry. It is designed to stimulate increased activity in the sector and to boost employment. The backdrop to the measure is the continued pressure on our national finances. With this in mind, it was considered appropriate to spread the cost of the incentive over two years and that the initial cost would begin in 2015. It is also important to bear in mind that the granting of the relief is by reference to payments actually made by homeowners to contractors. It is simply not sufficient to say that works have been carried out. The relief only applies where payments have been made. Taking all of the above into account, I regret that I cannot accept this amendment.

If the credit is split over two years, the lower income individual is also brought into the scheme. A person can have lower income tax liabilities in 2014 and 2015 and avail of the credit.

It could be worth more to somebody who is on the lower rate band if it is spread out over the two years, as opposed to one year.

Supposing somebody does a €30,000 job, the tax credit available is €4,050. Standard rate taxpayers would not be paying €4,050 in one tax year, so by dividing it over the two tax years, the person will be a beneficiary.

I had a budget in very tight circumstances, where an adjustment of €3.1 billion was being made, €600 million of which was in savings and €2.5 billion of which was in expenditure cuts and tax increases. I had very little resources to stimulate the economy, so I applied it as effectively as I could to get the maximum return in the construction industry for the targeted tax credit provided.

So there will be no benefit until 2015, and the main reason for that is just to spread it out from the State's point of view, in terms of what is being given back.

There are three reasons. First, much of the work carried in 2014 may not be fully paid for until we cross into the following year, because people make different arrangements with small contractors. The Revenue will only pay the credit on bills that are paid, and not on bills that are incurred. Second, there is the burden on the State.

Obviously, it is easier to bring forward a scheme such as this in an economy that is beginning to grow, particularly if there will be no up-front cost in 2014 and the cost will be spread to 2015 and 2016. One hopes the scheme will be self-financing. The 13.5% VAT rate applies to building and one hopes the scheme will generate the required income. From a taxpayer's point of view, this is very important. Many people will build extensions and undertake home improvement works, but their tax liability will not be €4,050 in one tax year. By splitting the liability over two years they will get the full benefit in 2015 and 2016.

On that basis, I am happy to withdraw my amendment.

Amendment, by leave, withdrawn.

Amendment No. 11 is in the name of the Minister and was discussed with amendment No. 16.

I move amendment No. 11:

In page 11, line 11, to delete “section” and substitute “paragraph”.

Amendment agreed to.

Amendment No. 12 is in the name of the Minister. Amendments Nos. 14 and 15 are related and alternatives. Therefore, amendments Nos. 12, 14 and 15 may be discussed together.

I move amendment No. 12:

In page 11, lines 26 and 27, to delete “a qualifying contractor exceeds €5,675” and substitute “a qualifying contractor or qualifying contractors is equal to or greater than €5,000”.

Having listened to the Second Stage debate and the concerns raised about the entry point and incentive provided, I am happy to say I have decided to reduce the minimum threshold from €5,675, inclusive of VAT, to €5,000, inclusive of VAT. Therefore, a greater number of homeowners will be able to avail of the incentive which will stimulate increased activity in the construction industry. I regret, however, that I cannot accept the suggested lower thresholds. The incentive represents a measured response to the significant downturn experienced by the construction industry and the provision is designed to stimulate increased activity and boost employment in the sector. The backdrop to the measure is the continued pressure on the national finances; therefore, I cannot agree to a further lowering of the minimum threshold. I point out once more that one can aggregate work up to a value of €5,000. The argument has been made that many contractors involved in the black economy will not carry out work in excess of a value of €5,000 and that, consequently, the provision will not counteract the black economy. That is not true. Let us look at the situations I described previously involving activities such as painting, landscaping work at the back of a house, getting in a plumber or installing new doors in a bedroom. In aggregating the outlay is divided into small quantums of money, the kind of projects contractors who operate in the black economy are involved in.

Deputy Michael McGrath can speak to amendment No. 14 and Deputy Pearse Doherty to amendment No. 15.

The Minister's amendment is an improvement on what is contained in the Bill. He now proposes to reduce the threshold to €5,000, inclusive of VAT. One of the purposes of the scheme is to redirect activity away from the black economy to the mainstream economy. Much of the work will be labour intensive. If a significant element of the cost involves materials, the VAT issue will be of a different nature. However, the Minister has set the bar high by setting the threshold at €5,000, inclusive of VAT, for painting and landscape work. When it comes to jobs involving windows, doors and other such items, many people will fall short of the figure. I am curious to know how the Minister arrived at the figure of €5,000. Was it because administering a scheme involving lower sums would have been burdensome for Revenue? What is the logic behind choosing the sum of €5,000? On the surface, it seems high for a lot of small jobs that people might think of doing around the house, particularly where there is a strong labour element involved. In many cases, such work is done by contractors operating in the black economy.

I agree with the Minister that allowing for work done by multiple contractors represents an improvement. In reality, he is allowing work on a house at a cost of €1,500 to be eligible under the measure as long as work done by other contractors bring the value to over €5,000. That shows that he has moved in the right direction. He has restricted the measure for a lot of people who simply do not have a lot of money available. To enable them to stop the draught from whistling through the window on cold nights, they can only replace their windows by opting for the cheapest quote available. They will have the work done for a sum nowhere near €5,000. If they have extra spare cash to have their house painted or the garden landscaped, all of the work will be eligible. The only people who will be eligible are the ones who can afford to spend €5,000 on renovations. What about the poor creatures who do not have additional cash available? They will not benefit from the tax rebate, which is wrong. The scheme is overly burdensome and cumbersome. Revenue will have to administer it and cater for individuals who spend €500 on a job, as long as there are enough multiples of €500 to bring the total value to €5,000 simply because the Minister has allowed for work done by multiple contractors. What about individuals who simply do not have €5,000 available? Many people do not have that amount of money and cannot afford the luxury of having their garden landscaped to have someone plant rose bushes or tidy their lawn. All that they can consider is doing what needs to be done, what is leaking and draughty and getting as much done as possible for €1,500, €2,000 or €4,000. Under the proposed measure they will be ineligible. However, a person who has an extra few bob around and puts another grand with it will be eligible. That is unfair.

The primary purpose of the scheme is to stimulate the construction industry and get people with skills in construction off the live register. One must measure it on the basis of the additional quantums of work carried out; otherwise the scheme will fail. It is not my intention to include routine maintenance works and repairs in the scheme as such works will be carried out in any event. That is not the purpose of the scheme which I must measure against the additional quantums of work carried out to stimulate construction industry activity and provide employment. One calls the plumber when one's electric shower goes wrong and when one cannot turn on the hot top. If the plumber spends half a day working on it, it may cost €550 or €560. It is not the intention of scheme to cover that expense because that is deemed to be normal repair and maintenance work in a house. A reasonable or decent quantum of work that would fit the purposes of the scheme is what is required to stimulate activitiy and employment in the construction industry. That is the purpose of the scheme.

As we examined the measure and as I listened to the Second Stage debate, I said "Yes" to lowering the sum to €5,000 which, when one adds VAT, becomes €5,675 and then to adding a number of contractors. I think the amendment meets the need identified. Members may argue about the exact amounts, but we had to pick a value that would be significant enough to stimulate the building industry and provide employment. I do not want to include what I regard as normal repair and maintenance works in the scheme because that is not its purpose. One could argue for lower figures in using the black economy as an example. In doing so one puts the black economy and the legitimate economy on the same line as if they were both reasonable choices for a householder.

They are not reasonable choices because, first, social welfare inspectors look over one's shoulder if one hires people on social welfare to carry out construction work on the house and, second, the Revenue Commissioners want to ensure contractors are registered for taxation, including VAT. Arguments have been put to me that work will still be done in the black economy, as if both decisions were on an equal basis. One decision is illegal and some of the activity is quasi-criminal, while the other is legitimate. That has to be taken into account also.

Am I correct in stating the figure of €5,000 referred to in amendment No. 12 is VAT inclusive?

Does it still apply that the upper limit is €30,000, plus VAT, namely, €34,050?

These are practical questions. The measure is very good, but, if the limit is €34,000, could someone decide to carry out work in three parts in the years 2013, 2014 and 2015, with each part worth €12,000, and qualify to claim the tax relief in each year? People could claim the tax credit based on the limit of €34,050 but some may not be able to afford to spend the full €34,000 needed to do the work. Can they divide the work over a three year period and claim the tax credit in the following two years for the individual items of work done in a specific year, up to a maximum-----

As long as the scheme is open, the individual will have one or two choices based on the examples given. One can do all of the work in the 12 month tax year and aggregate the cost or do it over two tax years and make two separate applications but the maximum figure will apply at all times. It is worth pointing out that if one wants to do a job worth €50,000, the only restriction will be that one will get tax back only on expenditure of €30,000, plus VAT. There is nothing stopping a person from doing a more expensive job if he or she wants. One will not build a big extension for €30,000 at present, even though building costs have decreased substantially. An extension to the side of the house, with a kitchen, utility room and bedroom overhead, costs €65,000 or €70,000. This work will still be eligible, but the limit of €30,000, plus VAT, will apply in respect of the tax credit. One will not get the credit on the balance.

I am really thinking of the group who cannot afford that figure, namely, those under financial pressure, including young married couples. It is a question of their finding a mechanism to claim the tax credit, although they may be unable to afford all of the work in a given year. The Minister has answered my question in that the option is available for them if they want to carry out work over a two or three year period.

Most will not fund the work up-front with cash. The main banks have provided quite a lot of credit for doing this work. It will work out such that one will get a loan, perhaps over a term of five or ten years, to build the house extension, but the tax break will be received up-front.

Or they get it over the following two years.

Yes, but their deposit will be covered through the tax break pretty quickly. The loan, however, will be repaid in instalments thereafter. That will be the normal way in which this will play out for young couples. It may be different for people who are established and have more significant financial resources.

My main reason for raising this issue is in order that those who are considering availing of the scheme, which is very good, will know all the options and that the option the Minister outlined is available for them if they wish to avail of it.

I question the somewhat arbitrary distinction the Minister is making in setting the threshold at €5,000 if the major purpose of the scheme for refurbishment and redevelopment is to generate employment. The Minister has stated this is the purpose. In so many instances people under pressure are not carrying out routine work because they are not sure whether they should spend the money. If the scheme can tip them in favour of adopting the view that it is worthwhile employing somebody to do certain work, it is beneficial. In my area builders, tradespeople and, in many cases, self-employed tradespeople are at their wit’s end because there is no work forthcoming. Hundreds of people are looking for the same work. Any proposal that would increase the amount of work available for this large cohort of building workers and tradespeople would be very welcome; therefore, I do not see why the Minister makes a distinction in respect of what I accept is a good idea. What is the problem with lowering the threshold so as to encompass smaller refurbishment projects and redevelopments? I do not quite understand the Minister's comments on the black economy. Surely, if he were to lower the threshold to include smaller refurbishment jobs and redevelopments, he would help to eliminate the black economy and encourage people to enter the legitimate economy. It seems self-evident that this would be the case.

One of the big problems one faces with any such scheme, especially one operated through the tax system, is that one is trying to eliminate deadweight. There is no point in giving tax breaks for work that is being carried out in any case.

There is none at the minute.

There is. There is a considerable number of small jobs being done. People still paint their houses and refurbish their homes. There is a lot less work being done than there used to be, but there is still work being done. The tax break has to be paid for with someone else's taxes or the taxes paid by the beneficiaries in due course. If the State is providing incentives and there is no additional activity in the construction industry owing to deadweight, it is wasting taxpayers' money. The pitching of the threshold involves a judgment call. It would be a waste of taxpayers' money to give tax incentives for small jobs that would be carried out in any case. Socially, one could have a different argument, but, economically, it does not make sense to incentivise work that is being done in any case. We must have additionality before we have extra jobs or activity in the building industry. The way we have designed the scheme is pretty good.

I presume all of the builders involved in the scheme must be not only tax compliant but also fully registered, insured and paying appropriate wages.

The Minister has outlined the economic rationale for the scheme. In making his last argument he missed the point because of the scale of the black economy. He spoke about quasi-criminal and illegal activity which obviously describe work done in the black economy, but it has been normalised for so many people. They do not see it like the Minister; that is the reality, regardless of whether we like it in this Chamber. The black economy is all around us and probably most dominant in the construction sector. Does the Minister have any assessment of its size in respect of contractors as small as those in question? There are 80,000 construction workers unemployed. Some of those who are employed put some jobs through the books, while there are others who do jobs for cash in hand.

This scheme forces those who may not be registered to register and it makes the claimant who wants to have work carried out the watchdog for the Revenue Commissioners. This is because the claimant will not get relief if the construction worker is not registered or declaring his or her income to the Revenue Commissioners. Therefore, the Minister's argument is flawed.

I could understand the Minister's logic if he were to exclude the black economy and state that routine works would be carried out in any event. However, as Deputy Boyd Barrett indicated, many routine works are not being done. For example, showers that are broken are not being fixed and doors that are hanging off their hinges are not being repaired or replaced. I am not stating that this applies in all cases but there are certainly individuals who cannot afford to have such works carried out. Leaving that argument aside, what is proposed here is about providing additionality but it should also involve trying to stamp out the black economy.

The Minister stated, in the context of additionality, that if the wind is whistling through the windows of a house, the owner will have them replaced. That is genuinely not the case. For some people it may be but does the Minister believe that any one of the tens of thousands of people who cannot pay their mortgages or who have been screwed by the banks are going to go to apply for a loan to have their windows replaced? Approval would not be forthcoming in respect of such applications. The Minister stated that the banks are making credit available. I have four children and, as a result, we probably need to add an extension on to our house. I made an inquiry in respect of the matter with KBC, the website of which contains an advertisement for a home improvement scheme. However, I discovered that the scheme is not for individuals such as me or the majority of people throughout the State. It only applies if one has equity in one's house. We are not discussing new money here. This money would have been available in any event, regardless of whether the Minister introduced his own scheme. One could always go to one's bank and state that one wanted to release a portion of the €50,000 worth of equity in one's House. It has always been there. This is not additionality whereby, despite the fact that one's home is in negative equity, Bank of Ireland, AIB or KBC is going to provide one with an extra €10,000 because one needs to put an extension on one's house or landscape one's garden. The latter is not happening.

As the Minister stated earlier, routine maintenance works are not supposed to be covered under the scheme. Rather, it will be the luxury items that will be covered. What is proposed relates to people who want to have their lawns landscaped, new driveways installed, an extension added or the entire living room refurbished. These are not the things which people need in the here and now. I am not arguing against the scheme because there is a need to provide a boost to the economy. The concept behind the scheme is both very good and welcome. However, the scheme also contains a number of flaws. We must analyse the scale of the black economy in both the section of society to which I refer and the part of the trade involved, namely, the lower end. I spoke to contractors and others involved in construction in respect of this matter. If one seeks to have an extension built or a bedroom with an en suite added to one's house, it will cost between €20,000 and €25,000. The people who carry out such jobs are usually registered with Revenue. It is those who take on jobs valued at €1,000 or €2,000 who may not be registered. It would be wrong to give the impression that non-registration is widespread because there are many people who pay their taxes and who take on jobs worth €1,000 or €2,000. There is, however, an issue in terms of the black economy.

I accept that the Minister must settle on a figure but in refusing to accept the amendment, he will ensure that works with a value of €1,500 will not be carried out. If, however, those who want to have such works carried out do not have any additional money, they will not be able to avail of this. Those who do not have additional money lying about are more than likely people whose homes are in negative equity. These individuals will not be able to get a loan from their banks in order to extend or refurbish their houses. Those to whom I refer are struggling to get by. If he wants the scheme to work, the Minister should reduce the threshold to €1,500. As stated, multiple contracts go some of the way but one must still have access to €5,000 one way or another. I understand that this €5,000 must be spent within the year whereas if one had €20,000 or €30,000 at one's disposal, one could make two claims and would not have to spend everything in the same year.

What is proposed in my amendment would allow citizens to act as a watchdog for the Revenue. That is something which is badly needed. I appeal to the Minister, therefore, to consider a lower threshold. If he is not disposed to doing so, well then so be it.

There is not a great deal between what is contained in the Deputy's amendment and my position. He refers to a threshold of €1,500 and aggregate contractors, whereas I am stating that the margin is €5,000 in the context of aggregating contractors. Three times €1,500 is €4,500. We are in the same space.

That is provided someone can have three jobs carried out.

Deputy Boyd Barrett's position is that there is not a job of work for anybody in Dún Laoghaire who has building and construction skills. However, Deputy Pearse Doherty stated that those in County Donegal who possess construction skills are working non-stop within the black economy. Either there is a huge regional difference within the country or one of the Deputies is wrong.

We are trying to have a serious debate here but the Minister is seeking to misrepresent me. He is long enough in this game to know that he should not fire shots of that sort across the table. I did not make the comments attributed to me. What the Minister said is disrespectful of my opinion and what I have stated at this committee. I have brought forward genuine amendments, one of which - relating to multiple contractors - has already been accepted. He brought forward an amendment in that regard himself. I am arguing in favour of a reduction in the price and I also tabled an amendment which the Minister stated he would consider in the context of the category of people who would not be eligible as a result of their properties being new builds. I did not say that every person in Donegal who has experience in construction is working in the black economy. I actually stated the opposite. Let us not get off on the wrong foot.

The Deputy argued that unless the limit is brought well below €5,000, all of the small jobs in his constituency will be carried out for cash payment by contractors who operate in the black economy.

I did not say that.

That is the Deputy's position.

The Minister can consult the transcript of proceedings but I clearly stated that it would be wrong to suggest that all small contractors would be working in the black economy and that many of these individuals are paying tax. I deliberately phrased it that way in the event that someone such as the Minister might misrepresent me. He acknowledged that one of the reasons for bringing forward the measure and allowing the involvement of multiple contractors is in order to deal with the black economy. I pointed out that not reducing the threshold will allow for the black economy to remain in place. The latter will result in a loss to the Revenue Commissioners because even though the jobs will be done, tax will not be paid in respect of them. Reducing the deficit would allow citizens - who will want to avail of the tax incentive - to act as the watchdog in respect of those small contractors who are not in compliance with Revenue.

It is a pity the Minister has sought to cheapen a serious discussion by taking political potshots, particularly as it is clear that those of us on this side are trying to engage and refine the measure he is trying to implement. We have stated in a non-partisan, non-political way that this is a positive measure. There will be plenty of opportunities, in the context of the Bill before us, to criticise the Minister for things he has either done or not done. We will certainly be voicing such criticism. There will also be plenty of opportunities for him to engage in the cut-and-thrust of debate with members. When an attempt is being made to be constructive and to engage with what we believe to be a positive measure, however, the Minister should respond in kind rather than making cheap political points or misrepresenting people in the context of what they have to say.

There is a serious issue regarding where the threshold lies in the context of maximising the impact and benefit with regard to employment creation. We must also consider the extra revenue which might accrue to the State if the threshold is pitched at the correct level. I accept that if it is pitched too low, problems might arise. I accept the Minister's argument in that regard. However, there is another argument, namely, that a threshold of €5,000 is too low. I can think of quite a number of different jobs which could be done and which might lead to tradespeople gaining employment in the legitimate economy. Such individuals might sometimes not take on such jobs because they do not believe them to be worthwhile or because the person getting the work done thinks that he or she can get it done a bit cheaper. We all know this happens. I do not believe that most people doing that want to do it. In fact, I do not believe they want to do it at all but many of them - both tradespeople and those who might get works done to their homes - find themselves in a difficult position.

A lot is happening on the margin where people are deciding whether to have certain works done to their houses. These are reasonably substantial works. We are not talking about having the washing machine fixed or landscaping palatial gardens. I know a family who have just refurbished their home in the past two years, put a lot of money in and employed people, but more works need to be done and they are at the limit and deciding whether to do them. We are probably talking about a sum of €2,000 to €4,000. If they decide to do them, tradespeople will be employed and there will be a benefit to the economy. If not, that will be a pity for them, the Exchequer and the tradespeople concerned, many of whom are desperate for work. The family may decide to go through the black economy, not because they want to or because the tradespeople want them to do so but because they will work out whether it is worth their while. We do not expect the Minister to say he agrees with our point, but he should take it seriously and consider it. There is a case for reconsidering the threshold and reducing it.

The minimum threshold is €5,000. If someone were to spend a combined total of €5,000 over three years, could he or she make a claim? If the person concerned was to reach the threshold of €5,000 by 2015, would he or she be entitled to the credit based on when the work was concluded and when the value reached €5,000? If he or she was to reach the threshold by 2015, he or she could submit the claim and obtain the credit in 2016 and 2017. Perhaps that would be a practical way around this measure. There must be stimulus measures.

I regret if I have offended Deputies Pearce Doherty and Richard Boyd Barrett. It was never my intention to do so. Of course, I listen to them. It is because I listened to them on Second Stage that I have brought forward the amendments to reduce the threshold to €5,000, inclusive of VAT, which gives a reduction in the threshold of €675. It is also because I listened to them that I brought forward the clarification on aggregation across a number of contractors up to a limit of €5,000.

What Deputy Kieran O'Donnell has suggested is already provided for in the section. From the day we published the Finance Bill I made an announcement that works carried out from that Friday morning, three or four weeks ago, up to 31 March 2016 would be eligible and could be aggregated. If one does a piece of work before Christmas, a piece next year, in 2015 and at the start of 2016 and if any planning permission required is obtained by the end of 2015, one can aggregate and receive the tax rebate. Revenue is putting an arrangement in place whereby both the applicant and the contractor register electronically in order that there will be an accumulation of claims. Once the value goes beyond the €5,000 threshold, eligibility for the tax credit arises and Revenue will make the appropriate arrangements. We have covered most of the Deputy's suggestions.

Can it carry on over the three years such that the total spend over the three years is just over €5,000?

Yes, although it is not quite three years. It is a two year scheme, but we allowed it to begin a little early and complete a little late.

I understand. Subsection (3)(a) on page 10 reads, "Subject to the provisions of this section, where an individual (in this section referred to as ‘the claimant’), on making a claim [we will deal with the issue of what is a claim] in that behalf, proves that in a year of assessment...". Will the Minister point out if there is a part in the legislation that allows for this? I presume the year of assessment will be 2014 or 2015. On making a claim, the claimant must prove that in the year of assessment "he or she has made a payment or payments to a qualifying contractor in respect of qualifying expenditure to which this section applies, the income tax to be charged on the claimant, other than in accordance with section 16(2), shall be reduced...". It then states 50% next year. What do the words "on making a claim" mean?

Subsection (3)(d) on page 11 reads, "No claim shall be made under this section unless the payment, or where there is more than one payment the aggregate of those payments, in respect of qualifying expenditure made to a qualifying contractor exceeds €5,675". One cannot make a claim under subsection (3)(d) unless the qualifying expenditure or aggregate thereof exceeds €5,000, but subsection (3)(a) states that on making the claim one must prove that in the year of assessment one has made a payment to the contractors. It does not state it must be in the year of assessment. If I pay €2,000 to the plumber in 2015 and €4,000 in 2014, in the year of assessment I will have paid only €2,000 to the qualifying contractor. Therefore, I will not be able to make a claim. If that is the intention, there must be an amendment to this section.

For the record, I will read a couple of notes from the Department of Finance and Revenue. The incentive applies to repairs, renovation or improvement works carried out on or after 25 October 2013 and up to 31 December 2015. Payments made between 25 October 2013 and 31 December 2013 will be treated as if they were made in 2014. There are transitional provisions which allow for work to be carried out between 1 January 2016 and 31 March 2016 where planning permission is in place by 31 December 2015. The relief is granted over the two year period following the year in which the work is paid for. However, where the credit cannot be used in these two years owing to insufficient income tax, the relief may be carried forward to the following year and each subsequent year until the relief has been used up. Not only can one aggregate, but if one has insufficient income tax to avail of the credit, one can carry it forward into subsequent years, but the work must be carried out within the designated period I have described.

The legislation provides for carrying forward the relief but not the aggregation of expenditure the Minister has explained. If one spends €3,000 in 2014 and €3,000 in 2015 and makes the claim in 2015, under subsection (3)(d) one can make a claim only if the qualifying expenditure is €5,000 as per the amendment. One cannot make a claim before that date. There is an issue in that regard. Subsection (3)(a) must be amended to allow for aggregation. It was news to me that aggregation was intended to be provided for. It goes some way towards addressing the issue we had about the reduction by allowing for multiple contractors and aggregating over a two year period. It is getting closer to my thoughts.

The triggering event must be the expenditure of €5,000. If someone were to spend €2,500 in 2014 and a further €3,000 in 2015, the scheme would be triggered in 2015, as the €5,000 threshold would then be exceeded, at which point he or she could claim on the €2,500 spent in 2014. That is how it will work.

Amendment agreed to.

Amendments Nos. 13 to 15, inclusive, cannot be moved as amendment No. 12 has been accepted.

Amendments Nos. 13 to 15, inclusive, not moved.

I move amendment No. 16:

In page 11, to delete lines 40 to 42, and in page 12, to delete lines 1 and 2 and substitute the following:

"(iv) the name of the claimant,".

Amendment agreed to.

I move amendment No. 17:

In page 12, line 13, to delete "he or she" and substitute "the contractor".

Amendment agreed to.

I move amendment No. 18:

In page 12, line 17, to delete "he or she" and substitute "the contractor".

Amendment agreed to.

I move amendment No. 19:

In page 12, line 30, to delete "7 working" and substitute "10 working".

This concerns the time available for a contractor to submit details. When we speak about the section, I will come back to the issue of the claim because there is still a problem with subsection (3)(a). We could argue about whether it should be seven working days or ten working days, but a period of ten working days would give the contractor two weeks. There is a bigger issue with the section and clarification would be helpful as to what would happen if the contractor did not comply with or fulfil the terms of this section of the legislation within the timeframe set down. How would the claim stand? Would it be void as a result of the law not being followed because this is part of the claims process? It would be good to have this clarified to see the significance of allowing ten working days as opposed to seven.

There is very little in the difference between seven and ten working days and, in the circumstances, I can accept the amendment. With regard to the clarification sought by the Deputy, it seems the work carried out would not be eligible, but this sounds a little harsh and I will seek further clarification.

I appreciate the Minister accepting the amendment. It rounds it off to two weeks, which is better. I have tabled another amendment to deal with the rest of the section to which we will come.

We might issue a press statement because for the first time I have witnessed an amendment from the Opposition being passed on Committee Stage.

We do it all the time.

As it is only my second year as Chairman, it is all new to me.

I can give the Chairman a list of finance legislation to which amendments were not accepted in principle or in practice by the Minister, as there is very little.

I say "Well done" to the Minister and Deputy Pearse Doherty.

Amendment agreed to.

I move amendment No. 20:

In page 12, line 31, to delete "the payment" and substitute "such payment".

Amendment agreed to.

I move amendment No. 21:

In page 12, line 38, to delete "the amount of" and substitute "details of the amount of".

Amendment agreed to.

I move amendment No. 22:

In page 12, between lines 39 and 40, to insert the following:

"(V) the name of the individual from whom the payment was received;".

Amendment agreed to.

I move amendment No. 23:

In page 12, line 40, to delete "(V) the date of" and substitute "(VI) the date of".

Amendment agreed to.

I move amendment No. 24:

In page 13, between lines 10 and 11, to insert the following:

"(c) Where a qualifying contractor has not fulfilled the provisions set out in this subsection, the Revenue Commissioners, upon receipt of a claim from a claimant shall inform the contractor of the claim and final stated payment and inform the contractor that they are obliged to fulfil the requirements as stated in this section. Contractors will have 10 working days to dispute the payment claim, at which point the Revenue will process the claim, once legitimate receipts are provided.".

The Minister has confirmed the expenditure would not be qualifying expenditure and, therefore, the claim would be void if the contractor, after being paid, did not contact the Revenue Commissioners with his or her name, tax registration number, VAT registration number, the unique reference number for the work, the amount of the payment, separately identifying the amount of value added tax, and the date of the payment and did not provide the individual with a statement showing the amount within ten days. Is it the case the claim would not be eligible if this had not been complied with as set down in legislation?

I do not propose to accept the amendment. A number of issues arise. The relationship between the homeowner and the contractor is important from the outset. The first thing a homeowner must do before engaging a contractor is to ensure the contractor is tax compliant. The homeowner should ask to see the building contractor’s up-to-date notification of determination of relevant contracts tax, RCT, rate. This must be 0% or 20% for the contractor to qualify to carry out work under the incentive. Alternatively, an in-date tax clearance certificate is also acceptable until such time as Revenue’s new online system is in place. If the contractor is not tax compliant, he or she is not eligible to operate under the incentive and any work carried out by him or her will not qualify.

When a homeowner makes a payment to a contractor, the contractor is required to provide a receipt or a statement showing the amount of the payment. The VAT amount must be identified separately. It is important in building a relationship with a contractor there be a common understanding that for the homeowner to get relief, the contractor is required to notify Revenue of the works and the payment made by the homeowner. When the Revenue electronic system comes onstream early next year, it will be possible for homeowners to track whether the contractor meets his or her obligations in terms of notifying Revenue of works and payments. This should mean a situation where a homeowner would only become aware at the claim stage that a contractor had failed to meet his or her obligations would not arise.

I should add that any failure by a contractor to meet his or her obligations is an offence subject to a fine of €3,000. Also, a failure to meet the obligations under the incentive could render the contractor in a position where he or she would not be tax compliant. This would rule a contractor outside the terms of the incentive and, therefore, he or she would not be a qualifying contractor. The net position is the contractor would be acting improperly and outside the terms of the scheme and subject to penalties but the claimant's claim would still be eligible, provided late notification was the only issue. The onus is on the claimant to establish in the first instance that the contractor is tax compliant. If the contractor was not tax compliant, the claim would be void.

If a contractor does not go back to Revenue with this information, or goes back late, the claim is still valid. Is the claim void on any occasion if the contractor does not comply with the terms of this section? What happens if the contractor does not inform Revenue?

The offence is the contractor's. If everything else is in order, bar the failure to register within the ten day period, Revenue will use its discretion in favour of the applicant. All of these matters are still subject to decision by the appeal commissioners.

Many members will want to contribute on section 7 so we will finish this section by 5 p.m. As it is 4 p.m., I propose we take a break for a few minutes soon. If members want to give time to section 7, we will need to conclude this section soon. Sections 1 to 7, inclusive, are meant to be finished by 5 p.m. this evening.

I have some points I want to make on section 6.

The Deputy should remember that if he makes points on section 6, he will be sacrificing time on section 7 which concerns single-parent allowances. I do not want members telling me at 5 o’clock that they have no time to discuss section 7.

I would never criticise the Chairman.

My amendment concerns the motivation of the contractor to supply the information. What happens if a contractor is tax compliant but did not submit the information within the timeframe? What if the contractor does not provide the information to the Revenue? I worked in the construction industry for several years. Getting people to complete a snagging list is quite difficult. The claim, which could be as much as €4,000, could be at issue if the contractor has not provided the required information. The contractor could have gone out of business or there could be several contractors with one compliant and another not. This amendment proposes to penalise contractors who are at fault, not the claimant who may have everything in order.

It is difficult to see how a reputable contractor would fail to provide the necessary information to the Revenue to enable a home owner make a claim. The contractor would destroy his own business, as well as incurring penalties. The claim is made once payment is made, not when the work is finished. Once the Revenue has the electronic system up from early January, the householder can see at all times what the contractor is doing and not doing. There is a protection in place to allow the householder access the information on the Internet to see if their contractor has registered. Supposing for some reason a contractor does not register, then he is outside the terms of the scheme, has broken its rules and is liable for penalties. I will get clarification from Revenue on what system is there to protect the rights of the householder making the tax claim.

Amendment, by leave, withdrawn.

I move amendment No. 25:

In page 13, to delete lines 19 and 20 and substitute the following:

“(iv) details of any sum referred to in paragraph (a) or (b) of subsection (7),”.

Amendment agreed to.

I move amendment No. 26:

In page 14, line 6, to delete “subsection (3)” and substitute “subsection (3)(a)”.

Amendment agreed to.

I move amendment No. 27:

In page 14, to delete lines 14 to 17 and substitute the following:

“(8) (a) Relief shall not be given under this section where the requirements of the Finance (Local Property Tax) Act 2012, in relation to the making of returns and the payment of local property tax—

(i) have not been complied with in respect of the qualifying residence, or

(ii) have not been complied with by a claimant in respect of any relevant residential property (other than the qualifying residence) in relation to which the claimant is a liable person.

(b) In this subsection ‘relevant residential property’ and ‘liable person’ have the same meanings respectively as in the Finance (Local Property Tax) Act 2012.”.

Amendment agreed to.

I move amendment No. 28:

In page 15, line 8, after “Acts” to insert “or the Value-Added Tax Consolidation Act 2010”.

Amendment agreed to.
Question proposed: "That section 5, as amended, stand part of the Bill."

When the €5,000 is paid, it triggers the claim. Accordingly, in the year of assessment, the homeowner can make the claim. The requirement is that the homeowner must prove he or she has made payments to a qualifying contractor. However, they only have to prove they made the payments in the year of assessment. The officials need to re-examine this section as this could cause some administrative problems.

On making a claim under this section, the claimant must provide to the Revenue Commissioners, among other items, the unique reference number for the work. What is the unique reference number? What happens if there are several contractors engaged in the improvements?

My assumption is that contractor No.1 registers and enters all the data required by Revenue while contractor No. 2 registers and does the same. When Revenue sees the trigger of €5,000 has been reached, the claim is eligible and the arrangements are made in accordance with a person’s tax liability for the repayment of the tax paid. We rely on the Revenue to ensure its operational systems are correct and efficient.

Due to the amendment that will allow additional contractors, there will be more than one unique reference number. Is this provided for under the legislation?

Question put and agreed to.
Sitting suspended at 4.10 p.m. and resumed at 4.15 p.m.

Amendment No. 33 is an alternative to amendment No. 32. Amendments Nos. 29 to 37, inclusive, are related and will be discussed together.

I move amendment No. 29:

In page 16, line 3, after “Chapter 1” to insert “of Part 15”.

Section 6 of the Finance (No. 2) Bill 2013 introduced a new start your own business initiative. I have already signalled my intention to reduce the qualifying period of unemployment to 12 months in order to bring the qualifying period in line with activation measures for the long-term unemployed implemented by the Department of Social Protection. Deputy Michael McGrath suggested this change on Second Stage and I am glad to accept his amendment.

I do not propose to accept Deputy Boyd Barrett's amendment because it would reduce the qualifying period to nine months, which is not in line with the schemes operated by the Department of Social Protection.

Provision is also made to bring forward the start date for the initiative to 25 October 2013 to enable individuals to start up a new business immediately, whereas they would otherwise have had to postpone the commencement of the new business until 1 January 2014 in order to avail of the relief. Finally, the definition of a qualifying individual under this section is expanded to include individuals in receipt of partial capacity benefit. I commend amendments Nos. 29 to 32 and 34 to 37. I cannot accept amendment No. 33.

In regard to amendment No. 32, I thank the Minister for accepting my suggested amendment. It is a sensible change. The initiative is worth a try and I am happy to support the amendment.

I intend to move amendment No. 33 on behalf of Deputy Donnelly but I also wish to speak on it.

The reason I went further than the Minister proposed was to prevent people from entering long-term unemployment. All of us are aware of the compelling research showing that while long-term unemployment is not a binary state that begins directly after 12 months, it is associated with a range of socioeconomic problems. As the Minister has already stated he will not accept the amendment, I will be brief and ask him to reconsider it on Report Stage. Rather than waiting for someone to become long-term unemployed, it leaves a sufficient gap, of nine months, to prevent people from gaming the system by, for example, making themselves unemployed and waiting two or three months to avail of a tax credit for a new company. If we are accepting the principle of introducing this measure at the 12 month stage, a case can be made to go a little further in order to prevent those concerned from going into long-term employment, given what we know about the bad things that tend to happen at that point.

In regard to section 2 and JobsPlus, I give notice of my intention to bring an amendment on Report Stage. In regard to the amendment, I respect the Minister's desire to take special measures to deal with long-term unemployment but there is a problem with doing it this way. Whether the period is 15, 12 or nine months, people who have just lost their jobs or have come out of education and do not want to be unemployed for any period of time are being told they will have to remain unemployed in order to benefit from this and similar schemes. People think that is crazy. It will end up pitting the long-term unemployed against those who have recently lost their jobs. I understand what the Minister is trying to do but I think there is a problem with it and I reserve the right to introduce an amendment on Report Stage.

For the purpose of clarity, will those on the back-to-work enterprise allowance be eligible for payment under this section?

They do not have to lose one to avail of the other. That is good. Amendment No. 37 gets rid of crediting contributions. I ask the Minister to elaborate on why he made this change. Is it not the case that self-employed individuals who may not be in receipt of payments but were availing of crediting contributions will no longer be eligible under the section?

As initiated, the section required an individual to be unemployed for a period of 15 months before starting his or her own business. While this is the definition of long-term unemployment in the Social Welfare Acts, in practice a period of 12 months is generally applied. To be in keeping with initiatives by the Department of Social Protection on activating the long-term unemployed, it is proposed to reduce the qualifying period for the scheme to 12 months of unemployment. Individuals who are in receipt of partial capacity payments were not originally included on the list of individuals who would qualify for this scheme, although they can equally be long-term unemployed and can benefit from other activation measures. It is, therefore, proposed to include individuals in receipt of this payment within the initiative. Individuals who have been unemployed for a period of 12 months will be able to claim the relief. Individuals who can qualify are those in receipt of jobseeker's allowance, jobseeker's benefit, the one-parent family payment and partial capacity payments. Where an individual who would otherwise qualify attends a training course akin to a FÁS course, the period of training will also count towards his or her period of unemployment.

I ask Deputy Doherty to repeat his question on credit contributions, as I did not quite grasp the point.

The original legislation defines unemployment payments as any payment, including crediting contributions, to a qualifying individual under the Social Welfare Acts. That wording is being amended so that unemployment benefit means a payment of jobseeker's benefit or jobseeker's allowance under the Social Welfare Acts. The amendment gets rid of crediting contributions.

Would there not be a cohort of self-employed individuals who would not be receiving a payment, as is now required, but who would have received crediting contributions, which will now be ineligible?

Anybody on a FÁS course is automatically receiving crediting contributions; therefore, it does not need to be mentioned specifically in the text.

Would that be the only circumstance where somebody would be receiving crediting contributions and no payment?

We will have to check.

That is appreciated. It is more a question for the Department of Social Protection.

This is one of the things we are trying to do for the long-term unemployed and I hope it will work. If one sees it in combination with what we discussed before the break, it makes sense. If a carpenter is long-term unemployed and has a friend or a brother who has another skill in the building industry, rather than seeking work from another contractor, they can decide to set up as small contractors and do the work that is eligible for the tax credit. One can see how that would work in a rural or urban community. They do not have to incorporate. They have the tools of the trade. They would register with Revenue and then look for work. As the tax relief is up to €40,000 on income tax, they can earn up to €40,000 in two consecutive years without having an income tax liability. That might be a better route back for people with building skills rather than seeking employment from another contractor. We will see how it works. I envisage the two working in tandem. That is not to say the home extension scheme is the only outlet, but it is an obvious one.

On the figure of nine months, approximately 60% of the total who are unemployed are long-term unemployed. We have a serious long-term unemployed problem which the Minister is trying to address and it is a good initiative. I can think of three reasons to reduce it further. First, if we were to bring the period of eligibility to nine months, we would give more people this opportunity. Second, if it works, as I hope it will, by reducing it to nine months, we will prevent people from becoming long-term unemployed. Third, the longer a person is out of work the less chance he or she has of successfully re-engaging in work, starting a new company or working for somebody else. I am straying into opinion, but we know this from the figures. It is not unreasonable to assume that one's potential to engage in entrepreneurial activity reduces the longer one is unemployed. That is suggested by the data.

In summary, the reasons for reducing the period of eligibility to nine months are that more people could avail of it; it would reduce the number of long-term unemployed by catching people before they fell into it and people at the margins would probably have a greater chance of success if we did not let them go the full 12 months. Will the Minister consider it or is there a specific reason we should not go less than 12 months?

We are aligning the definition of long-term unemployed with the Department of Social Protection's definition, which is 15 months. In practice, it regards somebody who has been unemployed for 12 months or longer as long-term unemployed. Bringing it lower than this figure would be to move in advance of the Department of Social Protection. I am not ideological in any of these matters but doing nothing is not an option when so many are long-term unemployed. Therefore, we will try a series of initiatives. If they work, they work; if not, we will drop them. If this measure works well, I will consider the suggestion that the period be nine months.

I usually do not make interventions, but an additional point of consideration is that the PRSI stamp period is less than one year; it is around the period about which Deputy Donnelly is talking. It is also in line with the social welfare provision. It might make sense that the proposal come into line when the social insurance period expires.

A problem that has been pointed out to me is that the back-to-work enterprise allowance scheme allows an individual to keep a portion of his or her social welfare payment for two years and a person might make a claim under both the back-to-work enterprise allowance scheme and the start-your-own-business initiative. The 12 month eligibility period allows both claims to be made. Bringing it down to nine months could make a person worse off. There is always a problem in combining schemes.

The Minister might consider it next year. There might be something very useful in offering someone the chance before he or she becomes long-term unemployed. As I said, this morning's CSO figures are optimistic. Some 58,000 net new jobs were created in the 12 months up to the end of September. Some 4,000 of these jobs are in construction and 15,000 in the hospitality industry. In targeting the construction industry in the budget the Minister was targeting the area most in need of assistance. I would be prepared to examine other measures, but I hope we will get some traction out of these measures.

Amendment agreed to.

I move amendment No. 30:

In page 16, between lines 5 and 6, to insert the following:

“ ‘basis period’, in relation to a year of assessment, means the period on the profit or gains of which income tax for the year of assessment is to be finally computed under the Income Tax Acts;”.

Amendment agreed to.

I move amendment No. 31:

In page 16, line 12, to delete “1 January 2014” and substitute “25 October 2013”.

Amendment agreed to.

I move amendment No. 32:

In page 16, line 21, to delete “15 months” and substitute “12 months”.

Amendment agreed to.
Amendment No. 33 not moved.

I move amendment No. 34:

In page 16, line 26, to delete “390 days” and substitute “312 days”.

Amendment agreed to.

I move amendment No. 35:

In page 16, line 31, to delete “or”.

Amendment agreed to.

I move amendment No. 36:

In page 16, line 33, to delete “2005,” and substitute the following:

“2005, or

(IV) partial capacity payment under Chapter 8A of Part 2 of the Act of 2005,”.

Amendment agreed to.

I move amendment No. 37:

In page 17, to delete lines 1 to 4 and substitute the following:

“ ‘unemployment payment’ means a payment of jobseeker’s benefit or jobseeker’s allowance payable under the Social Welfare Acts.”.

Amendment agreed to.
Section 6, as amended, agreed to.

Amendments Nos. 38 to 42, inclusive, are related and will be discussed together. Amendments Nos. 40 and 41 are alternatives to amendment No. 39.

I move amendment No. 38:

In page 18, to delete line 17 and substitute the following:

“(d) in section 188(2A)(b) by substituting “section 462B, but without regard to subsections (1)(b), (1)(c), (3) and (5)” for “section 462, but without regard to subsections (1)(b), (2) and (3)”,”.

I propose to deal with amendments Nos. 38, 39 and 42 together. These amendments to section 7 give effect to the announcement I made on Second Stage that I intended to permit this credit to be claimed by persons other than the primary carer in certain circumstances. Since the budget announcement of this change was made, I have listened carefully to the views of Deputies and I am bringing forward an amendment which will allow the credit to be used by a non-primary carer in situations where the primary carer relinquishes his or her entitlement to claim it.

The single person child carer credit replaces the one-parent family credit from 1 January 2014. It will operate differently from the one-parent family credit by being available in the first instance to the primary carer, the individual who cares for the child for the greater part of the year. The one-parent family credit was available on the basis of the child residing with the claimant for part of the year, which led in certain cases to multiple claims in respect of the same child by different individuals.

The main features of the amended section are that the primary carer is the individual with whom the child resides for the greater part of the year; and that the primary carer can be the child's parent or the individual in whose custody the child is and who maintains the child at his or her own expense for the greater part of the year. This claimant is entitled to the credit in respect of that child. If the primary carer relinquishes that credit, another person, the secondary carer, may claim it. The child must reside with this individual for more than 100 days in aggregate in the year, which is indicative of a level of involvement in the care of the child which is supportive of the primary carer.

For the purpose of this limit, a day can include the greater part of a day.

Only one credit in respect of any child is available and an individual who is a primary carer for more than one child can get only one credit in respect of those children. However, where a primary carer relinquishes the credit he or she is receiving in respect of two or more children, then two or more secondary carers may be able to claim the credit provided the child resides with them for at least 100 days and provided they meet the other conditions of the section. Where the person who is the primary carer retains the credit, no other individual can get a credit for any of the children in respect of whom that person acts as primary carer.

A claimant, whether a primary or a secondary claimant, must not be married, unless separated, or in a civil partnership, unless separated, or cohabiting.

The entitlement of the primary carer to the credit has precedence in all circumstances. However, if the primary carer cannot utilise the credit and relinquishes entitlement, then I propose to allow either the other parent or another person providing care to the child to make a claim for the relief. The credit is not granted simply on the basis that a claimant is obliged to provide financial maintenance for a child but rather where that adult is involved in the care of the child.

It must be pointed out to Deputies that it is still my intention to allow a claim by a primary carer and only where that claim is relinquished will a claim by a secondary carer be considered. The previous situation where an individual who had a child residing with him or her overnight could qualify for the one parent family tax credit cannot be allowed to continue.

In a case where the primary carer is not utilising the credit, a claim by a secondary claimant will be admitted. This will only be possible where the primary carer has relinquished his or her claim to the credit. The secondary carer, in claiming the credit, will be required to confirm that the qualifying child resides with him or her for a period or periods during the year of assessment of not fewer than 100 days. How this period of time is determined will be a matter for the primary carer and the claimant to decide among themselves.

In circumstances where a court order has been issued in respect of a child and that order provides that the child resides with both parents for equal time, it will not be possible to determine who is the primary carer based on time spent with the claimant. In such circumstances, the primary carer for the purposes of claiming the credit will be the parent who is the recipient of the social welfare child benefit. Of course, it will be open to that parent to relinquish the credit to the other parent, as in any other case.

It is not my intention to allow claims by anyone other than single persons, even where an individual is responsible for a child from a relationship outside their current civil arrangements. This, therefore, excludes individuals who have remarried after the ending of a previous relationship but who continue to have access to and maintain a child from that relationship. Similarly, where a child resides with a parent who marries or subsequently remarries after a divorce, there will be no entitlement to the credit.

I am speaking to amendments Nos. 38 to 42, inclusive, which includes my amendment No. 41. As the Minister knows, we live in an imperfect world. Relationships break down, whether inside or outside marriage, and sometimes children are involved. It is no surprise this provision has attracted the most attention and criticism. Any reasonable analysis of it would conclude that its effect is quite brutal and it will, whether by design or otherwise, disproportionately and negatively affect one particular social group, namely, single men who are parents.

I am not here to fly the flag for fathers who are playing no tangible or practical role in the upbringing of their children. It is anomalous that people in that category are currently availing of the credit and I have no difficulty with that loophole being closed off. However, my main concern is that the children involved will end up paying because it will inevitably result in the father's financial situation being significantly disimproved, which may well result in less maintenance payments being made to the primary carer. It may also mean his ability to take care of the children when they are in his care will be greatly diminished. The children will ultimately pay for this measure. The Minister does not need to be reminded that it is a breach of the programme for Government commitment that tax credits would not be, in any way, changed. They are being changed here for one particular group.

The Minister's amendment No. 39 states that the credit can be transferred to the other parent where the primary claimant relinquishes it. He might elaborate on how that would work in practice because very often relationships can break down quite acrimoniously and there may not be any, or very little, co-operation. Does this require the primary claimant to make it clear to the Revenue Commissioners that he or she is prepared to relinquish the credit even if he or she has no requirement for the credit or cannot use it because he or she has no income tax liability to offset the credit against?

We need to stand back and take a second look at this. For somebody on even the average industrial wage of approximately €37,000 per year, the effect of losing the credit and the reduction in the band of approximately €4,000 will hit him or her to the tune of €2,500 per year. I do not know of any other income category which will be hit by that amount of money as a result of budget 2014. Will the Minister take another look at this and get an independent analysis done of both the economic impact on the people involved and the social impact on the children who will be affected?

I appeal to the Minister to reconsider this measure which is ill-thought out and will really hit a big cohort of families. I am afraid the modern family is different from what families used to be. That is just the way it is. This is a discriminatory move against families that do not accord with what some people consider the so-called normal family set up. Relationships break up but that does not mean the father or the mother who is not the primary carer of the children is somehow unlikely to play a full part in the rearing, maintenance and nurturing of their children. I say that from a personal point of view because I am in that situation. I am not the primary carer of my children but I can tell the Minister that I play a full part in their lives. As it happens, I do not claim the credit because I was not aware of it until recently but other people who have spoken to me have told me what a huge hit this will be.

Even some of the amendments trying to improve this measure or minimise the damage the initial proposal would do are also failing to get the point. It is not about the number of days. There are all sorts of circumstances. For example, many people have had to leave this country for work but their kids may have had to stay here with their former partner. They may not have wanted to do that but have to do so. They may be contributing very substantially financially and use every opportunity they can to see their kids and may speak to them on the telephone every night. They may not want to be in this position but they will potentially be hit by a measure like this.

There are all sorts of other scenarios where it is not the number of days that indicate the role the non-primary carer parent might play in a child's upbringing, so it is simply unfair to hit them.

As somebody put it to me, it is giving the State a financial incentive to see relationships break up because the State benefits. If two people are working and together, they both receive the tax credit but if they break up, only one will receive it. That is wrong. The impact of that will come back on the children, as has been said because people will be able to afford less in maintenance payments and that will be picked up at the other end by one-parent family payments and so forth. Ultimately, it will fall back on the children. It is an attack on families and on children in particular. It also represents a failure to recognise that families are different now, that relationships sometimes break down and that is nobody's fault. People should not be punished because their relationship has broken down and their children should definitely not be punished. I ask the Minister to reconsider this and to remove this provision from the Bill.

Both Deputies Michael McGrath and Boyd Barrett have articulated why this should not go ahead and I am very supportive of their views. This is a wrong tax measure. It is a tax on single fathers. It is mean spirited, in my view. There are other options available to the Minister. It is estimated that 15,400 single fathers are availing of the tax credit. The design of the original tax credit was flawed, of that there is no doubt. I cannot justify it and I know Deputy Michael McGrath has suggested that it is not justifiable. There is a spirit here to work with the Minister in trying to design a tax credit that is fair on single fathers and fair on their children.

The Minister has acknowledged that there is a problem here through his own amendment regarding the secondary claimant and the 100 days aggregate condition. We could argue about whether 100 days is excessive, but the Minister has acknowledged that the father - it is primarily fathers being targeted here - who cares for his child or children for an aggregate of 100 days should be able to claim this tax credit, if the primary carer forgoes it. There is already a distinction being made as to who should and should not claim the credit and we could build on that during Report Stage, if the Minister was open to that. As Deputy Boyd Barrett has said, the provision sends out the wrong signals. I welcome the Minister's move on the secondary claimant but I believe we must go a little further. While it would not be to my satisfaction, at least it would be going in the right direction. I would encourage the Minister to be open to considering this matter again on Report Stage. The sum of €2,490 is a lot of money for many single fathers to lose if this takes immediate effect. I encourage the Minister to reconsider. That said, I wish to address one or two issues raised by the Minister's own amendment.

I suggest that the best way of trying to move this forward in a non-confrontational manner is to put in a commencement order. Lots of items in Finance Bills can be the subject of commencement orders. The housing section we dealt with earlier replaces the environmental tax credit which never took effect because it was the subject of a commencement order. We should put in a commencement order for this provision, study it to determine the effect it will have on the parents concerned and try to come up with a better way of reshaping the original tax credit while also ensuring that fathers who care and provide for their children are not unduly burdened as a result of this Bill.

In terms of the specifics of the amendment, subsection 462B.(1)(a)(iii) provides that a child who is 18 years of age or over will be deemed a qualifying child if he or she is receiving "full-time instruction at any university, college, school or other educational establishment". The section also deals with those who are in training for two years, but I wish to focus on the subsection dealing with school and college. A child over 18 years is a qualifying child so a primary claimant can claim the tax credit on behalf of a daughter or son who is 19 or 20 years old, for example, and who is attending UCD, Trinity College or DIT or other educational establishment on a full-time basis. However, that is subject to the provision that the qualifying child is resident with the claimant for the "whole or greater part of the year". Therefore, the mother must prove that the child resides with her for the greater part of the year of assessment. Furthermore, subsection (8) states that for the purposes of this section, "a child shall be treated as resident with an individual for any day where the child so resides for the greater part of that day". I come from Donegal and it takes me four hours to travel to Leinster House. When people from Donegal go to college, they do not jump on a bus for Dublin and get dropped off at UCD or Trinity College. They rent apartments and reside in those apartments for five out of every seven days. Their mothers or fathers are their carers and the people who maintain them but they are residing in Dublin for five out of seven days for nine months of the year. Under this section, as it stands, there is no way that a mother or father can prove that the child resides with them for the greater part of the year if that child is in college and living away from home. The Minister's residency stipulation refers to where the child resides "for the greater part of that day". This amendment will actually make every claim for the tax credit by the primary carer of a student who is living away from home invalid. We have spoken already about the fact that the Minister is really hurting fathers who will not get the credit any more but the primary carer will not get it either if the child is in full-time third level education and living away from home. Under the definition provided, neither parent could prove that the child is resident with them for the greater part of the year.

I welcome amendment No. 39 and the provision which allows the tax credit to be transferred from one carer to the other, with agreement. However, in terms of practicalities, there are situations, unfortunately, where the mother and father do not get on. If the primary carer is not paying tax or cannot effectively use the tax credit in a tax year, a practical option might be to provide that after the end of the tax year, if the credit was not or could not be used by the primary carer, it could be availed of by the secondary carer without the need for agreement. That would allow the primary carer to retain the credit for the tax year so that if he or she takes up work during the year, the credit is available. If the primary carer is unwilling to relinquish the credit during the year, due to communications problems or other difficulties, then an independent assessment could be carried out at the end of the year to ensure that if the credit is not used by the primary carer, it can be transferred automatically to the secondary carer. That would address the situation whereby one party, who could not use the tax credit, would not agree to its transfer to the other party. Communications difficulties are a reality when relationships break down.

I welcome the broad thrust of the amendment, particularly the subsection which allows for the tax credit to be relinquished. The Minister might consider including a provision whereby an independent review could be carried out by the Revenue Commissioners to ensure that the tax credit is availed of by one parent or the other. That would address those situations where there are communications difficulties between both parties.

Given the earlier break, I propose to extend this section of the debate until approximately 5.10 p.m.

I agree that the purpose of the amendment is to close a loophole which may have been abused by some people who were caring for children for a short time and claiming a full €2,500 in tax deductions. The point of the tax credit is to offset the cost of raising children for separated parents. I propose three changes to make the credit work much better. The first of these is amendment No. 40, which proposes to reduce the qualifying period from 100 to 50 days. Greater care is needed in respect of children who are in college. This goes to the point that Deputies Doherty and Boyd Barrett made about mothers and fathers being out of the country. It is a matter of opinion whether the qualifying period should be 100 or 50 days. The lower figure is reasonable for a person who resides with a child for ten full weeks in a year and works abroad or whatever for the rest of they year. The requirement of 100 days in residence is excessive.

The second change I propose relates to the permission required. As Deputy O'Donnell noted, in the case of an acrimonious break-up where the main carer does not use the tax credit, he or she may, for whatever reason, refuse to relinquish the credit. I propose a win-win scenario where such circumstances apply. I would like couples to be able to use the tax credit as they see fit. Not only should the person who is not living with the children be able to avail of the credit where it has not been used by the primary carer, but the value of the credit should be up to the full amount, even in cases where the primary carer is claiming it off a lower tax base and irrespective of whether he or she chooses to relinquish it. The win-win scenario would be if we were to link this option to the payment of maintenance. Some parents do not pay the amount of maintenance they should pay. I ask the Minister to consider providing on Report Stage that the credit could be used without the permission of the main carer. If, however, the secondary carer is not providing maintenance, a case could be made for refusing the credit.

The third opportunity for improving the system relates to subsection (5), which provides that the credit applies to only one child. If we return to principles on this, the point of tax deductible provisions is to offset the costs of raising a child for separated parents. I have two children and the cost to my family is much higher than if we had one child. There is obviously a link between the number of children one has and the costs involved, as we see in the case of child benefit. I ask the Minister to review subsection (5) on the basis that having two or more children staying with one for 50 or 100 days is much more expensive than having one child staying with one. Perhaps a case could be made for a phased tax deductible amount which may diminish as the number of children rises and would not only be for one child.

This is an interesting debate as it touches on many social issues. As Deputy Boyd Barrett noted, these issues include the definition of a family in the modern age and the entire debate surrounding families. In debating this topic, we should be careful to provide a context for everything. In making comparisons of families, one must bear in mind that married or cohabiting couples living together with children do not receive any tax credit for children under the tax code.

I did not pull this proposal out of thin air. I refer to the findings of the 2009 report of the Commission on Taxation on the one-parent tax credit. As with all the commission's findings, it first describes the issue before providing a conclusion. The description of the issue regarding the one-parent tax credit was as follows:

A single parent, whether widowed, single, separated or divorced, with a dependent child or children may be entitled to receive the one-parent family tax credit... The one-parent family tax credit, where due, is given in addition to the basic personal tax credit. The tax credit can be claimed in full by each parent provided the child resides with the claimant for a whole or part of the year of claim. This condition is deemed by the Revenue Commissioners to be fulfilled if a child resides with a parent for at least one night in the year. The relief was originally introduced to assist single and widowed parents who work outside the home and who have dependants. The underlying purpose of the relief, therefore, is to support labour market participation of single parents with sufficient income to avail of the value of the credit.

The purpose of this tax credit is not, as Deputy Donnelly stated, to alleviate the cost of rearing children. It was envisaged as a labour activation measure to encourage participation in the labour market. Part of the abuse or, if that word is too harsh, the way in which the credit operated in practice was that, arising from the Revenue's definition of one night residing, we had circumstances where three people were claiming the allowance. If the grandmother was looking after the child for at least one night in the year - I do not wish to exaggerate the position as in practice the grandmother will often look after the child for one night a week - a third payment was made. When one contrasts this with the position of the families to which I alluded who do not receive any tax credit for children, one can see where the problem arises.

I refer to the conclusion of the Commission on Taxation's 2009 report on the issue of one-parent tax credit. It states:

We acknowledge that this tax relief plays a role in supporting and incentivising the labour market participation of single and widowed parents. We therefore recommend that the tax credit should continue. However, we also note that the annual cost of this relief is considerable. We recommend that Government should seek to minimise or eliminate the inefficiency (or deadweight element) associated with this relief in relation to the allocation of the full credit (and the additional standard band which applies as a result) to both parents. Such a move would help restore greater balance between the cost of the tax credit and the benefit derived from it. Accordingly, we recommend that the credit be allocated to the principal carer only in accordance with the current arrangements for child benefit.

The recommendation of the report, in paragraph 8.9, is the following: "The one-parent family tax credit should continue and the credit should be allocated to the principal carer only and in a similar way to the current arrangements for child benefit." This recommendation is reflected in my announcement on budget day and the measure included in the Finance Bill.

Deputies argued on Second Stage that this measure would operate unfairly, particularly in circumstances where the primary carer did not have a taxable income and called for at least one tax credit to be paid. I considered this argument to be reasonable. Rather than having two or three tax credits payable, the purpose of the amendment is to ensure that, in normal circumstances between agreeable couples, one tax credit would apply to the value of what has been paid until now. If, as in many circumstances, the woman partner of a separated couple is the beneficiary of child benefit and is consequently regarded as the primary carer but does not have a taxable income, her estranged partner may claim the tax credit in circumstances where he would be involved in the care of the child.

While one could argue about the threshold of 100 days, but as I noted, a day can be reckoned as a significant portion of a day. If the husband takes the child overnight one day a week and returns the child the following afternoon, the period can be accounted as two days, thus giving more than 100 days in one year. On the basis of that definition by the Revenue, the proposed approach appears reasonable.

The measure does not contravene the programme for Government as there has been no change. The commitment in the programme for Government was not to change tax rates, credits or bands.

There is no change to tax rates, credits or bands. The one-parent family tax credit is being reconstructed to become the single person, child care or tax credit. The credit will be to the same value, €1,650 per annum, as the one-parent tax credit and there will be the same entitlement to the additional €4,000 extended standard rate band. I am increasing it to €36,800 per annum before liability to a higher rate of income tax arises. However, it will be more targeted in that there will be only one credit available per family child. This will be available to the primary carer who can relinquish it in certain cases. The programme for Government states: "As part of the Government's fiscal strategy we will maintain the current rates of income tax, together with bands and credits. We will not increase the top marginal rates of taxation on income." In my view, the credit is being maintained. At a time of limited resources, I am merely targeting the credit to ensure that it can achieve the objectives set for it.

As we have reached the agreed time-----

I am seeking to confine the tax credit to one payment per family where there is an eligible child. If the Chairman can suggest arguments to refine it further between now and Report Stage, will he please contact me? I am not trying to make any ideological point. I am trying to go further than the recommendation of the Commission on Taxation and I am trying to do it in as fair a way as possible.

Is that inclusive of split payments?

If they can be arranged and if the Revenue can cope with it. There is a context. A married couple with children or two partners living together with children are not eligible for any tax credit at present and we have to bring that into the debate as well in the interests of non-discrimination and fair play.

We have agreed to finish the section at 5 o'clock.

As there is a vote in the Dáil, there is no point in calling a vote.

I can call a vote and we can have it when we resume.

Sitting suspended at 5.03 p.m. and resumed at 5.30 p.m.

As we have now reached the required time, I am required to put the following question in accordance with the Order of the Dáil of 21 November: "That the amendments set down by the Minister for Finance for sections 1 to 7 and not disposed of are hereby made to the Bill and, in respect of each of the said sections undisposed of, that the section or, as appropriate, the section, as amended, is hereby agreed to."

Question put:
The Committee divided: Tá, 7; Níl, 3.

  • Daly, Jim.
  • Farrell, Alan.
  • Harris, Simon.
  • Lynch, Ciarán.
  • Noonan, Michael.
  • O'Donnell, Kieran.
  • Ó Ríordáin, Aodhán.


  • Boyd Barrett, Richard.
  • Doherty, Pearse.
  • McGrath, Michael.
Question declared carried.

I propose to suspend the sitting until 6 p.m. When we resume, we may further suspend the sitting until 7 p.m., but under Standing Orders, we are required to resume at 6 p.m. before there can be further suspensions. Is that agreed? Agreed.

Sitting suspended at 5.45 p.m. and resumed at 6 p.m.

I move amendment No. 45:

In page 20, to delete lines 16 to 20 and substitute the following:

“(a) by inserting the following definition:

“ ‘child’ means an individual under the age of 18 years or, if over the age of 18 years and under the age of 23 years, who is receiving full-time education and in respect of whom the payment under a relevant contract has been reduced in accordance with paragraph (a)(ii) or (b)(i) of section 7(5) of the Health Insurance Act 1994;”,

(b) by substituting the following for the definition of “relevant contract”:

“ ‘relevant contract’ means a contract of insurance which provides specifically, whether in conjunction with other benefits or not, for the reimbursement or discharge, in whole or in part, of—

(a) actual health expenses (within the meaning of section 469), being a contract of medical insurance, or

(b) dental expenses other than expenses in respect of routine dental treatment (within the meaning of section 469), being a contract of dental insurance;”,”.

This amendment to section 8 addresses concerns expressed by both individual policy and authorised insurers that some students over the age of 18 who are included in family policies effected by their parents are charged the full adult premium. In effect, without this amendment the section as published would have allowed only the reduced ceiling of €500, applicable to children, for such students. I am introducing an amendment of the definition of “child” which provides for the higher adult rate of relief to apply where the premium charged in respect of that student is not a reduced premium.

As I advised during the Second Stage debate, I am bringing forward an amendment in regard to what constitutes a relevant contract. This change will provide that tax relief will be available where an individual effects a policy in respect of any other person. Previously this was restricted to an individual, their spouse or civil partner and any children or dependants of the individual, spouse or civil partner.

Amendment agreed to.
Amendments Nos. 46 and 47 not moved.
Question proposed: "That section 8, as amended, stand part of the Bill."

The key issue here is the impact this will have on policyholders. On budget day, the Minister characterised the change as one that would affect so-called gold-plated policies, but even he would acknowledge at this stage that this was not a fair characterisation. The Department estimates that over 50% of policies will be affected by this change and the industry estimates a much higher percentage. The final figure will emerge over time. We know that increasing numbers of people are relinquishing their health insurance, although it is one of the last items of expenditure they are prepared to let go. People are prepared to forfeit many other items from their lifestyle to maintain health insurance for as long as possible.

This will contribute to the pattern we are seeing of an increasing number of people, particularly younger people, falling out of the health insurance market. It has the potential to destabilise the market. Premiums will inevitably increase as a result of this. It seems to me it is moving further away from the Government's stated policy in the area of health, which is universal health insurance. That model will work only if as many people as possible can afford to hold on to their health insurance in order that the State will, in essence, pay the insurance for everybody else. With the percentage of people with their own policies declining all the time, that trend is likely to accelerate as a result of these and other changes announced by the Government, which means the Government is moving further away from its objective. The Minister should explain the rationale behind this. It is a very significant revenue earner, in excess of €100 million in a full year, but have we fully thought through the consequences of this change?

My budget day speech has been misquoted and misconstrued. What I said about the measure was that this "will restrict the exposure of the Exchequer in relation to premiums paid for gold-plated medical insurance policies, while not affecting the majority of individuals who avail of more standard levels of medical cover". That is what I said and that is where the big tax take is. Deputy Boyd Barrett's amendment is taking the level up from €1,000 to €1,500 and from €500 to €750. The effect of that would be roughly to halve the yield from about €120 million down to about €60 million, but the maximum saving for any individual that such a change would make is €100 in one year. While many policies are affected, a lot of them are marginally affected. I heard figures being quoted in the Dáil of €800 to €1,000 and €1,000 to €1,200, and different premiums were quoted, but the relief is at the standard rate of tax, which is 20%. Therefore, if somebody's premium goes from €1,000 to €1,200 for one adult, then that is one fifth of €200, which is €40.

The big imposition occurs only on the very high level of premium, and that is the point I was making on budget day. If I was making the speech again, I would have made it clearer. The justification of my decision is as follows. About 45% of citizens have medical insurance, and the tax relief on medical insurance has risen year after year over the past four years, worth up to €500 million. All taxpayers, of which 55% do not get any benefit from this, contribute €500 million so that 45% have access to private beds and private care in hospitals. On equity grounds, that is not fair.

The industry does not seem to be making any attempt to control costs. Over the past four years, the cost of medical insurance has gone up by 86%. Any consumer price index, even the medical consumer index, has not gone up by 86%. That is an astronomical increase over four years, and the taxpayer is tied to the wagon because, as it goes up, we must contribute more. I cannot justify, in very difficult times for taxpayers, continuing to allow the health insurance industry to dictate the amount of tax that is transferred from the generality of taxpayers to benefit those who have private health insurance. That must be restricted.

This is not just a hunch of my own. The Commission on Taxation recommended this as well. In 2009, the commission, in its recommendations, acknowledged that medical insurance is expensive and that medical insurance reliefs play a role in attracting and retaining individuals within the medical insurance system. It went on to state there is a sizeable dead weight element as many individuals would pay these premiums in the absence of income tax relief. In addition, the commission acknowledged that without medical insurance, it would be necessary for the State to provide treatment to more individuals through the public health system. On that basis, the commission recommended that the relief from medical insurance should be continued, but on a more limited basis. I followed the commission's advice, which is what I have done here. If we take a premium of €3,000 per adult and people are insuring for private hospitals and are paying €6,000, then 20% of that is a sizeable amount of money. For the generality of policies, which give people reasonably good cover, while there is a loss in the amount of extra income tax they will have to pay, it is marginal for many people. On the grounds of equity and on the grounds of tax management, this is a good proposal. I would be one of the last people to be accused of being motivated by left wing sentiment, but on the grounds of equity, this is fair. I do not think people who will never be able to afford medical insurance should have a portion of their taxes used to provide very big relief to people on high premium insurance. I do not think that is fair.

The purchase of medical insurance is very inelastic, to use the economic term. Even though the premiums have gone up by 86% over four years, the number insured has gone down by much less than one would expect. Anecdotal evidence suggests that the people who are dropping out of medical insurance are people who have lost their jobs rather than people who are not paying any more because it is getting more expensive. In the interests of the taxpayer, that relief needs to be limited. I do not think there will be a big fall off for this reason. It is inelastic. The consumer price index shows the cost of medical insurance increased by 86% between December 2008 and June 2012. Health Insurance Authority figures show that the number of individuals covered by private medical insurance fell from 2.297 million to 2.13 million over the same period. That is a reduction of 174,000 people, or 7.5%. Following an 86% increase in the cost of health insurance, the numbers availing of health insurance reduced by 7.5%. Again I would challenge the predictions that this measure will drive a lot of people out of health insurance. The evidence does not suggest that at all. I am not going to wear a situation where the medical insurance industry can expect the taxpayer to pay €500 million per annum while it does not make an attempt to control costs. I think the increases in medical insurance in recent years have been outrageous and the industry should control costs. Looking at the progression of the tax contribution over the past four years, if we had not made change, by 2020 the taxpayer would be contributing €1 billion to subsidise health insurance. I cannot justify that. I cannot stand over that.

I thank the Minister for his response, which has been comprehensive. He was correct to state that health insurance is quite inelastic. I would submit that the main reason is that people are afraid of relinquishing their health insurance because they hear the horror stories about the public health system, which works very well for many people. In many cases people are afraid to rely on it, however, particularly if they have health needs or they must go for elective surgery and so on.

We all know what the waiting lists are like.

The Minister is right to say that the impact of this will be relatively modest. For example, for a single person with a premium of €1,500, the difference is €100. It would not be uncommon for a pensioner to pay maybe €2,000. That would not be an extravagant policy but this will cost €200. That would be fine if the health insurers responded to the Minister’s call to arms and set about driving down costs but there is no evidence to suggest that will happen. All the evidence points to the fact that this will be passed on to policy holders and we will see an increase in premium prices. That may not result in a substantial drop-off but some people who are on the fringes of affording health insurance may no longer be able to afford it.

The Government’s policy is to move towards universal health insurance but the figures show that there has been only a 7% drop-off in the number of people with policies despite the 86% rise in the cost. This measure will not lead to an increase in the number of people with health insurance. There will be a further drop-off and the Government is moving further from its objective of universal health insurance. On Report Stage we may table an amendment which will in some way link the thresholds at least to inflation.

I was very surprised that the drop-off was only 7.5%. When one thinks of what people have gone through in the past five years with the loss of income, the loss of wealth and the loss of value of family homes it is pretty amazing that only 7.5% cancelled their private health insurance.

One person’s tax relief is another person’s tax. We lost the connection between tax and expenditure in this country and between tax reliefs for one group in the community and payment by another group. I cannot see why an open cheque should be given to the insurance companies effectively to fill for the amount of tax to be transferred from the generality of tax payers to 45% of taxpayers, when 55% of general taxpayers do not benefit from this at all. I do not think that is equitable. This is a modest proposal to cap this so that it does not get totally out of hand and at the same time to give some relief to encourage people to maintain their health insurance and to encourage other people to take out health insurance. The costs were becoming unsustainable.

The Minister says that the cost of the tax relief is €0.5 billion. Is that €0.5 billion with the measures in this Bill or is it current? What will the cost be when this section is enacted?

That is the 2013 figure.

What will be the 2014 figure?

For the full year it will be €127 million.

Is that a reduction?

The tax relief will cost approximately €373 million. Has the Department run the figures on this section and the potential liability to the State from the tax relief? What is the maximum liability under the current number of policy holders in the State?

Before the Finance Act the liability is estimated at €1 billion on the tax relief. It is moving sums. The closest correlation is between being employed or unemployed for accessing private health insurance. The fact that today’s CSO figures show 58,000 extra people net in jobs over the 12-month period would suggest that the insurance market will potentially go up.

To avail of this the premium has to be €1,000 for an adult, €500 for a child. As the insurance sector decides to increase the cost of premiums what is the extent of the vulnerability? I am not asking about where we are now based on the cost of premiums but, as the Minister rightly said, we do not decide how much tax we pay as a State, the insurance companies do because they can decide to increase the premiums and therefore the cost of the tax relief increases automatically.

The websites of the principal ones never give any credit to the taxpayers. They put up the premium as if there was no contribution, so the taxpayer paid €200 of the €1,000 premium on a 20% basis. If €800 goes to €1,000 and the extra payment is 20% of €200, that comes to €40, which 5%. That increases as the cost goes up. As the tax relief is capped if somebody pays a premium of €2,000 it would be 20% of €1,000, if that is what the person was on.

That is not the question. Maybe I am not articulating this properly. Certain adults are paying premiums of €800 and €200 for children but they are eligible for relief up to €500 under this section. What is the State’s exposure if the insurance companies were to increase premiums? I know that will not happen overnight but the Minister said that premiums have increased by 86% over five years, since 2008. If they continue to rise to the point that children’s premiums became on average €500 and all adult premiums were in excess of €1,000, what would be the State’s exposure?

The credit is 20%. It would be 20% of whatever the percentage increase is. If the premium went up by 10% it would be 20% of ten which is 2%.

Does the Minister have data on the break-down of the potential exposure?

No. Across the insurance sector there are hundreds of policies and they all have variations and are priced differently.

The Minister talks about the unfairness and I agree that one way or another the majority of citizens fund private health insurance but the Minister recognises the importance of the insurance sector. It is likely that premiums will continue to increase. Therefore, even with this reduction, as the premium increases the tax liability on the State increases too. Does the Minister envisage further measures down the line to reduce the amount of relief available or is this a final commitment that thresholds will not be moved further?

This is a corrective measure and will not be an annual event.

I oppose the whole section. I am against a two-tier health system. I do not think people should have to take out private health insurance so I am not particularly in favour of the principle of giving tax breaks to copper-fasten a two-tier system. Most people who take out private health insurance do so out of fear and anxiety that if they get sick they will not get the sort of care that they need in the public system.

I think most people would prefer to have a public system on which they could rely and in which they felt safe, and which would look after them and their health from the cradle to the grave. If that option was given to people, they would jump at it. However, because that is not what we have, people are forced to take out private health insurance which is not, for the most part, gold-plated with gold-plated premiums. These are ordinary working people trying to create a health safety net for themselves against the likelihood that at some stage they will be sick or they are people who know they are sick and will have a need for health services and do not believe the public system is up to scratch. If this measure was in a different context, such as in a context of at least maintaining or, better still, increasing the level of resourcing, funding and staffing in the public health service, then I could understand the proposal, as I would if it was a proposal to phase out the two-tier system in order to bring in a top quality public health system available to everyone at the point of need, which is what we should have, but that is not what it is. This is an attack on people who make great sacrifices to take out health insurance because they do not feel confident that the public system can cope with their needs or give them the service they need when they will most need it. The public system is being butchered and its budgets and staffing levels are being slashed.

The Minister's budget proposes to take away significant funding. The anecdotal evidence is that people are deciding not to take out health insurance because they can no longer afford it. They will get sicker because they do not believe they can afford to pay the cash to the hospital or to the GP and they will fall back on the public system which is being slashed to pieces and is unable to cope as it stands. That will be the consequence. There is no way of presenting this proposal as anything other than another cruel, unfair cut which hits people where they are vulnerable. Therefore, I utterly oppose it and I suggest the Minister should withdraw it. He should withdraw it, not just as a single measure, but in the context of understanding that what people want is a public health service that is available to everybody and in which they have confidence. That is what the Minister promised. He did not quite put it in those terms during the election campaign. In the mind of the public, universal health insurance sounds very like a universal health service for everybody when they need it. That is what I suspect most people thought the Minister was talking about but that is not what they are getting. However, that is what people want and that is what the Minister should give them. This is just another attack and I oppose it completely.

The Minister will recall that when we spoke about this provision on budget night, I told him he would be revisiting it because it was drafted with errors. I note he has redrafted it by including this amendment which I agree is welcome. However, the amendment to the budget day proposal is a retrograde step because, bizarrely, the proposal put forward on budget day, as drafted, would actually encourage more families to come into the system because they would earn the additional tax relief for children and it would have removed the pressure on the system as a whole. Some insurance cover is less than €500 and in the case of some insurance policies, children are free.

There seems to be a lack of understanding of the implications of these proposals on the health insurance market. The Minister makes the point that 7% of people have cancelled their health insurance policies but that is not correct; there are 7.5% fewer people with private health insurance but the trends will show that while younger people are leaving the system, older people are joining up for the first time. That is the reason for the variation. I agree with the principle that people with very high policies should be given a subvention. However, the difficulty is that the average family will have to pay more, based on the reduction in the tax relief. The Minister is attempting to give the impression that it is only €40 or €100, spread over the policy and that it will not be a significant amount of money. The difficulty is that this is just one aspect of the increasing pressure on private health insurance. The insurance levy will add additional charges. It has doubled in the past three years and the cost of a public bed in a public hospital has increased by 60% in the past five years.

It is very easy to see how the 86% of an increase in health insurance has come about when this upward pressure is noted. The health insurers have been pleading for the ability to negotiate directly with public hospitals because the cost of procedures in private hospitals has come down significantly. I raised with the Minister for Health the issue of the price of carrying out a procedure in a public hospital compared to a private hospital - which can be stark in some cases - but the length of stay can be significantly different between those hospitals. It is the case that sicker people go into the public hospital system because tertiary treatment and good ICU support is available. However, it is not all justified by that issue. There is not a clear understanding of the trends and pressures.

Many families have sacrificed a lot of things to try to hold on to their health insurance. It is the very last thing that many families will let go. Quite a number of families have taken their children out of the health insurance system. One in ten children have left the health insurance market in the past three to four years. This shows the significant pressure on young families who are really trying to hold on to their health insurance.

I ask the Minister to explain his point that 55% of taxpayers do not benefit from this relief. Approximately 45% of the population have private health insurance - a far bigger cohort of taxpayers. Many of those in receipt of medical cards are not paying tax. I ask the Minister to clarify those figures because it does not seem to add up. The Minister thinks the health insurance market will grow as employment grows. This is a misnomer because the difficulty is that young people are not joining the private health insurance system. Young families are leaving the system while younger people are not joining.

The result is that we will not see growth in the market. In fact, the decline in the numbers who are insured is putting additional pressure on the public hospital system. The figures up to August of this year show a 9% decrease in the volume of private charges levied while, at the same time, there has been a 2.5% increase in the number of public discharges. I ask the Minister to review this issue before Report Stage. We want to encourage people to avail of private health insurance, not force them out of it.

Deputy Boyd Barrett again referred to gold-plated insurance policies. I have already stated that I was misquoted in that regard, the point I made being that gold-plated premia are the most costly policies on which to give tax credits simply because they are more expensive. I never said the holders of such policies would be the only people affected by the budget change. In fact, holders of more modest policies also will be affected, but in a much more limited way. To give a typical budget example, Paul and Sinéad are married with two children aged seven and nine and have a medical insurance premium with a gross cost of €3,400 in 2013, before tax relief at source is applied. Their cover breaks down as costing €1,100 per adult and €600 per child. With tax relief at source of 20%, the cost is €3,400 minus €680, giving a cost in 2013 of €2,720. In 2014, the new cap on tax relief at source means they will get €600 rather than €680 back, giving a total cost next year of €2,800. It would be fairly average for a couple with two children to be paying €3,400 for medical insurance. One could argue that they might be under a great deal of pressure and cannot afford the additional €80, but it will not bring the house down nor force them out of health insurance.

I thank Deputy Naughten for his interesting and well researched contribution. The point I made in regard to equity was that 45% of the community benefit from this relief while 55% do not. Of course those 55% pay tax - not necessarily income tax but excise, VAT, universal social charge and other charges that arise under our multifaceted tax system. In fact, sometimes people in that group pay proportionately more tax than do better-off people. In other words, there is sometimes a transfer of tax from the poorest sectors of the community to the relatively well-off. That happens for very good reasons. The whole basis of justified tax breaks is to influence economic and social behaviour in a beneficial way. One cannot otherwise justify a tax break. If one is simply massaging people in order to win votes or trying to curry favour with one particular cohort in the community, then the tax break is not justified.

What then is the justification for a tax break on medical insurance? The answer is that it is there to encourage people to take out medical insurance. However, if that tax break is excessively generous and is driving up costs, then it must be examined. The information from the health insurance market report compiled by Millward Brown for the Health Insurance Authority included information on the answers people gave as to why they had let their private health insurance lapse. By far the most common reason was cost, with more than four in ten of those surveyed citing it is as the reason. The other main reasons were also based on economic decisions, such as the loss of a job, at 16%, and the discontinuation of cover by an employer, which accounted for 11% of lapsed policies. No longer being covered by parents' insurance was also a significant factor, although that is more of a default option than one based on a proactive decision. Nevertheless, it is another pointer to the factors influencing the decision to let one's private health insurance policy fall off. In the year of the survey, the decline in the number stating their entitlement to a medical card as the reason for dropping their health insurance cover suggests it is being seen as less of a fall-back position for people.

When one considers that there has been an 86% increase in the cost of health insurance but only a 7.5% decline in the incidence of insurance cover, one must conclude that it is a very inelastic product which does not respond to price very significantly. When it comes then to seeing how one can make ends meet in a budget, the fact that the cost of the associated tax break has increased so rapidly over the years, such that a figure of €500 million in 2013 would increase, if the system remains unchanged, to €1 billion by 2020, it seems clear it is time to do something about it. I do not accept that the change will have the dire consequences to which Deputy Boyd Barrett referred. There has been a great deal of talk to the effect that we will all be ruined and everybody will cancel their health insurance policies. The evidence does not in any way point to that. In fact, the effect on most ordinary policies is fairly marginal, as in the example I gave of a loss next year of €80 on a premium of €3,400.

The State provides universal hospital care, subject to some co-payments for non-medical card holders, and private health insurance is, therefore, an optional extra within the system. Of course there are pressures on health costs. I am assuming, however, that everybody here is supportive of community rating. If we simply price health insurance on the basis of risk, then elderly people and those with a history of illness will be deemed very high risk and, as such, will face enormous rises in premium costs. The levy to which Deputies referred is charged so that community rating can continue. Within the system, as organised in Ireland, the young and the healthy subsidise the old and the ill. That is what it comes down to, without putting too fine an explanation on it, and it is why prices increase. Health insurance is a very expensive commodity. At the same time, however, insurance providers certainly could do more to control medical costs because it is they who pay the maintenance and medical bills. I have seem some of those bills and they would make one wonder at the amounts being paid out for very short stays in private hospitals and minor surgical interventions. The Deputies probably hear more about this issue than I do these days. Having to spend so much time in Dublin means I am not behind my clinic desk as often as I used to be. I am sure people are contacting Deputies about the hospital charges levied under their insurance policies. The insurance companies have a case to answer in this regard.

There are options for people to reduce the cost of their insurance. The many hundreds of products on the market offer scope to switch to a slightly lower level of cover and thus offset the €80 or €100 being lost in tax relief under the new arrangement. This particular provision is one of the areas in the budget which we can justify on social grounds and on grounds of equity. Deputy Naughten argued that it will encourage people to let their policies lapse. However, it was, in fact, one of the changes for which industry representatives argued strongly in their engagement with my officials.

Regarding the uncertainty surrounding cover for students, the position is that some insurance providers treat students as adults while others treat them as children. Without changing the internal policies of the providers, we will follow their practice. In other words, if they treat students as adults, the cap of €1,000 will apply, and if they treat them as children, the cap of €500 will apply. I introduced that particular amendment after taking advice from the industry.

The second amendment in this section relates to situations where, for example, people wish to insure a parent who is residing with them. Up to now, in such cases, one simply paid the adult premium.

If one caps it, that will prove to be a disadvantage. The cap will, therefore, also apply to relatives other than spouses, siblings, children and so forth. Again, this was something the industry wanted and we moved to facilitate it. The decisions relating to all these matters are tough. The country is recovering and, please God, we will reach a situation where we will not be obliged to make so many decisions which affect so many people.

Where an individual does not take out private health insurance and elects to pay for health care privately, such expenses are eligible for tax relief under the health expenses regime. The position in that regard is not being changed. If someone goes to his or her consultant and the cost involved - for example, €160 - is not covered under his or her health insurance policy, he or she can submit his or her receipt when making his or her tax return at the end of the year and claim tax relief at 20%.

Is that subject to an excess?

There is no excess. That was removed a couple of years ago.

I am not opposed to the section. However, one aspect of this matter relates to the amount of money the State pays on private health insurance and the fact that the full cost is still not being imposed in respect of private patients in public hospitals. I do not have any opposition to people who have private health insurance. I am of the view that people take out such insurance because they believe it to be in their best interests to do so and as a result of the fact that the public system is in chaos. Deputy Boyd Barrett made a very valid point, namely, that it is going to get worse. Under the new service plan, savings of €666 million have to be made. That will exacerbate people's fears about the health system. It does not appear that the Government has a joined-up approach to this matter. What is involved is saving money on the taxation side. What the Minister for Health is doing involves cutting the health budget. In the middle of it all are people who have been obliged to take out private health insurance because they believe the public system does not work. Those individuals are being squeezed as a result of the imposition of higher premiums and additional measures. The public sector is being squeezed by another Minister and chaos is the result.

The Minister stated that tax reliefs are aimed at trying to deal with behavioural issues and to provide incentives. When we wanted people to build hotels, nursing homes or houses in Leitrim, incentives were provided or measures to effect behavioural changes were introduced. The provision in this section is designed to encourage people to take out private health insurance. The measure is designed as a relief at source and I do not see how it will encourage people to take out such insurance. As the Minister stated, one will approach one's insurance provider and check the position. One will not see the tax relief the State pays. If it were structured in a way which meant one would pay the full amount and receive a rebate, would this not be more effective in terms of encouraging behavioural change? Has the Minister considered amending the provision? I do not understand how it is going to change people's behaviour. It will reduce the premiums but because the increases in the past five years have been so great, whatever benefit people receive from the State will represent only a small proportion of the overall cost involved.

We have discussed matters ideological and non-ideological. I am of the view that this is an ideological matter. That was highlighted by the Minister's statement to the effect that this is an expensive commodity. That is the problem. It is not a commodity nor should it be perceived as such. Decent health services are very important and should be a right for people. Such services involve providing for people when they are at their most vulnerable. That is what we should aim towards. I agree with the Minister's point about everybody being a taxpayer, although I hate that word. People are human beings and citizens and they all pay taxes. To a certain extent, they are paying towards the provision of private health insurance. I accept that point. The key aspect is that most people who take out private health insurance do so because they are of the view they must so as a result of the public system not functioning.

If the Government genuinely wants to address this problem, the way to proceed is to strengthen the public system. It is not doing so. The Minister stated that what is being done involves trying to make it somewhat fairer. If the other side of the equation involved building up the public system and making it something in which people could have confidence, there would be something to his argument. The exact opposite is happening and the public system is being slaughtered. If anything, people probably feel that if they could afford private health insurance, they would take it out. At precisely the moment at which they may be contemplating going down that route, higher insurance premiums and the Minister's removal of the tax break have made it more difficult for them to do so. We do not have hard evidence - neither, I suspect, does the Minister - about what will be the effect on the margins. Working families are being hit for €80 here, €100 there and €500 for the property tax, and all of these costs accumulate. While the Minister, as he sits in the Department of Finance, might think that a certain measure might involve a small hit, in cumulative terms it might be the thing which tips someone over the edge. In that context, the measure in this regard is unfair and wrong if it is not going to be accompanied by additional resources being invested in the public system.

I wish to comment on the Government's commitment to move towards a system of universal health insurance. Most people think that such a system would be available to everybody and would involve individuals paying for health services according to their means. In terms of that longer-term project, it is incumbent on the Minister to put to the people the options with regard to whether - from a financial and every other point of view - this is the best way to deliver a health service for everybody. It is also incumbent on him to put forward and cost the alternatives and indicate how well they would deliver health services. Some of us believe the way to proceed fairly and deliver a universal health system would involve proceeding on the basis of the National Health Service model in Britain. Such a system would be funded through progressive income taxation and not by means of a health insurance system that would allow private companies to cream money off the top. The latter is the case in America, which spends more on health than any other country. There are massive problems in the context of the lack of universality of health services for US citizens.

What the Minister is doing here is going to undermine the objective - with which many of us agree - of introducing universal health insurance.

He needs to reconsider this.

I want to make two brief points. The first is that taxation and tax relief should be about behavioural change but section 8 undermines that. Everyone who knows about the health insurance system would argue that we need to get more young people and families into the system but this section will do the opposite. That would provide, for the first time, a small incentive to encourage families to take out health insurance or bring their children back into the health insurance system.

The Minister gave the example of a typical policy and worked out the cost which is €80 in respect of the loss in tax relief. Can he give the figure of the cumulative cost of the budget in regard to the tax relief, the health insurance levy and the increased public hospital bed cost? What additional cost will that impose on the premium of a typical policy?

I do not believe I can conduct a health policy debate here in the course of the Finance Bill. The last two contributions have been substantially about health policy in general rather than about the Finance Bill provision. I do not believe I should be expected to reply to that.

Deputy Pearse Doherty made a valid point that the incentive might be higher if people got a rebate. The justification for the way it is done is that the purpose of the tax relief is to encourage people to take out health insurance by providing a subsidy. I believe we can all agree with that. Given the relief at source is no doubt the most efficient way to give the relief, it is costly to have to give the relief individually to claimants and, especially if people who are ill have to claim, that is another liability.

There is also another issue, that of the way in which the insurance companies behave, which the members may not have noticed. When they put the information up on their websites, they cost it without any reference to tax relief, but that has the advantage that people with no income tax liability still get their health insurance premium as if they had a tax liability. In other words, their premium costs 20% less, even though they do not have a tax liability, and that is a benefit to less well off people. When the health insurers are putting the information up on their websites, they should at least specify gross cost and net cost in order that people can note the tax relief and realise that there is a subsidy to encourage them to take out health insurance. To disguise it is to pretend it does not exist. It certainly diminishes the incentive, as Deputy Doherty rightly said, simply because many people are aware that the incentive is there.

Deputy Naughten made a fair point also, namely, that there are other moving parts, both in health policy and in the course of the budget and in other decisions that have been taken but despite all that, one of the budget announcements was that children under the age of five will have free medical services in the community - free GP care - and that cost €37 million. There are still almost 2 million medical cards in circulation. The health expenses relief is still there without a discount and it can be claimed at the standard rate of tax of 20%. If the health expenses are for maintenance in a nursing home, the claim can be made at the marginal rather than at the standard rate of tax. In addition to that, there is medical insurance relief and even though it is capped, it is still there and is of benefit to many people. It is not all one-way traffic. There are reliefs as well and new reliefs were included and other reliefs were maintained in the budget.

I am disappointed with Deputy Boyd Barrett's intervention. I would have thought that he would have been cheering for this when we take into account the ideological position he usually takes up on matters such as this one. It seems he is getting sucked into the system.

I just want the public health system to work and then we can do away with private health insurance.

The purity of the Deputy's ideology is being diluted by the fact that his constituency has one of the highest percentages of private health insurance in the country. He finds himself in a conflicted position-----

-----and he has to talk to his constituents while at the same time dance around his ideological position. I have seen people come in here with radical views before and the system ruins them. The Deputy should be very careful around here.

It may have happened to the Minister but I can assure him that it will not happen to me.

Before the Chairman moves on to the next section, I want to indicate an amendment I will table for Report Stage.

That is noted.

I want to tell the Chairman what the amendment will be. Customers cannot claim-----

That is fine. The Deputy can write to the Minister about that. I am moving on.

Chairman, in order for me to table an amendment on Report Stage, I must indicate the content of it. It is just one sentence.

Customers at present cannot claim a refund on payment protection insurance prior to July 2007 and I will be bringing forward on amendment on Report Stage on that.

Thank you, Deputy.

Question put and agreed to.


Amendments Nos. 48 and 49 have been ruled out of order as they both involve a potential charge on the Exchequer.

Amendments Nos. 48 and 49 not moved.
Question proposed: "That section 9 stand part of the Bill".

I am catching up with where we are at.

We are on section 9. I will bring in Deputy Pearse Doherty first.

The amendments that have been ruled out of order relate to self-referral to a physiotherapist. As I understand it, the Minister for Health is supportive of this idea. The Irish Society of Chartered Physiotherapists supported the Minister for Health on this move. This makes sense. We cannot press the amendments as they have been ruled out of order because they impose a charge on the Exchequer. I ask the Minister to indicate the reason this proposal will not be allowed. It would have the effect of reducing the number on waiting lists for orthopaedic and rheumatology services. Therefore, it is an important proposal. People who know that they need to go to a physiotherapist should not have to be referred by a GP. It is health policy and, as I understand it, the Minister for Health is supportive of this idea of self-referral to a physiotherapist. Why can it not be allowed for within the scope of this Bill?

I am opposed to it on cost grounds. It is the practice now of a Sunday evening after a match for the coach to tell everybody on the team to get physio the following day or before they come to training again. We could not cope with that cost. There would be no cost control on it. A great number of people - as I said, whole teams - could be claiming this. I do not know what the cost would be but it would be quite large. If a person is referred by his or her GP to a physiotherapist and gets a receipt for that treatment, that is a claimable expense and they will get tax relief at standard rate on that, the same as for any other medical expense. We cannot have it open-ended where a whole range of healthy young people after playing a match of a Saturday or a Sunday go to their physiotherapist a few days later to get ready for the next match. That is what would happen. It is the practice now.

A large section of the population has a GP only card or a medical card. Is it 2 million people who now have one or the other?

It is approximately 1.9 million.

Rounding that up, it is 1.9 million and many of the lads in that category play football and if they have an injury they can walk into their GP on Monday morning and get referred in any event. Bar the Minister's anecdotes about footballers going down for a rub, has he any statistics-----

The Deputy is crossing the 9 o'clock threshold with that remark.

Does the Minister have any statistics on those who are eligible for a GP-visit card or a medical card who have been referred to the service and who are claiming the 20%? It is not as if people go for the craic. They are not getting the full cost back. They are only able to claim 20% of the cost. I must watch my language. No one would waste 80% of their money if they did not need the service.

It is not just the physiotherapist involved. A professional society is also involved. One should not have to go to another profession. We have spoken about trying to unclog the system. It does not make sense to go to another health professional for a referral. I understand what the Minister said about having to restrict access, but GPs are likely to refer people anyway. The only difference is that it will cost an extra €45.

Three members of my family were sick this week, including me. It cost €120 to visit the doctor. People are making different choices. They are asking how sick they are and whether they need to go to the doctor. If they have to go to the GP first, it will cost €40, and if they have to go to a physiotherapist, even if they get the 20% rebate, it will cost an additional amount. That is making people take decisions that result in them becoming more unwell. Their problems build up and it will cost the State more at a later stage. I would like to see the statistical evidence. A total of 2 million are able to get the referral. Is it the case that we do not trust physiotherapists on the basis that they will just treat every Tom, Dick and Harry who walks through their door and charge them but GPs will be trusted because they will charge people between €40 and €60?

I will read the briefing note provided. If self-referral for physiotherapy were allowed, an estimate of the additional cost to the Exchequer would be unquantifiable, but it would undoubtedly increase the overall cost of the relief. In addition, the amendments tabled by the Deputies, if passed, would inevitably lead to calls for other treatments to qualify similarly for relief, which could greatly increase the overall cost of the scheme.

Notwithstanding the control and cost arguments, allowing for these amendments could inevitably lead to self-diagnosis of ailments which could be detrimental for patients where such diagnosis proves incorrect and he or she subsequently embarks on the wrong course of treatment in the absence of the correct medical advice.

Two issues arise: cost and cost control. I do not know what the cost will turn out to be but I know there is no cost control on it.

There is no cost control on the relief for going to one’s GP either. The cost control is that one pays 80% of the cost no matter what the relief. People simply do not have such money. I will not labour the point.

Does the Minister have figures for the annual cost of health expenses relief claimed under the MED 1 form? I would welcome a breakdown of the figures also.

It was €131 million in 2011, which is the latest figure available.

Was the relief reduced to the standard rate in 2011?

Yes. The sequence I have is from 2006 when it was €167 million. In 2007 it was €226 million. In 2008 it was €267 million. I presume the standard rate came into effect in 2009 because the amount paid reduced to €146 million. It was €127 million in 2010 and €131 million in 2011. I am told the amount of relief has increased again but I do not have the figures for 2012.

Perhaps the Minister could advise me, through his officials, whether there is any other area of expenditure within what is allowable for health expenses by way of tax relief where one can self-refer. One can refer oneself to a GP, presumably for good reason. Are there other services for which one can self-refer and subsequently receive tax relief on such expenditure?

Everything has to go through a GP. I had a doubt about speech therapy so I checked with the official about that. It seems that everything must go through a GP.

How extensive a programme of physiotherapy could a GP recommend on the basis of one consultation? Could he or she sign off on six months of physiotherapy and then a claimant could get tax relief on that?

It would vary from GP to GP but I presume they could. Normally, what is in question is treatment for a particular injury. One gets treated until in the opinion of the physiotherapist one no longer requires further sessions. I think that is how it works. It might vary from geographic area to geographic area depending on how football is played and such matters.

Question put and agreed to.
Sections 10 and 11 agreed to.

I move amendment No. 50:

In page 22, lines 7 to 9, to delete all words from and including “in” in line 7 down to and including “provisions” in line 9 and substitute the following:

“by inserting the following subsection after subsection (2A):

“(2B) Notwithstanding the provisions”.

This amendment to section 12 is technical in nature and is required to reposition the measure in the Bill from subsection (2) to a new subsection (2B) in section 126 of the Taxes Consolidation Act 1997.

I wish to ask the Minister a general question on the policy of taxing social welfare benefits. Incrementally, over time more welfare benefits have become subject to income tax. In recent years the Revenue Commissioners began to talk properly to the Department of Social Protection on the taxation of the State pension and private pensions. Is it policy to move to a point where everything bar child benefit would be subject to income tax? Is there a policy direction on the taxation of welfare?

Does the Deputy refer to circumstances where somebody has a social welfare payment and additional income?

Yes, generally. I refer to the principle of taxing welfare benefits.

Does the Deputy mean in cases, for example, where one is in receipt of two pensions.

That is established that they are both taxable.

The generality of social welfare payments are taxed but they are not subject to universal social charge. That is the distinction. There might be one or two payments that are not taxed but generally they are taxed.

There are not many. I thank the Minister.

Amendment agreed to.
Section 12, as amended, agreed to.
Question proposed: "That section 13 stand part of the Bill."

I would like to get an explanation from the Minister. The section relates to relief for employees engaged in research and development activities. Could he read the note on the amendment?

There is a scheme to encourage research and development in the country and it is part of the IDA package of incentives. It is part of the policy to move manufacturing in Ireland up the food chain to have a more highly skilled base to the manufacturing industry. By and large, if a manufacturing plant has a research and development unit attached, it is moving up the food chain, as they say. We allowed an employer to assign 10% of the tax break available for research and development purposes to a significant employee. We are raising that to 15% this year. That is the bones of the provision.

The Finance Act 2012 introduced a provision that allows a company with an entitlement to the research and development tax credit to surrender some or all of the tax credit to an employee who meets the definition “key employee”. This allows the employee to reduce his or her income tax liability subject to a minimum rate of 23% applying in addition to universal social charge and PRSI.

This section makes a number of amendments to the so-called key employee provisions, most of which are technical in nature. The amendment in respect of paragraph (f) is the main substantive amendment. It operates in conjunction with section 21 of this Bill and together they provide that where a credit has incorrectly been surrendered by a company to an employee, the sum involved will be clawed back from the company rather than from the employee.

The review of the research and development tax credit, which was published on budget day, identified that the potential for a claw-back from the employee was acting as a barrier to take-up of the scheme. The amendment recognises that it is the company that has control over the claiming of the research and development tax credit in the first instance and for surrendering it to the employee. The employee, therefore, would not generally be aware that the credit would not have been granted to him or her.

To address situations where an employee may have had a degree of control over his or her entitlement to qualify for a credit, the existing Revenue powers under self-assessment rules can still be used to reclaim credit given to an employee in such circumstances. The amendments have no additional cost to the Exchequer.

It is a tax credit that is currently available but the Minister is now making a provision that it could be given to the specific employee. Is that the reason there is no cost to the Exchequer?

Last year we increased the amount that was available to a company and we said it could assign 10% to a key employee. We found there was a barrier in that respect because if it was mistakenly applied, the employee had to repay rather than the company while the company has full control of the assignment. This amendment is to make it clear that it is the company that has the liability for any claw-back that occurs if it is misappropriately applied to a key employee. The change announced on budget day as part of the research and development tax credits was that the 10% increases to 15% in terms of the amount of the tax relief the company can reallocate to key employees.

I thank the Minister for the explanation. I have questions about the research and development tax credit but setting those aside, this appears to be a reasonable measure.

I understand the 10% to 15% is a separate issue to what I have explained now.

I have no problem with the amendment but on the issue of the effectiveness of the tax credits, we are addressing what the Minister sees as a barrier to the uptake. However, this is the third Finance Bill in which we have amended this key employee tax credit for companies to be able to use the research and development credit and provide it to a key employee to write down their tax liability. This is the third year we have brought forward measures to assist this cohort of individuals. How many are availing of it this year and what is the effect on jobs as a result of it? Would there have been an effect anyway?

The IDA regards the research and development tax credit as a very important part of its portfolio of attractions for foreign direct investment. The reason we are coming back to it again is that last year the Deputy will recall I announced a review of the research and development tax credit. It was published on budget day and it identified that the potential for a claw-back from the employee was acting as a barrier to take-up of the scheme. Furthermore, the independent survey identified that despite more than 70% of companies being positively disposed to this provision, only a small number - seven - who responded to the survey have availed of this provision. Based on a review of corporate tax returns filed to date in respect of 2012, I am informed by the Revenue Commissioners that the returns indicate that credit has been surrendered by seven key employees.

This amendment recognises that, generally, an employee will not be aware of or involved with the claim of the research and development tax credit and therefore should not be held responsible for an incorrect claim of this nature or subject to any penalties. Instead, the changes being made in section 21 of the Bill will ensure that the tax foregone will be reclaimed from the company, which will be subject to penalties in the event of a deliberately false claim.

To address situations where an employee may have had a degree of control over his or her entitlement to qualify for a credit, the existing Revenue powers under self-assessment rules can still be used to reclaim credit given to an employee in such circumstances.

The bottom line is that this is a modest measure with no cost to the Exchequer. It removes a barrier that was preventing people from accessing the key employee relief. Given that there is no additional cost to the Exchequer, it does not make sense to wait a further year when we can help companies now. We are talking about people who are inventive. They are the kind of people whose research leads to the patenting of new products or new ways of doing things. By its nature, therefore, it applies only to a very small select group of people.

How many people have availed of this key employee measure so far?

Seven is the preliminary data. The reason the companies involved are giving is that what we are amending now is a barrier to take-up. We will try it and see if there will be a bigger take-up next year.

Sections 14 and 15 agreed to.

Question put and agreed to.

Amendment No. 51 is in the name of Deputy Doherty. This relates to a new section. Acceptance of this amendment involves the deletion of section 16 of the Bill.

I move amendment No. 51:

In page 25, between lines 26 and 27, to insert the following:

“16. The Minister shall review within one month of the passing of this Act all exemptions that have been allowed to the Higher Earners’ Restriction and provide a report to Dáil Éireann on the effects of the temporary removal of the Employment and Investment Incentive from the Restriction.”.

This is a simple amendment asking the Minister to hold off on lifting any more measures from the current high earners' restriction. The restriction is in place for a reason and I would like to see an analysis of how it is working, after various restrictions have been lifted, and also to hear the rationale other than that it is all about creating jobs and investment. There is a reason for the high earners' restriction and when we lift measures from it, even with good intention and motivation, it weakens the restriction. I am suggesting, through this amendment, that we review this within one month of the passage of the Act to examine the effect of the exemptions on the restrictions so far and the effect of the temporary removal of this restriction for a three-year period.

I do not propose to accept this amendment. The only relief that I am removing from the current scope of the high earners' restriction is the employment and investment incentive, as I announced on budget night. There is no need, therefore, for a review at this stage.

The employment and investment incentive provides tax relief for investments in small and medium size enterprises, SMEs, in recognition that such investments are risky. Tax relief of 30% is provided initially, with a further 11% payable at the end of the holding period provided that the numbers employed have increased or the funds have been expended on research and development. The additional 11% was never subject to the restriction.

This amendment temporarily removes the initial 30% relief for a period of three years. After that time it will be examined to see if it has achieved the desired effect of increasing investments in Irish SMEs and the subsequent job creation that would follow.

Section 16 also provides for the inclusion of capital allowances on plant and machinery where those allowances are being claimed by passive investors. If section 16 were to be deleted, the potential for individuals to shelter income by investing in plant and machinery would remain. The only thing I am removing from the scope of the high earners' restriction is the employment and investment incentive, which I announced in the budget.

We will review it after three years to ascertain how it is working, which I believe meets the principle of the Deputy's amendment.

Can the Minister inform members as to what other exemptions have been lifted in previous years with regard to the higher earners' restriction?

Practically everything else. I do not believe anything else is being restored.

As for the sheltered relief, the passive investment and the intention of this amendment, I acknowledge the note on the amendment indicates it would delete section 16 of the Bill. However, that is not its intention, which is to have a review. Consequently, I do not understand the reason this would be the effect of accepting it and it is not its intention. A three-year period is a long time. If one waits for three years and allows these individuals, who are higher earners subject to this restriction, to be exempt therefrom if they invest in this way, one will not know how meaningful this will be. Members have just dealt with the section in the Bill pertaining to the research and development tax credit for key employees and while they have had three years of dealing with this section, there are still only seven individuals who avail of it. That is not the fault of the Minister, of me or of anyone else, but is due to whatever way the provision is written or in whatever way companies are structured.

However, the opposite might occur, in that there could be a flood of investment from high earners who normally would be restricted from reducing their income tax liability to the State as a result of the high earners' restriction. The restriction was put in place as a result of considerable public pressure on the ability of high earners to reduce their tax liability to a very low base. The public demands that everyone pays his or her fair share, particularly those who are in the highest earner category and that such people do not use tax reliefs to write down their tax liability. These are investments and it is not as though they are charities or that those concerned are giving away their money. They are getting a return on the back of it, despite the possibility that it is risky. However, this provision is both an incentive for them to invest and get a return and an opportunity to reduce their tax liability. Consequently, although members do not know, it is possible that in three years' time, a huge amount of money could have gone in this direction. A huge amount of tax could have been foregone to the State and I suggest the Minister should build in a review. Even if that did not involve formally asking a consultant to carry out a review, one could track the numbers of people who have availed of this provision after the next tax year and then reassess it before members return to deal with the finance Bill for 2015.

While I am totally opposed to this measure, the least the Minister could do is to carry out a review of it. However, I am against it, which puts to bed the Minister's idea that I have been corrupted and do not wish to say things that are unpopular in Dún Laoghaire, because lots of high earners live there. However, they should not get exemptions from this high earners' restriction. Regardless of whether they live in Dún Laoghaire or anywhere else, high earners do not pay enough taxes as matters stand and should not be given more tax breaks. I do not accept there is a need to give such people more tax breaks to get investment going. There are other ways in which to do this and one should not be obliged to give more tax breaks to those who already have a lot to convince them to do some good for society and the economy. I do not accept the rationale behind it.

While the Minister might not agree with me in this regard, the amendment tabled by Deputy Pearse Doherty proposes there at least should be a proper analysis of the measure. It could easily be the case - I suspect it probably will - that some higher earners will benefit from it but that it will not have any great benefit for the economy. Consequently, while I disagree with the entire principle, if the Minister is putting forward this proposal as a measure to encourage investment, he at least should be able to put forward some evidence that it will produce a positive economic effect. Otherwise, it is simply another tax break for the rich and we have had enough of those. We need some relief for the ordinary people who are being hammered and not more tax breaks for the rich.

First, section 16 contains two amendments to the principal Act. The first item amends item 47A of Schedule 25B to the Taxes Consolidation Act 1997 to provide for the temporary removal of the employment and investment incentive from the high earners' restriction. The restriction ensures that a minimum rates of tax is paid by high income individuals by limiting the amount of tax relief that can be claimed in any one year. The employment and investment incentive provides tax relief for investments in small and medium-sized enterprises, SMEs, in recognition that such investments are risky. As a temporary stimulus measure, amounts subscribed for shares under the employment and investment incentive between budget day 2013 and January 2017 will not be subject to the high earners' restriction. At the end of this period, a review will be undertaken to ascertain the effectiveness of the measure. At that point, a decision will be taken on whether these investments should return to being subject to the high earners' restriction or whether they should continue to be excluded.

Both Deputies Boyd Barrett and Pearse Doherty have argued in the Dáil in the course of other debates that there is a dearth of credit to SMEs and that the banks are not providing sufficient credit. I believe the Deputies agree with me that alternative credit to bank credit for SMEs should be explored. While the old business expansion scheme was in place, high earners invested in risky investments in SMEs and this employment and investment incentive is the replacement for the business expansion scheme. I am attempting to encourage people of high net worth to invest in risky investments in SMEs in order that an alternative to the bank credits, which quite frequently is not available, will be available for SMEs. In addition, there is a cap of €150,000 on the investment in this regard. Consequently, it is not the case that people can put in astronomical amounts of money, as there is a restriction it. I believe it is worth finding out whether this will provide equity to SMEs. Many SMEs now are accessing credit and bank credit but because of the crisis, they have very little equity and because of the way in which property values have gone, the equity base they had in respect of property is now negative. If they could build up equity, it would help the SME sector. These are the economic reasons for doing it and the risk is limited because of the cap on individual investors of €150,000 and then there will be the review after three years. If I, or whoever is here in three years' time, finds it is not working, is being abused in any way or is not stimulating equity investment in SMEs, then I assure Deputies it will be taken out of the code again.

The second item deals with Deputy Doherty's point. The Deputy's amendment would, as a consequence, delete section 16 but there is a second amendment in that section that deals with capital allowances on plant and machinery, which is leased to a manufacturing trade by an individual as part of his or her leasing trade. This currently is not one of the reliefs that are subject to higher earners' restrictions. The amendment provides that where those allowances are being claimed by passive investors, then there will be a specified relief for the purpose of the high earners' restriction. Active traders will be unaffected. This is an anti-avoidance measure to prevent passive investors from using the relief in a manner for which it was not intended. The point I was making in reply to Deputy Doherty was that because his amendment implies the deletion of section 16, the anti-avoidance measure also would be deleted, which neither I nor the Deputy wants.

I have read out my amendment which is concerned with the insertion of material, therefore, I do not know the reason it would have the effect of deleting section 16. However, there is no point in arguing about this. It does not call for the deletion of any lines but simply proposes the insertion of additional lines to provide for the review of the measure. I revert to the original point about the three-year period being far too long. This measure should be reviewed before three years elapse. I presume that a review of some sort on this measure will be done next year in any event.

There are measures that have been sign-posted in finance Bills. The Special Assignee Relief Programme, SARP, which reduces the income of key employees from other countries who relocate here, has not been effectual. On the research and development tax credit for key employees, there have been two amendments to finance Bills, and on the third amendment we know that there is only seven taking it up.

Even to take it from the opposite side of the coin rather than ask are these high earners abusing this to write down their tax liability, let us look at whether we are getting into the system the credit for which this was designed. The Minister will review it anyway. The problem is that the Minister will more than likely review it from only that end. For a start, there was no built-in review for the research and development tax credit for key employees, but IDA Ireland says this is not working and it undertakes a review. Somehow somebody gets to ear of the Minister for Finance and then there are amendments to these sections every year until they start to become effective or until we get rid of them.

As far as I understand it, the business expansion scheme did not work either. Am I correct in saying so? There were a number of schemes which have morphed into each other. I am not suggesting the Minister dump these merely because they have not worked, because we must try as much as possible to get credit flowing, create jobs, get enterprise going and get new businesses. The Minister takes risks with such matters but when he does so, he must put up the shutters as well and have his defences in order. If the Minister is to open up the game, he needs to ensure that he is in a position to close the gates as well. In three years' time, it could be far too late to try to close the gates on this scheme.

No doubt former Ministers for Finance sat where Deputy Noonan is and gave a line about why it was so important to allow for a tax designation to build houses around Leitrim. I can remember the arguments at the time about the high level of unemployment, construction skills, etc. One should look at it now. The same could be said of the arguments about the reliefs for hotels or nursing homes, or other property-related reliefs such as on section 23. The arguments put forward as to their necessity at that time would all have been justifiable from the perspective of what was happening in the economy. Somebody was in the ear of the then Minister, somebody had lobbied for the need for it, there was probably a good spiel given, the Minister or the Department accepted the argument, and they put it forward. The big problem, because the Ministers at the time took risks and those risks have proven to be damaging on a number of fronts, is we never reviewed them, or if we did, we did not do it properly.

The Department is carrying out systematic sectoral reviews, for example, it has done the review on the research and development tax credit for key employees, but when we introduce such measures in a finance Bill we need to include some type of informal 12-month review. As soon as the data becomes available when taxpayers start making their returns, we need to be able to sit down with that preliminary data and ask at what would be the first glimpse of the effect of this section of the Finance Act, how well it is working. If there are not alarm bells ringing there then one can conduct the formal review involving the consultation process on how the measure would be enhanced or fitted, or whatever needs to be done.

When we introduce measures such as this in the Finance Bill, we should also build in provisions, not on how we will carry out the review but on the information that should be provided so that there can be a review. For example, as the Minister will be well aware, I have asked countless questions on how SARP is working, etc. There was a promise on one occasion, probably a misguided quote by the Minister for Social Protection, that every SARP employee was supposed to bring in 20 jobs, but that is not what the application form states. If one is applying for such measures, we should ensure that the Revenue is able to collate enough information so that 12 months later we will be able to hold an effective review and will not be merely looking at tax returns where we would not be able to quantify their effect.

This goes further than this measure, it goes to the core of the point that as we take chances in a finance Bill to introduce measures, we must be in a position to review those within a 12-month period as soon as the preliminary data becomes available and design them in a way that provides Revenue with enough information so that we can have an effective review. Three years down the road is far too long.

The review should not be merely an internal departmental review. It should be a review that is shared here because all of us need to take ownership of this legislation. If the Minister gets it wrong, we can tell him he got it wrong and we told him so, but it will be too late at that stage because the damage will be done. There must be proper scrutiny of legislation. As I have stated previously on other Bills, the passage of a Bill should not be the end of it. We need to be reviewing the effect of legislation, in particular, financial legislation. One of the big problems in Irish society over the past decade is that we have not done so effectively or efficiently enough.

It is not only about this measure, but this measure is symptomatic. It harks back to the sort of practices that got us into the mess that we are in. It is a worrying trend that in the past few budgets new versions of so-called tax incentive measures, which led us into the mess that we are in, are starting to reappear in the form of tax breaks in the areas property and share-trading, derivatives, etc., for wealthy investors and individuals because we need to provide them with a so-called incentive. I do not buy it. It smacks of not learning lessons. In so far as the people get to know about these matters, it infuriates them that when they are getting hammered we are talking about having to give tax breaks - so-called incentives - to the wealthy. There is no evidence that it works. It only adds to the suite of measures from which high-powered accountants, who are employed by wealthy investors, can pick to minimise the amount of tax their clients have to pay.

I accept that small businesses needs credit, although mostly they need demand. The best place to look to provide credit is not by giving further tax breaks to wealth investors. Overall, we lose. We simply redistribute wealth or say that the cost of economic growth and development is that the rich must get richer and that the gap between the haves and the have nots must grow. That is dangerous for the economy.

It is not only that it is unjust, although we can put it those moral terms. If one were to ask what is the fundamental problem with this economy, the European economy and the global economy, it is that there is too much money sloshing around in private hands and the rest of us are held hostage by those wealthy individuals and wealthy corporations. We must do something about it, that is, implement an old-fashioned idea called redistribution of wealth.

This is going in the wrong direction. It is a small measure but I do not accept it. It is not the way to help small and medium-sized businesses. We could do that by starting to stimulate demand in the economy.

First, I do not disagree with Deputy Pearse Doherty. It is important that we constantly keep tax breaks under review. Tax breaks which are designed to influence particular social or economic behaviour often do not have the incentive value as time goes by and when circumstances change. While a tax break might be valid for a year or two, it may lose its validity as time goes by. I agree with the general principle.

I practice that principle as well.

We published a full review of incentives for film production in the country. We had a full review of research and development and of the application of the building and development tax incentives. While my predecessor, Mr. Brian Lenihan, commenced the winding down of the latter incentives, we carried out the bulk of the work in the 2011 budget. We are not restoring the incentives. The principle of a review is totally acceptable to me. In the case in question, however, I justify my position because SMEs are starved of investment funds and equity. Where an investor's investment in enterprise is at high risk, he requires either the promise of above-normal rewards or, if the State wants to influence the matter, some kind of tax break. That is why we are providing for it here.

The employment investment incentive scheme stipulates a cap of €150,000 on any particular investment but a condition is that shares have to be left in for a period of three years. Therefore, the investment must stay in the company for three years. There is not much point in announcing a review next year. Who would invest if I announced a review next year that could result in one not getting what was promised at all? Some certainty has to be given. The certainty is provided by saying certain incentives may be enjoyed if the money is invested for three years. That is how we will proceed. We will review the measure after three years.

Deputy Doherty asked how the restriction on high earners was working. I have some information to hand from a Revenue Commissioners report in which I believe Deputies will be interested. The restrictions were first introduced in the 2010 tax year. The restriction works by limiting the total amount of specified reliefs that a high-income individual can use to reduce his or her tax liability in any one tax year. That is what Deputy Boyd Barrett was advocating. Individuals now become subject to the restriction and the associated taper where adjusted income is €125,000 or greater and where they claim €80,000 or more in specified reliefs. No matter what scheme one is in or what tax break one seeks to avail of, the maximum one can claim is €80,000.

The results show that 286 high-income individuals with an adjusted income of €400,000 or more where the restriction fully applies paid income tax at an average effective rate of just over 30%. This meets the objective set out for the measure. The additional tax collected from the 286 taxpayers was just above €40 million, representing an increase of 101.5% on the tax they would otherwise have paid if the restriction had not applied. The important outcome is that 35 individuals with adjusted incomes of €400,000 or more and who would not otherwise have paid tax in 2010 were brought into the tax net for that year. The report also shows that 857 high-income individuals with an adjusted income of up to €400,000, where the restriction applies on a graduated basis, paid income tax at an average effective rate of 19.21%. The additional tax collected from the 857 taxpayers was €23.6 million, representing an increase of 119% on the tax that would otherwise have been paid if the restriction had not applied. Some 174 individuals with adjusted incomes of up to €400,000 who would not otherwise have paid tax in 2010 were brought into the tax net for that year as a result of the restriction. The total additional tax collected in 2011 arising from the application of the restriction in that year was €63.6 million. By comparison with the figures in the 2011 report, the total additional tax shows a reduction of €16.58 million. A total of €80.18 million was collected in 2010 by comparison with €63.6 million in 2011. This decrease results from two main factors, the general economic downturn and the changes introduced in FIA, the reduction in the amount of income that can qualify for the artist's exemption, and the removal of the exemption for patenting. In addition, the changes to the restriction may have led to behavioural changes among those who traditionally availed of the specified reliefs.

The provision is working. My figures are for 2010-11. The Revenue Commissioners do constant reviews. I have outlined the latest available information from the Revenue Commissioners. As new statistics become available, I will give them to the Deputies on occasions such as this or in reply to parliamentary questions. The system is working.

Amendment, by leave, withdrawn.
Sections 16 and 17 agreed to.

I move amendment No. 52:

In page 28, between lines 27 and 28, to insert the following:

“(2) (a) The qualifying criteria for early access to pension benefits as outlined in the Finance Act 2013 shall be increased to include those in defined contribution schemes (including personal retirement savings accounts) subject to certain qualifying conditions.

(b) The person making the application fulfils one of the following criteria—

(i) they have been made redundant in the previous twelve months;

(ii) they are a first time buyer (subject to anti-avoidance measure that if the money is not used to purchase a home it must be repaid to their pension scheme);

(iii) they have suffered critical illness.”.

The part of the section I wish to address relates to early access to AVCs, in particular, which the Minister introduced in last year's budget. In the budget documentation released at the time, the Minister estimated that the measure would bring in approximately €200 million over a three-year period. He pencilled in €100 million for 2013. I understand the figure fell well short of that. The last figure I saw, pertaining to the end of June, indicated approximately €10 million extra had been brought in. The Minister might give us the up-to-date position on that.

The purpose of my amendment is to try to stimulate debate and ascertain the Minister's current position on widening the scope of early access to pension contributions, in particular for those who have experienced some shock in their lives, be it through an unexpected redundancy, critical illness or debt problems, or those seeking to buy a home for the first time. The scope of the Minister's initiative last year, while welcome, was very limited. Could the Minister give us an update and outline the level of activity and draw-down? With that knowledge, we might be able to move on to the wider issue of broadening the scope.

With regard to early access to AVCs, the statistics are that from April 2013 to June 2013, 3,949 were drawn down. The aggregate value of those was €27.4 million. The average value drawn down was €6,948 and the tax deducted was €10.8 million. In the period from July to September, 3,245 were drawn down and the aggregate value was €22.1 million. The average value of the draw-down was €6,810 and the tax deducted was €8.7 million. This gives a total to September of 7,194 draw-downs, with an aggregate value of €49.5 million and an average value of €6,881. The total tax deducted was €19.5 million, representing a tax take of €39.4 million in the six months up to the end of September.

Is that a tax take of €39.4 million?

It began in April, so it is €19.5 million for six months. Anecdotal evidence suggests there was a spurt in draw-downs before Christmas. I do not know whether the Revenue Commissioners have the same anecdotal evidence that I got.

The purpose of the Deputy’s proposed amendment is to extend section 782A of the Taxes Consolidation Act 1997, which allows for temporary pre-retirement access by individuals to a proportion of their additional voluntary contributions, AVCs, to pension savings generally in all defined contribution pension arrangements, subject to certain qualifying conditions.

The pre-retirement access to additional voluntary contributions, AVCs, which I introduced in the budget and the Finance Act 2013 is allowed on a tax-neutral basis. In general, the contributions were tax-relieved at the individual’s marginal rate on the way in and are taxed at the individual’s marginal rate on withdrawal. This is part of the design of a measure which is intended to enable rather than incentivise individuals to access part of their pension savings beyond their core pension provision. The take-up of the measure to date has not been particularly significant. It is important individuals continue to provide for their retirement and, it would appear based on experience to date, that most individuals with AVCs have decided to preserve their AVC pension savings for the purpose intended.

As to the criteria to be satisfied by individuals under the Deputy’s proposed amendment, I do not expect people buying their first home, most probably younger people, would have significant pension savings at that early stage in their lives in any event. As to access to pension savings on redundancy or ill-health grounds, while Revenue approval of retirement benefit schemes is given on the basis that retirement benefits may, generally, be paid at normal retirement age, which for most schemes would be 65, the approval may also provide for voluntary early retirement from age 50 where scheme rules allow and with the employer’s consent. In such situations, benefits are restricted.

In the case of personal pensions such as retirement annuity contracts, RACs, and personal retirement savings accounts, PRSAs, benefits can be taken from age 60 with no retirement condition. With all of these pension arrangements, benefits can be taken at any stage where retirement is due to serious ill health or incapacity. I appreciate the intention behind the Deputy’s proposal. I also recognise that the kind of early access he has in mind is more to deal with temporary financial or medical crises which may befall individuals or families, as opposed to the more permanent type access which is already provided for under pension tax law and Revenue rules which I have just outlined.

However, while there may be a case for the consideration of conditional early access to pension savings as part of longer term planned options for pension reform - this is a matter primarily for my colleague, the Minister for Social Protection - I do not believe it is an appropriate extension to the existing restricted and temporary early access measure. In my view, it is preferable not to allow early unplanned withdrawals of core pension savings as the inevitable result is to divert the savings initially intended to finance retirement to meet largely short-term financial crises.

This clearly poses retirement income adequacy issues. The impact of the early withdrawal of pension savings on the ultimate value of the pension pot at retirement should not be underestimated. For these various reasons, I have no plans to extend the current temporary early access measure beyond AVCs. Accordingly, I cannot commend amendment No. 52. I will refer to it to my colleague, the Minister for Social Protection, who is reviewing pensions policy, however.

I thank the Minister for his reply and recognise the good reasons he needs to restrict this type of access to pensions. However, he tweaked the access to AVCs without the need for changes to be made to pension scheme rules or trust deeds. Is that change acting as an obstacle to persons wishing to access their AVCs? Is there an uplift in the level of activity in this area? On current trends, the Minister will fall short of the expected €200 million over three years.

It has been brought to my attention that there were some difficulties. There is a little bit more than tidying up to be done but I do not expect it to change the drawdown very much.

The section also amends AVC access provision legislated for in the Finance Bill 2013 to address concerns that the existing override arrangements contained in the legislation may not give pension scheme trustees and PRSA administrators sufficient scope to allow such withdrawals where a trust scheme’s rules or a PRSA’s contract terms prohibit them. The amendment specifically provides that the AVC option may be exercised by an individual, notwithstanding the rules of the retirement benefit scheme or the terms of the PRSA contract concerned. The change applies to options exercised on or after 27 March 2013. It is a tweaking to deal with a difficulty that was brought to my attention.

The figure in question is over €100 million but it is hard to predict. As economic circumstances improve, people will be less inclined to drawdown AVCs and more inclined to make provision for their pensions. There are pluses and minuses to budgetary measures. We still believe we will end up the year with the tax take we predicted.

Amendment, by leave, withdrawn.

Amendment No. 53 in the name of Deputy Pearse Doherty has been ruled out of order as it involves a charge on the people.

Amendment No. 53 not moved.
Section 18 agreed to.
Section 19 agreed to.

As we have considered section 19 before 10 p.m., the sub-committee can proceed to consider those sections which must be concluded by specific times later today or tomorrow. Is it agreed to drive on to 10 p.m.? Agreed.


I move amendment No. 54:

In page 36, between lines 11 and 12, to insert the following:

“20. The Minister shall within 3 months of the passing of this Act prepare and lay before Dáil Éireann an analysis of the tax increases in this Act, and the total of tax increases and spending cuts of Budget 2014, setting out the continuing impact on people based on their gender, income, age, marital and disability status.”.

Earlier this year, my party produced legislation which provided for equality budgeting and voted on it in the Dáil. Fine Gael and the Labour Party voted against this legislation because the Government has failed consistently to undertake independent assessments on its two budgets’ impacts on people’s incomes or on groups already disadvantaged. This is all about having an evidence-based attempt to understand the distributional and equality impact of the Government’s policy on real people.

During the debate on our legislation, it was suggested the Government was committed to equality budgeting. I recall on the Finance Bill 2013, the Minister claimed it was more a task for the Minister for Public Expenditure and Reform but I believe it is a job for both. Measures dealing with single fathers, private health insurance, for example, would be part of the assessment. While I know the Minister will not budge on this, the Government did give a commitment that it was in favour of introducing some type of equality budgeting. I believe we will be forced to do it anyway by Europe.

We should be taking a lead rather than being dragged kicking and screaming into this domain. I have moved this amendment to raise the issue again and put it on the record. We in Sinn Féin are very committed to it and I do not think we should have anything to fear by saying this is the impact it will have on these sections of society. For two years in a row, the ESRI has confirmed that the Labour-Fine Gael Government budgets take more from low-income groups than they do from high-income groups. If we had independent equality assessments looking at, for example, how it affected women or people with disabilities, it would also show that there has been a disproportionate impact on these groups.

This Government has always relied on the fact that when one takes all of the budgets together, including the ones that Fianna Fáil introduced, they are progressive and all the rest but it cannot hide behind the fact that the ESRI has said twice in a row that it has taken proportionally more from low-income groups than high-income groups. There is a need for it. Again, it is putting down a marker that this issue will not go away. We hope to see some progress on it this year 12 months on.

I recall Deputy Doherty proposing this amendment on Committee Stage of the Finance Bill earlier this year. His colleague, Senator Reilly, raised it as a Seanad recommendation. I recall also that we had a long and interesting discussion on this issue on the last occasion. Fundamentally, my position remains unchanged and I do not believe there is a great deal of difference in principle between us. Analysis can play a very important part. It should not, however, be applied to everything, particularly in instances where we do not deem it necessary. If the cost in terms of time and resources is totally disproportionate to the yield from the analysis, we do not do it.

This Government has carried out more economic impact assessments in respect of tax proposals than any other. Of course, there is also a concept in politics and public administration which is generally summed by the phrase, "the paralysis of analysis". We do not want to get into that situation. The Government must govern. We can look at things all our lives but there is a principle of proportionality. The level of resources invested in carrying out the analysis should be commensurate not only with the scale of expenditure involved but the scale of resources available, not least the demands already placed on those resources in the preparation of budgets and finance Bills. Therefore, I am not in a position to accept the amendment. We do review budgetary measures periodically. We had a full review of the research and development tax measures, the film industry incentives and the building and development tax incentives. In this budget, I announced a full review of all those tax incentives for farming and the agriculture sector so we have reviews.

The ESRI does a lot of very good work, which we very much appreciate, but its model does not take all budgetary decisions into account. It gives a partial analysis of the budget and people taking the ESRI model attribute too much to it. The Deputy is probably aware that the programme for Government contains a commitment to require all public bodies to take due note of equality and human rights in carrying out their functions. Furthermore, the Cabinet handbook requires a statement on the likely effects of the decision sought on equality and persons experiencing or at risk of poverty or social exclusion to be included in memoranda to Government. Consequently, the Government does consider each of those important issues at an individual policy or programme level. Furthermore, I remind the Deputy that the State and its bodies take the provisions of equality legislation into account in the development and delivery of policies and services.

I would also like to inform the Deputy that distributional analysis of taxation measures is performed based on various income levels for the different categories of income earners. These categories include single individuals, married one-earner couples with no children and married one-earner couples with children. A distributional analysis which models the impacts on disposable income by income decile using SWITCH, the ESRI tax benefit model, is also undertaken in evaluating various taxation options. Illustrative examples continue to be included in the budget documents.

In future, as part of our annual budget, Ireland will submit a draft budgetary plan to the Commission no later than 15 October. This is a requirement of Regulation (EU) No 473/2013, which specifies that all euro area member states not in a macro-economic adjustment programme will be required to submit this plan. As part of the materials supplied, Article 6(3)(d) requires that, where possible, indications on the expected distributional impact of the main expenditure and revenue measures should be included. This distributional analysis will be conducted using the SWITCH model, as has been the case in previous budgets. Information contained in the draft budgetary plan sent to the Commission will also be included and the budget booklets will be distributed to Members of the Oireachtas. As the Deputy said, European policy is moving in the direction he advocates and we will be moving in that direction as well and submitting some of the elements he is requesting in his amendment in our submission to Brussels before the 2015 budget not later than 15 October 2014.

Last Friday, we had the first meeting in Brussels on the new arrangements. We were not included in the review because we are still a programme country but 13 states were included. Only two of them got a completely clean bill of health on what they submitted. There will be some post-programme supervision of Ireland but it will generally be the same as that which applies to all members of the eurozone. The movement is in the direction advocated by the Deputy. I do not have a big difference of opinion in principle with what he is saying. My difference of opinion relates to issues like cost-effectiveness and taking a sledge-hammer to crack a nut. It relates to whether we can get the information without a major cost-benefit analysis and some of this is readily available both from Revenue and the ESRI.

I think it is a sad situation. We have been harping on about equality budgeting for a long time and there is a very good campaign group in terms of equality budgeting which has spearheaded a community campaign which has been endorsed by many different progressive groups. It is sad that Europe is forcing us to do this. What Europe is doing in terms of policy is a good thing in terms of getting us to look at the distributional impact of tax increases and expenditure cuts. We will have to do it. Now we are outside the programme, we will have to do it next year and Members will get it in the booklet as a result of that. To me, that is sad because we are sitting in the Irish Parliament. Great initiatives come from Europe and it is good that it is at least making this Government do this but we should be asking what we need for our particular circumstances.

The Minister says this will be very burdensome. We believe in the concept of equality budgeting and think it important, proper and right that society has a view of who is carrying most of the weight and whether it will impact disproportionately on one section, gender or social class over another but the question is how we do that in a cost-efficient way without taking a sledge-hammer to crack a nut. That is not what the Minister is offering. He is saying that Europe is telling us to do it so we will do whatever Europe does and if Europe tells us to do what he wants us to do, we will do that as well and Members will get the information. That is sad. There are other countries in Europe that carry out independent equality budgeting, some more effectively than others. As I explained to the Minister previously, certain departments in Northern Ireland send their budgets for equality proofing independently so it is not as if we are re-inventing the wheel. There is a way of doing this. It is disappointing, particularly in the spirit of the Labour Party which said it and this Government are committed to it.

Perhaps the European programme will be very good and perhaps we will all be delighted at the amount of equality budgeting we will have when we see the details of it. I do not think so. I believe we should figure out what we need to do to best make informed decisions for this State as we bring in finance Bill after finance Bill. The Minister will not be sitting in that chair forever and a day. It might be some other Minister for Finance but we should put down a marker here.

If the Minister introduces policies in a finance Bill, he should have the courage to have them independently assessed to show he takes cognisance of equality proofing in his Department and has nothing to fear from the assessment. His comments are disappointing.

There is no point in criticising the ESRI model for not taking certain factors into account. The Minister does not have the moral high ground to criticise the ESRI's model. It is the only organisation that carries out an impact assessment of budgets because he has refused to allow independent equality assessments. If he had provided for another system of assessment he might be justified in criticising the ESRI for failing to take all measures into account. All we have to go on are its last two reports, which clearly stated that the Minister's budgets hurt the poor disproportionately. If he wants to prove the reports wrong, he should put his money where his mouth is and allow an independent impact assessment of the budget. He has the moral authority to argue for this with his colleague, the Minister for Public Expenditure and Reform. He is a member of the economic management council. I am sure he would be able to get Cabinet approval for such a proposal.

The budget documentation contains illustrative examples which take account of both spending and taxation. Annexe A of the documentation sets out seven examples of Joe and Mary. In six of these examples the budget has no impact.

That is because it is a good budget. The line of zeros indicates there was no impact on their tax burden.

We will descend into farce if the Minister goes down that road.

I am trying to be helpful.

In one example, they take a hit of 1% because they have private health insurance. That is a farce.

That is an allegation. What is farcical about it?

It is not representative.

There was no increase in personal income tax.

It is fiddling the figures.

Come on, Minister, we have had a reasonably good session thus far.

The John and Mary tables show there was no increase in personal income tax. What is wrong with that?

The budget was about much more than income tax.

If I did not include the illustrative tables that are traditionally included with the budget documentation, the Deputy would claim I was trying to hide something.

They should be fair and representative of the full impact of the budget.

They were not. They were a joke.

The Deputy's problem is that he expected a different budget.

He found it difficult to respond to this one.

My point is that when one is giving examples of how the budget impacted on different families, they should be representative. The examples take no account of the full year impact of the property tax, for example, because that was announced in the previous budget. It is completely ignored in this budget even though it hits pockets in 2014. Things like that mean the analysis is not meaningful.

When one is analysing budget changes one never takes into account changes announced in previous budgets that still have an impact in the year in question. No Minister ever did that.

It is distorting the picture.

No Minister from the Deputy's party did that either. One illustrates the changes announced in the budget.

I do not believe they are representative.

The Deputy's example that a previous year's impact should be included is not valid.

It is not a previous year.

If the illustrations are to be meaningful they should at least include a footnote stating that people will be paying twice the amount of property tax they paid last year.

We are running out of time.

Is that why the Deputy did not know and did not remind everyone at least five times?

When John and Mary look at 2014, that is what they have to take into account. It is the reality for them.

We can have all the analysis we like but I am here as Minister for Finance to represent the Government. I will explain every tax measure I introduce and will debate them across the House for as long as Deputies want. That is the best evaluation of the impact of a budget. I do not think we always need to run to outsiders to do evaluations which a strong parliamentary democracy should do for itself. There is nothing I have hidden or concealed from Deputies. I have tried to answer every question they put to me. I have given reasons where I did not accept their amendments. I do not think we can access another body of knowledge somewhere else. It is a weakness of the Parliament if they do not have the self-confidence to deal with this.

How stands amendment No. 54?

I am pressing the amendment given the inflammatory remarks from the Minister for Finance and his last disgraceful comments that we cannot ask the Department to carry out an equality impact assessment. The Minister revealed today in reply to a parliamentary question that his Department spent €17 million on one firm of solicitors under one contract but he believes that single fathers, mothers and those on disability are not worthy-----

Deputy, please.

-----of an outside body that can assess the impact of his budget.

Amendment put.

The order of the Dáil provides that any division claimed on the proceedings of the Bill must be postponed until immediately before the time set for the relevant guillotine or, if proceedings conclude before the time for the guillotine is reached, on completion of those proceedings. We will take the division in our next session.

Amendments Nos. 55 and 56 not moved.
Progress reported; Committee to sit again.
The select sub-committee adjourned at 10.10 p.m. until 10 a.m. on Wednesday, 27 November 2013.