Amendment No. 59 has been ruled out of order as it is declaratory in nature and not relevant to the provisions of the current Bill.
Finance (No. 2) Bill 2013: Committee Stage (Resumed)
My amendment has been ruled out of order. It is important that the Minister examine the base year for research and development tax credits. It is ten years old and from next year it will be over ten years old. We have companies returning to records in excess of a decade old. I was of the view that the Minister intended to do this and hoped he would signal it in this Bill. I do not see it in the legislation. We have suggested in our submission, in terms of the Minister's consultation on the research and development tax credit, that we need to move to a period of less than ten years. In the amendment that was ruled out of order I suggested six years. We could debate the duration but it is not feasible to continue to have 2003 as the base year.
It is ultimately intended that the base year of 2003 would be phased out over time and as resources allow. In the interim, section 21 of the Bill amends the definition of qualifying group expenditure on research and development by substituting "€300,000" for "€200,000". The effect of this is to increase the amount of group expenditure eligible for the research and development tax credit, on a full volume basis without reference to the 2003 base year, from €200,000 to €300,000. This measure will reduce the impact of the base year on companies that had significant research and development expenditure in 2003 and will assist smaller companies to access the tax credit without reference to the base year. The phasing out of the base year, when complete, should improve the overall international competitiveness of the regime.
Section 21 increases the limit on the amount of research and development expenditure that can be outsourced to third parties from 10% to 15% on qualifying expenditure. In all, section 21 makes three amendments to section 766 of the Taxes Consolidation Act 1997 to implement the key recommendations contained in the review of research and development tax credits 2013, published on budget day. Section 766 provides for a tax credit of 25% for incremental expenditure on certain research and development activities over such expenditure in 2003, the so-called base year.
My amendment has been ruled out of order and I speak on the section. We provided the Minister with our submission during the consultation process. We say it will be phased out. It was difficult to hear some of the Minister's contribution there but I will move on. I press that we would take this on board, but I do not oppose the section.
I am concerned about this. The Minister is well aware that I am critical of the various means by which very profitable corporations reduce their tax liability to the point where they are paying a fraction of the 12.5% headline corporation tax rate.
While we are all in favour of research and development, I am very concerned at the massive gap between the net amount of tax paid versus the gross profits of, largely, the bigger corporations here. The tax tables that the Department of Finance provided to me make it clear that while small and medium-sized enterprises pay the 12.5% - there are not many ways out of it for them - there is an enormous gap between the gross profits and the taxable profits of the big corporations such that they end up paying a tiny fraction of the 12.5%. It is completely unacceptable that these companies and their high-powered accountants can use headings, such as research and development, group losses and trading losses from previous years, to reduce the level of taxable profits such that they end up paying next to nothing. In that context I worry about giving further opportunities to these corporations to reduce their tax liability.
While I might be alone on this, I find it shocking that we have €70 billion of gross profits declared in this State and only €4 billion in tax, which represents 6.5%. Regardless of how one massages the figures and talks about accountancy standards, I do not accept it. I take the point the Minister made last night about closing off some of the tax loopholes that high-earners were using to reduce their effective tax rate. He pointed out that it was possible to increase the minimum effective tax rate notwithstanding that there are still ways for people to reduce their tax liability, some of which may be legitimate. Irrespective of all that, it is possible to say that there will be a minimum amount of tax that people will pay if they are high earners. Exactly the same principle should apply to corporations. Notwithstanding various incentives or tax breaks for particular activities, we should insist that they must pay a minimum amount before they start to benefit from tax breaks under any category. That is the least we could do when everybody else in the country is being hammered for increased tax and austerity in one shape or form. The corporations are getting away scot free and paying a fraction proportionately of what everybody else is paying.
Against that background, I am not happy with this section and others we will discuss later. These issues need to be discussed, debated and interrogated. I reserve the right to table a Report Stage amendment.
This section relates to interest payments by companies to non-residents. I ask the Minister to expand on the section.
Section 22 amends section 246 of the Taxes Consolidation Act 1997, which provides an exemption from the requirement to deduct withholding tax from payments of annual interest in a broad range of circumstances where withholding tax is considered unnecessary. The section extends this range of exemptions to allow interest to be paid from an Irish treasury company to another Irish company within the same group without the need to deduct interest withholding tax. A similar exemption is already available where the Irish company receiving the interest payment is a member of an EU group. The section provides an exemption where the related Irish company in receipt of the interest payment is a 51% subsidiary of a company located in a treaty-partner country or listed on a recognised stock exchange in such a country.
This provision makes no change in the underlying tax liability on the interest. It is a technical measure to eliminate the administrative burden associated with operating withholding tax on such payments. Therefore, there is no cost associated with this measure. These provisions will apply to interest paid on or after 1 January 2014.
The Minister said there is no cost. Withholding tax just taxes interest payments as a matter of course and then any issues of double taxation can be sorted out later.
Where withholding tax is applied, the recipient gets a refund. With companies that are closely related as I have described, it is not necessary to apply the withholding tax to a transfer between related companies because the tax liability gets sorted at the end anyway. So it is a technical administrative issue.
We will let that one pass then.
I move amendment No. 60:
In page 39, line 19, to delete “41 per cent” and substitute “36 per cent”.
I apologise for my cough, which, I hope, will clear up as the day goes on.
This amendment replaces the intended increase in DIRT, which the Minister intends to increase to 41% and applies a more modest increase to 36%. While the banks may be in a better position in terms of deposits than they were a number of years ago, we will still have a real problem if DIRT is to be hiked up to the level the Minister intends as well as applying it to special term accounts. Our banks need as much money in deposits as they can get. Post office accounts and other non-DIRT products are now far more attractive. I believe DIRT can be raised as we proposed in the alternative budget we presented to the Minister. We proposed a rate of 36%, which would bring the more frequent rate up to the less frequent percentage rate and this amendment would give effect to that modest increase and not the eight-percentage point increase the Government proposes.
It is a very significant hike. Is there an economic rationale behind it as well as it being a budgetary measure? Obviously, it brings in much-needed revenue. Is the logic that the higher the tax on interest earned, the more likely people are to spend their money as opposed to saving it? We know the level of savings is still quite high.
Deputy Pearse Doherty referred to the An Post State savings products. I note that the interest rate they pay reduced quite significantly a number of months ago. I know that is an issue in which the banks were particularly interested. Are we likely to see changes to the rates there also? I know it is a matter for the NTMA to recommend any changes to the interest rates attached to those products. They now have a competitive advantage vis-à-vis the rates being offered by commercial banks.
I do not think there is any difference in principle between my position and the position of either Sinn Féin or Fianna Fáil. Both parties in their pre-budget submissions had proposals to increase the rate of DIRT and Deputy Doherty's amendment reflects Sinn Féin's pre-budget submission. I forget the rate Deputy Michael McGrath proposed. Was it 35%?
So we agree in principle. Obviously, this is being introduced for budgetary reasons because the Exchequer needs the money. I try to do taxes in a way that would also have an economic benefit if I can do that. The savings ratios in the country are very high. There is a lack of demand in the domestic market. In seeking to raise extra money for the Exchequer I also had in mind the savings ratios and the fact that, at a minimum, incentives were no longer required to get people to save more.
A rate of deposit interest retention tax lower than the marginal rate of tax is an incentive to save.
At times, governments want people to save and in this regard impose a low rate of tax on savings. We no longer need to incentivise savings. This is not a disincentive to saving; rather, it is the removal of an incentive to saving. The proposed rate will be 41%, which will incentivise investment and spending in the economy, which is vital to the creation of jobs. The increase in DIRT is expected to yield to the Exchequer €93 million in 2014 and €124 million in a full year. Reducing the rate to 36% would cost in the region of €58 million in 2014 and €78 million in a full year. I do not propose to accept the amendment.
I did not expect the Minister to accept the amendment. However, it was worth putting it on the record that it can be raised but not by eight percentage points as suggested by the Minister.
We got a good glimpse of behaviour of account holders in this State during the Ulster Bank fiasco when normal banking services for a number of its 1 million customers in this State were shut down yet few opted to change product. If this had happened in respect of any other service people would have jumped provider. In banking, there is a reluctance to move for one reason or another. Customers who may have loans with a particular institution often believe it is too difficult or complex to open a savings account with another institution while that is the case. The increase in DIRT may not lead to a shift of savings accounts from financial institutions to non-DIRT accounts. However, it would be wise for people to move to, say, An Post which offers products in respect of which DIRT does not apply. It would be wise for a person who has a savings account to which 41% in DIRT will be applied to move to An Post.
We heard earlier from Deputy McGrath about the lobbying by the banks last year in relation to An Post. Will the Minister rule out any attachment of tax to An Post savings accounts? Can he give an assurance to those who opt to open a savings account with An Post that such accounts will not be liable for DIRT? The Minister is correct that as the interest rate on savings is only 8%, which is still high, this should not be an incentive to save. One could argue, although that is not what I am doing, that there is an incentive to save because An Post products and others, which are not liable to DIRT, are now more attractive than those products offered by other financial institutions. Is this the start of the application of DIRT to some of these products?
I understand that the NTMA will be changing the rates for the national solidarity bond in the near future. The Post Office Savings Bank annual interest payment is subject to DIRT. The State saving products have traditionally been tax free. Other countries, including the UK, offer similar tax-free products. To obtain the tax-free rates from An Post and the NTMA the money must be left on deposit for a long time. The disadvantage for people moving their savings to An Post to avail of the higher interest rate is that they would not have access to those savings.
The timescale concerned is only three years. There will be people who are able to leave a proportion of money on deposit for three years. The timescale in respect of the An Post product is three years and for Childcare Plus is five years at an interest rate of 14% tax free and for the Instalment Savings Plan is five years, with, again, a 14% interest rate tax free. An Post's products are more attractive than the others.
The Minister mentioned that the rate for the national solidarity bonds is to be changed. I presume the interest rate on that product will decrease. Am I correct that no change in respect of the other products is anticipated at this point in time?
There is no change planned.
No planned change in respect of DIRT or the interest rate?
I move amendment No. 61:
In page 41, between lines 7 and 8, to insert the following:
“(3) The Minister shall put forward a report outlining the cost and benefits associated with section 481 tax relief (relief for investments and films) within 18 months of the enactment of this Bill.”.
This amendment relates to the Section 481 relief for investments and films. Last year the Department of Finance undertook a consultation exercise in relation to this particular relief, at which time the Minister indicated that this was with a view to making decisions on the future of the scheme after 2015, which was a signal that its retention was secure until then. The purpose of this amendment is to ascertain the Minister's thinking at this stage in regard to the future of the scheme beyond 2015. Does he believe it is working and making a positive economic contribution to the sector?
My Department carried out a thorough review of the film relief scheme during 2012. Such reviews are conducted regularly by my Department to ensure that particular schemes remain fit for purpose. The results of the film relief review were published on the Department’s website. As a result of this review, the scheme was overhauled in the Finance Act 2013 to bring it up to international standards. The main beneficiaries of the relief now will be film producers rather than passive investors as is currently the case. There would also be benefits for the State by way of increased revenues.
In my recent Budget Statement I gave notice of my intention to bring forward the proposed start date of the new scheme from 1 January 2016 to 1 January 2015. Assuming this Bill is enacted by the end of this year, the Deputy’s proposed amendment would require a full cost-benefit analysis in mid-2015, namely, within the first six months of the introduction of the new scheme. The data on the new credit system which would be available at that stage would not be sufficient to produce an effective cost benefit analysis as it could only be based on the details of the films and film production credits approved by Revenue in the first six months of 2015. I cannot accept the Deputy’s amendment.
Following review of the scheme, wide-ranging amendments were introduced last year. These have been well received by the industry. It is because the industry sees the attractiveness of the scheme that it lobbied us to bring the date of implementation forward be one year. The amendments we made this year will allow productions by companies that our outside the European Union to shoot films in Ireland. The Taoiseach spoke some time ago with Steven Spielberg who expressed an interest in making films in Ireland. He would be interested in this. There is quite a degree of international conversation about this issue at this time. We will see how it works out. While a review will be undertaken in due course, it would be too early to do so on the date suggested by the Deputy.
As the Minister's response is reasonable, I will withdraw the amendment.
I move amendment No. 62:
In page 48, between lines 36 and 37, to insert the following:
“27. The Principal Act is amended by:
(a) In section 531AM(2) by substituting “€17,542” for “€4,004”.
(b) In section 531AN(4) to be read as follows:
“(4) Subsections (2) and (3) shall cease to have effect for the tax year 2015 and subsequent tax years.
Part of aggregate income
Rate of universal social charge (individual under 70 years of age)
Rate of universal social charge (individuals over 70 years of age)
In excess of €17,542
This amendment deals with an issue we have been pursuing for some time. I acknowledge that one of the amendments made by the Minister in a previous Finance Act went some way towards alleviating the pressure in terms of the universal social charge on those with low incomes.
We have also published legislation on this issue. The amendment would remove them from the universal social charge, USC, tax net and it is an appropriate measure. If it were passed it would come at a cost of €94 million and would affect 296,000 people, based on the figures I obtained from the Department. Those earning the minimum wage and below as their weekly income would have this wage protected and would be exempt from the universal social charge.
This is one of the flaws of universal social charge. It was introduced at a time of panic and has been amended since. The Minister has removed a significant number of people from the USC net. We should go further and allow those earning less than the minimum wage to be brought out of it completely, which would be the effect of the amendment. It would be a big bonus to the 296,000 people. If one earns €17,542 per annum the likelihood is one spends the vast amount, if not all, of it in the real economy so it would be a stimulus to the real economy and would alleviate pressure. There are other ways of finding the €94 million the measure would cost.
The first part of the amendment tabled by Deputy Doherty as worded, would suggest the Deputy is seeking an exemption of €17,542 per annum, from which all individuals within the universal social charge net would benefit. However, his intention may have been to increase the USC exemption threshold of €10,036 to €17,542 per annum.
As the Deputy may be aware, there was a specific commitment in the programme for Government to review the USC. Delivering on this commitment, the USC was reviewed by the Department of Finance in the lead-up to budget 2012 and the report is available on the Department’s website. As a result of the review of the USC, the Government decided in budget 2012 to increase the entry point to the charge from €4,004 to €10,036 per annum. It is estimated this removed almost 330,000 individuals from the charge.
I should point out the cost of the first part of the Deputy’s amendment as worded, would be in the region of €648 million for a full tax year. However, if his intention was to increase the exemption threshold from €10,036 to €17,542, then the cost would be in the region of €132 million for a full tax year and would remove an additional 365,000 individuals from the charge. This is a significant net cost, particularly in the context of the current budget balance.
Moreover, increasing the USC exemption threshold to €17,542 would effectively increase the entry point to the charge above the current entry point to income tax of €16,500 per annum for a single employee. To accept this would be to seriously undermine the rationale for the introduction of the USC, which was to broaden the tax base from its narrow unsustainable level with a relatively small portion of income earners responsible for a disproportionate amount of the overall income tax yield. In addition, it was to ensure that most individuals would make some contribution, however small, to the provision of services and towards assisting in restoring the public finances. The removal of an additional 365,000 individuals from the charge would effectively reverse the base-broadening which has already been achieved.
The second part of the amendment put forward by Deputy Doherty, seeks to provide that individuals aged 70 and over would benefit from a concessionary rate of USC of 4%, irrespective of their level of income. I should point out that given the budgetary constraints and the need to raise revenue, earlier this year in the Finance Act 2013 the Government decided to amend the structure of the USC for those aged 70 years and over and medical card holders with income in excess of €60,000 per annum, such that the reduced rates of USC would be discontinued from 1 January 2013. The Government believes this decision was justified and will ensure equity between all citizens with income in excess of €60,000 per annum. It is also important to point out that payments from the Department of Social Protection, such as the State pension, are exempt from the USC. Furthermore, such payments will not be taken in to account in determining if an individual has exceeded the €60,000 threshold. I cannot accept that pensioners earning in excess of €60,000 per annum should benefit from a concessionary rate of USC, while those individuals working and earning the average industrial wage are subject to a USC charge of 7% on their income in excess of €16,016 per annum. However, it should be noted those aged 70 and over whose income does not exceed €60,000 per annum, excluding social welfare income, will continue to benefit from the concessionary rate of USC. The Revenue Commissioners estimate the cost of the second part of the amendment would be €26 million. For the above reasons I cannot accept the amendment.
The Minister mentioned exempting those earning below the minimum wage from the USC tax net would have the effect of reversing the intention of the USC, which was to broaden the tax base, and also mentioned that the principle of the charge is that everybody should pay something regardless of how small. However, he acknowledged the measure he brought forward removed 300,000 people from the tax base. He believes 300,000 people should not be paying the charge regardless of how small and so has already accepted the principle there is a cohort of people who, because of their income, should not be subject to the universal social charge. The battle here is what is the level and what is the group of people to whom the universal social charge should not be applicable because their income is so low. The Minister has decided the threshold should be approximately €10,000. In my view it should be €17,542 based on the weekly minimum wage.
If we consider what the minimum wage stands for, it should be income which is protected and not subject to tax. It is a small amount of income. The Minister provided new figures suggesting the amendment would benefit 365,000 people. This would be spent in the real economy, in shops, restaurants and stores throughout the State. It is very unlikely much of the money, because of the income bands of the individuals, would be lost outside the State. It would be a boost to the real economy. The question is whether people on the minimum wage should pay the universal social charge and in my view their income should be protected and the charge should apply to those earning above the minimum wage. The removal by the Minister of 300,000 people from the USC net did not cost anything to the State, or if it did it was only a number of million euro. While the effect of the measure would have been in the region of €40 million or €50 million, another measure introduced in the same budget ensured the universal social charge recouped the amount lost. The reason the measure costs money is because those earning between €10,000 and €17,000 pay €132 million in a full tax year. The total was €94 million in the first year of its application. It is a significant portion of money for this cohort of people who are some of the most oppressed people in society.
We have put down a marker in the legislation with regard to the 4% figure.
That was to remind us of what the Government had been doing to the over-70s. Last night we voted on Government legislation to reduce their medical card entitlements by reducing the thresholds. It was the second time such legislation had been introduced by the Government in this calendar year. As the Minister mentioned, the Government also changed the universal social charge, USC, as it applied to the over-70s.
This relates to last night's motion on equality and impact proofing. We need an assessment of what cumulative budgets, including USC provisions, are doing to sections of society. On its merits, the Minister's contribution at this meeting has been justifiable and makes sense. Why should people avail of a special rate? However, we must also consider the medical card issue. When we put everything together, a picture of the Government's targeting of the over-70s can be painted. When the isolated legislative measures taken by the Ministers for Finance, Health and Public Expenditure and Reform are looked at together, one sees that the incomes and entitlements of a cohort of individuals, as well as the provisions they have enjoyed heretofore, have been subjected to targeting by the Government. I am unsure as to whether they were entitled to these provisions, but I am sure the Minister stood before the crowd at the gates and supported it in its cause a number of years ago when people were shouting about medical card entitlements being removed by Fianna Fáil. I am sure he also supported a special USC rate for the over-70s. This amendment is a reminder that the Government is rowing back on the commitments and provisions the over-70s have enjoyed heretofore.
We all agree with the general thesis that a budget must be fair. We also all agree that we must be careful when designing budgets to ensure the budgetary burden that is necessary to correct the State's finances is distributed in a fair and equitable way. On this occasion, rather than targeting the over-70s for any penal imposition, they are again protected by the budgetary strategy. No cut was made to any pension, be it contributory or non-contributory, and the beneficial income tax credits that apply to the elderly were fully maintained. There was a deliberate policy choice to ensure the incomes of the elderly were protected in these ways.
It is reasonable that, if someone has an income of €60,000, as well as welfare payments, for example, a contributory pension, both the pension and the €60,000 are exempt from the USC. One cannot sustain the argument that people beyond this level of income should have exemptions because they are over 70 years of age when the 65 year old who is still working is paying at the top rate that applies. There is a rebalancing, but it is not as dramatic as the Deputy claims. There is no targeting of the elderly in the budget. As a matter of fact, there were deliberate social welfare and tax policy choices made to protect the incomes of the elderly.
Regarding the other part of the Deputy's amendment, he is right. We reviewed the USC and decided that the exemption limit should be just over €10,000. If one has an income above that figure, one's liability for the USC does not start at €10,036, rather it starts with the first euro. One pays on the totality of one's income. There is a debate on where to draw the line, but many of the people whom the Deputy seeks to exempt are part-time workers rather than full-time workers and in receipt of benefits already exempt from the USC. For example, family income supplement, FIS, is exempt. One-parent allowances are exempt, as is rent supplement. Back to school benefits and some other payments are free from the USC. It is not a question of reaching €10,036 and suddenly having the USC applied to all income. It is applied to the amount of income one earns at work, be it full-time or part-time. Income derived from social welfare payments is generally exempt, particularly in the case of the payments I have mentioned. I agree with the Deputy. The appropriate level at which to draw the line is a matter of opinion. We went into this matter in great detail in our first budget after committing in the programme for Government to exempt the low-paid from liability for the USC. We fixed the threshold at €10,036. That exempted 330,000 people from the charge. This was the dramatic move we made in accordance with the programme for Government and I am not going beyond it in this budget.
That dramatic move cost the State approximately €50 million, but the Government introduced another measure that recouped that amount. I am referring to the case of an employee employed by two employers or the like. While the affected individuals saw some value, there would be more substantive value in bringing those earning the minimum wage out of the USC net. The Minister is right, in that a cohort of individuals are part-time workers and entitled to benefits exempt from the USC. However, I am also right in saying a number of those exempt following the Minister's dramatic move because they earn below €10,000 are part-time workers and entitled to social welfare payments which are exempt. That is not a reason not to do this and it is something of which we must be conscious. As the Minister acknowledged, the real argument is about where the line should be drawn and what income should be protected from the USC. There is no point in repeating myself ad nauseam, as there is a difference of opinion, but that will not stop me from trying to pursue this point on the minimum wage of €17,542.
The Minister maintains that his budget has purposely protected the over-70s, but I contest that claim. Let us consider the issue. I cited the example of the Government last night passing legislation that took tens of thousands of medical cards from the over-70s through a reduction in thresholds. It was the result of a budget that demanded that the Minister for Health, Deputy James Reilly, find €666 million in savings. The HSE has stated today that probably twice that amount is necessary. This is the second time that has happened this year. During our debate on the Bill yesterday we dealt with the €1,000 threshold for medical insurance. The budget will affect people who are over 70 years of age. It may be the Minister's €40 or less, but they will be affected.
We also dealt with the one-parent tax credit yesterday. The Minister has acknowledged that grandparents have been receiving the credit if they are the secondary carers, but they will no longer be eligible. Therefore, a cohort of over-70s will be affected. We do not know the numbers because they have not been provided.
The property tax, although not contained within the Finance Bill, formed part of the budgetary arithmetic. The Minister booked the €250 million that would accrue from that tax. Obviously, the over-70s are not exempt from paying its full value and they will see a reduction in their disposable incomes in 2014.
They are the measures we have addressed heretofore. There are others on the spending side that will impact on the over-70s. Are the over-70s deliberately being targeted? Some of the previous measures introduced were very crude, in particular the USC threshold reduction. The measure we discussed last night is targeted at the over-70s. This is not a case of changes to medical card entitlement for everybody, rather it is a reduction in the threshold for medical card entitlement for the over-70s. Countless other measures in the recently announced budget impact on the over-70s. I accept that they also impact on other sections of society. If we had equality proofed budgeting, we would not be having this type of debate. We would instead have an independent assessment of which people were being disproportionately affected, which is the real question.
In terms of the various scenarios I have outlined, in the budget, looked at through the lense of what was introduced in previous budgets by the Government, there has been a particular targeting of the over-70s.
Most of the evidence offered by the Deputy to support his thesis does not prove there has been a targeting of the over-70s. Practically every measure about which he has spoken applies across the age groups.
Not in respect of medical cards.
The Deputy is aware of the history of medical card entitlement. I do not believe people, regardless of income or medical condition, should automatically receive medical cards. The introduction by Deputy Micheál Martin when Minister for Health of universal entitlement to a medical card for the over-70s, regardless of income, resulted in wealthy millionionaires being entitled to a medical card.
The Minister has just introduced it for-----
I believe that was a bad policy which was introduced for electoral reasons. As I said yesterday, tax reliefs or benefit entitlements should be assessed and targeted and should be only introduced for social and economic reasons. They should not be introduced as a vote gathering exercise.
The Minister is doing exactly the same.
Much of what is contained in the social welfare and tax codes and what is happening now in bad times is an attempt to weed out some of the schemes that were introduced deliberately to win elections. I refer the Deputies to the record. They were introduced to buy elections. Measures introduced in an effort to buy elections do not remain permanent parts of the code at a time such as now when people are suffering. We have to make adjustments and dificult choices have to be made. That we can continue as we are and that everything will be all right is not the case. There is no targeting of the over-70s. We have been careful to ensure the elderly are affected less by the budgetary adjustments than other sectors in society. The reverse is probably true.
The Minister has made the claim that some of the over-70s in receipt of medical cards are wealthy millionaires and that this should not be accepted. We should have a universal health care system. If there are wealthy individuals over the age of 70 years, we should deal with their income through proper taxation measures. The Minister disagrees with the principle of the most wealthy in society receiving medical cards, yet provision is made in the budget for automatic entitlement to a medical card for all children under six years of age, including the children of the most wealthy in this society. I agree with the concept of universal health care, but the Minister disagrees with it, which is the reason he is cutting the threshold for the over-70s. At the same time, he is providing for automatic entitlement to a medical card, regardless of income, for all children under six years of age.
The Minister spoke about Deputy Richard Boyd Barrett being institutionalised. Perhaps being in government for the past three years with the Labour Party has had an impact on the Minister.
I will allow questions from Deputy Richard Boyd Barrett before calling on the Minister to give a final response on the amendment.
As hinted at by Deputy Pearse Doherty, there is nothing electoral about our perspective on this issue. Some of us believe in the concept of universal provision. We believe that is the fair and right way to go. While I accept that there have been populist and electoral moves by Fianna Fáil in the past, Fine Gael has done likewise. The quid pro quo for some of the nasty cuts introduced in the budget was a similarly populist and electoral move.
The Deputy can address that issue when we come to the debate on the section. He must at this point speak to the amendment.
I am speaking about the same issues as other speakers and the Chairman did not cut across them. He should be consistent.
I will be consistent.
The Chairman did not cut across anybody else when discussing these issues.
Deputy Pearse Doherty moved the amendment, to which the Deputy must speak.
I am allowed to speak to the same issues.
Yes, but I will bring the Deputy back to the amendment, if he drifts away from it.
Just be consistent.
I will. If the Deputy continues to refer to the Chair directly, we will have a Standing Orders issue. The continuation of this discussion could be a problem for the Deputy.
I am asking for fairness.
Which the Deputy will get, as always.
I am not getting it so far.
If the Deputy is challenging the authority of the Chair, we have a problem.
I am just stating the obvious.
Is the Deputy challenging the authority of the Chair?
No, I am just stating the obvious.
Therefore, the Deputy is not challenging the authority of the Chair?
No, I am just stating the obvious.
Some of us believe in the concept of universal provision. Before throwing stones about populism and being electoral, the Minister should look to Fine Gael and the initiative taken by it to cover its back in respect of the nastier cuts it directed towards people with discretionary medical cards or the elderly from whom they are being withdrawn.
On the universal social charge and where the tax burden falls, while the Minister has stated the Government's position, it is worth putting indicating that at a minimum people earning the minimum wage or less should not have to suffer the impact of the universal social charge which it should be remembered was the defining austerity tax introduced as a result of the crash and decision to bail out the banks. The idea that those on the minimum wage, a miserable wage for people on which to survive, should not be subject to this austerity tax is the minimum ask. Some of us would go a lot further. We proposed in our last two budget submissions that persons earning less than €60,000 be exempted from the USC and that those earning between €60,000 and €100,000 be liable to pay at only half the rate which, according to the Department, would cost in the region of €2 billion. We proposed that this cost be met by an increase in income tax rates on earnings over €100,000, €150,000 and €200,000. This proposal is dismissed pretty much out of hand by the Minister and the political establishment. I put it to him that such a proposal is fair. Tax collection should be about the fair distribution of income and resources. There is an ever growing gap between high and low earners and between the rich and the poor. It seems a progressive budget would seek to close this gap and redistribute wealth in a fair way, in part because this would be fair and also because it would be better for the economy. Numerous studies and analyses show that more equal societies function better.
That is something the Minister does not seem to get. He is not acknowledging the point of a gap between rich and poor, with huge differentials between top and low earners. That is unfair and corrosive to society and social solidarity. Ultimately, there is a cost, and issues such as the universal social charge have worsened the position of the less well-off.
There is also the matter of economic growth. Relieving the burden of taxation in the form of the universal social charge on low and middle income earners would have a far greater benefit for the economy than the approach which the Minister generally seems to favour of giving tax breaks to big corporations or high earners on the grounds that he believes this will incentivise investment. There is not much evidence that there is any success in this regard, and it is surely self-evident that if the income of those on low and middle incomes is increased, the multiplier effect would be far greater for the economy, as these people will spend the money in local shops and businesses. For the most part the money would not go outside the country or be used for speculative purposes; it will benefit the economy and generate demand, growth and employment. The Minister does not really seem to acknowledge or understand that in how the budgets are framed and persists with policies of trying to incentivise the rich and maintain the burden of austerity on low and middle income families. That is why the economy is not recovering and we are not getting the promised economic growth.
With regard to those over 70, that demographic continues to enjoy full contributory and non-contributory pensions, as they were not touched in the budget. The favourable tax credits applying to the elderly have been fully maintained and were not touched in the budget either. The elderly continue to enjoy free travel, which was not touched in the budget. The elderly people entitled to fuel allowance continue to enjoy that provision, as it was not touched in the budget. They are exempt from PRSI, and that provision was not touched in the budget. They are also exempt from deposit interest retention tax for the portion of their income which is below the exemption level, as that provision was not touched in the budget. All these benefits apply to people over 65, so it is not even just those over 70 who are protected with these measures; there is a general policy of protecting the elderly. Of course, when costs and taxes increase, some measures would apply to the elderly, as they apply to everybody else. That is a reasonable approach. There was no targeting of the elderly or evidence that one can reasonably bring forward in that respect.
There is the matter of who pays in society. Deputy Boyd Barrett's theory is that the rich pay very little because of incentives and the poor pay the bills but that does not stand up to any analysis whatever. In 2014, the top 5% of income earners will pay 44% of the total income tax here.
They have 44% of the wealth.
No. The bottom 30% or so of income earners pay no income tax. There is an issue. The balance of our tax system is extremely progressive, and it is one of the more progressive tax systems in the OECD. People earning €50,000 or less represent 77% of income tax earners and they will pay 19% of the total income tax collected. The balance of imposition is certainly towards those with the highest income. In any comparative table we are very progressive in our income tax and many people are protected. It is estimated that in 2014, 856,000 individuals representing 39% of the income tax base will be exempt from income tax completely. The evidence is contrary to the claims made by the Deputy. His rhetoric is very strong but it is not based in fact. The top 5% are paying 44% of all income tax and 856,000 individuals in 2014 - or 39% of the income tax base - will pay no income tax whatever. Those are the facts. I can understand where the Deputy is coming from but it would be helpful if his arguments were evidence and fact-based.
The universal social charge was not a new imposition introduced by the Minister of the day but rather a replacement for the health and income levies. Those levies, which existed for years, were amalgamated and titled as the universal social charge. The rate was increased, as it was an emergency measure in bad times. Considering the way it applies, it is probably a fairer system than income tax. It achieves one element which the Deputy is always advocating in that it applies to all income, getting rid of many exemptions, reliefs and breaks endemic to the income tax code. The universal social charge is universal.
I move amendment No. 63:
In page 50, between lines 24 and 25, to insert the following:
“(2) Paragraphs (a) and (b)(ii) of subsection (1) apply as respects any relief, deduction, credit in relation to tax or, as the case may be, a reduction in the amount of tax payable, details of which fall to be included in particulars on a return, required to be delivered under section 951 of the Principal Act, which was delivered on or after 31 January 2008.”.
Section 28 of the Finance (No. 2) Bill 2013 amended how double tax relief was calculated for individuals who are effected by the high earners’ restriction. This amendment corrected the situation whereby the double tax treaties provided for a relief which the underlying domestic legislation did not truly grant. The difference between the relief granted under the double tax treaties and the calculation of the relief under domestic legislation affects any tax return filed after 1 January 2008. Therefore, it is proposed that the calculation method set out in section 28 of the Bill will apply to all returns from 1 January 2008. I commend this amendment to the House.
What is the rationale for this section?
Perhaps the Minister will read out the memorandum for the section.
I did not ask for the memorandum; I asked for an explanation from the Minister. However, I thank the Chairman for his assistance.
The section amends sections 37 and 607 of the Taxes Consolidation Act 1997 to provide that interest paid on securities issued by Irish Water may be paid with that deduction of tax and that such securities are not chargeable assets for capital gains purposes. This will ensure that securities issued by Irish Water will be subject to the same tax treatment as securities issued by other State bodies.
I ask the Minister to explain the rationale.
As I recall, it was being set up and so it has to be financed. We do not want to treat it in a way that would be more onerous than other Irish State bodies.
To cut a long story short, is it being done to encourage private investment in Irish Water?
Not necessarily to encourage it. If there is investment in Irish Water by way of equity then it will be treated as other State companies are treated.
I am not in favour of the measure.
I shall give the Deputy another piece of information. The purpose of the measures is to that securities issued by Irish Water will be subject to the same tax treatment as securities issued by other State bodies. While this measure will allow the interest paid on securities issued by Irish Water to be paid without the deduction of tax at source the interest, however, then becomes chargeable to tax under Case III of Schedule D in the hands of the recipient at their marginal tax rate.
I wish to express my concern about the matter and will possibly return to it on Report Stage. As the Minister will know, I am entirely against the setting up of Irish Water for privatisation. I do not favour any measure that encourages private investment in what is essentially the people's resource. The Government is moving fast towards privatisation but charging people for something that belongs to them anyway.
The people's resource is a bit of a mess under present structures. One only needs to recall three or four weeks ago when people in Dublin turned on their taps to discover that they had no water. Dublin is a major European capital city but 40% of its water flowed into the ground.
I wish to clarify a matter. I was involved in the preparation of a substantive report on the establishment of Irish Water when I chaired the Oireachtas Joint Committee on the Environment, Transport, Culture and the Gaeltacht. The official sitting next to me is one of the main people who prepared the report. I understand that the provision we are debating is the same as the way Bord Gáis and the ESB issue bonds. The most recent bonds issued by Bord Gáis and the ESB were oversubscribed in terms of infrastructural development. Is that what the tax relates to?
It is exactly the same.
I call Deputy Donnelly.
I wish to come back in after the Deputy.
My query is a follow-up on the Chairman's question. The provision only applies to market bonds issued by Irish Water. I would not like it to suggest that equity in Irish Water could be issued. Does the provision open up the issuing of equity?
It is a stepping stone to the marketisation of water, as far as I am concerned. I do not favour that development in any shape or form. It is the oldest trick in the book to mention water shortages. It has been used to justify the privatisation of every single asset, service and piece of infrastructure at local, national or international levels. The target is run down to the point where one can say that we need to do something which then justifies privatisation.
We have a big problem. There has been successive failure by Governments since the foundation of the State because it was evident at the beginning of the 20th century that the water infrastructure was decrepit. Fianna Fáil and Fine Gael Governments repeatedly, for the whole history of the State, have failed to properly invest in the water infrastructure. In Ireland it rains heavily and buckets down from the sky so we need to build reservoirs and rehabilitate the decrepit water infrastructure.
The Minister is setting up a company that will be at one remove from the State to charge us for water, to install water meters and get private contractors to give us water meters. The private contractors include companies owned by some of the wealthiest people in the country who received massive write-downs on loans the companies had with Anglo Irish Bank. It is not reservoirs or rehabilitated infrastructure but water meters that we will get which will enable the Government to charge people for something that they already own. It is an absolute scandal and is beyond belief. I oppose the provision because it is part of the architecture for Irish Water and an Irish public resource to be marketised.
That is not correct. The purpose of these measures is to ensure that securities issued by Irish Water will be subject to the same tax treatment as securities issued by other State bodies such as the ESB, Bord Gáis Éireann, RTE, CIE and Bord na Móna. I do not think there is a big plan to privatise all of those institutions.
There is. They are half privatised already.
I opposed the section but did so through Deputy Boyd Barrett. I am concerned about the lack of evidence. One of the things that section 30 does is increase the fund exit tax for life insurance and investment fund policies from 36% to 41%. The reason that I oppose it is not necessarily because I disagree with the measure. I oppose it because there was insufficient analysis to accompany the proposal. I received useful analysis from the Minister's officials after the briefing session last week.
My concern is with tax changes, as with those for health insurance policies and the variance changes being made to pensions. I opposed section 18 of this Bill but unfortunately I had to be in the Chamber last night to take Private Members' time so could not attend this meeting.
Section 30 is really complicated. It contains only one or two straightforward bits such as increasing the tax rate from 33% or 36% up to 41%. It also includes a bunch of complicated terms such as "at the rate of 80 per cent" for "at the rate determined by the formula— (H + 33) per cent where H is a rate per cent".
I shall outline my reason for opposing the provision. It is reasonable to assume that there will be some behavioural change when things are made more expensive. For example, if we make health insurance and life assurance more expensive then fewer people will have it. In this case the Minister's officials have used zero elasticity assumptions and assumed no behavioural change. In the briefing note that I received there was a valid point made that it is very difficult to come up with an accurate behavioural estimate. I would much prefer to see an accompanying technical appendix provided for Dáil Éireann and particularly for the sub-committee that would allow us to assess the matter. We know that the Minister proposes to increase the tax from 33% to 41%. Can we have a few worked examples of how such a provision would change things? Can his officials estimate the potential behavioural changes?
Let us view the matter in terms of pensions. We had the 0.6% levy that was followed by a 0.15% increase and then changes were made to the standard fund threshold. There were also more changes. For example, in the public sector it was changed from final salary to salary average and the defined benefit change meant the multiple increased from 20 up to 37. Section 30 does not deal with life assurance but the same point applies. For good or bad reasons a lot of important things are becoming more expensive through taxation and there are fewer taxation deductibles. Section 30 deals with life assurance and other sections deal with pensions and health insurance. The accompanying impact analysis has not been supplied. It would help us to understand the rationale for increasing the exit tax from 36% to 41% and making all of the other complex changes to the calculation.
We believe we will see 5,000, 10,000, 20,000 or zero new life assurance policies. It is a point of consideration for next year's budget. Interrogating properly the impact analysis of these changes is impossible without the resources of the Civil Service. I do not know whether I oppose the section because I do not know what the Minister and his officials estimate as the impact of the section.
This section gives legislative effect to the changes announced in budget 2014 of my intention to increase the rate of exit tax applicable to income in gains from investment and life assurance policies and investment funds. With effect from 1 January 2014, a new flat rate of 41% will apply to income and gains from investment in domestic and foreign life assurance policies and investment funds that comes in the gross roll-up taxation regime. This is in line with the proposed increase to the DIRT rate in this Bill. Under the gross roll-up taxation regime, investments may accumulate without the imposition of tax. However, an exit tax applies when a chargeable event occurs, such as the receipt of payment from, or the disposal of an investment in, the life policy or fund or the ending of each eight-year period following the acquisition of the policy or the units in the fund. Previously, the rates of tax on these investments varied depending on the frequency of payments to the investor and, in the case of foreign investments, on whether the income or gains were correctly included in the investor's tax returns to Revenue under the self-assessment taxation regime. The legislation governing the gross-up taxation regime also contains anti-avoidance measures. Where a payment from an investment held in a personal portfolio life policy or a personal portfolio investment undertaking is correctly included in a tax return to revenue, the tax rate that applies up to 31 December 2013 is the standard rate of tax, currently 20%, plus an additional 36 percentage points. The rate is being increased to a 60% rate with effect from 1 January 2014. Second, where payment from investments held in a personal portfolio life policy or a personal portfolio investment undertaking is not correctly included in the investor's tax return, the rate that applies up to the 31 December 2013 is the investor's marginal rate of tax plus an additional 33 percentage points. That is being increased to 80% with effect from 1 January 2014. These exit tax rate changes are estimated to yield the Exchequer €12 million in 2014 and €16 million in a full year. The combined projected additional yield from the increase, and the increase in DIRT, is expected to be €105 million in 2014 and €140 million in a full year. The policy intent is to ensure there is no distortion in the savings market as a greater imposition is placed on savings, through the increase in DIRT to 41%, and that an analogous impositions should be made on insurance policies for investment purposes.
I understand that at last week's briefing with officials, Deputy Donnelly asked whether any elasticity had been built into the yield estimates for exit taxes. The figures used in the budget material for projected yield from the increase was €12 million in 2014 and €16 million in a full year. From the DIRT increase, we have projected €93 million in 2014 and €124 million in a full year. The short answer is that the projections do not take into account any behavioural response. It would be difficult to devise an econometric tool to measure the potential behavioural impact of a tax increase on investment products, particularly in light of the alternative investments available. Tax should not be the main reason for making an investment. The security or value of the investment is more important in such decisions. Life insurance and investment funds are longer term investments so the yield in 2014 is unlikely to be directly affected by an increase in the rate this year. A person who invests in a life insurance fund in 2014 would not be doing so to obtain a yield from the fund in the current year. Even if the rate dissuaded the individual from investing in 2014, it will not affect the 2014 exit tax yield, which will be based on the decisions made by individuals investing several years before and on the performance of the investments.
I take the general point that in complex amendments it is difficult for Deputies to fully assess them or to know whether they are in favour of them. We will examine that to see whether we can put more information in circulation prior to debates on Committee Stage in future years. It is a valid point as part of a general improvement in sharing information.
I appreciate the Minister's answer. My concern is not the yield although it is the concern of the Minister because he must hit the budget figures. My concern on this, as with as my concern about changes to DIRT and tax treatment of health insurance, is in respect of behaviour. I am less concerned about whether the change will bring in €14 million, €16 million or €18 million and more concerned about whether it will turn people off investing their money in Irish investment accounts and beginning to move offshore. The Minister has to be interested in the yield but I am interested in behaviour. With regard to health insurance policies, I do not know if any behavioural change has been factored in. The Minister's officials gave me some useful information suggesting it is pretty inelastic. Hopefully, there will not be too much behavioural change. What is more interesting is not whether there is an increased yield of 4% or 2% but whether 10,000 families drop their health insurance policies, which is the wider socio-economic impact. Perhaps the Minister can do something next year with a technical appendix on elasticity or projected behavioural changes. The Minister made the point that this section brings DIRT and investments together so that we do not see money moving out of banks and into investment funds.
I move amendment No. 64:
In page 53, between lines 10 and 11, to insert the following:
“(4) To qualify for tax relief under this provision—
(a) it shall not be necessary for the person claiming relief to be ordinarily resident in the relevant house,
(b) any person who owns a pre-1915 house in a town with a population greater than 10,000 people shall be eligible to avail of tax relief.”.
The amendment relates to section 31, the living city initiative announced in last year's budget. I do not have any difficulty with it and I support the initiative. Looking at the census figures, I see that Limerick city's population declined by 5% in the most recent census. The population in Cork city has been in decline for a number of years and our policies must be designed to support people coming back and living in town and city centres rather than in peripheral developments. The Minister is amending the definition of a qualifying property and removing the reference to a Georgian house and defining a relevant house in a more general way. In this amendment, I raise the matter of whether the Minister is tied to retaining the initiative for owner occupiers only if the purpose is to have people living in these properties and renovated to the point where they are habitable. Will the Minister examine this point?
Currently, only properties built before 1915 can avail of the relief. Will the Minister examine that point so that properties built ten or 15 years after that, many of which are in a state of disrepair, can benefit from the relief?
Deputy McGrath has made two suggestions in regard to this relief - first, to broaden the residential element of the relief to those who are not ordinarily resident in the property and, second, essentially to broaden the application of the relief beyond the six cities which I have currently in mind. In regard to the first of these points, I would like to emphasis once again that the purpose of this initiative is to encourage families to come back to live in the centres of these cities. The Deputy's proposed amendment would completely reverse the intentions behind the initiative. The suggestion that relief could be granted to someone who is not the owner-occupier would immediately encourage speculators back into the market. This scheme is not intended to appeal to property investors or speculators. I think even those who do not support the initiative would agree with me on that point.
In case there is any confusion about this, I should point out that the properties in question do not have to be occupied at the time the renovation work is done - in fact, in many instances they could not be. A derelict building would have to be made habitable before it could be occupied and the relief would only commence when it is occupied as a residence. The relief is limited to owner-occupiers. It does, not nor will it, apply to landlords or speculators in the private rented sector.
We have seen in the past the difficulties that can arise when tax incentives are provided on a wide-ranging basis. When I introduced the living city initiative in the Finance Bill 2013, I stated that it was a scheme with a specific purpose, that is, to develop and re-invigorate run-down areas in our city centres. The scheme was to be targeted at houses more or less on a street-by-street basis and was aimed at attracting families back to city centre locations.
The second element of Deputy McGrath's amendment is that the owner-occupier relief should be extended to all pre-1915 houses in towns with a population of 10,000 or more. Consider for a moment what that might mean in practice. Every pre-1915 house in the city of Dublin could avail of the relief. Make no mistake, if I acceded to the Deputy's suggestion, relief would be granted to some of the more affluent areas of our cities and towns. It makes no sense to waste tax expenditures such as this in areas which do not need regeneration.
This initiative is aimed at urban renewal and regeneration. We have to target the parts of our cities which are in decline and need help. That is why we are consulting the local authorities, why we will identify specific areas as being most in need of help, why we are trying to attract families back to these areas and why it is why it is a targeted initiative. When I announced the initiative in the budget in December last year, I had envisaged that it would target Georgian houses only. However, following an independent ex-ante cost benefit analysis conducted by my Department which recommended extending the scheme to other types of houses and four other cities, I have decided that the initiative should be available to houses built before 1915 in certain designated areas of our six cities. The precise areas of the cities will be decided on following consultation with the local authorities and other Government agencies.
We cannot go back to large-scale property reliefs and any future schemes should always be subject to comprehensive ex-ante cost benefit analyses. That is what we have done in this case and the results of that independent analysis are reflected in the amendments to the initiative set down in this Bill. For these reasons, I cannot accept this amendment.
The initiative must pass muster in Europe before we can apply it but we are now in a position, having done the cost benefit analysis, to process the application before the European Commission. Things change very rapidly. If one goes back over our conversations on the last two budgets, many Deputies drew attention to the overhang of property in Dublin, how supply was exceeding demand to such a large extent and how there was such an imbalance in Dublin. It is the other way around now. People are advising me there is a supply problem in Dublin.
I hope that in Dublin, particularly in the area between the canals, all those red brick houses and streets we know on the northside and the southside of the city could be restored. If it worked that way, it would help the supply of small family homes for young families in convenient locations in Dublin. However, we will have to monitor it and as it is very hard to predict the level of uptake there will be. It is no cost because it only applies to activity which takes place as a result of the initiative.
I hope to bring forward an amendment on Report Stage. It is a very good proposal. The one in last year's Finance Bill was probably not taken up to the extent the Minister would have hoped. However, I think Deputy McGrath's amendment goes too far.
I refer to the areas selected, and I am here very much with a parochial hat on. The town of Bray has properties which are much more appropriate than those in Galway or Kilkenny. I do not want to pitch one against the other but I lived in Galway for a number of years and I also lived in Kilkenny and the number of buildings which would fit the criteria and would benefit would be far greater in Bray, in particular along the seafront. Kilkenny and Galway have a limited number of houses which would benefit from such a scheme. I would like to know how the areas were selected. Will the Minister keep an open mind on a Report Stage amendment to include the town of Bray which, in many respects, is an extension of Dún Laoghaire, which would have many properties that would qualify?
Deputy Timmins's intention to table an amendment on Report Stage is noted.
I thank the Minister for his response. I am happy to withdraw the amendment. Is the scheme is operational anywhere yet? Is it still awaiting sign-off?
It cannot be operational until we get permission from Europe. We could not even process the application in Europe until we had the ex-ante cost benefit analysis.
Was the significance of the 1915 cut-off aligned to the reference to Georgian properties in the original provision?
No. The attachment to Georgian buildings would have a particular impact on Limerick, which was the first city designated, and, to some extent, on Waterford. In the cost benefit analysis, the consultants involved recommended that if we applied it to all types of architecture and picked a date, it would be a more effective and a better targeted scheme. The reason for 1915 was that seemingly the First World War brought about a situation where there was very little building. There is a kind of natural fire break if one picks 1915. Those administering the scheme will not be getting into arguments about whether the property was built in 1915, 1916 or 1917 because there was very little building in the years following 1915. The year 1915 was picked purely to help the administration. It is pre-First World War. There was a lot built in the 1930s but we do not want to include that.
On the issue of Bray, I do not know whether this scheme will work. One tries lots of things and some work but others do not. I hope it will work because if it does, it will revitalise dying areas of cities which badly need to be revitalised. We should see it in the first years as a pilot scheme. If it is effective, I would not be reluctant to extend it to towns like Bray but not at present and not for the purposes of the pilot scheme.
My views on this initiative are well known as I spoke about it on Second Stage and at length on Committee Stage of last year's Finance Bill. I am concerned that the Minister is extending a scheme which is not up and running. It is not that there has been no take-up, as Deputy Timmins mentioned. There cannot be a take-up because we have not given effect to the scheme in last year's Finance Bill as we have not received approval from the EU, or did not made an application until the cost benefit analysis was done. However, we have decided not only to extend the scheme to four different regions but have decided to substantially change the nature of the scheme. The number of properties eligible to come under this scheme has changed substantially.
I am not sure what areas of Cork, Galway, Kilkenny and Dublin the Minister intends to designate for this scheme. I presume that has not been worked out with the local authorities yet. What areas are being considered? Will it be the northside or the southside? The decision on which parts of the city centres will be designated is being left up to the Minister.
It is necessary to include provisions in finance Bills that will create economic activity. We must take risks but we must do so on the basis of the best evidence available. If this is a pilot scheme, it should be allowed to run as a pilot scheme. The cost benefit analysis that has been done in terms of the impact on employment, urban renewal, property values in designated areas, business activities and so on, was derived from surveys of auctioneers, residents and retailers. I presume that cost benefit analysis was done in the context of the original scheme, which was for Georgian houses. Now that we have changed the scheme substantially, by opening it up to pre-1915 buildings, other issues arise. Will the European Commission be happy with that change? We must examine the details of the scheme closely. It gives 100% tax relief for the cost incurred in the refurbishment or conversion of eligible properties, subject to the individual having a tax liability of that amount. It is very lucrative, therefore, for property owners with relatively high incomes.
I agree with the Minister that when one walks through the aforementioned cities one sees many neglected buildings. However, the same is true of many towns and villages. Should the scheme be extended to every town and village? In the villages of Pettigo and Mountcharles in my constituency, for example, there are many boarded up houses. In Pettigo, which is on the Border, there has been some renewal with refurbishment of shops and pubs and the opening of a new community centre. The villagers are doing their best to keep the spirit of the place alive but there are lots of boarded up houses there. The same is true in many other towns and villages across the country. There is an issue of fairness here.
The Minister has said that he is not opposed to the extension of the scheme if it works and then it could apply to places like the main street of Letterkenny, the lower half of which contains many boarded up buildings, as well as many other towns across the State. Then we could end up with a scheme which provides enormous tax reliefs for property development in the centre of cities, towns and even villages. I am not sure about this. I think we should go down this road very carefully. We have been here and done that. We have looked at incentives such as this in the past, although that is not a reason not to look again, reshape them and remodel them to the needs of today. However, we must tread very carefully. I do not understand the urgency about expanding the scheme to the six cities that have been identified. We do not know what areas of those cities will qualify.
I see the rationale for the pre-1915 condition and believe it is fairer than restricting the scheme to Georgian houses. That said, the Minister must tread very carefully. I would not be supportive of jumping in with both an expansion of the scheme and an expansion of the qualifying criteria before the scheme has been up and running and its impact has been assessed properly. There is no urgency about this. It will be limited in its scope in terms of the areas that the Minister designates, most likely the city centre areas. While the scheme will not apply to a large number of properties, it is very lucrative and for that reason, I would tread more carefully than the Minister is currently doing. We should not be expanding a scheme that does not even exist at this point in time. It is for these reasons that I am opposed to this section of the Bill.
We are proceeding very cautiously. When I introduced this last year, I explained that it was subject to assessment under State aid rules, that we would have to make an application to Commissioner Almunia and that the Commission would require a cost benefit analysis before the submission could be made. We are expanding the scheme because the cost benefit analysis recommended specifically that it would be extended from the two cities that were announced last year to all cities. The reason for this was that the analysis showed that the uptake would be very small if the scheme was confined to Limerick and Waterford. In order for the scheme to work, it would have to be extended to the other cities. These are the cost benefit analysis recommendations. I published the cost benefit analysis on budget night. It is available to Deputy Doherty if he wishes to examine the rationale for what we are doing here.
I accept that the scheme is lucrative but only to owner-occupiers who are willing to move themselves and their families into city centre locations. It takes a certain amount of courage to be the initiator of something like that. It is called the Living Cities initiative. One only has to leave Leinster House, walk through Grafton Street and keep going and one will get to the area around the former Meath Hospital and Synge Street, which is now being renewed. If one continues on up the South Circular Road as far as the canal, one will see that a lot of properties have been restored. A lot of the property in those areas is pre-1915 and much of it has a lot of potential. Many of those older red-brick houses would be very suitable for young families. The infrastructure is already in place, in terms of schools, shops, churches, public transport links and so on. I would hope that some of those areas could be designated.
In terms of the designation, our next step is to get the consent of the Commission and following that, we will consult with the local authorities regarding the areas to be designated for the scheme. No specific areas have been designated as yet. I will take Deputy Doherty's views into account.
I hope this works. The primary motivation for the home extension scheme which we discussed yesterday is to stimulate activity in the construction sector and to get construction workers off the live register. The primary motivation here is to revitalise areas of cities that were vital in the past but which have gone downhill recently. The objective is not to aid the construction industry but to get people back into city centre locations, living there, rearing their children there and sending them to the schools that now have empty classrooms because so many people have moved to the outer suburbs. The objectives here are social more than economic. We will have to wait and see how it works. There is a long lead-in time and it will be a while yet before we will be able to evaluate it. We are proceeding very cautiously.
I would ask the Deputies to study the cost benefit analysis to get a better understanding of the reasoning behind this extension. We do not claim a monopoly of wisdom on this issue but I believe it is a scheme that is worth proceeding with. We will take the views of the Deputies on board.
I appreciate that. The scheme is being expanded in two ways - geographic location and qualifying criteria - which could give rise to loopholes in the scheme. Nobody knows yet if there are loopholes but there will be a lot of wealthy accountants and professionals who will try to find ways around it. A pilot scheme should be narrow to allow us to test the waters, identify loopholes and fix them and then, if need be, we can broaden it out. We have not tested the waters yet, which is my main concern. I have also specific concerns about conversions. The definition of conversion is "into a house of a building or part of a building where the building or, as the case may be, the part of the building has not, immediately prior to the conversion, been in use as a dwelling". It is clear that this applies to houses that are unoccupied at present, which are in the designated areas and which, immediately prior to the conversion work, were not used as dwellings.
What do the words "immediately prior to the conversion" mean? This measure, which is designed to bring people back into city centres, is extremely attractive. Let us take the case of a person who anticipates having a large tax liability for the next ten years and wishes to refurbish a house in the designated area of Dublin city centre. If the person's entire tax liability will be written off under the scheme, for how long must he or she move out of his or her home before the criterion that the house must not have been in use as a dwelling immediately prior to the conversion has been satisfied?
We will take a step-by-step approach. We must first secure the consent of the European Commission, after which we will consult local authorities. The measure will then be subject to regulatory guidelines, in which the details the Deputy is raising will be expanded on. Local authorities have experience of dealing with schemes involving property. The target of the measure is not investors or speculative builders but people who want to live in locations that have been designated.
While I understand the Minister's point, the intention of a scheme and its application are sometimes two very different stories.
I accept that we must be careful and cautious.
I am concerned that people may abuse the scheme for the wrong reasons. I continue to oppose the section because I do not know what the Minister has in mind in this regard. Will a person who moves out of a house for six months to live in private rental accommodation fulfil the criterion that his or her home has not been in use as a dwelling immediately prior to the conversion? In such circumstances, a person could spend €100,000 having a house converted and subsequently have the entire sum written off his or her tax bill over a ten year period. Will a one or two year period of non-residence apply?
Given the sums involved, people will be willing to move out of their homes to have their costs written off. If I have a two-storey house in Dublin city centre which I can convert into two homes, I will be prepared to move out for one year on the basis that the €200,000 in renovation costs will be written off my tax bill. People will take this option and given that guidelines come after the fact, Deputies are not in a position to evaluate what is the intention of the measure or how restrictive it will be.
I accept it is not intended that the scheme will be open to abuse. The decision to extend the scheme for Georgian houses introduced in last year's Finance Act to pre-1915 houses creates a greater risk of abuse. The legislation dealing with Georgian houses was much more restrictive as the number of occupied Georgian houses is small. Many of the pre-1915 houses in the designated areas are occupied, however. Given the uncertainty surrounding this legislative provision, I am unable to support the measure.
Most of the points have been made. My position on the scheme is similar to my position on home renovation measures in that I consider the objective of this scheme to be very good. If it works, it will be great and I can think of many places in Dublin city centre and Dún Laoghaire which fit into this category. Given the role property based tax incentives had in creating the bubble and crashing the economy, one must be very cautious. However, I take the Minister's word that the scheme will be implemented on a pilot basis and that we need to be careful. Deputy Doherty correctly identified some areas of concern that will need to be examined to ensure the scheme is not abused. This is a good initiative. The correct approach is to be experimental, rather than jumping in head first before we know exactly how it will play out.
As the proceedings on sections 20 to 31, inclusive, have concluded, the postponed division on amendment No. 54 will now be taken.
The question on amendment No. 54 is that the new section be there inserted and on that question a division has been challenged. Pursuant to Standing Orders, the division will now be taken by the clerk to the committee.
- Boyd Barrett, Richard.
- Doherty, Pearse.
- McGrath, Michael.
- Conaghan, Michael.
- Farrell, Alan.
- Lynch, Ciarán.
- Murphy, Dara.
- Noonan, Michael.
- O'Donnell, Kieran.
- O'Donovan, Patrick.
This is the section which seeks to remove the restriction on NAMA banks using losses forward. On the one hand the budget was about taking from the banks by way of the introduction of a bank levy but on the other, giving back to the banks by way of removing the shelter of a maximum of 50% of taxable profits that could be offset by losses forward. As the Minister is aware, that was originally a provision in the NAMA legislation. This has significant benefits for the banks in that it enhances the recoverability of what are regarded as deferred tax assets which have a positive impact on their capital position. What is the potential amount of tax foregone as a result of this restriction? We all hope the banks become profitable again. This is particularly an issue for AIB and Bank of Ireland and as soon as they become profitable they will need to start using the very substantial losses they have amassed in recent years by way of carry-forward to offset against those profits and obviate the need for any corporation tax to be paid. Are there any figures on what tax is likely to be foregone by the Exchequer by removing this restriction?
I oppose the section. It amounts to yet another bailout for the banks. If there was a 50% restriction it is because the Government recognises, notwithstanding its decisions to endlessly bail out these financial institutions which have wrecked the economy, that the amount of the losses they incurred, because of their own actions, that could be written off against tax in future years should be restricted. Now we are saying that after everything they have done we are going to give them another bailout. It is extraordinary that we would even consider it. It is the public which is recapitalising the banks.
That links into the wider question of our failure to achieve the stated objective of the Government, which is to get some help from the European Union in the retrospective recapitalisation of banks to lift that burden off us. It effectively entails writing down some of our liability for the debts of the financial institutions.
That is what we should be doing. However, this measure means the public is yet again bailing out the banks. I find this unconscionable.
Section 396C of the Taxes Consolidation Act 1997 was introduced by the National Asset Management Agency Act 2009. It limits the amount of prior-year losses that a NAMA participating institution can offset against trading profits to 50% of the trading profit for each accounting period. Bank of Ireland and AIB are the two remaining participating institutions in existence. Given the extensive burden imposed on the State from rescuing the banks, section 396C was a measure that restricted the amount of loss relief that could be claimed by the banks in any one year. However, it was put in place at a time when State involvement in the banking sector was far more limited and, critically, before equity stakes were required in AIB and Bank of Ireland. Moreover, the rules governing bank capital have now changed and deferred tax assets arising from accumulated losses are treated far more harshly than they were, to the extent that they will be completely deducted from capital after ten years. Hence, with the State now owning 99.8% and 15% of AIB and Bank of Ireland respectively, and having substantial debt investments in these banks, this measure no longer serves its original purposes and actually works against the State's investment in the banks.
The section removes the restriction on relief for losses in participating institutions, with effect from accounting periods beginning on or after 1 January 2014. Hence it serves to put AIB and Bank of Ireland back in the same position as other banks, thus levelling the playing field while enhancing the capital ratios of the two banks.
Reading between the lines of the Minister's statement, it seems that because we now own AIB and hold a minority shareholding in Bank of Ireland, and because, presumably, the medium to long-term plan is to dispose of our equity interest in those banks, removing this restriction enhances the value of those banks. It certainly strengthens their capital position and perhaps makes them more valuable.
However, I asked whether the Department had done any calculation as to the amount of tax that will be foregone as a result of lifting this restriction. The amount of losses being carried forward is a matter of public record in the various annual reports and so forth, so it should be relatively straightforward to calculate the potential tax foregone as a result of lifting this restriction.
The repeal of section 396C will extend the period over which the State will collect.
Allow me intervene here to bring in Deputies Doherty and Boyd Barrett.
The Minister has said before that this measure is about how tax credits will be assessed, in terms of capital ratios, the potential recapitalisation of the banks, if it ever arises, and how Europe will define what instruments will fall within core tier one capital. Is this based on letting them carry the losses forward? Otherwise, it will be a drag on the banks in terms of stress testing and so on. It is a drag on the banks we have created as a result of the NAMA Bill, because other financial institutions do not have this drag on them. Is that the prime motivator of this section? If it is, I would like to come back in on this again.
The Minister has pointed to the fact that we effectively own AIB and have a substantial share in Bank of Ireland as part of the rationale for doing this. He implies it is in the public interest to do this and to create a level playing field for the banks in which we have a stake in the wider banking market. I would put it completely differently. These banks were making astronomical profits during the boom, but we got practically nothing from them because corporate tax here is so low. They then caused the economy to crash because of their greed and nefarious activities. We stepped in and pumped vast amounts into them, crippling our economy in the process. Now, we prepare to launch them back into the market so that when they become profitable again, we will get nothing from them. What we are doing is fattening up the golden goose for private investors to come and grab it. The only time we have a so-called "stake" in the banks is when it is on its knees and we are pumping money into it.
There is no way to put this other than to say that this is a bailout for these institutions. The beneficiaries of it will be the private investors whom the Minister hopes will eventually come back into the market and take these banks off us. We get the banks when they are crippled, yet the same people who helped wreck our economy and the global economy will get them when we have fattened them up nicely again and reduced their tax liability. This is shocking. If it was the case that we would retain ownership in the long term and would derive some genuine benefit from putting them in a stronger position, I could understand the rationale. However, the Minister has stated clearly that his intention is to re-privatise these banks at the first opportunity. We have more or less done that with Bank of Ireland.
The difference in attitude between AIB and Bank of Ireland when they have come in here to address issues of concern, such as how they deal with distressed mortgage holders, credit for the SME sector and all the other issues we try to put pressure on them to address, is very clear. The more privatised the bank is, the more its representatives completely ignore and disregard the concerns of the very people who bailed them out. AIB representatives are a little more polite in their demeanour because we have some influence over them. However, ultimately AIB will go down the same road that Bank of Ireland has already started on. We are just reducing their tax liability and leaving them, literally, laughing all the way to the bank when we have done all the hard work of bailing them out. This measure is just more of that and is completely unacceptable.
What I propose is that a restriction that applies uniquely to Bank of Ireland and AIB and to no other bank in the European Union will be removed, so that the Irish banks are not at a disadvantage. If I recall correctly, when the NAMA legislation was initiated, there was no such provision in the text as published by the Minister. However, in the course of the debate, the Minister accepted an amendment to impose this restriction. That helped ease the passage of the legislation and was justified at the time because there was significant anger in regard to the banks. Many of the arguments made now by Deputy Boyd Barrett were made at the time and there was good reason for imposing this restriction then. However, circumstances have changed since.
In response to Deputy Doherty's question, the capital adequacy rules changed after the restriction on losses was enacted and it is reasonable to take account of changed circumstances in making broad assessments of the merits of provisions such as this. If we were to keep the restriction, the use of tax credits against historic losses for core tier one capital provisioning would be time-restricted. In other words, the time for using them would run out and we would not have the full use of them. The other big difference is that we effectively own AIB now - 99% of it - and we have 15% of Bank of Ireland. Therefore, we have a vested interest in the profitability of the banks. One of the best ways to recover our money is that if the banks become valuable, we can sell our shares in the banks and redeem or extract the money that was put in by taxpayers.
For example, three quarters of the deferred tax assets we are talking about here, which is €3.4 billion of the €4.5 billion involved, are sitting in AIB. There is a large offsetting valuation benefit due to the State's 99.8% equity stake in the institution. While we could have one view as revenue collectors, if there is a more rapid write-off of losses against potential profit, then, as an investor, the State has a huge interest in increasing the value of the shares it owns in the banks. There is a disproportionate amount in AIB. Of the €4.5 billion of tax credits for historic losses, €3.4 billion are in AIB. This provision will enhance the value of the State's shareholding in AIB. We also have an equity stake worth €1.2 billion in Bank of Ireland and preference shares of €1.8 billion in value. This will benefit in value from this change.
There is a very restricted market for AIB so I would not take much notice of share values attributed to that bank at the moment, but the quoted share values on the stock exchange for Bank of Ireland are genuine prices in an active market. If we look at the share value and if we look at what we have extracted from Bank of Ireland already, more has come back to the taxpayer in value than was originally put in on behalf of the taxpayer. If the value of the State's investment in AIB can be correspondingly enhanced as it trades towards profitability, and we remove restrictions such as this, there is a good chance that over the years, significant amounts of taxpayers' money will be recovered. That is the overall plan. The National Pensions Reserve Fund does the valuation of our investments in the banks, and it marked the investment in the Bank of Ireland and AIB up to €11.5 billion at this stage. It is easier to give a more precise value to our holdings in Bank of Ireland, because we know the preference shares at par are worth €1.8 billion, and there is a coupon on them as well. If the preference shares were being sold, we would expect to get a bit more than €1.8 billion. It is publicly quoted and the shares last week were around 28 cent. There is quite an enhancement in value there. AIB is different. AIB's advance towards profitability and effectiveness is about a year behind Bank of Ireland, but it is getting there. It is moving in the right direction.
It was never the intention of Brian Lenihan, when he published the Bill, to have this restriction. The restriction was brought in during the course of the debate, and I can understand why it was brought in, but circumstances have changed since and we are shooting ourselves in the foot if we maintain the restriction. There is no benefit to the taxpayer, to Ireland or to any of our citizens in maintaining this restriction. By removing it, we enhance the value of the portion of the shares that we have in both banks, and so I advise committee members to accept this. There is no hidden agenda. This is purely a matter of pounds, shilling and pence, and when we look at the balance sheet, we find that it helps everyone in the country.
The original restriction was a 50% restriction, but this is a timing issue. Am I correct in saying that those losses could have been used by the bank over time? It is not as if there is a loss to the Exchequer; there is a timing issue. Am I correct in saying that?
The banking levy is being brought in as well, which would counteract the timing issue. Can the Minister explain that?
There were two separate decisions. There is speculation in the media that there was some kind of quid pro quo, but that was not the case. They were two separate decisions that were made on their merits. I am of the view, as the banks move towards profitability, that it is about time they pony up something for the Exchequer. That is the reason the levy is in, because the alternative is to take another €150 million off hard-pressed taxpayers. With the banks' overall balance sheet, they are in a position that they can now afford it. We are taking something out, but it will be a while before taxation of bank profits provides any yield to the Exchequer because they will be writing off their losses. As Deputy O'Donnell points out, it is a timing issue. In due course, they will pay.
There is also another issue that is not about using tax credits from historic losses to write off against banks' profits. The other issue is the use of the credits as core tier one capital. They may as well cash in reasonably quickly on a different timeline, if the credits can no longer be used for core tier one capital. Therefore, there are two reasons for the timing. By removing the restriction, we allow the banks to make the best decisions on when and how much of the historic losses are written off. That is all that is involved.
I acknowledge that there is a calculation involved, and that is what I am trying to tease out. To clarify Deputy O'Donnell's question, did the original restriction of 50% of losses forward contain a sunset clause in the Act, and was it due to end?
So it is not a timing issue as such, because that restriction was to remain in place indefinitely and the banks could only use 50% of the losses forward to restrict our tax liability.
In an accounting period.
Obviously their losses would run out over time.
The Minister's point that it was not in the original Bill and was introduced by way of amendment is not significant. He is bringing forward many important amendments to his own Bill on Committee Stage.
No. It is important because-----
I am not sure it is.
-----I am trying to point out that from a policy point of view, it was not my predecessor's intention when the Bill was published.
So the Minister's advice from officials is that, in the fullness of time, if it were to remain in place, no tax is foregone as such.
Yes, and I will check that again to ensure I have the correct information.
That is my concern.
The impact of easing this restriction of the normal ROS relief will be a cashflow timing issue, and there will be no tax loss.
The fact that we are scrapping the 50% loss eligible to be carried forward as a minimum does have an impact on the return to the State. I know the Minister has focused on the shareholding, the price of shares and the profitability of these banks, and the attractiveness of the value of our shares increasing, but if these banks return to profitability - both are expected to do so in 2014 - then tax will be foregone as a result of this measure. If this measure was in place in 2014, 2015 and 2016, there is a likelihood that this State would receive more tax from those banks as they enter into a phase of profitability. Is that not a correct assumption to make?
What is taxed is profit. To calculate profit in any company, it is normal to deduct losses. What we have here is a restriction, which applies uniquely to two banks in Ireland and nowhere else, on their ability to subtract losses when calculating profit.
I understand that completely, but this Parliament approved the provision that AIB and Bank of Ireland would be restricted in offsetting historic losses against the tax they owe the Irish people when they return to profitability.
I do not want to get into a debate about the banks that the Irish people, for the right or wrong reasons, whether they wanted to or not, saved. It was decided in the legislation that when the banks started to make huge profit again the losses incurred when the Irish people saved them could not be written off against the profit so that they just soak up the profits. AIB is a unique case because we own almost 100% of it. Bank of Ireland is a different case. We own 15% of it, which may decrease as it issues new equity shares on the market in the coming days. We do not get all the profit from this measure for the Bank of Ireland. Its shares may increase from the 15% that we own but others such as Wilbur Ross will benefit significantly from this. If we are doing this for the sake of the core tier 1 capital ratio, so be it. I have no problem in treating AIB and Bank of Ireland in the same way if it is to help the definition of capital adequacy ratios since this measure was brought in.
I had tabled a later amendment that has been ruled out of order. It proposed that the levy on any financial institution benefiting from section 33, AIB and Bank of Ireland, which allowed them to benefit from carrying 100% of their losses forward, should be adjusted in accordance with the estimated revenue lost to the State in each relevant year, resulting from lifting of the restrictions of the carry-forward. That deals with their capital adequacy ratio because they can carry forward the 100% losses and write them off against their tax liability to the State. We citizens are at a disadvantage when these institutions return to profitability in respect of the tax that they would pay to the State on their income. Through the back door we have under this Finance Bill adjusted their levy to reflect how they had benefited from the 100% of the forward losses.
The Irish people demand no less than that Bank of Ireland, which is predominantly in the private sector, make a return to the Irish State above and beyond the capital that we injected. This is not simply a question of arithmetic about how much we put in and how much we want back. That is not acceptable. The State paid €4 billion to Bank of Ireland but ordinary citizens went through pain and suffering and hardship as a result. This was not €4 billion that was stuffed under the mattress or waiting for a rainy day. It was €4 billion taken off citizens in the ways we have discussed, through sons and daughters who have emigrated, people who have been unemployed for long periods of time, benefits cut and entitlements slashed. The people therefore have a justifiable demand that banks will not be facilitated at a time of huge profitability by carrying forward the losses that they incurred in the past so that they write-down their income to the State.
The banks incurred the losses at an exceptional time. We are not treating them as ordinary banks. The Minister says that we should treat them as ordinary financial institutions like those in every other country in Europe. They are not ordinary financial institutions like those in any country in Europe. They are unique. They were bust. They were completely defunct. They are being investigated. They would not exist today were it not for the Irish taxpayer. We should not treat them one way when they are bust and when they are profitable say that this is what happens with profitable banks so let them write their losses 100% against-----
This is repetition.
I appreciate that. If there is a legitimate argument about the tier 1 capital ratio that can be dealt with by allowing the losses to be carried forward it should not disadvantage the Irish taxpayer in respect of the profits on which they should have been taxed. That is why the levy can be adjusted to reflect that. I hope that the Minister will acknowledge that at least for a period of time. It could have a sunset clause but it should be there. The people expect no less.
Much of my objection is to how this frames a relationship with the banks in general, and the different rules that applied to banks, and for that matter, to corporations, because a more general aspect to this is the capacity of private corporations to bring forward losses from previous years. Many people here bought houses just to put a roof over their head at the top of the property bubble, largely created by the banks. They did not do this to make a profit, to gamble, to speculate. If they bought their house for €350,000 or €400,000 and it is now worth €100,000, can they get a write-off on their negative equity against tax liability for future years? They cannot but a bank that helped to bankrupt the country and made astronomical losses, which those very mortgage holders and people on low incomes, all those who have been the victims, bailed out. They provided the resources to give the banks that write-off on previous losses. Ordinary people do not get a write-off against previous losses. I do not accept that is fair.
One question emerged as I listened to the discussion: is this a way of dealing with the possible crisis that our banks face when they are stress-tested again? Is that what this is really about? Is the Government worried, despite constant protestations that we have the best capitalised banks in Europe? Is the rationale for this to use these tax assets to ensure core tier 1 capital ratios? I thought we had fully capitalised banks so why precisely is that an imperative? Let us not forget that the Minister also told us that we would get retrospective recapitalisation of our banks because that was agreed at the meeting in June of last year. Why, if all that is true, we have fully capitalised banks we will get retrospective recapitalisation of them, is Joe soap yet again giving a handout to banks by way of their capacity to write off previous losses against future tax liability? Fairly soon these banks will be sailing off into the sunset again after we have paid for their crisis and will be paying for decades to come. The benefit of what the Minister is doing here will ultimately go to private shareholders. That is bordering on the obnoxious.
There would be general agreement that the country needs strong banks that are profitable and that can provide the credit lines necessary for private citizens and businesses in the country. We are down to two banks with leverage and clout, Bank of Ireland and AIB. It is in everyone's interest that those banks are strong and do not operate under disadvantages that no other bank in Europe is asked to operate under. I think we would have some level of agreement on that.
Deputy Doherty tabled amendments which are quite helpful to the debate but unfortunately they were ruled out of order. That is normal. We do not know what will be ruled out of order and what will not.
I will read the briefing note and reply to Deputy Pearse Doherty's proposed amendments.
I note that Deputy Doherty has proposed an amendment No. 104 to increase the amount of the bank levy payable by the banks that would benefit from lifting of lost restrictions under section 33. This amendment was ruled out of order but I would be happy to address the substance of his proposal at this stage. It is important to highlight that the financial institutions who stand to benefit from the removal of section 396C are AIB and Bank of Ireland only. As the Deputy is aware, the State has substantial investments in both banks through its equity and debt holdings. When section 396C was first introduced, the State involvement in the banking sector was far more limited and, critically, equity stakes had not been acquired by the two banks. The State now has substantial shareholding in both banks. I am obliged now to review the decision that was made when the NAMA legislation was introduced with the interests of the taxpayers, as shareholders in both banks, in mind. Each of the banks is carrying significant amounts of unused losses. The future value of these losses to the banks is recognised on the banks' balance sheets as deferred tax assets. Under the new capital rules known as CRD4, these deferred tax assets are gradually deducted from capital, over time. Hence, the problem with the lost restriction contained in section 396C is that it has the effect of lengthening considerably the period of time over which the losses can be utilised and so the deferred tax asset stays on the balance sheet for longer. Thus, it negatively impacts on the capital of these two banks and the value of the State's shareholding in the banks which is directly linked to the value of these deferred tax assets. Lifting the restriction in section 396C will reduce the period of time over which the deferred tax assets are to be carried on the balance sheets. I believe that the cash flow and tax receipts will be offset by the improvement in the valuation of the State's equity and debt investments in both banks. That is the complete note in reply to Deputy Doherty.
In reply to other questions, core tier 1 is the principal reason for removing an exceptional and unique restriction of normal loss relief which applies to AIB and Bank of Ireland but to no other company in the country. Capital adequacy rules changed after the restriction was introduced, such as more tax from, for example, AIB, less value in State investments, impact on the capital adequacy of the banks. The last factor has become more significant after the loss restriction was introduced.
I was asked what was the situation in other countries. I have a note which I will read to the committee in reply. On the question of deferred tax assets, DTAs, Italy and Spain have similar issues with large DTA balances and their impact on bank capital ratios under the new CRD4 rules. Measures that have been introduced include converting certain components of DTA balances into tax credits which would be honoured by the State should a bank face liquidation. The effect of this is to preserve the pre-CRD4 treatment, that is, no capital deduction for these components would be required. These measures go a long way beyond what is being proposed in this Finance Bill with the repeal of section 393C which can be seen as a normalisation of the system. The repeal serves only to remove a restriction placed on the utilisation of NAMA losses which does not apply to other trading losses in the tax code. It is worth noting that the losses subject to these measures in other countries relate largely to deferred tax assets arising from timing differences and not those arising from trading losses. In Spain we understand that up to 40% of DTA balances may fall into the timing difference category. The position in Ireland is different but the vast majority of DTA balances at AIB and Bank of Ireland relate to trading losses. That is the fullest information I have. There is no hidden agenda. This is a straightforward judgment about the value of the banks and how to restore our banks to full health in the interests of the taxpayer.
Even if the current restriction remained in place, all of the losses being carried by the banks would, over time, be offset against their profits, as Deputy O'Donnell pointed out. The issue is that in any given year the profits they accrue could only be reduced by half but all of the losses sitting on their balance sheets can be carried forward and offset against future profits. There is, in net terms, no impact on the Exchequer tax receipts. Is that interpretation correct?
Yes, that is correct. Over time.
It is not purely a tax issue.
I know that.
A core tier 1 capital issue, as I have explained, is also very relevant to this decision and underpins it.
None of these losses nor the reliefs are time-bound. If they do not use these within a period of time, then they will expire.
No. There is no time limit on their use to write off against expected profits.
So they can carry them forward, 20-40.
However, there is a time restriction on core tier 1 capital under CRD4.
If only ordinary workers could get such a tax break we would be flying.
I move amendment No. 65:
In page 59, between lines 20 and 21, to insert the following:
“Acceleration of wear and tear allowances for certain energy-efficient equipment
38. (1) The Principal Act is amended in the Table in Schedule 4A by inserting the following in column (2) opposite the reference in column (1) to “Electric and Alternative Fuel
“Natural Gas Vehicles and Associated Equipment: Natural gas vehicles and relevant required fuelling equipment that meet specified efficiency criteria.
Natural Gas Vehicle Conversions: Equipment for the conversion to natural gas or biogas as a primary fuel for existing commercial vehicles, that meet specified efficiency criteria.”.
(2) Subsection (1) shall come into operation on 1 January 2014.”.
This amendment extends the tax incentive aimed at supporting investment by companies in new energy-efficient equipment. The amendment will help to improve energy efficiency while helping companies to be more competitive in sectors such as transport and distribution. The scheme which was introduced in the 2008 Finance Act provides for accelerated capital allowances of 100% to companies in the year in which certain new equipment is purchased. The expenditure must be incurred on equipment listed under one of the ten energy-efficient categories covered by the scheme. The category of electric and alternative fuel vehicles is being extended to include natural gas-powered vehicles and associated fuelling equipment and natural gas vehicle conversions. I have been advised by my colleague, the Minister for Communications, Energy and Natural Resources, that such vehicles meet the policy objectives for energy efficiency and that the use of such vehicles in Ireland should be promoted. The section will come into operation on 1 January 2014. As done previously for the existing categories, the Minister for Communications, Energy and Natural Resources, will make an order listing the products that will be eligible under the extended category. Expenditure must be at or above a minimum amount in order to qualify for the increased allowances. I commend the amendment to the committee.
I intend to table an amendment on Report Stage. I welcome the fact that the Minister has tabled this amendment. It is ironic because for the most part of a year, I have been arguing exactly this point that non-tax resident companies anywhere in the world who are incorporated here should be deemed to be tax resident by reason of their incorporation. I have come up against quite intense verbal opposition from members of the Minister's party for even voicing that opinion.
The legislation I drafted, while differing in its wording, had exactly the same intention as this provision, but it would have had a different effect date. I am prohibited from introducing that legislation on the floor of the Dáil because it deals with financial matters, but it is in the public domain.
My point is that these measures should take effect on 1 January 2014, as provided for in the legislation I published. I understand the Minister met representatives of some of the companies in question, including Apple.
My officials engaged with them.
Apple has been the subject of much debate here and in other jurisdictions in the wake of the discovery that one of its subsidiaries - a fairly profitable subsidiary - has no tax residency anywhere in the world. We do not know whether that company is on its own in this regard. The Minister is now proposing, rightly so, that companies which are incorporated here and have no tax residency anywhere in the world should be resident here in the light of their incorporation. He considers it right and proper that this should be done but only in 13 or 14 months time. In the meantime, we will continue to facilitate companies that have no tax residency anywhere in the world and, although incorporated here, are not paying one penny in tax on any of their profits. We know this is wrong and although it is being rectified, the change will not be made until January 2015 rather than, as I proposed, on 1 January 2014. I welcome the substance of the provision and what the Minister is seeking to do. I am curious, however, as to why the date has been pushed out.
Can the Minister give any estimate of the additional revenues that might accrue to the State as a result of this measure? Will he also indicate the number of existing companies to which the provision will be applicable?
We are scheduled to break for lunch at 1 p.m. It would be helpful if we could conclude the debate on this section before then.
It goes to show that if one kicks up a bit of a fuss about something, it can produce some movement. As the Minister knows, I have been kicking up for some time about the scandalous situation where corporations which make vast profits every year in this country pay little or no tax. The provision is welcome in that context, but it is slightly alarming that the Minister has put off its implementation, in what seems essentially to be a case of giving the multinationals a chance to find other ways to avoid tax. In fact, the overriding policy not only of the Government but of all Governments in the history of the State seems be one of whatever we do, we must not annoy these people who do not like paying taxes. Will the Minister answer that point?
Will the Minister report on discussions he has had with representatives of these companies in the context of this measure? The narrative in response to those few of us who have argued that corporations should pay a little more tax is essentially that the sky would fall on our heads and the economy would be ruined if we were to ask the people concerned to pay the tax they should be paying and thus make some level of fair contribution to the running of the economy and society. In so far as he had discussions and consultations with these parties, can the Minister tell us whether they are, in fact, claiming that the sky will fall on our heads if we make any move that might lead to their becoming properly tax liable?
The whole issue of the double Irish, whereby we have two Irish incorporated companies, one resident here and the other non-resident, and the transfer pricing arrangements have caused reputational damage to the country. I am assuming this is one of the reasons this proposal has been brought forward. The Minister is giving existing companies a period of time to restructure or redesign their taxation affairs. My concern is that I am not sure whether this change will, on its own, make a significant difference. The Minister's answer to the question about the tax yield will probably be instructive in that regard.
The changes being promoted through the OECD's base erosion and profit shifting, BEPS, project are critically important and the Minister has committed to playing a full and active part in that initiative. It is the way forward. This step does not in any way place us at a disadvantage in terms of our corporation tax offering. I have no difficulty with the Minister meeting representatives of Apple or any other multinational company. In fact, he should be doing exactly that on an ongoing basis as part of his work to retain existing investment in the country and win our share of new investments. I look forward to his response.
The first point to make is that the measures we are discussing will come into effect for new companies from the date of publication of the Finance Bill. In other words, these provisions already apply to new companies. For existing companies, the effective date of implementation is 1 January 2015. The reason for this is that, historically, any change to the corporation tax regime in this country has been introduced on a phased basis. For example, there was a phasing-in period when the rate went from 10% to 12.5% and when the rules regarding export sales were changed. The Deputies will know from their own contacts with those concerned that companies do not like surprises or sudden moves. They need some time to plan.
Second, there is no loss of taxes arising from this measure because the companies involved, the arrangements of which in this regard we are now eliminating, always paid tax on their earnings in Ireland. The issue was that profits made elsewhere in the world were being channelled through these stateless companies which were incorporated in Ireland. There was no advantage to the Irish Exchequer in this; the advantage was to the companies. Moreover, there was no reason they could not have engaged in the same practice in other jurisdictions. Ireland is not a tax haven, but there was a reputational advantage in having the arrangement in Ireland simply because we enjoyed a very good reputation in this area.
Deputies have asked why we have chosen to move on this issue and not the wider one. We have taken action in this matter because we can fix it in domestic legislation, whereas all of the other issues raised in the debate require international co-operation in order to address them.
Deputy Richard Boyd Barrett asked about the nature of the conversations my officials had had with representatives of the various companies. It would not be fair to the businesses in question to go into who said what and when. The summary of their position is set out in the tax strategy document that was published on budget day and which is the result of the consultation process. It represents the distilled wisdom arising from the consultation and is in the public domain.
What we are doing in this measure is very important for reputational reasons. The debate continues, of course, and we are fully participating in the discussions on the base erosion and profit transfer issues at OECD level. We hope these discussions will advance quickly. It is our view that the international corporation tax regime is not sustainable, even in the short term. Changes must take place and we are fully engaged in ensuring they do. At the same time, however, attracting foreign direct investment to one's country is a very competitive activity and there are very aggressive tax planning arrangements available in other countries. Our nearest neighbour, the United Kingdom, is becoming increasingly attractive as an investment destination precisely because of the aggression it is showing in this regard. Its patent box initiative, for instance, is subject to scrutiny by the European Commission on state aid grounds.
If it gets it, as designed, over the line, it will be offering a 10% corporation tax rate for companies which fit the requirements of the patent box. A significant number of people in Ireland are working in foreign direct investment companies. The future attractiveness of Ireland for new foreign direct investment companies or those already here that wish to expand is vital to our economic prosperity. While we want to and are willing to change, we do not want to get too far ahead of international practice either. That is because this is a very competitive area.
The OECD is moving rapidly. Its tax director, whom I met on his visit to Dublin, has laid out a programme which would involve a blueprint for action being published by September next year and action being taken shortly thereafter. He has the political support to take action now, particularly as the OECD has been mandated by the G20. The leaders of the G20 across the board are on record as stating change is required. The OECD has been vested with the responsibility of designing and implementing that change. That is the current position.
We are required to break for lunch at this point.
Can we have a few moments to conclude on this matter?
If the debate drags on, I will suspend proceedings.
I will not make a speech on the matter. There will, obviously, be no loss to the State, but there should be a projected gain to it as a result of the implementation of this measure.
There is no potential gain to the State because the companies involved pay taxes in Ireland on profits that accrue here. What they were previously doing was using stateless companies incorporated in Ireland to channel profits made elsewhere through this country. These profits would then disappear into the stratosphere. As a result, they would have no tax liability anywhere. There will be a reputational gain for Ireland from this, but there will be no gain in terms of revenue. However, there will be no loss of revenue either.
Therefore, what was happening was that companies which were incorporated and tax resident in Ireland were shifting profits to non-tax resident companies that were also incorporated here. Now, however, they will all be tax resident here, but there will be no financial gain to the State.
Yes. It is not possible to predict how individual companies will react to the measure. It is anticipated that there will be no substantial change to the real activities these companies undertake in Ireland.
I agree with the Minister in terms of-----
I refer, for example, to companies which operate in Deputy Michael McGrath's constituency. We have received assurances that there will be no pull-back. If anything, there will be further investment.
I am glad to hear it.
Companies that employ up to 3,000 people and are completely tax resident in Ireland are not those in which we are interested. We would welcome any expansion of or additional investment in such companies. It is the activities of the subsidiaries of these companies which are at issue. I take it that these companies will reshape how they operate. A company which employs people and pays taxes on the income generated here will continue with its operations here. However, the part which we facilitated by means of the tax code, namely, that part which would be viewed as stateless, will move somewhere else. We will neither lose nor gain from this measure, but at least we will have stopped these companies using the State to carry out the type of business in question.
It was not that we were facilitating this. However, certain companies found a loophole in the borderland between the tax codes of different countries. They were able to put in place arrangements whereby if profits were passed through a company in Ireland, there was no tax liability anywhere in respect of them. It will depend on what the companies involved decide to do. They may be obliged to pay additional tax elsewhere but not in Ireland. They may also plan around it and find another loophole somewhere else. We cannot control this. What we are doing is being done principally for reputational reasons. I would like to see the international community supporting change and implementing agreed change under the guidance of the OECD.
God forbid these companies might decide to pay a little more tax somewhere, perhaps even in Ireland. I know that would be unthinkable for them and perhaps for the Minister also.
There is no doubt at all that this is the intention of the OCED. It is also the intention of the participants in the G20. The bottom line will be to remove some of the more obvious tax breaks from the system.
I am very glad that is starting to be said. It is a major sea change and well past time that it should happen. I will be pleasantly surprised if real action to move matters in that direction which matches the rhetoric to that which we have been treated is forthcoming. Let us hope we are moving in a positive direction.
Members wanted representatives from the companies in question to come before the Joint Committee on Finance, Public Expenditure and Reform. However, there were obstacles to us questioning them about the detail of what was involved. The Minister has stated no additional tax will accrue to the State as a result of the adoption of this measure because the profits involved were not really generated here. I would like to drill down into this. One way to do so would be to talk to the companies in questions, but to date, we have not been allowed to do so. Another way would be to quiz the Minister about it, but I do not know whether he fully understands what is involved. My understanding was that the companies involved sold advertising from here all over the world and that they then paid for the use of software and patents to these shelf companies which were incorporated in this country but which were not liable for tax here. The selling was being done from Ireland. Is the distinction between profits generated in Ireland and those generated elsewhere but channelled through this country actually real? A company operating in Ireland can sell goods or services all over the place, but that does not mean that the sales it makes from here should not be subject to tax. Such a company might be selling goods or services to some other location, but there is not doubt that it is selling them from here. Companies of this sort avoid their tax liabilities using the moneys generated to pay royalties for the use of patents. There is a need to examine this matter in its entirety. We should not allow the companies involved to find new ways to avoid paying the taxes they should be paying.
That is beyond the boundaries of what is contained in the Bill. It is, however, an issue and forms part of what the OECD is reviewing. That organisation has been charged with drilling down into this matter. What I am about to say may be of assistance to the Deputy.
In today's economy much of the value of products can be attributed to the intellectual property of the company producing the good or service. Royalties are typically payments for the right to use intellectual property. Services exports from Ireland, particularly those relating to IT, are royalty intensive. Services exported have grown in recent years to over 50% of GDP. While a high volume of such intellectual property-rich goods and services is sold from Ireland, the underlying intellectual property is not typically owned here. Thus, the Irish sales company must pay royalties to the intellectual property holding company which is located abroad. The intellectual property involved is not typically developed in Ireland, nor is it owned here. Ireland, therefore, has no right to tax it. The ability of companies to locate valuable intellectual property in low-tax jurisdictions where they may not have real substance or presence is the real problem. This is what allows some multinational companies to achieve very low effective rates of tax. The OECD is examining this issue, principally through a reconsideration of its transfer pricing guidelines which deal with profits from intangible property.
We have stated all along that this is primarily an international issue. It is overly simplistic and unrealistic to expect that the world's tax problems can be solved by changing Ireland's domestic law alone.
The Irish tax code operates to ensure that profit generated in Ireland is taxed in Ireland. If we consider corporate tax receipts as a percentage of total tax revenue, the ratio in Ireland of 2.4% in 2011 is close to the European Union average of 2.3%. We are taxing profits that are generated in Ireland. To put it very simply, if one has a company in Ireland and part of its cost base is paying for intellectual property which is located in a company incorporated elsewhere, then, as was the case in our previous discussion, the cost of the intellectual property imported into Ireland can be offset against the profits in Ireland. It reduces the base on which we can apply the 12.5% tax rate. To remediate that is not within our hands because, obviously, the write-down of inputs is a normal part of the international tax code, but it is something that needs to be remediated internationally and it is one of the key issues that the OECD is addressing.
I propose to suspend the sitting until 2.15 p.m. We will resume with section 39, amendment No. 66 in the name of the Minister. Is that agreed? Agreed.
I advise the Chairman that the Minister of State, Deputy Brian Hayes, will be here in the afternoon. I have a previous commitment in respect of financial work that I have to do in the afternoon but I will be back for the evening session.
I have been informed that there will be some activity involving the Ceann Comhairle's office concerning the availability of archives on the Oireachtas website in the foyer outside these committee rooms sometime later this afternoon and that might cause interference with the timing of our sitting.
Will it interfere with the sitting of the committee?
We might need to schedule a break at that time.
The Minister of State, Deputy Brian Hayes, is in attendance on behalf of the Minister for Finance, Deputy Noonan, this afternoon.
I move amendment No. 66:
In page 60, between lines 6 and 7, to insert the following:
“Attribution of relevant profits for additional credit
39. (1) Schedule 24 to the Principal Act is amended in paragraph 9I—
(a) in subparagraph (1), in the definition of “tax”, by deleting “, for the purposes of the definition of ‘excluded dividend’ in this subparagraph,”,
(b) in subparagraph (4)(b) by substituting “subject to corporation tax at the rate specified in section 21A(3)(a)” for “chargeable to corporation tax under Case III of Schedule D”, and
(c) by inserting the following subparagraph after subparagraph (4):
“(4A) (a) Where the relevant profits in relation to the relevant dividend referred to in clause (a) or (b) of subparagraph (4) have not been subject to tax, which corresponds to corporation tax in the State, but are attributable to profits of a company which have been subject to such tax, then, for the purposes of subparagraph (4), the rate per cent of tax, which is referred to in clause (a) or (b) of that subparagraph as applicable to the relevant profits in relation to the relevant dividend, shall be deemed to be the rate per cent of tax, which corresponds to corporation tax in the State, applicable to those profits of that company which have been subject to such tax.
(b) For the purposes of clause (a) and subparagraphs (3) and (4)—
(i) each part, if any, of a relevant dividend mentioned in clause (a) or (b) of subparagraph (4), being—
(I) an amount (referred to in this subclause as the ‘directly taxed amount’), which is so much of the relevant dividend as does not exceed the relevant profits in relation to the relevant dividend which have been subject to tax, which corresponds to corporation tax in the State, or
(II) so much of the excess of the relevant profits in relation to the relevant dividend over the directly taxed amount as is attributable to profits of a company which have been subject to tax, which corresponds to corporation tax in the State, shall be treated as a separate relevant dividend, and
(ii) the aggregate value of the parts of the relevant dividend so treated under subclause (i) shall not exceed the value of that relevant dividend.
(c) For the purposes of this subparagraph—
(i) profits of a company are attributable to the profits of another company if they have been received directly or indirectly by the payment of dividends or the making of distributions by one or more companies directly or indirectly from the profits of that other company, and
(ii) relevant profits in relation to a relevant dividend shall not be attributable to the same profits of a company more than once.
(d) For the purposes of clause (c)(ii), any profits of a company, other than relevant profits in relation to a relevant dividend, and any profits of any other company to which they are attributable shall be deemed to be the same profits.”.
(2) This section shall have effect as respects dividends paid on or after the date of the passing of this Act.”.
This amendment is required to bring provisions relating to relief for foreign tax on dividends paid to Irish companies into line with rulings of the Court of Justice of the European Union. The rulings require that equality of treatment for corporation tax purposes be provided between domestically sourced dividends and dividends received from other EU member states. The amendment inserts a new subparagraph into paragraph 9I of Schedule 24 of the Taxes Consolidation Act 1997. That paragraph was enacted in Finance Act 2013 in response to a court ruling in the FII Group Litigation case, which required that the foreign nominal rate of tax be taken into account when calculating double tax relief for foreign tax paid on dividends from EU or EEA partner countries.
This requirement was met by providing for an additional foreign tax credit to be allowed by reference to the foreign nominal rate of tax.
It has been determined, however, following recent representations from taxpayers, that the current legislation is not yet fully in compliance with the judgment. It allows for the additional credit to be claimed where the dividend paid to the Irish company is paid directly out of the profits of the paying company that has suffered foreign tax. It unintentionally denies the additional credit where the taxed profits are paid indirectly to the Irish company. The proposed amendment addresses that. It allows for the additional credit to be claimed where the dividend that is paid to the Irish company is attributed indirectly, through other dividend-paying companies, to profits that have suffered foreign tax. That will ensure the paragraph operates as intended, and in line with the ruling of the court. The amendment also makes two technical amendments to paragraph 9I of Schedule 24. The amendment takes effect from the passing of the Act. I commend the amendment to the committee.
The amendment was introduced in order that the treatment of the issue would be in line with the European court’s judgment, which followed in the intervening period. We are simply reflecting the judgment in the treatment of existing Irish tax law.
I move amendment No. 68:
In page 60, between lines 6 and 7, to insert the following:
“39. The Minister shall, within three months of the passing of this Act, prepare and lay before Dáil Éireann a report on the effective rate of tax charged to domestic businesses in this state and separately to multinational corporations, and analyse the impact of this Finance Act with regards to lowering the effective tax rate or increasing it.”.
Amendment No. 68 calls for a report to be prepared and laid before Dáil Éireann within three months of the passage of the Bill on the effective rate of tax charged to domestic businesses in the State and, separately, to multinational corporations, including analysis of the impact of the Finance Act with regard to the lowering or increasing of the effective tax rate. We had a discussion, which the Minister of State attended, about the Irish incorporated non-resident change to the Finance (No. 2) Bill. It was a change I welcomed as I had articulated the argument on many occasions and produced legislation to give effect to it. We must take further steps. While I acknowledge completely that certain aspects of multinational corporation tax and the ability of such companies to write down their effective rate of tax by using either loopholes in tax codes in this country or in other jurisdictions or by means of shifting profits from this jurisdiction to other jurisdictions is outside of our hands to a certain degree, there are issues we can address in domestic law to deal with the matter. One measure is the acceptance of the Irish incorporated non-resident tax and the closing of the loophole for businesses that are stateless.
The next step we must take is to look at the effective rate of tax charged on domestic businesses and multinationals and the impact of the Bill on them. We have had responses from the Minister of State, Deputy Brian Hayes, and other Ministers that the effective tax rate is 11.9%. I am sure he is aware, as I am, that the report that investigated the profits and concluded the rate was 11.9% looked at generic companies across the various jurisdictions. It was a ceramic company that does not export. I am sure there are many small and medium enterprises, especially non-international trading ones, that pay a lot more than 11.9%, but the reality is that for the companies we are talking about, they are not in the same category as the one investigated in the report that gave rise to there being an 11.9% tax rate. I refer to major multinational corporations that have elaborate tax structures in this jurisdiction and elsewhere. There should be nothing to fear in the provision of a report on the effective rate of tax charged on domestic businesses and the impact of the Finance (No. 2) Bill on them. I commend the amendment to the committee.
I thank Deputy Doherty for tabling amendment No. 68. I have a long note but I will put it on the record because it is useful given the various views about effective tax rates based on the latest report to issue.
The issue of effective tax rates has been the subject of a number of parliamentary questions and discussions at this committee over the past 12 months. It is important to note that two separate issues are often confused in discussions on the effective rate of corporation tax. The first issue is the global rate of tax which is paid by multinational companies. This is a so-called blended rate and takes into account the amount of tax charged across all the countries a company trades in and not just Ireland. The ability of some multinationals to lower their worldwide rate of tax using international structures reflects the global context in which Ireland and all countries operate. The best way to address this issue effectively is for countries to work together at international level, and the appropriate action is being considered in this regard by the OECD as part of its project on base erosion and profit shifting. I know that is an issue the Minister, Deputy Noonan, raised before the break because I was watching proceedings on the monitor. It was an issue on which I spoke to the committee following the most recent informal ECOFIN meeting in Lithuania when we got a very good presentation from the secretary general of the OECD concerning the gold standard it wants all countries to follow. There has been a significant move within the European Union in the direction the OECD has been heralding for some time. The issue the Minister raised before the break was the importance of countries moving at the same time and at the same pace. I am aware there has been considerable discussion of the matter at the committee.
The second issue, which is the subject of Deputy Doherty’s proposed amendment, relates to the effective rate of tax paid by companies in Ireland once account is taken of certain tax reliefs. Deputy Doherty has proposed that I prepare a report on the effective rate of tax charged to domestic businesses in this State and separately to multinational corporations, and to analyse the impact of the Finance (No. 2) Bill with regard to lowering or increasing the effective tax rate. I wish to make it clear that all companies operating in Ireland – domestic businesses and multinationals - are chargeable to corporation tax at the 12.5% rate on the profits that are generated from their trading activities here. A higher 25% rate applies in respect of investment, rental and other non-trading profits, as well as certain petroleum, mining and land dealing activities, and chargeable capital gains are taxable at the capital gains tax rate of 33%.
Some other countries may have a higher headline rate of corporation tax which is then supplemented by a high number of tax reliefs. We are all aware of the extraordinary variety in some countries’ corporate tax rate as against their effective tax rate. That is a predominant issue that arises constantly in the debate. The approach in Ireland, however, is transparent. We have a relatively low headline rate of corporation tax which is applied to a broad base. We have only a small number of corporate tax incentives in Ireland, such as the research and development tax credit and the three year start-up relief for small companies, and we ensure these are targeted at the creation of additional employment and at areas of innovation with a view to generating high value-added economic activity in the country. The Finance (No. 2) Bill contains only modest enhancements to corporate tax incentives, for example, the amendments to the research and development tax credit in section 21 have a cost of €5 million per annum.
Deputies are aware there are different ways of measuring the effective rate of corporation tax and there is no single internationally agreed comparative measure for that. In the absence of an agreed methodology, it is inevitable that differences will exist in comparative studies on effective tax rates depending on how the rate is calculated and the assumptions used in the calculation. That has been an issue that has been addressed by the committee in the past year. It is probably more accurate to characterise the calculation of effective rates as an art rather than a science.
There are a range of independent studies, however, that show the effective rate in Ireland is very close to the main headline rate of 12.5%. For example, the European Commission's Taxation Trends in the European Union 2013 indicates an effective corporation tax rate for Ireland of 14.4%. Another study carried out by PricewaterhouseCoopers, Paying Taxes 2014, which was published just last week, shows an effective rate for Ireland of 12.3%. I know some Deputies have challenged the validity of the assumptions used in previous versions of that latter study, and I am not claiming ownership of the figures, but they are examples of the way different methodologies can produce different results.
Regarding the Deputy’s request that I publish a report on effective rates, I would highlight to him that the Revenue Commissioners produce very detailed corporation tax distribution statistics each year. In response to the growing interest in this subject, Revenue published an explanatory note earlier this year to accompany the 2011 statistical report which contains data from 2010. These 2010 statistics indicate that aggregate net taxable profits, after taking account of various deductions, allowances, charges and reliefs, amounted to €41.215 billion while the total amount of corporation tax payable on these profits was €4.246 billion. This means that total corporation tax payable as a percentage of taxable profits was approximately 10.3% for that year. If we were to add all the corporation tax paid and divide that by the profits, that is the percentage at which we would arrive. That is the 10.3% effective rate it has produced. Revenue statistics for 2011, to be published shortly, show little change in the position, with a figure of 10.4% estimated for that year. While this percentage is lower than the 12.5% tax rate, this can be attributed to the availability of certain reliefs such as double taxation relief and the research and development credit used by many substantial businesses here. The 2010 statistics are available on Revenue’s website, while statistics for 2011 will be published on the website shortly.
Given the detailed material produced by the Revenue Commissioners and the need to allocate scarce resources most effectively, I cannot accept the Deputy’s amendment.
As the Minister is aware, I have challenged the Government consistently on this issue in the past year or two and the very least it could do is accede to a request to provide the analysis and assessment Deputy Doherty has suggested in order that we can have the hard evidence before us and the public. That would allow them make their own judgments on this issue.
There is considerable slippage in terms of the gross profits made by companies, the idea of taxable profits and the actual profit made. I have not pulled this idea out of my head. I am putting my assertions on this issue to the Minister of State and other Ministers on the basis of information I got from the Department of Finance's CTS table 1 or 2 and from looking at EUROSTAT figures on corporation taxes paid in the various economies across Europe. It is clear that what is known in the EUROSTAT figures as the implicit rate, which is another term for effective rate, namely, the gross profits paid as against the actual amount of tax paid at the end, the latter as a percentage of the former, was 6.5%. That is according to those tables produced by EUROSTAT. The comparable figures for almost all other major European countries of implicit rates were much higher. The only exception to that was the Netherlands, which had an implicit rate similar to ours.
That assessment of implicit rates paid in Ireland in comparison with implicit rates paid elsewhere in Europe must be examined. The Minister of State has said we apply normal accounting standards, that taxable profits and gross profits are different and that it is all above board, but what he fails to explain is the reason for the gap between the implicit rate in Ireland, according to EUROSTAT's figures, and the implicit rate in Britain, Germany, France, Sweden and so on. With the one exception of the Netherlands, why is the gap so big? I put it to the Minister that at the very least this must be investigated because, to put it mildly, it is suspicious.
The CTS 1 and 2 tables on that the Minister provided me with show that the main beneficiaries of this enormous gap between gross profits and taxes paid are a few hundred companies at the highest end of the profit scale. What is interesting is that in the table the Minister produced for me in response to a question in which I asked him for the breakdown in deciles of the gross profits and the taxes paid, he provided that information until he got to the most profitable companies, which I believe numbered a few hundred. At that point he stopped giving me the information in deciles and stated that because there are so few companies involved at the top end, it would be breaching confidentiality to give me the information in deciles because I might be able to identify them. I do not accept that but we all know the identity of those companies. They are the big multinationals. I am certain the small and middle companies further down the table are paying 12.5% but it is the big companies that account for the majority of gross profits declared in this country that somehow manage through various measures to reduce their tax liability between gross profits and what they actually end up paying. That area must be seriously investigated because Ireland, along with the Dutch, the home of the Dutch sandwich and the double Irish, has this massive gap. That suggests something amiss with our corporation tax regime which is allowing these hugely profitable corporations to dodge their tax liability.
We have been back and forward on this issue for some time. The Deputy is committed to his figures and we are committed to ours. The fundamental difference is that he is not having regard to the various allowances, losses and royalties companies face in the transaction of their business. I would question whether a separate independent investigation by our authorities, over and above what is happening internationally, would shed more light on the subject. For instance, the OECD is very involved in this issue in regard to politically exposed persons, PEPs. The Deputy is probably also aware from the replies he has received from the Department that the European Commission has examined this issue very closely and its view is that the effective tax rate in Ireland is 14.4%. That has been its position for quite some time and it has stated it clearly.
I have said to the Deputy in the past that we cannot tax something we do not own. The reality for these large-scale multinational businesses is that their entire operation is separated into many different parts of the world. As I have told him repeatedly, the IP of many of these devices and applications in the technology area is in one part of the world, manufacturing is in another, sales is in another and marketing is in another.
The Government cannot tax something that is outside this country. As the Minister, Deputy Noonan, has stated consistently, the Government's responsibility is to be responsible for taxing things that occur in this country. This is the reason the effective rate is so close to the actual rate of 12.5%, unlike other countries, because, ultimately, the Government taxes what takes place within this country.
The Deputy has also heard the Minister, Deputy Noonan, and me state that a period of change is under way. There is a significant European-wide initiative in this area, led by the bigger countries but which Ireland is supporting, to ensure there will be an advance in this area. The work of the OECD in creating the international standard on this - in respect of both information and the application of a solution - ultimately will resolve this particular problem. However, one can test the view stated by the Deputy. He is firm in his view - while the Government is firm in its view - that the 6.5% rate or the 6.8% rate applies because the distinction is between total profits of companies as against total taxable profits. That is the fundamental distinction the Government makes in asserting that Ireland's effective tax rate is quite close to the actual tax rate. I read the recent PwC report that highlighted a huge disparity in other EU member states in respect of the effective tax rate by comparison with the actual tax rate. I do not believe Ireland has anything to fear or anything about which to be concerned in the circumstance where there is such a small gap between the effective tax rate and the actual tax rate that exists here.
I will repeat what I told to the committee a while ago regarding the Revenue Commissioners' information on this, which has been published. It is worth re-stating that the Revenue Commissioners have stated their information is that of the figure of €41 billion, the total amount of corporation tax payable on these profits was €4.2 billion. This means that even on their figures, there is an effective tax rate of 10.3%, as opposed to the actual rate of 12.5%. Consequently, while there is a necessity to analyse this issue further, that analysis is ongoing at international level. It is feeding into the European-wide response to this issue and I do not discern any necessity for additional analysis on Ireland's part.
This debate will continue and I note there are differing views, even among the members of this small sub-committee on finance. Each of the three members on this side has very different views on corporation tax. I am not trying to raise or decrease the rate in this amendment. As the Minister of State is aware, Sinn Féin's position is to maintain the rate of 12.5% and not to raise or decrease the effective rate of tax. The purpose of this amendment is to seek information and one cannot have a discussion on tax policy without adequate information. I understand the Minister of State's response to Deputy Boyd Barrett and agree one cannot tax income that is not taxable. That is fair enough and I acknowledge the availability of tax credits, carry-forward losses and all those measures that are contained within the tax code.
One could, however, do what is done in respect of income streams all the time, which is to demonstrate in a clear and transparent fashion the effective tax rate for the top 10% of taxpayers in the State. This is known because such information can be acquired from the Government in a clear fashion. Although the aforementioned top 10% of taxpayers can avail of multiple ways to reduce their tax liabilities through reliefs, investments and a range of activities, Revenue has the figures on their total income, the tax they paid and the effective rate of tax. Some areas pertaining to corporate structures are completely different from personal income. Doing this should be possible, however, and the Revenue Commissioners have information on the tax paid by companies, including the income, the taxable income, the taxable profits and so on, that should be capable of being presented to a finance committee or to Parliament in a way that does not interfere with the tax privacy of an individual or company. As to how this should be done, just as I cannot ask the Minister for Finance Deputy Brian Hayes's effective tax rate, because one cannot get such information-----
I can tell the Deputy it is increasing. It is 40-something per cent and rising.
We know whose fault that is.
Yes indeed, that of the Deputy beside Deputy Doherty.
I should let the Minister of State know that if I had my way, he would be paying a lot more than that.
Is that the Matt Talbot school of taxation?
That is a comforting thought anyway.
The point is one cannot get information on an individual's effective tax rate. Similarly, I do not seek the individual tax rate for Apple, Google, Microsoft or the company down the street producing goods or providing services. Instead, I seek an analysis of the effective tax rates. This can be done for income tax and it has been beneficial because when members discuss income taxes, they should be discussing effective tax rates. It does not really matter for many people whether their marginal rate is 52% if their effective rate is 30%, because that is what they care about. It is a question of how much of one's money is going to the taxman or woman and that is also what companies consider, namely, the effective rate, not the headline rate.
There is a way to do this and I have asked the Minister for information in this regard. I have asked, for example, for information on the top ten companies to avoid divulging any State secrets. I have been told that cannot be done. Instead, one could take the top 20 or 30 companies or whatever is the point at which no personal details are being revealed or where the details cannot be nitpicked, present them and look at the others afterwards. One should not be afraid of having an analysis in this regard because one could be 100% right or 100% wrong or perhaps the truth lies somewhere in the middle of all the arguments that have been made. As Mark Twain said repeatedly, there are three types of lies, namely, lies, damned lies and statistics. The problem is members do not even have the statistics. The Government has relied constantly on the ceramic pot manufacturer as the rationale for Ireland's 11.9% effective corporate tax rate but that has been exposed, as it simply does not make sense. It is a start-up company, it is not exporting and cannot carry forward losses because it is only in its first year of operations. It does not make any sense when compared with the companies with which members are discussing here, the top ten of which I understand pay 25% of all corporation tax raised in this State.
This amendment is not about challenging that state of affairs and if it is happening internationally, so be it, but what is wrong with having this discussion here? It is happening here in any event; it is just that it is not an informed discussion. It is a nonsense discussion because for the past year, members have been throwing arguments, accusations and all the rest backwards and forwards but they do not have the data. Consequently, a way should be found to provide those data that does not skew or benefit the Minister of State's argument, my argument, that of Deputy Boyd Barrett or of any other Deputy. Instead, the raw data should be provided in a way that can be presented to facilitate such a discussion. I believe the best way in which to do this is for the Government itself to commission such a report. If the Minister of State holds strongly that the effective tax rate in the State is 11.9% - I understand PwC issued a statement in the past two days stating it is 12.3% or thereabouts - and if he is convinced in that regard, were I in his position, I would be telephoning the printers and telling my officials to get that report completed to knock this myth on the head because the tax structure of the State is under attack. If this is the case, let us unveil and unmask the truths and lay them bare for all to see. Thereafter, were the European Commission to ask questions about Ireland's corporate tax structures, we would have nothing to hide. However, if it is not even possible to satisfy Deputies in respect of such information, how will it be possible to satisfy opponents who may wish to have a go at us because they wish to attract the type of investment the State has enjoyed heretofore? It is in the Minister's interest to do this.
The way in which we have been approaching this subject - we have had regard to comments that have been made by colleagues at the committee throughout the year and during the annual Finance Bill process - is to look at an assessment, subhead by subhead, of the effectiveness of tax. When the Minister produced his statement this year, a number of reports were issued that day on the effectiveness of tax schemes that we have introduced. We have done that on the basis of proposals that have been made. That is a fair way of doing it.
The problem is that companies are not tax individuals. Tax individuals, in the majority of cases, exist in one country. Multinational businesses exist in multiple countries and, as I stated in my opening statement, essentially a blended rate applies.
Deputy Doherty's amendment, in the context of multinational companies, states the Minister shall "analyse the impact of this Finance Act". In any given year, a corporation's ability to pay tax is not based only on the Finance Bill. A multiplicity of issues, not only one Finance Bill, affect a corporation's rate of tax. That must be borne in mind.
The difficulty of producing a model for a company is, of course, the same difficulty that applies to all of the reports published to date by the OECD, the European Commission, PwC, this committee and others - it is based on the assumptions one makes. The assumptions one makes differ, case by case, based on how much is forgone through research and development, capital allowances, etc. That is the difficulty that arises in this regard.
The question I would pose to Deputy Pearse Doherty is with what bit of the data in this area that Revenue has produced on an annual basis is there a difficulty. Without being specific to companies, groups of companies or a model company, it gives the raw data across the tax head, which, incidentally, we all want to see go up. It is in the country's interest that we get more on the corporate tax side after the collapse that occurred in 2007-08.
May I answer the Minister of State's question?
I will bring in Deputy Boyd Barrett and then bring in Deputy Pearse Doherty.
I welcome the fact that we are having this discussion. However, the point is that it needs to develop and get beyond the assertion of different positions which at present do not agree. There are different starting points, but I am glad the Minister of State wants more from them because I want more. I say upfront that these guys should pay more.
We have budgeted for that.
Let us be honest, every other group in Irish society has been scrutinised intensely over the past four or five years to extract more. Rightly or wrongly, that is what has happened. The same level of scrutiny needs to be applied to these corporations.
Broadly speaking, the question I want answered, on which I got some information but which has not really been answered, relates to that big gap between the €70 billion total profits declared and the €4.2 billion total tax paid. There seems to be two points. The first is the move from the €70 billion total to the €40 billion taxable, and then from the €40 billion taxable to the €4.2 billion.
Deputy Boyd Barrett is excluding the €30 billion they can write off.
I want to know how they write it off.
We can go through that.
I want each one of those categories examined. I want to see how it is enforced. I want to see the criteria through which they qualify for those allowances. I want to see if there are possible ways in which they are abusing those categories in order to reduce their tax liability. I want an explanation as to why what is known as the implicit rate in the EUROSTAT figures is considerably lower here than it is elsewhere in Europe.
I was trying to access the EUROSTAT website to look at the latest version of this. In the tables of which I have a hard copy back in my office, the only two countries that have such a low implicit rate are Ireland and the Netherlands and there is a significant gap then between Ireland and other European countries. I refer not to headline rates here but to what EUROSTAT calls the implicit-----
They do not use tax data. They do not use the Revenue's official figures. They only use economic modelling.
I think they do. Those tables were extremely detailed. They showed GDP, amounts of tax paid, and everything. Those are extremely detailed tables. They showed corporate taxes paid. It had figures for these matters and it gave implicit rates. It was self-evident, unless it was an extraordinary co-incidence, that the €6.5 billion EUROSTAT had as an implicit rate for Ireland happened to coincide with the proportion of net tax paid as against total profits, which was €6.2 billion or €6.5 billion here as well. It seemed evident that is where they were getting the figure from.
They had a low figure for Holland and the next nearest was 17%, which, I think, was for Germany and which is lower than its headline rate. Germany had an implicit rate. Britain had a much higher implicit rate, and one can go through the list after that. There were much higher implicit rates and that is what I want a proper explanation for. That is not an explanation the Minister of State can give here but it is something, along with all those headings through which the companies write down their tax liabilities, that needs to be analysed. That is the point.
The question can be answered. If the Minister was willing to do this, we can get our heads together and look at how we can present the data in a way that does not reveal the personal taxation issues of any company.
Going back to my quote about statistics, one can dig deep into them. Recently The Irish Times carried a report which stated, in terms of the top 1,000 companies in the State that account for 50% of the corporation tax payable, the average effective tax rate was 15.5%. Obviously, there are reasons for that. There are two rates of tax. The Minister of State identified the 12.5% rate and then there is also the investment corporate tax which is the higher rate of 25%. Where is the rate for a company? Each individual company, as one went through it, had a different rate. Some paid no tax because they were carrying losses forward. Some paid a low rate of tax. Others have disputed those figures and torn them apart, and have gone into the details of individual companies. This is the problem with the debate.
I have my own views, and my party makes no bones about it. We want to ensure that we get the maximum effective tax rate possible from multinational companies but we have not said what that should be because we do not have a clue what it is at present. Earlier, we discussed income tax. While one cannot look at personal taxation and company taxation, in the past high earners were able to use all the different parts of the tax code to write down their tax liabilities and we brought in a minimum effective tax rate or a high-earner's restriction in the personal tax code. We do not have such a provision in taxation for companies. It is not as simple for companies. If one were not allowing companies to carry losses forward and if they had to pay a minimum effective tax rate, it could be most disadvantageous to a company. We need to look at it through careful lenses. However, we need the information to have that discussion.
There will be issues within the Finance Bill that will impact on this measure but, to tell the truth, I would not have got this through without the reference. A number of my amendments have been ruled out of order because they are declaratory.
John and Mary.
Only one couple out of seven, namely John and Mary, were affected by the budget.
There is no change in the tax rates and bands. It is good news.
The Minister believed it was a brilliant budget; that is why. My point is that we do not want fictional Johns and Marys but data on the real Johns and Marys. We can do this in respect of income when we put all the Johns and Marys together. Statistics can be obtained on a certain proportion without giving away their identities. We can do the same for corporations.
Research and development tax credits are important. Carrying forward losses is important also but we need to figure out whether there is abuse. It is not about shutting down the measures as this makes the country unattractive, but one must ascertain whether they are being abused. Perhaps they are not but, one way or another, we need to move the debate forward and, if necessary, close off the loophole. This debate will continue in an ill-informed way until the Government presents figures and a report that will help us have a proper, informed discussion on the way forward.
These are discussions we have at ECOFIN meetings constantly. The issues are exactly the same. We had a very useful discussion in Lithuania on the basis of the OECD report and on how we move from the current double taxation agreements to the automatic-exchange-of-information agreements, which was discussed before this committee in the past. Countries raised at the meeting the view that if our revenue system gives information on individuals and companies automatically to the US IRS, for instance, can we be certain that the IRS, which operates in a federal system, has the same breadth and capability as our system? Can one compare the IRS to the Office of the Revenue Commissioners, for instance? It is a genuine practical issue. If one is giving information and expecting information in return, one must ask whether both systems have the same reach. These are very complicated issues by virtue of the fact that we not only have different rates across the board, but also different systems and applications of those systems.
The Deputy’s ambition is the same as that of the Government, namely, to ensure the effective tax rate is as close as possible to the actual tax rate. We share that ambition entirely because it is to ensure the total amount in tax taken on the corporate side increases as there are increases in economic activity. I am not sure whether I gave the relevant statistics to the committee earlier. We were taking €6.4 billion in 2007. Last year, 2012, it was down to €4.2 billion, and this year it will be €4.3 billion. We anticipate it will be €4.38 at the end of 2014. The ambition of us all is to get more under this particular subhead.
The question of higher-income earners, as raised by Deputy Doherty, constitutes the very point of difference. We know who the higher-income earners domiciled in this country are and, by and large, we know their income. We know, broadly speaking, what they pay in tax given our effective tax rates. However, can one say this genuinely about large-scale multinationals that operate across multiple countries and tax regimes? The most recent information from the Revenue Commissioners, as I understand it, is that 95% of the top 100 companies in this country are multinationals. They pay €2.8 billion. Effectively, 68% of the total in corporation tax is paid by the top 100 companies, as one would expect. I would not like members to leave this meeting in the belief that the companies are in some way not paying a contribution to the Irish Exchequer under the existing tax code because they are. This is evidenced in the Revenue data.
I repeat my question to my colleagues opposite: what parts of the Revenue information published annually do they have a difficulty with? Perhaps this is related to the point Deputy Boyd Barrett was raising when he asked how we go from €70 billion down to €41 billion and then produce the effective rate of 10.3% based on the amount of tax on profits paid. There are three subheads that result in the reduction. Capital allowances account for €12 billion approximately. Loss relief accounts for approximately €6.5 billion, and approximately €11.5 billion is related to trade charges or royalties. Earlier, I referred to the IP issue. These are all reductions on the total tax bill because they are reckonable expenses, similar to those that any other business would have. If the Deputy requires further information from the Office of the Revenue Commissioners, perhaps he needs to get it from it.
I appreciate Deputy Doherty's amendment because it allows us to debate this issue, which we would not otherwise have had an opportunity to debate. I fully understand why he tabled it. On the Deputy's comments on having another form of statistics, there is no agreement in this area, and that is why the OECD model and a movement in that direction involving Ireland playing its role with other states in the European Union comprise the only way through in arriving at some appreciable outcome. We have absolutely nothing to hide here. We have a very clean and clear corporate tax rate of 12.5%. Irrespective of the effective tax rates mentioned in the various reports that are issued, ours is a hell of a lot closer to that which other countries are charging in terms of all the discounts, provincial or otherwise, that they can factor into their tax systems. If we need more information on this, it will be provided. The OECD is the way to go because it provides the gold standard in terms of tax information exchange, as I have said this committee on numerous occasions.
I have a suggestion separate from that in the amendment. In view of Deputy Boyd Barrett's frequent comments on the EUROSTAT report showing an implicit rate of 6.8%, would the Minister of State ask his officials and perhaps the Revenue Commissioners to revert to the committee with a written report giving the Minister of State’s interpretation of the EUROSTAT report and how EUROSTAT's view can be reconciled with the Department’s view that the effective rate is close to 12.5%. It might add to our body of knowledge. We have this debate regularly and do not seem to move on.
Could we be given some time to collate all the information and produce a report for the committee? It would be helpful. Perhaps it could be produced in the early part of next year.
To try to reconcile the views of EUROSTAT-----
The point is that the EUROSTAT figure is 6.8% and the European Commission figure is 14.4%. The public and the Deputies rightly ask how the figures can be reconciled. The argument I am making is that the EUROSTAT figure is actually based on macroeconomic information, not necessarily on tax. A report laid before the committee might help to distil the issues.
Would it be possible to have it in mid-January, although I realise the work is dense?
It will take a little longer. It may be in the first quarter of next year.
We do not need a 100-page report but a summary.
It would be desirable to explain in the report, whose production I would welcome, the comparisons between the implicit rates in various countries in Europe. I do not fully understand-----
Does the Deputy want us to do it for every other country also?
The Minister of State is saying the gap between the €70 billion and the €40 billion is explained by reference to the three outlined categories and that the write-offs are fully legitimate because they pertain to capital allowances or royalties, for example, and are in accordance with international standards. I do not understand how our implicit figure is so low compared with the implicit figures for all the other countries if we are all using the same standards and if every state is, roughly speaking, applying the same rules.
It depends on the assumption of the methodologies employed.
I believe we need to drill into that.
The request has been made. How stands the amendment?
I welcome the fact the Government will compile a report on this as it is confident that it is correct in this regard. This should be done in a joined-up approach to cover other areas in question. The question is are certain companies aggressively using mechanisms within the tax code to write down their taxable profits and, accordingly, paying a low tax rate. The suspicion is that it is a small number of companies which are pursuing this course. When we get only broad figures from the Revenue, we are not able to get down to the detail, however. That is why we need the information.
I thank colleagues and the debate has been useful. I will give a commitment to produce a note before the committee by the end of quarter 1 in 2014.
Amendment No. 69 has been ruled out of order.
I move amendment No. 70:
In page 60, to delete lines 25 to 38, and in page 61, to delete lines 1 to 4 and substitute the following:
“ “(1B) (a) In this subsection—
‘connected person’ has the same meaning as in section 10; ‘debt’ means a debt or debts, in respect of borrowed money, whether incurred by the person making the disposal of an asset or by a connected person;‘group’ and ‘member of a group’ have the same meanings, respectively, as in section 616.
(i) the amount or value of the consideration referred to in subsection (1)(a), or
(ii) the amount of any expenditure referred to in subsection (1)(b), was defrayed either directly or indirectly out of borrowed money, the debt in respect of which is released in whole or in part (whether before, on or after the disposal of the asset), that amount shall be reduced by the lesser of the amount of the debt which is released or the amount of the allowable loss which, but for this subsection, would arise.
(c) For the purposes of paragraph (b), the date on which the whole or part of a debt is released shall be determined on the same basis as the release of the whole or part of a specified debt is treated as having been effected in section 87B(4).
(d) Where a debt is released in whole or in part in a year of assessment after the year of assessment in which the disposal of the asset takes place (such that the release of the debt was not taken into account in the computation of a chargeable gain or allowable loss on the disposal of the asset) then for the purposes of the Capital Gains Tax Acts a chargeable gain, equal to the amount of the reduction that would have been made under paragraph (b) had the release been effected in the year of assessment in which the disposal of the asset took place, shall be deemed to accrue to the person who disposed of the asset on the date on which the debt is released but, where the disposal is to a connected person, any gain under this subsection shall be treated for the purposes of section 549(3) as if it accrued on the disposal of an asset to that connected person.
(e) A chargeable gain under paragraph (d) shall not be deemed to accrue where, had a gain accrued on the disposal of the asset, it would not have been a chargeable gain or it would have qualified for relief from capital gains tax.
(f) Where a debt released is in respect of money borrowed by a member of a group of companies from another member of the group, the amount or value of the consideration referred to in subsection (1)(a), or the amount of any expenditure referred to in subsection (1)(b), shall not be reduced by the amount of that debt which is released under paragraph (b) or a chargeable gain in respect of the release of that debt shall not be deemed to accrue under paragraph (d).”.”.
Section 552 of the Taxes Consolidation Act 1997 sets out the rules for determining the allowable base cost of an asset for the purposes of calculating any chargeable gain or allowable loss on the disposal of the asset. The amendment in section 40 is designed to ensure only the real economic capital cost of the asset to its owner is allowed as a deduction in the computation of a chargeable gain or allowable loss on a subsequent disposal, where the cost of an asset has been financed with borrowed money that is not repaid to the lender and is ultimately written off.
This amended section contains several refinements to ensure the section works as intended. These include ensuring a loan released before the disposal of an asset will be subject to the restriction. This amendment is necessary as it appears some arrangements for the release of debts may provide that a debt is released before an asset is actually disposed of. It will also ensure any restriction or deemed chargeable gain does not exceed the lesser of the amount of the loss nominally made or the amount of the debt released. It will ensure a deemed chargeable gain cannot arise in respect of an asset that is exempt or fully relieved from capital gains tax while the release in a group of companies of an inter-company loan funded from within the group is not subject to the restriction.
This is a substantive amendment, replacing section 40. This has happened before with the Bill. When there are such amendments, the sub-committee should receive a memorandum on them.
I apologise it did not happen on this occasion. It is a point we will have to incorporate into the consideration of the Bill.
I move amendment No. 71:
In page 61, to delete lines 7 to 28 and substitute the following:
“41. (1) Section 598 of the Principal Act is amended in subsection (1)(a), in the definition of “qualifying assets”, by substituting the following for paragraph (v):
“(v) land which has been let by the individual at any time in the period of 15 years ending with the disposal where—
(I) immediately before the time the land was first let in that period of 15 years, the land was owned by the individual and used for the purposes of farming carried on by the individual for a period of not less than 10 years ending at that time, and
(II) the disposal is—
(A) to a child (within the meaning of section 599) of the individual, or
(B) to an individual, other than a child referred to in clause (A), provided the land was let to a person for the purposes of farming during the period of 15 years referred to in subparagraph (I) and each letting of the land was for a period of not less than 5 consecutive years;”.”.
This amendment relates to section 41. That section amends section 598 of the Taxes Consolidation Act 1997 which grants relief in respect of a disposal of business or agricultural assets which have been owned and used by the individual disposing of those assets for at least ten years prior to the disposal.
The relief also applies, subject to certain conditions, to land which has been farmed for the required minimum ten-year period and is then let. Section 41 extends the relief to a disposal of farm land which has been farmed for the required minimum ten-year period, is let for a period or periods of up to 15 years, with each letting being for a minimum period of five consecutive years, and is then disposed of to a person other than a child of the person disposing of the land. The purpose of the extension is to encourage older farmers who have no children to lease their farms on a long-term basis.
Section 41 properly confirmed the application of the lower limits of the relief to the consideration received on such disposals when made outside the family. In this connection, a limit of €750,000 applies where such disposals are made when the disponer is aged between 55 and 66, while a limit of €500,000 applies from 1 January 2014 where the disponer is aged 66 or over. In doing so, however, the wording of the amendment also imposed the same lower limits on the current relief for disposals of land which is let and subsequently disposed of to a child. This relief has been in place since 2007. It has been suggested the more generous levels of relief which apply to disposals to a child within the meaning of section 599 of the Taxes Consolidation Act 1997, and which, up to now, have applied to such disposals of land which has been let, should not be restricted. This would have the effect of reducing the attractiveness of long-term letting in such situations. Currently, there is no upper limit on the relief available where the farmer aged between 55 and 66 disposes of qualifying land to a child within the meaning of section 599 of the Taxes Consolidation Act 1997. Where the farmer is aged 66 or over, a limit of €3 million will apply to such disposals on or after 1 January 2014.
This amendment ensures where land which has been farmed is let and subsequently disposed of to a child, the higher levels of relief available under section 599 of the Taxes Consolidation Act 1997 will apply, thus restoring the position that has applied since 2007.
I recommend the amendment to the select sub-committee.
Does this amendment allow a farmer to dispose of land to persons outside of his or her family and still claim the relief?
The section was always confined to a child of a farmer. This is wealth the farmer has accumulated. Why should we allow this be introduced?
The person has to be farming for ten years to obtain the benefit of this. Yes, it is an extension and moves outside the nuclear family model. The objective, however, is to ensure the land can be passed on to a younger farmer. The relief will only apply in circumstances when the land has been let for a ten-year period.
What about the requirement on the purchaser to farm the land?
The purpose of the extension is to encourage older farmers who have no children to lease their farms on a long-term basis.
Can they dispose of the land and obtain this relief?
My understanding is that they can dispose of it.
This new section provides them with the relief for the first time if they dispose of the land. I can understand it with regard to renting the land and I do not have a big issue with it, even though it moves away from the child. Before this, in disposing of the land for the first time, if it went to the child, the relief would have been available.
The answer to that question is "Yes".
In this section is there a requirement on the person who purchases the land to actually farm it?
My understanding is that his or her capital gains tax position is determined when he or she subsequently disposes of it.
Will the Minister of State explain that to me again?
Once he or she sells the asset. I presume one cannot make it a requirement that it be farmed after that.
That is exactly my point, 100%. The relief - 90% or something like this - is available for farmers to hand over the asset to the children and not be subject to capitals gains tax. We are now extending it to cover renting to people other than the child, which is understandable because if one rents the farm, it will be farmers who will farm it. If one disposes of it - this is about encouraging farmers to hand over their farms - there is no guarantee the farm will be sold-----
My understanding is that we are putting this measure in place for farmers without children as a means of encouraging them to give the land to younger farmers to utilise. Obviously, the previous scheme applied to a family in circumstances where the land was to be handed down, but in a circumstance where a farmer does not have children, it is believed the application of this measure will help him or her utilise it for that purpose.
If I was a farmer in County Meath with a farm in the commuter belt, somebody was interested in building one or two houses on it and I was to dispose of my farm-----
Would the Deputy have a big windfall?
I would obtain the relief, but somebody could build a couple of houses on the farm I had just sold, as happened a number of years ago.
My understanding is that one must be farming it or letting it to another individual who will farm it for at least ten years.
Yes, but I have been farming it for ten years. The point is that up until now, if I was a farmer who had been farming for ten or more years and decided to hand over the farm to a child, I would have obtained this relief. It was provided to keep the farm in the family. I can now hand over the farm to anybody who can use it for any purpose, including building property, and still obtain the relief. In respect of the intention of the section and the possible application-----
I understand the Deputy's point. His concern relates to where someone obtains this relief; he or she farms or leases the farm to another farmer and at the end of ten years sells a whack of land for a whole pile of money for it. The Deputy's concern is whether this is a good use of a taxation scheme. A limit of €750,000 applies where such disposals are made when the disposer is aged between 55 and 65 years. A limit of €500,000 applies from 1 January when the disposer is aged 66 years or over. Even if one was to sell a whack of land for €10 million, the limitation is only €750,000 of the €10 million.
Can there be multiple disposals or only one?
That is a good question. One cannot split it.
It cannot be split. Therefore, there can only be one disposal.
Taking Deputy Pearse Doherty's example, which is a fair one, or even an example involving a sum of €2 million, it would only apply to a limit of €750,000 for those aged between 55 and 65 years and €500,000 for those aged 66 and upwards.
Are they obtaining relief at a rate of 90% on the capital gains?
I understand it is only on the gain.
Therefore, if small farmers in my constituency and on the west coast who have been farming for ten years or more are over 55 years, they can sell their farm to an individual to be used for any purpose and now benefit from this tax measure?
The farmer must also have been letting it.
That was my original question. How can one dispose of it and let it at the same time?
The only circumstance where one would do this is where one was letting it and where at the end of the letting period, one decided to dispose of it. One has to let it first.
One would have to let it for a period of time?
Amendment No. 72 in the name of Deputy Pearse Doherty has been ruled out of order.
Section 42 extends the capital gains tax relief on property purchases up to the end of 2014. Something appears to be happening in the property market and I am sure the Minister of State has seen the latest figures from the CSO today which show that in the 12 months to the end of October, there was a 14.6% increase in prices in Dublin, with an 18% increase in the price of apartments. I am trying to get to the bottom of the Government's motivation. Is it to clear the excess stock? Clearly, this provision is designed for investors because there is no capital gains tax liability on the sale of a family home once it has been occupied and so forth. In the next section we can contrast this relief with the relief the Government is proposing for entrepreneurs, but I would like to know what its rationale is and what it is seeking to do in the property market and on property prices.
I think we introduced this measure in our second budget and that the Minister for Finance said at the time that the entire objective was to get transactions going again. During the past year, particularly in some parts of the market, we have seen significant improvement. However, this has not been replicated in all parts of the country. The objective of moving the date to the end of 2014 is to encourage this. We all have a vested interest in making sure there are transactions and that the tax due to the State improves as a result. Whether it moves beyond this is another matter, but that is the objective of the exercise, as I think the Minister has made perfectly clear.
I am concerned about this section. The Minister spoke earlier about where we were in respect of the market in Dublin. There is an issue with supply in that regard. Is it not fair to say the extension encourages investors to seek and buy properties because they will not be subject to capital gains tax if they meet the requirements laid down?
Demand is being increased at a time when we have an issue with supply. The effect will be to increase prices in areas where there are supply issues. The amendment is not well thought out. Perhaps the intentions behind it are good, but it is not appropriate at a time when we are starting to see big problems of supply and demand in Dublin. We do not need to stimulate investors to seek properties at this time.
Most of the Minister's remarks were about the residential property market rather than the commercial market. The relief only applies in circumstances where the investor holds on to the property for a period of seven years. The big collapse in tax revenues was focused on stamp duty. The 2008 figures show that, from a position where we took in approximately €50 billion in tax on an annualised basis, we dropped by €14 billion in one year. Much of the collapse is attributable to the property market. Nobody is going back to the over-hyped market to which Deputy Pearse Doherty referred, but in a context where the number of transactions is low, everything should be considered to encourage the continued emergence of the positive signs we have seen in the property market. The extension of the scheme for another year is simply aimed at encouraging people to take up these opportunities over a seven year period. I do not think it will over-hype something already in place. We do not have one property market; we have multiple markets, as the Deputy will be aware from his constituency. It is not dissimilar to what is happening in the United Kingdom, where the London property market is very different from what is happening north of a line between Manchester and Birmingham. We have to be conscious of this, but many of the developments of the future will be related to where we locate development, as opposed to the taxation system. Is it good to try to achieve more of a yield in an area which has experienced a cataclysmic reduction in taxes? Yes, it is. Will it help stability? I very much hope it will. However, I would not read too much into it in terms of the series of measures we have taken thus far to achieve more stability and confidence in the property market.
We need to put the debate in context. If a property was once worth €200,000 and then halved in value to €100,000 before increasing to €115,000, it is still a long way short of the original value. This is an intervention in the market. The Government is interfering in the property market.
It is the continuation of an intervention.
It was due to end next month, but it is being extended. We need to tease out its implications. Having a market that in some areas is growing by double digit percentage points is not good. I do not know where the Government wants the property market to go in terms of prices. Anybody who owns a property will be happy to see prices increasing, but people who are waiting to buy or are saving will not be as happy. I am not certain about the purpose of the amendment. What is it designed to achieve? Clearly, it will have the effect of encouraging investors into the market at a time when young people, first time buyers in particular, are struggling to buy houses in the greater Dublin area.
One of our objectives when we first announced this measure in the budget two years ago was to get to the bottom in terms of encouraging the overhang in the market to move on these properties. There is no doubt because I heard it from people in the industry that the measure had an impact on encouraging transactions, which is all to the good. None of us wants to see the re-emergence of a bubble. The Dublin market has seen an improvement and supply issues will have to be addressed, but I do not see the extension of the scheme as adding to the bubble.
I am not saying it is a bubble, but it is an increase of 15%.
Nobody ever calls it a bubble until it bursts. I am not suggesting it is a bubble, but there is definitely an issue. There was logic in introducing this measure last year because there was next to no activity in the market. The measure aimed to encourage people to have a look-around. There is activity now, but there is also a supply issue. I agree with the Minister of State that we have several property markets, but let us focus on the capital city. It should not be the Government's objective to increase demand in Dublin at this time. The extension of this measure will increase demand because it provides for a gain. The view on the street is that we have reached the bottom and are starting to see prices rising once again. That is why people are jumping at the same time. Investors prefer to wait until a market hits the bottom in order to maximise profits. We do not need to give them additional incentives. I strongly suggest we do not continue the scheme this year. It may not have a major impact because much of the market is about confidence and feelings. While the number of individuals who gain from the relief may be limited, it sends the wrong signal in respect of the capital. I, therefore, suggest the Government reconsider section 42.
There are conflicting views on the property market. People who are in negative equity want to see house prices increasing, whereas those who are trying to purchase homes want the best value. The reality is that half the people who are residential home owners have no mortgages. Does the strategy aim at normalisation or recovery? According to the Irish Banking Federation, approximately 2,000 mortgages were issued last month, of which 92% were in the residential market. There is movement in some parts of the country. To answer the riddle posed by Deputy Michael McGrath, normalisation is a three up-three down house costing three or four times the national industrial wage. Any incentive or tax relief in the property sector that moves a common or garden house outside of that band should set off an alarm bell. People should be borrowing three to four times their incomes, with a loan-to-value ratio of 90%. That is the only caveat I would make.
Two distinct issues arise in respect of Dublin, one on the commercial side and the other on the residential side. There is no doubt that activity on the residential side has increased and supply issues are emerging. The Chairman's point on how we provide for the family with two or three children will be a key issue, particularly around the capital. On the other side of the equation, however, there is a dramatic oversupply on the commercial side. I recently read a report which calculated that we had 20 times more space on the commercial side than in the United Kingdom on a per capita basis.
Is the Minister of State referring to business space as opposed to residential space?
Yes. While supply issues are emerging on the residential side, particularly in Dublin, the same cannot be said about commercial property.
As the Deputy knows, there are buildings everywhere. The objective of this exercise was to give confidence and stability. In his Budget Statement the Minister said he is extending it for one year. He has not made any comment on extension thereafter, nor will I. The objective of this is to move it on for one year. I presume he will examine whether he will extend it. There is a significant oversupply of commercial space throughout this country.
This amendment is not restrictive of commercial space. The problem is that if the Minister is bringing forward a section 42 which deals solely with capital gains tax for properties, excluding residential properties, that would a different debate. We are in a mess with mortgage arrears because of buy-to-let properties. People are not stupid. Prices are rock bottom and they will increase. People are choosing to invest in properties when they think the market has hit the bottom, but they are the same properties a young couple are seeking to buy. We could have a debate on interfering with the market in commercial property space.
This is the nub of it. I may have a different view to Deputy Doherty on property prices. I may have the view that properties are at their proper price. Cork city three bedroom properties are around €140,000 to €160,000, three or four times the national industrial wage. Are they at the right prices or at the bottom? I suggested earlier that this must become the benchmark we put the lights on and if such properties go outside that scope, we need to examine incentives like this. I do not agree that property prices are at rock bottom. They are at their real value.
They have hit the bottom in terms of the trajectory where they have fallen by 55%.
Or one could say they have normalised.
Of course, we are only playing with-----
They could be the same thing.
I agree with many of the Chairman's comments.
Deputy Boyd Barrett does not often say that.
We flew through section 36-----
We are not going back.
I am allowed, within Standing Orders, to signal a matter for Report Stage.
I apologise. I thought the Deputy wanted to debate it.
It is relevant to this discussion, and that prompted me to think about it. I have concerns about real estate investment trusts similar to the ones expressed about this. I will return to that on Report Stage. I worry that we are going down that road. While they are at the bottom and it might be the real price, the people who have money are buying up at the bottom of the market and controlling the market. The REITs may contribute to this. I do not know the figures for the take-up of REITs. Another feature in Dublin and elsewhere is rents going through the roof. This is causing real problems and leading directly to homelessness. How are we going to deal with that?
It would be the greatest irony in the world if, after an enormous boom and bust which crashed the economy, we end up back in the same situation we were in before it, where the same sorts of people control the housing and rental market, and if we in any way incentivise the same stuff to happen again. This is not a comprehensive answer to it but one thing that would help control and regulate it a little would be if we increased the direct provision of social housing to keep prices from inflating out of all control. I worry about any property-based tax incentives, that we could make all the same mistakes again.
Previous Governments have taken out of commission all the property-based tax incentives that were in place and that were a contributing factor to the collapse. They are not coming back any time soon. The only advance the Minister, Deputy Noonan, made in this and the previous budgets was on an issue to which Deputy Boyd Barrett referred, namely, improving Victorian houses. That is a very targeted measure very specific to owner-occupiers trying to encourage improvements. The key issue we are making about section 42 is that we have seen some recovery in the market in recent years but we are still coming from a very low base. What is the base? That is a very good question.
If he were here, the Minister, Deputy Noonan, would make the point that we will see how this goes this year. The objective is to move it on for another year. When we introduced this measure, it was as a means of bringing some stability to a market that had collapsed and was in crisis and free-fall. It is the Minister's firm view that the market would benefit from the continuation of this support for at least one more year. Whether it will continue beyond that is an open question which we will have to review in 2014.
I have one final observation. An absence of social housing is not driving up rents in the private rental sector because there are income caps before someone can go into social housing. What is driving up rents is that there is a group who would purchase properties but are saturating the rental sector in a wait-and-see approach.
I signal a possible Report Stage amendment to section 42.
Amendments Nos. 73 to 75, inclusive, are related and will be discussed together.
I move amendment No. 73:
In page 62, line 7, to delete “by an individual”.
This is very much linked to the debate we have just had on property. I was struck by a recent article in The Sunday Business Post by entrepreneur Brian Caulfield. He compared the incentives being put in place for property and entrepreneurial activity. He said we make "no distinction between the risky, hard-won, job-creating gains of entrepreneurial activity and gains from non-productive speculation on land". He critiques what is being proposed on capital gains tax, CGT, entrepreneurial relief. It is welcome and is a step in the right direction but he points out that to benefit, one must first make a capital gain, not before 2010, pay the CGT in full and reinvest the proceeds in another venture which may be risky. If one is lucky and that venture gets to a successful exit, the best-case scenario is that one's overall effective CGT rate across the two investments drops to 22%. Meanwhile somebody who buys property and holds on to it for seven years pays no CGT. That is a valid point which is worth debating. Since 2008, the UK offers a 10% CGT rate on gains from entrepreneurial activity. Amendments Nos. 73 to 75, inclusive, are designed to amend the CGT relief for reinvestment in certain businesses which would, for example, allow angel investors to qualify and remove the need to roll over the initial investment to get relief from CGT.
Amendments Nos. 73 to 75, inclusive, propose to make changes to section 43 which inserts a new section 597A into the Taxes Consolidation Act 1997. Section 43 provides a new CGT relief for entrepreneurs who reinvest the proceeds of previous disposals of assets, on which they have paid CGT, in the acquisition of chargeable assets used in new business ventures. The effect of these three amendments would be to extend the relief beyond what is intended in the section as published.
The first amendment would extend the relief to companies and other persons.
The second amendment would extend the relief to individuals who are full-time working directors but who are not in control of the companies in which they work. The third amendment would give a capital gains tax credit to any individual in respect of any gain made on the disposal of any asset on which capital gains tax has been paid on or after 1 January 2010, regardless of whether it is a chargeable business. These proposed amendments would significantly widen the scope of the proposed relief in a manner which could have significant costs for the Exchequer. In these circumstances I cannot accept the proposed amendments.
I accept that this is a limited relief. There is broad support for the idea that if people are making money from a capital disposal and then decide to reinvest it in a business, we should encourage that and treat it differently under the tax code. That is quite targeted. Deputy Michael McGrath is posing a fair question. Does it make a difference in terms of what we are trying to achieve, because of the conditionality that exists? Clearly they are within section 43. The answer to that is that we should see where it goes. This is something new. In his Budget Statement the Minister said he was prepared to do this to send out a strong message to entrepreneurs who wanted to reinvest in business that there was a good business environment for this. It would be for a future finance Bill to decide whether we should extend it further along the lines Deputy McGrath has outlined in his amendments because otherwise the potential cost could be quite significant.
Many of the reliefs that existed some years ago, particularly on the property side, were so expansive as to expose the country's ultimate tax base when times became difficult. We do not want to return to that. We need very targeted reliefs to engender confidence in business and economic activity. If, as we go through this year, a case can be made for extending this further in the knowledge of the kinds of benefits we get from it, we will look at it. However, we could not take the extensive approach the Deputy proposes in his amendments.
I acknowledge that we will need to see how this new initiative goes. In so far as it goes, it is to be welcomed. In general we should have more incentives to support enterprise, start-up businesses and entrepreneurial activity because, increasingly and particularly at the high end, they are choosing locations other than Ireland because of the capital gains tax regime. I just gave the example of the UK which has a 10% rate as opposed to our 33% rate. It is an issue we need to watch very closely.
Amendment No. 76 in the name of Deputy McGrath has been ruled out of order.
I move amendment No. 77:
In page 64, between lines 36 and 37, to insert the following:
“(c) in section 102(9) by substituting “under subsection (1), (1A), (1B) or (3)” for “under subsection (3)”,”.
This amendment is to the provisions for mineral oil tax offences. Where an offence of “fuel laundering” or dealing in laundered fuel is committed by a company, then any director, manager, secretary, other officer of that company or any member of a management committee or other controlling authority of that company can also be prosecuted where that person concerned consented to the committing of that offence. The amendment will extend this provision, for liability of responsible persons in a company for offences committed by the company, to all mineral oil tax offences. This is required because all mineral oil tax offences, including in particular the offence of trading without the appropriate mineral oil trader’s licence, are relevant to the problem of illegal supply and delivery of laundered diesel. It is an extension of what we have introduced in the past two years to include all people who might have dealings with this as a means of clamping down on the illegal nature of the operation.
I move amendment No. 79:
In page 73, between lines 24 and 25, to insert the following:
"52. The Minister shall, within one month of the passing of this Act, prepare and lay before Dáil Éireann a report on options available for the introduction of a rate of 3 per cent betting duty for online and in shop bets.”.
This calls for a report on the options available to introduce a 3% betting duty for online and in-shop bets. In the budget for 2009, betting duty was increased to 2% but this increase was never implemented. The portion of tax from betting has decreased over recent years.
It is paid into the Horse and Greyhound Racing Fund, which needed to be topped up by the State in previous years. We need movement on this matter.
I welcome the fact that online gambling and betting exchanges are being brought into the tax net. This is long overdue and I hope that we will see returns in the next calendar year, but we need to consider other areas that can increase revenue. We have discussed many of them during our debate on this Bill. My party is critical of some elements relating to, for example, single fathers and so on. More can be done on betting. It is a vice. Some people enjoy the odd flutter. This matter is at the Minister's discretion. We have no problem with taxing alcohol. There were increases in the tax on wine last year and this year. Cigarettes are often targeted. However, betting has not been targeted. With a view to considering everything, we should have a report on the implications of a 3% tax rate on online gambling and shops. The rate used to be 10%.
I thank the Deputy for this amendment. The taxation of remote betting operators is designed to level the playing field with traditional bookmakers and the Betting (Amendment) Bill 2013, published in July, provides the regulatory framework for this. The Bill was subject to a three-month standstill period under the EU technical standards directive. This commenced in July and a number of communications seeking clarification around aspects of the Bill have been received from the Commission and responded to by the Department in that time. Progress on the Bill is now subject to agreement on scheduling by the Whips and I am still hoping to be allocated time to progress the legislation through the Oireachtas before the end of this session.
There have been a number of calls for an increase in the rate of duty that applies to betting. This was also proposed as part of Sinn Féin's pre-budget submission. However, the Government's preferred approach has been to extend the base on which the 1% rate applies, ensuring that the tax is applied fairly widely on a level playing field for all. When we can be sure that we have in place a framework that captures all betting, the prospect of a rate rise can be explored. All taxes are reviewed on an ongoing basis by officials from my Department and the Revenue Commissioners and this one will be no different. However, the priority is to extend the tax to the remote sector.
As I am sure the Deputy is aware, if one applies a tax in one area of gambling but not remote betting, people will move into the latter. My understanding of the Minister's objective is that, by applying the 1% rate across the board, we can consider extending it at some future point. A level playing field is necessary. Gambling has witnessed much change in recent years, for example, online, on course and off course. We must reflect these changes in how we capture betting. The Minister's current priority is to establish a level playing field for everyone. As such, we will not accept the amendment.
That has been the priority for the past two years. The Betting (Amendment) Bill was published in July. This has been signalled. The 2% increase was included in the Finance Act 2010, but a decision was then taken not to proceed with it. The Minister of State is 100% right, in that online exchanges should have been subject to this excise tax. Additional questions arise. I have met some of the exchanges. They have provided a service but are exempt from VAT. They have had it very sweet for a long time. Thankfully, they will enter the tax net after this Bill passes through the Houses.
However, a level playing field is not the issue. We must increase tax revenue. While I welcome the Minister of State's comments on achieving a level playing field and then considering increasing the rate, my amendment would only require that a report on the options be made. It is not simply a case of increasing the rate to 2% in respect of bookies and wondering what to do with the exchanges. Currently, the rate is 15% compared with 1%. What would be the effect of a 2% increase? What would be the impact in terms of jobs, etc? We must tease out all of these factors. The Government may provide figures to this committee next year and there may be an increase, but we should flag it now. The industry has not been taxed appropriately when taxes on nearly all other sectors have increased. If one gambles, a 2% or 3% tax on the bet is not onerous.
The Minister of State and I are in the same area. I am probably more committed, in that I would like to see a 3% rate and a report on what its implications would be and what the corresponding rate in respect of betting exchanges would be.
I understand the Deputy's remarks about a lack of progress on the Bill thus far, but it is the Minister's firm intention to commence Second Stage during this session. We have some weeks yet and he hopes to make progress, pending a schedule from the Whips. A stand-alone issue arises under the EU technical standards directive, in that at least three months must pass. We could not get around that directive after publishing the Bill.
I understand that the 1% rate raises approximately €27 million. Achieving a level playing field with online gambling could potentially raise €20 million, representing a total yield of €47 million. The dilemma is that online bookies are a bit like capital and labour, in that they move quickly. Trying to capture them for taxation purposes is an horrendously difficult international task. They can move quickly to jurisdictions with tax bases that are not as transparent as ours.
I am unsure as to what figure Sinn Féin's pre-budget submission asserted a 3% rate would achieve. Although there is the potential to obtain additional taxes, it must be done on the basis that the rule applies to everyone, including online operators. We cannot move to that new space until such time as we have a level playing field.
I was just about to ask the Minister of State about our capacity to capture all online betting transactions. Some of those involved have operations in Ireland whereas others do not. Anyone can watch a football match, see the adverts on the side of the pitch and place a bet online. Do we have the capacity to capture all such transactions and implement this tax? Is that the reason for the delay in this legislation? How close are we to having the capacity?
It is a significant challenge. My understanding is that there is a credit card-based system called merchant acquired data. Presumably, much of those data are based on what merchants provide to Revenue. As such, when we say that there is the potential to raise €20 million on the online side through the 1% levy, there is no guarantee. Using the data, one should be able to get an idea of the total number of bets that are made online. However, online activity is difficult to detect.
The objective is to get the Bill through, after which we will be in a stronger position to consider additional tax measures in future budgets. I do not know whether increasing the rate to 3% would be as simple as multiplying €27 million by three. We would need to contend with the fact that people with habits have a way of getting around measures. The Minister hopes to commence the Betting (Amendment) Bill by the end of this session.
Amendments Nos. 80 and 81 are related and will be discussed together by agreement.
I move amendment No. 80:
In page 75, line 20, to delete "and".
The purpose of amendment No. 81 is to provide that the excise duty payable on licences for remote bookmakers and betting intermediaries may at the option of the applicant be paid either in full at the time of issuing of the licence or in two equal instalments. If the instalment option is selected the first instalment would be payable at the time of issuing or renewal of the licence and the second instalment would be payable on or before one year prior to the expiration date of the licence. This amendment also makes similar provisions for the payment of the excise duty payable on registration for the renewal of registration of bookmakers' premises. These provisions will apply over the two year licensing and registration periods introduced. There is a range of different charges in this regard but in the majority of cases it is €500. The inclusion of this provision allows for payment by way of instalments.
I move amendment No. 81:
In page 75, line 29, to delete "December."." and substitute the following:
(c) by inserting the following sections after section 66:
“Payment arrangements for excise duty payable under section 65, 66A or 66B
66C. (1) The excise duty payable under section 65, 66A or 66B, as the case may be, shall, at the option of the person by whom it is so payable, be paid—
(a) in full at the time of the granting or renewal of the licence, or
(b) subject to subsection (2), in two equal instalments as follows:
(i) the first instalment at the time of the granting or renewal of the licence, and
(ii) the second instalment—
(I) in the case of excise duty payable under section 65, on or before 30 November next following the granting or renewal of the licence concerned,
(II) in the case of the excise duty payable under section 66A or 66B, as the case may be, on or before 30 June next following the granting or renewal of the licence concerned.
(2) Where the period between the date of granting the licence concerned and the date on which it falls due for renewal is one year or less, the excise duty payable under section 65, 66A or 66B, as the case may be, shall be paid in full at the time of the granting of the licence.
Payment arrangements for excise duty payable under section 66
66D. (1) The excise duty payable under section 66 on the registration or renewal of the registration of a premises shall, at the option of the
person referred to under section 66(2), be paid—
(a) in full at the time of the registration or renewal of the registration, or
(b) subject to subsection (2), in two equal instalments as follows:
(i) the first instalment at the time of the registration or renewal of the registration, and
(ii) the second instalment on or before 30 November next following the registration or renewal of registration.
(2) Where the period between the date of registration of the premises concerned and the date on which it falls due for renewal is one year or less, the excise duty payable under section 66 shall be paid in full at the time of the registration.
Section 52 agreed to.
I move amendment No. 82:
In page 79, line 28, to delete " "€2,000,000" " and substitute " "€2,500,000" ".
The increase in the threshold for accounting for VAT on a cash receipts basis is one of the most significant measures introduced in the budget to assist SMEs. Anyone in business will know that for SMEs the VAT return is a significant cash flow issue, particularly if it is on the basis of invoices issued, in respect of which there could be significant delays in terms of payment, particularly in a period of economic downturn.
The threshold is being increased to €2 million, which I note from the budget documentation will cost €15 million in 2013 and nothing in a full year. Clearly, there are timing issues involved. Perhaps the Minister would explain how the figure of €2 million was arrived at and why it is not proposed to go further if it is neutral from an Exchequer point of view to do so but involves significant benefits for the SMEs involved.
Section 61 of the Bill gives effect to the budget announcement to increase the VAT cash receipts accounting threshold from €1,250,000 to €2,000,000. This amendment proposes to increase the threshold further to €2,500,000. Deputy McGrath and others will be aware that as part of the budget announcement last year by way of the ten point action plans for SME business, the threshold was effectively doubled, which as the Deputy has acknowledged, has been a significant boost for people in business and, in particular, cash flow.
The cash basis can only be used for certain transactions or certain categories of taxable persons. It cannot be used to replace the normal VAT arrangements across the board which might be the case if an excessively high threshold were used given 66% of taxpayers are already using the cash basis system. In addition, an increase in the threshold to €2.5 million would be very costly to the Exchequer, costing an additional €12 million on top of the proposed €15 million cost of the budget 2014 increase. It is not neutral; there is a cost in terms of cash flow. The Deputy could, in terms of what he is proposing, be writing the budget speech for next year. The cost this year would be excessive.
Did the Minister of State say 67% of taxpayers are accounting on a cash receipts basis?
I am satisfied with the Minister of State's response. I am sure he will acknowledge that by virtue of the change made in this budget, last year's change did not go far enough in that the increase then was from €1 million to €1.5 million and this has been increased this year from €1.5 million to €2 million, which is a significant improvement that has real practical benefits for businesses in terms of cash flow. I will accept that for now.
I move amendment No. 83:
In page 79, between lines 28 and 29, to insert the following:
“62. Section 80 of the Principal Act is amended by inserting a new subsection between subsections (5) and (6) to read as follows:
“(5A) Where, in relation to a supply of agricultural produce or an agricultural service by a flat-rate farmer, an invoice is issued, that invoice must carry a VAT number and PPS number for moneys claimed against income tax by farmers and farm businesses.”.”.
I tabled a similar amendment to the previous Finance Bill, on which we had a discussion. It is an amendment proposed by those involved in farm contracting services. The idea is that all invoices for farm contracting services include a VAT number or PPS number for moneys claimed. This is being advocated by the contracting and farming communities who believe enactment of this measure would do away with black market activity in the agricultural sector.
The black economy is a problem within our society. It deprives the Exchequer of much-needed revenues and poses a significant threat to legitimate business. For these reasons, tackling the problem is treated as a priority for this Government and by its agencies, in particular the Revenue Commissioners. With regard to the Deputy's proposal that all invoices issued for farming contracting services carry a VAT or PPS number, I am aware of this proposal as it was discussed in the Dáil in the context of the Committee Stage debate in a previous Finance Bill.
Farmers are not obliged to register for VAT in relation to supplies of agricultural produce. A farmer who is not registered is known as a flat-rate farmer and will not have a VAT number. Under VAT legislation, the invoice or settlement voucher issued in relation to a supply of agricultural produce or services is required to include the full name and address of the flat-rate farmer who supplied the goods or services. There is no requirement under VAT legislation to include a PPS number on any invoice or similar document issued to a customer. However, the recipient of the goods or services must have a valid invoice or settlement voucher that sets out the name and address of the supplier, the details of the supply, the amount charged, etc. This document must be retained for a period of six years by the person who is claiming a deduction from income tax in respect of the expenditure. This ensures that a satisfactory audit trail exists between both parties.
I am conscious that the need to tackle the black economy must be balanced against imposing onerous additional administrative burdens and costs on business. New measures to improve compliance are always being considered and it is important that those measures are proportionate. My officials have discussed this issue with the Revenue Commissioners and it has advised that regular reviews and compliance operations in this sector are carried out. My Department and the Revenue Commissioners have received general complaints about tax evasion in the industry in the past from farming representative bodies but, when requested, no specific details of non-compliance or tax evasion have been submitted. If information of this nature is presented, it will be treated with total confidentiality and it will be fully investigated.
As stated during the discussion on this issue last year, if contractors would like to make information available to us on a totally confidential basis, we will follow up on it. We do not believe the problem as identified by the Deputy is widespread, although I do not think that is what he is suggesting. This is the reason we have not received any specific complaints from contractors of this particular problem.
It will clearly be kept under review. The key issue is whether we are putting a significant burden on farmers and the Revenue Commissioners because of the additional layer of bureaucracy. If the problem is as widespread as some people suggest, a solution can be found. We need to have evidence of it and thus far we have not found it.
We will not tear the backside out of this issue as it was discussed last year; the Minister of State has given the same response, word for word. If nothing else, the Minister of State is consistent.
That is not too bad.
The Minister of State is not being institutionalised.
The Deputy can put the same amendment next year.
Do not worry, I will do so. I can be persistent. I am making the same points I made last year. The process would not be overly burdensome. I would be the last to apply additional layers of bureaucracy as we should shed bureaucracy from the agricultural community, with efficient regulations to replace the overly burdensome red tape that we have. There is the issue of asking any contractor getting payment for a service to put a PPS number on an invoice and many people know these numbers by heart. It is not a major burden to ask these people to do this. It is normal practice. I used to work in a project in the community sector and I spoke to somebody recently involved in the sector but outside of that project. As the work is State and EU-funded, if there is an event involving the Minister performing an official opening, there may be problems even supplying tea or bread for sandwiches. If the supplies from the shop are not tendered to three different parties or do not have a tax reference number or address, they are ineligible for consideration. Nevertheless, it seems the Revenue Commissioners believes a PPS number should not be put on what is an invoice.
We can compare that with previous sections of the Finance Bill. The home improvement scheme is very good and we can see the rigorous checks and balances used in that respect. The contractor must go to the Revenue Commissioners and be approved, and there should be details of the work and estimated value. There must be a timeframe and they will be given a unique identification number that must be submitted to the individual paying for the work within ten days of getting paid. The contractor and claimant must provide all these details, including the property reference number for the property tax. One can speak of bureaucracy but this is to ensure nobody is fiddling the system. Asking a person to put a PPS number on an invoice for a service provided is not being overly bureaucratic. That said, I will be withdrawing the amendment until this time next year.
God willing, we will all be sitting around the table again.
I move amendment No. 84:
In page 79, between lines 32 and 33, to insert the following:
“Notice of requirement to furnish certain information, etc.
63. Part 13 of the Principal Act is amended—
(a) in Chapter 1 by inserting the following section after section 108:
“Notice of requirement to furnish certain information, etc.
108A. (1) The Revenue Commissioners may, for the purposes of the prevention and detection of tax evasion, serve a notice in writing on an accountable person whom the Commissioners have reasonable grounds for believing is likely to have further information, explanations or particulars in respect of any books, records (within the meaning of section 108), accounts or other documents relating to his or her supplies of goods made to his or her customers which may assist in identifying taxable supplies in respect of which tax chargeable will not be, or is not likely to be, paid requiring the accountable person to furnish to the Commissioners any such information, explanations or particulars as they may reasonably require and which they consider may so assist.
(2) A notice served under subsection (1) shall—
(i) the date from which the notice shall have effect, being a date not earlier than 7 days from the date of service of the notice,
(ii) the information, explanations or particulars, referred to in subsection (1), required to be furnished to the Revenue Commissioners,
(iii) the period for which the notice shall have effect, being a period not more than 2 months from the date specified under subparagraph (i),
(iv) the period within which the accountable person shall furnish the specified information, explanations or particulars to the Commissioners, being a period not less than 14 days from the end of the period specified under subparagraph (iii), and
(v) the form in which the specified information, explanations or particulars shall be furnished to the Commissioners, and
(b) inform the accountable person of the consequences under section 115(8A) of failing to comply with the notice.”,
(b) in Chapter 3, by inserting the following subsection after subsection (8) of section 115—
“(8A) A person who fails to furnish to the Revenue Commissioners the information, explanations or particulars specified in a notice served on the person under subsection (1) of section 108A within the period specified in the notice shall be liable to a penalty of €4,000.”.”.
This amendment inserts a new section 108A into Part 13 of the Value-Added Tax Consolidation Act 2010. It also amends section 115 to provide for a related penalty. The amendment will assist in identifying tax evasion. The new section provides for the service of a notice by the Revenue Commissioners on an accountable person, requiring him or her to provide additional information or explanations in respect of his or her taxable supplies during a specified period. The notice will specify the type of information required and the format in which it should be provided. The measure will be used to address tax evasion by identifying shadow economy activity such as unregistered traders and suppressed sales by VAT-registered businesses.
For example, where the Revenue Commissioners have identified an unusually high level of cash sales in a business which mainly supplies to trade customers, there would be an indication that goods may be used in the shadow economy activity. The supplier may or may not be aware that he or she is facilitating shadow economy activity if the customer does not require a VAT invoice to be issued. Using the new power, the Revenue Commissioners may require a supplier to provide additional information such as, for example, relating to cash supplies for specified goods in excess of a specified value. That would assist compliance programmes in certain trade sectors.
The amendment to section 115 provides for a penalty where an accountable person to whom a notice is served fails to comply with that notice. This is being asked of us by the Revenue Commissioners, although it may be a contradiction of the previous discussion I had with Deputy Doherty, who wanted us to put PPS numbers on invoices. This is a genuine issue that has been highlighted to us by the Revenue Commissioners concerning cash businesses, where it is recognised there are substantial cash payments in a business to trade suppliers. We have been asked to seek the approval of the House in doing this in order to remove this form of tax evasion.
Amendment No. 86 is an alternative to amendment No. 85 and the amendments will be discussed together. If amendment No. 85 is agreed, amendment No. 86 cannot be moved. The Minister of State will move amendment No. 85 and speak to it and I will then call on Deputy Doherty to speak to amendment No. 86.
I move amendment No. 85:
In page 80, to delete line 34 and substitute the following:
“(2) Subsection (1) comes into operation on such day as the Minister for Finance may appoint by order.”.
Section 63 of the Bill, as initiated, amends the Value-Added Tax Consolidation Act 2010 to provide for changes in the VAT rates applying to horses and greyhounds, with effect from 1 May 2014. In order to allow for a full and proper consultation with the industry, I have decided to make an amendment on Committee Stage so this section will be introduced by ministerial order.
My amendment also allows for that. It is not an opposite idea, as mentioned by the Chairman.
It takes the Deputy's idea and puts it in a technically correct manner.
It is an alternative.
It is my poor English.
No. I understood the Deputy's amendment better than my own.
I welcome that.
I move amendment No. 87:
In page 80, after line 34, to insert the following:
“Amendment of Schedule 1 to Principal Act
64. Schedule 1 to the Principal Act is amended in paragraph 14(2) with effect from 1 January 2014 by inserting “and Irish Water” after “local authorities”.”.
This is an amendment to Schedule 1 of the Value-Added Tax Consolidation Act 2010 providing that the current VAT exemption for supplies of water by local authorities will also apply to supplies of water by Irish Water. This amendment will take effect from 1 January 2014.
I wish to make a point. I could not let that slip. If VAT is imposed on the-----
This amendment will mean the exemption currently in force will apply in the case of Irish Water as well. We are not imposing any VAT.
It concerns the exemption currently applying to local authorities.
This is to fend off the possibility that there may not be a level playing field in the provision of water or concerns about EU rules about competition-----
There will be no VAT charge on water.
I get that point. The Minister of State may be aware of one of the points I made earlier-----
I know the Deputy spoke about this earlier.
EU competition rules require a level playing field once a body begins to charge for a service. If VAT is applied on one service and not on another, it could be considered unfair competition, and consequently full market rules could start to apply.
This would lead inevitably to privatisation. Do I take it that the provision aims to fend off this possibility and is based on the Minister's admirable desire not to impose VAT on water?
I will make it very simple for the Deputy. The objective is that VAT would not apply to water.
If we did not do this, would the Government have the problem I mentioned?
No. The derogation dates back, I believe, to 1978.
That is right. There is no competition issue because Irish Water is the only supplier.
The EU rules relate to revenue producing monopolies so it does not matter. If somebody else wanted to get into the market, for example, does the Government have to give them the same exemption?
My understanding is that the derogation dates back to 1979. The amendment seeks simply to continue applying the exemption.
Let me ask my question in another way. If somebody else wanted to get into the market of supplying water, would the Government have to provide the same exemption for them under EU rules?
The derogation only exists for a public body.
With all due respect, I am not interested in-----
I do not do hypothetical questions.
We are in the EU and EU rules apply. If somebody were to enter, or wishes to enter into the market-----
We could not extend the exemption to a private body.
Would EU rules not require the Government to do so?
Is the Minister of State 100% sure of that?
Yes, we are sure about that.
I will let the matter lie.
The legislation regarding the establishment of Irish Water is specific in terms of its public ownership.
It is not always. Watch this space.
Oliver Stone could probably get the job of a sub-director to the Deputy for his conspiracy theories.
Amendments Nos. 88 and 89 are related and may be discussed together.
I move amendment No. 88:
In page 81, between lines 28 and 29, to insert the following:
“66. Where a farm is personally owned and the farmer has operated a farm company, then on subsequent transfer of the farm and farm company to a successor, the Young Trained Farmer stamp duty relief shall apply.”.
I wish to withdraw the amendment. Similarly, I will move and withdraw amendment No. 89 and signal possible Report Stage amendments.
Amendment No. 90 in the name of Deputy Pearse Doherty has been ruled out of order.
Amendment No. 92 is an alternative to amendment No. 91 and both may be discussed together.
I move amendment No. 91:
In page 81, to delete lines 31 to 33 and substitute the following:
“ “86A.(1) Stamp duty shall not be chargeable on any conveyance or transfer of stocks or marketable securities admitted to the Enterprise Securities Market operated by the Irish Stock Exchange Limited.
(2) Subsection (1) shall not apply to any conveyance or transfer of stocks or marketable securities where the admission of the stocks or marketable securities to the Enterprise Securities Market has been cancelled by the Irish Stock Exchange Limited.”.”.
The amendment makes changes to section 66 which inserts a new section into the Stamp Duties Consolidation Act 1999. The purpose of the new section is to provide for an exemption from the 1% stamp duty for transfers of shares to companies listed on the enterprise securities market, ESM, of the Irish Stock Exchange. The exemption for the transfer of shares in ESM listed companies is provided for in subsection (1) of the replacement section. A minor technical change is being made to original version of section 86A in the Bill as initiated by removing the words "for trading on" as these words are superfluous. The exemption will apply on the basis that the shares are "admitted" to the ESM.
A new subsection has been inserted into section 86A to ensure the exemption will cease to apply where the admission of the shares for the ESM has been cancelled by the Irish Stock Exchange. The exemption will encourage growth companies to seek a listing on the ESM with a view to raising capital which will enable the companies to further develop their businesses. The measure, in conjunction with other measures which feature in the Finance Bill, will support entrepreneurs involved in new ventures and will contribute to the creation of additional jobs. I commend the amendment to the committee.
The Minister of State can come back in later after Deputy Michael McGrath speaks on his counter-motion.
Now we have another ESM acronym as if one was not enough.
Olli Rehn calls it "the big bazooka".
Will the Minister of State clarify last year's yield from stamp duty on share transactions on the ESM? I have a parliamentary question that deals with the overall stamp duty yield. It is interesting to look back at 2007 when the yield from the Irish Stock Exchange was €609 million while in 2012 it was €171 million. That is a reflection of how the economy has changed.
The debate must be put in the context of the Irish Stock Exchange being in decline for a period, with an increasing number of companies delisting from it and relocating their listing to London and so forth. If the Minister of State could provide some information on the amount of stamp duty generated by the ESM within the Irish Stock Exchange, that might help put the debate in context.
The yield from ESM trading is between €4.5 and €5 million.
What is the logic behind the provision?
It will encourage small and medium businesses to get on the listing as a means of obtaining further capital from the markets at some point.
I wish to read a note into the record. The section provides for an exemption from the 1% duty for transfers of shares in companies listed on the ESM of the Irish Stock Exchange. The exemption, which the Minister announced in his budget speech, is one of the measures he has introduced to support entrepreneurs to create new businesses and additional jobs. The reduced cost associated with the trading of shares on the ESM should encourage more investors to back SMEs and provide fledgling companies with an alternative funding stream.
The ESM is the Irish Stock Exchange's enterprise market for growth companies. It has been specifically designed to meet the funding needs of companies at the early stages of their development. The ESM rules provide for a low cost streamlined admission process and facilitate dual listing in similar markets in other jurisdictions such as the alternative investment market of the London Stock Exchange. The Irish Stock Exchange is also in a position to offer a similar dual ESM-US listing that will give Irish growth companies access to US dollar pools of capital, as well as European pools of capital. The rationale is to try to get the companies listed as a means of improving their potential for growth and capital.
I will allow Deputy Boyd Barrett to contribute before returning to Deputy Michael McGrath.
I will be brief because I am shuttling in and out of the petitions committee.
They are missing the Deputy.
As the Minister of State will know, I favour the financial transaction tax being imposed. The Government is resistant to the measure and often cites, when I make the point that the tax should be imposed, that we do not need it because we have the 1% levy. I am not satisfied with the counter-argument but it gives the game away to some extent and reveals the Government's real attitude towards an increased level of tax on gambling on the Stock Exchange, speculation and so on. The Government believes the way to deal with a lack of investment in the economy is to remove this paltry stamp duty on activities in the Stock Exchange. I do not believe that stock exchanges or casino capitalism is the way to finance an economy, industrial development and growth. The provision is just more of the type of stuff that destabilised the global economy.
The question asked by Deputy Michael McGrath was the yield and what we are handing up. I said it amounted to somewhere between €4.5 million and €5 million last year. The total amount of stamp duty on overall share transactions is €170 million so the amount of €4.5 million or €5 million out of €170 million is quite small. An American investor made the point to me that 60% of the new jobs created in the US economy, particularly in manufacturing, were in companies that had not been established at the start of the crisis. Start-ups and ensuring small businesses can ramp up quickly to become large businesses are the key features of what the US economy has become. Some 60% of all jobs created are coming from those new businesses. It is important we have the same entrepreneurial speed in ensuring small companies can become big quickly.
My good friend, Deputy Richard Boyd Barrett, raised the matter of the financial transaction tax. It is one element of the historic progress made during the Irish Presidency and came to pass while the Minister for Finance, Deputy Noonan, was chair of the ECOFIN discussions. Commissioner Semeta, whose proposal it was to advance the financial transaction tax, has come to some difficulty with the ruling of the court in respect of the applicability of the financial transaction tax. It remains the case that we have a tax on share transactions. This applies not only to the profits to be made but also to the transaction in the first place. The amendment and the proposal should not be presented as a major derogation when it only applies to a tiny percentage of the €170 million, and is in contrast to the point made by Deputy Michael McGrath in respect of sums that yielded in excess of €600 million in 2007 and 2008. This is a means of encouraging investment in small and developing businesses that want to be listed on the fledgling stock market. The evidence from the US is that this is the kind of activity we must encourage. Many of the new businesses creating those jobs come and go quickly. It is a question of how nimbly one can get investment on the international money markets. This is a balanced and fair proposal.
We disagree and there is no point in labouring the point. The area needs more tax because it is part of the architecture of casino capitalism. When we are dealing with an investment problem, which we all agree exists, the instinct is to deal with it through reducing the taxes on profits in the area of capital speculation, for want of a better word.
This applies to transactions.
Okay, trading in stocks and shares, which is largely gambling. It involves people who have money trying to make money not by doing any work but by speculating on how they can make unearned profit. I fundamentally and philosophically do not agree with that. This area needs to be taxed more and it is a destabilising factor in the global economy. I oppose it.
I disagree with this as well. The sector argues that we should get rid of the 1% stamp duty across the board, as Deputy Michael McGrath suggested. I fundamentally disagree with that but the sector will make arguments that it is good for investment, business and the economy. If one believes that point in respect of this section, why not believe it for the rest? I disagree with the route the Minister of State is taking and I oppose the amendment and the section.
As amendment No. 91 has been agreed, amendment No. 92 cannot be moved.
I move amendment No. 93:
In page 82, to delete lines 14 and 15 and substitute the following:
“(b) 0.50 per cent of the chargeable amount for the year 2014 and 0 per cent in 2015 and all subsequent years.”.”.
Can I hear the response of the Minister of State?
The Minister for Finance confirmed in his budget speech that the 0.6% levy would be abolished from 31 December 2014. He also explained the rationale for the introduction of a lower 0.15% levy for the years 2014 and 2015 contained in the Bill as published. This 0.15% levy is intended to continue to help fund the jobs initiative and to provide for potential State liabilities that may emerge from pre-existing or future pension fund difficulties. I cannot accept the proposed amendment as it would adversely impact the funding of the jobs initiative and would not provide the required provision against pre-existing or future pension fund difficulties. Deputy Pearse Doherty's amendment proposes reducing the rate to 0.5%.
There has been much discussion about the levy, which was introduced originally to fund a number of initiatives, including the extension of the 9% VAT rate, which is to be welcomed but will require money that was not budgeted for. That must come from the pensions industry. The extension of the 9% VAT rate does not need a 0.75% levy on the pension industry. It does not even need a 0.5% levy on the pension industry. A lower amount is required if we are to fund the extension of the 9% VAT rate. There is no justification, beyond a money grab, for increasing the levy from 0.6% to 0.75% and to continue the levy in future years at 0.15%. With regard to the continuation of the levy, we can give measures grand titles such as the jobs initiative, which the Minister of State mentioned-----
It used to be a jobs budget.
I cannot imagine we will still be calling it a jobs initiative in five years' time. The levy will continue at that point. This is tapping into the sector and the money will be sloshing around in Revenue accounts and will pay for X, Y or Z whenever we need to use the money. The Minister of State referred to the pension industry and the Minister for Social Protection, Deputy Burton, has made the same point in respect of a double default of the company and the pension fund. This money will be used to deal with that area. Is the money being ring-fenced and will it go into a fund? The danger is that it will slosh around and will be used to counteract some of the policies the Government has introduced to make up for the loss of €4 billion as a result of the last measure we discussed.
On the issue of the levy itself, it goes back to the pre-budget submission. In December 2010, when we were in opposition, we proposed this. We went into the election campaign arguing for this. One of the reasons the pensions industry was not shouting and roaring about this was that it was happy to know the industry could still obtain support at the marginal rate of tax in terms of people's contributions. As far as we are concerned, or at least this part of the Government, we were very clear about what we wanted to do about this. We believed it was not unreasonable that a contribution should be made towards a fund which would help the jobs and stimulus tasks the Government was set when it came into office. It is unfortunate we have to put it up next year but the firm intention of the Minister, as he said, is to reduce it to 0.15%, which would be a dramatic reduction from where it is currently, or where it can be.
The Deputy asked about pre-existing or future pension difficulties. It will not be contained in a separate subhead but within the Central Fund as an amount of money there for potential liability that may follow from pensions which are in substantial difficulty. The prudent and the right thing to do is to make some additional funds available for that particular purpose. It will not be obtained in a special designated fund, as I understand it, but it will be within the Central Fund.
What will accrue from this 0.15%?
The yield from an additional 0.15% levy is estimated at €135 million per annum over the next two years.
Is that annually?
Annually for two years. That is €270 million.
The Minister cannot have a budget next year and use the €135 million to pay off whatever measures he will introduce or just to reduce our deficit if he has to have it as a contingent liability. Will the Minister ring-fence that money for the pensions industry? If we have a pensions crisis, such as that in Waterford Crystal, we will ask how we do this and know this money will be coming in next year.
It will not be ring-fenced for that but it will be within the general Central Fund for that particular purpose, if it were to emerge. It will not be ring-fenced for that purpose but it is the intention of the Government were such a contingent liability to emerge. It may well be in excess of what we might possibly collect.
It just sounds good that we are tapping the pensions industry to help to pay for potential failures in pensions.
I do not think it sounds good; it is good.
It is not being ring-fenced for that purpose.
It is within the Central Fund. It is like putting the money in a drawer and opening another drawer. It is there none the less.
Looking back at the Minister's speech on budget day, it is one of the classic attempts at political spin. He said he was abolishing the levy but introducing a new one for 2014-----
-----of 0.15% and for the following year as well. However, when one looks at section 67 of the Finance (No. 2) Bill, there is no abolition but an increase to 0.75% in the existing levy. There is no abolition and the legislation increases the levy. It does not abolish one and replace it with another but maybe that is being pedantic.
The issue I want to raise is where all of this is going because the intention was that next year would be the last year a pension levy would be collected. Now, as well as linking it to the jobs initiative, the Minister has also linked it to issues in certain pension schemes, in particular the issue of schemes experiencing double insolvency where both the pension scheme and the company itself are insolvent. That issue is provided for in the Social Welfare and Pensions (No. 2) Bill 2013.
The additional pension levy will bring in approximately €270 million over a two-year period but what if the contingent liability across various schemes which are doubly insolvent is considerably greater than that? What commitment can the Minister give on the future of this 0.15% levy? The levy was meant to be gone at the end of next year but it is now being increased for next year and will be collected again in 2015. The bottom line is how can people believe the Minister this time that it will be abolished.
I would argue that reducing the rate from 0.75% to 0.15% is an effective abolition of the charge.
The Minister of State should not go down that road for his own sake.
On the question of whether the contingent liability would be covered by what one could obtain, we have no expectation at the moment that we would be in that difficulty. It will depend on what occurs but we do not anticipate that at the moment.
Amendments Nos. 94 to 103, inclusive, are related and will be discussed together.
I move amendment No. 94:
In page 82, line 25, to delete " 'business' "and substitute " 'relevant business' ".
I propose to take amendments Nos. 94 to 103, inclusive, together. These amendments make changes to section 68 of the Bill which inserts a new section 126AA into the Stamp Duties Consolidation Act 1999. The purpose of section 126AA is to provide for the stamp duty levy on certain financial institutions which was announced in the budget.
These amendments are being made in order to ensure that the levy is payable by financial institutions which were liable to pay DIRT in 2011 and are trading in the State at the due date for payment of the levy, that is, 20 October in each of the years 2014, 2015 and 2016. A financial institution, which has ceased to carry on a business of taking and holding deposits at the due date for payment of the levy, will be liable to pay the levy where the financial institution is carrying on a trade or business in the State at the payment date.
Amendment No. 95 is the main amendment which substitutes a new definition for "relevant person" in subsection (1) of section 126AA. This new definition confirms that the levy will be payable by a financial institution which was obliged to pay DIRT in 2011 and is still carrying on a trade or business in the State even though the financial institution may have ceased to carry on a business of taking and holding deposits.
Amendment No. 94 and amendment Nos. 96 to 103, inclusive, are consequential technical amendments arising from the change being made by amendment No. 95. I commend these amendments to the committee.
I move amendment No. 95:
In page 82, to delete lines 34 to 37, and in page 83, to delete lines 1 to 14 and substitute the following:
" 'relevant person' means—
(a) a person who, in the year 2011, was a holder of a licence granted under section 9 of the Central Bank Act 1971 or held a licence or other similar authorisation under the law of any other Member State of the European Communities which corresponds to a licence granted under that section, or
(b) a person who, in the year 2011, was a building society within the meaning of the Building Societies Act 1989 or a society established in accordance with the law of any other Member State of the European Communities which corresponds to that Act,
and the person—
(i) was obliged, in the year 2011, to pay—
(I) appropriate tax under section 258(3) of the Taxes Consolidation Act 1997, or
(II) an amount on account of appropriate tax under section 258(4) or 259(4) of that Act,
(ii) is carrying on a trade or business in the State (whether including a relevant business or not), but a person shall not be regarded as a relevant person where the relevant retention tax in relation to the person in the year 2011 did not exceed €100,000;”.
I move amendment No. 96:
In page 84, line 3, after "a" where it secondly occurs to insert "relevant".
I move amendment No. 97:
In page 84, line 5, after "the" where it thirdly occurs to insert "relevant".
I move amendment No. 98:
In page 84, line 17, after "a" to insert "relevant".
I move amendment No. 99:
In page 84, line 21, after "the" where it secondly occurs to insert "relevant".
I move amendment No. 100:
In page 84, line 24, after "the" where it thirdly occurs to insert "relevant".
I move amendment No. 101:
In page 84, line 37, after "a" to insert "relevant".
I move amendment No. 102:
In page 85, line 2, after "the" where it secondly occurs to insert "relevant".
I move amendment No. 103.
In page 85, line 5, after "the" where it thirdly occurs to insert "relevant".
Amendment No. 104 in the name of Deputy Pearse Doherty has been ruled out of order.
I welcome this levy on financial institutions. As the committee will see from the amendment which has been ruled out of order and which I discussed with the Minister earlier, we should not allow AIB or Bank of Ireland to avail of section 33 and we should have increased their levy if they were able to profit from what we have done in section 33.
Did any financial institution which would be subject to this section contact the Department, the Minister or any officials and express any concerns about it's implications or potential impact? There have been arguments in the past that if the Government did something like this or increased levies, it would scare off financial institutions. In that context, has there been any correspondence with or interaction between said institutions, officials in the Department, the Financial Regulator or the Central Bank? Have any concerns been raised and passed on to the Department and if so, what were those concerns?
I understand that the Irish Banking Federation has made representations to the Department. Separate to that, four institutions have also made representations to the Department.
I stress again that I support the imposition of a levy. When one introduces a measure in any finance bill, those that will be affected by it will always make their views known, and rightly so. Is there anything to be concerned about in terms of the possibility of financial institutions withdrawing from the State, curtailing services or passing this levy on to their customers? Have the institutions made it clear-----
I have just asked the officials about the nature of the representations and I understand they were mostly from foreign-based institutions doing business here. They argued that they did not cause the crisis or the problem and that they should not, therefore, be stung by the levy.
As to Deputy Doherty's second question on whether an argument has been made to the Department that institutions might withdraw from the country, based on the imposition of this levy, the answer is "No". Such a threat or implied threat has not been brought to our attention
What about the question of them passing on the levy to their customers? Has it been made clear to the Department that this is what they intend to do?
I am not aware of that coming out in the representations thus far.
How many institutions will be affected by this levy? How many licensed entities have deposit books here, in respect of which DIRT is deducted?
In respect of the credit union sector, depending on the nature of the credit union account one has, certain dividends are subject to DIRT. It is a self-assessment system and it is up to the individual account holder to declare such dividends. In that context, will credit unions be affected too?
My understanding is that credit unions are not subject to the levy. As to the number of institutions affected, the number is between 15 and 20.
Between 15 and 20?
Yes, somewhere between 15 and 20. We cannot be precise at the moment but it is between those numbers.
Question put and agreed to.
Amendment No. 105 has been ruled out of order.
Amendments Nos. 106 to 109, inclusive, are related and may be discussed together by agreement.
I move amendment No. 106:
In page 87, line 5, to delete “for repayment of tax under subsection (2)” and substitute the following:
“under subsection (2) for repayment of tax which, but for an error or mistake referred to in that subsection, would not have been due”.
As published, section 71 did not fully meet the objectives for which it was drafted. These amendments are necessary to ensure that when a self-assessed taxpayer wishes to make a claim for repayment of tax because of an error or mistake in that person's tax return, the person must, in keeping with the principles of self-assessment, amend the tax return to correct that error or mistake.
Would this be applicable to those who have paid the local property tax and have ---
The local property tax is a self-assessment tax.
Perhaps if I put the detailed note on the record, it will be of some assistance. As published, there was a risk that the section imposed an obligation to amend a tax return when a person was claiming a repayment of tax due because of a relief, such as terminal loss relief. Rather than simply imposing the obligation to amend the tax return of those who were correcting an error or mistake, this amendment clarifies that it is only errors and mistakes that necessitate amending returns.
I move amendment No. 107:
In page 87, line 8, to delete “reflect” and substitute “correct”.
I move amendment No. 108:
In page 87, to delete lines 9 to 12 and substitute the following:
“(2B) Where a chargeable person (within the meaning of section 950) makes a claim under subsection (2) for repayment of tax which, but for an error or mistake referred to in that subsection, would not have been due and the claim relates to an accounting period which commenced before 1 January 2013 or to a year of assessment before the year of assessment 2013 it shall not constitute a valid claim for the purposes of subsection (3) unless the person’s return for the accounting period or year of assessment, as the case may be, to which the claim relates is amended in accordance with section 959V to correct the error or mistake, and for this purpose section 959V shall apply to such an amendment as if—”.
I move amendment No. 109:
In page 87, to delete lines 26 to 35 and substitute the following:
“ “(9) Nothing in this section shall prevent the Revenue Commissioners from examining a claim subsequent to any repayment having been made and—
(a) making or amending an assessment, as the case may be, under—
(i) Chapter 5 of Part 41A,
(ii) section 954 or 955, as appropriate, where the claim relates to an accounting period which commenced before 1 January 2013 or to a year of assessment before the year of assessment 2013, or
(iii) section 960Q,
(b) making a determination under section 960Q, in the case of persons who are not chargeable persons.”.”.
Section 72 agreed to.
Amendments Nos. 110 and 111 are related and may be discussed together by agreement.
I move amendment No. 110:
In page 88, to delete lines 11 to 37, and in page 89, to delete lines 1 to 9 and substitute the
“ “Magdalen Laundry Payments
205A. (1) In this section—
‘relevant individual’ means an individual to whom a relevant payment has been made;
‘relevant payment’ means a payment or payments made, directly or indirectly, to a relevant individual by or on behalf of the Minister for Justice, Equality and Defence, in accordance with the Table of Payments set out in Appendix A to the Magdalen Commission Report dated May 2013 on the establishment of an ex gratia scheme and related matters for the benefit of those women who were admitted to and worked in the Magdalen Laundries.
(2) This section applies to the following payments:
(a) a relevant payment;
(b) an amount equal to the State Pension (Contributory) as set out in column 2 of Part 1 of Schedule 2 of the Social Welfare Consolidation Act 2005 to a relevant individual;
(c) an amount equal to the State Pension (Non-Contributory) as set out in Part 3 of the Social Welfare Consolidation Act 2005 to a relevant individual;
(d) any payment, other than a payment referred to in paragraphs (a) to (c), made, directly or indirectly, by or on behalf of the Minister for Social Protection to a relevant individual, by virtue of that individual being a relevant individual.
(3) For the purposes of the Income Tax Acts, and notwithstanding any provision of those Acts to the contrary, a payment to which this section
applies, made to a relevant individual, shall be disregarded.”,
(b) in section 613(1)—
(i) in paragraph (c) by substituting “profession;” for “profession.”, and
(ii) by inserting the following paragraph after paragraph (c):
“(d) any payment to which section 205A applies.”.”.
Section 73, as introduced, provides for an exemption from tax for ex gratia payments made to beneficiaries by the Minister for Justice, Equality and Defence, pursuant to the Magdalen Commission report in respect of women who were admitted to and worked in Magdalen laundries, which are institutions referred to in the Quirke report. The payments, when made, will not be subject to income tax and, as a consequence, the universal social charge will not apply. In addition, the payments will not attract a charge of capital gains tax or be treated as a gift or inheritance for the purposes of capital acquisitions tax. I am amending this section to also include a tax exemption for certain payments made to Magdalen awardees by the Department of Social Protection. This amendment will provide for the recommendation in the Quirke report that women under 66 should receive €100 per week tax free and that women over 66 should receive €230.30 per week tax free. I am also amending this section to provide that it will apply in respect of any payment made on or after 1 August 2013. I commend these amendments to the select sub-committee.
I welcome the fact that this issue is being dealt with in this Finance Bill, as was recommended by the Magdalen Commission report. That report recommended that payments, whether lump sum or other, would be tax free. It is sad and must be acknowledged that since the apology from the Taoiseach to these women - and as we discuss this Bill today and its implications for the compensation payments - two of them who were entitled to compensation have passed away. No money has been paid out to anybody under the redress scheme at this point in time. There is an onus on all of us to move this on as quickly as possible. That being said, I welcome the amendment.
The original section of the Bill dealt with the "relevant individual" but with this amendment, reference is made to the "relevant payment". What was the logic behind this change? A "relevant individual" was clearly somebody who worked without pay in the laundry or institution, whereas the "relevant payment" refers to those who have been awarded under the redress scheme.
The reason we are bringing forward the amendment on the definition side is that originally everyone was put on an even basis. There would be inequities were we to use the phrase "relevant individual", so we came up with the "relevant payment" phrase as a means of making sure that it was clear for all to see.
At the Government meeting of 5 November 2013, it was agreed that the Department of Social Protection would make the weekly payment to the women who were admitted to and worked in the Magdalen laundries, as recommended by Mr. Justice Quirke. It was also agreed that these payments would be exempt from tax. It has come to light that the decision to make these payments or the top-up payments tax exempt would give rise to inequities, not only between the Magdalen women and members of the general public but also among the women. Accordingly, it is recommended that the entire payment made by the Department of Social Protection be disregarded for tax purposes. Provision has been made to provide for this.
I am a little confused because the amendment changes the substance of the text. The original section defined "relevant individual" as a person specified in Schedule 3A. Will Schedule 3A still be applicable following the amendment?
My understanding is that the triggering event is the payment of the capital lump sum to the women.
To clarify, the original section includes a list of institutions which were deemed relevant institutions if a person had worked without pay-----
It is no longer relevant because once the payment is made to the women, they become the entities rather than the institutions.
The reason I asked the question is that a number of institutions were omitted from the list. These include St. John's school, a laundry in Birr and the Sisters of Mercy laundry in Clifden. I assume no issue arises in respect of these institutions.
The award is made by the Minister. We are simply making clear beyond doubt how the moneys will be treated for tax purposes once the women obtain them.
On a related issue, another set of payments has not been included in the legislation. I refer to compensation payments to children aged under 18 years who have reached the age of consent, which have been made by the Health Service Executive under the Child Care Act 1991 on the basis of a failure to act on the part of the HSE. I ask that provision be made on Report Stage to address compensation payments made by the HSE because of its failure to act and protect children under the Child Care Act. There appears to be an anomaly in finance legislation in respect of tax exemptions and social welfare payments. I have brought the matter to the attention of the Minister for Social Protection and I now ask that the Minister for Finance address the matter on Report Stage.
The changes relate to a Government decision on the Magdalen laundries, which makes it clear and beyond doubt that the tax treatment of moneys given to the Magdalen women is clear for all to see. The decision does not have a wider impact in terms of other compensation payments that may be given. While I am not aware of the payments to which the Deputy refers, I can look into the matter for him. The inclusion of this provision in the Finance Bill was done on foot of a Government decision on a specific category of women who were admitted to or worked in the Magdalen laundries. I am not aware of any wider application but I will look into the matter.
I would appreciate it if the matter were examined prior to Report Stage.
I have one further question and I ask that my ignorance on this highly sensitive matter be excused. Two of the women who applied for redress under the redress scheme have passed away. In such circumstances, will payments be made to the estate or children of the women in question?
I suspected that was the case. Will such payments also be tax exempt?
I understand the payments will be made to the estate and their tax treatment will be exactly the same as the tax treatment of payments to women who are alive.
I move amendment No. 111:
In page 89, line 15, to delete “September” and substitute “August”.
I move amendment No. 112:
In page 90, between lines 5 and 6, to insert the following:
“Electronic transmission of certain Revenue returns
75. Section 917D of the Principal Act is amended in subsection (1)—
(a) in the definition of “the Acts” by inserting the following after paragraph (a):
“(aa) the Customs Acts,”,
(b) in the definition of “tax” by inserting “customs duty,” before “excise duty”.”.
I am proposing this amendment to provide for the introduction of electronic returns of ship and aircraft manifests from March 2014. While the original intention was to include this provision in the forthcoming customs Bill, which is being drafted, it is unlikely that this Bill will have been enacted in time for the March 2014 deadline. Although the introduction of electronic manifests is the immediate objective, this provision will also allow for other customs returns and payments to be made electronically in the future should the need arise. On that basis, I commend the amendment to the sub-committee.
Amendment agreed to.
I move amendment No. 113:
In page 90, lines 13 to 15, to delete all words from and including “ “within” in line 13 down to and including “affairs” ” in line 15 and substitute “ “within 30 days of the giving of the notice a statement of affairs” ”.
This amendment relates to section 75, which amends section 960R of the Taxes Consolidation Act 1997 which gives the Collector General power to require tax defaulters to provide a statement of affairs. Section 75 enables the Collector General to request a person to deliver a statement of affairs within the period specified in the notice or within the period of 30 days of the date of issue of the notice, whichever is earlier. This would allow the Collector General to request a statement of affairs within a shorter period if that date were specified in the notice. As it is Revenue practice to allow a period of 30 days to deliver a statement of affairs, it is considered that the legislation should reflect that practice. Accordingly, the amendment specifies that a period of 30 days be given to deliver a statement of affairs, where requested. I commend the amendment to the sub-committee.
I move amendment No. 114:
In page 92, between lines 24 and 25, to insert the following:
“79. The Minister shall, within one month of the passing of this Act, prepare and lay before Dáil Éireann a report on options available for the abolition of the Local Property Tax.”.
I am astonished that this amendment was adjudged to be in order given that 16 of my amendments were ruled out of order.
What an amendment it is.
The Minister of State would make my day if he were to accept it. I believe the wrong Minister is sitting opposite me, although strange things happened yesterday when the Minister accepted an Opposition amendment. The Minister of State should not be outdone by the Minister; he could grab the headlines by accepting the amendment.
The amendment would require the Minister to prepare and lay before Dáil Éireann a report on options available for the abolition of the local property tax. As the Minister of State will gather from the wording, the amendment provides me with an opportunity to raise the issue of the unfairness of the property tax and the manner in which it is being imposed. It also draws attention to the fact that the rushed legislation on the local property tax created a significant imposition on individuals and sowed great confusion. I refer to the manner in which the Government handled the legislation and shut down debate on it on Committee Stage. Its flawed approach comes with a €3 million price tag.
Sinn Féin is committed to repealing the local property tax and has published legislation to that end. People are justifiably angered by this tax. While it does not feature in this Bill because it was introduced last year, it has been imposed in part this year and the full amount will be recouped in 2014.
People are very mindful, given the date that is in it and the deadlines for making their returns. There have been a number of fiascos in the property tax. I come from a Gaeltacht community. I tabled a question to the Minister for Finance yesterday.
It is very clear that certain property-holders who live in the Gaeltacht or who have part of their addresses in Irish are appearing in duplicate form on the register and, therefore, are being asked to pay twice the amount of property tax. However, the computer system shows that the house is not being rated at a higher level of tax but that in the view of the Revenue Commissioners, that person owns two houses because one of the names which was sourced from a utility company, is in Irish, and the other one which it may have sourced from the electoral register or the local authority, is in English. This is a significant issue.
I accept that human errors will occur and that the register is large. However, data software is available to deal with such work but either the Department or the Revenue has decided not to use it. This is surprising, given that this tax brings in €500 million. It seems the view is that it does not matter if we stick those in the Gaeltacht for another property that they do not have - they will sort it out themselves and tell the Revenue and everything will be grand at the end of the day.
This is an unfair imposition on individuals. I do not exaggerate the point. Many people in Irish society can well afford to pay this tax. I will raise the issue again and next year I will bring forward an amendment. I do not know the Minister of State's personal circumstances and I do not wish to delve into them. However, in the tax code, Ministers of State, senior Ministers or office-holders in this House can have tax written off if they have a second property. There is a reason for that - it is called the dual abode allowance-----
It does not apply in my case.
As I said, I am not interested in any individual's personal circumstances. I think 14 or 15 Ministers claimed the dual abode allowance last year. I acknowledge that Ministers and Ministers of State do not get accommodation allowances when in Dublin.
Dublin Ministers of State lose the Dublin allowance.
Deputies and Senators receive an accommodation allowance. However, for those Ministers of State or Ministers who stay in the same hotel as me, not only do they get the full cost of the hotel written off their tax bill, but they also get additional costs written off. When one inquires as to the additional costs, the answer is that these are laundry costs, etc. This shows that the tax code is bizarre. If a Minister, a Minister of State or an office-holder wants to buy a house in Dublin, they are permitted to write off the interest on the dual abode allowance, auctioneer fees - as far as I know - the maintenance costs, electricity and gas costs. If they rent accommodation they are permitted to claim for the full rent. It is not acceptable, in my view, that this is available to Ministers, office-holders and Ministers of State while at the same time ordinary people the length and breadth of the country who have only one house, who may be clinging for dear life in an effort to hold on to that house, are being subjected to this by the same Ministers who are able to avail of a unique section in the tax code which allows them to have their tax reduced because of the dual abode allowance. The Taoiseach gave a commitment, to end the dual abode allowance if he got into office.
Do not get me going. I will tell the Deputy the truth.
There are abuses. Nobody knows who is getting the dual abode allowance. The tax code is very transparent in other areas but we do not know which Ministers are availing of it. Why is it that Ministers who have houses can get an unvouched allowance of €6,500 from the Revenue? It is unbelievable.
This issue is a hobby-horse of mine. Getting rid of the dual abode allowance will not save a significant amount because there remains the issue of Ministers and Ministers of State and office-holders who need to reside in Dublin to carry out their duties. I make the comparison of that situation with the situation of people who have little or no disposable income. Four weeks away from Christmas those people are considering how to provide for their children and loved ones and more and more people are going to moneylenders, legal and illegal, and tapping the credit union and the banks to try to get the loans they need to get them over Christmas. They are thankful the weather is not bad because they would not be able to afford the heating bills of previous years. Yet the Government has decided to increase their property tax liability by ensuring that the full year's effect takes place in 2014. A large number of these individuals, even though the property is in place for only six months, have already paid 18 months' liability. It is beyond belief that this is what is happening. There are numerous examples of this. I have only focused on Ministers but there are better examples of how sections of society have not carried their fair share, and how people have been treated in the Finance Bill. I have had amendments ruled out of order by SARP. These are very special people from outside our jurisdiction who come into companies and for whom we can write down their tax liabilities by massive amounts. We give then tax deductions of tens of thousands of euro. We allow them €5,000 to send their children to private schools yet at the same time the ordinary Joe Soap in Ireland who tries to fight his way through the recession in the hope of some light at the end of the tunnel is hit once again.
The property tax is only one item but it is a big ticket item. There are many other provisions in the budget that we have discussed in the past two days and in the Social Welfare Bill and the health Bills, all of which impact in the same way. Some will get on okay while others are drowning. They are trying to keep their heads above water and this imposition is one step too far.
Deputy Doherty has made many of my points. Apart from the suffering and hardship the property tax will impose on people, particularly in its second year because the full amount will be payable, it will hit people very hard on top of the accumulation of all the austerity measures, income cuts and levies that have been imposed in recent years. Many people will be seriously affected. It is clear from my clinic every week that a huge and diverse swathe of ordinary citizens are experiencing a level of hardship and financial difficulty almost to breaking point. Life is getting rough for many people. This year there will be even greater levels of hardship. Apart from all that has been well argued and will become evident next year, two of the central arguments the Minister put forward to justify the property tax have been revealed as completely bogus. That is why I commend Deputy Doherty's imagination for managing to get this issue into the committee discussions.
In terms of options for alternatives, two of the central arguments we heard at the time the issue was being debated, have been shown to be utter nonsense. One was that the money derived from the property tax would go into the provision of local services. People should pay it, it was a great idea and it would finance local services.
However, we have discovered that is not true. The first year's take from the property tax went directly towards paying off the debt that was not ours and we have now discovered the second year's tax will go into the setting up of Irish Water, which will facilitate the charging of people for water.
The other argument used at the time was that if only we had had a property tax, we would not have had the property bubble, would not have had all the speculation in property, and the excesses that led up to the crash would not have occurred. Now we are seeing a bubble beginning to develop again in property. Therefore, having property taxes has not stopped the beginning of a development of another bubble. Rents are beginning to rise and prices are rising in certain areas and it seems possible the whole merry-go-round of property speculation will start again. The property tax is not proving to be something that will stop that. I do not believe it will, because that was not the reason for it in the first place. The presence or absence of a property tax did not explain in any way the reason we had a bubble at all or why we had speculation in housing. That was to do with the marketing of housing and the greed of developers and bankers.
The amendment is well put. I do not believe the Minister of State will respond positively to it, but this year we will see increasing evidence that the property tax is wrong at any time. Alternatives to it should be sought.
I am more than happy to respond on this because the Deputy's comments need a response. One of the worst decisions taken in our country over the past 50 years was the decision taken in the 1970s to buy an election by abolishing domestic rates. We need to have a broadly based taxation system and to move away from a reliance on a narrow focus on taxes as a means of collecting taxes.
I predict that despite all of the speechifying and the promises that will be made between now and 2016, the property tax will remain after 2016. It will remain because having gone through the crash and the hardship of the past five or six years, the public in its maturity will see through those parties that now propose its abolition. It is entirely right and proper that we tax wealth. One of the principal forms of wealth is the asset in which they live. Notwithstanding that and the difficulties people face, I believe this property tax, in terms of its application and the tax itself, is fair and proportionate. If people are in very difficult circumstances, they do not have to pay immediately. The payment is deferred. Next year, approximately €550 million will be raised via this tax. Does anyone seriously suggest that in the future this tax should be laid aside or ignored? The circumstances are that we must broaden the tax base. This is one of the most jobs friendly taxes in that it does not propose an additional tax on work.
When we have a grown-up and mature debate on this, people will see through the arguments being made by the parties opposite. People will realise that, as is case in jurisdictions not a million miles from here, a property based tax will remain and that it is important to have that tax as part of a broadening of the tax base. Despite all the shouting, roaring and screaming about this, the fact that its application has been so broad and the compliance rate so high despite the difficulties that have emerged from time to time, demonstrates the recognition by people that we had to take this route. In circumstances where so many people are unemployed, we do not want to tax work further. We want to ensure incentives are built into the economy for people to take up work. Despite all the politicking on this, the property tax is here to stay. I suspect that it will remain after the next election. In regard to the dual abode allowance, I understand that people with two properties pay property tax on both, or if they have three properties, they pay tax on the three, irrespective of the allowance. This tax is not part of the Bill to which Deputy Doherty referred.
I would argue strongly that the decisions taken by the Government, in terms of further reductions in pay, a reduction of 50% in the cost of ministerial transport, the abolition of termination payments affecting every Minister, demonstrate the intent of the Government in terms of having a fair adjustment. Four years ago, the Taoiseach's pay could have been €310,000 but now it is down to approximately €165,000. I have no difficulty with showing my payslip to Deputy Doherty after this meeting so he can see the "enormous" sums of money I manage to draw down as a Minister of State. It is breathtaking, to say the least. To pretend to people that those at the top have not seen a great adjustment in terms of a reduction in net income is a lie, and everyone knows that. This argument is further extenuated by the European authorities in their assessment.
We know, from all of the assessments done by the European Commission and the OECD, that the way the adjustment has been done has been most progressive, in that those who have more pay more. We also know, by way of the 39 countries tested under the OECD, that we have the third most progressive tax regime. The evidence is there from international bodies who have no axe to grind in this regard. They have made it clear that our adjustments have been fair, proportionate and progressive, in terms of those who have most having to pay most, which is as it should be. To suggest that the terms and conditions of those in ministerial office have not changed dramatically and that changes have not been borne by them is not true. People know that.
This debate has been well rehearsed, and the Minister of State will get the last word, in any event. We will leave here disagreeing. However, I think it is indicative of the way the Minister of State approaches this that he said people live in assets. The point is they do not live in an asset. Most people do not live in an asset. They live in a home, in a house. They purchased it as a home and do not perceive it as an asset in that sense. Putting a roof over their heads is a prerequisite for civilised and dignified existence and for enabling them to function in society. That is the reason people go to great lengths and struggle and pay for their whole lives to put a roof over their heads.
People are bitter and angry that after doing all that, they are now asked to pay again. The Minister of State has said that people realise the property tax is the best route to take, but I do not think that has happened nor that he believes that. People felt ambushed by the fact the collection of the tax was handed over to the Revenue and thought there was no way to continue a boycott. There had been a substantial boycott, particularly in the first year when there was an overwhelming boycott. The Minister of State should not fool himself about that.
It will be this way in the history book. Historians will adduce this in a few years' time.
We shall agree to disagree. I am too young to remember what was said when rates were abolished. I have been told that when they were abolished - there is no question but that it was a populist move - a commitment was made to the electorate that VAT increases that subsequently followed would cover that move. VAT increased afterwards and people felt they paid. However, since then many other taxes have been added. A commitment was made to people at the time that they would not be asked to pay again.
The Minister of State did not respond to my point. He and all of his spokespeople said that we should pay this charge, even if we do not like it, because we need to fund local services. The fact is that the Government has not increased the funding for local services, but has cut it. For many of the services that we used to get from paying taxes, we now have to pay charges anyway. There are charges for parking, for going into hospitals, increased rates, future charges for water and so on. People genuinely ask "What the hell are we paying for, because we have to pay charges anyway?" That is legitimate anger at double taxation.
Can we leave it at the stump?
I am not allowing the Minister of State to insinuate that I am in some way perpetrating a lie. He can show his income slip to whoever he wants. I have no intention of looking at what he earns or what anyone else earns. What a Minister of State earns is public knowledge. I do not think many people will shed a tear for any politician who earns about €100,000 in gross income. I do not think he wants to pluck on the sympathy chords of the Irish public-----
I do not want any sympathy. I just want facts.
With respect, if he wants to pluck on the heartstrings of the Irish people, I think he is plucking on the wrong strings. He may feel that he is entitled to it and that is fine and that is to pay for his job at the moment------
I am going to intervene here. In your own introduction, Deputy, you referred to the Minister of State's own income and the Minister of State responded. I am going to end the debate about the personalities sitting around this table and return to the broader issue of his amendment.
My amendment is about the fairness of taxation measures and why the local property tax should be repealed. I will say again that Sinn Féin is committed to repealing this property tax if we are in government following the next election. The Minister of State may have a crystal ball and people may hope that their parties are returned, and that is fine. It is our commitment to abolish it and we will see what happens.
I agree on that.
None of us knows what will happen in the future. However, there has been an unfair impetus put on the Irish people at the lower level. The Minister of State refers to reports from independent studies and so on, but he fails to mention the names of the studies. For example, the ESRI is one such study. The Minister of State should talk about the ESRI study and not rely on what happened before he came to office. The ESRI's study on the 2012 budget showed clearly that it was regressive, "with reductions of about 2% to 2.5% for those with the lowest incomes, as against losses of about 0.75% for those on the highest incomes". The ESRI is independent. It carried out an analysis of the budget. The Minister told us that the ESRI does not take full account of all the measures and so on, but that is a study. I do not need a study to tell me where the impact has fallen.
The Minister of State can argue and talk about gross figures, and I will go back to the Mark Twain quote about lies, damned lies and statistics. It is not about who takes the gross amount and whether the current Taoiseach took a pay reduction. Of course he took a reduction, and he have should have done so, because the last Taoiseach was overpaid.
-----of €100,000. That is a gross amount.
The Minister of State is pulling me back in a direction the Chairman has asked me not to take, but I am saying that any politician who is looking for sympathy and who is earning above €100,000 is not going to get it. People at the higher levels of income may have taken reductions in gross pay, or reductions in net income as a result of higher taxes and so on, but the point is that they have a larger disposable income and many of these measures, such as the local property tax, eats harshly into disposable income. For people on the minimum wage or the average industrial wage, there is a good chance that the property tax that they pay will not be a million miles away from the property tax that others pay, because the values of houses are not astronomically different across the State. There are variations, but there are not massive differences. However, the problem is with the disposable income of different individuals.
These increases, such as the increase in VAT to 23%, the rise in carbon tax and the tax on fuel, small tax increases on cigarettes and wine and the price of a pint, the local property tax, prescription charges, accident and emergency charge increases, all dig into people's disposable incomes. The Minister of State can stand on his soap box for as long as he wants and claim that the Government has not touched bands, rates or credits, but that has fallen on deaf ears to many people who have seen the real impact of the budget. The local property tax is one of those big-ticket items for them, and it should be abolished.
Ideologically, the Minister of State is opposed to that view. There are members in his party who were not opposed and who did not share his opinion on the abolition of the 1977 tax. He makes a valid point that the property tax might have been abolished to buy an election. Perhaps it was abolished for that reason, perhaps it was not. Was the Taoiseach's statement at the time about the vampire tax his attempt to buy the election? Are we going to claim that every single person who makes a proposal like this is taking an ideological view on this? It is a property tax and not a wealth tax. It is not an asset. The Minister of State should talk to the 118,000 people who cannot pay their mortgages and tell them that this is their wealth. For many people, it is a noose around their neck. If they could walk away, hand back their keys and say "Goodbye" to the debt, they would be happy to do so. This State is taxing debt to a large degree. Some people are in equity and there is an asset involved. There is value in the roof that is over their head. However, for many people it is just debt. This is an indiscriminate form of tax and it does not provide for services that it was supposed to provide.
There are property taxes right across Europe and each one has a different role, structure and so on. The same is true for wealth taxes, income tax and so on. There is no property tax in the North, but there is a rating system in place where people pay tax for their property but they get services provided as a result. We can argue whether that is right or wrong, but I would be willing to have a debate with the Minister of State on a type of system like that where there are no water charges, bin charges or book costs for going to school, and where people have their septic tanks emptied for free once a year, they get free dental care and health care. Let us have that debate and I will be the first person to discuss some type of system to pay for it, and to make sure that exemptions are built in regarding income and debt and whether the property really is an asset or not. However, that is not what we are at here. This is just a money grab. As Deputy Boyd Barrett has said, this is not going into local services. The local authority budgets are being cut and we are now told that the 80% of property taxes supposed to be retained in local areas will not now happen because Irish Water will make a financial imposition on local authorities. Local authority members are still waiting for their allocations to be announced as they try to prepare their budget.
I have made my point and I will continue to make it.
We will take that vote at the end of this cycle. Amendment No. 115 in the name of Deputy Boyd Barrett has been ruled out of order.
I move amendment No. 116:
In page 92, between lines 29 and 30, to insert the following:
“Capital Services Redemption Account
80. (1) In this section—
“capital services” has the same meaning as it has in the principal section; “Capital Services Redemption Account” has the same meaning as it has in the principal section;
“sixty-first additional annuity” means the sum charged to the Central Fund under subsection (2);
“principal section” means section 22 of the Finance Act 1950.
(2) A sum of €85,282,431 to redeem borrowings in respect of capital services and interest on such borrowings shall be charged annually on the Central Fund or the growing produce of that Fund in the 30 successive financial years commencing with the financial year ending on 31 December 2014.
(3) The sixty-first additional annuity shall be paid into the Capital Services Redemption Account in such manner and at such times in the relevant financial year as the Minister for Finance may determine.
(4) Any amount of the sixty-first additional annuity, not exceeding €65,550,000 in any financial year, may be applied toward defraying the interest on the public debt.
(5) The balance of the sixty-first additional annuity shall be applied in any one or more of the ways specified in subsection (6) of the principal section.”.
The section inserted by this amendment is a standard section. We have considered repealing the need for these sections but legal complexities have defeated us for the time being so it must be inserted as an amendment.
The capital services redemption account, CSRA, was established under section 22 of the Finance Act 1950. At the time, fiscal policy was guided by the economic thinking that a country should not borrow for current spending but should be allowed to borrow to invest in capital projects which would enhance the productive capacity of the economy. To avoid a permanent addition to national debt, a series of annuities were set up to repay the cost of funds borrowed for voted capital expenditure over a 30-year period.
We will now proceed to take the postponed division on amendment No. 114.
- Boyd Barrett, Richard.
- Doherty, Pearse.
- McGrath, Michael.
- Farrell, Alan.
- Harris, Simon.
- Hayes, Brian.
- Lynch, Ciarán.
- O'Donnell, Kieran.
- O'Reilly, Joe.
- Ó Ríordáin, Aodhán.