Written Answers Nos 1-20
12. Deputy Ruth Coppinger asked the Minister for Finance if he will apply for funds from the Ireland strategic investment fund to invest in the construction of thousands of social, affordable and local authority homes [25440/14]
View answerThe National Treasury Management Agency (Amendment) Bill 2014, which is currently before Dáil Éireann, proposes the reorientation of the National Pensions Reserve Fund into the Ireland Strategic Investment Fund (ISIF), with a mandate to support economic growth and help foster employment in this country.
The Bill provides that the Agency will monitor and keep under review an investment strategy for the Fund. In determining and reviewing the investment strategy, the Agency will consult with and have regard to the views of the Minister for Finance and the Minister for Public Expenditure and Reform, who may consult other Ministers.
In this context, and to the extent that there are financing gaps in the construction of social, affordable and local authority homes which can be filled on a commercial basis, it will be open to the Ireland Strategic Investment Fund, the legislation for which will be enacted over the coming months, to consider addressing such gaps subject to its overall investment mandate. The ISIF may have a role to play as long as a commercial investment is structured that supports economic growth and employment in Ireland. The investment must be structured in a way that does not result in it being classified as expenditure under government accounting rules otherwise there would need to be compensating expenditure cuts made elsewhere.
I might add that the Government's Construction Strategy, published on 14 May, aims to support a return to a sustainable and properly functioning property and construction sector as an essential part of our national economic recovery. As stated in the Strategy, ensuring every citizen has access to suitable housing is a key policy goal of Government.
The Government will continue to prioritise the delivery of good quality social housing, including the return to mainstream local authority housing construction this year; enhancing the role of the not-for-profit sector in the provision of social homes; and continuing to work with NAMA, the Local Authorities, and approved housing bodies to maximise delivery of units owned by NAMA or its debtors for social housing. We will identify the best ways to deliver social housing for the years ahead through the development of a comprehensive strategy for Social Housing, setting out a vision for the sector.
- It is estimated that in the region of 5,000 new Social Housing units will be provided in 2014 through leasing and existing capital programmes. This includes completion of mortgage-to-rent arrangements; the continued transfer of units owned by NAMA or its debtors; completion of existing building and acquisition programmes; and transfers under the Rental Accommodation Scheme.
- Budget 2014 contained innovative housing measures, and announced an additional €30m investment in local authority housing. This €30m investment is expected to provide a substantial number of new and refurbished homes for people on housing waiting lists. Approximately half of this investment will enable the construction of new infill developments in areas with the highest demand for social housing.
- In March, the Minister for Housing and Planning launched a two year €68m local authority home building initiative, which will build some 449 new social homes for families in need of housing. This investment represents the first return to new mainstream local authority house building since the beginning of the financial crisis.
- Details of a €15m fund to bring vacant local authority houses back into use were announced in April. This fund will bring 952 vacant local authority units back into beneficial use, providing high quality homes for people in need of housing, while also providing employment through labour intensive activity.
- This year will also see the completion of a three year €100m investment that will provide 800 units for older people, people with a disability or people without a home.
- We are currently in the process of rolling out a new Housing Assistance Payment (HAP) which, in addition to helping to remove barriers to employment for recipients, will contribute to the creation of a higher quality private rented sector through improved standards.
- The contribution of the not-for-profit sector in the provision of social housing will be facilitated by introducing legislation to regulate the sector. Regulation will enhance the ability of approved housing bodies to attract private finance.
- The Construction Strategy states that later this year we will publish a Social Housing Strategy setting out a vision for the sector, and we will introduce legislation to regulate the Approved Housing Body sector.
- The Strategy includes measures to ensure that financing is available to support necessary and viable development. In particular, a High Level Working Group, led by the department of Finance will be established to examine the availability of both banking and non-banking sources of finance.
13. Deputy Ruth Coppinger asked the Minister for Finance the effect the Government policy of downsizing the public sector and cutting wages has had since 2007 on the wage share-wages as a percentage of GDP; and if he will make a statement on the matter. [28548/14]
View answerThe economic crisis exposed a large underlying mismatch between public expenditure and revenue, much of which was structural in nature and unrelated to the economic cycle. This necessitated substantial fiscal consolidation in order to ensure that the public finances remained on a sustainable path. Given the size of the fiscal imbalances, adjustments were needed on both the revenue and expenditure sides of the accounts. In the choice of consolidation instrument, the Government has always been conscious of the need to minimise the impact on economic activity.
Roughly two-thirds of the adjustment since 2008 has been on the expenditure side. Part of this has been achieved with public sector payroll savings which have been achieved in a largely progressive manner.
In the private sector, hourly earnings have remained broadly flat in the aftermath of the crisis. These wage developments have played an important part in the ongoing improvement in Irish competitiveness and are one of the main reasons why employment is now growing so strongly - I would point out that the level of employment is nearly 4 per cent higher than its low-point and FDI inflows have been very strong. It is unlikely that either of these would have occurred without the improvement in competitiveness that we have seen in recent years.
The wage share of national income has remained broadly constant during the crisis years.
14. Deputy Thomas P. Broughan asked the Minister for Finance his position on mooted proposals at European Union level to introduce a financial transactions tax. [28363/14]
View answerThe Government's position is that a Financial Transactions Tax (FTT) would be best applied on a wide international basis to include the major financial centres to prevent the danger of activities gravitating to jurisdictions where taxes are not levied on financial transactions. Notwithstanding this, the Government is not prepared to stand in the way of EU Member States that wish to work together to implement a Financial Transactions Tax and in this regard adoption of a decision formally authorising enhanced cooperation took place during the Irish Presidency of the EU in January 2013.
The proposal for a Directive from the European Commission in the area of financial transaction tax was published in February 2013. Ireland had many concerns about the proposal as drafted, not least of which were the potential impacts on, and the trading of, Irish Sovereign debt in the secondary market and in total, the potential negative impact on the liquidity of the financial sector as a whole. Members of the Economic and Financial Sub-Committee on EU Sovereign Debt Markets have stated that the introduction of the FTT would have a significantly negative effect on Sovereign Debt Markets and may impair the good-functioning of secondary markets for sovereign debt resulting in reduced liquidity, reduced investor demand and therefore higher financing costs for States.
Our concerns are widely shared amongst the Member States, including some of the participating countries. These concerns have led to the issuing of a communique by the participating Member States, announcing that they have agreed to implement a financial transaction tax in a progressive manner, with the first step being a charge on shares and some derivatives. However, significant technical and legal discussions will continue to be required at the Council Working Party before the text of the proposed Directive can be finalised. With this in mind, the targeted implementation date for the FTT has been rescheduled to 1 January 2016.
As the Deputy will be aware, Ireland already has a tax on financial transactions, a Stamp Duty on transfers of shares in Irish incorporated companies, which currently stands at 1%.
15. Deputy Dara Calleary asked the Minister for Finance the manner in which he believes a State enterprise bank can help boost employment in the country; and if he will make a statement on the matter. [23791/14]
View answerCredit is the lifeblood of all businesses and SMEs need to be able to access loans of greater duration, with enhanced terms and potentially at a lower cost facilitated by a state financial institution. A state promotional institution is a well established business model that is beneficial and successful in other markets. An Irish SME focused institution would promote greater competition in the small business lending sector while also driving economic growth and job creation in the economy.
In this context, the Government, on Tuesday 20 May 2014, announced that over €500 million in additional credit will be made available to Irish SMEs through the establishment of the Strategic Banking Corporation of Ireland (SBCI). Similar to manner in which KfW operates in Germany, the SBCI, as a wholesale lender, will lend to on-lenders, who will then lend direct to SMEs.
A key benefit of the SBCI will be its ability to facilitate loans with initial capital repayment breaks or the offering of loans with longer durations than are typically available currently. In such cases, SMEs would have greater capacity to make investments on the basis of improved cash flow matching, which makes growth more likely. Additionally, the expanded pool of lending products could serve the needs of a wider cohort of SME customers than is presently served by lenders in the market.
KfW and the EIB have indicated that they are willing to provide lower cost funding to the SBCI for up to a 10-year term. The NPRF will also fund the SBCI. Locking in funds at a lower cost for a 10-year period is both a major benefit and a risk mitigant for the SMEs. Bank funding costs could increase for a whole host of reasons and to lock in lower cost funding would be a major benefit in protecting employment in the SME sector in such circumstances. This should provide increased confidence to the SME sector as it increases the certainty around the availability of funding to that sector even in adverse financial market conditions. This will protect existing employment in the SME sector as well as boosting employment as SMEs will be able to finance investments using new types of lending products that are not available at present.
The Government is prioritising the passage of the required legislation through the Houses of the Oireachtas and I expect the SBCI to be facilitating lending before the end of the year.
16. Deputy Ruth Coppinger asked the Minister for Finance if he will abolish inequitable tax reliefs in the budget such as tax relief on pension contributions at the marginal rate. [28547/14]
View answerIt is not clear from the question whether the Deputy is advocating the total abolition of tax relief on pension contributions or a change in the rate of the relief which currently applies at the taxpayer's marginal income tax rate. Either way, I have no plans to change the rate of income tax relief on pension contributions. There have been a number of significant changes in the tax relief arrangements for contributions to pension savings over recent years:
- The annual earnings limit for determining (with age-related limits) the maximum allowable tax-relieved pension contributions in any one year was reduced from over €275,000 to €150,000 per annum for the tax year 2009 and was further reduced in 2011 to its current level of €115,000 (representing a reduction of over 58% in the annual earnings cap from its peak in 2008).
- From 1 January 2011, employee contributions to occupational pension schemes and other pension arrangements were made subject to employee PRSI (they were previously exempt) and were also made subject to the Universal Social Charge.
- The employer PRSI exemption in respect of employee contributions to occupational pension schemes and other pension arrangements was reduced by 50% from 1 January 2011 with the remaining 50% relief removed by Finance Act 2012 with effect from 1 January 2012.
- The maximum allowable pension fund on retirement for tax purposes (the Standard Fund Threshold or SFT) was reduced from its indexed level of over €5.4 million to €2.3 million from 7 December 2010 (equating to the scale of the reduction in the annual earnings limit described above).
- Finally, in Budget 2014 and Finance (No 2) Act 2013, in line with the commitment I made in the previous Budget to restrict the subsidisation of pensions by taxpayers to those that deliver income up to €60,000 per annum, I further reduced the SFT from €2.3 million to €2 million with effect from 1 January 2014 as well as making other changes to the SFT regime.
The primary purpose of the changes made to the SFT regime is to further restrict the capacity of higher earners to fund or accrue large pensions through tax-subsidised sources. The SFT regime addresses the problem of pension overfunding and excessive pension accrual by dealing with it at the point of pension drawdown in retirement rather than by applying restrictions to pension savings or accrual upfront. The regime achieves this by imposing a higher tax charge (effectively 65% excluding liability to USC or other charges) on the value of retirement benefits above set limits when they are drawn down. In this way it acts to discourage the building up of large pension funds in the first place or unwinds the tax advantage of such overfunding by clawing back, through the higher tax charge, the tax relief granted.
17. Deputy Clare Daly asked the Minister for Finance the reason a person who offered to have a property tax bill deducted from a pension, had that request declined on the basis that the person would be left with an income below €186, and as a result has been levied with penalties for the arrears, penalties which continue to rise; and his views on whether this is fair and equitable. [28361/14]
View answerAs the Deputy has not provided details of the case in question, I am not in a position to address the specific circumstances and will, instead, respond in general to the matters raised.
By way of general comment, the deduction at source payment option, including from Department of Social Protection (DSP) payments, is a very efficient and cost effective payment method for Local Property Tax (LPT) and arrears of Household Charge (HHC). There are no fees or charges associated with deduction at source and the property owner simply indicates their payment preference on the LPT Return form. The deduction at source payment method, once selected and implemented for any particular year, carries forward to following years unless an alternative payment method is selected
However, deduction at source from DSP payments cannot be facilitated where such weekly deductions would have the effect of reducing the person's take home amount to below the minimum weekly rate of supplementary welfare allowance, which is currently €186 per week. The concept of a de minimis welfare payment from DSP is enshrined in social welfare legislation and it was considered, at the time of the introduction of LPT, that it was not appropriate to change the law in this regard.
In regard to the operation of the DSP deduction at source payment method, I am advised by Revenue that there is ongoing dialogue between its officials and DSP to ensure that the system runs as smoothly as possible and that where it is not possible to deduct LPT payments from a liable person on foot of the de minimis rule, that early notification is provided and alternative payment methods put in place.
In relation to the Deputy's comments on the application of penalties, I am advised by Revenue that no such penalties have been levied to date on any case where deduction at source from a DSP payment was refused on foot of the €186 limit. The Deputy may actually be referring to the increase in Household Charge (HHC) arrears liabilities from €100 to €200 with effect from 1 July 2013. Section 156 of the Finance Local Property Tax Act (as amended) converted all such arrears of HHC to LPT and made Revenue responsible for the collection of those amounts. This increase was applied to all HHC arrears regardless of any subsequently selected payment method, including HHC. During the recent HHC Arrears / LPT compliance campaign, Revenue gave a commitment that penalties or interest would not be applied against any person who met their obligations by the end of April 2014.
Recipients of DSP payments should be aware that the LPT legislation provides for full and partial (50%) deferrals of the tax within certain specified thresholds. For example, a property owner can claim a full deferral where his/her gross income does not exceed €15,000 if single/ widowed or, €25,000 in the case of a couple. To qualify for a partial deferral, the property owner's gross income must not exceed €25,000 if single/widowed or, €35,000 in the case of a couple. These income threshold limits can also be adjusted upwards by including 80% of any gross mortgage interest payments. The interest element of any such deferral or partial deferral is 4% as distinct from the normal 8% charge that applies in respect of unpaid liabilities. Any person whose sole income is such that the deduction of LPT would bring them under the €186 limit will qualify for the deferral or partial deferral (including deferral of the Household Charge arrears). I am assured by Revenue that the application process for deferral and partial deferral is a simple matter and can be done through the online system at www.revenue.ie or by contacting the LPT Helpline at 1890 200 255. In most circumstances where a deferral or partial deferral is granted, it remains in place for the current valuation period, i.e. for the tax years 2013, 2014, 2015 and 2016.
If a person who is eligible does not want to avail of the deferral or partial deferral he or she should make alternative arrangements to meet the LPT/HHC obligations through one of the other payment options that Revenue has put in place. For example, where the deduction at source option is not available property owners can avail of monthly direct debits through their financial institution or certain credit union accounts. Alternatively they can make regular weekly or monthly payments to one of the four approved payment service providers, which are An Post, Payzone, PayPoint and Omnivend. Details in regard to the payment service providers including information on the various transaction fees are available on the Revenue website at www.revenue.ie. It is important that I stress at this point that where property owners have already been advised that they are unable to avail of deduction at source from a DSP scheme in respect of LPT/HHC liabilities, they should immediately telephone the LPT Branch helpline at 1890 200 255 to make alternative payment arrangements.
Revenue has confirmed to me that almost 14,000 property owners availed of deduction at source from DSP payments to meet their LPT liabilities during 2013. Shortfalls in payment on foot of the €186 threshold occurred in 1,203 of these cases, of which 200 were for less than €10. Revenue contacted this tranche of property owners in April 2014 to advise on the various payment alternatives available including deferral or partial deferral. No interest or penalties were applied in these cases and alternative payment arrangements have been made by many of those contacted. The number of property owners opting for deduction at source from DSP payments in respect of both 2014 LPT and arrears of HHC has risen to almost 25,000 to date. Similarly to 2013, Revenue has identified and contacted almost 2,000 of these cases which are impacted by the €186 threshold to advise on the various payment alternatives, no interest or penalties have been applied and in most cases other payment arrangements have been put in place.
18. Deputy Dara Calleary asked the Minister for Finance the role he envisages for the Strategic Banking Corporation of Ireland; the reason it will not have a banking licence; his views that this will inhibit its ability to provide credit in the marketplace; and if he will make a statement on the matter. [28545/14]
View answerAs the Deputy will be aware, the Taoiseach and Chancellor Merkel last year sought, when we were exiting the EU/IMF Programme, to specifically to find ways to reinforce Ireland's economic recovery by improving funding mechanisms for the real economy, including access to finance for Irish SMEs. The German Government asked KfW, the German development bank, to work with the German and Irish authorities swiftly, in order to deliver on this initiative at the earliest possible date.
Officials at my Department with assistance from staff of the NPRF have worked quickly to investigate ways to ensure that the benefit of this cooperation to Irish SMEs can be maximised. Earlier this week the Government approved the publication of legislation to allow for the establishment of the Strategic Banking Corporation of Ireland, the SBCI.
KfW and the European Investment Bank have indicated that they are willing to provide low cost funding to SBCI for up to a 10-year term. Locking in funds at a lower cost for a 10-year period is both a major benefit and a risk mitigant for SMEs. To have locked in lower cost funding would be a major benefit in such circumstances and this fact should provide considerable confidence to the SME sector as it increases the certainty of funding to that sector even in adverse financial market conditions.
A key benefit of the SBCI will be its ability to facilitate loans with initial capital repayment breaks or the offering of loans with longer durations than are typically available currently. In such cases, SMEs would have greater capacity to make investments on the basis of improved cash flow matching, which makes growth more likely. Additionally, the expanded pool of lending products could serve the needs of a wider cohort of SME customers than is presently served by the lending institutions.
The SBCI will be set up without a banking licence. This is because the activities which the Government wishes it to carry out, providing lending products to SMEs through the on lending model, do not require a licence. This does not preclude the SBCI from applying for a banking licence in the future.
The Government believes that this will not inhibit the SBCI's ability to provide credit in the marketplace as the role of the on-lending development institution is a well established business model that is beneficial and successful in other markets. Similar to how KfW operates in Germany, SBCI, acting primarily as a wholesale lender, will lend to on-lenders, who will then on-lend to SMEs allowing small business to access finance facilitated by the SBCI through regulated providers of credit from the earliest possible date. The on-lenders are likely to be existing or new entrant market participants which meet prescribed criteria which will be set by the SBCI to ensure that the on-lender can lend prudently to the target market.
The Government is prioritising the passage of the required legislation through the Houses of the Oireachtas and I expect the SBCI to be facilitating lending before the end of the year.
19. Deputy Thomas P. Broughan asked the Minister for Finance if he expects a decision later this year on the retrospective recapitalisation of the main Irish banks under the ESM; and if he has projected the amount of capital that could be requested under this mechanism. [28364/14]
View answerAs the Deputy is aware, the Euro-area Heads of State or Government (HoSG) agreed in June 2012 that "it is imperative to break the vicious circle between banks and sovereigns", and that when a Single Supervisory Mechanism, involving the ECB, is in place and operational, the European Stability Mechanism, the ESM, could recapitalize banks directly.
On 10 June 2014 the euro area Member States reached a preliminary agreement on the operational framework for the ESM's DRI. This includes a specific provision in relation to the retroactive application of the instrument. Therefore, the agreement, that we were active in negotiating, keeps open the possibility to apply to the European Stability Mechanism for a retrospective direct recapitalisation of the Irish banks, should we wish to avail of it.
What is now required is a decision by mutual agreement of the ESM Board of Governors to create a new ESM instrument in accordance with Article 19 of the ESM treaty and the aim is to have this process completed by November this year, subject to completion of national approval procedures. This would allow the ESM DRI to come into effect once the Single Supervisory Mechanism is in place and operational which is expected to be in November of this year.
In relation to retrospective recapitalisation, the preliminary agreement states that the potential retroactive application of the instrument should be decided on a case-by-case basis and by mutual agreement. However, it will not be possible to make a formal application to the ESM for retrospective recapitalisation in advance of the Instrument being in place. The issue of the timing of any application has yet to be decided. Similarly, the amount to be sought will be considered in the context of the overall application, and it would be premature, and indeed contrary to our interests, to identify an amount at this stage.
In conclusion, I should emphasise that both I and my Government colleagues continue to ensure that Ireland's case for retrospective direct recapitalisation is made at all levels as appropriate.
20. Deputy Dara Calleary asked the Minister for Finance if he will publish financial projections in advance of budget 2015 outlining the expected deficit next year under a range of different adjustment levels; and if he will make a statement on the matter. [28544/14]
View answerThe most up-to-date budgetary estimates, published in the Stability Programme Update (SPU) in April, are based on the assumption of a consolidation package of €2.0bn in 2015 which is designed to deliver a deficit of 2.9 per cent of GDP in 2015. This is within the excessive deficit procedure (EDP) ceiling of 3.0 per cent. The macroeconomic forecasts underpinning the SPU have been endorsed by the Irish Fiscal Advisory Council.
As the Deputy will be aware from previous parliamentary questions, a different quantum of consolidation would change the outlook for economic activity and revenue growth. It should be noted that the exact impact on revenue and the deficit is difficult to estimate given the significant number of dependent factors, most significantly, assumptions around the composition of adjustment.
Overall, given the number of moving parts and only six months of revenue and expenditure data to hand, it is too early to speculate on what the starting position for the Budget will be. The next formal forecast will be the White Paper on Receipts and Expenditures which will be published in advance of the Budget and will set out the no-policy-change position for 2015.
In general, fiscal policy has to strike the right balance between supporting growth on job creation on the one hand, and bolstering the hard-won market confidence of recent years on the other.
