Written Answers Nos. 20-25
20. Deputy Bernard J. Durkan asked the Minister for Finance the extent to which the various economic fundamental objectives are being met and will be adhered to over the next five years; if he is satisfied that continued prudent economic and fiscal policy is required in the future; and if he will make a statement on the matter. [41738/14]
View answerFollowing the successful conclusion of the EU-IMF programme, the Irish economy has emerged from the crisis and economic recovery is now clearly established.
First estimates of economic activity for the second quarter of this year were very strong and were well ahead of consensus expectations with GDP growing by 1.5 per cent over the quarter and by 7.7 per cent year-on-year. Taken in conjunction with first quarter data, GDP grew by 5.8 per cent in the first half of this year. The increase in economic activity is broad based with both domestic sectors and exporting sectors performing strongly.
Recovery is perhaps most clearly evident in the labour market with employment increasing in each of the last seven quarters, representing an increase of over 70,000 jobs since the low-point in mid-2012. In line with this, the standardised unemployment rate stood at 11.1 per cent in September, having fallen from a peak of 15.1 per cent in early 2012.
Macroeconomic forecasts for the years 2014 to 2018 were presented by my Department on Budget Day, 14 October. They see GDP growth of 4.7 per cent in 2014 and 3.9 per cent next year. This is driven by a positive contribution from net exports on the back of growth in trading partners. Domestic demand is set to contribute to growth as well, with growing employment and rising household incomes resulting in an increase in private consumption over the period. Over the medium term, GDP growth of about 3½ per cent a year is anticipated. To achieve this, we will need to continue to improve our competitiveness, including through upskilling our workforce.
Notwithstanding the current improvement, risks to the outlook remain. These relate to the low inflation observed in many advanced economies, geopolitical tensions as well as the underperformance of the euro area economy.
In terms of the public finances, policy measures implemented by the Government have resulted in a decline in the deficit in recent years. This decline has been in a phased manner, consistent with the dual needs of supporting domestic activity as well as repairing the public finances. All of the interim deficit ceilings under the EDP have been met and Ireland is firmly on track to achieve a deficit of below 3 per cent in 2015. This has been important in restoring Ireland's credibility in the international markets, and bond yields have fallen substantially since the highs of mid-2011. The debt ratio has peaked and is now on a downward path. After 2015, fiscal policy will be set in line with the requirement to move towards Ireland's medium-term budgetary objective, which is for a balanced budget in structural terms.
21. Deputy Thomas P. Broughan asked the Minister for Finance in view of the results of the bank stress tests, his position on the State’s continuing ownership of AIB and EBS. [41720/14]
View answerThe positive results for AIB are an important milestone and validation that the bank is well capitalised. These results will allow my officials to move to the next phase of crafting our plans to return some of the large investments made between 2009 and 2011 to the taxpayer. It is critical that we carefully examine all possibilities open to us to ensure that this investment is protected and enhanced with a view to ultimately generating an optimal return for the State.
The return to profitability by AIB in the first half of 2014 is good news from the perspective of the Irish taxpayer, as it enhances the value of the bank for the taxpayer. The latest valuation of the AIB shares was carried out by the NPRFC at the end of 2013, and this valued the State's ordinary and preference shareholding at €10 billion. Including the Contingent Capital (COCO), this brings the value of the State's shareholding to €11.6 billion. Since the last valuation of the State's holding, bank stocks in many Eurozone countries have performed well, AIB has posted a profit in mid-2014 and I would therefore be confident that the current value of AIB is greater than the NPRF valuation at 31 December 2013.
Officials from the Shareholding Management Unit in my Department engage regularly with AIB on a range of issues including the financial performance of the bank, strategic objectives and its capital structure. Following the successful completion of the Comprehensive Assessment my Officials will explore options around returning capital to the State.
With respect to the State's holdings in the banks, Government policy remains unchanged and we do not wish to hold these investments in the banks over the long term. Subject to market conditions therefore we are willing to exit in a manner that maximises value for the taxpayer.
In the last 18 months the State has exited successfully from some debt investments with the sale of the Bank of Ireland Contingent Capital Notes and Preference Shares in addition to the sale of Irish Life. Holding our equity investments longer enables the State to benefit from the economic recovery and given the significant cash resources we hold, we are not under pressure to exit our remaining investments.
22. Deputy Joe Higgins asked the Minister for Finance the estimated annual cost of the extension in budget 2015 of tax breaks for leasing agricultural land; if he will provide a breakdown of the number of persons and the number of companies benefitting from these tax breaks each year since they were introduced; the benefit per person and per company; and if any analysis has been carried out of the income distributional effects of existing and future tax breaks for the leasing of agricultural land. [41750/14]
View answerThe Deputy may be aware that I commissioned a review of the tax reliefs available to the farming sector, in conjunction with my colleague the Minister for Agriculture, Food and the Marine, in last year's Budget. This process entailed three distinct processes:
- A public consultation
- An independent cost benefit analysis
- An international comparison with other jurisdictions
An inter-Departmental working group was established comprising officials from the Department of Finance, the Department of Agriculture, Food and the Marine (DAFM) and the Revenue Commissioners to oversee the review and report to both Ministers.
The report of the working group, including the report of the independent economic consultants Indecon, was published as a Budget publication and is available on my Department's website. This report is a very thorough analysis of the tax reliefs available for leasing of agricultural land, as well as a range of other tax measures available to the sector.
I am informed by the Revenue Commissioners that the cost of the scheme in the 2012 tax year (the most recent year for which data are currently available) is estimated at €7.3m and the number of taxpayers availing was 3,980.
Figures for previous tax years are available in Revenue's Statistical Reports, available on the Commissioners' website at http://www.revenue.ie/en/about/publications/statistical-reports.html, in the "Income Tax" chapter of each year (Table IT6). Updates will be published on the Commissioners' website in due course.
As regards the extension to tax measures for land leasing announced in the Budget, the following estimated costs were given at Budget time for these extensions.
|
Measure |
Yield/Cost 2015 |
Yield/Cost Full Year |
|
Agri-taxation - Income Tax |
||
|
- Increase the amounts of income exempted from long term leasing by 50% and introduce a fourth threshold for lease periods of 15 or more years with income of up to €40,000 being exempted. |
Cost €1.2m |
Cost €4m |
|
- Allow relief where the lessee is a company |
Cost €0.6m |
Cost €2m |
|
- Remove the 40 years of age threshold for leasing relief |
Cost €0.3m |
Cost €1m |
23. Deputy Richard Boyd Barrett asked the Minister for Finance if in formulating his budget 2015 tax proposals, he factored in the overall impact of both direct and indirect taxes to ensure fairness; and if he will make a statement on the matter. [41768/14]
View answerAs I outlined in my budget speech on 15 October, Budget 2015 is about securing the recovery, building it for the future and broadening it to families across the country. In formulating policies to meet these goals my Department has a number of procedures in place to assess the distributional impact of tax measures which help ensure their fairness.
These procedures include a distributional analysis of direct taxation measures across a range of income levels, family types, and case studies. This analysis was published in the Budget book and show gains to all household types. For example the analysis shows that a single earner on an annual income of €25,000 will gain €174 per annum; a married one earner couple on €35,000 will gain €174; while a married one earner couple with two children on €55,000 will gain €626 per year. These gains reflect the Government's commitment to helping those on lower and middle incomes.
Analysis of the taxation measures in the budget based on the ESRI SWITCH tax-benefit model indicates that all household deciles will gain from the income tax measures in Budget 2015. Some of these gains arise from the increase in the exemption threshold for the USC which had the effect of removing lower income people from the liability to pay USC (the second time the Government has done this). This means that all individuals with income below €12,012 will be entirely exempt from the USC. The Government also reduced the lower USC rates and increased their thresholds delivering further benefits to those on lower incomes and ensuring fairness.
At the same time, the benefits for any individual from the income tax package were capped by introducing a new higher rate of USC for high income individuals thus maintaining the progressivity of the system and ensuring that those on high incomes did not benefit over and above what is fair.
These changes occur against the backdrop of Ireland having one of the most progressive income tax systems in the OECD.
With regard to indirect policy changes my Department is cognisant of the effect of these types of taxes on those lower down the income distribution. However the number of indirect tax policy changes affecting households in this budget was limited. The increase in excise on cigarettes was motivated by the negative health outcomes of smoking, while the main increase in indirect tax revenue resulted from a technical change where VAT is charged for cross-border EU telecommunications, broadcasting and electronically supplied services.
The tax measures outlined above are not only designed to extend the recovery across economy but also aim to strengthen the recovery for the future. These reductions in tax have the effect of increasing the reward from employment. They lower the cost of employing people which will help create jobs. Indications from the ESRI HERMES macroeconomic model shows there could be up to 15,000 jobs created from the reductions in labour taxation when the full effect of the tax reforms that will be introduced over the next three years take effect.
Finally, I believe that creation of jobs for the unemployed remains a key element of promoting a fair and inclusive society. The measures I have implemented will go a long way towards achieving this.
24. Deputy Pearse Doherty asked the Minister for Finance when the EU Commission will make a decision on the restructuring package for Permanent TSB and his plans for the bank following the ECB stress tests. [41741/14]
View answerThe Permanent TSB restructuring plan submitted in Autumn 2013 is now outdated and is in the process of being updated for both recent positive financial and operational performance in 2014 and the results of the Comprehensive Assessment. My officials have been in discussions with the European Commission over recent weeks and they expect Permanent TSB to formally lodge an updated restructuring plan shortly.
Separately Permanent TSB will submit a Capital Plan to the ECB by 9 November 2014 detailing how they propose to meet the capital shortfall arising in the Adverse Stress Test scenario of the Comprehensive Assessment.
As the Deputy is aware Permanent TSB is an important bank in a highly concentrated Irish market and has 13% market share of both retail deposits and mortgage lending.
While no restructuring plan has been approved, Permanent TSB has made significant progress in delivering key elements of the Restructuring Plan submitted over the last year and the business is being managed structurally in the way envisaged in the plan. Permanent TSB has made steady progress on returning to operating profitability, has significantly de-risked its balance sheet through a sale of a tranche of its UK mortgage portfolio and the sale of Springboard Mortgages and has reduced 90 day plus mortgage arrears by c 25% year-to-date.
Permanent TSB continues to work to enhance the value of our investments through the continued delivery of the restructuring plan. The current strategy is for Permanent TSB to be an independent bank, competing within targeted segments of the retail banking market, and I will continue to support the board and management in the delivery of that strategy.
25. Deputy Paul Murphy asked the Minister for Finance the consideration taken by him, especially with regard to the possibility of an increase in the speculative purchase of land, before making the proposal to end the 80% windfall tax on rezoned land. [41762/14]
View answerThe windfall tax provisions are contained in Sections 644AB and 649B Taxes Consolidation Act (TCA) 1997, introduced by Section 240 National Asset Management Agency Act 2009 and amended by Section 25 Finance Act 2010, and apply an 80% rate of tax to the "windfall" profits or gains from land disposals or land development where those profits or gains are attributable to a relevant planning decision by a planning authority. Profits or gains from these activities that are not attributable to a relevant planning decision are taxed in the normal way. In Budget 2015, I announced the abolition of the windfall tax provisions from 1 January next and this is being provided for in the Finance Bill published last month.
The "Construction 2020 - a Strategy for a Renewed Construction Sector" Report published in May 2014 focuses on the steps that can be taken in the immediate future to ensure that necessary and sensible development can take place in the construction sector and that such development is not held back by unnecessary obstructions. One of the action points in the Report requires consideration of the tax code as it applies to the construction and property sector to establish if they are fit for purpose and otherwise to improve, abolish or replace them.
In that context, my Department and the Office of the Revenue Commissioners undertook a review of the windfall tax provisions as part of this year's Budget and Finance Bill process. In the course of that examination, the views of the Department of the Environment, Community and Local Government and of the National Asset Management Agency were sought on the provisions and the views on the windfall tax as expressed by bodies such as the Housing Finance and Sustainable Communities Agency were also considered. Arguments for the significant amendment or abolition of the windfall tax provisions were made in a number of pre-Budget submissions sent to me by various bodies, including the Construction Industry Federation, Dublin Chamber of Commerce, the Society of Chartered Surveyors, Property Industry Ireland and Chambers Ireland.
There are a number of reasons why, on foot of the review by my Department and the arguments made by others, I decided to abolish the windfall tax provisions. No gains or profits to which the current provisions apply have been returned since their introduction in 2009. While this is due largely to the lack of activity in the property market over much of this time, there is considerable doubt that the provisions would operate in an effective way on the ground or could be amended to operate effectively. More significantly, however, the views which I have seen expressed by various parties in both the private and public sector with an interest in the proper development of the housing market, and with which I agree, is that the windfall tax provisions are acting and will act as an impediment to land rezoning, land development and redevelopment and to land sales for development.
The abolition of the windfall tax provisions should be seen in the context of other decisions and proposals announced recently, including those by my colleague the Minister for the Environment, Community and Local Government, which are focussed on encouraging increased activity in the residential construction sector to meet increasing demand for housing. I indicated in my Budget speech, however, that while the Government is doing its part to remove impediments to a fully functioning property market, there will be no return to the past where tax incentives for developers drove supply. I also announced in the Budget that there will be a consultation in the coming months on taxation measures that might be introduced to address the issue of land owners who do not develop zoned and serviced land.
