Written Answers Nos 1-40
26. Deputy Bernard J. Durkan asked the Minister for Finance if he has satisfied himself regarding the competitiveness of the economy; the extent to which potential threats have emerged or are likely to so do; and if he will make a statement on the matter. [31446/17]
View answerIreland’s economic recovery has been underpinned by a significant improvement in competitiveness. The latest figures from the Central Bank of Ireland show that Ireland's real harmonised competitiveness indicator, a widely used measure of competitiveness in Europe, has improved by approximately 20 per cent between its peak in 2008 and May 2017. Progress can also be seen in our improved international rankings. For example, Ireland ranks 6th in the IMD World Competitiveness Rankings. This compares to a ranking of 24th at the height of the crisis in 2011.
The restoration of Irish competitiveness since 2008 has been hard-won through productivity improvements and wage and price moderation. It is important that this competitiveness is preserved and continues to support growth. This is all the more important given the heightened international uncertainty at present. We must ensure that the economy is best placed to weather economic shocks to the greatest extent possible. Competitiveness is an important factor in this.
We must also be cognisant that favourable exchange rate movements can reverse, as we have seen for example in the strengthening of the euro against sterling. Similarly, gains from the fall in oil prices may unwind in the future. In terms of domestic risks to competitiveness, housing supply pressures are of concern. The housing sector can adversely impact on competitiveness through for example, restricting the mobility of labour.
These risks highlight the importance of maintaining competitiveness-oriented policies, including sustainable fiscal policies, to help address emerging uncertainties. It is also important that at firm level, pay moves in line with productivity developments.
In summary, competitiveness has improved but we must not be complacent. My Department will continue to monitor all relevant developments closely.
27. Deputy Dara Calleary asked the Minister for Finance his plans to carry out a fiscal stress test as has been done in other jurisdictions such as the UK, with particular attention to the fiscal risks that may be faced; the potential contingent liabilities that exist for the fiscal position; and if he will make a statement on the matter. [26203/17]
View answerMy Department carries out and publishes the results of fiscal stress tests on a frequent basis.
The annual Stability Programme Update (SPU) submitted to the European Commission each April complies with European requirements, including the Code of Conduct agreed between the Commission and the Member States. EU requirements are that economic and budgetary forecasts use the most up-to-date information and that budgetary planning is based on the most likely macro-fiscal scenario or on a more prudent basis. Furthermore, the macroeconomic forecasts have to be assessed and endorsed by the Irish Fiscal Advisory Council.
The risk and sensitivity analysis chapter of both the SPU and Budget publications assesses the sensitivity of key fiscal data to changes in interest rates and world output. These data include the general government balance, debt, exports, wages, unemployment rate and GDP.
Furthermore, the SPU also sets out data on the ‘Long-term sustainability of the Public Finances’.
Data on contingent liabilities are also published. As a contingent liability arises in a situation where past or current actions create the risk of a future call on the Exchequer, the nominal level of contingent liabilities are independent of changes to world output or interest rates. As a share of GDP, contingent liabilities have trended downwards across all categories in recent years, with the next update due in Budget 2018.
In addition, my Department publishes an Annual Debt Report showing compliance with the EU debt rule out to 2025. This publication also contains a debt sustainability analysis showing how the debt path would evolve under a range of macro-fiscal scenarios. The document also outlines a range of additional variables monitored by my Department from a debt sustainability perspective.
29. Deputy Robert Troy asked the Minister for Finance if claimants of an insurance company similar to a company (details supplied) would receive 100% compensation from both the liquidation process and the insurance compensation fund if that company were to go into liquidation; if claimants of the company will be treated in the same way; and if he will make a statement on the matter. [31481/17]
View answerFollowing on from the Supreme Court decision on Setanta, it is my intention to bring certainty to the structure of the compensation framework in the future, particularly in the event of a liquidation of an insurer that is providing motor insurance in the State. In order to achieve this certainty, draft Heads of a Bill to amend the Insurance Act have been prepared and will be brought to Government shortly. The proposed Bill is based on the recommendations of the Review of the Framework for Motor Insurance Compensation in Ireland which was approved by Government last July.
When implemented this legislation will reflect the recommendations of the Review and will ensure all third-party motor insurance claims will be covered in future, in line with the Motor Insurers Bureau of Ireland limits. This will mean that in most cases there will 100% compensation. In addition, the new regime will provide greater efficiencies and oversight of the process, particularly with the involvement of the State Claims Agency.
In relation to Setanta, over and above the 65% ICF payment, it is expected that a proportion of the balance of money due to third party claimants will be met from the proceeds of the distribution of Setanta’s assets on completion of the liquidation process. However, it is not possible to say definitively at this stage what proportion of the claims this will amount to, but current indications are that this is unlikely to be sufficient to cover all of the 35% gap. In this regard, a preliminary assessment was carried out by Towers Watson in 2014 who indicated that the Liquidator would not be in a position to meet more than 30% of claims out of the assets of the liquidation. The Liquidator has informed the Department that as the Supreme Court has now made its judgment, a new actuarial report is being commissioned. The Liquidator does not currently have a timeline for its completion but he anticipates that he should have a clearer picture on this matter shortly.
The Government will review further the payment of compensation to Setanta claimants once the updated actuarial report on the available proceeds of the assets for distribution from the liquidation process is concluded. This will provide a good indication of the extent of the shortfall (i.e. the difference between the full amount due and the combined total of the 65% payment plus the Setanta distribution).
30. Deputy Joan Burton asked the Minister for Finance the tax losses built up in respect of financial banking and construction firms arising from the crash; if profitable companies such as a bank (details supplied) will enjoy tax write-offs for years to come; his plans for a minimum effective corporation tax rate; and if he will make a statement on the matter. [31463/17]
View answerLoss relief for corporation tax is a standard measure available through the Irish Corporate Tax system. It allows for losses incurred in the course of business to be accounted for when calculating a business’ tax liabilities. In effect, this recognises that business cycles run over a longer period than a year, and that a business can have substantial profits one year and substantial losses in the next. Therefore, it would be inequitable to tax business profits without allowing losses to be accounted for also. This mechanism is a standard worldwide feature of corporate tax systems in all OECD countries.
The Revenue commissioners have recently published ‘An Analysis of 2015 Corporation Tax Returns and 2016 Payments’. This report noted that the value of trading losses carried forward by all companies fell by 3% in 2015, from €215 billion to €209 billion.
Of the €209 billion of losses available, €120 billion relates to companies operating in the financial and insurance sectors and €9 billion relates to construction companies. It is important to note that around €40 billion of these losses are claims by companies that are in liquidation or are otherwise unlikely to be in a position to ever use these losses. The bulk of such losses are recorded by companies in the financial sector.
I acknowledge that firms in these sectors attained significant losses during the economic recession which presently impact upon their taxable liabilities. However, as I have noted already, the utilisation of such losses is a standard measure which is available to all firms liable to corporate tax in Ireland.
Nonetheless, to recognise the part that the banks played in the financial crisis, in 2013, the Government also decided that the banking sector should make an annual contribution of approximately €150 million to the Exchequer for the period from 2014 to 2016. In Budget 2016, the payment of this levy was extended until 2021. The bank levy is expected to raise €750 million over five years.
31. Deputy Maureen O'Sullivan asked the Minister for Finance his views on the worsening situation regarding car insurance costs; and his further views on the fact that many persons are seeing little difference in premium quotes since the recommendations of the working group have been published or partly implemented. [31349/17]
View answer48. Deputy Martin Heydon asked the Minister for Finance the status of the implementation of the recommendations in the report on motor insurance published in January 2017 from the cost of insurance working group set up by his Department; and if he will make a statement on the matter. [31453/17]
View answer68. Deputy John Curran asked the Minister for Finance the progress he is making on implementing the actions contained in the report on the cost of motor insurance; the effect this is having on motor insurance costs; and if he will make a statement on the matter. [31346/17]
View answer69. Deputy Robert Troy asked the Minister for Finance the position regarding the working group's actions on the issue of motor insurance; and if he will make a statement on the matter. [31482/17]
View answerI propose to take Questions Nos. 31, 48, 68 and 69 together.
The Cost of Insurance Working Group, chaired by former Minister of State Eoghan Murphy T.D., finalised its Report on the Cost of Motor Insurance in December 2016 and it was published on 10 January 2017. The Report makes 33 recommendations with 71 associated actions to be carried out in agreed timeframes, which are clearly set out in an Action Plan. 45 of these action points are due to be implemented by the end of this year with the remainder scheduled for completion before the conclusion of 2018.
There is a commitment within the Report that the Working Group will prepare quarterly updates on its progress and the first such update was published in early May. The Department of Finance will publish the second quarterly update in the coming weeks. This update will again show the progress to date on the overall implementation of the recommendations, with a particular focus on the 17 action points which were due for completion in the second quarter of 2017.
It should be noted that the most recent CSO data indicates that private car premiums have reduced by 8.5% year-on-year.
I do, however, accept that while CSO statistics indicate a greater degree of stability on an overall basis, these figures only represent a broad average and there are many people who are still seeing increases. I take the view that while the greater stability in pricing is a good thing, premiums are still at a very high level.
However, I do firmly believe that the implementation of the recommendations of the Report on the Cost of Motor Insurance will make a difference to the pricing of insurance premiums over the next 18 months. It is envisaged that the implementation of all the recommendations cumulatively, with the appropriate levels of commitment and cooperation from all relevant stakeholders, will achieve the objective of delivering fairer premiums for consumers. I also believe that the Setanta judgment, by finding that MIBI is not liable to meet third party claims, removes a major uncertainty from industry, which I would expect to be reflected in pricing in the short to medium term.
32. Deputy Joan Burton asked the Minister for Finance if he will report on the study he has ordered to amalgamate PRSI and USC; and if he will make a statement on the matter. [31462/17]
View answerI have asked my officials to prepare a paper to examine the policy options with regard to the amalgamation of USC and PRSI, as one of a range of potential policy options for the short and medium term.
As we have already discussed here this morning in response to Deputy Doherty’s priority question, our current three-part system of personal taxation is overly complex and can be difficult for taxpayers and employers to understand. A reduction from three charges to two would significantly simplify the personal tax system for all users.
In addition to simplifying the personal tax system, the purpose behind any process of reform would be to reduce the overall burden of taxation on work in a way that is affordable and sustainable. High marginal tax rates discourage work and increase costs to employers and therefore have a negative impact on both productivity and international competitiveness. This is a time when we need to concentrate on improving our competitiveness, to continue the increases in employment and opportunities for our citizens.
I am aware that this would not be a simple process and any merging of them would require a considerable re-working of the underpinning systems. The universal social charge is a tax charge on income, whereas the PRSI charge, both Employee and Employer PRSI, generally confers rights to certain social welfare benefits when the necessary number of contributions have been made. Any potential changes to PRSI would need to respect the social insurance character of the contributions and would recognise the social contract that is formed between those who pay taxes and the services they receive in return.
There are also practical challenges that would need to be addressed in considering a potential amalgamation of USC and PRSI, as the charges have different bases and are also calculated in a different manner, with the USC being a cumulative annual tax whereas PRSI applies on a weekly basis. However there are also similarities between the two charges in that both are individualised taxes, whereas income tax allows for joint assessment.
Any changes to USC and/or PRSI would form part of the ongoing wider medium-term process of income tax reform, which is likely to take a number of years to complete.
33. Deputy Catherine Murphy asked the Minister for Finance the forms of stakeholder engagement he has participated in in advance of signalling his budgetary intentions to reduce income tax; and if he will make a statement on the matter. [31478/17]
View answerThe Government’s plans to reduce the income tax burden for all taxpayers, with a particular focus on low to middle income earners, were clearly stated in the Programme for Government published in May 2016.
The Programme for Government recognises that high personal tax rates in Ireland discourage work and jobs and have a negative impact on our international competitiveness. Therefore, it contains a commitment for a medium-term income tax reform plan that keeps the tax base broad, while reducing excessive tax rates for middle income earners, and limiting the benefit for high earners. We must appreciate the value of retaining the incentive to work, to enable those who work hard to provide for their families and generate further economic growth through employment and expenditure in the domestic economy.
As part of the annual budgetary process the third National Economic Dialogue took place in June, with representation and input from community, voluntary and environmental groups, from business, unions, research institutes, academics and the media. The debate and dialogue that we had last year at the second NED had a material effect on choices that I made in last year's budget, and I am now reflecting on this year’s debate in context of my deliberations for Budget 2018.
On an ongoing basis, my officials and I continuously engage with stakeholders, including in relation to Budget matters. By way of example the Department of Finance received over 400 Pre-Budget Submissions relating to Budget 2017 from a wide variety of groups, representative organisations and individuals. In addition my officials met with more than twenty organisations in the run-up to that Budget.
Preparations for Budget 2018 are now under way. In this context, the opportunity for stakeholders to make their views known to me has not passed. The Tax Strategy Group will meet later this month to discuss Budget options and the TSG papers will be published on my Department’s website. I also intend to continue the long standing practice of having a number of formal pre-Budget meetings with a variety of stakeholders, in addition to the normal ongoing engagement between my officials and relevant stakeholders.
Furthermore, as the Deputy will be aware, changes to one particular tax, such as income tax, are not considered in isolation. They must be considered as part of the overall Budget process encompassing both revenue and expenditure measures and in the context of available resources. Any announcement in relation to changes to the income tax system would normally be made as part of the Budget and I am not inclined to diverge from this practice.
34. Deputy Stephen S. Donnelly asked the Minister for Finance the level of support the Government is offering to relocate the European Banking Authority to Ireland; and if he will provide the associated cost suggested. [25705/17]
View answerThe EBA is an integral part of the European System of Financial Supervision that was established after the financial crisis. It is key that the Authority can continue its critical work with minimal disruption during the transition to a new location. The view of the Government is that relocation to Dublin would result in the least amount of disruption for both the Authority and its staff.
The Government made a public declaration of interest in hosting the European Banking Authority (EBA) following the decision of the United Kingdom to leave the European Union.
We have been actively supporting our bid both at Ministerial and senior official levels, backed by the wide circulation of a Government endorsed promotional brochure.
Interested Member States must submit their formal offers to host the Authority by 31 July 2017. As part of the offer, Member States are asked to specify any special conditions offered in hosting the EBA with regard to costs and infrastructure. No decision has been made at this point on offering any special conditions as part of our bid.
The formal offer will set out how Dublin as a location best meets the criteria put forward by the President of the European Council and the President of the European Commission, and specify any proposed supports being offered and the associated costs.
Once the formal offer document is completed, I will bring it to Government for approval prior to 31 July deadline.
35. Deputy Michael McGrath asked the Minister for Finance the status of the second phase of the cost of insurance working group in respect of employer liability and public liability; when the working group will come forward with recommendations; the progress on the working group's report on motor insurance; and if he will make a statement on the matter. [31243/17]
View answerThe Cost of Insurance Working Group is in its second phase examining the cost of employer liability insurance and public liability insurance and has so far met nine times this year, including this morning (July 5 2017), which is the first meeting that I have chaired as Minister. During this time the Working Group has held extensive consultations with a range of stakeholders and further consultations are planned, while submissions have been invited and received from interested parties.
At this stage, two sub-groups have been formed looking in more detail at, respectively, legal-related matters and market-related issues. The issues under consideration by the legal sub-group are complex and raise constitutional questions and thus require careful consideration. A request for advice from the Office of the Attorney General is being prepared on the basis of the Working Group’s assessment of the issues raised. The response to this request for advice will shape the recommendations emerging from the second phase.
It is anticipated that the second phase recommendations will take the form of an addendum to the Report on the Cost of Motor Insurance as many of them will build upon the recommendations in the existing Report and it is hoped that it will be published in late September, subject to receipt of the legal advice and development of the recommendations arising from that legal advice.
In relation to the implementation of the recommendations of the Report on the Cost of Motor Insurance, the Deputy will be aware that there are 33 recommendations with 71 associated actions to be carried out in agreed timeframes, which are clearly set out in an Action Plan.
There is a commitment within the Report that the Working Group will prepare quarterly updates on its progress and the first such update was published in early May. My Department will publish the second quarterly update in the coming weeks. This update will again show the progress to date on the overall implementation of the recommendations, with a particular focus on the 17 action points which were due for completion in the second quarter of 2017.
36. Deputy Pearse Doherty asked the Minister for Finance his views on whether his Department’s projections of the potential impact of Brexit are reliable in view of recent comments by the ESRI and the Irish Fiscal Advisory Council; and if he will make a statement on the matter. [31449/17]
View answerMy Department has incorporated the estimated impact of a “hard” Brexit into the macroeconomic forecasts published in the Stability Programme Update 2017. This shock is projected to reduce GDP growth by approximately 0.7 percentage points on average per annum over the 2019-2021 period (i.e. relative to what would otherwise have been the case). These forecasts were endorsed by the Irish Fiscal Advisory Council (IFAC).
These projections were informed by Department of Finance – ESRI joint research which modelled the medium to long term impact of Brexit on Ireland. In particular, the forecasts were guided by the “WTO scenario”, whereby the UK and EU do not conclude a bilateral trade agreement and instead the UK exercises its rights under the Most Favored Nation (MFN) clause of the WTO. I would point out that the IFAC welcomed the use of explicit-model based estimates to inform the Department’s medium-term outlook in the June 2017 Fiscal Assessment Report.
My Department also highlighted in the Stability Programme that risks are firmly tilted to the downside. In particular, the potential impact of Brexit is still highly uncertain and could be worse than anticipated.
The best way to mitigate such risks is to improve the resilience of the economy. The Government will play its part by continuing to implement competitiveness-oriented policies – including those that address emerging bottlenecks – and ensuring that the public finances continue to be managed in a prudent fashion.
37. Deputy Joan Burton asked the Minister for Finance if he will report on his recent discussions with the European Investment Bank in Luxembourg to strengthen the bank’s role here in view of Brexit; and if he will make a statement on the matter. [31461/17]
View answerI met the EIB President, EIB Vice President Andrew McDowell and other representatives of the Bank in Luxembourg on 23-24 May in the second formal meeting of the general EIB Ireland Financing Group. There was a wide ranging discussion on the capital and infrastructural needs of the Irish economy and the key issues that arise in trying to address these needs. This discussion included the limited fiscal space with which the Government must operate, the potential threats posed by Brexit and the assessment of priorities for additional funding that is currently underway as part of the mid-term review of the Capital Plan.
At that meeting, it was agreed that the work of the Group, and its three sub-groups which met on a number of occasions earlier this year, should continue, while a number of specific action points were agreed for intensive follow-up engagement over the coming weeks and months:
- the Irish authorities and EIB are to explore potential financing options for delivering Metro North, drawing on EIB's knowledge and experience of financing similar projects in other countries.
- to engage in exploratory discussions in relation to EIB's knowledge and experience of different user-pay PPP or concession type models for delivering infrastructure projects - but without prejudice to decisions on project selection that will only be taken by Government following completion of the mid-term review of the Capital Plan, or the review of policy in relation to the futureuse of PPPs or concessions that is currently underway as part of the mid-term review.
- to explore, partly in relation to mitigation of the impacts of Brexit on the Irish economy, the potential for EIB to become involved in funding measures to provide access to finance for the enterprise/agriculture sectors.
At the meeting, the EIB indicated that they were currently looking at products to assist Ireland in dealing with the threats of Brexit, especially in the Enterprise and SME sectors.
38. Deputy Pearse Doherty asked the Minister for Finance if he will suspend the help-to-buy scheme immediately for new applications; and the status of the review of the scheme. [31451/17]
View answer39. Deputy Niamh Smyth asked the Minister for Finance the position regarding the review of the help-to-buy scheme; and if he will make a statement on the matter. [31248/17]
View answer63. Deputy John Curran asked the Minister for Finance if he is reviewing the help-to-buy scheme; his views on whether this scheme is adding to increases in new house prices; his further views on the future for this scheme; and if he will make a statement on the matter. [31347/17]
View answer67. Deputy Clare Daly asked the Minister for Finance further to Parliamentary Question No. 201 of 4 April 2017, if the independent economic impact assessment of the help to buy incentive referred to in the response to that question has been commissioned; and the status of its progress and findings to date. [31426/17]
View answerI propose to take Questions Nos. 38, 39, 63 and 67 together.
As the Deputies may be aware, during the Committee Stage debate on Finance Bill 2016, my predecessor agreed to commission an independent impact assessment on the effects of the Help to Buy incentive for completion prior to Budget 2018. Following a competitive tender process, Indecon Economic Consultants were appointed in April to undertake this assessment.
This purpose of the project, in general, is to assess whether the policy objectives on the supply of new homes are being met, what impact (if any) the scheme is having on new and second-hand house prices, and what impact the scheme is having on the residential property market generally.
Any moves to amend or suspend the incentive prior to the completion of this report, which is scheduled for the end of August, would effectively pre-judge the outcome of the analysis. Once received from Indecon, the contents and findings of the report will be considered and I will decide on any appropriate action(s) to take in relation to its findings, in the context of my deliberations as part of the annual budgetary process.
The Government remains of the view that the Help to Buy incentive has the potential to increase the supply of new-build homes, which is a crucial factor in addressing the problems facing our housing market generally.
In my view, it is the lack of supply that is primarily responsible for driving house prices higher and I would point out that increases in house prices prevailed long before the introduction of the Help to Buy incentive. I would also point out that the scheme is targeted towards new build homes only, and to first-time buyers only, and it would be simplistic to designate this incentive as being the sole or the major contributor to house price increases.
Finally, I would like to reassure members of the public who may be in the process of applying for the Help to Buy incentive, or those who currently have applications pending, that speculation concerning its abolition will not impact negatively on their applications. I would propose to signal well in advance, any proposed changes to the incentive following my consideration of the Indecon report.
40. Deputy Pearse Doherty asked the Minister for Finance if he will ensure agricultural mart owners are not faced with high increases in the costs of insurance; and if he will make a statement on the matter. [31450/17]
View answerI am advised by Insurance Ireland that they are not aware of any major increases in the cost insurance for agricultural mart owners. However, if the Deputy is aware of a specific issue facing an individual mart owner, I recommend that he or the mart owner raise it with Insurance Ireland who I understand are happy to discuss the issue as part of their free Insurance Information Service for those who have queries, complaints or difficulties in relation to obtaining insurance. Insurance Ireland can be contacted at feedback@insuranceireland.eu or 01-6761914.
In terms of measures being taken to tackle the cost of employer and public liability in general, the Deputy will be aware that this is being examined as part of the second phase of the Cost of Insurance Working Group. The Working Group is building upon the previous work done in the motor phase in order to determine how it can be applied in the employer and public liability insurance claims areas. The Working Group is also considering the impact of the cost of insurance on the competitiveness of particular business sectors, the impact of health and safety issues on the cost of insurance and other market issues.
The Working Group has held extensive consultations with a range of stakeholders and has engaged with the Irish Farmers Association, who provided a submission to the Working Group.
It is envisaged that the final results of the second phase will take the form of an addendum to the existing Report. As with the first phase, the aim is for all relevant bodies and stakeholders to work together in order to deliver fairer premiums for businesses without unnecessary delay.
As it is likely that employer and public liability risks would be a factor in any rise in the cost of insurance for marts, any recommendations emerging from this review should be of relevance to the mart sector.
