Tuesday, 24 Oct 2017

Written Answers Nos. 35-52

Tax Code

Questions (35)

Pearse Doherty

Question:

35. Deputy Pearse Doherty asked the Minister for Finance his plans to introduce measures to level the playing field in the property market that would stop investors using tax efficient structures, including IREFs and REITs, and large multinational companies from pricing ordinary first-time buyers and families out of the market, as evidenced from investors being the main driver of cash sales in the property market accounting for more than 50% of transactions. [44717/17]

Written answers

Minister for Finance

A Real Estate Investment Trust or REIT is a quoted company, used as a collective investment vehicle to hold rental property. A REIT is exempt from corporation tax on qualifying income and gains from rental property, subject to a high profit distribution requirement to. A REIT provides the same after-tax returns to investors as direct investment in rental property, by eliminating the double layer of taxation at corporate and shareholder level which would otherwise apply.

In the 2016 Finance Act I introduced the Irish Real Estate Fund or IREF. The legislation was introduced to address concerns raised regarding the use of collective investment vehicles by non-resident investors to invest in Irish property. IREFs must deduct a 20% withholding tax on certain property distributions to non-resident investors.

I believe that the taxation regimes remain appropriate for these entities. The REIT regime is designed to prevent a double layer of taxation and the IREF regime is designed to protect the State's taxing rights over property, neither of these are favourable tax regimes. I would also like to state that there is no evidential link between these tax regimes and house price increases.

My Department continues to monitor developments in the housing market, including residential property prices, on an ongoing basis. The current inflationary pressure in the residential market reflects an insufficient supply response to meet the current demographic demand for housing. To address this imbalance the outstanding bottlenecks in the housing market need to be tackled.

EU-IMF Programme of Support

Questions (36, 43)

Thomas P. Broughan

Question:

36. Deputy Thomas P. Broughan asked the Minister for Finance the reasons for not repaying the €3.5 billion UK bailout loan early; the net refinancing position of the national debt in each of the years 2018 to 2021, including the refinancing of the UK loan; and if he will make a statement on the matter. [44542/17]

Thomas P. Broughan

Question:

43. Deputy Thomas P. Broughan asked the Minister for Finance if he will report on the schedule of refinancing the national debt in each of the years 2018 to 2020 following the recent buyback of the IMF, Swedish and Danish loans from the financial crash era; and if he will make a statement on the matter. [44541/17]

Written answers

Minister for Finance

I propose to take Questions Nos. 36 and 43 together.

In responding to the Deputy I want to make him aware that while I have announced my intention to repay in full the outstanding loans from the IMF together with the Swedish and Danish bilateral loans, none of these loans have, as yet, been repaid. Early repayment will require the agreement of the European lenders, the EFSF and the EFSM, and also the UK to waive the proportionate early repayment clauses in the respective loan agreements. The process for securing these waivers is currently underway.

It is important to be aware of the fact that it is not in Ireland’s financial interests at this time to repay early the bilateral loan from the UK. The UK loan is a fixed rate loan and the loan agreement contains a break clause which would be triggered in the event of early repayment. The associated costs would offset any potential interest savings. 

A table showing the maturity profile of Government bonds and EU/IMF Programme loans is updated monthly on the website of the National Treasury Management Agency (NTMA).

As at end-September 2017, there was close to €49 billion of Irish Government bonds and EU-IMF Programme loans scheduled to mature over the four year period 2018-2021.

There are €6.9 billion of loans from the European Financial Stabilisation Mechanism (EFSM) with contractual maturity dates in 2018 and 2021. However, the Deputy should be aware that owing to the maturity extensions granted in 2013, it is not expected that Ireland will have to refinance any EFSM loans before 2027. Therefore these loans do not form part of the €49 billion figure referred to above.

The next repayment to the IMF is scheduled for 2021. A total of 2.35 billion Special Drawing Rights (SDRs) which is equivalent to approximately €2.8 billion are due to be repaid to the IMF that year. The remainder of the IMF loan is scheduled for repayment in 2022 and 2023.

The Swedish and the Danish bilateral loans are scheduled to be repaid with €250 million due in 2019, €500 million in 2020 and €250 million in 2021.

The impact of the early repayments would therefore be to reduce the refinancing requirement over the three year period 2019 to 2021 by €3.8 billion. 

Property Tax Administration

Questions (37)

Jonathan O'Brien

Question:

37. Deputy Jonathan O'Brien asked the Minister for Finance his plans to prevent dramatic increases in the local property tax in 2019. [44718/17]

Written answers

Minister for Finance

The Department of Finance engaged Dr. Don Thornhill in 2015 to conduct a review to consider and make recommendations on the operation of the Local Property Tax, in particular any impacts on LPT liabilities due to property price developments.

Dr. Thornhill made a number of recommendations in his report on his review of the Local Property Tax. His central recommendation was for a revised system whereby a minimum level of LPT revenues in each local authority area would be determined by Government, ideally having regard to the apportionment between local authority areas of the historic yield. This in turn would allow for the estimation of LPT rates for each local authority area and the application of these by taxpayers and Revenue. Local authorities could adjust this rate upwards by a factor of up to 15%. This new system was recommended by Dr. Thornhill with a possible interim deferral of the next valuation date until November 2018 or November 2019.

The Minister for Finance subsequently proposed to Government that the revaluation date for the LPT be postponed from 2016 to 2019. This postponement meant that home owners were not faced with significant increases in their LPT in 2017 as a result of increased property values.  The postponement also gives sufficient time for the other recommendations in Dr. Thornhill's report to be considered fully by the Government.

The Finance (Local Property Tax) (Amendment) Act 2015 gave effect to the postponement of the revaluation date of residential property for LPT purposes, and also to two of the recommendations in Dr. Thornhill's report, involving LPT relief for properties affected by pyrite and relief for properties occupied by persons with disabilities. 

I have stated consistently that my Department will consider issues relating to the implementation of other recommendations in the Thornhill Report in due course in line with the 2019 timeline. I can assure the Deputy that this work will be undertaken in good time and that the Government will be make its position clear so that households will know well advance what its plans are for LPT. In that regard I consider it very important that the principle that formed a central part of the terms of reference for the 2015 review of LPT i.e., achieving relative stability in LPT payments of liable persons both over the short and longer terms, will inform our consideration of this matter.

Question No. 38 answered with Question No. 13.

Corporation Tax Regime

Questions (39)

Richard Boyd Barrett

Question:

39. Deputy Richard Boyd Barrett asked the Minister for Finance the extent of deductions, allowances and reliefs allowing corporations to reduce their tax liability under headings such as intra-agency transfers, research and development, losses brought forward and other such headings; his views on whether such reliefs, deductions and allowances are facilitating large scale tax avoidance and represent bad value as tax expenditures; and if he will make a statement on the matter. [44723/17]

Written answers

Minister for Finance

The Irish corporation tax regime contains a small number of specifically targeted tax reliefs.  The focus of these reliefs is on the creation of additional employment, as is consistent with current government policy, and on innovation, with a view to generating high value-added economic activity in the country.  

Some other countries have a high headline rate of corporation tax which is then supplemented by a high number of tax reliefs which reduce the overall rate of tax paid.  By contrast, the approach in Ireland is transparent: we have a competitive headline rate of corporation tax which is applied to a broad base.

The R&D tax credit is one of the few such reliefs available which may lower the effective rate of corporation tax paid in Ireland. The central purpose of the RandD tax credit is to encourage companies to undertake high-value added RandD activity in Ireland, thereby supporting jobs and investment here. 

In relation to losses, under existing loss relief provisions in the Taxes Acts, any unrelieved trading losses of a company for an accounting period may be carried forward for offset against trading income of the same trade in future accounting periods.  Losses incurred in the carrying on of a trade are a normal fact of business life.  The provision of relief for such losses is a standard feature of our tax code and of all other OECD countries. It would be difficult to justify the taxation of business profits without also taking due account of business losses. The carry forward of unrelieved trading losses is a usual feature in other tax jurisdictions.

The effective tax rate of companies in 2015 was provisionally calculated by the Revenue Commissioners as 9.8%, representing a marginal increase on the 2014 rate of 9.7%. In 2012 and 2013, the effective rate was 10.1%. I would note that while these percentages are lower than the 12.5% headline rate, this can be attributed to the availability of the small number of targeted measures, such as the RandD tax credit, available in Ireland which may lower the effective rate of corporation tax paid.

The issue of tax avoidance has been at forefront of the international tax agenda in recent years.  The agreement of the OECD BEPS reports in late 2015 represented a landmark achievement in agreeing comprehensive reform of the international tax system.  Ireland has taken a number of steps towards implementing the BEPS recommendations and the Coffey Review sets out a roadmap for Ireland to follow in bringing certainty to the implementation of the remaining recommendations, beginning with the launch of a consultation process which is now underway.

In keeping with our commitment to transparency, Ireland was among the first countries to implement Country by Country Reporting. The first reports under the Country by Country Reporting requirement will be filed with Revenue in Ireland and worldwide this year. These reports will be exchanged with all relevant countries to ensure tax authorities have a clear picture of the activities of large multinationals and can assess any risk that the correct tax has not been paid in the correct place.    

Ireland was also among the first countries to sign the OECD BEPS multilateral instrument (MLI) in June this year. This MLI will provide the mechanism for extensive changes to tax treaties globally. It will ensure that tax treaties are updated to reflect a number of important OECD BEPS recommendations, including agreed standards on treaty shopping and dispute resolution. Ireland will now seek to ratify the MLI, with the first steps in this process being taken in the Finance Bill.

Question No. 40 answered with Question No. 11.

Insurance Coverage

Questions (41, 45)

Seán Barrett

Question:

41. Deputy Seán Barrett asked the Minister for Finance if his attention has been drawn to the fact that residents in a housing estate (details supplied) are being refused home insurance by two major insurance companies due to flood risk; and if he will make a statement on the matter. [41698/17]

Maureen O'Sullivan

Question:

45. Deputy Maureen O'Sullivan asked the Minister for Finance the consultations he has had with a group (details supplied) regarding difficulties faced by persons in Dublin 3 in relation to home insurance due to flood risks. [44701/17]

Written answers

Minister for Finance

I propose to take Questions Nos. 41 and 45 together.

I am conscious of the difficulties that the absence or withdrawal of flood insurance cover can cause to homeowners and businesses, and that is one of the reasons the Government has been prioritising investment in flood defences over the last number of years. 

However, you should be aware that the provision of insurance is a commercial matter for insurance companies, which has to be based on a proper assessment of the risks they are willing to accept.  Consequently, neither the Government nor the Central Bank can interfere in the provision or pricing of insurance products or have the power to direct insurance companies to provide flood cover to specific individuals or businesses. 

Government policy in relation to flooding is focused on the development of a sustainable, planned and risk-based approach to dealing with flooding problems.  This in turn should lead to the increased availability of flood insurance.  To achieve this aim, there is a focus on:

- prioritising spending on flood relief measures by the Office of Public Works (OPW) and relevant local authorities,

- development and implementation of plans by the OPW to implement flood relief schemes, and

- improving channels of communication between the OPW and the insurance industry, in order to reach a better understanding about the provision of flood cover in marginal areas.  

The above approach is complemented by a Memorandum of Understanding between the OPW and Insurance Ireland, which provides for the exchange of data in relation to completed flood defence schemes which should provide a basis for the increased provision of flood insurance in areas where works have been completed. In this regard, the Insurance Ireland/OPW working group, which the Department of Finance attends, now meets on a quarterly basis to support the information flow and improve the understanding of issues between both parties.  

The core strategy for addressing areas at potentially significant risk from flooding is the OPW Catchment Flood Risk Assessment and Management (CFRAM) Programme. The Programme, which is being undertaken by engineering consultants on behalf of the OPW working in partnership with the local authorities, involves the production of predictive flood mapping for each location, the development of preliminary flood risk management options and the production of Flood Risk Management Plans.

I have been advised by the OPW that the majority of CFRAM Plans are now with the Department of Public Expenditure and Reform for its independent review of the environmental assessments.  Once this is completed and observations addressed, the final Plans will be submitted to me for approval in my role as Minister for Public Expenditure and Reform.

It is important to note that the CFRAM flood maps are community based maps and while they provide a useful resource for planning and emergency responses, they cannot be used for commercial purposes. Instead, the insurance industry uses its own flood modelling tools for assessing the level of risk to individual properties.

While it is not possible for me to comment on individual cases, I have been advised by the OPW that  (i) the maps relating to Abberley, Killiney, Co. Dublin have been finalised and will be published on the day of the launch of the CFRAM Programme and (ii) that information on the Tolka - East Wall Scheme, the Tolka - Hawthorne Terrace Scheme, and the Tolka - Richmond Road Scheme which are all located in Dublin 3, and built to the 1/100 year standard, has been shared with Insurance Ireland under the Memorandum of Understanding mentioned above.

Finally, you should be aware that a consumer can make a complaint to the Financial Services Ombudsman in relation to any dealings with a Financial Services or Insurance provider during which they feel they have been unfairly treated.  In addition, individuals who are experiencing difficulty in obtaining flood insurance or believe that they are being treated unfairly may contact Insurance Ireland which operates a free Insurance Information Service for those who have queries, complaints or difficulties in relation to insurance.

Tax Reliefs Costs

Questions (42)

Joan Burton

Question:

42. Deputy Joan Burton asked the Minister for Finance the estimated cost of the key employee engagement programme up to the end of 2023; if it will be subject to the high-income earner restriction; and if he will make a statement on the matter. [44707/17]

Written answers

Minister for Finance

In Budget 2018 I introduced the Key Employee Engagement Programme with the objective of supporting SMEs in Ireland in competing with larger enterprises to recruit and retain key employees.  Share options can provide key employees with a financial incentive linked to the success of the company and may improve the attractiveness of an SME employment offer.

The incentive provides that the value of the benefit to the employee on exercise of a qualifying share option will be subject to capital gains tax when the employee subsequently disposes of the shares. In the absence of the KEEP incentive, such gains would be subject to income tax, USC and PRSI at the time of exercise.  This can be a dis-incentive in the case of options for shares of small, unquoted companies, where no ready market may be available on which to sell some or all of the shares in order to fund the tax payable.

It is not possible at this time to project the cost of the Key Employee Engagement Programme to 2023, as KEEP is a demand-led scheme and uptake will depend on the decisions made by qualifying SME companies with regard to the offering of share options to employees, and also on the growth in value of the employer company shares in the period between grant and exercise of the options.  However, having reference to the costs of a similar matured incentive in the UK, it has been estimated that the full-year cost of the Key Employee Engagement Programme will be in the region of €10 million.  It is anticipated that it will take a number of years for this scale of cost to be reached. There will be no immediate cost in 2018 as the share options must, with limited exceptions, be held for a minimum of twelve months before they can be exercised under this scheme.  It is also likely that employees may hold the KEEP share options for a number of years before exercise, as the options must be granted at not less than market value on the date of grant, so a benefit will only arise to the employee if the shares increase in value from that date.

KEEP share options have not been included as a specified relief for the purposes of the high income earners restriction.  That restriction is designed to limit the total amount of "specified reliefs" that a high income earner can use to reduce his or her tax liability in any one tax year such that an effective rate of income tax of approximately 30 per cent is payable.  In the case of KEEP share options, gains arising to the employee on the exercise of the options will receive relief from income tax at the point of exercise, but the gain will subsequently be subject to capital gains tax, currently at 33%, when the employee disposes of the shares.

Question No. 43 answered with Question No. 36.

Insurance Costs

Questions (44)

Danny Healy-Rae

Question:

44. Deputy Danny Healy-Rae asked the Minister for Finance the steps he has taken regarding the rising cost of insurance in view of the fact that the insurance companies now available to the market are keeping prices up at unreasonable levels; if the companies profits can be determined or controlled in view of the fact that since a company (details supplied) was forced out of the market the cost of insurance has escalated alarmingly; and if he will make a statement on the matter. [44545/17]

Written answers

Minister for Finance

The Deputy should note that in my role as Minister for Finance I am responsible for the development of the legal framework governing financial regulation. Neither I nor the Central Bank can interfere in the provision or pricing of insurance products, as these matters are of a commercial nature, and are determined by insurance companies based on the risks they are willing to accept.

However, it is acknowledged that pricing in the non-life insurance sector has been subject to a lot of volatility in recent years, from a point where some premiums appeared to be priced at an unsustainably low level to the more recent experience of large increases.

The establishment of the Cost of Insurance Working Group (CIWG) and the publication of its Motor Report in January 2017 were a direct response to this volatility.  The Report makes 33 recommendation to address the issue of increasing motor insurance costs, whilst taking account of the requirement for the need to ensure a financially stable insurance sector.  This stability aspect is important, as we do not want to find ourselves in a situation again where particular firms drive prices down to a level that is unsustainable and which ultimately results in insolvency.

I believe 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. 

In relation to the recommended measures yielding positive results, you should note that the most recent CSO data indicates that private motor insurance premiums have reduced by 14.3% year-on-year.  While the CSO statistics indicate a greater degree of stability on an overall basis, these figures represent a broad average and therefore there are many people who may still be seeing increases.  However, I am hopeful that this greater stability in pricing will be maintained and that premiums should continue to fall from the very high level of last year.

Finally it should be noted that the work of the CIWG on business insurance, in particular employer liability and public liability is ongoing and is expected to be concluded by the end of the year.  

Question No. 45 answered with Question No. 41.

VAT Rate Application

Questions (46)

Michael McGrath

Question:

46. Deputy Michael McGrath asked the Minister for Finance if the Revenue Commissioners have investigated allegations of certain practices in the poultry sector that led to a systematic excess of flat rate addition payments to farmers over VAT incurred on their inputs; if the Revenue Commissioners have found evidence of wrongdoing; and if he will make a statement on the matter. [44694/17]

Written answers

Minister for Finance

Farmers, such as poultry farmers, who are involved in agricultural production are treated differently from other businesses for VAT purposes in that they are not obliged to register for VAT when they exceed the turnover limit for registration. They can elect to do so but the vast majority opt to remain unregistered.  The flat-rate scheme was designed to compensate these unregistered farmers on an overall basis for the VAT charged to them on their purchases of goods and services relating to their activities.  The flat-rate scheme sets out a percentage amount, known as the flat-rate addition (FRA), which unregistered farmers apply to their prices when selling to VAT-registered businesses (for example, co-operatives, meat factories, etc).  The VAT-registered business treats the flat-rate amount as a normal business input in its periodic VAT return, claiming input credit for the flat-rate amount paid to the flat-rate farmer. In this way, farmers are compensated for the VAT borne by them on their input costs, and this simplification reduces the administrative burden for them as there is no need to register for VAT to recover VAT borne on their inputs.

A business model emerged in the poultry sector that exploits the interaction of the normal VAT system and the flat-rate scheme to engineer higher levels of flat-rate addition payments compared with the VAT borne on their input costs. The model included the use of VAT-registered entities to recover VAT on costs borne on behalf of flat-rate farmers while those farmers continued to benefit from applying the flat-rate addition to their supplies. In addition, the contra supply arrangements in relation to growing services and feedstuff that are widespread in the industry could be manipulated to increase the price of the growing service and hence the flat rate addition payment.

However, it is important to recognise that businesses are free to organise their activities, within the law, to their economic advantage, including for the objective of minimising their tax liabilities or maximising the tax efficiency of their operations. That essentially is what happened in this case; participants in the sector recognised and adopted structures and arrangements that had an obvious business rationale and which were also likely to increase the level of flat rate addition payments to unregistered growers in the sector. When this matter was brought to the attention of my Department, provision was made in Finance Act 2016 to enable the Minister for Finance to exclude sectors from the flat rate scheme where the business structures or models employed in that sector result in a systematic excess of flat-rate addition payments over input costs borne by flat-rate farmers within that sector. This measure provides a means for dealing with any sector in which systematic over recovery of VAT is engineered through the adoption of lawful business arrangements and structures and Revenue will deal with such sectors through the use of this provision.

 Following the introduction of this provision (by way of amendment to the VAT Consolidation Act 2010), Revenue undertook a detailed examination of the business structures, models and contractual arrangements in place between parties within the sector. As part of this review, Revenue met with all relevant parties including the Irish Farmers Association, poultry processors and representatives of co-operative societies operating in the sector during quarter 1 and quarter 2 of 2017.  Following this engagement, co-operative societies undertook to recharge growers with all costs borne on their behalf plus VAT. The undertakings given by the co-operative societies address one of the mechanisms likely to result in overcompensation for flat rate farmers in the sector and I welcome this progress.  However, there is still scope for over-compensation through the use of contractual pricing arrangements and contra supplies between processors and growers. I am advised by Revenue that they will shortly undertake a programme of audit type examinations of growers to establish if there is still a systematic excess of flat rate addition payments over VAT on input costs when account is taken of the recent changes implemented by cooperatives in the sector.

I am pleased that the industry has abandoned some of the activities likely to give rise to overcompensation of growers for their VAT costs. It would serve the industry well to examine if the pricing structures they operate currently could result in overcompensation of growers for their input VAT costs and to adjust them if this is the case. If the industry could provide empirical evidence that overcompensation is not arising at current price levels or will not arise at new price levels to be implemented in the industry, it would remove the need for Revenue to proceed with its programme of interventions. I am committed to making an order to exclude the sector from the flat rate scheme if it proves necessary to do so.

European Banking Authority

Questions (47)

Stephen Donnelly

Question:

47. Deputy Stephen S. Donnelly asked the Minister for Finance the position regarding Ireland’s bid to host the European Banking Authority. [44897/17]

Written answers

Minister for Finance

The European Banking Authority and the European Medicines Agency, which are currently located in London, have to move to another location within the EU when the UK leaves the Union.

Ireland's formal offer to host the European Banking Authority (EBA) was submitted to the Commission by my Department on 31 July 2017.

On 30th September 2017, the European Commission issued its evaluation of each of the eight bids to host the EBA.

Along with Ireland’s offer to locate the EBA in Dublin, offers were submitted for Brussels (Belgium), Frankfurt (Germany), Luxembourg, Paris (France), Prague (Czech Republic), Vienna (Austria), and Warsaw (Poland). 

I welcome the Commission's assessment that Ireland meets all six of the selection criteria and the positive feedback given in relation to each of these. The assessment commented positively on the buildings that Ireland has proposed, noting the high environmental standards of the proposed buildings, the capacity to offer additional space if required by the EBA, the ease of access to transport facilities for staff and visitors, and that they will be ready for the EBA to occupy prior to March 2019. 

The assessment was also favourable in terms of the business continuity dimension, and referred to Dublin's ability to retain staff due to language considerations and proximity to London, as well as access to the extensive pool of highly qualified staff. We highlighted in our bid that the choice of Dublin would minimise disruption to the EBA and its staff, offering an easier adjustment for staff moving from London, thus supporting the retention of the highly qualified staff of the Authority.

In line with the agreed selection procedure, and based on the Commission's assessment, there was a political discussion among the representatives of the Member States in the margins of the General Affairs Council on 17th October. The Heads of State of government were informed about the political discussion amongst the ministers by the Estonian Presidency in the margins of the European Council (Article 50) on 19-20 October. 

Since the submission of our bid for the EBA our bid has been promoted by our EU missions as well as at Ministerial level. In addition, officials from my Department have held a series of bilateral engagements to promote our bid with different Member States over the last number of weeks.

This approach will continue until the final decision on the relocation of the EBA is made. This will be made by the 27 Member States through a voting process in the margins of the General Affairs Council (Article 50) on 20th November 2017.

Housing Loans

Questions (48)

Gino Kenny

Question:

48. Deputy Gino Kenny asked the Minister for Finance the conditionality there will be regarding affordability of houses that will result from the new Home Building Finance Ireland, HBFI, initiative; and if he will make a statement on the matter. [45304/17]

Written answers

Minister for Finance

In my Budget speech on 10 October 2017 I announced a proposal to establish a new dedicated fund, Home Building Finance Ireland (‘HBFI’) to provide funding on market terms to viable residential development projects whose owners are experiencing difficulty in obtaining debt funding. Up to €750 million of ISIF funds will be allocated to HBFI to provide funding on market terms and the fund is estimated to have capacity to finance about 6,000 homes in the coming years.

HBFI will not be directly involved in development – its role would be solely as a commercial lender and therefore will not have any role in designing the housing mix contained in the schemes it funds. HBFI will provide lending on commercial, market-equivalent terms and conditions. This approach would be akin to a bank or private equity investor. As such HBFI will not have targets in relation to social or affordable housing but will provide a significant contribution to supporting the delivery of additional supply of all types of residential housing in the coming years.

Increasing the level of housing output will increase the affordability of housing more generally, which in turn also will have a positive effect on our ability to provide social housing. For example, any residential developments funded by HBFI will be subject to the same planning and regulatory requirements as all other developments. This includes policies relating to Part V of the Planning and Development Act 2000 and as such, it is expected that a minimum of 10% of the anticipated output of this investment by HBFI will become available for social housing through this statutory mechanism over this period.

The current estimated shortfall in residential supply is 15,000 – 20,000 units per annum and, accordingly, the HBFI, with an annual average delivery of 2,000 homes, would reduce this shortfall by about 10% (assuming a three year horizon). This would be a significant contribution but it would not make HBFI a dominant player in the residential funding market and it would clearly leave room for banks and other finance providers to increase their contribution to funding much-needed residential development.

Though HBFI is intended to be a debt funder for private residential projects, I can assure the Deputy that this Government is equally determined to increase social housing output over the coming years. For example, an increase of €31 million has been allocated to the Social Housing Current Expenditure Programme bringing the total to €115 million. This is expected to deliver an extra 4,000 social housing homes in 2018. In my Budget speech on 10 October 2017, I also announced an additional commitment to further accelerate the delivery of social housing from 2019. I am providing an extra €500 million for the direct building programme which will see an additional 3,000 new build social houses by 2021, increasing the existing Rebuilding Ireland target of social housing homes to 50,000, of which 33,500 will be delivered through construction.

Housing Loans

Questions (49)

Barry Cowen

Question:

49. Deputy Barry Cowen asked the Minister for Finance the role his Department has in setting out the criteria for successful applicants to the recently announced Home Building Finance Ireland; and if he will make a statement on the matter. [45248/17]

Written answers

Minister for Finance

As announced in my Budget speech on 10 October 2017, it is my intention to establish Home Building Finance Ireland (HBFI) to provide funding on market terms to viable residential development projects whose owners are experiencing difficulty in obtaining debt funding.

HBFI will be a stand-alone entity which will provide funding directly into the market.

My officials are currently working on the enabling legislation and logistical arrangements for the establishment of HBFI. It is expected that HBFI will be established as a limited company under the Companies Acts and will have its own Board.

As a result, the specific products offered and associated criteria for applicants will be set by the Board of HBFI in due course. HBFI will operate on an arms length basis and neither I nor my officials will have any input in the day to day commercial decisions of the entity.

HBFI will be designed to leverage off the extensive experience already available to the State to deliver this initiative and as such existing NAMA staff skills and expertise will be utilised to deliver this funding. Any services provided by NAMA to HBFI will likely be provided under a service level agreement with HBFI re-imbursing NAMA appropriately for any services delivered. The exact staffing and servicing arrangements are currently being devised by my officials and will be determined in due course.

I can confirm that HBFI will be lending on commercial, market-equivalent terms and conditions, which would depend on the risk profile of each individual project, the quality of collateral and the creditworthiness of the borrower. This approach would be akin to a bank or private equity investor, in that HBFI would not be directly involved in development – its role would be solely as a commercial lender. Commercial viability testing will also ensure returns are the same as market norms.

Property Tax Administration

Questions (50, 51, 52)

Catherine Murphy

Question:

50. Deputy Catherine Murphy asked the Minister for Finance the aspects of the local property tax that are being considered by the cross-departmental group; if it involves a fundamental review of local government funding; if it is isolated to valuations; if consideration is being given to widening the review; and if he will make a statement on the matter. [45092/17]

Catherine Murphy

Question:

51. Deputy Catherine Murphy asked the Minister for Finance if the cross-departmental group has considered the overall funding available to local authorities in the context of the review of local property tax; his plans to deviate from the baselines set for each council; and if he will make a statement on the matter. [45095/17]

Catherine Murphy

Question:

52. Deputy Catherine Murphy asked the Minister for Finance if the cross departmental group reviewing the local property tax has modelled different scenarios; if so, if he will publish them; and if he will make a statement on the matter. [45093/17]

Written answers

Minister for Finance

I propose to take Questions Nos. 50 to 52, inclusive, together.

Dr Don Thornhill was engaged by my predecessor in 2015 to consider the operation of the LPT, and in particular, any impacts on LPT liabilities due to property price developments. The terms of reference for the review required that it also have regard to the overall yield from LPT and its contribution to total tax revenue on an ongoing basis and the desirability of achieving relative stability, both over the short and longer terms, in LPT payments of liable persons. Dr Thornhill’s review was informed by the outcomes of a public consultation which received 51 written submissions.

Dr. Thornhill made a number of recommendations in his report on his review of the Local Property Tax. His central recommendation was for a revised system whereby a minimum level of LPT revenues in each local authority area would be determined by Government, ideally having regard to the apportionment between local authority areas of the historic yield. This in turn would allow for the estimation of LPT rates for each local authority area and the application of these by taxpayers and Revenue. Local authorities could adjust this rate upwards by a factor of up to 15%. This new system was recommended by Dr. Thornhill with a possible interim deferral of the next valuation date until November 2018 or November 2019.

My predecessor subsequently proposed to Government that the revaluation date for the LPT be postponed from 2016 to 2019. This postponement meant that home owners were not faced with significant increases in their LPT in 2017 as a result of increased property values.  The postponement also gives sufficient time for the other recommendations in Dr. Thornhill's report to be considered fully by the Government. As I indicated during my appearance before the Budgetary Oversight Committee on 27 September this work will be undertaken during 2018. Naturally my Department will be engaging closely with in particular the Department of Housing, Planning and Local Government in this process.  I can assure the Deputy that this work will be done in good time and that the Government will make its position clear so that households will know well advance what its plans are for LPT.