Written Answers Nos. 46-60
46. Deputy Ged Nash asked the Minister for Finance his views on the opinion expressed in the interim pre-budget report 2022 of the Committee on Budgetary Oversight that pension-related tax expenditures should be considered as part of the wider reform of the pension system; and if he will make a statement on the matter. [44843/21]
View answerI am aware of the opinion expressed by the Budget Oversight Committee on pension-related tax expenditures as set out in its Interim Pre-Budget Report 2022.
This issue is but one strand of a complex area of public policy that has been the focus of a number of initiatives, reviews and examinations over the last decade or so.
In my view, we should seek to make overall progress in the area of pensions provision in a manner that is comprehensive and surefooted. That broad approach is what has informed recent action in this area including the Roadmap for Pensions Reform 2018-2023 which, in turn, led to the work of the Interdepartmental Pensions Reform and Taxation Group and the separate work of the Pensions Commission. Indeed, the Commission on Taxation and Welfare has also been charged with considering the output from the Pensions Commission regarding sustainability and eligibility issues in respect of State Pension arrangements.
In terms of the tax treatment of supplementary pensions, Ireland operates an Exempt, Exempt, Tax (EET) system, like the majority of OECD countries. This means that contributions to pensions are exempted from income tax (subject to age-related percentage and income limitations), pension fund gains are exempted from income tax but income from pension drawdown is taxed.
The Inter-Departmental Pension Reform and Taxation Group (IDPRTG) recently reviewed the cost of funded supplementary pensions to the Exchequer. In its report published in November 2020, it noted that in common with most developed countries, fiscal support for private pension saving exists in Ireland.
It observed that in providing incentives, States are motivated by the policy objective of increasing aggregate savings or encouraging citizens to provide for their retirement, by deferring a sufficient amount of income and consumption today to provide for their later years. This is based on an assumption that individuals require an incentive to lock-up savings until they retire given that alternative saving vehicles allow on-going access.
It also noted that the tax treatment of pensions represents one of the largest Exchequer tax expenditures. However, in common with other countries operating an EET system, the exact cost of this is difficult to quantify due to the general nature of tax expenditures and also specific pension-related challenges, such as limited data availability on some features of the pension regime in Ireland.
47. Deputy Pauline Tully asked the Minister for Finance if he will refrain from further increases in the carbon tax in the context of Budget 2022 in view of significant energy price increases and its impact on the cost and standard of living on Irish households; and if he will make a statement on the matter. [44884/21]
View answerAs the Deputy will be aware, it is a longstanding practice of the Minister for Finance not to comment, in advance of the Budget, on any tax matters that might be the subject of Budget decisions.
48. Deputy Rose Conway-Walsh asked the Minister for Finance the percentage of the research and development activity subsidised by the State through the research and development tax credit that is conducted outside of Ireland; and if he will make a statement on the matter. [44853/21]
View answerThe research and development (R&D) tax credit allows a company to claim a 25% tax credit in respect of expenditure incurred on qualifying R&D activities. In making a claim for the R&D tax credit, companies must satisfy two tests: the activity must be a qualifying activity (a science test); and the amount of the claim must be based on R&D expenditure incurred (an accounting test).
To qualify for the R&D tax credit, a company must be within the charge to corporation tax in the State and must undertake qualifying R&D activities within the European Economic Area (EEA) or the UK and, in the case of an Irish tax resident company, the expenditure must not qualify for a deduction for the purposes of tax in another territory.
As tax returns do not include information in respect of the location of the research and development activity, the information requested by the Deputy in this regard cannot be provided.
The definition of qualifying R&D activities requires that a claimant company engage in a systematic, investigative or experimental activity which seeks to achieve a scientific or technological advancement in a field of science of technology and involves the resolution of scientific or technological uncertainty.
Should an Irish company incur qualifying R&D expenditure on a research and development activity in Northern Ireland, it may qualify for the R&D tax credit providing the expenditure does not qualify for a deduction for the purposes of tax in another territory. It is also important to note that, where expenditure is met directly or indirectly by grant assistance from any state or other body, the expenditure will not be considered as having been incurred by the relevant company and therefore would not qualify for the R&D credit.
51. Deputy Richard Bruton asked the Minister for Finance the latest assessment of the financial robustness of the Irish banking sector in a European context; if Ireland can expect lower risk loadings on interest rates to follow; and if he will make a statement on the matter. [44806/21]
View answerIn answer to the first part of the Deputy’s question, the European Banking Authority (EBA), conducts a European wide stress test on supervised banks (https://www.bankingsupervision.europa.eu/banking/list/who/html/index.en.html) at least once every two years. Similarly the European Central Bank (ECB) conduct an annual stress test, the results of which provide important input to other reviews such as the Supervisory Review and Evaluation (SREP) process.
On 30 July 2021, The EBA published the outcome for banks that participated in the 2021 EBA EU-wide stress test. Further, and for the first time, the ECB has also published high-level information on the outcome of the parallel Single Supervisory Mechanism (SSM) stress test of banks directly supervised by the ECB but which were not included in EBA EU wide stress test. The results for the Irish banks included in these assessments are available on the Central Bank's website.
The stress test is not a pass or fail exercise and no threshold is set to define the failure or success of banks for the purpose of the exercise. Instead, the findings of the stress test will inform the 2021 SREP for banks.
The EBA stress tests uses theoretical adverse economic scenarios to test the resilience of banks. Overall, the impact of the stress test is more severe than the results from the 2018 exercise, reflecting a more severe scenario used by the EBA. This severe scenario modelled the effect of a severe shock on these banks, to take into account the impact of the pandemic. Nevertheless, even though uncertainties currently remain high, the benefits of resilience built up in the Irish banking sector in recent years is evident, with banks having sufficient capital to absorb the impact of the severe scenario.
Interest rates on new lending (mortgages, non-financial corporations and consumer) in Ireland are higher than in most other EU countries.
However, the trends show that interest rates in Ireland have been falling in recent years, providing benefit to consumers. Interest rates on new mortgages (excluding renegotiations) have fallen from 4.05% in December 2014 to 2.73% in July 2021. The weighted average interest rate on new fixed rate mortgage agreements stood at 2.62 per cent in July, down from a series high of 4.11 per cent in December 2014.
We have also seen reductions in interest rates on loans to SMEs from 5.19% to 3.89% over the period Quarter 1 2015 to Quarter 1 2021, as well as reductions in interest rates on consumer loans (for example, from 8.3% to 6.7% on Annual Percentage Rate (APRC) consumer loans from January 2015 to July 2021).
There are a number of explanations that likely explain the higher level of interest rates in Ireland relative to other countries. In particular Irish retail banks’ mortgage modelled Risk Weighted Assets are higher than the EU average. This results primarily from the relatively high historic credit risk experience in Ireland, the longer workout process on defaulted loans and uncertainty in relation to collateral realisation and the relatively elevated levels of Non-Performing Loans and restructured loans in Irish banks. These higher capital requirements increase the cost of lending for banks, but now leave them in a more resilient position, reducing the risk of systemic stress events. The experience of the COVID-19 pandemic has highlighted the importance of a resilient banking sector that can withstand adverse shocks.
52. Deputy Thomas Gould asked the Minister for Finance the role his Department has undertaken with the Department of Housing, Local Government and Heritage to develop a vacant properties tax. [44801/21]
View answerThe recently announced strategy, ‘Housing For All’ states that my Department will collect data on vacancy with a view to introducing a Vacant Property Tax. As I have stated before, the primary objective of any vacant residential property tax would be to increase the supply of homes for rent or purchase to meet demand rather than increasing tax revenues. However, before introducing such a tax it is of course important to have a sound understanding of the quantity, locations and characteristics of long term vacant properties, and the reasons why they are vacant.
The recently enacted Finance (Local Property Tax) (Amendment) Act 2021 enables Revenue to collect certain limited information on vacant properties in the LPT return form it will issue to property owners in advance of the new LPT valuation date of 1 November next. This information, together with information from other available sources will be used to assess the merits and impact of introducing a Vacant Property Tax.
It is important to identify the reasons for vacancy and whether this is long or short-term in nature. There may be genuine and acceptable reasons for vacancy such as refurbishment work, the temporary absence of the owner for medical reasons or pending the grant of probate for a deceased person’s estate. Appropriate exemptions from any charge would have to be considered in addition to acceptable periods of vacancy.
While it is the clear intention of Government to introduce a Vacant Property Tax, the matter needs extensive consideration for such a measure to be effective and to determine the properties that should be targeted. Once this information has been collated, I will be in a better position to assess the merits and precise design of a Vacant Property Tax.
53. Deputy Jackie Cahill asked the Minister for Finance if credit unions will be facilitated to provide mortgages. [44792/21]
View answerCredit Unions can and do provide mortgages.
Following a review of the lending framework, the Central Bank introduced new lending regulations on 1 January 2020. This provided credit unions with a combined capacity to provide up to approximately €1.1 billion in additional mortgage and SME loans, with further additional lending capacity available to credit unions who can comply with certain conditions or on approval by the Central Bank.
Credit unions currently have a mortgage book of approximately €247 million, which has grown 25% year-on-year.
55. Deputy Jackie Cahill asked the Minister for Finance if his Department has plans to reduce the excise duty on renewable energy products particularly biogases that are produced through the treatment of farm slurries; and if he will make a statement on the matter. [44674/21]
View answerThere are a number of reliefs in place to encourage the uptake of renewable energy. These include :
- relief from electricity tax for electricity produced from renewable energy sources or environmentally friendly heat and power co-generation.
- relief from the carbon charge component of mineral oil tax for any mineral oil that is shown to the satisfaction of the Commissioners to be biofuel, or vehicle biogas in the case of vehicle gas.
- relief from the carbon charge component of mineral oil tax for the biofuel element of any mineral oil, or in the case of vehicle gas the vehicle biogas element, that has been mixed or blended with a mineral oil.
With specific reference to biogas, biogas is defined as gas that has been obtained solely from biomass. A relief from the carbon component of Mineral Oil Tax on Vehicle Gas (MOT VG) is available for the portion of vehicle gas that is composed of biogas. This means that biogas supplied for use as a vehicle fuel is subject to the non-carbon component of MOT VG only.
The relief from the carbon component of MOT VG for biogas is applied at source by the supplier. The supplier claims the relief by declaring the amount of biogas supplied and paying the non-carbon component rate using Form MOT VG.
57. Deputy Emer Higgins asked the Minister for Finance his views on the conclusion of the recent CCPC investigation regarding insurance; and his views on whether the binding agreements entered into by insurance companies will further reduce insurance premiums for drivers. [44682/21]
View answerI welcome the outcome of the CCPC’s investigation and the commitments entered into by the parties to that investigation. Furthermore, I also note the CCPC’s ongoing concerns regarding the culture within the Irish insurance industry.
The outcome of the CCPC’s investigation underlines the importance of insurance in general and the impact of its cost and availability on consumers, businesses and community groups. The Government remains committed to reform of the sector, through the Action Plan for Insurance Reform . The first six-monthly Implementation Report of the Action Plan, published in July 2021 indicates that work is progressing well to implement these important reforms, with 34 of the 66 actions now complete.
The upcoming Competition (Amendment) Bill is a priority this year for Government, as part of our overall Action Plan commitments to reform the insurance sector. This new law, to be published this autumn, will significantly strengthen the CCPC’s powers, giving them the ability to administer significant fines for breaches of competition law.
Separately, one of the central achievements in the first half of this year under the Action Plan was the implementation of the Personal Injuries Guidelines, which was realised several months ahead of schedule. These significantly reduce award levels for many categories of common injuries, particularly those of soft tissue.
The Guidelines should help to bring more certainty to claimants and insurers, and as such reinforce the benefits of using the PIAB to settle claims. This in turn should further reduce the costs of claims. It is my expectation is that insurers should now be reflecting savings from reduced award levels to customers, in line with past commitments, in the form of reduced premiums across their product lines.
Minister for State Fleming has had number of positive engagements with the CEOs of the main insurers operating here on the matter, and they have indicated that they will respond positively to the Guidelines. He will meet with them again later this year to review their ongoing actions.
Another significant achievement of the reform agenda is the establishment of the Office to Promote Competition in the Insurance Market within the Department of Finance. The Office has held a number of meetings with several key stakeholders, including insurance providers, representative bodies and other civic society groups, to understand gaps in the Irish insurance market. Its aim is to help expand the risk appetite of existing insurers and explore opportunities for new market entrants in order to increase the availability of insurance. The Office will meet the CCPC to discuss their recent investigation.
I would also add that work remains ongoing across Government Departments to deliver further key aspects of the Action Plan over the coming months. Furthermore, Minister of State Fleming intends to shortly bring forward legislation to help increase transparency and provide enhanced protections for consumers.
In conclusion, securing a more sustainable and competitive market through deepening and widening the supply of insurance in Ireland remains a key policy priority for this Government. In this regard, it is my firm belief that implementation of the Action Plan will have a positive impact on the affordability and availability of insurance for individuals, businesses, community and voluntary groups across Ireland.
58. Deputy Bernard J. Durkan asked the Minister for Finance the extent to which the existence of even moderate inflation can affect Ireland’s economy in the future; the extent to which the causes of same continue to be identified with a view to addressing the issue; and if he will make a statement on the matter. [44796/21]
View answerWhile Covid-19 had a deflationary impact both in Ireland and internationally last year, inflation has picked up since the beginning of this year. The annual rate of HICP inflation rose to 3 per cent in August – the highest rate since 2008. Similar trends have been observed across advanced economies, with inflation rates of 5.3, 3.2 and 3 per cent recorded in the US, UK and euro area in August.
However, the increase in inflation since the beginning of this year is largely explained by temporary factors, which are expected to fade over time, including the reversal of the temporary VAT cut and ‘base effects’ associated with the normalisation of oil prices following their collapse last spring. More fundamentally, on the demand side the easing of restrictions led to a rapid rebound in consumer spending, in particular spending on goods, in the second quarter. As the economy continues to re-open, demand will pivot towards contact-intensive service sectors.
Supply by contrast has recovered more slowly, with labour shortages in service sectors putting upward pressure on prices. Indeed, signs of ‘opening up’ inflation are already evident, with strong increases in prices in the transport and hospitality sectors recorded in July and August. Shipping bottlenecks and shortages of inputs (e.g. semi-conductors, timber) have also raised production costs, putting further upward pressure on prices. Higher trade costs as a result of Brexit may also have contributed to the recent rise in inflation.
The emergence of inflationary pressures has prompted a debate regarding the likely persistence of these price dynamics as consistently higher inflation could trigger monetary policy changes by the ECB, with implications for the cost of Government borrowing. Looking beyond the short-term, however, it seems likely that these temporary factors will fade as demand stabilises and supply pressures ease. Consistent with this view, the ECB last week reiterated that the current inflationary pressures are largely temporary and inflation in the euro area is still expected to remain below 2 per cent over the medium term. Nevertheless, my Department will continue to closely monitor and analyse inflationary developments and will publish updated inflation and economic forecasts alongside the Budget in the autumn.
60. Deputy Catherine Connolly asked the Minister for Finance the analysis his Department has carried out into the potential for the reduction of VAT rates for the music and entertainment sector; and if he will make a statement on the matter. [44835/21]
View answerIn Budget 2021, I introduced a temporary reduced rate of VAT, 9%, to apply to tourism and hospitality related services from 1 November 2020 to 31 December 2021, which I have further extended to 31 August 2022.
I can assure the Deputy that the provision I introduced in 2020 does already apply the temporary 9% VAT rate to admission fees for cinemas, theatres and musical performances. The Deputy will also be interested to know that, under long-standing provisions in Irish legislation, admission fees to live theatrical or musical performances are actually exempt from VAT, subject to certain conditions.
I am advised by Revenue that the VAT treatment of admissions to theatrical or musical performances is dependent on the type of event and whether there are facilities available for the consumption of food or drink (including alcohol) during all or part of the performance. In broad terms -
- if there is a live performance and if food or drink are not available, then the admission tickets are exempt from VAT.
- If there is a live performance with food or drink available, then the admission tickets are subject to the reduced rate of VAT, currently 9%.
- for venues and events where the entertainment, if any, is not a live theatrical or musical performance, including dances, discos, nightclubs and pubs, the standard rate of VAT, currently 23%, applies to admission charges.
Where a music band is being hired for a function, such as a wedding, the hiring service is subject to the standard rate of VAT, currently 23%.
