Tuesday, 22 Feb 2022

Written Answers Nos. 44-63

Tax Reliefs

Questions (44, 47)

Brendan Griffin

Question:

44. Deputy Brendan Griffin asked the Minister for Finance if he will consider an incentive package for owners and buyers in respect of properties that were available as short-term rental properties up to 1 February 2022, in circumstances in which the property would be made available for purchase by a first-time buyer for a limited period; if he will consider such a new scheme as a matter of urgency in the context of the proliferation of short-term properties nationwide despite the acute shortage of houses for long-term lease or affordable purchase; and if he will make a statement on the matter. [9469/22]

Brendan Griffin

Question:

47. Deputy Brendan Griffin asked the Minister for Finance if his Department has considered the options available to eliminate the element of taxation impacting on the cost of purchasing or building a house as a first-time buyer and the cost of selling a house to a first-time buyer; his views on whether targeted taxation breaks for sellers to first-time buyers and to first-time buyers and self-builders themselves could significantly contribute to reducing prices for first-time buyers and self-builders, increasing available stock on the market for first-time buyers and providing first-time buyers with a competitive advantage over investors; if he will consider a new scheme as a matter of urgency in this context; and if he will make a statement on the matter. [9468/22]

Written answers

Minister for Finance

I propose to take Questions Nos. 44 and 47 together.

My assumption in this response is that the Deputy is referring to taxation and incentives relating to capital taxes and stamp duty. As the Deputy will be aware from previous replies there are already a number of existing capital tax reliefs that are available to property owners selling their home and additional assistance to first-time buyers such as the Help to Buy scheme (More information is available at www.revenue.ie/en/gains-gifts-and-inheritance/cgt-reliefs/index.aspx and revenue.ie/en/tax-professionals/tdm/income-tax-capital-gains-tax-corporation-tax/part-15/15-01-46.pdf).

I am very conscious of the need to increase the supply of property available, particularly for first time buyers. In this regard, the Government has introduced a detailed plan for housing – Housing for All – which is intended to deliver more homes of all types for people with different housing needs and this government has allocated a record amount of funding under this strategy.

However, it is important to note that, taxation is only one of the policy levers available to the Government through which to boost overall housing supply. In line with the Department of Finance's Tax Expenditure Guidelines, consideration of whether a tax measure is the most appropriate policy tool for a given purpose is required and the presumption should be that non-tax measures should be considered before the use of a tax–based measure. I would wish to avoid any tax expenditures that could distort the market, particularly where it is not clear that they would in this instance result in additional supply or reduced prices for first time buyers. Therefore I do not propose to introduce additional capital tax reliefs for gains from property sales.

In respect of stamp duty, as it is the buyer who is liable for payment of it, not the seller, if I were to provide any form of exemption/relief from it for a subset of properties or property buyers it would represent an unfair advantage to the sellers and/or buyers of such properties over those selling/buying properties that would not qualify. It is also very likely that any benefit that such a measure might generate for a subset of sellers/buyers would be quickly swallowed up by increased asking/offer prices, as the volume of such properties is unlikely to be sufficient to deflect market trends to any notable degree. Such a measure would also likely feed demand and compound what is already a significant supply side problem.

The Deputy should also note that a significant motivation for introducing the 10% stamp duty charge on the multiple purchase of houses is to dis-incentivise such purchases by institutional investors with a view to levelling the playing field for first time buyers and others interested in buying a home to live in. This measure should help improve the supply of houses available to first time buyers.

Finally, I would also draw the Deputy’s attention to the particular actions within the Housing for All plan that specifically target first time buyers:

- a supply of an unprecedented 4,000 affordable purchase homes, on average, every year for families, couples and single people

- a new local authority-led ‘Affordable Purchase Scheme’

- a new ‘First Home’ shared equity scheme for buyers of new build homes in private homes

- a reformed ‘Local Authority Home Loan’ scheme

- an ‘Owner Occupier Guarantee’, to secure homes for first-time buyers and other owner-occupiers

Tax Collection

Questions (45)

Aindrias Moynihan

Question:

45. Deputy Aindrias Moynihan asked the Minister for Finance the amount his Department estimates it received in overpaid PAYE taxes in 2020 and 2021; the measures that are in place to make persons aware of any overpayments; and if he will make a statement on the matter. [9684/22]

Written answers

Minister for Finance

I am advised by Revenue that it has to date refunded €409 million to PAYE taxpayers in respect of 2020 and €250 million in respect of 2021. Any overpayments due to PAYE taxpayers can only be quantified when they submit their tax returns at the end of the year and claim any additional credits or reliefs that may be due. For this reason, it is not possible to provide the Deputy with an estimate of potential overpaid tax for the years in question. Revenue has also confirmed that it issues reminder letters every year to PAYE taxpayers who did not claim any additional credits in the previous four years, advising them that they may be entitled to further tax relief depending on their individual circumstances. The reminder letters also advise taxpayers of the four-year time limit in respect of submitting such claims. For example, income tax returns from PAYE employees in respect of 2021 may be submitted up to 31 December 2025.

Banking Sector

Questions (46)

David Stanton

Question:

46. Deputy David Stanton asked the Minister for Finance his views on the third phase of the Switch Your Bank campaign; the effectiveness of the previous two campaigns; and if he will make a statement on the matter. [9712/22]

Written answers

Minister for Finance

On the 4th February I announced the commencement of the third and final phase of the Switch Your Bank campaign.

Following on from the successful delivery of two advertising campaigns which promoted awareness on the benefits of switching, this phase builds on this work by seeking to identify and develop tools which will better enable consumers to complete their switches.

To build upon the previous positive campaigns, the Economic and Social Research Institute’s (ESRI) Behavioural Research Unit has been contracted to carry out an experimental research project that will focus on the behavioural aspects of switching.

The campaign will continue to be supported by a dedicated website, www.switchyourbank.ie . The website provides a single source where consumers can access useful facts about switching, including a straightforward step by step guide, links to Competition and Consumer Protection Commission (CCPC) comparison tools and helpful information to support their decision-making.

I would encourage all consumers to seek the best value for financial products and services and to compare the benefits of the different products available.

Question No. 47 answered with Question No. 44.

Question No. 48 answered with Question No. 43.

Tax Reliefs

Questions (49, 248)

Pauline Tully

Question:

49. Deputy Pauline Tully asked the Minister for Finance the reason that a review of the disabled drivers and passengers scheme which he committed to have completed in 2021 was not completed in this timeframe; and if he will make a statement on the matter. [9704/22]

Catherine Connolly

Question:

248. Deputy Catherine Connolly asked the Minister for Finance the status of the review of the primary medical certificate system; the engagement he or his Department has had with the Department of Children, Disability, Equality, Integration and Youth in this regard; the timeline for the review; the terms of reference of the review; and if he will make a statement on the matter. [9727/22]

Written answers

Minister for Finance

I propose to take Questions Nos. 49 and 248 together.

The Disabled Drivers & Disabled Passengers Scheme provides relief from Vehicle Registration Tax and VAT on the purchase and use of an adapted car, as well as an exemption from motor tax and an annual fuel grant.

The Scheme is open to severely and permanently disabled persons as a driver or as a passenger and also to certain charitable organisations. In order to qualify for relief, the applicant must hold a Primary Medical Certificate issued by the relevant Senior Area Medical Officer (SAMO) or a Board Medical Certificate issued by the Disabled Driver Medical Board of Appeal. Certain other qualifying criteria apply in relation to the vehicle, in particular that it must be specially constructed or adapted for use by the applicant.

To qualify for a Primary Medical Certificate an applicant must be permanently and severely disabled, and satisfy at least one of the following medical criteria, in order to obtain a Primary Medical Certificate:

- be wholly or almost wholly without the use of both legs;

- be wholly without the use of one leg and almost wholly without the use of the other leg such that the applicant is severely restricted as to movement of the lower limbs;

- be without both hands or without both arms;

- be without one or both legs;

- be wholly or almost wholly without the use of both hands or arms and wholly or almost wholly without the use of one leg;

- have the medical condition of dwarfism and have serious difficulties of movement of the lower limbs.

The current medical criteria were included in the Finance Act 2020, by way of amendment to Section 92 of the Finance Act 1989. This amendment arises from legal advice in light of the June 2020 Supreme Court judgement that the medical criteria in secondary legislation was not deemed to be invalid, nevertheless it was found to be inconsistent with the mandate provided in Section 92 of the Finance Act 1989 (primary legislation).

As the Deputy will appreciate this Scheme confers substantial benefits to eligible persons and changing the medical criteria to more general mobility-focused criteria, would raise the already considerable cost of the Scheme in terms of tax foregone to the Exchequer. Any increase in the cost of the Scheme would require a concomitant increase in tax, reduction in public expenditure, or increase in the Exchequer deficit.

While I am very aware of the importance of this scheme to those who benefit from it, I am also aware of the disquiet expressed by members of this house and others in respect of the difficulties around access to the scheme.

Accordingly, I gave a commitment to the House that a comprehensive review of the scheme, to include a broader review of mobility supports for persons with disabilities, would be undertaken. In this context I have been working with my Government colleague, Roderic O’Gorman, Minister for Children, Equality, Disability, Integration and Youth. We are both agreed that the review should be brought within a wider review under the auspices of the National Disability Inclusion Strategy, to examine transport supports encompassing all Government funded transport and mobility schemes for people with disabilities. Its work was interrupted by the COVID-19 pandemic.

This is the most appropriate forum to meet mutual objectives in respect of transport solutions/mobility supports for those with a disability.

The NDIS working group, chaired by Minister Anne Rabbitte, with officials from both my Department and the Department of Children, Equality, Disability, Integration and Youth as well as others, held its first meeting on the 26th January 2022. My officials will continue to work closely with officials from the Department of Children, Equality, Disability, Integration and Youth, to progress this review, and on foot of that will bring forward proposals for consideration.

Tax Code

Questions (50)

Éamon Ó Cuív

Question:

50. Deputy Éamon Ó Cuív asked the Minister for Finance if consideration has been given to amalgamating income tax and the universal social charge into one tax raising the same revenue rather than having two separate taxes on income; the advantages of the present system over having a single coherent tax on income; the disadvantages of it from a taxpayer and Revenue Commissioners point of view; and if he will make a statement on the matter. [9476/22]

Written answers

Minister for Finance

The Universal Social Charge (USC) was designed and incorporated into the Irish taxation system in 2011 to replace two other charges, namely the Health and Income Levies. Its primary purpose was to widen the tax base and to provide a steady income to the Exchequer to provide funding for public services.

Both income tax and the USC are taxes on income, however they are structurally different with some material differences between the two in relation to each system’s income base, range of reliefs available and the manner of assessment.

Income tax applies to all sources of income earned by an individual, as calculated in accordance with provisions of the Income Tax Acts. Income tax also applies to certain income of trusts and non-Irish resident companies. An individual’s entitlement to tax credits and their standard rate cut off point is determined based on his or her personal circumstances.

The income tax system provides for a wide range of tax credits, deductions and exemptions which may be used to reduce either the amount of income on which an individual is taxable, or the individual’s ultimate income tax liability. Eligibility for these reliefs is subject to the individual meeting the relevant conditions attached to each measure.

Within the income tax system, married couples or civil partners, may be able to transfer tax credits, tax bands and reliefs from one partner to the other. Whereas the USC is an individualised tax, meaning that a person’s liability to the tax is determined on the basis of his/her own individual income and personal circumstances.

Similar to income tax, there are different rates of USC and cut off points, however the rates and cut off points differ to that of the income tax regime.

The USC system incorporates different rates applicable to different levels of income and different sources of income. It should also be noted that some expenditure that qualifies for relief from an income tax perspective, may not qualify for relief from a USC perspective. Such expenditure includes payments into a pension scheme and permanent health benefit contributions. Further to this, all Department of Social Protection (DSP) payments and similar type payments made under the Social Welfare Acts are exempt from USC, while some DSP payments are not exempt from income tax.

An amalgamation of income tax and USC into one tax would require fundamental changes to the structure of the personal income tax system and may have consequential impacts on Exchequer receipts and would likely present a number of considerable challenges in relation to the systems underpinning both income tax and USC.

In 2016, joint Department of Finance/Economic and Social Research Institute (ESRI) research found that USC represented a more stable form of revenue than income tax. The findings highlighted that USC revenues would fluctuate by less than income tax revenues whenever income is volatile, for example where the economy moves from a boom into a bust. Given the openness of the Irish economy and consequent susceptibility to economic shocks, the contribution that the USC makes to the stability of the State’s revenue sources is considerable.

On the face it, a single unified system of personal income tax may appear to offer advantages as compared with current arrangements. However, as the Deputy will be aware, work was carried out on examining the possibility of an amalgamation of USC and PRSI. Many of the significant challenges outlined in “The Report of the Working Group on the Amalgamation of USC and PRSI”, published in September 2018, remain valid in the context of an amalgamation of USC and Income Tax. The Report can be located here –

assets.gov.ie/180893/1c9cd219-fb8a-47d2-86c3-d1cd9c3bcf03.pdf

There are no plans at present to carry out any further analysis on the proposal suggested by the Deputy.

Tax Reliefs

Questions (51)

Gerald Nash

Question:

51. Deputy Ged Nash asked the Minister for Finance if an update will be provided on his plans to reform the way in which capital gains are treated under the Key Employee Engagement Programme; the cost of the programme to the Exchequer for each year from 2017 to 2021; and if he will make a statement on the matter. [9483/22]

Written answers

Minister for Finance

Under the Key Employee Engagement Scheme (KEEP) incentive, gains realised on the exercise of qualifying share options granted between 1 January 2018 and 31 December 2023 by employees and directors, will not be subject to income tax, USC or PRSI. In order to qualify for KEEP, an option must be exercised within 10 years of grant. The gain will however be subject to Capital Gains Tax on subsequent disposal of the shares. This can result in a saving for scheme participants; this is the point of the scheme and notwithstanding the information about the proposed review below, there are no plans to fundamentally alter this aspect.

The cost to the Exchequer of KEEP for the year 2019 was €78,000 and for the year 2020 it was €186,000. As no exercise of share options occurred during the years 2017 and 2018, there was no cost to the Exchequer in terms of income tax, USC and PRSI for those years. Details of the cost to the Exchequer for 2021 will only be available once the employer returns for that year have been received and processed. The 2021 return is due by 31 March 2022.

Finally, in the course of the current year and ahead of Budget 2023, my Department intends to review the KEEP scheme, focussing on its operation and effectiveness.

Economic Policy

Questions (52)

John Lahart

Question:

52. Deputy John Lahart asked the Minister for Finance the action he is taking to maintain Ireland’s economic competitiveness; and if he will make a statement on the matter. [9494/22]

Written answers

Minister for Finance

Ireland’s economic recovery has been remarkable. The most recent data for modified domestic demand – the best measure of domestic economic activity – showed continued growth, with domestic activity surpassing its pre-pandemic level. Whilst the domestic economy is rapidly bouncing back, external trade has bolstered the Irish economy throughout the crisis.

The exports of the multinational sector in Ireland proved highly resilient during the pandemic, and MNCs supported the Irish economy via employment and taxes. Importantly this growth is now becoming more broadly balanced with the indigenous traded sector rebounding strongly last year.

I am very conscious of the contribution Ireland’s exports make to the economy, and the need to maintain our competitive advantage on the international stage. The Irish modified current account, which strips out the distorting effects of globalisation, is also in a very strong position and is expected to remain in surplus over the medium term.

The strong recovery in the economy has helped drive the recovery in the labour market, with 2.5 million now in employment and the Covid-19 adjusted unemployment rate falling from a peak of 31.5 per cent in April 2020 to 7.8 per cent in January 2022.

Against this positive economic backdrop we cannot become complacent and we must remain cognisant of the challenges to our competitiveness both now and into the future. As the economy approaches full employment, wage pressures are likely to emerge which could in turn feed through to persistent inflationary pressure. Indeed, shortages are already emerging in certain sectors.

Looking to the future, the international outlook remains a source of continued uncertainty and I am acutely aware of the risks this poses. There is expected to be a negative implication for Irish trade once the UK fully implements the trade provisions of the Trade and Cooperation Agreement. The Government continues to engage with the EU and the UK to minimise the disruption created by Brexit, and a great deal has been done to ensure Irish businesses are adequately prepared for its still unfolding effects.

Beyond Brexit, Ireland, as a small open economy, remains particularly exposed to global risks, including the worsening epidemiological situation, persistent supply side bottlenecks, energy price shocks, global inflationary pressure and rising geopolitical tension. My Department will continue to monitor the risks to Ireland’s competitiveness closely, and this Government will respond to them as required to protect and promote the Irish economy.

Tax Reliefs

Questions (53)

Matt Carthy

Question:

53. Deputy Matt Carthy asked the Minister for Finance when he expects to conclude a promised review into providing agricultural contractors with a similar status to farmers regarding the carbon tax on green diesel; and if it is intended to complete such a review prior to carbon tax increasing in 2022. [9371/22]

Written answers

Minister for Finance

The present position is that agricultural contractors are not entitled to avail of relief from increases in the carbon tax on farm diesel under section 664A of the Taxes Consolidation Act 1997. This is because farming, which is defined in section 654 of the Taxes Consolidation Act, requires the occupation of farmland. Agricultural contracting does not involve the occupation of farmland. The measure is specifically targeted at the farming sector to address the particular problems faced by family farms.

My officials met with contractors' representatives in December 2019 and advised that my Department was intending to schedule a review of the scheme (and related aspects) in the context of a wider report on agri-tax reliefs and the Government's Climate policy. I have since received further correspondence from those representatives, most recently on 15 February last.

The onset of the Covid-19 pandemic in the intervening period caused the review to be deferred and it has yet to take place. In the meantime, the status quo has remained in relation to the application and scope of section 664A. As I advised the Deputy in December last, my Department intends to carry out the review, most likely in the first half of 2022.

It should also be noted that, currently, those who incur expenses in relation to farm diesel in the course of their trade of agricultural contracting may claim an income tax or corporation tax deduction for these expenses, including any carbon tax charged in respect of the diesel.

Finally, and as the Deputy will appreciate, decisions regarding taxation measures are made as part of the annual Budget and Finance Bill process at the appropriate time and having regard to the sound management of the public finances and my Department's Tax Expenditure Guidelines. Furthermore, I must also have regard to ensuring that any tax measures are consistent with the need to meet our Climate Action Plan targets.

Banking Sector

Questions (54)

Jim O'Callaghan

Question:

54. Deputy Jim O'Callaghan asked the Minister for Finance the action he can take to increase competition in the banking sector; and if he will make a statement on the matter. [9448/22]

Written answers

Minister for Finance

While competition issues generally are primarily a matter for the Competition and Consumer Protection Commission, competitive pressures in the banking sector can clearly have an effect on the functioning of the financial system and the on the quality and price of credit and other banking services provided to customers.

The Irish retail banking system is relatively concentrated by international standards and the recent decisions by some banks to leave the Irish market will further impact on this. However, against this it should also be noted that some new lenders have entered the market and are playing a greater role in the provision of new services. More generally, it is likely that increased competition in the provision of financial services globally will take place and that this will have an influence in Ireland with potential new entrants to the deposit-taking, credit and payments markets for households and businesses.

The European Union’s initiatives in the context of the Capital Markets Union, which aim to improve the provision of financial services across borders within the Union, also have the potential to further improve levels of choice regarding savings and investments for consumers, and to improve access to finance for businesses in the Irish economy. Further, the scope for provision of services within the Union will be enhanced by the adoption of digital financial technologies already underway.

Even in a concentrated banking system such as that in place in recent years, price competition is possible, particularly in a growing economy. 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 2.69% in December 2021. SME and consumer loans interest rates have also declined over the same period.

However, I fully appreciate that enhanced sustainable competition in the credit and banking market more generally will be of benefit to consumers and other borrowers. Accordingly, the review of the retail banking market which is now underway in my Department will assess various aspects of the banking market and will consider options to encourage greater competition in the credit and banking market, including possible options to develop the mortgage market.

Tax Code

Questions (55, 59, 82)

Brian Leddin

Question:

55. Deputy Brian Leddin asked the Minister for Finance if his Department intends to apply reduced VAT rates to solar panels in light of the agreement reached on 7 December 2021 by the Council of the European Union (details supplied); and if he will make a statement on the matter. [9477/22]

Brian Leddin

Question:

59. Deputy Brian Leddin asked the Minister for Finance his views on the application of reduced VAT rates on the repair, rental or supply of bicycles, including e-bikes; and if he will make a statement on the matter. [9478/22]

Neasa Hourigan

Question:

82. Deputy Neasa Hourigan asked the Minister for Finance if an update will be provided on his Department's work to review options now available in setting VAT rates on new sanitary products, such as menstrual cups and period proof underwear in view of the agreement reached on 7 December 2021 by the Council of the European Union; and if he will make a statement on the matter. [9534/22]

Written answers

Minister for Finance

I propose to take Questions Nos. 55, 59 and 82 together.

As the Deputies will be aware, the EU Commission published a proposal on the reform of VAT rates in January 2018 which would allow Member States more flexibility in how they apply VAT rates. The compromise text agreed at ECOFIN in December has been amended significantly in comparison to the original proposal so the EU Parliament will once again be consulted for their opinion.

Once the Parliament has issued its opinion on the proposal, the Council will formally adopt the directive. It will then enter into force on the twentieth day following that of its publication in the Official Journal of the European Union.

In the interim officials in my Department will be reviewing the options now available to Ireland in setting VAT rates. Future tax changes are generally taken in the context of the Budget. Deputies will be aware that my officials prepare a series of papers containing tax options for the Tax Strategy Group to be considered in the context of the budgetary process, alongside a wide range of submissions from various stakeholders and lobby groups.

Tax Avoidance

Questions (56)

Pearse Doherty

Question:

56. Deputy Pearse Doherty asked the Minister for Finance if his Department has considered developing a strategy with respect to cryptocurrency and non-fungible tokens given concerns regarding their respective use for purposes of tax avoidance, tax evasion and money laundering; and if he will make a statement on the matter. [9699/22]

Written answers

Minister for Finance

I have indeed considered whether specific dedicated actions or strategies are required in relation to cryptocurrencies and non-fungible tokens, and not only the tax or money laundering aspects.

No separate strategy is required currently in respect of cryptocurrencies and non-fungible tokens in order to prevent tax evasion, avoidance or money laundering, on two counts:

1) Current tax legislation principles apply to cryptocurrencies, as advised by Revenue on December 16th 2021: the direct taxes applicable to cryptocurrencies are corporation tax, income tax and capital gains tax.

The relevant legislation and case law must be applied to determine the correct tax treatment. Each case must be considered on the basis of its own individual facts and circumstances. For example,

- for businesses which accept payment for goods or services in cryptocurrencies there is no change to when revenue is recognised or how taxable profits are calculated

or

- where there is an underlying tax event on a transaction involving the use of a cryptocurrency, the requirement in the tax code for a record to be kept of that transaction, including any record in relation to the cryptocurrency, also applies.

2) In relation to money laundering, Ireland transposed the 5th anti-money laundering Directive (5AMLD) into Irish law by way of the Criminal Justice (Money Laundering and Terrorist Financing) (Amendment) Act 2021 ("2021 Act") and the provisions of the 2021 Act that relate to Virtual Asset Service Providers commenced on 23 April 2021.

The changes in the Act resulted in virtual currency exchange platforms and custodian wallet providers being in-scope of the anti-money laundering (AML), including rules for the performance of various client due diligence checks and other requirements when onboarding new customers.

VASPS in Ireland must adopt controls and procedures to counter money laundering or terrorist financing (ML/TF) risks, report suspicious transactions and become registered with the Central Bank of Ireland.

Mortgage Interest Rates

Questions (57)

Bernard Durkan

Question:

57. Deputy Bernard J. Durkan asked the Minister for Finance if and when it might be possible for home borrowers in Ireland to borrow at interest rates equal to those available to borrowers in all other European countries given the severity of the housing shortage in Ireland, the necessity to ensure that home financing is affordable and in line with prevailing conditions in the Single Market; and if he will make a statement on the matter. [9487/22]

Written answers

Minister for Finance

I am aware that the general level of new lending interest rates in Ireland are higher than is the case in many other European countries. However, the price lenders charge for their loans is a commercial matter for individual lenders. As Minister for Finance I cannot determine the lending policies of individual banks including the interest rates they charge for loans including mortgages.

Despite this, it should also be noted that recent trends indicate that certain mortgage rates have been falling in Ireland. For example, the interest rates on new mortgages (excluding renegotiations) have fallen from 4.05% in December 2014 to 2.69% in December 2021.

The weighted average interest rate on new fixed rate mortgage agreements stood at 2.59% in December 2021, down from a series high of 4.11% in December 2014. There has also been a reduction in the interest rates charged on loans to SMEs and consumers over the same period.

However, Irish mortgage and other loans can have different characteristics from those offered in other countries. For example, many Irish banks include incentives such as cash back offers, which reduce the effective Irish mortgage interest rate. Also Irish mortgages are generally not subject to upfront fees which are typically charged by banks in some other EU jurisdictions.

There are also a number of important factors which will likely influence the interest rates charged on Irish mortgages. These include for example operational costs, certain structural factors as referenced above (such as incentives offered), as well as the fact that pricing will reflect:

- credit risk and capital requirements which in Ireland are elevated due to historical loss experience;

- the level of non-performing loans which is higher in Ireland relative to other European banks (as provisioning and capital requirements are higher for these loans to reflect their higher risk and this in turn results in higher credit and capital costs for the Irish banks); and

- higher cost-to-income ratios which has been a characteristic of the Irish banking sector in recent years

Separately the Central Bank introduced a number of increased protections for variable rate mortgage holders which came into effect in 2017. The enhanced measures, which are provided for in an Addendum to the Consumer Protection Code 2012, require lenders to explain to borrowers how their variable interest rates have been set, including in the event of an increase.

The measures also improve the level of information required to be provided to borrowers on variable rates about other mortgage products which could provide savings for the borrower and signpost the borrower to the Competition and Consumer Protection Commission's (CCPC) mortgage switching tool.

The Central Bank also introduced additional changes to the Consumer Protection Code in 2019 to help consumers make savings on their mortgage repayments, provide additional protections to consumers who are eligible to switch, and facilitate mortgage switching through enhancing the transparency of the mortgage framework. Consumers can reduce average pricing in the mortgage market by availing of switching options to ensure that recent and potential future price reductions through increased competition pass through to the greatest number of customers possible. Indeed a Central Bank study estimated that three in every five ‘eligible’ mortgages for principal dwelling homes stand to save over €1,000 within the first year if they switch and €10,000 over the remaining term.

To conclude I appreciate that greater sustainable competition in the credit market will be of benefit to consumers and other borrowers. Accordingly, the review of the retail banking market which is now underway in my Department will consider how the banking system can best support economic activity, assess competition and consumer choice in the market for banking services and consider options to further develop the mortgage market.

Mortgage Interest Rates

Questions (58)

Gerald Nash

Question:

58. Deputy Ged Nash asked the Minister for Finance his plans to protect current and prospective mortgage holders from a rise in European Central Bank interest rates; his views on the introduction of maximum interest rates that can be contracted to each type of credit agreement as applied in some other European Union countries; and if he will make a statement on the matter. [9485/22]

Written answers

Minister for Finance

The price lenders charge for their loans is a commercial matter for individual lenders. As Minister for Finance I cannot determine the lending policies of individual banks including the interest rates they charge for loans including mortgages.

Despite this, it should be noted that recent trends indicate that certain mortgage rates have been falling in Ireland. For example, the interest rates on new mortgages (excluding renegotiations) have fallen from 4.05% in December 2014 to 2.69% in December 2021.

The weighted average interest rate on new fixed rate mortgage agreements stood at 2.59% in December 2021, down from a series high of 4.11% in December 2014. There has also been a reduction in the interest rates charged on loans to SMEs and consumers over the same period.

The Central Bank also introduced of a number of increased protections for variable rate mortgage holders. The enhanced measures, which are provided for in an Addendum to the Consumer Protection Code 2012, and became effective in February 2017, require lenders to explain to borrowers how their variable interest rates have been set, including in the event of an increase. The measures also improve the level of information required to be provided to borrowers on variable rates about other mortgage products their lender provides which could provide savings for the borrower and signpost the borrower to the CCPC’s mortgage switching tool.

In addition, the Central Bank introduced changes to the Consumer Protection Code 2012 in June 2018 to help consumers make savings on their mortgage repayments, provide additional protections to consumers who are eligible to switch, and facilitate mortgage switching through enhancing the transparency of the mortgage framework. The new and enhanced requirements took effect from January 2019.

In relation to the introduction of maximum interest rates that can be contracted to each type of credit agreement as applied in some other European Union countries, the Deputy should be aware that the Government intends to introduce shortly a Bill to cap interest rates from providers of moneylending agreements. In addition, the Government's Consumer Protection (Regulation of Retail Credit and Credit Servicing Firms) Bill 2021, which is commencing Committee Stage this week, will put an existing APR cap of 23% for consumer lending on a solid statutory basis. This 23% APR cap will also apply to hire-purchase agreements.

Both these Bills, together with the existing interest rate cap on credit union credit, anticipate a draft provision in the European Commission's proposal for a Directive of the European Parliament and of the Council on consumer credits, which was published last June. The provision in question will require Member States to introduce caps on interest rates, annual percentage rate of charge and/or the total cost of credit to the consumer. This would apply to unsecured credit to a consumer up to a maximum of €100,000.

It is also worth noting that the review of the retail banking market which is now underway in my Department will consider how the banking system can best support economic activity, assess competition and consumer choice in the market for banking services and consider options to further develop the mortgage market.

Question No. 59 answered with Question No. 55.

Question No. 60 answered with Question No. 24.

Enterprise Policy

Questions (61)

David Stanton

Question:

61. Deputy David Stanton asked the Minister for Finance if he will report on the recently launched innovation seed fund programme; the types of companies and initiatives eligible for support under the scheme; and if he will make a statement on the matter. [9702/22]

Written answers

Minister for Finance

The Irish Innovation Seed Fund Programme (IISF) is designed to provide seed venture capital to innovative Irish companies and is an important step in developing the Irish venture capital market. While the overall venture capital sector in Ireland is strong and continues to grow, there is a trend towards growth being driven by larger, later stage deals and investments. The Irish market is producing ambitious founders with strong technical expertise and a drive to innovate in much greater numbers, so the need to nurture seed and scaling activities in Ireland remains very important.

The €90m fund programme is made up of a €30m investment from the Department of Enterprise Trade and Employment (DETE), through Enterprise Ireland (EI), which is matched by a €30m investment from the European Investment Fund (EIF). The €60m fund will be managed by EIF and the Irish Strategic Investment Fund (ISIF) will co-invest a further €30m alongside on a deal by deal basis. Establishment of the fund programme enhances the growing relationship between Enterprise Ireland, the EIF and ISIF. The €90m fund programme will attract both new fund managers and new private investors and will crowd-in significant private investment.

The fund programme will operate as a “fund of funds”, essentially a fund that invests in specialist fund managers, who then source companies with strong potential for a commercial return on investment. Ireland is lacking in this type of fund, so an additional benefit of this project is that the Irish equity investment ecosystem is further developed and matured.

All investments are expected to be made within a three-year timeframe. The investments are forecast to have a 10-year life. Investments will be targeted and prioritised in areas that have experienced difficulty in attracting investment, such as funds that invest in companies with a focus on regional development, climate change and female entrepreneurship.

There is no doubt that our most innovative, early stage firms have been affected by the more cautious investment environment which followed the uncertainty of a pandemic. SMEs make up over 99% of our firms and employ over one million people across our cities, towns and villages. They are the lifeblood of our economy and we will continue to depend on their innovations and successes to secure the future, sustained economic growth of our country.

Question No. 62 answered with Question No. 23.

Tax Code

Questions (63)

Aindrias Moynihan

Question:

63. Deputy Aindrias Moynihan asked the Minister for Finance if he has considered an index-linked approach to taxation; and if he will make a statement on the matter. [9685/22]

Written answers

Minister for Finance

I assume that the Deputy is referring to indexation of the personal income tax system. As the Deputy may be aware, the Programme for Government states that “from Budget 2022 onwards, in the event that incomes are again rising as the economy recovers, credits and bands will be index linked to earnings. This will be done to prevent an increase in the real burden of income tax, to prevent more low income workers being taken into the tax net, and to ensure there is no increase in the number of people having to pay higher income tax and Universal Social Charge rates”.

Budget 2022 included an income tax package amounting to €520 million, which, within available resources, sought to index the income tax standard rate bands and main personal tax credits. The single income tax rate band was increased by 4.2 per cent from €35,300 to €36,800 for the 2022 tax year, with commensurate increases for persons who are married/in civil partnerships. The main tax credits, personal tax credits, employee tax credit and earned income credit, were also increased by just over 3 per cent from €1,650 to €1,700 for the 2022 tax year. This will provide a real benefit to all individuals who pay tax by reducing their tax liability and will ensure that some low and part time workers will remain outside income tax net.

The 2% rate band ceiling for USC was also increased in line with the increase in the national minimum wage to ensure that a full-time adult worker who benefits from the increase in the hourly minimum wage rate will remain outside the top rates of USC.

Having regard to the fiscal demands and pressures facing the State, it was not possible to index all elements of the personal income tax system nor was it possible to fully index tax credits and standard rate tax bands in line with expected earnings growth and remain within the fiscal parameters. However, the tax changes introduced in Budget 2022, will benefit all income earners who pay income tax.

I am aware that the Oireachtas Committee on Budgetary Oversight is currently undertaking work in relation to indexation of the taxation and social protection systems, and that my officials recently attended the Committee to assist the Members with their work in this regard. I understand that one of the key points to emerge from presentations made to the Committee is that, historically, changes to tax and welfare parameters have, on average, kept pace with earnings notwithstanding that we have not had in place a system of automatic indexation.