Tuesday, 9 May 2023

Written Answers Nos. 103-117

Interest Rates

Questions (104)

Jim O'Callaghan

Question:

104. Deputy Jim O'Callaghan asked the Minister for Finance his views on the failure of banks to increase interest rates for deposit holders. [21229/23]

Written answers

Minister for Finance

Deposit interest rates are a means for banks to attract or maintain a stable source of funding. The determination of the rate of interest to offer to attract depositors is a commercial decision, which is the sole responsibility of the board and management of each bank.

Neither the Central Bank of Ireland nor I have a role in setting the interest rates offered by banks on monies held on deposit. Although the State is a shareholder in some of the banks operating in the jurisdiction, those entities must also be run on a commercial and independent basis, and their independence in this regard is protected by the relationship framework agreements.

In terms of the interest rates currently available on deposits, the European Central Bank (ECB) released March 2023 Euro Area Bank Interest Rate Statistics on 5 May 2023. The Central Bank of Ireland Retail interest rates release will follow tomorrow, on 10 May 2023, when it can be accessed at: www.centralbank.ie/statistics/data-and-analysis/credit-and-banking-statistics/retail-interest-rates

I am informed by the Central Bank of Ireland that:

• Interest rates on household overnight deposits stood at 0.03 per cent in March 2023, while the euro area equivalent was 0.151 per cent.

• Interest rates on new household deposits with agreed maturity was 1.14 per cent in March in Ireland, while the euro area equivalent was 2.11 per cent.

• Interest rates on outstanding deposits’ rates with agreed maturity was 0.43 percent in March 2023 an annual increase of 34 basis points since March 2022. Interest rates on outstanding deposits’ rates with agreed maturity in the euro area was 1.51 percent in March 2023.

As at end-March 2023, €150.9 billion was held on deposit by Irish households with Irish resident credit institutions, of which €141.4 billion in overnight deposits and €2.5 billion on deposit with agreed maturity.

It is worth noting that banks currently hold an unusually large share of overnight deposits by historical standards. This large share of monies held in overnight deposit reflects two factors:

• First, when interest rates were low (or negative up until July 2022), there was effectively little or no difference between the return on overnight versus term deposits for savers; and

• Second, much of the current build-up of deposits represents ‘passive’ pandemic savings – that is, savings that households built up when there were restrictions on economic activity and therefore reduced spending opportunities during the pandemic.

The difference between interest rates on overnight deposits and term deposits represents an increased opportunity cost of holding overnight deposits. Over time, it would be expected to see some flow from overnight to term deposits for savers to achieve a greater return.

Increasing competition to attract these relatively stable sources of funding could also contribute to a greater pass-through of policy rates into deposit rates over time.

The Deputy may also wish to note that the Competition and Consumer Protection Commission's (CCPC) website includes a number of comparison tools to help consumers shop around. These tools can be used to compare the features and rates of both lump sum deposit products and regular savings accounts.

Question No. 105 answered with Question No. 100.

Financial Services

Questions (106)

Jim O'Callaghan

Question:

106. Deputy Jim O'Callaghan asked the Minister for Finance whether cryptocurrency constitutes a social and economic threat to Irish citizens. [21228/23]

Written answers

Minister for Finance

The technology that supports the issuance of cryptocurrencies, known as distributed ledger technology (“DLT”) offers technical innovations to enhance transparency, security and efficiencies within financial markets. That being said, it is essential that new technological innovations that fail to meet the highest of standards of consumer protection and protect the integrity of our financial systems, should not be allowed to flourish without defined regulatory and legal parameters.

To date Ireland has already ensured that companies offering crypto asset services in Ireland must register with the Central Bank of Ireland as outlined in the 5th Anti-Money Laundering Directive (“5AMLD”). Respective businesses which currently act as a gateway between the traditional finance system and he the cryptocurrency ecosystem, are “designated persons” under Irish Law and therefore must comply with anti-money laundering and counter-terrorist financing rules by performing client due diligence checks and other requirements when on-boarding customers.

My Department, together with the Central Bank of Ireland have been engaged in E.U. wide negotiations to establish a framework for crypto assets where they are currently out of scope from existing EU legislation. I am pleased to announce that on April 20th the European Parliament overwhelmingly voted in support of the Market in Crypto Assets Framework ("MiCA"), the most comprehensive regulatory framework for crypto assets of its kind. This will provide enhanced consumer protections while also preserving the opportunities for technological innovation which Irish companies can be a part of.

First introduced by the Digital Finance Package of 2019, the MiCA framework will seek to:

a) bring legal clarity to consumers and companies;

b) define what crypto-assets fall within its perimeter;

c) safeguard financial stability;

d) ensure smooth operation of payment systems and monetary sovereignty; and

e) ensure consumers are protected and f) foster innovation throughout the EU.

An 18 month transition period has now commenced following approval by the European Parliament. In the interim, businesses offering virtual asset services will continue to be subject to the 5AMLD transposed 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.

Officials from my Department, together with colleagues in the Central Bank of Ireland, will continue to work closely as part of the preparations for the implementation of MiCA. Further, the Central Bank continues to monitor development related to the sector to assess risks to consumer protection and financial stability. I also note the work by the Competition Consumer Protection Commission earlier this year to a target social media campaign to make consumers aware of the risks of investing in crypto assets and to make them aware of vulnerabilities of targeted investment practices.

Tax Code

Questions (107)

David Stanton

Question:

107. Deputy David Stanton asked the Minister for Finance if he will consider the application of the relevant contracts tax instead of the application of the professional services withholding tax to high-turnover contracts with a margin of less than 20%, such as archaeological contracts; and if he will make a statement on the matter. [21436/23]

Written answers

Minister for Finance

I am advised by Revenue that Professional Services Withholding Tax (PSWT) is a deduction at the standard rate of income tax, currently 20%, from relevant payments made by accountable persons to specified persons in respect of certain professional services. The tax deducted is a payment on account against the specified person’s final Income Tax or Corporation Tax liability for the year, with the amount of PSWT deducted credited against the tax liability for that year. A specified person can include businesses undertaken through a company, sole trade or partnership.

Accountable persons include Government Departments, State agencies and bodies, local authorities, colleges and authorised medical insurers.

The range of professional services that come within the scope of PSWT includes, but is not limited to:

• Services of a medical, dental, pharmaceutical, optical, aural or veterinary nature.

• Services of an architectural, engineering, quantity surveying or surveying nature, and related services.

• Services of accountancy, auditing or finance and services of financial, economic, marketing, advertising or other consultancies.

• Services of a solicitor or barrister and other legal services.

• Geological services.

Relevant Contracts Tax (RCT) is a withholding tax that applies to certain payments made by principals to subcontractors in the construction, forestry and meat processing sectors. The RCT tax deducted is credited against the subcontractors Income Tax or Corporation Tax liability for that year.

The rate of deduction that is applied on payments to subcontractors can be zero, 20% or 35% and is determined by a number of factors including the tax compliance record of the subcontractors.

The circumstances requiring the engagement of an archaeological services provider, the type of work being carried out and to whom the services are being provided will determine whether it is appropriate to apply either RCT or PSWT to the payments for the services.

Site investigation operations, such as archaeological investigations, which have not been imposed by regulation and which involve a considerable degree of labour-intensive fieldwork would normally be considered to be a construction operation and they would therefore be subject to RCT. However, archaeology investigations that are ancillary to a construction project or that are imposed by regulation or where the fieldwork is a minor part of the investigation would not be considered to be a construction operation but would instead be regarded as a professional service and would therefore come within the scope of PSWT.

Where a principal contractor enters a relevant contract with a subcontractor, they are obliged to submit details of the contract to Revenue. Immediately before a principal makes a payment to a subcontractor, the principal must notify Revenue of their intention to do so. Revenue will respond with a deduction authorisation and notify the principal of the rate of deduction to be applied to the payment.

While some persons may operate as a principal for the purposes of RCT and an accountable person for PSWT, these withholding taxes in general apply to different sectors and the administrative process for each withholding tax is different. However, they both play an important role in ensuring the tax compliance of service providers and subcontractors that come within scope of each of the withholding taxes.

Insurance Industry

Questions (108)

Ruairí Ó Murchú

Question:

108. Deputy Ruairí Ó Murchú asked the Minister for Finance if he can outline the short- to medium-term plans by the Government to ensure reductions in premiums for customers for insurance products, particularly public liability insurance; and if he will make a statement on the matter. [21475/23]

Written answers

Minister for Finance

As the Deputy will appreciate, neither I, nor the Central Bank of Ireland, can direct the pricing or provision of insurance products, as this is a commercial matter which individual companies assess on a case-by-case basis. This position is reinforced by the EU Single Market framework for insurance (the Solvency II Directive).

Nevertheless, the Government understands that insurance costs remain a significant issue for many groups, and has therefore continued to prioritise targeted reform of this sector, via the whole-of-Government Action Plan for Insurance Reform. The latest implementation report, published in November 2022, indicates that significant progress has been achieved, with the vast majority of actions now delivered and the remainder prioritised for completion.

The Personal Injuries Guidelines represent a key achievement of this reform agenda. Recent data from the Personal Injuries Assessment Board (PIAB) indicates that the overall average award has fallen by 38 per cent compared to awards made in 2020 under the Book of Quantum. It is the Government’s expectation that all savings generated by the Guidelines, as well as the wide range of other measures delivered to date, are reflected in premiums for customers.

In that regard, I welcome recent data from the Central Statistics Office (CSO) showing that the price of motor insurance in March 2023 was 15.9 per cent lower than in April 2021, when the Guidelines were adopted, and 43.6 per cent lower than its peak in July 2016. Separately, the latest National Claims Information Database (NCID) report on motor insurance indicates that the average earned premium decreased by 19 per cent from its peak in Q4 2017, to €575 in Q2 2022.

On insurance for businesses and other groups, including public liability insurance, the CSO does not publish this data. I understand that the NCID expects to publish 2021 data on public liability insurance, as well as employer’s liability and commercial property insurance later this year. However, I acknowledge that certain difficulties remain in this sector. With regards to public liability insurance, data from the Central Bank illustrates that this market has been loss making for a number of years, and consequently insurers may be reluctant to enter into this area. At the same time, this more specialised market segment is closely linked to global insurance trends, and is therefore slower to reflect the changes being delivered through the Government reform agenda than more commoditised products such as motor insurance.

Notwithstanding this, it is the Government’s view that the reform agenda will have effect across other forms of insurance, including public liability insurance for businesses, community and voluntary organisations. Actions that should particularly benefit these groups include amendments to rebalance the duty of care via the Courts and Civil Law (Miscellaneous Provisions) Bill 2022, which is currently before the Seanad, third stage. This would address the issue of ‘slips, trips and falls’, which is particularly prevalent in high-risk/high-footfall areas. This in turn could potentially unlock further liability insurance capacity for businesses and organisations who operate in these sectors.

In conclusion, I wish to assure the Deputy that the Government remains committed to implementing the outstanding reforms, with a view to driving further benefits for motorists, as well as improvements in the cost of insurance for businesses, and community, sporting and voluntary groups.

Question No. 109 answered with Question No. 84.

Tax Reliefs

Questions (110)

Michael Moynihan

Question:

110. Deputy Michael Moynihan asked the Minister for Finance if he has plans to review and expand the current tax incentives for home ownership; and if he will make a statement on the matter. [21512/23]

Written answers

Minister for Finance

As the Deputy will appreciate, decisions regarding tax incentives and reliefs are normally made in the context of the annual Budget and Finance Bill process. Such decisions must have regard to the sound management of the public finances and my Department's Tax Expenditure Guidelines.

Tax reliefs, no matter how worthwhile in themselves, may serve to narrow the tax base and can make general reform of the tax system that much more difficult. While the use of tax measures as a policy tool to increase home ownership may be well-intentioned, Ireland’s history shows the issue of property-based tax expenditures should be approached with caution.

With that said, my Department continues to monitor all aspects of the property market, and I will continue to work with my colleagues in Government to ensure that any further interventions in the housing market are appropriately calibrated, represent the best use of scarce public resources and boost the supply of housing in both the public and private sectors.

Question No. 111 answered with Question No. 84.

Tax Code

Questions (112)

Brian Leddin

Question:

112. Deputy Brian Leddin asked the Minister for Finance if there are plans to introduce weight- and size-based taxes on private vehicles in Ireland to incentivise a switch to smaller and lighter vehicles in an effort to ensure Ireland's vehicle fleet is as efficient as possible; and if he will make a statement on the matter. [21506/23]

Written answers

Minister for Finance

Officials from the Department of Finance continue to monitor developments in the vehicle taxation area. New proposals are considered and current vehicle tax policies are kept under review as part of the Tax Strategy Group and Budgetary cycle. Going forward, it is possible that vehicle taxes may shift to weight-based in order to protect the vehicle tax base.

However, you should note that the existing vehicle tax structures in the State currently have a very strong environmental rationale, with the more pollutant vehicles paying higher rates of tax. Additionally, as many heavier vehicles currently on the market are more pollutant – with the exception of large Electric Vehicles - those heavier vehicles incur higher rates of tax, between Motor Tax, Vehicle Registration Tax and the Nitrogen Oxide Charge. Vehicle weight generally correlates with vehicle emissions, therefore within the existing tax system the heaviest internal combustion engine cars are already subject to higher rates of tax whereas lighter, more efficient cars are subject to lower rates of tax.

Vehicle Registration Tax is an emissions-based tax and is calculated based on the Open Market Selling Price and tailpipe emissions of the vehicle. The rates were changed in Budget 2022 to further incentivise motorists in the market for a new car to make ‘greener choices’. The new rates table (see below) increases Vehicle Registration Tax rates progressively from band 9 so that high emission vehicles pay more. This reflects the environmental rationale of the tax and underpins Government commitments to decarbonise road transport.

In recognition of the environmental health costs caused by pollutants emitted in particularly high quantities by diesel vehicles, Budget 2019 saw an introduction of a 1% surcharge on all diesel vehicles. Budget 2020 replaced the 1% surcharge with a surcharge tied to nitrogen oxide emissions levels based on the “polluter-pays” principle, where the greater the level of nitrogen oxide a car emits, the higher the surcharge. Budget 2021 saw an adjustment to the surcharge structure (see table below) so as to underpin its environmental rationale and incentivise the uptake of cleaner cars.

It is clear therefore that the current structure is incentivising the purchase of ‘greener’ vehicles as evidence from 2022 suggests the average car registered emits approx. 111 gCO2/km (Band 9), compared to 2020, where the average car registered emitted 135.6 grams of CO2 per km (VRT Band 13).

Table 1: VRT Rates Table

Emissions Band	CO2 (WLTP) g/km		OMSP X
	FROM	TO	Rate
1	0	50	7.00%
2	51	80	9.00%
3	81	85	9.75%
4	86	90	10.50%
5	91	95	11.25%
6	96	100	12.00%
7	101	105	12.75%
8	106	110	13.50%
9	111	115	15.25%
10	116	120	16.00%
11	121	125	16.75%
12	126	130	17.50%
13	131	135	19.25%
14	136	140	20.00%
15	141	145	21.50%
16	146	150	25.00%
17	151	155	27.50%
18	156	170	30.00%
19	171	190	35.00%
20	191	-	41.00%

Table 2: VRT NOx Surcharge

Thresholds (NOx mg/km)	Rate per mg/km
0-40	€5.00
41-80	€15.00
81+	€25.00

Question No. 113 answered with Question No. 100.

Question No. 114 answered with Question No. 70.

Question No. 115 answered with Question No. 100.

Question No. 116 answered with Question No. 82.

Budget Targets

Questions (117)

Peadar Tóibín

Question:

117. Deputy Peadar Tóibín asked the Minister for Finance the forecasted budget surplus or deficit for the Exchequer in 2023; and if he will make a statement on the matter. [21596/23]

Written answers

Minister for Finance

Economic and budgetary forecasts covering the period 2023-2026 were set out in the Stability Programme Update which was published and submitted to the European Commission and Council last month.

My Department is forecasting an Exchequer surplus of just over €4.5 billion this year. The general government surplus, which is the preferred metric both nationally and internationally for the fiscal position, is forecast at €10 billion, the equivalent of 3½ per cent of modified gross national income.

The headline surplus in prospect for this year is largely the result of ‘windfall’ corporate tax receipts, in other words receipts that cannot be explained by underlying economic conditions. These windfall receipts are highly concentrated among a small number of multinational firms, and cannot be relied upon to continue indefinitely.

Windfalls are estimated at almost €12 billion this year, meaning an underlying general government deficit of €1.8 billion for this year. This is a better metric for assessing the resilience of our public finances.

The Government has repeatedly warned that it would be inappropriate to build up permanent fiscal commitments on the basis of transitory, windfall revenues. Accordingly it is my intention to establish a longer-term savings fund, capitalised by these windfall receipts. The fund will be used inter alia to partly finance the budgetary costs associated with an ageing population.