Richard Bruton
Ceist:75 Deputy Richard Bruton asked the Tánaiste and Minister for Finance if he had reason to revise his forecast for tax receipts in 2007-08; and if he will make a statement on the matter. [17744/07]
Priority Questions.
Tax Yield.
Exchequer tax receipts to the end of May were, at €18.603 million, just €19 million or 0.1% below profile. They were 9.6% up on the same period last year. This compares with a budget day target of an increase of 7.8% for 2007 as a whole.
While overall tax receipts were almost exactly on target at the end of May, there are some variations under particular tax heads: corporation tax receipts are €221 million or 17.5% above profile; customs receipts are €4 million or 3.6% above profile; VAT receipts were €28 million or 0.4% below profile; income tax receipts are €56 million or 1.1% below profile; excise duties were €120 million or 4.7% below profile; stamp duties were €16 million or 1.1% below profile; and capital taxes were €71 million or 5.8% below profile. Of these, capital gains tax was €79 million or 7.2% below profile and capital acquisitions tax was €8 million or 5.1% above profile.
Given the significance of tax payments in the latter part of the year, it would be unwise to attempt to draw conclusions about the performance of the economy based on tax receipts at this early stage. The latest available economic estimates show that the economy continues to perform well. Preliminary CSO data for 2006 as a whole indicates that GDP growth was 6%, while, in GNP terms, the growth rate in 2006 was estimated at 7.4%.
In the circumstances, I do not see a need to revise our forecast at this stage. However, my Department monitors tax receipts on an ongoing basis and, as more data become available, any significant changes to the expected end of year receipts will be signalled once the position becomes clear.
Is the Tánaiste aware that the data relating to housing starts suggest that they are 30% down on their peak? Commentators for Davy have indicated that this could lead to housing completions falling from 95,000 to 65,000. Do I infer from the Tánaiste's reply that he sees such a fall-off in housing activity as having no impact on tax revenue? Has he considered the likely impact of such a fall in housing construction on employment in the sector? Davy suggests that as many as 28,000 jobs could be lost in the construction sector as a result of the decline in activity. Does the Tánaiste believe that Exchequer revenue will be immune to this decline or is he of the view that the data relating to housing starts are wrong?
Housing market activity impacts primarily on VAT, stamp duty and capital gains tax. It also impacts on income tax and PRSI receipts and corporation tax from construction sector company profits. While revenue from housing market activity, such as that relating to stamp duty and capital gains tax, has made an increasing contribution to the Exchequer in recent years, we are not overly reliant on receipts from this source. Taken together, for example, the stamp duty and capital gains tax heads are forecast to contribute approximately 15% of total targeted tax revenues in 2007.
I did not inquire about that matter.
It is worth noting that a significant proportion of receipts from these tax heads comes from sources other than residential property.
On housing starts, a correction has been taking place in the market since last autumn. This has resulted in an easing in house price inflation. The latter is a welcome development because continuing double digit house price inflation would not be sustainable. There is also the question of trying to ensure that we achieve a soft landing for the housing sector, particularly in view of the fact that the Central Bank and Financial Services Authority of Ireland, the ESRI and others forecast over a period that there would be a reduction in housing starts and completions to a level of approximately 65,000 to 70,000 per annum in the next few years.
We need to ensure there is stability and certainty in the market. That is one of the reasons we have decided to bring legislative proposals before the House this evening. We want to maintain confidence in the housing market. The question before the House relates to the impact on revenues. At this stage, we do not think there is any reason to believe we will be below profile in our overall tax receipts, under all the tax heads. We will continue to monitor the situation.
The Tánaiste has not answered the questions I asked. He devoted most of his time to answering questions which were not those I asked. Davy, which is not regarded as reckless, has indicated that tax receipts in 2008 will decrease by €1.3 billion on the basis of the existing figures for housing. Does the Minister intend to stick his head in the sand, like an ostrich, by pretending that is not happening, or will he try to anticipate the impact of the predicted decline on public financial planning? That is the question I would like him to answer. He seems to be pretending that it would be unwise at this stage to anticipate such a fall. That suggests that he believes such a reduction will not happen, or that he believes such a reduction will have no impact. There is no sound basis for either belief. How will the Minister cope with the likely decline in revenue of over €1 billion in 2008? What impact will such a decline have?
In the past, returns in this area have exceeded those which had been forecast. Such forecasts were not based on windfall gains. There continues to be a prospect that our estimates will come in on target, even if there is a downturn.
Price Inflation.
Joan Burton
Ceist:76 Deputy Joan Burton asked the Tánaiste and Minister for Finance his Department’s forecast for the level of inflation for 2007; the way this compares to the forecast he gave in his budget speech; his views on the level of inflation continuing to run at 5%; the measures he will take to deal with this issue; and if he will make a statement on the matter. [17474/07]
On budget day, 6 December 2006, the Department of Finance forecast that consumer price index inflation would be 4.1% this year. That forecast was based on the normal technical assumption of unchanged interest rates. The budget day forecast for the harmonised index of consumer prices inflation — the EU inflation measure — was 2.6% this year. As usual, the Department will publish updated inflation forecasts in the pre-budget outlook, which is due in the autumn. There have been three interest rate increases of 0.25% since budget day, the latest of which was earlier this month. CPI inflation has averaged 5%, year-on-year, in the first five months of this year, during which two of the three increases took place. As interest rates are a matter for the governing council of the European Central Bank, they are outside the control of the Government.
Mortgage interest accounts for approximately half of Ireland's rate of inflation. If the effect of mortgage interest is excluded, the year-on-year CPI average is 2.6% so far this year. The CPI excluding tobacco has averaged 0.2% lower than the full CPI so far this year. If one maintains the normal assumption that there will be no further interest rate increases, the rate of inflation is expected to moderate as the year continues. The EU comparable measure of inflation — the harmonised index of consumer prices — is the best measure of underlying inflation. It is used by the ECB because it removes the effect of interest rate increases which are made to reduce inflationary pressures. Therefore, it is important that we do not seek to compensate ourselves for such rises in interest rates, as that would lead to a wage inflation spiral and would reduce our competitiveness and, ultimately, our real standard of living.
On foot of a statement made by the Taoiseach on 7 June last, it is planned that the Taoiseach, the Minister for Enterprise, Trade and Employment and I will meet representatives of IBEC and ICTU this week to discuss how we can tackle inflationary pressures together in line with our shared commitments. Where possible, we will take action to contain inflation by implementing responsible fiscal policies. Indirect taxes, with the exception of tobacco excise which I increased for sound health reasons, were not raised in the last three budgets I brought before the House. The decision of the last Government to abolish the groceries order is helping to reduce food price inflation. The stable macroeconomic environment created by the last two Governments through the pursuit of sound public finances, which this Government fully intends to continue, will help the economy to remain competitive and will provide the basis for achieving further economic and social policy objectives in the long term.
What does the Minister have to say to families and people at work who are receiving very little in the way of wage increases? Their wage increases are, to use the Minister's term, heavily moderated through the social partnership process, but they are living in an economy with an inflation rate of 5%. For most workers and their families, the cost of living in Ireland, compared to most European countries, is astronomically high. I accept what the Minister is saying, namely, that much of the rise in inflation is attributable to interest rate increases. Nonetheless, many Irish people who go on holidays to other EU countries this summer — to get away from the rain — will marvel at the cost of a meal out or a basket of shopping in places like Spain or Greece and throughout the EU. Even countries like Sweden which were once regarded as extraordinarily expensive are now good value when compared to the Republic of Ireland.
What will the Government do under the programme for Government to bring down the rate of inflation? Has the Minister any concrete proposals to tackle the rising cost of services? Most of those price rises are driven by Government policy and the fact that in the housing market it is extremely difficult for young families to purchase an affordable home. Leave aside the millionaires — we are simply talking about ordinary families who are trying to put a roof over their heads and service the cost of a mortgage in an economy which is now at the top of the inflation league. What has the Minister to say about this and what is he going to do?
In looking at the causes of Irish inflation over the past year, it is important to distinguish between external factors, which are beyond domestic policy control, and internal factors. Externally, the main cause is higher mortgage interest payments due to ECB interest rate increases. Excluding mortgage interest repayments, as I have said, the rate of increase in the CPI inflation rate last year would have been2.6%. Mortgage interest is currently adding approximately 2.5% to inflation.
There is no room for complacency in terms of internal factors. As the Deputy said in respect of services inflation, this is a cause for concern. We must continue to increase competition in that market. This Government has committed itself to reviewing all of the regulatory environment in which we do business in this country to try to ensure that we provide the best prospect for a competitive situation in services.
The goods inflation issue is not causing us much concern. For example, when one looks at the impact of the abolition of the groceries order, one can see that those items which were subject to the groceries order increased by only 0.1% last year, while groceries items which were never covered by the order increased by 2.4% in 2006. That, in addition to expanding the productive capacity of the country to improve our transport and other areas, are the medium and long-term issues under the national development plan, along with our investment in research and development and productivity increases.
Can I ask a brief supplementary question?
We are already over time for this question.
The Minister said that he, the Taoiseach and the Minister for Enterprise, Trade and Employment will meet with, I understand, IBEC, the trade unions and the rest of the social partners to discuss inflation. Is this a partnership Government? Are any of Fianna Fáil's partners in Government — the Progressive Democrats or the Green Party — invited along to meet the social partners, including the trade unions and IBEC, or is this a Fianna Fáil solo run on inflation?
That question must be asked at another time.
Can the Minister tell me whether the partners in the Government are excluded? He only mentioned Fianna Fáil Ministers who would be attending.
They are the Ministers with responsibility in these areas.
So none of the partners will be attending. Are they hands-off on inflation?
We will proceed to Question No. 77.
Pension Provisions.
Richard Bruton
Ceist:77 Deputy Richard Bruton asked the Tánaiste and Minister for Finance his views on whether the current rules governing the tax relief for pension contributions are equitable in their impact; and if he will make a statement on the matter. [17745/07]
Tax relief is provided at an individual's marginal income tax rate on amounts contributed to pension schemes, subject to limits. Relief is also provided on contributions made by employers to such schemes and on the amount of profits and gains generated by the investments held by the pension schemes. Pension benefits payable on retirement are taxable subject to an entitlement to take a tax-free lump-sum cash benefit.
Over half of all people in employment are covered by voluntary private pensions and the tax relief arrangements described have assisted in this regard. For people in employment aged between 30 and 65 years, the pension coverage level in the fourth quarter of 2005, according to the Central Statistics Office's quarterly national household survey, was approximately 62%. This compares to a target of 70%, to be met sometime after 2013, suggested by the national pension policy initiative.
The 2006 budget and Finance Act took steps to address some important equity issues and to limit the cost to the Exchequer of tax relief provided to higher income earners. Among several commitments in the new programme for Government to improve pensions, there is a commitment to develop proposals, in the context of the Green Paper on pensions and in consultation with the social partners, to provide an SSIA-type scheme in an effort to make supplementary pension provision more attractive to those on low incomes. This would further address pension adequacy and equity concerns and be negotiated under the aegis of the social partnership agreement.
Is the Minister aware that each year some well-placed individuals can receive a subsidy of €50,000 into their pensions from the taxpayer while under half of people in employment get nothing from the scheme? Does this tally with the Minister's idea of fairness in a tax relief scheme? It certainly does not tally with mine.
During the course of the general election, proposals were made for a one-for-one pension scheme for those on low incomes. Has financial provision been made in the programme for Government for the introduction of such a scheme? During the course of the election, the Minister quickly withdrew that proposal when it was floated by the then Minister for Social and Family Affairs, Deputy Brennan. If this scheme is to come from a Green Paper process, will it have to wait in a queue after all other tax code commitments have been met? Will it be pushed to the end of the new programme for Government and only supported if there are enough resources left?
During the general election, we stated we would give consideration to the introduction of an SSIA-type scheme that would have to be negotiated with the social partners. In the absence of those negotiations, therefore, it is meaningless to outline the prospective costs of it.
The then Minister for Social and Family Affairs outlined it.
During the election, as Minister for Finance, I clarified, without any equivocation, the issue. It would be considered in the context of the cost of pensions in the tax system as pension relief schemes work. There is considerable room for manoeuvre to see what changes can be made to pension arrangements that could accommodate, on a revenue-neutral basis, an SSIA-type scheme in the context of the full panoply of incentives available. Taking into account the limited resources of low and middle income earners, there is a need to provide some other means of attracting them to supplementary pension provision beyond the tax incentive schemes available at the marginal rate.
Will the Government only introduce an SSIA-type scheme, which might offer some equity in pensions to people on low incomes, if savings can be found elsewhere? Will this scheme be put to the back of the queue and only funded if savings are found in other Government programmes?
It is not a question of being put to the back of any queue. As proposed in the Green Paper, it is a question of examining the cost of pension provision and how the provision of further improved incentives would be taken up by people who do not regard current arrangements as sufficient for supplementary pension provision. That is what I am talking about and ideally from the State's and the Minister's viewpoint, to do so on a revenue-neutral basis in the context of the significant billions already being spent in this area, should be the way forward. However, this is subject to negotiation and discussion.
Decentralisation Programme.
Richard Bruton
Ceist:78 Deputy Richard Bruton asked the Tánaiste and Minister for Finance if any of the proposed decentralisation moves affecting the Civil Service or the State agencies will be reconsidered over the course of the present term of Government; and if he will make a statement on the matter. [17746/07]
I confirm the Government's commitment to the decentralisation programme which has been included in the Agreed Programme for Government. The Deputy will be aware that the decentralisation implementation group, DIG, was appointed to oversee the implementation of the programme. It might be helpful to give a brief update on progress with the programme under a number of headings.
To date, more than 10,600 people have applied to decentralise through the central applications facility, CAF, and despite consistent negative commentary, no political spokesperson has said that any town or county should be dropped from the programme. Progress reports by the DIG are submitted to me on a regular basis. The group reported in its last report, October 2006, that implementation of the decentralisation programme is progressing satisfactorily. At the end of April 2007, more than 2,700 staff had been assigned to decentralising posts. It is expected that more than 1,000 staff will be in place this summer in more than 20 new locations, while the remainder are being trained in advance of decentralisation to a new location as soon as accommodation is available.
It is envisaged that by the end of 2007 public services will be delivered from 33 of the decentralisation towns with approximately 2,000 staff transferred. The precise numbers moving within that timeframe will depend on the availability of property as well as timeframes for completion of fit-out and installation of necessary information communications technology, ICT, and telecommunications cabling and equipment. The property programme is well advanced. The OPW conducts a review of the property timeframes for permanent accommodation on an ongoing basis.
Some 30 State agencies are due to relocate under the Government's decentralisation programme, with 2,340 posts involved, or just over 22% of the programme. The DIG noted in its latest report that while progress has been made by some State agencies, there has been a marked lack of action in others. The group has met with CEOs from a number of State agencies to get an overview of progress to date and to identify the challenges remaining in implementing the Government policy.
The main issues facing the State agencies are those relating to the filling of posts in undersubscribed locations, the placing of staff choosing to remain in Dublin and promotion arrangements. These issues are the subject of ongoing contacts between my Department and ICTU. An approach based on negotiations and agreement has enabled significant progress to be made as regards the Civil Service moves and it is the intention to continue with this policy regarding the professional and technical grades in both the Civil Service and the State agency sector.
Does the Minister for Finance agree that it is both cynical and dishonest for Ministers who introduced this proposal to hide behind the implementation agency and pretend that all the difficulties being encountered in the movement of the various groups have nothing to do with them? Is it not the case that there is no system for people who work within State agencies to move voluntarily from their organisations to any other? Four years on from the introduction of this initiative Deputy Brian Cowen as Minister has not produced any proposals to deal with that. As a consequence there are bodies such as Bord Fáilte where nobody has indicated a willingness to go, the National Roads Authority, where one person was willing to go and the Irish Aviation Authority where two people indicated they were willing to go. There are many agencies such as FÁS, the National Standards Authority of Ireland, the HSA and the Valuation Office Ireland, where tiny numbers are indicating a willingness to move. There is an onus on the political masters who introduced this scheme to take responsibility and come up with proposals to deal with this issue.
It is cynical and dishonest to continue the pretence that some independent group has responsibility for this, letting Ministers run away from it. It has been an ill-conceived proposal and we need to have proper policy to implement a viable decentralisation programme rather than the type of carry-on we have seen.
The only people talking out of both sides of their mouths have been Members of the Opposition, depending on what bench they sit on and what Question Time is taking place on any given day.
There is nothing cynical about a Member of the Opposition saying he or she would like to see decentralisation in the community, but we have nothing but a Government full of cynicism and dishonesty, which will not produce a strategy to do it.
The only people applying cynicism and negativity to this programme consistently have been on the Opposition benches, while cuttings from every local newspaper proclaim support for it.
That is because people believe Governments honour their promises. The present Government does not, where decentralisation is concerned.
I have not yet heard Fine Gael or Labour state one town or county that should not be included.
The scheme is voluntary and there are industrial relations procedures in this country. The implementation group makes it quite clear that a breakthrough will be required regarding the State agencies to try to get the programme up and running to match the headway made in respect of the Civil Service. In this regard, there is already a culture of staff crossing from Department to Department. They are retrained when they cross over and are very anxious to move to the various locations.
We are aware that some parts of the programme are moving ahead more speedily than others. I agree that one of the roles of Ministers in their line Departments is to continue to push for the implementation of the programme subject to respecting its voluntary nature and working with the unions concerned. The industrial relations machinery of the State should be used as creatively and constructively as possible to bring about solutions to problems regarding which there has not been progress. This has been acknowledged by me for some time but that is not to say the decentralisation programme should not go ahead as quickly as possible in all areas with a view to dealing with the more intractable problems that resulted in a major delay in progress, particularly in some State agencies, on the basis of industrial relations procedures. Such procedures are the best means of dealing with the problems.
The onus is on politicians to come up with responses. One cannot play free and loose with people's lives in this way, be unanswerable in the House and pretend some agency is answerable.
We are proceeding to Question No. 79.
It is the duty of politicians to solve these problems and the Minister has been deafeningly silent in coming up with any solution.
Departmental Bodies.
Joan Burton
Ceist:79 Deputy Joan Burton asked the Tánaiste and Minister for Finance the proposed membership and terms of reference of the planned commission on taxation in regard to the commitment contained in the programme for Government; when the commission will be appointed; when it is expected to report; and if he will make a statement on the matter. [17148/07]
The programme for Government contains certain commitments in the area of taxation policy, including a commitment to establish a commission on taxation that will have a wide remit to consider the structure of the taxation system. It will be charged specifically with considering and making recommendations. For example, it will examine the balance achieved between taxes collected on income, capital and spending and report thereon; review all tax expenditures with a view to recommending the discontinuation of those that are unjustifiable on cost-benefit grounds; and consider options for the future financing of local government. Furthermore, in the context of maintaining a strong economy, the commission will investigate fiscal measures to protect and enhance the environment, including the introduction of a carbon levy or tax.
I will bring proposals to Government in the near future on matters relating to the establishment of the proposed commission, including its membership and terms of reference. Pending consideration by the Government of these proposals, I am not in a position to elaborate further on matters pertaining to the commission or its work programme.
This proposal was made in some detail by the Labour Party. I am glad that, in the context of the formation of the new Government, the Taoiseach accepted, however reluctantly, that there should be a commission on taxation. I am aware that the Tánaiste has been an opponent of the idea of achieving tax justice, particularly for ordinary PAYE workers. He obviously had to bow to the exigencies of the situation and accept that there would be some form of commission on taxation.
It is important that there be some discussion on what the commission will do. In this context, it is very important that the Tánaiste outline to the House his thinking on who will head the commission and who its members will be. If they are simply those with vested interests, such as those in the Irish Taxation Institute and tax accountants, who make a lot of money advising very rich people on how not to pay tax, it would be unacceptable. Will ordinary PAYE taxpayers, who are the people who need tax justice, be represented? Will the commission be composed mainly of those who help rich people to pay little or no tax here? That is the critical question and I would be grateful if the Minister would elaborate on his proposals.
First, I wish to disabuse the Deputy of a few notions she put forward as if they had a factual basis. I assure her that in my discussions — I headed the negotiations on behalf of my party regarding the formulation of the programme for Government — I was not aware of the Labour Party's proposals. They certainly did not form part of my discussions since the Labour Party was not prepared to take our calls at any time over the past few weeks. That is a matter for the Labour Party to figure out.
I do not know where the Deputy got the idea that I opposed the establishment of the commission on taxation.
The Minister was also opposed to the reform of stamp duty and this fell into the same category.
May I reply to the assertions made in this question? The Deputy suggested that I was an opponent of the establishment of the commission on taxation. That is groundless. I negotiated with others the terms of the programme for Government that was unanimously adopted by the parliamentary party and I welcomed that vote of confidence. The suggestion by Deputy Burton that I opposed this commission is totally at variance with the facts since I negotiated its establishment. We have not had a commission on taxation for more than 30 years and I felt it would be timely to set up one. I would also point to the previous budgets and Finance Bills I have introduced into this House that have greatly assisted working families, to a much greater extent than was done by any of my predecessors, as the facts show in terms of disposable income and those who now pay tax, and the fact that capital taxes now pay almost four times more as a percentage of total tax revenue than when the Labour Party was in government. I could go on all evening but I do not have time because I want to answer some questions. I disabuse the Deputy of all those notions, wherever they came from.
I will bring forward proposals on the membership of the commission. I must discuss the matter with my advisers and officials to decide on the best thing to do. They are good, qualified people who are competent to do this work. I will then go to Government and when Government makes a decision I will come to the House to be held accountable for it all.
Is the Minister implying, as with other studies carried out by his Department on taxation, that the majority of people on this commission will come from the tax avoidance industry, as opposed to people interested in tax justice for PAYE workers?
There are no grounds for that assertion.
To recall the Minister's history, in the last four Finance Bills the Labour Party tabled amendments proposing the establishment of a commission on taxation and on each occasion, to put it inelegantly, the Minister rubbished the proposal. He is a late and reluctant convert to the idea. This is welcome, however, provided it is a serious attempt to achieve tax justice.
As usual there is no basis to the Deputy's speculation about the composition of the commission.