Dáil Éireann díospóireacht -
Tuesday, 26 Feb 2008

Vol. 648 No. 2

Other Questions.

Fiscal Policy.

Joe Costello

Ceist:

21 Deputy Joe Costello asked the Tánaiste and Minister for Finance if his attention has been drawn to the recently published European Commission assessment of Ireland’s Stability and Convergence Programme; his views on same and its assessment of Ireland’s budgetary situation; if he will undertake corrective action to improve that situation; if he will introduce further reforms to the pension system in line with its recommendations; and if he will make a statement on the matter. [7747/08]

Deputy Brian Cowen

I am aware of the European Commission's assessment of the Irish economy. The assessment represents a reasonable view of the Irish economy and acknowledges the overall strong position of the public finances. The assessment refers to challenges in the "transition to a period of lower economic growth, mainly linked to a return to more sustainable levels of activity in the housing sector". This is consistent with the position as outlined in budget 2008.

Notwithstanding the fact that the Irish economy is currently facing into one of its most difficult and challenging periods for some time, with domestic and external factors likely to restrain growth prospects in the short term, it is important to recognise that our overall growth performance is still impressive by international standards. Indeed in the press release accompanying the assessment, the commission notes that Ireland is adjusting to "more normal, but still very healthy, economic growth levels".

On a general Government basis, we have recorded surpluses in ten of the past eleven years and we also have one of the lowest levels of public debt in the EU.

Fiscal policy is playing a key role in terms of providing support for the economy as we enter this period of lower growth. Current spending is projected to rise by about 8% this year while tax revenues are expected to grow by around 3.5%. It is acknowledged that in the medium term we cannot continue to have expenditure growth rates well in excess of resources. Reflecting this, more moderate levels of increase in current expenditure are planned. This will be done in a phased and responsible manner. A measured deceleration in current expenditure growth is what is required as we enter this period of below trend growth.

Capital spending is expected to grow by approximately 12% this year as full implementation of the national development plan continues at pace. Even allowing for all this, only a modest deficit is in prospect for 2008. As I said at budget time, we are borrowing modestly to invest ambitiously.

The Government accepts that there can be no unnecessary loosening of fiscal policy and, in that context, the implementation of the national development plan remains a key priority. It will help boost the productive capacity of the economy and lay the foundations for future growth.

In the area of pensions, the Government is committed to putting in place a system that is financially, economically and socially sustainable. The recent Green Paper sets out a range of measures that could help in this respect and the consultation process currently under way provides an opportunity for all to consider and to provide their views in that context.

Deputy Joan Burton

Given what the Tánaiste said about maintaining capital growth and the national development plan, is he concerned about recent probes by the Garda and the Competition Authority into a €2.5 billion fraud on the taxpayer relating to capital contracts, including those procured through the Office of Public Works, OPW? While the Tánaiste shouted about the Opposition's alternative policies, I tried to suggest that the way to address some of the current problems may be to cut down on this kind of waste and inefficiency that sees the taxpayer overcharged and, it seems, massively defrauded. Has the Tánaiste taken an interest in this as it relates to his Department? Has he received reports on this and will he do anything about it?

Around the country the Health Service Executive is effectively proposing severe budget cuts, particularly on the operational side, allied to fairly crude bans on recruitment. At the same time the HSE's administrative budget is continuing to expand. Is the Tánaiste and Minister for Finance advising line Ministers and bodies like the HSE on making spending more effective and efficient?

Deputy Brian Cowen

The question relates to the report on the stability and convergence programme and reform of the pension system.

An Leas-Cheann Comhairle

The Deputy broadened the scope of the question somewhat.

Deputy Brian Cowen

She broadened it slightly. The Competition Authority exists to ensure anti-competitive practices are exposed and dealt with. If a probe is taking place at the moment we will see what its outcome is as there is always a fear that such fraud may occur, despite the best efforts of the OPW, which works on these matters in good faith.

The purpose of these health reforms is to recognise that the current situation is not sustainable in terms of the country's demographics. There is a need to reorganise services and the commitment in our social partnership programmes is to deconstruct current services and reconstruct them around the requirements of citizens. The challenge to social partnership in this regard is great and I welcome the health forum as the means by which this can be addressed in the spirit of social partnership. I hope that the work that has begun will show fruit quickly.

One of the health service's problems is its ability to work within the budgets allocated to it. Under the law it is required to devise service plans consistent with the allocation it has received. We know from the areas of health, education and social welfare that people find what they believe are good ways of spending large budgets. As a former Minister for Health and Children, I can say that, in the interests of a sustainable reformed health service that meets the basic requirements of our people, we need budgetary discipline in this area, perhaps more than any other. The alternative is the possible dislocation of services, due to a failure to work within allocated budgets, that displaces future expenditure.

Deputy Richard Bruton

The EU indicated the current fiscal stance could be out of line with the Stability and Growth Pact in 2009. The Minister for Finance was asked what measures would be taken to ensure current spending can be contained below nominal GNP. The record shows that this year it is 70% ahead of nominal growth and last year it was 60% ahead of nominal growth. Does the Tánaiste and Minister for Finance have an answer to the question posed by the EU?

Deputy Joan Burton

Has the Tánaiste been briefed on the story of a €2.5 billion fraud?

An Leas-Cheann Comhairle

The Deputy must stay within the scope of the original question.

Deputy Joan Burton

If the economy is to get back on track we cannot afford to allow contracts to be rigged, as this story suggests. The investment in the national development plan is the centrepiece of future growth towards competitiveness. We cannot afford to have up to 110 construction firms involved in ripping off the taxpayer by inflating contract prices.

An Leas-Cheann Comhairle

No doubt that could be the subject of an excellent further parliamentary question.

Deputy Brian Cowen

In regard to Deputy Bruton's point, obviously I plan my budget on the basis of remaining compliant with the terms of the stability pact. The issue raised is a normal budget day matter. I included a contingency provision of 0.4% of GDP in 2009 and 0.8% of GDP in 2010. The inclusion of a contingency is a prudent way of conducting the public finances. As specified in the budget documentation, a contingency provision is made against factors outside the control of Government which may impact on the budget but which cannot be foreseen at this stage. Examples are variability and tax buoyancy and exceptional costs arising in areas of public expenditure. As such variations could be both positive and negative, it is considered appropriate to allow in the projections for a negative net impact on the Government balance and the Exchequer balance.

Deputy Richard Bruton

That was not the question posed by the EU.

Deputy Brian Cowen

No.

An Leas-Cheann Comhairle

The time has more than expired.

Deputy Brian Cowen

I was explaining that the contingency provision in the 2009 figures is something that, perhaps, was not understood. We are in line with our Stability and Growth Pact commitments in that area. I have read the report.

Tax Code.

Willie Penrose

Ceist:

22 Deputy Willie Penrose asked the Tánaiste and Minister for Finance the revenues collected from excise duties and VAT from motor fuels and other oils each year from 2004 to 2007; and if he will make a statement on the matter. [7718/08]

Deputy Brian Cowen

I am informed by the Revenue Commissioners that the amounts of tax revenue collected from mineral oil tax and VAT on motor fuels and other oils for the years 2004 to 2007 are as follows. In summary, in the case of mineral oil tax, or excise duty, a total of approximately €1,963 million was collected in 2004; €2,048 million in 2005; €2,144 million in 2006; and €2,212 million in 2007 on motor fuels and other oils. In 2007, for example, excise on petrol and auto-diesel accounted for over 96% of the total yield.

In the case of VAT on motor fuels and other oils, it is estimated that some €491 million was collected in 2004; €586 million in 2005; €658 million in 2006; and €682 million in 2007. In 2007, petrol accounted for 68% of the VAT yield on motor fuels and other oils. The VAT yield on auto-diesel is relatively low as VAT on auto-diesel is a deductible credit for business in the Irish VAT system.

Excise rates on petrol and auto-diesel have not been increased since December 2003 with the aim of contributing to easing inflationary pressures and our excise rates are in and around the EU average. Indeed the excise rate on kerosene, which is the primary home heating oil, was reduced to zero over the 2006 and 2007 budgets.

The yield from excise duty on motor fuels and other oils increased by some 12.7% between 2004 and 2007, broadly in line with the use of such fuels. The yield for VAT on motor fuels and other oils has increased by some 39% between 2004 and 2007, reflecting both the increase in the use and price of such fuels.

The yield from excise, as excise is set at a nominal amount, does not increase as the price of fuels increase. On the other hand, the yield from VAT, as VAT is set as a percentage of the price, increases as the price of fuels increase. However, in this regard it should be borne in mind that to the extent that spending in the economy is reallocated to petrol and other oil products, and away from other VAT liable spending, and to the extent that the overall level of economic activity is reduced by higher oil prices, there may be little or no net gain to the Exchequer.

A more detailed breakdown of the excise and VAT yields I have outlined are set out in the following tables.

Yield from Mineral Oil Tax on Motor Fuels and Other Oils

	2004	2005	2006	2007 (prov.)
	€m	€m	€m	€m
Petrol	970.7	1001.9	1026.4	1052.2
Auto Diesel	870.7	920.5	1016.7	1083.1
Fuel Oil	12.4	13.4	11.4	8.4
Marked Gas Oil	70.9	72.9	68.8	68.4
Kerosene	33.5	33.7	18.0	0.0
Auto LPG	0.1	0.1	0.1	0.1
Other LPG	5.1	5.4	2.8	0.0
Total Yield	1,963.4	2,047.9	2,144.2	2,212.2

Estimated VAT Yield from Motor Fuels and Other Oils

	2004	2005	2006	2007 (prov.)
	€m	€m	€m	€m
Petrol	342.0	393.0	440.0	465.0
Auto Diesel	38.0	46.0	53.0	57.0
Marked Gas Oil	47.6	65.1	72.6	70.0
Kerosene	51.1	68.9	78.6	77.1
LPG Domestic	9.5	10.4	10.8	9.8
Motor Oil & LPG	2.4	2.7	3.0	3.3
Total Yield	491.0	586.0	658.0	682.0

Note: The VAT yield from motor oils and other oils is estimated as the information to be furnished on VAT returns does not require the yield from particular sectors of trade to be identified. The figures provided for VAT include revisions of figures given on 22 November 2007 in reply to parliamentary question number 30480/07. The revision was necessitated by more up to date information becoming available in the interim.

Deputy Joan Burton

What does the Minister expect will be the impact of the Government's proposals in regard to the use of bio-fuels and does he consider, in the context of UN and other reports, the movement to bio-fuels, in many cases, is resulting in hoarding and huge price rises for commodities such as wheat and other foodstuffs? Is the Minister satisfied that Government policy in this area continues to be the best policy in light of what we now know about the impact of bio-fuels on commodity prices for food and on some of the poorest people on the earth? What does the Minister propose in regard to the percentage of bio-fuels that he envisages being included in this mix?

Deputy Brian Cowen

This is a technical and statistical question. In regard to the bio-fuels issue, we are firmly committed to the development of bio-fuels generally. In the Finance Act 2006 we provided a significant tax measure to promote bio-fuels and the scheme which received the necessary EU state approval commenced in November 2006. It will provide for excise reliefs of up to 163 million litres per year. It will cost more than €200 million over five years. When fully operational it will result in CO2 savings of more than 0.25 million tonnes per year. It will contribute towards meeting the target of 5.75% transport fuel market penetration by bio-fuels by 2009. It will help reduce our dependency on conventional fossil fuels and will stimulate activity in the agricultural sector. These fiscal incentives were designed to kickstart the domestic bio-fuels industry and evidence suggests that it is happening.

Long-term general excise reliefs are not anticipated. There are additional non-fiscal measures that can be used to promote bio-fuels and to provide further market certainty and encourage projects of scale. The Government has signalled its intention to move to a bio-fuels obligation by 2009 which will require all fuel suppliers to ensure that bio-fuels represent a certain percentage of their annual sales. The obligation will fall under the remit of the Department of Communications, Energy and Natural Resources.

Deputy Joan Burton

Is the Minister concerned that the growing scarcity of and demand for bio-fuels, in the way he has outlined, is expected to lead to very significant increases in the cost of foods in Ireland and in other EU countries and particularly for poor people in the developing world? Has the Minister had an opportunity to look at some of the assessments of the impact of bio-fuels both on inflation and on economies, particularly developing economies? Has he called for any reassessment of the impact, bearing in mind that our petrol prices are in the mid range in the EU, and that our public transport alternatives are strictly limited compared to most of our EU competitors? Will we face massive food price rises because of the changing strategy in regard to bio-fuels?

Deputy Brian Cowen

On bio-fuels generally, the deflection of grain, for example, in the US and elsewhere to the bio-fuel industry creates its own economics in terms of the food industry and the agri food industry in regard to demand and the cost of supplying raw material to the food industry as a result. Certainly there has been an increase in commodity prices. For European producers that has been against a background of a quite deflated market environment for some considerable time as against the large increase in inputs that has resulted in the meantime. It is only becoming a more attractive option now. Certainly grain growers have been in better spirits in the past year or two than would have been the case for the previous decade. In regard to the impact it would have on our situation here, domestically I would say the bio-fuels industry is in its infancy. We are kickstarting it and trying to get penetration of less than 5.75% in the transport fuel market. Hopefully that will work because it would be a further source of income for farmers. I do not think it will necessarily impact on the supply of grain to the food business because we have a well developed food industry here. Given our type of land and agriculture our intensive grain production should enable us to meet both markets. I do not see one at the expense of the other although I acknowledge that the overall global situation for world commodity food prices is on the up.

Tax Relief.

Dinny McGinley

Ceist:

23 Deputy Dinny McGinley asked the Tánaiste and Minister for Finance if his attention has been drawn to reports of under-claiming by tenants of rent relief and under-returning by landlords; and if he will make a statement on the matter. [7814/08]

Deputy Brian Cowen

On the question of under-claiming by tenants of rent relief, I am advised by the Revenue Commissioners that they have taken a number of initiatives to encourage taxpayers to claim their full entitlements. Extensive advertising took place in 2006 and 2007 covering the most common tax credits, which specifically included rent relief. There was also a targeted advertising campaign in autumn 2007 to encourage the uptake of rent relief. Revenue is including an information leaflet with the 2008 tax credit certificates, which are currently being issued to some 2.2 million PAYE taxpayers. This leaflet gives information on the most common credits available, including rent relief, and encourages the making of claims where due.

As regards reports of under-returning of rental income by landlords, the position is that all taxpayers, including landlords, are obliged to make accurate returns under the self-assessment system and are liable to Revenue audit in the normal way. I am assured by Revenue that the audit of landlords is an ongoing aspect of its work. For example, in 2006, the latest year for which full data are available, audits were concluded in 527 cases where rental income was the main source of income returned. The yield from these cases was €4.7 million in tax, interest and penalties. Cases where rental income is a secondary source are, of course, also included in Revenue audit programmes. Cases are selected for audit on the basis of perceived risk including, in the case of landlords, consideration of information from tenants or third parties where this has been successfully matched.

The Revenue Commissioners are satisfied that this risk-based audit approach, combined with information matching wherever possible, is the appropriate strategy for tackling under-reporting of income by landlords. I also point out that since 2006 relief for interest payable on borrowed money applied in the purchase, improvement or repair of rented residential premises is conditional on compliance with the registration requirements of the Private Residential Tenancies Board. Furthermore, tenants must identify their landlord when claiming rent relief. These measures should help to ensure compliance.

Deputy Richard Bruton

Is the Minister aware that the Revenue Commissioners have recently admitted to the Committee of Public Accounts that they are not aware whether tax has been paid on some €200 million paid by the State to landlords under rent supplement and they admit to significant gaps in their information on payments by the State to landlords, let alone payments made where the State is not involved in any way in the transaction? Is he aware that the Revenue Commissioners estimate rent relief will be claimed this year on 120,000 premises but the CSO calculates there are approximately 250,000 rented properties? If this is the case, it suggests as many as half of rented properties are not providing relief to the tenants — while I admit some of those might be on rent supplement, the figure is not anything close to 120,000. Will the Minister ask the Revenue Commissioners, the CSO and the Department of Social and Family Affairs to undertake a serious examination of the position of both tenants and landlords so we can have confidence that taxpayers are getting fair refunds and that landlords are paying their fair share?

Deputy Brian Cowen

As I stated in my initial reply, there have been some moves in that respect. Regarding the number availing of rent relief, the figure I have for last year was 215,786.

Deputy Richard Bruton

That is not the figure issued by Revenue.

Deputy Brian Cowen

In any event, I can have that checked for the Deputy. It is important to bear in mind that some of those taxpayers who request an end-of-year review of their tax liability prefer to claim the rent relief as part of that process. Accordingly, as there is a four-year rule for requesting such reviews, final figures for the years from 2004 onwards will not be available until that time limit has expired. It is expected that when final figures are available, the numbers claiming rent relief will increase substantially. Approximately 98% of those claiming the relief are aged under 55. I will check the point made by the Deputy.

Deputy Joan Burton

Will the Minister agree to introduce a system whereby all landlords who receive rent payments from the State must supply a full PPS and tax number and that this tax number is made available to the Revenue Commissioners, that landlords who are obliged to register with the Private Residential Tenancies Board should also have to include a tax number on their registration, as they are meant to do, and that those tax numbers would be made available to the Revenue Commissioners? This would ensure that all landlords who are liable to pay tax on their earnings would be made to pay it.

Deputy Brian Cowen

I undertake to take up the point raised by the Deputy with Revenue to ascertain its views on it.

Written Answers follow Adjournment Debate.