Vol. 1043 No. 4
78. Deputy Pearse Doherty asked the Minister for Finance if he will introduce temporary and targeted mortgage interest relief to support struggling households with rising mortgage costs; and if he will make a statement on the matter. [43390/23]
In the past 15 months, the European Central Bank, ECB, has increased its key lending rate ten times. The Minister knows now that many households are feeling the sudden, sharp increases in the mortgage crisis. For many it is a massive income shock. As we know, this has happened in the context of the wider cost-of-living crisis. Will the Minister commit to introducing temporary and targeted mortgage interest relief in next week's budget to support those families? Many of them, as the Central Bank has said, are paying above €3,000 more in interest rates this year compared to last year, with 20% paying an average of €5,700 more.
I thank Deputy Doherty for his question. As I have stated previously in the House, the position is that the formulation and implementation of monetary policy in the eurozone and the setting of official interest rates is an independent matter for the European Central Bank. The Government has no role in setting official interest rates, nor in setting the retail interest rates that lenders may charge on their loans, including mortgages. That is a business and commercial matter for individual lenders.
As the Deputy will be aware, mortgage interest relief for principal private residences was phased out on a gradual basis over the period of 2009 to 2020. The decision to abolish it was taken in the wake of the financial crisis, with the cost of the relief being one of the influencing factors. It cost more than €700 million in 2008. Prior to its curtailment and eventual abolition, the top two income deciles in 2005 accounted for close to half of the tax forgone through tax relief. This issue was highlighted in the findings of the 2009 Commission on Taxation report. The relief cost approximately €280 million in 2005.
While I am acutely aware that there have been successive increases in certain mortgage rates by some lenders, it is important to point out that mortgage interest rates, in particular fixed interest rates, have fallen over the last number of years. For example, in December 2014, the average level of fixed interest rates for new lending was 4.11% compared with 4.04% in July 2023. The data also indicate that a significant portion of new mortgages, around 85% in July 2023, are now fixed-rate mortgages. This will protect borrowers in the event of a rise in official and market interest rates, at least for the period that the interest rate is fixed.
The reintroduction of mortgage interest relief, even on a selective or tailored basis, is likely to involve significant costs and needs to be considered, not on an ad hoc basis, but in the context of a range of other cost-of-living measures being provided. I have consistently said that I think the appropriate time to consider the introduction of mortgage support for people who are carrying the burden of successive interest rate increases is in the context of the budget.
This has been going on now for 15 months. The ECB has said very clearly that one in five mortgage holders have seen their mortgage interest increase by €5,700 on average since last year and one in three is paying €3,000 more than last year. We have come up with a proposal that would take 30% of that increased mortgage interest into the State's coffers and where it would be paid for by the State, up to a maximum of €1,500. We have asked the Minister to come up with a proposal for over a year now and he has not. This is a far cry from where he used to be. In 2018, he put this on the Dáil record:
In the 2016 general election Fianna Fáil was the only party of which I am aware that campaigned on the basis that mortgage interest relief would be retained and provided for in the budgetary and fiscal projections made at the time.
He said "I would have loved to have seen it retained at a rate of 100%" but this was the best he could negotiate with Fine Gael. Does the Minister know what the ECB interest rate was when made those comments? It was 0%. It has increased now ten times. The ECB interest rate has never been as high in the history of the State and ordinary people are being crucified with high interest rates and the Minister is coming up with nothing. I ask him again, on behalf of all those individuals, some of whom are now in the claws of the vulture funds, which the Minister's party and Fine Gael supported, what is he going to do? Is he going to ignore the commitment he made last time? When interest rates were 0% he was arguing for mortgage interest relief. When interest has never been as high in the history of the ECB, he is saying people should paddle their own canoe. It is not acceptable.
For factual accuracy, as the Deputy well knows, when we advocated in opposition for an extension of mortgage interest relief it was in the context of the confidence and supply agreement we had. The relief was about to be phased out and we negotiated an extension of mortgage interest relief and it remained in place for longer than it otherwise would have. That is the fact of the matter, as the Deputy knows well.
We are five days out from budget day and it is undoubtedly the case that there will be a very sharp focus on the cost of living generally in the budget next Tuesday. The Minister for Public Expenditure, National Development Plan Delivery and Reform, Deputy Donohoe, and I are working very hard on a range of measures, both on the expenditure side and on the taxation side, to provide support to households that have been carrying a high burden over the past number of months. The Government has not been found wanting so far. We have brought forward about €12 billion worth of measures since the beginning of last year. When it comes to individual budgetary initiatives, that is a matter for next week. When we look at what was done last year, we believe much of it worked well and provides a template for further decisions that the Government can confirm next week. We are acutely conscious of the costs families are facing, costs which are unavoidable when it comes to energy, transport and mortgages. The Government will be making decisions next week to provide as much support as we possibly can within the constraints we have.
The reality is that the Government has been found wanting in relation to mortgage interest relief. For the last year, as letter after letter landed in the letterboxes of families across the State, month after month, with ten letters now telling them that their mortgage interest rate has gone up if they are on a tracker mortgage, the Minister has come forward with nothing.
There are no proposals and there is nothing to support these families in the form of mortgage relief, and that is not acceptable.
In 2016, when interest rates were zero, the Minister argued for mortgage interest relief at a rate of 100%. We are arguing for a rate of 30%, with a cap of €1,500, at a time when mortgage interest rates have never been as high at ECB level. Why has the Minister decided to abandon these homeowners now? Why has he decided, now that he is in the driving seat, not to believe in what he was arguing in 2016, when interest rates were zero? It makes no sense. Interest rates were zero, the Minister was arguing for 100% relief and he wanted it continued for a longer time, but he was not able to negotiate that. Interest rates are now 4.5%. People in this State are paying interest rates of up to 10% because they are in the claws of the vulture funds, and the Minister is coming up with nothing. Why has he U-turned on his position?
Again, as the Deputy knows well, when my party was in opposition, we used the influence we had at the time to secure an extension to mortgage interest relief, but that ended a number of years ago. It is undoubtedly the case that the ten successive ECB rate increases are placing a real burden on households throughout the country. I am not into rhetoric or political declarations; I am into finding solutions and helping families with the costs they have. We have been very active on the issue of supporting families who are facing high mortgage costs, with extensive engagement with the banks, the non-banks and Banking and Payments Federation Ireland, agreeing a new protocol and a new set of parameters for mortgage switching, which has been welcomed widely. We have also engaged directly with individual non-banks to put in place new solutions for customers.
Our response in the round to the high inflation, high energy costs and high interest costs people are facing will be set out in a cohesive and comprehensive form next Tuesday in the budget, as is appropriate.
79. Deputy Ged Nash asked the Minister for Finance if he is concerned at the low numbers who pay the domicile levy; if he plans to reform the levy; and if he will make a statement on the matter. [43387/23]
There is a growing debate in Ireland and globally about wealth inequality and the concentration of wealth in the hands of all too few people. The domicile levy was introduced in 2010 by one of the Minister’s predecessors, the late Brian Lenihan, and it was designed to get super-rich tax exiles to make some form of a contribution to the Exchequer at a difficult time for our economy. In reply to me last week, the Minister indicated that in 2021, only 13 people had paid the domicile levy, with €1.6 million collected. Does this small number, in terms of both the outturn and the number of people who paid, as well as the drop in the number of people who have paid in recent years, concern the Minister? Does he have any plans to reform the levy?
I thank Deputy Nash for raising this issue. The domicile levy was introduced in the Finance Act 2010, as he said, to ensure Irish-domiciled individuals who met certain criteria would make a contribution to the Exchequer, irrespective of where they were resident for tax purposes. The purpose of the levy is to ensure individuals with substantial income and assets located in the State will make some sort of contribution to the Exchequer.
The levy is payable, on a self-assessment basis, on or before 31 October in the year following the valuation date. For example, the due date in respect of 2021 was 31 October 2022. Based on the most up-to-date figures provided to me by Revenue, as the Deputy noted, 13 domicile levy returns filed for 2021 incurred a liability for the levy for that year. The amount of the levy collected by Revenue in 2021 was just over €1.6 million, while returns for 2022 are not due to be filed until the end of this month.
To be liable for the levy, an individual must satisfy all qualifying criteria, one of which is that the person must have had an Irish income tax liability of less than €200,000 for the year. In cases where the individual has an Irish income tax liability that exceeds €200,000, he or she will not be liable for the levy.
The operation of the levy is kept under review by my Department and I understand Revenue carries out ongoing compliance activity in this area. The domicile levy will be further considered by my Department in the context of a planned examination and review of the remittance basis of tax in 2024. This review will include a public consultation, which will be published in the coming months.
I thank the Minister. As he said, the lower limit of the levy is set at €200,000 per year. Figures suggest 25 tax exiles paid it in 2011, the year of its introduction following the passing of the Finance Act 2010, but that fell to 13 people in 2021. It has effectively halved since its introduction. Why does the Minister believe that is the case? The Revenue Commissioners keep records on income tax returns and people are obliged every year to indicate to Revenue whether they are based in this country or exiled for tax purposes or what their position is. Will the Minister indicate, if he has the figures available, how many such declarations were made last year? If he does not have them, I would appreciate if he would forward them to me. The low level of return is hard to comprehend given that, according to a Central Bank report of last year, there was, for example, a huge concentration of wealth in the hands of the top 5% of income-earners and asset-owners in this country, with wealth growing appreciably.
To clarify, what declarations or information is the Deputy looking for?
Declarations of income tax returns. My understanding is individuals must declare, when they are making a return, whether they are tax-resident.
Okay. Of course, the levy applies to individuals who are resident and non-resident for Irish tax purposes, but I will respond formally to the Deputy on the specific point he raised. This is a self-assessed tax, so people are required to make the relevant return. The Revenue Commissioners are very active in the area of compliance in respect of the domicile levy and taxpayers are aware of their obligations in that regard. As the Deputy will know, it applies to individuals domiciled in Ireland whose worldwide income in the tax year has exceeded €1 million, whose liability to Irish income tax was less than €200,000 and who own Irish property on 31 December of the tax year where the market value of that property is greater in value than €5 million.
In truth, there is no doubt people engage in tax planning. These are generally high-net worth individuals with access to tax advisers who can help them minimise their tax liability legally. I have no doubt that that, in part, accounts for the reduction in the number, because it started in 2010 with 35 returns, has gradually fallen and now stands at 13 for the latest year for which we have information.
I hope the Minister will agree it is concerning. Given the drop in the number of both returns and outturns since the establishment and introduction of the levy, it ought to be kept under review. I hope he will agree also that high-net worth individuals should contribute more to the Exchequer and to the running of public services in this country from which they benefit.
I draw attention to comments made by the Commission on Taxation and Welfare in its report of last year, when it made the point the outturn from the domicile levy had been "negligible". There ought to be a better way of ensuring high-net worth individuals make a larger contribution, broadening the tax base and extracting more revenue from those with higher incomes and especially those with assets. That would really chime with the overall recommendation and the principles informing, for example, the Commission on Taxation and Welfare report, whereby we need to broaden the tax base and ensure a greater contribution will be made by those who have the most.
Given the Deputy referred to the commission, it is important to point to its work. I earlier referred to the remittance basis of tax, which concerns how non-domiciled Irish residents are taxed on their worldwide income. The current rules permit long-term non-domiciled residents to avail of the remittance basis of tax, even though these individuals may have significant ties to the State. The Commission on Taxation and Welfare, which the Deputy mentioned, considered the remittance basis of tax in its report published in September of last year. As a matter of taxpayer equity, the commission recommended the remittance basis should be available only to resident but non-domiciled taxpayers for a maximum period of three years. The remittance basis of tax applies to non-domiciled but Irish-resident people, while the domicile levy applies to people who are Irish-domiciled but who may be non-resident. In the context of the commission's report, my Department will carry out a review of the remittance basis of tax next year and, as I indicated earlier, that will involve a public consultation. The domicile levy will also be reviewed, in tandem with the remittance basis of tax. I am giving a commitment to reviewing the domicile levy in that context.
80. Deputy Pearse Doherty asked the Minister for Finance if he or his Department are considering tax measures to support households with the rising cost of home heating oil; and if he will make a statement on the matter. [43391/23]
As the Minister is aware, the volatility in the international oil markets has seen a steady increase in the price of home heating oil. Home heating oil prices have increased by 30% in the past two months. More than a one third of households across the State use home heating oil as their main source of fuel. In this context, is the Minister considering tax measures to support households with the rising cost of heating, in particular those using home heating oil?
As the Deputy is aware, it is a long-standing practice of the Minister for Finance not to specifically comment on individual measures that may be part of the budget. With regard to kerosene used for home heating purposes, mineral oil tax and VAT at a rate of 13.5% are applied. Kerosene is also subject to the National Oil Reserves Agency, NORA, levy at a rate of 2 cent per litre. Mineral oil tax comprises a carbon and non-carbon component, as the Deputy is familiar with. The carbon component is commonly referred to as carbon tax and the non-carbon component is often referred to as fuel duty, fuel excise or fuel tax. Both the carbon and non-carbon components are excise. With regard to the application of mineral oil tax on kerosene used for home heating, the non-carbon component is zero and only carbon tax applies. The current rate of carbon tax is €48.50 per tonne of carbon dioxide emitted. For supplies of kerosene used for home heating, this equates to a charge of €122.83 per 1000 Litres or approximately 12 cent per litre. The 2020 programme for Government committed to increasing the amount charged per tonne of CO2 emissions from fuels to €100 by 2030. The Government followed through on this commitment by introducing legislation in the Finance Act 2020 to provide for a ten year trajectory for carbon tax increases to achieve this objective. This measure is a key pillar underpinning the Government’s Climate Action Plan to halve emissions by 2030 and reach net zero no later than 2050.
A further key component of the Government’s carbon tax policy is the allocation of revenues raised from these rate increases to fund just transition measures. It is important to note a significant portion of carbon tax revenue is allocated for expenditure on targeted welfare measures and energy efficiency measures, which not only support the most vulnerable households in society, but in the long term provide support against fuel price impacts by reducing our reliance on fossil fuels. With regard to VAT applied to kerosene used for home heating, it is important to note the Government has very little flexibility on kerosene from a VAT perspective. This is because it is subject to a VAT rate of 13.5% which is provided for by way of a historical derogation that allows us to maintain reduced rates to certain supplies under the VAT directive. These are known as parked rates and cannot go below 12%. If we were to reduce kerosene to 12%, the saving would be relatively small - approximately €20 per 1000 litres - but there would be a considerable additional cost to the Exchequer, approaching €900 million in total.
More than one third of homes across the State use home heating oil as their primary heating source. This rises to two thirds if you look at the border region, including my own county of Donegal. More than half of households in the south-east and western regions use home heating oil as their primary heating source. In the past two months, the average price of home heating oil has increased by nearly 30%, adding €240 to the cost of filling a tank. We know there is volatility in the international markets, as I have mentioned. However, there is a real risk these prices could rise further. Action can be taken to support them, and that is the point. It can be taken by reducing excise duty on home heating oil. In our alternative budget, Sinn Féin has shown how reducing the rate of excise on home heating oil on budget day, by €63 per 1,000 litres until the end of March, could reduce the prices to households at a cost to the State of €44 million. There are proposals. If there is a will, the price of home heating oil can be cut by €63 per fill in the upcoming budget. Is this a policy measure the Minister would consider?
I am aware of the volatility in the cost of filling or half filling a tank of oil. It is down to a number of factors. As the Deputy said, we have seen the price of oil increase very significantly in recent weeks. In the past 48 hours it has gone down by 5% or 6%, but who knows what will happen today or in the weeks ahead? Of course, the cost of refining is also a factor. The relative strength of the US dollar, given that oil is priced in that currency, is also a factor. The Deputy is effectively suggesting that the carbon tax on home heating oil would be reduced. I can say in the round that the Government is very conscious of the cost of energy for households across Ireland. There will be support in the budget for all households in terms of the energy costs they are facing. We recognise, coming into the autumn and winter months, that it will be a tough time for many. We provided extensive help last year, some of which was universal and some targeted. We will seek to provide further support next Tuesday, and we will lay that out in the House.
Since the energy crisis began, this Government has increased the price of home heating oil twice, and is planning to do so again next May, unless it changes track in the budget. Everything the Minister has said so far suggests that it will not. This is in addition to the increases we have seen in the market price. This is putting additional pressure on households, and there has been an unfair gap in Government policy when it comes to tax on household energy prices in the past year. VAT rates have been reduced for electricity and gas, but not for the 37% of households using home heating oil as their primary source of heating. There has been a measure, if you are heating your home with gas. However, if you are one of the more than one third of people who use home heating oil, which in my county rises to two thirds, there is nothing. Actually, it is not that there is nothing. The Minister for Finance will continue to increase the cost of home heating oil on you and your family. That is not acceptable. The price internationally has increased dramatically. The price to fill your tank has gone up by €240 in the past two months. There is an option for the Government to do what Sinn Féin is proposing, namely, to cut the excise duty, which is in the form of a carbon tax, in this year's budget. We have shown how it can make the necessary investments in a just transition with €540 million of investment in climate action. This can be done without penalising households who want to keep their families warm this Christmas, or without penalising motorists who want to get from A to B, whether that is dropping their kids to school, visiting a relative in the hospital, or travelling to work.
I am all too aware of the real-life impact of the increase in the cost of oil. When I was young, we grew up in a home where heating was provided by oil. I well remember my parents trying to put together money to fill or half-fill the tank of oil. I am very aware of the reality and of the burden this imposes on many families. As the Deputy says, it is subject to a lot of fluctuation. However, he is specifically proposing that we make a move on carbon tax. If I may say so, I think it speaks to the Deputy's general approach to the issue of carbon tax. He says he is in favour of the carbon tax, but every time there is an increase coming he is against it, and on some occasions seeks to reverse it. Of course, he never goes back to all of the revenues that were collected to say that he would deal with that, or reduce previous budgets where carbon tax was increased. The Deputy knows well that these revenues are in part used to alleviate fuel poverty. On budget day, we publish transparently exactly where the money from the carbon tax is going to tackle fuel poverty, to help farmers in their journey to reduce emissions, and to help households with retrofitting.
81. Deputy Róisín Shortall asked the Minister for Finance the number of vacant properties upon which the vacant homes tax will be levied; the source of this calculation; his plans, if any, to expand the cohort of liable properties; the expected revenue from this new tax; the steps the Revenue Commissioners will take in the event of a non-payment; and if he will make a statement on the matter. [43388/23]
Anybody with their eyes open knows there is a considerable number of vacant homes around the country. It makes no sense whatsoever to leave these homes vacant in the context of a housing crisis. Nor does it makes any sense from a climate perspective. We know that most other countries have long had regulations in place to address this waste. The Government has been very slow to address it, and has unfortunately taken a conservative approach. Will the Minister update us about where we are at with regard to that tax?
The vacant homes tax is a new measure announced in last year's budget, which aims to increase the supply of homes for rent or purchase to meet demand. The first chargeable period commenced on 1 November 2022. The first self-assessed returns are due on 7 November this year and the tax will be payable from 1 January 2024. The number of properties in scope and tax payable will depend on the self-assessed returns submitted by property owners, the number of properties declared as liable and the number of property owners entitled to claim exemption from the tax. I am advised by Revenue that it has undertaken significant work to identify an initial subset of residential properties which may come within scope of the vacant homes tax.
A preliminary property register is being used to issue correspondence to approximately 25,000 property owners who are identified as being potentially liable for the tax. Revenue published a detailed note explaining how it developed this register on its website on 27 September.
Property owners who receive such correspondence from Revenue are required to confirm their property’s occupation status with Revenue by 7 November, thereby determining their liability to the tax. Property owners are required to self-assess their liability and submit a return if they determine that the tax applies to their property, even if they do not receive correspondence from Revenue. As always, the obligation remains on the taxpayer. Revenue may contact further property owners at a later date following further data analysis.
As with all tax and duty obligations, Revenue’s approach is to seek to maximise voluntary compliance. Revenue has provided detailed information about the tax on its website and has published a tax and duty manual on the tax. In addition, Revenue provides comprehensive online services, as well as a designated telephone helpline, to assist property owners in meeting their obligations.
Where property owners fail to meet their vacant homes tax obligations, Part 22B of the Taxes Consolidation Act 1997 contains a number of provisions designed to address non-compliance. Revenue may issue a notice to a chargeable person, requiring them to provide records to demonstrate that their property was in use as a dwelling for 30 days or more in a chargeable period. Where such records are not provided, or where the records provided are insufficient, Revenue may deem the property to be vacant for the purposes of the tax.
Furthermore, a surcharge of 5% of the tax payable can be imposed where a return is filed late within two months of the filing deadline. The surcharge increases to 10% where the return is filed more than two months after the deadline. Revenue may also apply a penalty where the chargeable person fails to file a correct return by the due date. In addition to this, interest will be charged on late payment of the tax, at a rate of 0.0219% per day.
A very conservative approach is being taken to this. Revenue has constantly denied the existence of an issue. All of us as public representatives from our experience in canvassing or delivering leaflets see it, especially at election time when calling to a clearly vacant house and there is nobody on the register. It is a significant problem, yet there seems to be no great appetite to address it. Why is that? From a political perspective, there has not been much enthusiasm. Maybe it is because the aim of this is to bring houses back into use and Revenue is not likely to raise much revenue from it. It is a key issue in addressing the housing crisis.
I want the Minister to answer some of the questions contained here. What is the source of Revenue data in regard to this? Given the huge variation, where the CSO is taking about more than double the number of properties Revenue is talking about, how can the Minister ensure better data is used and there is a greater awareness among people of their responsibilities?
I have in recent weeks asked my officials to engage with Revenue. I wanted to be satisfied about the preparatory work and engagement Revenue is having with people it believes are within scope of the tax. It is important to point out there is a range of exemptions, for example, for homes that underwent structural works, homes being actively marketed, where the owner has passed away, where it is unoccupied due to illness or where it is a derelict or uninhabitable property. There are a range of exemptions and exclusions from the tax and I have sought to understand the reconciliation between the number of homes declared vacant in the census at approximately 166,000 with the estimates Revenue and the Department have provided of the number of homes within scope. The census data include 33,000 rental properties, about 17,500 that are classified for sale, about 23,000 vacant due to renovations and about 27,000 that are vacant as the former residents are deceased. They are embedded within the numbers declared vacant in the census. There are reconciling items but the bottom line is the tax is law. The Revenue Commissioners will do their job, as they always do, to enforce and collect the tax. Issues around the rate and scope of the tax fall to be considered as part of the budgetary process. I have been examining the details of the vacant homes tax in recent weeks but that is in the absence of data about the first round of returns because they only come in next month.
Absolutely, but I do not like the way it is shaping up because it does not come across like there is a serious effort by Revenue or Government to force this issue and bring the houses back into use. That is the purpose of it. The manual concentrates overly on exemptions. How does Revenue verify applications for exemptions? Will the Minister provide information on that? It is not clear that a serious attempt is being made on this.
The other issue is the fact it is a self-assessment tax. As it is a new self-assessment tax, is there not a strong case for having a good public awareness campaign on this? How are people to know? The Minister referred to information on Revenue's website but that is not adequate. If he is serious about going after vacant homes and bringing them back into use for the thousands of people who cannot access homes now, it is up to him to commence a high-profile, well-resourced public awareness programme. Will he do that?
In June this year, Revenue launched a series of information sessions and webinars with key relevant stakeholders, including Citizens Information, the Approved Housing Bodies Regulatory Authority, the Irish Council for Social Housing, the Irish property valuers association and all local authorities. Revenue has undertaken significant work to understand the number of properties that have indications they are likely to be vacant. Revenue can access data from other Government agencies to assist in identifying any property in use for less than 30 days in a chargeable period. Revenue has been analysing a range of data sets to build a preliminary register of properties potentially in use for 30 days or less in a chargeable period, in particular ESB Networks data to extract cases with low energy usage. It has refined the data to arrive at an initial data set of approximately 25,000 properties that may be in scope of the vacant homes tax. It has also analysed the local property tax returns for a number years in respect of each property. It has extensive data.
That is less than a sixth of what the census is telling us. You are not serious about this unless you do a public campaign on it. You are kind of talking to yourselves.
I outlined earlier some of the numbers within that 166,000 that are not within scope of the vacant homes tax and the reasons. It is a policy decision for any Government whether, where someone has just deceased or where a property is up for sale or on a short-term let but on census night was vacant, that should be in scope. These are all policy decisions.
It does not sound serious.
82. Deputy Pearse Doherty asked the Minister for Finance his Department’s position on the European Commission’s own resource proposal based on company profits; the estimated additional contribution the proposal would require on annual basis; and if he will make a statement on the matter. [43392/23]
In June, the European Commission published an adjusted package for the new generation of own resources. With this package, the Commission proposes a new statistical-based own resource linked to the corporate sector. The proposals are, on the face of it, the Commission’s grab for Irish corporate profits. Sinn Féin opposes the proposal. Will the Minister outline his position and that of the Government on the proposal?
As the Deputy will be aware, an updated package of possible new own resources proposed by the European Commission on 20 June included a new proposal for a corporate statistical own resource based on company profits. He will also be aware that a number of officials from my Department met yesterday with Oireachtas Joint Committee on Finance, Public Expenditure and Reform, and Taoiseach - I assume the Deputy participated - to discuss this and a number of related EU proposals. I hope this exchange was helpful.
The proposed new own resource is based on sub-components of gross domestic product, namely the application of a 0.5% call rate to the gross operating surplus statistic recorded for the sector of financial and non-financial corporations under the European system of accounts.
As such, this proposed new own resource is, in fact, an additional national contribution based on statistics, similar to the existing gross national income-based contribution that member states already pay into the EU budget. While the Commission contends it is not a tax on companies, my Department is concerned that it is premature to proceed with a proposal such as this while the OECD global tax process continues.
Ireland has continuously stressed that reforms around corporate income tax should be carried out at a global level. In addition, my Department's assessment is that Ireland would, in relative terms, be significantly impacted by this in terms of the effect on national contributions to the EU budget as compared to the existing situation because of exceptionally high corporate profitability in Ireland due to the large presence of multinationals. As proposed, own resource contributions based on the proposed gross operating surplus metric would, therefore, have a significant impact on the Exchequer, with Ireland disproportionately affected as the share of gross operating surplus in national income is much higher here than in almost any other member state.
In summary, we are among member states that believe this specific proposal fails the tests set by EU leaders on own resources when they agreed to the long-term EU budget in July 2020. Any proposals, they said, should deliver “simplicity, transparency and equity, including fair burden-sharing”. The new own resource proposals are presented as a package, including proposed new own resources based on the revised EU emissions trading system and the carbon border adjustment mechanism, that we broadly support. However, we cannot support the proposal for this corporate new own resource. Importantly in this context, my assessment of the situation is that, as of now, the new own resources proposals do not have the necessary unanimity of the member states to be agreed.
I thank the Minister for his response. I believe it is important there is political consensus on this issue but also across Europe in trying to build support for our position. The Commission's proposal, as the Minister said, is one of own resource that would be calculated at 0.5% of the notional company profit base, an indicator calculated by Eurostat on the basis of the national count statistics. While the Commission claimed it is not a tax, the truth is that the proposal approximates to company profits or gross operating surplus. Put plainly, it would target a share of member states’ corporation profits. We are net contributors to the EU budget and we have a set mechanism to contribute to that budget in the time ahead through national contributions.
The Minister said he believes this does not have the necessary support for unanimity. Where does he see this going now and what is the timeframe for this proposal?
Of course, the context is that the EU budget is under real pressure, which I acknowledge. Ireland has always sought to be a very constructive member state when it comes to supporting the policies and initiatives of the Union, and the budget is under pressure. I have pointed to our broad support for some of the other measures that were set out within that package but I have confirmed in the House and at the meeting of EU Finance Ministers our opposition to what is currently being proposed in respect of this specific own resource proposal.
To clarify what the impact would be in terms of the estimated additional contribution that the proposal would require, my Department's tentative estimate is that Ireland's annual contribution to the EU budget could on average rise by approximately €1.124 billion per year over the remainder of the current multi-annual financial framework, which runs until 2027. The context here is that we are already a significant net contributor. Ireland benefits enormously from EU membership and is a deeply committed member of the Union. In 2021, we received receipts from the EU budget of approximately €2.5 billion but our payments to the EU budget were approximately €3.5 billion, so we were a net contributor of approximately €1 billion. Of course, because of the calculation of the contribution to the EU budget being based on national income, Ireland's projected contribution to the annual budget is to increase very significantly in the coming years, and that is altogether aside from this specific proposal in regard to own resource.
As the Minister mentioned, the cost of this proposal to the State would be an additional €1.124 billion per annum and, obviously, that could increase depending on our gross operating surplus. It is a significant increase and I understand Ireland would be one of the highest contributors as a result of this mechanism. In his response, the Minister might outline the distributional impact and where Ireland would sit in the league table in respect of contributions to the budget if this proposal were to go ahead.
As the Minister said, it is targeting the gross operating surplus of the corporate sector. It is simply the case that the more profitable the member state’s private sector is, the higher the contribution will be to the budget. Thankfully, we have seen a large increase in our gross operating surplus. Back in 1995, it used to stand at €25 billion whereas it was nearly €300 billion in 2021.
Where does Ireland stand regarding the impact of this proposal and its distributional impact across member states. Does the Minister agree that is unprecedented? The reality is that it does not constitute an own resource mechanism but is potentially a pseudo-tax in all but name and, therefore, it runs contrary to what we are trying to achieve in the OECD base erosion and profit shifting, BEPS, programme. Will he outline the strategy of the Government for the time ahead? Is it simply to use our veto? Where do we go from here?
Ireland would be the fourth largest gross contributor to the corporate profits own resource after Germany, France and Italy, although we are a small member state in relative terms. At a political level, I set out my views at the July ECOFIN meeting and also put them directly to the EU budget Commissioner in May, when we met on the margins of the informal ECOFIN in Stockholm. In addition, my officials have had technical bilateral engagement with the relevant Commission experts in DG Budget on this file and have also provided technical input to the Spanish Presidency.
I can confirm that we are not alone in our concerns about the corporate profits own resource proposal. It is not for me to explicitly name or speak for other member states but, at a political level, at the ECOFIN in July and at official level since then, a number of other member states have either expressed opposition or scepticism about it. As the Deputy will be aware, this file requires the unanimous agreement of member states. At present, there is not the unanimity required to put this in place and I do not see there being such a situation in the period ahead. The majority of member states recognise there are many technical flaws in the Commission’s proposal and that much further scrutiny of the proposal is required. Other member states also share our concern at the disproportionate impact on corporate profits own resource on their national contribution.
We recognise the pressure the EU budget is under and Ireland will seek to be as constructive and supportive as we possibly can, but on this specific own resource proposal, our position is clear. We do not support it.
