Cathal Crowe
Ceist:83. Deputy Cathal Crowe asked the Minister for Finance if he will consider applying a 0% VAT rate to all gluten-free food products; and if he will make a statement on the matter. [4248/24]
Ceisteanna Eile - Other Questions
Tax Reliefs
I thank the Minister for taking my parliamentary question this morning. Approximately one in every 50 Irish people has a diagnosis of coeliac disease. A trip around the supermarket does not leave them many choices. Products they buy that are flour based have to be gluten free and they are expensive. Will the Minister and his Department consider making all gluten-free products for people with coeliac disease subject to VAT at 0%?
I thank Deputy Crowe. The VAT rating of goods and services is subject to the requirements of EU VAT law, with which Irish VAT law must comply. In general, the EU VAT directive provides that all goods and services are liable to VAT at the standard rate unless they fall within categories of goods and services specified in Annex III of the VAT directive, in respect of which member states may apply a lower rate of VAT.
Currently, Ireland has two reduced rates: 13.5% and 9%. Member states can also apply a reduced rate lower than the 5% minimum and a 0% rate to certain categories in Annex III, namely supplies covered by categories 1 to 6 and 10c, which include foodstuffs, including beverages but excluding alcoholic beverages. On this basis, the 0% rate of VAT applies to food and drink – for example, flour, bread, pasta, cereals, butter, eggs, tea, sugar, meat, fish, milk and vegetables, fresh or frozen. Foods for special medical purposes for use under medical supervision to manage specific medical conditions, diseases or disorders are also zero-rated. However, certain food items are specifically excluded from the 0% rate of VAT and are liable to either the reduced VAT rate of 13.5% or the standard rate of 23%. Included are biscuits, cakes, savoury snacks and confectionery products. Gluten-free products are treated the same way as their standard equivalents.
EU law provides that reduced rates of VAT can be selective and restricted to “concrete and specific aspects” of a category in Annex III, provided this does not infringe on the principle of fiscal neutrality. This principle requires that similar products be treated in the same manner for VAT purposes. As such, similar products, such as a “normal” biscuit and a gluten-free biscuit, cannot be rated differently. Therefore, if a particular rate is applied, whether standard or reduced, it must be applied to all similar biscuit products. As such, any VAT rate reduction given to gluten-free food products, such as gluten-free biscuits, cakes, savoury snacks and confectionary, would also have to apply to their standard equivalents. However, this rule also means certain gluten-free products, such as flour, bread, pasta and cereals, are already zero-rated.
I thank the Minister. That was a very detailed response and it was very much appreciated. Many in my family have coeliac disease. It is quite prominent in Ireland and its diagnosis is on the rise. The Minister has explained really well why addressing this is tricky. Mothership Europe and the EU VAT directive govern much of what we can do here, but I argue that gluten-free products are somewhat similar to oral medicines, which are subject to a 0% VAT rate. Once someone finds out he or she has coeliac disease, he or she has no choice but to go on gluten-free products. Many restaurants now have items on the menu that are gluten-free. Some people have decided on foot of a lifestyle choice to buy and eat gluten-free products but for so many more it is not a choice but a necessity. In that regard, the products should be reclassified with medicines in Annex III because the affected people have no choice whatsoever. There is a mechanism by which PAYE workers can claw back a 20% rebate provided they submit receipts and prove their diagnosis. That seems excessively cumbersome. I would love to see the VAT rate reduced at source, when picking an item off the shelf in a supermarket.
The matter is complex, as the Deputy gathered from the reply. We do have to comply with the EU VAT directive. The key principle is that similar products are treated in a similar manner for VAT purposes. We could make a policy decision in Ireland to reduce the VAT on certain gluten-free products but we would also have to do it for the non-gluten-free equivalents. That is where we have flexibility, but that opens up a wider question on the revenue implications and equity considerations. However, the Deputy makes a fair point. I commit to examining the issue further in the context of our preparations for the next budget.
This is probably not the most exciting topic to be debating here today but it matters to so many. Having read through the technicalities, I believe that if the Minister has the scope to reclassify gluten-free products as medicinal, it will be beneficial. The gluten-free products are medicinal because the people affected have no choice but to pick them from the shelf. Reclassifying them as medicinal would untie the Minister’s hands somewhat in that he would no longer have to treat them like more regular biscuits or cakes. Have we scope in Ireland to do this, or is it covered by the EU VAT directive? In his final response, the Minister might deal with the 20% rebate that PAYE workers can get. It seems really cumbersome. So many people are not availing of it at all. Maybe it suits the Revenue Commissioners not to have to deal with it. Sometimes, over many years, I have thought this about taxation. There has to be an easier way to make life easier for affected people going into the supermarket. I am repeating myself in saying they have no choice because it entails a medicinal decision. Following a diagnosis, they have no choice but to buy gluten-free products to stay healthy.
I understand the points the Deputy has made. Let me put on record the tax reliefs available for gluten-free products. I am advised by the Revenue Commissioners that section 469 of the Taxes Consolidation Act 1997 provides for tax relief for an individual who proves he or she has incurred costs in respect of qualifying health expenses. Only health expenses incurred in the provision of healthcare that has been carried out or advised by a practitioner will qualify for the relief.
Broadly, healthcare is defined as the prevention, diagnosis, alleviation or treatment of an ailment, injury, infirmity, defect or disability. Tax relief will generally be available for the cost of foods that have been specifically manufactured to be gluten free, if the individual provides a letter from a doctor stating that the person for whom the foods have been purchased is a sufferer of coeliac disease. Claims for tax relief on qualifying health expenses - in this case the cost of food that have been specifically manufactured to be gluten free - can be made during the year the expenditure is incurred or after the year end. The benefit of making a claim during the year, as opposed to after the year end, is earlier repayment of tax relief.
I would be happy to engage further with the Deputy on the issue.
Tax Code
Peadar Tóibín
Ceist:84. Deputy Peadar Tóibín asked the Minister for Finance the amount and nature of all tax paid by domestic property funds and all foreign-owned property funds in Ireland and Irish real estate funds, real estate investment trusts, REITs, undertakings for collective investment in transferable securities, UCITS, and exchange-traded funds, ETFs, over the past ten years; and if he will make a statement on the matter. [4168/24]
The red carpet was rolled out by the previous Fine Gael Government, with the support of Fianna Fáil on many occasions, in the provision of tax advantages to REITs. The REITs swooped in. They bought land, apartments and houses, mostly cheaply from the National Asset Management Agency, NAMA, and they have extracted significant returns in that time, often while hiking up rents. Will the Government repeal the advantages REITS have in their business model around housing?
The Irish funding landscape has undergone significant change since the global financial crisis in 2008. In order to address the current imbalance between supply and demand of housing across all tenure types, the Government's Housing for All plan aims to significantly increase the supply of housing to an average of 33,000 units per year over the next decade. This is an ambitious plan which will provide increased housing supply and affordability. While the plan is backed by unprecedented State investment of more than €4 billion per annum, developing these homes will require a significant amount of capital and the Government cannot deliver on this programme alone. My Department estimated that more than €11 billion of development funding per annum will also be required from private capital sources. However, that being said, we have been clear that institutional investment should not displace home buyers in traditional estates where demand and viability is not an issue and the pathway to ownership for first-time buyers must be protected. The Government does not support the bulk purchase of residential houses by institutional investors. This is why the Government introduced a 10% rate of stamp duty on such purchases in mid-2021.
Furthermore, where such investment brings a profit, a fair share of tax must be paid and successive actions have been taken in recent years to provide for the collection of tax, including through the introduction of the Irish Real Estate Fund, IREF, regime in 2016 for funds invested in Irish property. This provides for both IREF tax at the point of distribution and for income tax at the level of the fund in certain circumstances. Certain categories of investors which are more generally exempted from tax, such as pension schemes, companies carrying on life business and charities, may be exempt from IREF withholding tax provided the appropriate declarations are in place. The details of IREF withholding tax and income tax paid by IREFs are published in Revenue’s annual corporation tax paper, the latest being for 2022 payments and 2021 returns, which is available on the Revenue website. For example, the combined IREF withholding tax and fund level income tax receipts in 2021 and 2022 were €53.8 million and €43.1 million, respectively.
The Government's policy has displaced families in the housing market. It has pitted these institutional investors against families. Many of these institutional investors come from abroad. They have far deeper pockets than families who are trying to buy homes. They have access to far cheaper finance than first-time buyers and, worst of all, they pay less tax than the families they are competing against. The Government has stacked the system in favour of institutional investors. It shocks me that by pursuing this policy, the Government has heaped demand on a sector that is already overheating, thus pushing up the price of houses and creating enormous power for these institutional investors, as they own significant chunks of property. One REIT is the biggest landlord in the State and having that level of power in the market gives it power over rents. It has gone beyond time for these vehicles. Whatever argument there was for them straight after the crash, it is not there now. Will the Government repeal the tax advantages?
As the Deputy will be aware, the Government is undertaking an overall review of the fund sector, including a review of many of the issues he raised today. I expect that work to be completed by the summer. I will have a report and that will feed into the budget process for 2025 and the finance Bill that will be brought forward later this year.
However, I will make an overall point that I touched on in my initial response. We are going to need an awful lot of capital in the coming years to build the homes we need. I put on record earlier that we estimate that we need approximately €11 billion of private capital to complement what the Government is putting in directly in various forms. As the Deputy will be aware, we are reviewing the national planning framework. We will almost certainly increase the housing targets and the amount of capital we will need to build the required homes will increase significantly further. We have to bear that in mind in all these debates and discussions and the policy decisions we make.
I understand that some international capital will be needed for the housing market. However, the key point we are trying to make is that giving international capital a competitive advantage over home owners in the housing sector has the effect of displacing first-time buyers and families from the housing sector. It is clear that the international investors have competitive advantages, including in having deeper pockets and access to cheaper capital and they are paying less tax than the people they are competing with for these houses. If they are to function, surely functioning on a level playing field would be the logical conclusion to achieving the potential for international capital without displacement of people. Right now, this Government has allowed for a sweetheart deal for those organisations in this State. That has serious negative ramifications. Aontú has brought forward a Bill to repeal the tax advantages REITs have. It has passed First Stage and I encourage the Government to allow it to proceed to Second and Third Stages within this Dáil.
I will examine the Bill the Deputy has brought forward. It is important to put on record that in the case of the IREF structure, approximately €170 million has been paid in IREF tax in the three years for which I have data here, 2019, 2020 and 2021. As the Deputy will be aware, in the past three years, some €40 million of tax has been paid in respect of the additional stamp duty of 10%. Revenue cannot disclose information in respect of REITs as we have only one REIT structure in the residential sector in Ireland at this point in time.
I invite the Deputy to make a submission. The deadline for the funds review has passed, but I will accept a written submission from the Deputy or his party on the funds review as the issues he has raised are currently being deliberated on by the Department. We held a public consultation and got approximately 190 submissions. I do not believe we received any from the Deputy, but I would be glad to receive one and will still consider his views.
Business Supports
Robert Troy
Ceist:85. Deputy Robert Troy asked the Minister for Finance if he will ensure flexibility and support for businesses with regard to tax debt warehousing. [4605/24]
The Minister will be acutely aware the Government introduced debt warehousing as part of the response to difficult trading conditions for businesses during the Covid-19 pandemic. Businesses that availed of debt warehousing are now receiving letters from Revenue demanding repayment. I welcome that the Minster stated a few weeks ago there would be flexibility. Today, if possible, I would like him to update the House on what that flexibility would look like.
The tax debt warehousing scheme offered valuable and practical liquidity support to businesses during the Covid-19 pandemic and continues to support businesses as they recover from the impacts of the pandemic and the cost-of-living crisis. It assisted businesses with their cash flow in recent years, during difficult trading periods and certainly has, in many cases, prevented business failure.
The total debt in the warehouse has decreased substantially since the beginning of 2022 when the figure was more than €3 billion of warehoused tax debt for more than 100,000 customers. By late January this year, slightly more than €1.7 billion was warehoused for more than 57,000 customers and for 70% of those the businesses have outstanding liabilities of less than €5,000.
For the majority of businesses availing of tax debt warehousing, the amount they owe in warehoused debt is quite modest. However, I do not underestimate the challenge it is for many of them to pay it. The bulk of the debt, almost €1.5 billion, was warehoused by 5,265 customers with outstanding balances greater than €50,000. The vast majority of the warehoused tax debt is represented by just over 5,000 businesses. While payments can be made in advance, businesses do not have to pay all of their debt by 1 May 2024. Instead, they are required to engage with Revenue to make arrangements to pay the debt over an agreed period of time, based on their individual circumstances and capacity to pay.
The Revenue Commissioners have assured me that they are currently being flexible in terms of the warehousing regime. There is the possibility of a payment break, deferring the next payment due if there are cash flow issues, amending the payment date and so on. The Deputy is correct that I have been engaging with the Revenue Commissioners and with my officials. I have a further meeting on this issue today and I hope to finalise the further flexibilities on this issue very shortly. I would welcome the Deputy's views on that issue today.
I welcome the Minister's reply. He is right. This was a critical support at the time of the response to Covid. It helped businesses through a very difficult trading period. The environment is not as challenging as it was during Covid but it remains very challenging for businesses. We have high energy costs, the increase in VAT, auto-enrolment, sick pay and the increase in minimum wages. Some of these are very positive in their own right but they are all coming together at the same time and making it very challenging for businesses currently.
I welcome the fact that flexibility is going to be forthcoming but we need certainty. Businesses need certainty as to what that flexibility will look like. We need to ensure that the interest rate is kept as low as possible and there is an extension for as long as possible. The key here is that sustainable businesses are given a lifeline to ensure they can continue and protect jobs.
The Deputy has touched on the key issues in the tax debt warehousing regime. It is important that we are as flexible as possible. The overall principle is that this tax debt will be treated very differently from other tax debt. It is important that businesses continue to file their current returns on time and meet their current taxation liabilities. On that basis, the Revenue Commissioners will be very flexible with businesses. It is important to emphasise that the requirement here is not to pay the warehoused debt by 1 May, which I have heard reported. The requirement is to engage with Revenue and agree a plan which will be worked out and implemented over a number of years. I believe that additional flexibilities are warranted. Trading conditions are very challenging for a lot of businesses in different sectors. This is a legacy of Covid and I expect to finalise it very shortly.
I do not think there is much further to add. It is critically important that the message goes out from this House that businesses should engage with Revenue and should not bury their heads in the sand. When they are forthcoming and engage with Revenue, the Minister is saying today that flexibilities will be forthcoming and we should know very shortly what those flexibilities will look like. Businesses need certainty. They are planning. They do not plan day to day or week to week but, quite often, a year in advance. The sooner we can get that certainty out to business and that flexibility, the better. We need to see low interest rates and longer periods of time so that sustainable businesses can continue to trade and protect the jobs they create.
I assure the Deputy that this is very much on my desk. I have a further meeting today. I am very anxious to finalise the arrangements for the tax debt warehousing scheme very shortly. The Deputy is correct that businesses want to plan. They need to manage their cash flow and understand the position for dealing with the warehoused debt over the coming years. What has been put in place so far is very good. It is a very good scheme. The normal interest rate for tax debt is 10% for most taxes and 8% for income tax. In recent times, a rate of 3% has been applied in respect of warehoused debt. I need to be fair to all parties involved. Many businesses did not avail of warehoused debt; the vast majority did not but some did. They need additional support and a lot of flexibility to ensure they can manage their obligations. I thank the Deputy for his representations on the issue. I intend to finalise this very shortly and will take on board the points he has made.
Tax Code
Richard Boyd Barrett
Ceist:86. Deputy Richard Boyd Barrett asked the Minister for Finance the latest projections for corporate tax revenue, given the introduction of 15% effective corporate tax rate for 2024 and 2025; and if he is satisfied that 15% will in reality be an effective tax rate. [4572/24]
One of the great untold stories of the Irish economy is the fact that over the last 15 years or so, working people were hammered, first, with an austerity crisis and, more recently, a cost-of-living crisis, yet in that period corporate profits increased, for example, by 235% from 2012 to 2021. Some of us campaigned for those corporations to pay more. We now have a 15% rate, something the Government stubbornly resisted for a long time. Does the Minister have projections for how much they are actually going to pay in tax in the next couple of years?
At the time of budget 2024, corporation tax was projected to reach €24.5 billion for this year and €25.8 billion for 2025. The assumption in the budget fiscal projections is that the impact of the OECD BEPS agreement on revenues will not materialise until 2026.
The Government’s fiscal strategy is based on the assumption that a large proportion of the rise in corporation tax seen in recent years is windfall in nature, not linked to our domestic economy, and likely to be transient. That is why the Government is establishing two new long-term investment funds to make use of these temporary receipts to prepare for future challenges.
Changes to the international taxation environment are likely to have a negative impact on our corporate tax revenues over time. While negotiations in relation to pillar 1 of the OECD’s base erosion and profit shifting process are ongoing, the EU minimum tax directive, or pillar 2, was agreed in December 2022 and introduced for companies on 31 December last year. Due to the novel and separate filing system for pillar 2 returns, the first payments are not expected until 2026. While pillar 2 is expected to bring in additional revenue, the combined impact of both pillars 1 and 2 is estimated to result in a net reduction in Irish corporation tax receipts. Calculating this impact is a very difficult exercise. The budget 2024 projections include a technical assumption, with an estimated overall net cost of the introduction of both pillars of €2 billion relative to the baseline in 2026.
The pillar 2 introduction of a 15% minimum rate is now in effect. Pillar 2 provides for the adoption of a 15% minimum effective tax rate applicable to large companies with an annual turnover of over €750 million in at least two of the previous four years. All other companies will remain subjected to the statutory 12.5% rate in relation to trading income and a 25% rate in relation to non-trading income. I will update the Deputy further in my next response.
The big question is if there is actually going to be an effective rate of 15%. That itself is still a very low rate compared with what ordinary workers pay. I would argue that previously, the 12.5% was not effective. In 2021, there were €250 billion of pre-tax profits on which €15 billion was paid in corporation tax. That is a rate of 6.1% and it is due to the taxable income being dramatically reduced by allowances and deductions. Revenue states that in 2021 there were corporate tax expenditures - tax breaks for the corporate sector - of €39 billion, mostly for a tiny number of corporations. Are we actually going to get a 15% effective rate or are we going to continue with loopholes, deductions, allowances, credits and so on that allow these incredibly profitable corporations to pay a fraction of the headline tax rate?
In Ireland our corporation tax system is statute based. The reliefs, exemptions and credits the Deputy refers to are clearly defined in law and consistently applied.
We have transposed the EU minimum tax directive and we will apply the minimum effective rate in line with the requirements of that directive and in line with the legislation that we have passed which is now consistent with that directive.
The issue historically has been that in Ireland we have had a relatively low rate, but applied to a broad base. Many other countries - various studies have pointed to this - have a higher headline rate, but applied to a narrower base, and have many more reliefs, exemptions and allowances, as the Deputy described. What we have now is an agreed rule book - an international agreement which Ireland signed up to.
It is important that we retain incentives. That is why the carve-out of the research and development tax credit, as part of pillar 2, was a very important instrument for Ireland.
I believe the Minister stated that the projected revenues for next year are €24 billion. Will the Minister confirm that?
Could the Minister tell us what are the corresponding projected pre-tax profits? Working back on previous years, that would suggest €400 billion of pre-tax profits. I would be interested if the Minister could confirm that.
Those allowances, credits, etc., are expenditures. They are tax expenditures. That is public money given back to companies that are making absolutely enormous profits.
The Minister says that it is in law. It is, but we do not really scrutinise to the degree we should these tax expenditures. The research and development tax credit, for example, is €800 million. It is seriously questionable whether most of that going to a small number of multinationals, as opposed, for example, to going into research and innovation, where we have one of the lowest levels of public expenditure in the European Union, is a good expenditure of public money.
The Deputy's central thesis seems to be that multinationals are not paying enough tax in Ireland but if one looks at the data and the pattern over the past number of years, the amount of tax that we are actually collecting in Ireland on corporation tax has increased dramatically. It increased multifold in recent years, and the Deputy knows that.
Their profits have as well.
Profits have as well and the amount of tax paid is, of course, a direct function of profitability.
The allowances and the credits that we have are clear. They are transparent, they are laid out in law and they are consistently applied. They are now fully consistent with pillar 2 of the global agreement.
To conclude the answer to the first point, which addresses the Deputy's question around projections, I have given a commitment to Deputy Doherty and to the Deputy and others, as part of the Joint Committee on Finance, Public Expenditure and Reform, and Taoiseach, that my Department, together with the Revenue Commissioners, will continue to work on the long-term term impact of the two-pillar solution with the goal of updating the projected fiscal impact published as part of the stability programme update this spring. We will give a further update, as I believe we should, in the stability programme update of what the Revenue implications are for Ireland of pillars 1 and 2.
Departmental Schemes
Violet-Anne Wynne
Ceist:87. Deputy Violet-Anne Wynne asked the Minister for Finance for an update on the disabled drivers and disabled passengers scheme; and if he will make a statement on the matter. [4611/24]
Pauline Tully
Ceist:156. Deputy Pauline Tully asked the Minister for Finance if he will report on the meetings officials in his Department were involved in on the senior officials group in July, November and December 2023 with regard to considerations for replacing the disabled driver and passenger scheme; and if he will make a statement on the matter. [4542/24]
I rise this morning to discuss the review into the disabled drivers and disabled passengers scheme. I would be grateful were the Minister to update the House on that body of work.
I propose to take Questions Nos. 87 and 156 together.
At the outset, the Deputy should note that the final report of the national disability inclusion strategy transport working group’s review of mobility and transport supports, including the disabled drivers and disabled passengers scheme, endorsed proposals for a modern, fit-for-purpose vehicle adaptation scheme in line with international best practice that would replace the current disabled drivers scheme, as it is no longer fit for purpose on any and all aspects. The proposals note this was a clear deliverable for the near future. This group was chaired by the Minister of State, Deputy Rabbitte, and led by the Department of Children, Equality, Disability, Integration and Youth.
Access to transport for people with disabilities is a multifaceted issue that involves work carried out by multiple Departments and Government agencies. Under the aegis of the Department of the Taoiseach, officials from relevant Departments and agencies are meeting to discuss the issues arising from the national disability inclusion strategy report and to map a way forward. My officials are proactively engaging with this senior officials group work as an important step in considering ways to replace the existing scheme, as one specific personal transport response, in the context of broader Government consideration of integrated transport and mobility supports for those with a disability. Three meetings of the senior officials group to which I referred have been held to date, in July, November and December 2023.
In relation to an update on the work of the senior officials group, the Deputy should be aware that my Department has submitted a note to the group with my approval in mid-January 2024. This note outlines a proposal for a replacement scheme for the disabled drivers scheme, which would be a needs-based, grant-led approach for necessary vehicle adaptations that could serve to improve the functional mobility of the individual. This proposal is in line with the working group report that was endorsed.
It is expected that this note will be considered by the officials group at a meeting to be held shortly.
I appreciate that information and I welcome reforms in this area and the great work that the Minister of State, Deputy Rabbitte, and her team have done on reform in the disabilities sector so far.
However, I tabled a parliamentary question to the Minister, Deputy Michael McGrath, on several occasions over the past year which at one point led to a three-month long back-and-forth with his private office that went nowhere.
I note the NDIS transport working group's final report. The Minister quite rightly referred to what they had stated, that is, proposals for a modern, fit-for-purpose vehicle adaptation scheme in line with international best practice that would replace the DDS, as it is no longer fit for purpose on any and all aspects, and this was a clear deliverable for the near future. No longer fit for purpose is straight from the horse’s mouth.
It is good to know that there have been three meetings so far and that the Minister has supplied a submission. When is the next meeting to be held? Do we have a timeline as to when they would take on board that submission and provide the necessary change?
I do not have a specific date for the next meeting but I expect it will take place shortly.
My own view, and I have put this on record on a number of occasions, is that there is a need for a new scheme. That was the central conclusion of the report. I do not believe the existing criteria for the primary medical certificate, which is the gateway or access point to the disabled driver and disabled passenger scheme, are appropriate. It should be a needs-based assessment. An expenditure scheme is much more appropriate.
That said, we have the disabled driver and disabled passenger scheme at present, which we will continue to operate. For the record, in 2023, the cost of that scheme was €72.5 million plus an additional €10.6 million for the fuel grant. Therefore, well over €80 million was spent on the existing scheme in 2023. For those who can avail of the scheme, it is very valuable. However, there are many who cannot who deserve some support.
I would agree.
I have raised this scheme with the Minister and the Taoiseach many times over the past 12 months on behalf of my constituents, Joe, and his carer, William, in Kilkee. The Minister agreed with me, and I note that he still does, but also the Taoiseach agreed with me. The Taoiseach stated it was ridiculous that just because they are not blood relatives, they are not eligible for this scheme. It is incredibly insulting. We all know our family is the family we choose and I would think that in the context of the constitutional change the Government is trying to implement at present, the Minister would be more sensitive to that.
I understand that the Minister of State, Deputy Rabbitte, is undertaking a body of work on this legislation. While I welcome that, it does not assist my constituents in their current struggle. As a direct result of these men not being able to avail of this scheme, Joe’s knee replacement continues to be delayed. With one stroke of a pen, that could be changed.
Every time I or other Deputies bring this issue up in the House, the person sitting in the Minister's seat states that he or she has constituents in the same predicament. If that is the case, surely the Minister would want to implement the change to this scheme that we badly need for these constituents.
We need to bring this to a conclusion and finalise the development of a replacement scheme. My role, as Minister for Finance, is to continue to operate the existing scheme and to use the information, experience and knowledge that we have gained in the Revenue Commissions and in my Department in the operation of the existing scheme to feed into the design of a new one, and that is what we are doing.
I have not stood still on this issue.
As the Deputy will know, last year, I introduced new regulations that established a fourth category of relief in the existing scheme, which provides up to €48,000 of relief for disabled drivers and €38,000 for disabled passengers. That was to address a very specific issue that is relevant for only a very small number of people, but it demonstrated a willingness to be flexible.
Nevertheless, it is not the full solution. The overall solution here will be a new scheme that is needs based and takes account of the individual circumstances of the applicant. The existing one is too rigid. There is a need for a new scheme and I will continue to support that process.
Question No. 88 taken with Written Answers.
Fiscal Data
Matt Carthy
Ceist:89. Deputy Matt Carthy asked the Minister for Finance the total sum currently invested by the State in companies that derive profit from activities in illegal Israeli settlements, as defined by the database maintained by the United Nations Human Rights Council pursuant to Resolution 31/36; and if he will make a statement on the matter. [4529/24]
To our shame, the Irish State invests in companies that profit from illegal Israeli settlements. A Bill before this House, which has been postponed until later this month, would prevent that investment from taking place. Exactly how much is currently invested by the Irish State, on behalf of the people, in companies that have derived profits from illegal Israeli settlements?
I thank Deputy Carthy. The Ireland Strategic Investment Fund, ISIF, portfolio is constructed within the legislative framework set for it by the Oireachtas. ISIF endeavours to be a responsible investor, actively integrating environmental, social and governance, ESG, factors into its decision-making processes with a view to enhancing the overall outcomes for the fund and ultimately its beneficial owner.
In this context, ISIF operates an exclusion policy that is consistent with its statutory mandate, as amended from time to time. Exclusion is used on a limited basis, reflecting exclusions mandated by legislation such as the Fossil Fuel Divestment Act 2018 or the Cluster Munitions and Anti-Personnel Mines Act 2008 and, inter alia, exclusions on sustainable investment grounds including tobacco and nuclear weapons.
Information regarding the Ireland Strategic Investment Fund portfolio is available in the published NTMA annual report, the most recent of which is for 2022. As at year end 2022, ISIF had direct holdings, as defined by the updated UN database of 30 June 2023, of approximately €4.1 million in 11 companies. In publishing the update to the database, the UN noted that the update “encompasses re-assessment, on the basis of information available to the [Office of the High Commissioner for Human Rights], of the situation of these business entities in relation to their structure, ownership, and operations as relevant to their involvement in related listed activities from 1 August 2019 through 31 December 2022." It went on to state, "Accordingly, the update does not purport to provide a complete list of business enterprises engaged in certain activities in relation to Israeli settlement activity in the Occupied Palestinian Territory.” Thus, the UN list, while useful, cannot be considered fully comprehensive.
It is important to note the Government’s policy position with respect to Israel and the occupied territories. I will respond further to the Deputy in a moment.
The world, and especially Irish people, are horrified by what they have seen over the past 120 days or so, particularly in Gaza, where Israeli forces have deliberately murdered civilians and targeted civilian infrastructure, including every hospital in Gaza. They have deliberately attacked aid workers, deliberately attacked and killed journalists and forcibly displaced 2 million people. People are horrified, just as they were horrified by the actions of Hamas on 7 October.
The root of why this is happening is that Israel has been able to act with impunity. The source and cause of the conflict continues to be the Israeli occupation and annexation and the apartheid regime that is in place. Ireland is on record as saying we do not support any of that - in fact, we want a two-state solution - yet we are investing taxpayers' money in companies that are profiting from those illegal activities on the part of Israeli settlements. Will the Minister ensure that this year, every red cent of Irish taxpayers' money invested in companies benefiting and profiting from the occupation will be withdrawn?
The position of the Government is clear in respect of the awful events we are witnessing in the Middle East. There should be an immediate and full ceasefire. Hamas should release all the hostages and humanitarian aid should be allowed in to the people of Gaza immediately. That is the position of the Government and it is what we will continue to advocate for at all the international forums in which we participate.
The Sinn Féin Bill on this issue, as the Deputy will know, was subject to a timed amendment. Departmental officials have engaged with the foreign affairs committee, of which the Deputy is a member. In fact, they have appeared before the committee in respect of this issue. The committee's Chair has written to me recommending that the Bill be subject to further analysis by the Oireachtas Joint Committee on Finance, Public Expenditure and Reform, and Taoiseach. I am giving active consideration to the issues involved here and expect to come to a conclusion shortly, at which point I will make a recommendation to the Government.
This is critical and it should be seen very much as the first step in Ireland taking meaningful action that sends a clear message to the Israeli state and its supporters that we uphold international law and that we will not allow the State or any other entity to profit from breaches of international law.
The Minister stated, as has been mentioned a number of times, that the UN database is not comprehensive, meaning other companies that are profiting from illegal settlements' activities may not be included. Perhaps that is true, but one thing we know for sure is that the United Nations database includes companies that do derive profit from illegal settlements. It is bizarre to suggest, therefore, that we will not target these companies we know are engaged in or profiting from illegal activities just because there may be others. If the Garda were to take such an approach and say it would not investigate a crime just because somebody else might be getting away with the same crime, I think we would all agree that was ludicrous. Regardless of whether the Bill progresses, which I hope it does, will the Minister ensure that all State investments in companies that profit from illegal Israeli activities will be withdrawn?
It is important any Government response be carefully considered and comprehensive. The Deputy will acknowledge that since his party's legislation was brought forward, the UN has updated its list. I have been engaging directly with my officials and the Ireland Strategic Investment Fund, and we recognise the role we have to play on this issue. It is important we ensure that Government policy is reflected in the decisions that are made on the investment front. I am working through this and considering what the options are, and I expect to make a recommendation to the Government shortly.
Banking Sector
Brendan Griffin
Ceist:90. Deputy Brendan Griffin asked the Minister for Finance if he is satisfied that Irish banking customers are getting a good deal from their banks in areas such as interest on deposits, transaction charges, loan rates and other competitive metrics; what engagement he has had with the banks on these issues; and if he will make a statement on the matter. [4552/24]
This question is about Irish banks and the deals they are giving to customers in terms of deposits, interest rates, the rates they are charging for loans, transaction charges and other issues. It is important that Irish consumers get the best possible deal from the banks, but that does not seem to be the case on a range of metrics. What engagements is the Minister having with the banks on this and will he update the House on any progress?
Interest rate setting and transaction charges are ultimately matters for banks themselves as commercial entities. The banks in turn are influenced by the general interest rate environment, their own risk appetite and competitive pressures in the market. In the initial months of the ECB's tightening cycle, Irish banks lagged behind euro area banks when passing on interest rate rises on both lending to and deposits from households. Pass-through of interest rate hikes, however, which is necessary to tackle inflation, has increased in more recent months.
Compared with levels observed immediately before the ECB rate increases began, weighted average interest rates on new mortgages for house purchases in Ireland have increased by 1.57%, while in the same period the EU weighted average increased by 2.21%. The weighted average interest rates on new mortgages issued by Irish banks were 4.25% at end November 2023, while for comparison the EU had a weighted average of 4.13%.
The Central Bank has called out the need for banks to do more in passing on the higher interest rates to their savings customers, in particular, and informs me this has started to happen. Both household and firm deposit rates with an agreed maturity, also known as term deposits, have increased in recent months.
The interest rate on new term deposits in Ireland was 2.62% in November. This compares to an EU weighted average of 3.33%. The Central Bank informs me that there is more capacity in the system for borrowers to switch than is being availed of. Last year, I met the mortgage industry, including the BPFI, chief executive officers and senior representatives of all the main mortgage lenders and servicers. I made it clear that banks and all other mortgage entities should be fully aware of the challenges that some of their customers are facing and therefore, lenders and servicers should respond by assisting their customers who are experiencing difficulty. Following this engagement, the industry announced a set of initial eligibility criteria to facilitate people switching their mortgage from a non-bank to a bank.
I thank the Minister for his response. While some signs have been encouraging of late, it is still clear to me that banks have been extremely slow to react. It is always when it suits the banks that they are slow to react. They are not so slow to pass on interest rate rises to borrowers but for deposit holders, those interest rates rises simply are not passed on to the same degree. Recently, with the entry of Bunq into the market, we have seen quite a flight of deposits because of better rates being offered. It shows that Irish consumers want to have better rates. At a time of inflation, albeit decreasing thankfully, people are losing a huge amount of money because of the really poor returns they are getting on their deposits. I ask the Minister to keep up the pressure on the banks to ensure people get a fair deal and that they are not losing significant amounts of their savings every year by simply keeping those deposits in the bank. At a time when we are trying to bring inflation under control, we do not want to see huge spending by people trying to avoid losing money because of deposits.
I thank the Deputy. We should acknowledge that collectively we have a role to play because when I dug into this matter a little deeper and looked at the numbers it was clear the overwhelming majority of savings people have are in instant access accounts or current accounts, not in deposit accounts or term notice accounts where the interest rate is much higher. We can help ourselves, in addition to putting pressure on the institutions to ensure there is an appropriate level of pass-through. That is on the savings side. On the mortgage side, I put some figures on the record a moment ago. The overall level of pass-through, of increases in interest rates has been lower in Ireland, at 1.57% compared to the EU average of 2.21%. In regard to new mortgages being issued the weighted average interest rate in Ireland is in line with the EU average. However, we always welcome more competition. The role of non-bank lenders, of credit unions will become increasingly important in the future.
I thank the Minister. We could talk about this all day. In the very brief time I have, again I ask the Minister to try to keep engaging with the banks to ensure the best possible outcome for Irish consumers.
In regard to transaction charges, we have seen the use of cards and non-cash methods of payment have become extremely popular. It is the norm now. However, it has a cost on business particularly in the hospitality sector. The cost of those numerous, small transactions that take place day in, day out in restaurants and cafes, is enormous. That is something that the banks are profiting from at the expense of small business. Many businesses are struggling to hold on at the moment. I differ with the Minister in relation to the 9% VAT rate for example. That is the very highest that the rate should be. However, for those businesses, one of the things that could help is a reduction in the fees that they pay on each transaction. All of those fees add up. At the end of the month we see huge figures being paid by those businesses to their banks just to accept payment from customers, rather than cash.
When it comes to the level of fees, the Central Bank of Ireland has the key role in terms of legislation and regulation of those fees. The Deputy's points will be taken note of. It is important that individual consumers and businesses have as much choice as possible when it comes to methods of payment. The Deputy will be aware that I brought forward the heads of Bill on the issue of access to cash, which will help to protect the ATM network in communities all over Ireland and will also protect the cash lodgment services which are so important for businesses all over the country.
In addition we are developing in parallel the national payment strategy which will deal with the issue of ability to use cash and also the option of using a digital form of payment. That work is advanced and I very much welcome the Deputy's views and his inputs in regard to that over the period ahead.
Questions Nos. 91 to 153, inclusive, taken with Written Answers.
Tax Code
Brendan Griffin
Ceist:154. Deputy Brendan Griffin asked the Minister for Finance if he will consider a finance Bill to re-introduce the 9% VAT rate for catering and tourist accommodation, as was done seamlessly in May 2011; if he appreciates the crisis in hospitality at present; and if he will make a statement on the matter. [4551/24]
Good, I will do the lotto tonight because it is not often we get down to Question No. 154. This relates to the 9% rate of VAT. I have long held the view that to be competitive internationally and within our own domestic economy, the most that should be charged for our hospitality and tourism sector is the 9% rate of VAT. The Minister had a decision to make. His Department does not have easy decisions but I believe it was the wrong decision, quite frankly, to increase to 13.5%. It is effectively a 50% increase in the VAT bill for tourism and hospitality businesses. We see many of them are really struggling at the moment. We did have an exceptional mini-budget in May 2011. I do not think it would be a bad idea to repeat that process and reduce the rate to 9%.
As the Deputy knows, the 9% VAT rate was due to expire in February 2023 and the Government took a decision, on an exceptional basis, to extend it for a further six months to the end of August 2023. It reverted to the normal rate at that point in time. That was the agreed position of the Government and remains the agreed position of the Government. To be clear in terms of where Ireland stands, because I have seen different commentary on this issue, Ireland's VAT rate on food services, cafes and restaurants is eighth in the EU at 13.5%. A further six countries have a rate of 12% to 13%. In other words, 14 countries have a rate of 12% or higher. The rate in Northern Ireland, over the Border, and in Great Britain is 20% compared with our 13.5% rate. Germany had a low rate of 7% during Covid-19. That expired and went back up to 19%. The main issue being raised with me by businesses at the moment is not around lack of demand, many of them are busy, but access to labour is a key issue. The consistent issue they are raising is the accumulation of various costs that have been imposed, some through direct Government policy decisions. That is an issue that we as a Government, collectively, across a number of Departments, have to take on board, have to reflect upon when it comes to future policy decisions over the period ahead. VAT was used on a number of occasions in recent years to stimulate demand. By reducing VAT, the price to the end consumer reduces and it stimulates demand. That is not the fundamental problem that businesses are facing now. The fundamental problem is a viability challenge because of the level of costs that they are incurring. That is the Government's position on the issue. We have debated a number of times this morning tax debt warehousing. I will shortly come forward with additional measures to introduce further flexibilities to support businesses, many of them in the hospitality sector. In total about €1.7 billion is owed in regard to tax debt warehousing. I will be finalising new measures with new flexibilities to support businesses that have tax debt warehoused.
I appreciate there is a range of bills that have to be paid by businesses, as someone who was formerly self-employed and used to pay a VAT bill, I can say there is a huge difference at the end of a period in having to pay €10,000 or having to pay €15,000. Effectively that is what has happened now by increasing from 9% to 13.5% in some cases. I urge the Minister to look at it again. I know that the mandarins in the Department would baulk at the idea of a one-off Finance Bill. They will say that bombs will be going off in Dublin and such things. That does not happen. It did not happen the last time we did it in 2011. It is never the wrong time to do the right thing. In particular, as we are heading into what will be a challenging and difficult season in 2024, this would be the appropriate measure to take to try to stimulate and save many of the businesses that are currently just hanging on.
I urge the Minister and his colleagues to please revisit this issue and give it serious consideration. It would be the right thing to do economically and the right thing to do for all the people working in those sectors and for the employers. It would be sensible.
The Government does not have any plans to change the rate of VAT. It is important to put on the record that no political party in this House that I am aware of has called for such a reduction either. The key issue raised by businesses with me consistently is costs, not a lack of demand. It is the accumulation of various costs imposed on them, many by direct Government decisions. That is what we need to reflect on in the period ahead. The only way a reduction in VAT would improve the viability of a business is if that reduction in VAT, which is a consumer tax, is not passed on to the customer. That is the only circumstance in which a reduction in VAT would offer the business improved viability. The issue is costs, not VAT.
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