I welcome the Minister of State to the House.
Finance (No. 2) Bill 2011 [Certified Money Bill]: Second Stage
I congratulate Senator Burke on his election as Cathaoirleach of Seanad Éireann. As this is my first opportunity to come to the new Seanad, I congratulate my colleagues on all sides after what must have been the most gruelling and difficult election in western Europe, and wish them success over the course of the coming four or five years.
The purpose of the Finance (No. 2) Bill 2011 is to introduce the necessary changes to taxation legislation which give effect to measures announced on 10 May by the Minister for Finance as part of the jobs initiative. One of the key drivers behind this initiative is the need to underpin the labour market. We recognise that the employment content of export-led growth is relatively low, notwithstanding its major potential to contribute to our economic recovery. Accordingly, employment-rich sectors such as tourism are being targeted, additional activation measures are being introduced, and the balance of capital spending is now being tilted towards labour-intensive projects. The Government recognises that this initiative is not a complete solution but is yet another important step in addressing the problem of unemployment and in boosting confidence.
The economic outlook is still highly uncertain. Nonetheless, there is now a growing consensus among domestic analysts that our economy is moving on to a positive path. Improvements in our cost competitiveness are clearly paying dividends in the form of renewed export momentum and inward investment. We are trading our way out of recession. Our strengths include our young and well educated workforce, favourable demographics and our strong pro-enterprise, pro-business environment. The fundamental strengths of the economy remain and will support growth in the medium term. Building on and developing these strengths is one of the principal drivers of the jobs initiative.
Unfortunately, it will be some time before the improvements in exports have more tangible effects on the ground. This is because domestic economic conditions remain weak, an inevitable consequence of the unwinding of the excesses built up during the boom. I do not need to remind Senators that the economy has experienced an extremely sharp downturn in recent years. Gross domestic product, GDP, has contracted in each of the past three years and is now around 15% lower than it was at its peak in mid-2007. This reflects a substantial decline in construction activity and falling consumer spending. Therefore, there is a requirement to improve the job creation environment — a challenge the Government is meeting.
Improving labour cost competitiveness is a key instrument in creating that improved environment. That is why we are halving the rate of employer's PRSI until end-2013 on jobs that pay up to €356 per week. Reducing the costs to employers of taking on new employees is vital if we are to support job creation. This measure will complement the targeted VAT relief in the labour intensive tourism sector and help create more jobs in that sector of the economy.
This is not a measure to be covered only by the Finance (No. 2) Bill. The Minister for Social Protection, Deputy Joan Burton, is legislating for the reduction in employers' PRSI in the Social Welfare and Pensions Bill 2011. Equally, the Social Welfare and Pensions Bill may include, as a Committee Stage amendment, a measure for the abolition of the charge to employers' PRSI on share-based remuneration, with effect from 1 January 2011. The imposition of this charge on employers has the potential to negatively affect current employment levels and future investment decisions as it needlessly increases the costs of doing business in Ireland. Businesses operate under strict budgetary control and in the current economic climate increasing their costs is unwise.
As the Minister for Finance stated, when he announced the jobs initiative in Dáil Éireann, this country does not have the resources available to fund large-scale policy initiatives to help to generate economic activity. He also made it clear that any costs associated with the measures the Government is implementing as part of this initiative must be paid for. This will be achieved through the introduction of off-setting measures to ensure that the measures are budget-neutral over the period from now to 2014.
We recognise that this means the stimulatory effect on the economy of this package will be less than it would be in an ideal world but its importance is that it represents the first step by the Government towards improving the competitiveness of vital sectors of the economy and enhancing the functioning of our labour market. We will build on this initial step, with a view to developing this Government's vision of rebuilding a prosperous and productive economy as opposed to the one we were handed when the election was over.
The Finance (No. 2) Bill has been drafted specifically to give effect to those taxation-related measures which the Minister for Finance announced in the jobs initiative. These measures include the research and development tax credit; the suspension of the air travel tax; the introduction of a second lower rate of value-added tax; and the introduction of a pension levy.
Section 1 relates to the research and development tax credit. Senators are aware that the corporation tax regime is a vital element of our industrial policy. I was glad to see my colleague, the Minister for Finance, Deputy Noonan, who was in the United States in recent days, making it abundantly clear to US investors and business world, and to the international community, that the 12.5% corporate tax rate has an absolute guaranteed position from this Government. That position enjoys cross-party support in this House and the other place. If we are to try to reboot the economy with confidence, it is absolutely crucial for us to uphold it. One should not tinker with, tamper with or alter such a key driver of Irish industrial policy. In effect, almost 250,000 jobs are at stake, directly or indirectly. The Minister for Finance, the Taoiseach, the Tánaiste and all other members of the Government have issued a clear message. Despite the attempts of a small group within the European Union to argue and lobby for a change in our position, we are remaining rock solid in that respect. The 12.5% rate will remain. It will not be altered. Despite the arguments advanced by a minority, there will be absolutely no change in that regard.
There are various methods by which companies can account for the research and development tax credit. For example, they can do so as a "below the line" reduction in corporation tax liability or as an "above the line" write-off against operating costs. As part of the jobs initiative, the Minister for Finance announced that he intended to amend the research and development tax credit legislation. Accordingly, this section amends the research and development tax credit provisions, primarily for the purpose of enhancing the flexibility for accounting purposes for the research and development tax credit on an "above the line" basis.
Ireland's attractiveness for research and development activities has played and continues to play a critical role in encouraging foreign direct investment and creating employment. The Government intends to continue to enhance that attractiveness. The purpose of the scheme which is open to companies of all sizes is to encourage research and development in this country and thereby improve the economy and increase employment. A credit of 25% of the incremental spend on research and development is available for this purpose. The scheme has been enhanced in most years since its introduction to improve its effectiveness. The latest change which is being made in this Bill represents a further such enhancement.
The fruits of the tax credit scheme are evident when one considers that of the 79 new investments secured by IDA Ireland from existing clients in 2010, 37 or almost 50% were in the area of research and development. The value of the investment in Ireland arising from these new research and development projects is approximately €500 million. It also involves a considerable number of jobs. There have been calls by some for more to be done in this space. The programme for Government contains proposals for further improvements to the research and development tax credit scheme, subject to the outcome of a cost benefit analysis.
Section 2 of the Bill relates to the air travel tax. It amends section 55 of the Finance (No. 2) Act 2008 to empower the Minister for Finance to appoint, by order, a day on or after which passenger departures would not be subject to the tax. As part of the effort to boost tourism, provision is being made for the air travel tax rate to be reduced to zero or suspended. The commencement of this measure is subject to agreement being reached with the airlines to bring in additional passenger numbers. My colleague, the Minister for Transport, Tourism and Sport, is holding discussions in that regard.
A review of the measure will be conducted before the end of 2012. If it is considered unsuccessful, the air travel tax will be reapplied. Consequently, the relevant legislative measures will remain in place to allow for them to be recommenced if so required. The cost of this measure, based on an implementation date of 1 July, will be €15 million in 2011, €90 million in 2012 and €105 million thereafter. The suspension of the air travel tax is just one of a number of approaches being taken as part of the jobs initiative to reboot and revitalise the country's tourism industry.
Section 3 amends the Value-Added Tax Consolidation Act 2010 to provide for a second reduced VAT rate of 9%, in respect of certain goods and services, for the period from 1 July 2011 to 31 December 2013. The rate will revert to 13.5% thereafter. It is estimated that this measure will cost €120 million this year and €350 million in a full year. As announced in the jobs initiative statement, the 9% rate will mainly apply to restaurant and catering services; hotel and holiday accommodation; admissions to cinemas, theatres, certain musical performances, museums and art gallery exhibitions; and a range of other things set out by the Minister. The purpose of this targeted VAT relief is to boost tourism and stimulate employment in the tourism sector. I am confident that it will give the industry a much needed shot in the arm. To ensure the sector is delivering, however, the effects of the changes will be assessed and the measure will be reviewed before the end of 2012 in the context of preparing budget 2013.
Much economic activity within the tourism industry is highly intensive in its use of labour. This is particularly true of hotels and restaurants, recreation and entertainment. However, tourism continued to decline last year, in terms of the number of trips and total earnings. It is undeniable that the industry is facing significantly challenging circumstances. If we can get things right, however, it will also face a major opportunity. If it recovers the ground lost in recent years, it can make a substantial contribution to our economic recovery and the creation of employment in all parts of the country.
Overall, our tourism product is strong. In addition to its natural attractions, Ireland has a wide range of high quality accommodation to suit all tastes and budgets. We offer a wide range of sports and recreational facilities and events. Culture, heritage, golf, angling, walking, cycling and equestrian pursuits are all easily accessible. In recent years holidaying in Ireland has become more affordable. These are some of the many advantages we must harness to improve visitor satisfaction and increase the number of people from overseas who choose Ireland as their holiday destination. While the provision of tourist facilities and amenities is important, the marketing of what Ireland has to offer as a holiday location is also crucial. We must emphasise that we have a stock of accommodation, entertainment and recreational facilities, many of which have been significantly enhanced by public investment in recent years. In addition, the capacity of our transport infrastructure has been greatly augmented recently.
The various tax reduction and additional expenditure measures announced as part of the jobs initiative will be funded by way of a temporary levy on funded pension schemes and personal pension plans. This levy which is provided for in section 4 will apply at a rate of 0.6% to the capital value of assets under management in pension schemes approved by the Revenue Commissioners under tax legislation. The schemes affected are retirement benefit schemes, retirement annuity contracts and personal retirement savings accounts other than those known as vested PRSAs. The levy will apply for a period of four years, commencing this year. It is intended to raise approximately €470 million in each of these years. The levy will not apply to pension funds established here that provide services and benefits solely for employers and members exercising their activities and employment outside the State. In other words, the levy will not apply to the extent that a scheme is intended to provide retirement benefits outside the State. In addition, it will not apply where the trustees of a scheme have passed a resolution to wind up the scheme and where the business in respect of which the scheme was established is insolvent. Provision is made to give pension scheme trustees or administrators the option of adjusting the benefits payable under a pension scheme, on foot of payment of the duty but with safeguards to ensure this is done in an equitable manner. The chargeable people for the levy are trustees of pension schemes and the insurers and administrators having the management of the assets of pension schemes.
Section 4 also makes consequential changes to certain provisions of the Taxes Consolidation Act 1997 relating to the approval conditions that apply to pension scheme providers located outside the State which seek to provide retirement benefits in the State. Under the existing legislation, such providers are required, unless they have a fiscal representative in the State, to enter into a contract with the Revenue Commissioners to the effect that all duties and obligations imposed by the pensions tax legislation will be discharged. These duties and obligations are now extended to include the levy. There was some speculation that the Government would proceed to raid investment funds or deposit accounts. The Government has no plans in that regard. The Government regards it as a top priority to safeguard the security of savings and would not wish to consider any step that would impact negatively upon confidence. Other savings or investment products have not benefited from the generous tax reliefs that pension savings have historically been granted and continue to receive. Deposit accounts and savings products have already been subjected to additional taxation in recent budgets via the increase in the rate of DIRT and exit taxes, neither of which impacted on pension funds.
The Minister is conscious of the concerns of the pensions industry about the impact of a levy in circumstances where the pensions sector, in common with other sectors in the economy and society, is finding the current economic and financial environment challenging. However, the imposition of the levy is for a relatively short period and its purpose is to improve that environment by providing the means to encourage job creation in areas of the economy most likely to deliver that employment quickly.
The levy is being confined to pension funds because the Government believes the alternatives for increases in taxation elsewhere at this time would be damaging to the economy. The Minister's officials have consulted the pensions industry and other interested stakeholders——
What happened at the Pensions Board?
——on the legislative provisions in this section with a view to minimising, where possible, any unnecessary difficulties to which this measure may give rise.
In response to the charge made opposite, I understand there have been discussions with the Pensions Board.
After it was done.
After we raised it.
The Minister of State to continue, without interruption.
Lean ar aghaidh.
I thank Senator O'Brien. That charge was made in the other House and it has been repeated by Senators.
It was answered in a parliamentary question.
The Minister responded that the Pensions Board has been——
——in dialogue with the Minister and his officials since the Bill was published. That charge is a canard.
It was a parliamentary reply in the Dáil.
On Committee Stage in the Dáil, the Minister made several changes to take on board concerns as expressed. The main changes are considered necessary to facilitate a more efficient implementation and collection process for the levy and to minimise the administrative cost burden on pension funds. There is now a single valuation date of 30 June, in relation to most pension funds' assets, in each of the four years of the levy. There is also now a single payment date of 25 September for each of the four years as opposed to two payment dates in each year as originally envisaged. Those considered and well thought-out amendments, which were brought forward in the other House, came as a result of a considerable degree of consultation with industry representatives. The Government listened closely to what they had to say and was in a position to bring forward those amendments.
The Minister is aware that the pensions sector is also concerned, given the temporary levy, about the commitment in our agreement with the EU-IMF to reduce the tax relief on pension contributions starting next year. This issue will be examined in the context of the results of the comprehensive review of expenditure currently being undertaken by the Minister for Public Expenditure and Reform, and any resulting scope for fiscally neutral changes to the EU-IMF agreement.
I outlined the four measures in the Finance (No. 2) Bill. I will note for completeness that there are two further sections: section 5 which relates to the care and management of taxes and duties and section 6 which refers to the short title and construction of the Bill. These are standard entries.
I should perhaps also note at this point that the Finance (No. 3) Bill was published on Thursday last. It provides for changes to existing tax legislation as a consequence of the passing of the Civil Partnership and Certain Rights and Obligations of Cohabitants Act 2010. It is fair to say in passing that the work undertaken by this House over a period of four years greatly helped the passage of that legislation which has enshrined firm rights for persons who now want to legally recognise their cohabitation in the context of Irish domestic law. I should recognise the enormous contribution of this House over a four-year period in allowing the legislation to progress as it did. That Bill will allow registered civil partners to receive the same tax treatment as married couples in respect of income tax, stamp duty, capital acquisitions tax, capital gains tax and VAT. In addition, the Bill allows for the taxation consequences of the redress scheme for opposite-sex and same-sex cohabiting couples provided for in the 2010 Act. The Finance (No. 3) Bill comes before Dáil Éireann next week.
After three successive years of declining economic activity we can look forward to positive growth which we fully expect will accelerate as we move into 2012 and beyond. The recently published Stability Programme Update forecasts positive GDP growth this year, a welcome development following the past three years of substantial contraction of the economy. For 2012, the Department of Finance projects that GDP will grow by 2.5%, with average growth of 3% per annum possible in the period 2013 to 2015. Underpinning this expected rebound in economic activity is a strong outlook for goods and services exports. This is in line with expectations — a recovery in a small open economy such as Ireland's typically takes this form.
The jobs initiative comprises a set of measures that represent our first steps on the road to improving the economy's international competitiveness and promoting job creation. The Finance (No. 2) Bill 2011, which is before the House today and tomorrow, is intended to deliver the taxation measures outlined in this initiative.
I commend the Bill to the House.
I congratulate the Minister of State, Deputy Brian Hayes, and wish him the best of luck in his endeavours in the next few years.
I am pleased to be here discussing this Bill. A couple of items on the pensions levy were discussed in this House only a couple of weeks ago. Some of the charges with regard to how this is paid for have been discussed in the House previously. However, there are elements to be welcomed within this Bill. I have no difficulty at all in saying so. The air travel tax, the reduction in VAT and a number of matters here are measures which I hope will work. All of us want to ensure that the country returns to growth, which is crucially important, and we start to reduce the live register numbers and get people back to work. The Government will find support on this side of the House to do that in measures which we believe are correct.
My main fundamental difficulty with this is how this is being paid for. The Minister of State said that it is not a raid on pension funds, but it is. There is no way of getting around that. For example, I received a letter, as the Minister for Finance did, from the retired aviation staff association. This is merely an example of many thousands of pension funds across the country. The scheme has 15,000 members: one third are active, one third have deferred and one third are pensioners. This scheme is under-funded already. The trustees state that it will be necessary to sell assets and reduce benefits to meet the levy. It is as simple as that. That will happen with a substantial number of funds. More than 70% of defined benefit funds here are under-funded. The Minister is going after funds that are already struggling.
I know the Government has a difficult job to do. I was involved in four budgets, trying to find money for initiatives. However, there was much play in the run up to and since the general election about the reduction in the IMF-EU rate and a reduction of 1%, we were told, would deliver €440 million in savings. This raid on certain pension schemes, and not all, will raise €470 million a year. They are not too different in the case of the numbers. However, we were told last week by the Minister for Finance under duress in the Dáil Éireann that any savings on the rate would apply only to moneys not drawn down, and therefore any potential savings would probably be in the region of €160 million. Then we find out today from the Taoiseach that he has not even discussed this matter with President Sarkozy. There are many voices and different stories being told about this.
Setting the precedent whereby the State will go after capital assets of persons who have been prudent and who have done what successive Governments have asked them to do, which is to provide for their retirement, is a dangerous precedent. If we must levy funds — no taxation decisions are easy — why did the Minister not look at levying the tax free cash lump sums? They are paid on all retirements, whether public or private, whether proprietary directors or a work scheme.
Anyone who retires would pay a levy and it would be for the Government to decide how they would do it. However, in this instance we are hitting approximately 65,000 pensioners and an additional 1,000 members of pension schemes but we are not going near public sector pensions or approved retirement funds. In the House last week the Minister, Deputy Noonan, stated he would examine that matter. The Minister of State will be familiar with the situation of approved retirement funds, ARFs. I worked in the pensions industry. They afford generous tax relief for contributions to pensions schemes and generous retirement options, especially for the self-employed and proprietary directors, of which a normal PAYE worker cannot avail. The very people who are allowed to take out an approved retirement fund are those whose approved retirement funds are exempted from this levy. They are the people who generally have the money because to take out an ARF one needs a guaranteed salary of €12,700 and an approved minimum retirement fund of €63,500. Such people have already built up a substantial pension pot and we are letting them off scot free.
This does not get back to the fundamental point, that is, targeting savings and pensions retirement. I welcome some of the measures the Minister of State is bringing forward but we are setting a precedent. The Government will undermine confidence by bringing in a 0.6% levy over a four year period. At least it has defined the period of time. I am concerned that it will continue past the four year period as many other levies have in the past and the levy could be further increased.
The idea that there was broad consultation with the pensions industry is questionable. The Minister of State used the term "canard" and it is exactly this because that did not happen. The Pensions Board was not consulted on this before the decision was made; it was consulted afterwards. That is a fact; it is not our following a line from the Dáil Chamber but from the Minister who answered a parliamentary question to Deputy Michael McGrath on the matter. The Pensions Board was not consulted on the pension levy until after the decision was made at Government.
What do funds do now? Let us consider the example of the Retired Aviation Staff Association. It must now sell assets in its fund to pay the levy. The Minister of State remarked in his speech that "Provision is made to give pension scheme trustees or administrators the option of adjusting the benefits payable under a pension scheme". That is a nice way of saying the Government will allow trustees to cut the benefits of retired members and existing members of the pension scheme. Effectively, the Government is stating that if a scheme needs to sell assets and seeks to reduce the pension entitlements of the people in the scheme, the Government is giving trustees a free hand and, despite that they promised 50% of a final salary as a pension to a member, now, because of the levy, they will reduce the amount on average by 9%. That is not small cheese. People believe this is a 0.6% levy. Figures from the Irish Association of Pension Funds, IAPF, suggest an average of 9% of a reduction in annuities. Effectively, it amounts to 10% of take home pay of someone who has retired. The longer a citizen has been in a pension scheme, prudent and saving for his or her retirement, thereby reducing the burden to the State on his or her retirement, the more he or she is being punished for joining a pension scheme.
Even worse, the pain is not being shared across the board. Proprietary directors, most of our self-employed and those who have pension funds managed here but who are working abroad will be exempted from this levy. I understand that it is difficult for the Government to raise money and that not every measure it introduces will be popular. The Government will find support on this side of the House for unpopular measures in the coming four or five years if we believe they are correct. That much I can guarantee. However, this is akin to taking 10% of a person's deposits to pay for a jobs initiative that was previously a jobs budget and exempting more than half the people who have pension schemes from paying anything. The Minister, Deputy Noonan, has stated that we should examine the approved retirement fund rules to examine all who are paying into pensions if we believe we should introduce a pensions levy. As it is currently structured, it is inequitable and the burden will be carried most by those who have contributed for longer to pension schemes.
I do not believe this is the way to pay for the jobs initiative. Certain items included in it are welcome but the situation is that approved retirement funds are exempted as well. Substantial moneys are involved over a period of time and an average pension fund will pay approximately €2,400 over the four year period, which is not small money. This side of the House will oppose the Bill but not on the basis that there are good things in it. I believed it was a mistake by the previous Government to introduce the air travel tax and I stated as much at the time. It is good that it will be gone on the basis of tying in the airlines to increased passenger numbers and more routes. That is sensible. The reduction in VAT for tourism is a sensible approach as well. However, if the Government decides to come up with another jobs initiative later in the year or next year and if it is short of money, can the Minister of State guarantee me that the Government will not hit those easiest to hit, namely, those paying into pension funds, and increase the levy from 0.6% to 1% next year or decide to use another €300 million because it has a capital project that it will not pay for otherwise? Items within the Bill are more than welcome but we are completely opposed to the way in which the Government seeks to pay for it. That is why this side of the House is opposed to the Bill.
I wish to share the last minute of my time with Senator Keane. I take this opportunity to inform Members that as the Government spokesperson for finance in the Seanad, I am keen to state openly and clearly that I hope to be positive in this role, that we do not get into a Punch and Judy show, the term used by the Leader, and that everyone involved can put forward ideas. Members can use me as a vehicle to put ideas from whatever side of the House to the Minister and officials within the Department of Finance, and I trust this will be part of the positive work we do in Seanad Éireann.
I welcome the Bill. It is important to set the scene. We have been in recession for three years. To put this into context, that is a period of 12 quarters in a row going backwards. Let us compare it with the recession in the 1980s. In that decade, in which there were 40 quarters, the country was in recession for only three of those 40 quarters. This is where we are now and this is the difficulty we face. The calamity that is represented by 440,000 unemployed in the State is not something about which we can stand idly by and not try to do something. The Bill is a start; that is all. The social welfare budget is costing €20 billion of the €30 billion that we take in tax. We must try to do something about it and this is what we are doing.
I describe tourism as foreign direct investment and there is no easier foreign direct investment anywhere in the country. When someone travels here, they have money in their wallet or handbag and they bring it in and leave it behind. Nothing is easier or cheaper. Our nearest neighbours are in the United Kingdom. The number of people who visit here from there has fallen by 50% from seven years ago. In seven years we have managed to lose 50% of our easiest target market. Why have the figures fallen? It is because it is too expensive. Let us consider people on the average industrial wage in the UK. These are the people who come over on the ferry or who fly in on cheaper flights. They bring over a certain amount of money. When they are over here they go for a meal and the main course costs anything from €12 to €19. In the UK pub grub costs £5. This is why they have stopped coming. It is too damned expensive in this country. They have stopped bringing in money and this is impacting on our foreign direct investment. This is why so many businesses have closed and so many people have gone out of business in the restaurant and hotel trade and associated industries. We are trying to do something about it and that is what the Bill is about.
I recall Senator O'Brien describing the travel tax as a bad idea when it was introduced. It remains a bad idea and we have chosen to do something about it, namely, reducing it to zero. We are not getting rid of it, however, and it will remain on the books. The challenge for the airlines is to attract more visitors who will spend money in this country, thus benefiting workers via their wages and business people via the opportunity to make money. Our society is about enterprise. I was going to use the word "capitalism", but it seems to have acquired a bad name and is suggestive of greed. The word "enterprise" is much better because it refers to what keeps businesses trading, workers in jobs and people paying their taxes.
In conjunction with the benefit of increased tax revenues through the airline tax reduction is the reduction in the cost associated with employing staff. I speak as a business person and employer in saying it is not easy for anybody in business to fill workers' wage packets and pay PRSI. In addition, both employers and employees must pay the universal social charge. I also welcome the reduction in employer's PRSI. This will work in conjunction with the other changes to ensure there is a reduction in costs in order that visitors to the State will enjoy better value for money. Most people take X amount of holiday spending money and will stretch it to fit rather than going beyond it. We must ensure tourists' money goes further.
I welcome the provisions relating to research and development. This is an area in which, despite the events of recent years, we continue to enjoy a strong reputation internationally. It is something we are good at, whether in the social sciences or medical research, but we must work to enhance our expertise further in this niche area. The changes proposed in the Bill will help in that regard. However, I have some concerns about the role of IDA Ireland. Our corporation tax has always been a huge benefit in attracting business to the State and helping IDA Ireland to compete internationally for foreign direct investment. Research and development is an important part of this, but I question the success of IDA Ireland in that regard. While our successes in attracting foreign companies are announced with great fanfare, none of us knows what enterprises have slipped through and where IDA Ireland has not been successful. It is as important that we know how the agency is doing its business and how successful it is in order to ensure we are as competitive as possible. For example, some weeks ago Amazon announced the creation of an additional 900 jobs in Scotland. I would like to know whether we were in competition for these jobs and, if so, why we were not successful.
In November 2010, as part of our budget arithmetic, Fine Gael set forth clearly its proposal for a 0.6% levy on pension funds to fund a job creation initiative. That proposal was included in our general election literature and we indicated it would be part of the programme for Government. On all occasions we identified pension funds as a source of income for a jobs initiative which would, of necessity, be cost neutral. It was not a matter of choice; the money had to be found somewhere. I wish we could find it somewhere else, but we have not been successful in that regard. We have implemented the levy in the manner in which we said all along we would.
I welcome my constituency colleague, the Minister of State, Deputy Brian Hayes, and thank Senator Michael D'Arcy for sharing time.
Will the Minister of State review the provision in the Finance Bill (No. 2) 2011 whereby the level of guaranteed income required for entry into an approved retirement fund, ARF, is being increased from €12,000 to €18,000? The conditions of qualification for these schemes are being changed in such a way that people on low incomes are effectively excluded from participation, including those who have saved in additional voluntary contribution, AVC, schemes during the years. The increase in the minimum income threshold to €18,000 will not bring in additional moneys to the Exchequer, but it will prevent those on low incomes, including people in lower grades in local authorities and the Civil Service and low paid workers in the private sector, from opting for ARF schemes. In addition, funds will be locked in under these schemes until a contributor reaches 75 years of age. People may be living longer but most wish to access some of their retirement money before they reach that age. Many such workers will opt out of pension schemes altogether and make no provision for their retirement. I hope the Minister of State will review this provision.
It gives me great personal pleasure to welcome the Minister of State, Deputy Brian Hayes, to the Chamber. I had a high regard for his contribution both as a Senator and as a Deputy prior to his appointment to such a significant brief. He and I have worked closely together for several years in the light of our common concerns and commitments on behalf of the people of west Tallaght which forms part of his constituency. I know at first hand his dedication, expertise and empathy in progressing a multiplicity of issues relating to the constituency. I look forward to working with him in our new roles.
I welcome several aspects of the Bill. In particular, I am heartened that it represents a move towards evidence-based policy and law by way of the commitment to review the impact of the changes proposed. If the provisions do not bring about what is expected, they will be reviewed. That is a progressive approach.
I propose to focus on the decision of the Government to fund the jobs initiative by way of a levy of 0.6% of the market value of pension assets. Senator O'Brien has noted some of the issues that arise in this regard, but I will take a somewhat different perspective. The only existing pensioners who have pension funds are those in private sector defined benefit schemes and in private sector defined contribution schemes who have not moved into annuities or approved retirement funds. Senator Cait Keane's comments are important in this regard. This probably means that should the pension scheme trustees or administrators apply the tax levy to pensioners — I assume they could instead absorb the levy by reducing their fees or becoming more efficient, but that is unlikely — the wealthiest pensioners would escape the levy. I use the word "probably" because there may be some very wealthy pensioners in defined benefit schemes. It also is true that the pension levy does not hit the poorest pensioners, as such pensioners only receive the non-contributory State pension. However, the wealthiest pensioners also escape from the levy as they are more likely to have their funds in approved retirement funds or at least in annuities. Therefore, the pensioners this measure is most likely to hit are those in the middle with defined benefit pensions and many such pension funds already are in trouble because they are under-funded, a point to which Senator O'Brien already has referred.
Taking a social justice perspective and being attentive to and strongly supportive of the initiatives proposed to create the conditions for jobs, I believe a more equitable change to fund the jobs initiative would be the standard rating of pension contributions. In particular, this would underpin the labour market as outlined in the Minister of State's contribution and would save far more money than this levy will raise. According to data compiled by the Trinity College Dublin pension policy research group in 2007, employer contributions to occupational pension schemes on behalf of employees amounted to €1.4 billion, while the estimated cost of tax relief and the exemption from benefit in kind taxation was €150 million and €540 million, respectively. Furthermore, these tax reliefs were concentrated on the top 20% of the owners. This research group argues and I agree, that the best way to create greater pension equality among high, middle and low earners would be to give tax relief at the standard rate of tax, as is now done in the case of relief on mortgage interest and health insurance. Does the EU-IMF programme not contain a commitment to standardise pension reliefs? The Minister of State's speech noted there is a commitment to reduce the tax reliefs and does this pertain to their standardisation? The solution I put forward does not appear to increase the cost of business and the Government also has a commitment in this regard to which the Minister of State referred in his comments today. I recommend a more equitable change focused on the standard rating of pension contributions. By definition this would affect the people paying into a pension fund, namely, those who are younger, rather than those who are drawing it down, namely, those who are older.
I welcome the Minister of State. I wish to share approximately three to four minutes of time with Senator O'Keeffe.
Is that agreed? Agreed.
The Finance (No. 2) Bill 2011 is welcome in the main. All Members are satisfied that the air travel tax has been suspended. In a country that relies so heavily on tourist numbers, the aforementioned tax introduced by the previous Administration was rather regressive and ill-conceived and its abolition has the potential to give Ireland a tremendous boost. In conjunction with this initiative, I further welcome the proposal to reduce the rate of VAT charged on certain tourism-related goods and services to 9%, which also has the potential to act as a good stimulus.
However, section 4 provides for a levy on pension schemes and that measure certainly is more challenging. Clearly, no one likes paying more taxes, charges or levies but I remind Members that these measures, unpopular as they are, are necessary due to the mismanagement and what some might even call the incompetence of the previous Administration. I share Senator Michael D'Arcy's hope that Members can have a reasonable debate on this issue and in some measure avoid a replication of last week's debate in the other House during which at times some Opposition spokespersons were in danger of exhausting the entire lexicon of negative adjectives in their rush to denounce this measure.
A 0.6% stamp duty on post-retirement products such as annuities, retirement benefit schemes and personal retirement savings funds for four years clearly is an unpopular move and will be so perceived. It is a position to which the Government has moved reluctantly and which in normal times it would not consider. However, these are not normal times and when 440,000 people are on the live register, something must be done urgently. The 0.6% levy will generate €470 million per annum and some relief may be had from the fact that it is time-bounded to 2014. Under the circumstances, a charge of 0 .6% is not excessive and Members will recall that most pension funds received considerable tax relief in the past and remain extremely tax efficient instruments at present. Like my colleague, Senator Zappone, I understand the managers of pension funds charge as much as 1.5% per annum in management fees and must rank among the most highly remunerated people in Ireland. I wonder idly whether one could find a way to facilitate these high earners to display their undoubted sense of solidarity with their clients by contributing a portion of that 1.5% fee to offset the full impact of the necessary 0.6% charge.
One element of the Bill that caused me some concern is that some of the available post-retirement products appear to escape from this proposal. I refer in particular to approved retirement funds, ARFs, in which it is thought some of the highest earners have placed their pensions. Members undoubtedly will hear some famous and perhaps infamous names being tossed about the Chamber today in the same manner as in the Dáil last week. It seems quite inequitable to me and I am glad the Minister for Finance appeared to indicate last week that he was prepared to revisit the issue in a finance Bill later this year. He would be correct and I urge him to so do. I suggest this could be achieved in one of several ways. While a 0.6% charge could be imposed on ARFs, this would be administratively cumbersome. One also could consider raising the effective tax rate from the existing rate of 5% to a level that would reflect the value of 0.6% above a certain threshold.
No Government wishes to impose additional charges but the present Administration finds itself in that bind. While the Opposition will focus its attention on some elements of the Bill, will simplify the argument and will disagree in the most harsh terms, I hope it will be sufficiently magnanimous to recognise the Government is acting in good faith in extremely difficult circumstances.
I welcome the Minister of State, Deputy Creighton, to the Chamber. I particularly welcome the optimism expressed in the contribution made this afternoon by the Minister of State, Deputy Brian Hayes. The idea of turning a corner or of looking to the future or for things to be positive always is welcome. As for the research and development tax credit in particular, I intend to return to the House to discuss some difficulties on the ground regarding research and development in places such as the institutes of technology. Such places are at the heart of research and development, are where businesses will be created and where new ideas will emerge and the Government wants to support them. However, difficulties exist on the ground that present obstacles to people who wish to do business and it is a subject to which I will return. In respect of tourism, the removal of the air travel tax is welcome but I urge that whatever negotiations take place with the airlines should be meaningful and somehow quantifiable. They must ensure the proposal that the airlines will bring in increased passenger numbers is a reality and not an aspiration because the two must go together hand in hand.
I take this opportunity to turn away slightly from the Bill's specific content and to discuss briefly the Money Advice and Budgeting Service, MABS. I was heartened to note that earlier this year, Mr. Jonathan Edwards, the MP for Carmarthen East described the MABS model in Ireland as something to which the Welsh Assembly should aspire and he advocated its adoption for Wales. While people in Ireland are very proud of MABS, if one speaks to those who work on the ground, they will relate that they are overwhelmed. The programme for Government has committed to ensuring that MABS becomes a fully empowered personal debt management agency with strong legal powers to support families' property and to provide protection from creditors where appropriate in order that they have time to sort out their affairs. The promised personal debt management agency will have quasi-judicial status, thereby putting this urgent need for assistance for ordinary people on a strong footing. Much of the work of MABS now pertains to personal debt and I make these remarks in light of the optimism Members have heard this afternoon, as for those people such optimism appears far removed from their reality. Moreover, if a staff of approximately 270 people must deal with more than 20,000 callers annually, Members should do the maths or rather they should not do the maths as it simply does not add up. If one asks 270 people to deal with more than 20,000 distraught and upset people, one will discern immediately the urgent need. I urge the Minister and the Department to ensure this legislation is introduced as a matter of urgency within a reasonable timeframe because it will take time to introduce a personal debt agency with quasi-judicial authority, which will still be too long a time for those desperately trying to work out what to do about their debt. Those working in MABS see themselves as firefighting and talk about their clients being thrown to the wolves. This is not a happy position to be in; we simply cannot ignore the serious debt problems of thousands of citizens.
In urging the Government to press on with the programme for Government and introduce such an agency with stronger powers, while the Welsh may be looking at the MABS model, we may also learn something from them. They have established a financial education unit as a step forward to ensure future generations will be more financially literate. Perhaps we might see a way to introduce such a programme in schools as part of the CSPE curriculum in order that from a very early age children will learn about the management of money. There is significant support in Wales for the fight against illegal moneylending. All Members have heard stories about the so-called Lennies in the midst of our towns and cities. Those affected in communities find it hard to say "Yes" to a lender and even more difficult to say "No" to them. The Taoiseach indicated last month that he would welcome legislation to tighten private debt agencies. We must take care to consider that moneylenders are not wanted in our communities.
I have been a Member of this House for 18 years and do not remember ever having a husband and wife team in front of me. I congratulate the Acting Chairman, Senator Paul Bradford, on his position in the House. I also welcome his wife, the Minister of State, Deputy Lucinda Creighton.
All presents will be gratefully accepted.
I am not sure how the Acting Chairman will contain the Minister of State if she is considered to be out of order and misbehaves.
The Senator to continue without interruption, please.
The Minister of State is most welcome.
I welcome the objectives of the Bill, although I am concerned about some aspects of it. In 1989 I had the opportunity to visit Leningrad, then part of the old Soviet Union. I asked our guide, Ludmila, if I could visit a supermarket. The one to which I was taken was very dull and plain and did not offer a great range of goods. When I asked the supermarket manager how many customers he had, he answered that he had 4,687. I was very impressed that he knew the exact number because it was clear the cash register system was not very modern. When I asked him how he could be so precise in knowing the number of customers, he replied that this was the number of people who lived in the suburb in which the supermarket was located. When I asked if they all shopped in his supermarket, he said, "Of course." He also said that if the suburb was bigger, the shop would be bigger. Conversely, if the suburb was smaller, the shop would also be smaller. In other words, there was only one shop in the suburb. In those days in that society things were controlled from the top rather than being decided by the marketplace. What I like about the legislation under discussion is that it is aimed at stimulating rather than controlling the marketplace. However, I am not happy with one or two aspects of it.
In the 1980s I was chairman of a hospital board at a time when the unemployment rate was high and the economy was not doing well. The Government of the day introduced a job creation project. The hospital was asked to state how many jobs it had created in a given month. It was asked, for instance, how many porters had been employed. There did not seem to be an understanding that it was not the Government's role to create jobs. It can stimulate the economy by ensuring people are encouraged to create jobs, whether in hospitals, shops or restaurants. I, therefore, recommend the objectives of this Bill because some of the important measures proposed will work very well. The jobs initiative amounts to much-needed strong action on the part of the Government to stimulate the market economy.
As a retailer, I am particularly happy to see a cut in the rate of VAT, in hotels and restaurants in particular. The tourism business can create jobs more quickly than other businesses. There is no doubt that foreign direct investment leads to the creation of jobs and that the process has been very successful, but it takes time. However, the Government seems to have recognised that a tweaking of the VAT rate will enable us to create jobs very quickly. Shops can be opened very quickly if people start to spend money. The cut in the rate of employers' PRSI in respect of lower paid jobs will make it easier for employers to employ workers whom they would not be able to afford otherwise. Another element that needs to be examined very carefully is rent reduction. I urge the Government to review the policy on rents, as something must be done about it.
Something must also be done about the old-fashioned system of Sunday payments, which harks back to the age of the old Soviet Union, as it does not depend on the state of the marketplace. Many restaurants know that some are willing to work on a Sunday at a certain rate, but they are not allowed to be employed because of arrangements made in the past which state they must be paid a premium rate. It seems many restaurants no longer open on a Sunday because of the cost of premium payments which are 34% higher than in England. We should consider what can be done in this regard.
I remember being in a shop in Dundalk that closed about two years ago. I asked some of the butchers about their employment prospects once the shop closed and they replied that they might have to emigrate. I suggested they could try to seek employment in Newry, only a 15-minute drive from Dundalk. However, they said butchers in Newry were paid only one third of what they were earning in Dundalk. This gives one some indication that we will not be able to compete unless we manage to bring down our costs. This has become a high-cost operation and economy. I have been urging the Government to introduce a measure to analyse whether new legislation will impose more red tape on businesses.
I suggest that at some stage we should have a debate in the House on the National Competitiveness Council which last year stated it was concerned there was not a strong desire to tackle high costs in certain sheltered sectors. It also stated a rigorous review of laws, rules and customs governing locally traded sectors was required to identify barriers to promoting enhanced competition and that the State should use its purchasing power to exert downward pressure on professional fees. This has been a source of controversy recently. I ask the Government to act and co-ordinate the efforts of a group which could pick out certain parts of law that hinder businesses, competitiveness and the ability of employers to hire more workers and expand. This could be done easily and quickly and would be extremely inexpensive.
Since it began six weeks ago I have been involved in promoting the towns of excellence campaign which encourages various towns to improve the level of their customer service. It is an opportunity for individual towns to attract more business. Bill Gates has said a company's most unhappy customers are its greatest source of learning. Years ago I was involved in setting up customer panels in order that I could determine what it was customers wanted. What was much more valuable was having non-customer panels, in other words people who said they did not shop with me, because it was much more important to learn why.
A new report on competitiveness from Goodbody Stockbrokers showed that our competitiveness is improving and that unit labour costs have fallen by 9%, relative to the rest of the eurozone in 2009-10 and are expected to decline by a further 4% in the coming year. The report also discussed other areas. We have many highly skilled graduates who could transfer the skills they have learned from a number of companies. I was involved with another group called Springboard which the Minister for Education and Skills, Deputy Quinn, launched recently. It encourages people who have certain skills that are not necessary or suitable at the moment. It can be a future benefit.
The legislation we have means that the research and development tax credit regime is getting a boost and gives flexibility to companies in terms of how they account for the credit. It is hoped that it will help multinational companies market their Irish operations internally. We should think of even more ideas to help set the conditions for businesses to create jobs. For example, the Connecticut State Senate passed a jobs initiative recently. The so-called first five programme allows the state's economic development commissioner to offer special incentives to the first five businesses that can each bring a minimum of 200 new full-time jobs to the state within two years. Incentives would also be offered to companies that have made a $25 million investment in Connecticut and operate 200 jobs over five years. It is an initiative which may be worth following.
I encourage people not to be shy about setting up a business. I was involved with a partnership scheme some years ago and discovered when I went to the first meeting that everybody else wanted to contact the IDA, the Government or a Minister to do something for them. Some of us asked people if they could start businesses themselves, even if they were young people. I remember one man started a business. He was a student and in May or June he had a bicycle, rented a ladder and took his mother's bucket and set up a window cleaning business. At the end of the year he was able to sell it on to somebody else who could generate work. I mention this because one thing we can do is encourage people to set up their own businesses even if they are very small.
I welcome the Minister of State to the House. This Bill will enact the provisions of the jobs initiative about which we had a discussion last week in the House. Many speakers said that the Government does not create jobs, rather it creates the environment in which jobs can be developed and provided. Labour costs are extremely high and need to be reduced. We need to address competitiveness issues around labour costs. It is true that in the private sector generally the unit cost of labour has reduced through necessity.
The reduction in employers PRSI contributions which will be available from 1 July 2013 will make it easier for employers to take on additional staff. The reduction in VAT to 9% will be very important, in particular in the restaurant and catering sector which are very valuable tourism products. The travel tax will be abolished. I do not understand why a small island nation would tax people to come into and leave the country. It does not make sense when we are so dependent on air travel.
I will focus on the research and development proposals which are very important and have been widely welcomed. They give flexibility, particularly to multinationals who avail of corporation tax rates, in terms of how they account for their research and development and spend. Companies such as Dell, Intel, Pfizer, Hewlett-Packard and many more have set up research and development centres here. It is an important statement from those companies. When one speaks to their representatives from Ireland and Irish employees who are fronting their operations in Cork they are always proud of the companies and point to the investment they make in research and development. It is a vote of confidence and an endorsement of this country. It also gives security to the investment that many international companies have made here. It means they are setting down firmer roots here.
The proposals in the Bill for accounting for research and development tax credits are very important. In the programme for Government there will be an emphasis on small and medium-sized enterprises, particularly indigenous companies. There will be a facility whereby they can avail of research and development tax credits. I know that the Minister, Deputy Noonan, mentioned this previously. A cost benefit analysis is to be carried out.
The annual report of Forfás provides data on the number of companies across the economy that invest in research and development and have become innovative, increased productivity and the number of products they are selling across a range of areas from bread making, to producing cement and software and financial services. Many companies invest in research and development. The figures for 2010 show that the spend on research and development for companies who operate here was €1.8 billion, which is very strong compared to previous years. The level spent on it was maintained if one examines the figures for it in 2008-2009. It is a positive figure, given the state of the economy. The temptation is to abandon it but it is very important for companies. The money spent by businesses and Government on it is an important indicator of our knowledge economy, how we invest in it and how strong the country will appear on international indicators. I understand about half the money is spent on labour costs and the rest on capital costs, computers and so on.
The jobs programme has to be funded from somewhere and the issue has been addressed by numerous speakers. I wish there was another way, but the pension levy is preferable to a tax on income or indirect taxes. There is no easy way to pay for the initiative. The jobs initiative is and has to be cost neutral, transparent and open. We can see where the money is coming from and where it is being spent.
We on this side of the House welcome any attempt to deal with unemployment. It is welcome that at the very least the Government has thought about and acted on jobs, even if we disagree with some of the things it is doing. It is welcome that the focus in the Seanad, the Dáil and the Bill is on jobs.
The jobs initiative, which was previously called the jobs budget, falls well short of what was promised by the parties before the election and what is required for the economy and for those who are unemployed. It is critical that we are not the bearers of false hope to people that there will be a radical change in unemployment levels. We on this side of the House believe fundamentally that the pension levy, which targets middle income earners, targets the ordinary working people and excludes the very wealthy, such as the FitzPatricks and Fingletons, charges which were laid against us during the last Government. If the Government believes we should not exclude very wealthy people with approved retirement funds it must vote against the Bill which is socially unjust and divisive. It is targeting the ordinary people of Ireland. Those who are paying into PRSAs are ordinary workers, not the wealthy.
Election promises were made to create hundreds of thousands of jobs. There was even a five-point plan which promised benefits for pension savers. It accused us of obliterating middle-income earners and pensioners. There was no mention of any contribution from funds. All they talked about were ministerial pensions and I agree that is an issue which badly needs to be addressed. I suffered electorally because of the ministerial pensions issue, but this legislation does nothing whatsoever about that.
Some of the Bill's measures are welcome. The Acting Chairman was generous in dealing with the content of a Labour Party Senator's speech, but I hope that will not set a precedent because it was a totally unrelated discussion about the Money Advice and Budgeting Service, MABS. It is important to keep to the issues in the Bill, which should be the precedent in future for Government parties in dealing with difficult issues.
While the research and development tax credit is a good idea, the Minister of State is in no position to tell us what jobs will result from it. We hope, however, that it will stimulate activity in that regard.
I agree with the VAT reduction but why is it confined to what are essentially luxury goods? The reduction may create jobs in the tourism sector, which is to be welcomed, but why are newspapers included in the VAT cut? It leads one to question the motivation behind that move. Newspapers do not do much for the tourism industry in particular. In general, as we have seen, they have been ruthless enough with some of their staff. I wonder whether they deserve a VAT reduction and if they will pass it on to the cover price. Newspaper prices seem to rise all the time, but I have not seen any provision in the legislation to insist that the VAT reduction should be passed on to those buying newspapers. We are giving this tax break to these people, although most of our newspaper industry is multinational at this stage. There are very few indigenous newspaper companies creating local jobs. They are all centralising their staff in Dublin, while sacking other staff. Much of the sub-editing of Irish newspapers is now carried out abroad. Nonetheless we are including these companies in the VAT reduction, while not including poor, marginalised and ordinary families who must face the cost of household fuels, which also have a 13.5% VAT rate. The Minister of State may say she cannot do that and state the reasons, but if it can be done for newspaper barons, it can be done for ordinary families.
The pension levy is called a stamp duty. One always needed a document for the stamp duty to be chargeable and paid, so they invented a document in this case, which is a mechanism. I note that Mr. Eddie Hobbs said there was no legal way of charging this amount, but the Government has done it pretty effectively by inventing a document which is chargeable to stamp duty. As Senator Clune said, money has to be found somewhere, but I hope that is not the Government's attitude. The Government is in no position to tell us how many jobs will be created, so it should not keep raiding various funds to try to come up with something.
In passing this Bill, the inclination is to have some good news on Friday. Instead of having a good news story on Friday after the passage of this Bill, we should have a good news story in the autumn when unemployment falls as a result of this measure. If that happens, I will congratulate the Minister.
The Minister of State at the Department of Finance, Deputy Brian Hayes, described as a canard the point that the Pensions Board had not been consulted. Meanwhile, the Minister for Finance, Deputy Noonan, told the Dáil: "There was no formal consultation by me or by my Department with the Pensions Board in advance of the Government's decision to introduce the pension levy to fund the jobs initiative." I will leave the words of the Minister for Finance to contradict those of the Minister of State.
I am appealing to those Senators who believe it is unjust to leave out approved retirement funds — no matter what the arguments are — for the wealthiest in society, to vote against this Bill. The wealthiest include some of the people who caused the problems which prompted this legislation. I urge Senators to vote against the Bill on Second Stage and on Committee Stage.
I wish to share time with Senator Hayden.
Is that agreed? Agreed.
I welcome the Minister of State to the House. Last week, I requested the Minister to attend the House to discuss an issue that is directly caused by the high rate of unemployment across the country, namely, young couples facing eviction from their family homes due to an inability to pay mortgages. Senator Byrne may say it is not related to the Bill, but it is; it is related to the national unemployment rate. The Minister of State will be aware that a large number of young couples, many with young children, through no fault of their own, are in serious difficulty with mortgage repayments. Some people have had their mortgages protected for a year, but that year is now up for most of them. The difficulties facing people in the recession include unemployment, reduced working hours, pay cuts and increased levies. The self-employed are also being hit by such problems, which result in substantially reduced household incomes. As a result, people are being catapulted into mortgage arrears.
While I welcome the jobs initiative, I fear it will move too slowly to get people back to work and save family homes. The number of people being forced to sell their family homes is escalating daily. It is annoying that the banks, which are now turning the screw on such families, are the very same banks that have been bailed out to the tune of billions of euro. As the market value of most people's homes has dropped by over €100,000, they will now be left in negative equity. They will still have to pay back the €100,000 but will have nothing to show for it. The same people are expected to pay for this country's bail-out. I believe in social justice, as I am sure the Minister of State does, but where is the justice in this?
I can cite facts and figures regarding repossessions, mortgage arrears and negative equity, but I would only be wasting the Minister of State's time because she already knows the statistics. I want to speak about the human side of this situation and the terrible effect it is having on families. Many people in negative equity will never be able to buy a house again and will probably be blacklisted. Their only option will be to go on a social housing list and apply for rent allowance. Why not establish an assessment procedure before they have to give up their homes? Where people can demonstrate a genuine inability to pay, why not introduce a scheme where rent allowance can be paid to help save the family home, thus keeping a roof over their heads? Such a scheme would keep people off the social housing list and when they are in a position to do so, they could take over the full amount of the mortgage again.
Many young couples are desperately trying to keep their troubles hidden from their family and friends because they feel ashamed at the prospect of losing the family home. We must help them, but I am fearful of the effect this Bill will have on them. Some people are so desperate to meet their mortgage repayments that they are letting out the family home and renting cheaper accommodation for themselves. I ask the Minister of State to consider introducing some income tax breaks for these families.
This week, it was announced that emigration to Britain was up 25% last year, at almost 14,000. The last thing we want in this country is another flight of the earls.
On a point of order, Labour Party Senators are raising worthy issues, including MABS and mortgages. I am happy to sit here until late tonight to discuss those important matters, but Standing Orders require that Second Stage speeches should be confined to the general principle of the Bill. If the Labour Party tactic on difficult questions, such as targeting the pension pots of middle-income earners, is to avoid the issue altogether, it is unacceptable.
I would not consider that a point of order. It is an observation which I am sure the Senator will pursue further on Committee Stage. Perhaps it was not the Senator's desire to be in this House——
I ran for election.
——but there is a tradition of debate here whereby we allow Members to be rather expansive in their views. It has always been a valid and respected tradition in this House and I am certainly not going to bring it to an end.
I welcome the Minister of State, Deputy Lucinda Creighton — and the Minister of State, Deputy Brian Hayes, who was here earlier — to the House. I welcome the Bill before us, which contains measures that will assist this country back to economic health. Although I accept the measures in it will contribute to the nation's economic health and will get more of our people back to work, it is critical that all the measures that we take in government, including those in this legislation, are subject to independent review and analysis. I welcome the Minister's commitment to reviewing the measures in the Bill.
Colleagues in the Seanad have raised concerns about the legislation. Meals out for the rich may be one of the unintended consequences of this legislation. We may be accused of robbing the old to pay for the needs of the young or robbing the pension funds of the lower paid while letting the rich off scot-free. There is always the possibility of the best intentions having unintended consequences. It is with this in mind that I request the Minister to consider the reinstatement of the Combat Poverty Agency as a matter of urgency.
We are in danger of becoming obsessed with all things financial and running the risk of ignoring the needs of the poorest and most vulnerable in our society. History has demonstrated that not all boats will rise with the rising tide and not all people will suffer equally in a recession. It is important, therefore, that we understand the effects of the policies we are making. We need to look beyond projections to see how real people are affected. Without independent research telling us, we can be overlooking problems that may be brewing under the surface, that in the long term will hinder rather than help the development of the country and that will have a high human cost. It is not enough for Departments to conduct their own research. Independent published analysis which brings information into the public domain and allows for proper debate is necessary. Neither is it wise for us to listen to those who shout loudest. While I respect Senator Quinn, I am not of the view that the revival of the economy will be achieved by defeating the joint labour committees, JLCs, and reducing the incomes of the most vulnerable. Poverty is often hidden and difficult to assess and the Combat Poverty Agency had a proud tradition of bringing forward the best quality research and putting Governments and their policies under review.
Since 2009 the agency has been effectively disbanded. It has been shunted from Department to Department and its staff scattered to the four winds. This has been a very short-sighted policy. Unlike the last Government, we in this Government are not afraid of independent review and assessment of our actions and we are not willing to push criticism under carpet. I therefore call for the urgent reinstatement of the Combat Poverty Agency to ensure the measures we take in this Government, including this legislation, can be defended.
Before I address Bill, I must express a good deal of sympathy for the Government, given the necessity to try to achieve revenue neutral measures. This is at the heart of what is being proposed in the legislation in terms of funding the jobs initiative. This straitjacket means that many measures urgently needed in the economy will be unfeasible.
Policy creation in this country is often short-sighted, but in this case the new Government has made an attempt to support enterprise in a constructive fashion. First, the research and development tax credit changes are very welcome. Although only a technical amendment, it will hopefully have the effect of giving a greater measure of flexibility in the tax treatment of investments in research and development, and undoubtedly this will be particularly welcomed by the high-tech sectors of the economy. This measure will not have a major impact on Government revenues, but it certainly reinforces the message that we are serious about maintaining a cutting edge sector in the economy.
The second measure in the Bill, the suspension of the air travel tax, is to be criticised only in so far as it does not go far enough, and by that I mean complete and permanent abolition rather than suspension of the tax. The original imposition of this tax was a problem at the time and it is a pity the Government has not taken this opportunity to opt for its full abolition. Tourism is a sector we must encourage at every opportunity. The huge economic benefits here are complemented by the goodwill that a revitalised Ireland of the welcomes, so to speak, would spread in Europe. I note the Minister, Deputy Noonan, spoke in the Dáil of a 39% fall in tourist numbers from the UK. Given the strength of the euro against sterling, British visitors will think twice about visiting, but to discourage them further by taxing air travel would be ludicrous.
As an aside, I was always amazed at the number of Germans fascinated by the adventures of Heinrich Böll in his Irish Journal, which documented his travels here in the 1950s. This book was one of the most popular German language books published for decades and is still in print today. It is on such hooks that tourism campaigns are and should be hung, and any goodwill generated in Germany towards us could only be welcome at this time.
Regardless of whatever traditional interest there is in Ireland as a holiday destination, the notoriously frugal Germans are likely to be concerned about our prices. According to a recent report from the World Economic Forum, Ireland remains one of the most expensive places to holiday in the world. Only Denmark, Finland, Norway, Luxembourg and Switzerland are seen as more expensive when it comes to purchasing power parity. The strong euro is a major factor in that, but it underlines the need to increase value wherever possible and places the welcome measures to abolish the travel tax and reduce labour costs and VAT in this sector in context.
On those grounds the reduction of VAT for some tourism related activities is equally welcome. In the long term, all consumption-based taxes like VAT must be reduced. Ireland's success, by which I mean the sustained period of growth before the property boom, was based on a low tax economy, and while many shrill commentators have tried to link that phrase in the public imagination with the unsustainable rise in public spending, the fact remains that we as a State should endeavour to allow each worker and citizen the maximum fruits of his or her labour, and from that I believe economic success will flow. Consumption-based taxes have a disproportionate effect on poorer families who tend to spend a greater proportion of their earnings than those who spend proportionally less and save more. I am aware of the constraints that are on us as a nation but I hope we will soon find our way back to this position of workers and families having maximum control over their own earnings. Today's measure is to be warmly welcomed and my hopes are that it will become a permanent reduction across all VAT bands.
I want to address the portion of the Bill that I oppose, which is the attack on savings represented by the pension levy. I listened with great interest to various Senators, and Senator Darragh O'Brien in particular raised some interesting correspondence. I mentioned that policy in this country can often be short-sighted, and this section is an example of that.
In the past, our citizens were strongly encouraged to invest in pensions to offset the looming pensions time-bomb and this was the basis for the establishment of the National Pensions Reserve Fund. Saving for the future was seen as vital given our ageing population, and it was felt that to encourage this saving, the tax system should contain some incentives. For all classes of people, saving for the future became common, and at the time we patted ourselves on the back for avoiding the trap into which other nations with older populations had fallen. Now, circumstances have changed and rather than a pensions time-bomb, we face the current economic crisis. I accept that Governments need to get revenue from somewhere, and I note the position of the Minister, Deputy Noonan, that this levy is designed to fund the new jobs initiative. Equally, I note that the measure will raise more revenue than the initiative will cost, and I suspect that this is no accident. I also suspect, perhaps cynically, that this levy will be with us for some time to come. The last time something similar was levied was in the 1980s, its term was extended beyond its original planned lifespan. In that case a levy was raised against capital gains within pensions at a time when significant gains were made in a short period. In this current proposal we are taxing assets at a time when most funds are in deficit. It is an unfair attack on savers who have suffered much already. According to the pensions industry, this levy, if extended over the life of the investments, could cost savers about a fifth of their final pension, and, to reiterate, I suspect that this levy will be here for some time to come.
Perhaps there is even a moral argument against this measure. I note that the Minister of State spoke of how provision will be made to allow pension scheme trustees or administrators the option of adjusting the benefits payable under a pension scheme on foot of the payment of the duty. Of course, that will happen. We are looking at some defined benefit schemes becoming redefined benefit schemes. We have crossed a certain line here. People invested in pension funds on a particular basis and understanding and now, retrospectively, these steps are being taken. We cannot simply make a grab for any available source of revenue like we were some sort of banana republic. Savers invested in these schemes because they accepted in good faith the deal offered by the Government and in full knowledge of the Government's fear that it would not be able itself to fund retirees unless large numbers of those retirees had personal savings. Now those savers are to be punished for their earlier responsible behaviour. This is very bad public policy.
It always amazes me that the group constantly forgotten are the hard-working, lower middle class PAYE and self-employed workers, as Senator Zappone said. These people are mortgaged to the hilt and have typically been hit by both tax increases and income cuts. Even in the best of times they did not have huge disposable income. These are the people who will suffer on foot of this measure. The richer will not notice it, the poorer will not have invested in the first place but the so-called squeezed middle, to borrow a phrase from our neighbour, will take the hit. While I commend the Bill's positive measures, I strongly oppose the pension grab contained in section 4.
Before calling on Senator Bradford, I remind Senators that, if they go beyond their time, they are taking up someone else's time. They should conclude when asked.
I welcome the Minister of State to the House.
To this and the other House.
I welcome the legislation, which affords us an opportunity to say a few words about what should be the main concern of the House and the body politic for the crucial coming years, that is, job creation. We are moving towards an unemployment level of almost 500,000 people, a scale of human misery we cannot sustain and cannot allow. During one of the House's debates on job creation 12 months ago, I suggested that all legislation appearing before the House, regardless of the originating Department, should be employment proofed. In other words, we should examine every rule, regulation and legislative measure on the basis of whether it creates or costs jobs.
The Finance Bill forms part of the Government's jobs initiative. During the next few years, we will see a large draft of legislation and measures designed to put Ireland back to work. It is what we all must aim towards because we cannot solve our public spending crisis, budget deficit problem or banking debt problem unless people are working instead of claiming social welfare payments and living on the margins of society.
The Bill's measures are modest. It would be unrealistic to expect any Government that had been in office only for a few weeks to be in a position to introduce a large raft of new legislation and new thinking, but the Bill is a positive first step and, during the coming years, I hope to see much more activity on the job creation front from the new Government.
The Bill's four measures are straightforward. The first three — the research and development tax credit, the suspension of the air travel tax and the reduction in the lower rate of VAT — are not contentious and have been requested by Senators and Deputies for the past 12 months. During a debate in the House last week, I was glad that our friend, Fianna Fáil's Senator White, asked why these measures had not been taken already. Those relating to the air travel tax and VAT can only be positive.
During the Tallaght strategy of the late 1980s, a Fianna Fáil minority Government took the first steps in reducing the general rates of taxation. Everyone was pleasantly surprised — I am not sure why they would have been — that this resulted in enhanced economic activity and job and wealth creation. We must do everything possible to generate economic activity, which the lower rate of VAT and the suspension of the air travel tax will do.
I will reflect briefly on the pension levy. I listened to Senator Mullen with interest. I have a difficulty with the concept of a pension levy, notwithstanding the fact that the broad package of measures must be funded. We would be unrealistic and irresponsible were we to pretend that we could introduce measures for which someone else would pay. We must pay for them ourselves and the Bill's methodology for doing so is the pension levy. However, we must be careful about the signals that can be sent by the pension levy. We do not want to frighten the horses, if the House will excuse the pun, or send a message to the effect that people who have been cautiously creating wealth by investing in pension or saving funds will be hit with an unexpected and, perhaps, unfair attack on those funds. We will have a better opportunity on Committee Stage to debate this matter in more detail with the Minister and to get firm assurances from him that the levy will only be for four years and will not be built upon.
We are all practising politicians and amateur economists, but we are receiving queries and telephone calls from constituents who are worrying about the security of their savings. I would love to be able to give them the answer, but I do not have the necessary economic expertise. I look forward to debating this question more fully with the Minister on Committee Stage.
Regarding our discussion on the pension levy and the pensions industry, while Senator Byrne will claim I am straying beyond the narrow confines of the Bill, we need a full debate on pensions as an economic topic. In the last Oireachtas, work was done on pension reform, a matter that needs to be considered. We must ask how the money in pension funds is applied, how it is spent and what benefits accrue. This is a debate for another day.
I welcome the legislation. It is a step in the right direction, but we must keep reminding ourselves that we have many more steps to take if we are to put Ireland back to work.
I welcome the Minister of State, Deputy Creighton, and prior to her the other Minister of State, Deputy Brian Hayes, to the Chamber.
This week marks the first 100 days of the Government which was elected by the people with an unprecedented majority to lead in a time of crisis and to deliver change. However, the Finance Bill comprises just 14 pages, fails to deliver change and hope and is remarkable not by what it includes but by what it fails to include. In the statement of common purpose in the programme for Government, the governing parties stated "both our parties are committed to protecting the vulnerable and to burden-sharing on an equitable basis". We can judge this commitment to protecting the vulnerable and equitable burden sharing by the contents of the Bill.
Senators have mentioned the pension levy. While I want to avoid repetition, the matter deserves further emphasis. The central tenet of the Bill and the jobs initiative is the imposition of a 0.6% levy on pension funds for the next four years. It is estimated that the Government will raise €470 million per year via the levy. However, the pension levy is not about "burden-sharing on an equitable basis". It is deeply inequitable. It excludes the approved retirement funds, ARFs, used by many high earners to invest in their pensions and makes no differentiation between the pensions held by ordinary workers and those of high earners.
Sinn Féin has long advocated the standardisation of pension tax reliefs at the lower rate. Not only would this remove an unjustifiable inequity in the current system, it would generate significant revenue for the State to invest in economic recovery. Based on figures from a 2009 ESRI report on pensions, standardising pension tax reliefs would generate an additional €1.1 billion, of which €616 million would come from the top 10% of earners. The same report estimated that, in the same year, 82% of all pension tax relief went to the top 20% of income earners, which demonstrates the grossly unequal nature of this relief and the need for its reform. The Finance Bill is a lost opportunity to deliver an equitable approach to pensions. As Senator Bradford stated, we need a debate on pensions.
The Government claims it will use the pension levy to fund the jobs initiative, but that initiative can be said to be too little, too late. It fails to measure up to the pre-election promises of the Government parties. For example, it is a far cry from Fine Gael's election promise to create 100,000 jobs over five years and 45,000 new employment and training places to target youth unemployment. It is also a far cry from the strategic investment bank and the 60,000 training and employment places promised by the Labour Party.
For a Government obsessed with bond market confidence, it fails to recognise people's loss of confidence. A sizeable section of our community has little or no faith or confidence in the Government's actions. As has been highlighted, we learned this week of a 25% increase in the number of people who moved to live in Britain last year. Some 13,920 people moved to Britain last year. The overwhelming majority were aged between 18 and 34 years. Young, educated and skilled people are leaving the State in their droves, yet they are the very people we need to drive economic recovery. We have heard that our greatest export market is Britain. The figures show that our greatest exports are our young people. Behind these bald statistics are their families, friends and communities which are losing a generation of young people owing to an economic crisis created in bankers' boardrooms. The jobs initiative has fallen short of what is required to create jobs for the young people concerned and the Government is, once again, falling back on the safety valve of emigration.
We believe and international experience has demonstrated that economic growth will be generated only by investment in a major stimulus package. For this reason we should revert to the jobs fund if we are to properly invest in job creation measures. A €2.9 billion stimulus package in the next 12 months would not alone be affordable but is urgently needed if we are to save and create badly needed jobs and assist small and medium-sized businesses and hard-pressed families. In this regard, Sinn Féin would use €2 billion from the National Pensions Reserve Fund to fast-track labour intensive infrastructural projects to create jobs. We would also inject a further €500 million, in the form of a family stimulus package funded from additional tax revenue, into the economy. The aim of this package of measures would be to support working families and those on social welfare to boost consumer spending, the lack of which is crippling the domestic economy. The abolition of the universal social charge would release a further €400 million of spending power back into the domestic economy. Again, this type of radical and progressive economic policy change is missing from the Bill and represents another opportunity lost.
Sinn Féin welcomes the reduction to 9% in the rate of VAT for tourism related goods and services, which is a welcome boost for the tourism sector. However, any potential gain must be viewed against the proposal to increase the top rate of VAT to 23%, a regressive tax measure which will have a crippling effect on Border economies, including my own county of Cavan. We should be capitalising on opportunities to ensure the harmonisation of tax policy.
We are now 100 days into the term of office of the new Government and this finance Bill falls short of what is required. Measures such as the pension levy will not help us in any way. Sinn Féin, therefore, will not be supporting the Bill.
I wish to share time with Senator John Kelly.
Is that agreed? Agreed.
I welcome the Minister of State, Deputy Lucinda Creighton, and congratulate her on appointment to her new portfolio and her recent wedding.
I am delighted to hear the Opposition defending the banks. Anyone who knows anything about investment banking will know that investment bankers earn phenomenal amounts in commission and bonuses. The figure of 0.6% to be taken from pension funds every six months could be made up by the investment banks which are making a great deal of money. While Sinn Féin and Fianna Fáil are happy to back the investment banks, no one from that side of the House has yet suggested investment bankers should take a cut in the commission and bonuses they receive. Everyone else has taken a hit. News reports in the United Kingdom and the USA have highlighted the amounts being made by investment banks. We should not stop at taking 0.6% from pension funds but should pressurise investment banks to put back in some of the money they are earning.
Sinn Féin has stated the standardisation of pension reliefs would bring in €1 billion. This would do the exact same as that for which Sinn Féin is criticising the Government because people would continue to lose money in their pensions because they would not have any to put into their schemes.
I welcome other aspects of the Bill, including the reduction in the tourist tax. This is of importance to County Donegal which depends on people being flown into Galway and Dublin. This provision will help to boost tourism in the county.
The Irish Banking Federation has stated loans are being made available. In this regard, it has quoted an 88% approval rate. However, approval of and taking out a loan are different. As I understand it, while people are being offered money, they may only be offered €30,000 of the sum of €50,000 sought, which is of no use to them. Currently, when a person is refused a loan by a credit institution, he or she can appeal the matter to the Credit Review Office. I ask the Minister to consider providing that that office be the first point of call for loan applications. People could then submit its report with their loan applications. Often, they just give up when they have been refused by a bank. Their confidence would be boosted if they could obtain approval for a loan from the Credit Review Office prior to applying to the bank for it.
I welcome the Minister of State, Deputy Lucinda Creighton.
I welcome the measures contained in this finance Bill which seek to promote tourism. However, as Senator Jim D'Arcy stated, our prices are not enticing tourists to come here. He also pointed out that while lunch in the United Kingdom cost £5, it cost €13 here. In the past many of our tourist operators were forced out of the sector because of over-pricing. There is evidence that this is happening again. Both last week and this week one could get a hotel room in almost any hotel in Dublin city for €59 per night. This weekend, because there is a concert taking place in Dublin, a similar room will cost €299 per night. In one case, the cost has been set at €399. Also, apartments which normally can be rented for €75 per night will next Saturday night cost €499. We need to address this problem. If we want to take full advantage of the benefit that can accrue to the economy from tourism, we must ensure we do not kill off the sector. Ireland is an expensive country to visit. We should, therefore, introduce a mechanism to put a cap on what hotels can charge customers. While I acknowledge market forces to a degree determine what rates should be paid, it is ridiculous that anyone should be expected to pay double the price of a room on particular nights.
There are many other initiatives which, if introduced, could assist us. Many Bus Éireann buses are travelling around the country half empty. We could offer tourists vouchers to use these buses which would bring them to towns not predominantly known for their tourism product. Providing incentives for tourists would encourage them to spend more money. Senator Rónán Mullen stated the country was known as the Ireland of big welcomes, the Ireland of the céad mile fáilte. When we reach our full potential this time, we must ensure we retain this image.
I welcome the Minister of State, Deputy Brian Hayes, back to the House. I also wish him well in his relatively new appointment. Following the summer we will have to cease referring to new appointments, but for now the honeymoon period continues for the Government. Given the huge mandate it received, the criticisms are muted. I have no doubt that this will continue to be the case at least until the Book of Estimates is published and the next budget is introduced.
I do not wish to oppose measures for opposition's sake. My colleagues in the Dáil and the Seanad have focused on the pension levy, as have many other speakers on the Opposition side. The contributions made from the Government side have been remarkable, given the omission of any reference to the levy. Members on the Government side have focused on issues not necessarily relevant or germane to the Bill. However, having recently been on the Government side, I can fully understand the reluctance of Government Senators to be too critical of the Government's proposals. The issues in regard to the pension levy are well aired. It is interesting that, when one looks into it in some detail, one discovers the overwhelming majority of those involved in the pensions industry have not welcomed this move. One of the reasons they have not welcomed it is that, despite assurances to the contrary from the Minister when introducing the proposals, it is suggested it is not a progressive tax primarily because the rate is the same for a person on the bread line as it is for the very wealthy.
Recent reports suggest the rich still control wealth of between €100 billion and €200 billion here. It is argued by Mr. James Fitzsimons, an independent financial adviser specialising in tax and financial planning, that the Government would collect as much revenue from the better off without causing hardship. Mr. Damien Kiberd in The Sunday Times of 22 May stated that people pay the levy whether one’s scheme is booming, insolvent or just chugging along. In his reply, the Minister of State might indicate whether there is any discussion about the enormous amount of wealth that is perceived to remain in the country.
I make this suggestion somewhat guardedly as I remember, when I first went to England as a teenager to work, that one of the political catch-cries of the day was that if you elected a Labour government, the money flew out of the country, and if you elected a Tory government, the money flew back. I am not sure, given the configuration of this Government, which is of the centre-right and the centre-left, exactly what that perception might now be. I am cautious, however, and know the Government will be equally cautious to ensure that wealth does not fly out of the country and that it is harnessed for the best interests of the people. On the face of it, there is a considerable amount of money sloshing around out there, despite the lack of consumer demand and the low rate of consumer spending, and that people are actually hoarding it. It is an issue the Minister might address.
I know the Government will justify this on the basis that it has no option and it needs to raise revenue. While this is seen as being one of the easier ways of raising revenue, the point that has been made repeatedly, and which I repeat, is that there is a possibility people could lose faith in pensions. For the past ten or 15 years, certainly from the time of the late Minister for Social and Family Affairs, Mr. Séamus Brennan, there has been a strong, proactive approach by successive Administrations, including this one, to encourage people to take out pension plans because there is a pensions time-bomb of which we are all aware. The former Minister, Mr. Charlie McCreevy's now forgotten but much lauded initiative of introducing the National Pensions Reserve Fund went some way to attempting to head off the serious implications in some 20 to 25 years time of an increasingly greying population in Ireland and of the State not being able to pay adequate pensions to those who have reached the eligible age. This is why I suggest the social welfare Bill that will shortly come before the House, which will result in an increase in the age limit for old age pensions, is being introduced now so as not to arrive at a situation where the time-bomb explodes and the Government of the day will not be able to pay pensions. In that context, it is surprising the Government is now going after pensions through the imposition of a pension levy.
In defence of the argument that the pension levy should not be imposed, while the Government argues that most of the money in pension funds is invested outside the State, Dominic Coyle in The Irish Times of 23 May stated:
This is gombeen economics. ...the notion that pension funds should be invested entirely within the State is so inane that you would wonder about the wisdom of hopes the people of the State have invested in our new leaders. To have invested them entirely within the State would have ensured only that pension savings went the same way as other investments in Irish equities and property in recent years.
My experience has been that for many years, since the noughties or before, much of pension funds was invested here in Ireland because the banks owned many of the pension companies that were providing them, so it is a point I would not necessarily agree with.
The positives in the Bill include the abolition of the air travel tax and the reduction in VAT. My colleagues in the other House have criticised the Government for not reducing the tax on home heating oil, fuel and all the various items to which the 13% VAT rate applies for the general population, including those who are most vulnerable. However, as I have stated in the House previously, I welcome the reduction in VAT to 9% and believe it will make a real difference, not only by protecting jobs in the tourism and service industry but by enhancing that position.
With regard to the air travel tax, I was in correspondence with my good friend and a person I have long admired, Mr. Michael O'Leary, who took me to task about comments I had made. On the evening of the debate on tourism in the House, Senator Seán Barrett referred to a very significant hike in airport charges. There is no doubt the abolition of the travel tax alone will not result in Ryanair and Aer Lingus expanding their routes or increasing visitor numbers to the country. The nettle will have to be grasped in regard to airport charges, as the hike in these charges since 2009 has been totally unsustainable. If it continues, I have no doubt Ryanair and Aer Lingus will come back to the Minister to say that while they are delighted that he abolished the travel tax, to keep landing charges as they are is unsustainable, and this applies to the manner in which this was done as well as everything else. Unless that nettle is grasped, I reluctantly concede there may not the anticipated increase in visitors to this country. I wish it were otherwise but it seems this will be a deal-breaker for Ryanair and perhaps to a lesser extent for Aer Lingus.
I wish the Minister, Deputy Varadkar, well in his consultations and discussions with Ryanair. Ultimately, Mr. Michael O'Leary is a patriot who, despite the fact that for him the bottom line is the dollar, wants to do well by this country. He lives here and pays his taxes here, unlike some of the better known celebrities who have moved their tax bases to other countries. For that reason if for no other, continued and sustained discussion between the Department of Finance and the Department of Transport, Tourism and Sport may result in a positive outcome. Overall, I welcome those two elements of the Bill but it remains to be seen whether the imposition of the levy on pensions will gain universal acclamation. I have a feeling it will be an unending story in the next couple of years.
I am glad to have the opportunity to speak. I welcome the Minister of State, Deputy Brian Hayes, and congratulate him on his elevation to high office. As is already doing a good job, we need not hope he will do that.
The last contribution from the Opposition side was a very positive one. It is good to see balance, which is most welcome, as is the jobs initiative. While this initiative might be seen by some as a drop in the ocean, it is drop that will definitely have a ripple effect. If we have enough drops in the ocean in this economy, it will create the waves we need to get out of the mess we are in as a result of very poor Government performance over the years.
A number of the issues have already been touched on, in particular, the travel tax. For many months, Ryanair and in particular Mr. Michael O'Leary have highlighted this issue. It was madness to introduce a travel tax in the first place and one of the striking features of this initiative is that the travel tax is being removed. There is also a commitment to deal with airport charges, which is another of Ryanair's bugbears. Nonetheless, we want to work with Ryanair; we do not want to work for it. It is a partnership approach. The best government one can have is a government that works in partnership with all the stakeholders, particularly those in business who are trying to create jobs. I have no doubt the intentions on the Government side are to work with Ryanair. It remains to be seen if Ryanair is prepared to follow suit and work with the Government.
Senator John Kelly referred to the ripping off that is taking place in this city, where Saturday night is a particularly difficult night to get a hotel room and monopoly money is being quoted for accommodation. Similarly, two weeks ago when Members of this House were trying to get rooms in Dublin, monopoly prices were quoted by hotels that otherwise would provide a room for €40 or €50. To add to this, I was in a particular popular venue in this city on 1 June and at 11.23 p.m. ordered a beverage, for which I paid €5. I ordered a second at 11.44 p.m. and when I handed over €5 for it, I was told I owed an extra euro. I have the receipts to prove it. I will not name the hostelry in question because it would not be appropriate to do so, although it deserves to be named.
The Senator should name and shame it.
I will. It was Café en Seine. I assure Members that if they come to Ennistymon, they will pay the same price for a drink at 11.23 p.m. as they will at 11.41 p.m.
The Senator will get used to the ways of the capital city in due course.
If we want to promote tourism, we need to respect tourists and work with people. Altering charges and having a till automatically set to up charges at a certain time of night is unethical and inappropriate and should not happen.
The Government alone will not solve the problems of the country. We must all work together — businesses, workers, agencies and the Government. The jobs initiative is a very good start, but we need much more. The next step should be to synchronise the various marketing agencies that market our tourist product abroad. We have a lot of them and many of them do good work, but there is a significant overlap. When it comes to national campaigns such as the one to have the Cliffs of Moher included as one of the seven wonders of nature, every citizen has a responsibility to use whatever means possible to ensure we get over the line on 11 November 2011. It would make a significant difference to tourism.
In his previous capacity as Opposition education spokesperson, the Minister of State brought forward interesting proposals to promote educational tourism and the teaching of English as a foreign language. He spoke about the potential for growth in that regard. Emerging economies such as those of China, Taiwan and other countries have people with significant amounts of money who want their children to learn English. There is also potential in the American market to develop courses in the arts. One can see what is being done in north County Clare with the Burren College of Art. This is something that could be replicated throughout the country. Every county has glorious, unique factors that could be used to develop various courses and initiatives. We will always have traditional tourism sources where somebody flies in, spends two weeks in the country and then flies out again. However, if we want to make a difference, we must be novel and innovative and consider initiatives in terms of international festivals, educational tourism, art and culture tourism and so on. I hope the jobs initiative which is welcome and a breath of fresh air is successful. Business people already feel confident and we heard the reports earlier this week on confidence in the tourism sector. If we work hard and use our resources — the landscape, our people and our ability to work hard — and if there is a positive, partnership approach taken by the Government, the future is bright. However, it will not be easy.
I welcome the Minister of State and congratulate him on his elevation to his new position.
I am always happy to clear up any confusion for the Labour Party in respect of Sinn Féin's proposals. Mention was made of our proposals on pensions. We make no apology for wanting to standardise pension reliefs, which would mean that high earners would enjoy the same percentage of relief as low and middle income families and individuals. The money saved would negate the need to take money away from the pension schemes of the families we already know are struggling.
It is important to consider where we are in the economy and the position on jobs. The unemployment figure now stands at 443,400 or 14.8%, up 1.6% on last year's figure. The rate of inflation in May was up 2.7% on the figure for the previous month. Retail sales were down 3.9% in April on the figure for the previous year, which indicates people are not spending because of the austerity measures taken last year and the previous year. Some 80,000 families are in mortgage distress. The deficit this year will be €18.2 billion. New Government debt is €24 billion and the total debt will be €141 billion by the end of the year. The cost of the bailout is €70 billion, on which the interest will be €5 billion this year. It is sobering that some €5 billion will be spent on interest repayments in bailing out the banks. There is €3.1 billion of unguaranteed bonds in Anglo Irish Bank. Before the general election, Fine Gael called for unguaranteed bondholders to be burned and the money to be used to stimulate the economy to ensure the money was used in the interests of the people rather than bailing out foreign investors and gamblers.
The Government made great play of the jobs initiative and stated it would be revenue neutral. However, many argue that it will also be jobs neutral. They are struggling to see where the jobs will be created. Senator Martin Conway suggested it might be a drop in the ocean. Looking at the potential for job creation, it will take us almost 1,000 years to get anywhere near where we need to be in getting the 440,000 people unemployed back to work.
The pension levy proposed in the Bill is just one example of the daftness of the Government's proposals. Some pension schemes are insolvent, while others have been devastated. We are aware that thousands of Waterford Crystal workers lost almost all of their pensions. Many pension schemes have taken a heavy hit because of the international markets, yet the proposal is to return to the people mentioned and take more money from their pension funds. That is unfair.
Before the general election, Fine Gael and the Labour Party were very clear that they wished to abolish the travel tax completely. Now it will be at the discretion of the Minister and is only a short-term proposal. This is a row-back.
I welcome the proposed reduction in VAT at the lower rate, but the increase in the top rate, 23%, will negate what will happen at the lower rate.
Senator Kathryn Reilly spoke about some of the proposals brought forward by Sinn Féin. We want a €7 billion jobs stimulus plan over a period of three years and suggest the money should come from the National Pensions Reserve Fund. Rather than bailing out the banks and putting more money into toxic banks, the money should be used to stimulate the economy. Similar proposals were made by the Fine Gael when in opposition. Before the general election it promised the creation of 100,000 jobs. The Labour Party promised to take €2 billion from the National Pensions Reserve Fund and to set up a national strategic investment bank. None of this has materialised. We must take drastic action and start making the hard decisions.
I agree with David McWilliams — Senators may laugh — that the real tragedy is that the promises these parties made during the general election are not being lived up to. The Government is simply following the agenda of its predecessor. David McWilliams said recently that the bigger parties and the parties in government were afraid to make the radical decisions needed. They are afraid to make the big decisions. Unfortunately, it is Frankfurt's way, the IMF's way and the ECB's way, but that is not the way to secure genuine economic recovery. If we continue with the policies being put in place, we will see more people leaving the country, more people losing their jobs and the economy contracting even more. That is where this Government will lead us unless it changes track very quickly.
It is good to see the Minister of State, Deputy Hayes, in the Chamber for the discussion on the Finance (No. 2) Bill which will give legal effect to some of the initiatives in the jobs initiative programme introduced by the Government.
I join some of my colleagues in welcoming many aspects of the legislation, some sections in particular, for example, the proposed elimination of the air travel tax. However, it is clear from section 2 that no date for this is specified in the Bill. In theory, it would be a matter for the Government to agree, in conjunction with the airlines, when the proposal should be implemented. My view and that of Fianna Fáil is that a date should be included. We welcome the fact it is mentioned but this must be followed by a confirmed date.
We all welcome the proposition in section 3 in regard to the VAT reduction in the tourism sector because all of us know the difficulties being experienced by the hospitality and tourism sector throughout the country, particularly in rural areas. We realise that too many hotels were built during the boom and some of these are now struggling. Those that survive, especially small family-run hotels, need a boost, and the reduction in VAT from 13.5% to 9% will be of benefit in that regard. I would have welcomed an additional attempt by the Government to have reduced VAT further, if possible, especially on items such as coal and oil where prices affect many people who are struggling in the current economic climate to buy fuel to heat their homes. That deals with the proposal to give legal effect to the reduction of 9% in VAT. I shall refer to the pensions issue shortly.
The Bill will give legal effect to the jobs initiative programme which, in many ways, seems to be a move backwards by the Government instead of a proactive measure. Without criticising it, it appears to be a rowing back on the pre-election promises of Fine Gael, whose NewERA document was bandied around everywhere from Donegal to Cork and Galway to Dublin and was supposed to create 100,000 jobs by 2015. On 9 March, the Taoiseach outlined in the Dáil that within 100 days of taking office, the new Government would introduce a jobs budget. That was a move away from the NewERA document. The jobs initiative is a further move away from the original two promises made, both pre- and post-election. Although we welcome this attempt by the Government, there are no specific targets for how many jobs are to be created. Another area not referred to in the jobs initiative is the pre-election proposal by Fine Gael to establish a strategic investment bank. There seems to be a question about that now. Perhaps the Minister of State might also address that issue.
The Sinn Féin Senator referred to stimulus. Although we would all love to have a magic wand that could provide a stimulus to any economy, if we look at the biggest economy in the world, that of the United States, the President of that country provided a stimulus to the economy which has proved to be questionable, even negative. It has not produced any positive economic impact in terms of job creation in that economy. Ireland is a very small, open and exposed economy — the words used by the Minister for Finance, Deputy Noonan, yesterday in New York. By their nature, stimulus packages do not work very effectively in small, open economies. Stimulus is an important issue but the most important element is to put pressure on the job creating agencies — IDA Ireland, Enterprise Ireland and others — to go out and bring back investment to this country. Investment is there to be won. I question the work being done by Enterprise Ireland and IDA Ireland. I hope part of the new Government's proposals will be to put additional pressure on both agencies to bring in investment.
Much has been said in this House and the Dáil about the pension levy which is effectively a stamp duty of 0.6% on the market value of assets under management in the pension schemes approved by the Revenue Commissioners. Approved retirement funds, ARFs, are exempt, as are, it would appear, pensions paid out of an annuity, public sector pensions and vested personal retirement savings accounts, PRSAs. Will the Minister of State clarify why PRSAs, which affect very many workers, are not exempt? The persons involved also have to pay the universal social charge on those payments and, if that is taken into account, there appears to be a double taxation on PRSAs. It makes no sense to exempt approved retirement funds, on the other hand. People like Michael Fingleton and Seánie FitzPatrick have invested money into those funds for wealth-gathering reasons. I fail to understand why wealth-gathering pensions are not being targeted.
On a number of occasions the Fianna Fáil spokesperson on public enterprise in the Dáil, Deputy Michael McGrath, raised the need for consultation with the Pensions Board. From replies to Dáil questions it appears there has been no, or very little, consultation with the Pensions Board. Unfortunately, the request made by Deputy McGrath concerning the need for an impact assessment on the pension levy also appears to have fallen on deaf ears. Perhaps the Minister of State might advise this House why there was no meaningful consultation with the Pensions Board and why the Government will not consider the option of an impact assessment on the pension levy.
I agree with Senator Conway on two points. He referred in the first place to hotels in this city that bump up their charges. We mentioned the assistance to be provided for the hospitality sector, but we know, too, that events, whether sports or cultural, take place in this city, as do concerts, and hotels that charge one price when business is quiet bump up prices for visitors attending concerts and football games in Dublin and other cities. It is disgraceful that those establishments do that. Very many people, many of whom are living on the breadline, come to Dublin to attend Gaelic football or soccer games or big concerts. They are forced to pay exorbitant prices when many of us could get the same room for a fraction of the cost when no such event occurs. I agree with Senator Conway, and Senator Kelly also referred to the issue. I would like to see the Government tackle this and take on these elements within the hospitality sector. They tend to be chains of hotels acting against consumers.
I found the debate on this Bill very stimulating, wide-ranging and interesting. I should first congratulate Senator O'Donovan on his elevation to high office and I look forward to working with him and other colleagues over the course of this Seanad term.
I shall deal presently with the issues colleagues raised but will first paint a broad picture. Yesterday I attended two very important meetings in Brussels, one being the Eurogroup meeting, the other the informal meeting of ECOFIN. Right now this country faces an enormous challenge, as Members of this House are fully aware.
I heard Senator Cullinane refer to a commentator who spoke about the importance of what he described as "radical" solutions. He suggested that the Government has failed to consider such solutions because it is afraid to do so. The immediate "radical" solution that faces this country this year, next year and the following year is the correction of its enormous deficit. If external support were not being provided through the troika and the financial programme we are currently operating were not in place, this country would face an immediate requirement to balance the books to the tune of €18 billion, as opposed to the €6 billion correction that is being pursued with cross-party support. That is the reality Senator Cullinane and his party must face. If one moves away from the financial programme in place until the end of 2013, one will only be able to spend what one is taking in. That €18 billion imbalance would have to be addressed immediately.
The Government, which I understand will have been in office for 100 days tomorrow, has not been over-hyping this jobs budget or initiative. One can call it what one likes. We introduced it as a modest set of proposals to help to spark the domestic Irish economy. On the point made by Senator Mooney, it is absolutely crucial to get people spending again. There is €96 billion in ordinary people's accounts. I do not refer to the commercial accounts of big entities, but to the accounts of ordinary people who have salted away €3,000, €4,000 or €10,000. People are frightened to spend in this economy because they are not sure if they will still be in their jobs next week, the following week or next year. They may have to save because their partners have lost their jobs. The savings ratio in this country is way out of order by comparison with normal industrial societies. People are saving as never before. I suspect all of us appreciate that the Government's task, in trying to reboot the domestic economy, is to bring confidence back to the economy, as Senator Conway suggested.
The economy has collapsed in the last three years. As I said in my opening remarks, GDP has decreased by 15% over that period. The economy is a very fragile flower. It is in the accident and emergency ward. It wants to get out of that ward, to get back into the markets and to get some confidence going again. In circumstances in which the lender of last resort is operating in this economy, and will continue to be in the near future, the restoration of a sense of confidence is required. It is important to emphasise that we volunteered to participate in this process, which involves our EU partners, the IMF and other lenders across the international community. Some people have described the broad economic framework in which we are operating as a straitjacket into which we have been put. We are part of this package — it is not something that has been foisted upon us. It allows us to step back from the markets for a year or so. The Minister for Finance has made it absolutely clear, on receipt of advice from the NTMA, that he intends to attempt to gain some foothold in the markets and to test Ireland's support in them at the end of next year. He will go back to the markets in a fuller way in 2013. The objective of the Government, to put it crudely and bluntly, is to get back to the markets in the shortest possible time. We will not be able to do so until we arrest the deficit position.
There is an acceptance across the country that we have to implement the memorandum. The international markets are making it clear that Ireland is doing whatever it can in the midst of the worst economic recession since the 1930s. I referred at the outset to the meetings I attended in Brussels yesterday. I am delighted to be able to report honestly to the House that the absolute understanding of the ECB and the European Commission is that we are meeting our targets at this early stage of the programme. The programme is only in its seventh or eighth month, but the early indications are positive. I refer Senators to the quarterly review of our external funding partners, which concluded that Ireland is on the right track and has met its targets to date. That was the message I picked up in Brussels yesterday. Ireland is not Greece. We do not have a debt to GDP ratio of 160%. It is 100% at present and we expect it to top out at approximately 118% by 2013. It will be enormously challenging to service that debt for the foreseeable future.
In the 1980s, one third of all tax received in this economy was used to make interest payments on the national debt. In our worst position — in 2013, when our debt to GDP ratio will be at its height — the proportion of taxes being spent on interest payments will be no more than 120%. We need to ask whether that is manageable. I contend that it is. We did it in the 1980s. The problem in the 1980s was that we postponed the inevitable consequences of arresting the deficit. As a member of a political party that made mistakes, unfortunately, in the period between 1982 and 1987, I am prepared to take responsibility for that. If we have learned anything from the 1980s, which was a decade of misery, unemployment, high emigration and lack of investment, it should be that if one has a deficit position, one has to fix it. That can only be done internally. We do not need people living in Brussels, Washington or New York to dictate to us on that issue. As a people, we need to decide to live within our means. Public expenditure doubled over an eight-year period before our tax revenue collapsed completely at the end of that time as a result of an over-reliance on property. We have to fix the expenditure problem. Some of it requires increases in taxation. The party opposite, which signed up to the first part of the plan, has accepted the need for €1.2 billion in tax increases next year as part of the €3.6 billion adjustment. It is inevitable that some of this will be done by means of taxes. I contend that the greater part of it cannot be done without cuts in expenditure.
We are two thirds of the way along the path. I accept that the previous Government had to take difficult decisions in this regard. It is not easy. Two thirds of the adjustment will have been made by the end of this year. We will have to deal with the remaining one third. We are making a €6 billion adjustment this year. That will be very difficult, as everyone knows. When the Government came into office, it accepted the need for these adjustments and made two important claims in an upfront manner. We accept the outgoing Government's plan to provide for an accumulated adjustment of €3.6 billion next year. We think it is important to send a strong signal to the international markets to the effect that a €3.6 billion adjustment, which the previous Government told the markets would occur, will occur under this Government. We have to do it, which will be difficult given that taxes increased radically last year and expenditure has decreased. The Ministers, Deputies Howlin and Noonan, and I are facing that task in the context of the comprehensive spending review, which I contend is a radical document. Previously, the view of the Department of Finance was that if one wants an expenditure reduction of 4% or 8%, one should cut by 4% or 8% across the board rather than going through each Department's Vote line by line to ascertain where efficiencies can be achieved.
We need to state honestly that if we are to make the planned adjustment of €3.6 billion next year, whole programmes will have to be knocked out. That needs to be the subject of political buy-in, support and debate. The comprehensive spending review will involve parliamentary scrutiny of the choices and options we will face in that context. We have said that a €3.6 billion adjustment will occur next year under the programme. It is important to stress that we have also said we want to reach a deficit position of 3% by 2015. I remind colleagues that this is an ambitious target. If the Government is emphasising that Ireland is not Greece because of the deficit situation, the restructuring that has happened and the adjustments that will happen, it also needs to tell the world, including its international partners, that it will make a success of this programme — that it will avail of the opportunity the programme presents not only to make crude and difficult spending adjustments but also to do the heavy lifting in terms of public service reform needed to make those savings stick across the various Votes. That is the context we face.
In this tight difficult position, how do we try to engender the confidence within the domestic economy about which Senators spoke and, as I stated, in circumstances where we are not making exaggerated claims about these proposals? We have set out in this Bill, which is the tax element of the jobs initiative, that certain matters can be tweaked with the VAT and the PRSI system as a means of trying to get job-rich growth that we need is the domestic economy. Traditionally, the export-led economy, which is high-end in many respects but also important for manufacturers, does not produce the number of jobs that we would expect to get in the domestic economy. Exports last year were up by 9%. There is exceptional growth in exports. The balance of payments show that we are paying our way in the world. However, the key task is what we can do to get the confidence going that others have spoken about and to get people spending some of that €96 billion that is there, and we have put out these ideas.
Tourism is a good area of the economy. We have built up a really good infrastructure. Thanks to decisions taken by the previous Government, we have a superb tourism infrastructure. It is a really good product which is much more competitive now than it was in the past. We have cut back costs and tourists see real potential in this country. We have lost a significant number of key markets — the British market being one. In terms of what we can do to help people to come back to the country, as other colleagues stated, I welcome the fact that there is broad support for the abolition of the air travel tax, for the changes that we have made on the PRSI side and also for the changes we have made to VAT to spark the potential of tourism so that it can be one of the great exports as it was in the past.
We have had three years of terrible economic contraction amounting to 15%. We will get growth this year. Who knows what it will be at the end of the year? I will not make any exaggerated claims. The official position of the Government is that growth could be approximately 0.8%. There are some who suggest a higher figure, but the ESRI and others suggest differently. At least, there is a broad consensus that we will have growth this year.
However, there is much broader consensus that next year the growth will be approximately 2.5%. That view is held right the way across all of the international commentators, from the IMF to the European Commission, all of which stated that we will see accelerated growth next year in the economy. Once we get to that position, our sustainable position on debt is much more manageable.
I hear what colleagues stated on the question of consultation. The Government produced its plans, but we have had substantial consultation since with the industry and with the Pensions Board. Many of the amendments that the Minister, Deputy Noonan, brought forward on Committee Stage in the Dáil last week were a reflection of that consultation and the buy-in and support that was there.
On the issue of the pension levy, no one likes to pay more tax and no one likes to pay a levy, but we should put matters in context. As other speakers stated, my party put forward the idea of a pension levy well in advance of the general election. It was in our pre-budget submission. It was in our manifesto. While it may not have received a considerable amount of publicity in the course of the election, that was not for the lack of saying it. It was a proposal that we had put forward. I would also say that it was mooted by the pensions industry in discussion with my party while in opposition.
All of the bleating, the gnashing of teeth and the exaggerated claims by the pensions industry cannot get away from one simply fact, namely, it would be more than happy with a pension levy of 0.6% if there was no change to the tax relief at the top rate of tax. As other colleagues stated, that is an issue that must be analysed closely in the context of our discussions with the troika.
I would ask Senators to keep this in context. This is 0.6% in a context where many management fees of these pension funds are in excess of 1% or 1.5% on an annualised basis, and the world has not collapsed when the pensions industry was paying itself those kind of bonuses over the course of the year. As we will see in the course of Committee Stage debate tomorrow, there are opportunities where this small levy can be part and parcel of the fund itself or can be put into the management costs that apply on an annualised basis. People should get a sense of perspective about this. This is not a proposal for the long term. It is a temporary measure. That is why it is set out in the legislation in that regard.
In terms of the existing significant tax break, let us be clear. As I understand it, of the €13.5 billion in tax credits given to people last year, €3.5 billion relate to tax credits to the pensions industry. Hundreds of thousands of citizens across society use the tax system rightly to gain pension cover. When one speaks to people in the pensions industry, what they want is a sense of stability that the Government will not continuously come back, raise this levy or introduce some kind of instability to the market which would be bad for the pensions industry. I would ask people to keep a sense of perspective, but we can deal with that in more detail on Committee Stage tomorrow.
A number of Senators, including Senators O'Brien, Zappone and Gilroy, mentioned ARFs. It is not the case that ARFs have been specifically exempt from the levy. The levy applies to the assets of pension funds and ARFs are not pension funds. As a result, ARFs cannot come within the scope of the pension levy. Annuities purchased in the name of individuals are also outside the scope of the scheme.
ARFs are investment options into which the proceeds of certain pension arrangements can be invested on retirement. ARFs are designed to provide a stream of income to their owners on retirement in the same way as annuities but with more flexibility and control for the beneficiaries over the funds involved. If drawdowns are not made from ARFs, a notional or imputed drawdown amounting to 5% of the assets in the ARF is deemed to take place each year, which notional drawdown is liable to tax at the ARF owner's marginal tax rate. Unlike the pension fund levy which is temporary, the 5% notional distribution is permanent. The Seanad might note, however, that on Committee Stage in the Dáil the Minister undertook to examine how best to increase the percentage notional distribution of high-value ARFs while ensuring that more modest ARFs would be protected.
The point has been made in this debate by a number of Senators that those top earners who squirrel away vast sums of money through ARFs are not paying any tax on those amounts. That is not true. A different form of taxation applies. It is not done in the way in which the levy has described; it is done by the charge, which last year went from 3% to 5%. Therefore, they pay an annual charge at that percentage rate. The Minister made the point that he would consider an increase in the notional charge between now and December if he thinks that advisable, but that is a matter for the December budget. ARFs do not come under the scope of the levy but they are subject to tax. It is merely a misconception that has been put out there.
Senators Zappone and Reilly mentioned the standard rating of tax relief on pension contributions. I am sure the Senators will be aware, as am I, that the pension fund levy comes at a time when the gradual reduction from marginal to standard rate tax relief on pension contributions forms part of the fiscal consolidation measures in the agreement with the European Commission, IMF and ECB. When introducing the jobs initiative last May, the Minister for Finance gave a commitment to examine this issue. The Government has initiated a comprehensive review of expenditure in order to provide it with a set of decision options to meet the overall fiscal consolidation objectives and realign spending with the programme for Government priorities. The review is to be completed by the end of September this year. The Government will then examine the findings and, in consultation with the EU, the IMF and the ECB, will introduce fiscally neutral changes to the detail of the EU-IMF programme of fiscal support. The Minister for Finance has undertaken to examine the scope for any change to the proposed standard rating of tax relief on pension contributions in that context.
Senators Michael D'Arcy, Quinn and Clune welcomed the amendment to the research and development tax credit scheme. I agree that this is an important development which will encourage more companies, especially those outside the country, to come and invest here.
Senator Keane referred to the increase in the specified income limit from €12,700 to approximately €18,000 in the context of the extension of the approved retirement fund, ARF, option to all defined contribution pension arrangements in this year's Finance Act. I have noted the Senator's comments. They are not directly related to the contents of the Bill but the increase to which she refers was well signalled in the national pensions framework published in March 2010. The argument is to have a sustainable pension which delivers something for people at the end of the day, but the previous €12,700 limit would not have given any significant relief to people in the real world given the difficulties in the economy. The argument holds that the €18,000 limitation proposed at the time guarantees at least some revenue stream for people on pensions. We will examine the issue in the context of the overall number of people who have pension cover.
Senator Zappone made the point that the real issue is how to guarantee additional pension cover in a circumstance where those comprising whole swathes of the private sector have no pension cover at all and who will, ultimately, depend on only one pension, the contributory pension. That is an issue for wider public debate but I note the Senator's comments.
I agree with Senator Michael D'Arcy's comments in connection with IDA Ireland and the need to have a focused campaign of job extension and opportunities throughout the country. The combined influence of Ireland's increasing competitiveness and business costs, the commitment to the 12.5% corporate tax rate, the transformation of our client operations and activities and our investment in science, technology and innovation will continue to attract and increase the level of inward investment in Ireland.
I endorse Senator Quinn's comments and his suggestion that the role of Government is to stimulate the economy rather than create jobs directly. That is the point. The only way we will get back some of the jobs we have lost and create opportunities for young people who have lost jobs throughout the economy is to have the right policies in place rather than the idea that we can subsidise employment. That will not create the jobs of the future. Senator Quinn referred to the need to encourage individuals to set up companies. The seed capital scheme continues to be available for those in PAYE employment or those who have been made redundant to encourage such individuals to start up their own business. Senators may be aware that the seed capital scheme is part of the business expansion scheme.
Senator O'Keeffe raised the issue of the Money Advice and Budgeting Service, MABS, and financial advice available generally. I understand the Welsh Financial Education Unit is providing a rolling programme of advice and support for the planning and delivery of financial education for seven to nine year olds in schools. There is always merit in improving the financial awareness of individuals of all ages, including those of school-going age. In a period of limited resources, however, it may be more appropriate to focus on individuals with actual debt and financial difficulties. The State provides significant resources to MABS annually. The financial commitment amounts to €18 million this year. More than 250 full-time and part-time staff are employed to give direct assistance to people who find themselves in debt or a difficult financial position.
I welcome the comments made by colleagues on all sides. I look forward to the next stage of the debate tomorrow during which we can tease out in a more meaningful way the contributions on Committee Stage. The Government is being upfront with people. These proposals are modest. They are well focused and are about engendering confidence in the domestic economy which has collapsed in the past three years. They will ring-fence those sections of the economy where we believe we can re-boot opportunities quickly. There is broad support throughout the House for the measures as announced. I realise there is opposition on the question of the pension levy. However, we must do this in a fiscally neutral way. It would be dishonest were the Government to spend money it does not have. We are in this difficult financial position because of the financial programme we have entered into with our international partners. To do otherwise would be fiscally imprudent and would not sustain the country or provide a way out of the support we have been given for the next two years or so. The task of Government is clear: to regain the reputation the country once had. The way to do this is to stick to the programme, which has been internationally regarded as yielding some success for Ireland in a circumstance in which there is such an international crisis, especially a crisis within the eurozone.