I welcome the Minister of State at the Department of Finance to the House.
Vol. 208 No. 9
I welcome the Minister of State at the Department of Finance to the House.
I move recommendation No. 1:
In page 3, before section 1, to insert the following new section:
"1.—The Minister for Finance shall within two months from the passing of this Act, and every two months thereafter, prepare and lay before Dáil Éireann a report setting out the number of jobs created as a result of each taxation measure provided for by this Act and the number of jobs created as a result of the Levy on Pensions Schemes provided for in section 4 of this Act.”.
This is a very important provision. Some of my colleagues have said it might be a bit harsh to look for a report every two months, but I think some form of reporting would be necessary. What is important is that the figures we got today continue into the summer and into the autumn. If the Government is able to claim some credit for the initiative it has taken, I and my colleagues will be happy to give it credit. It is important the Government focuses on jobs. In the interests of transparency and to show it is not all about a press conference concerning what has been done in the first 100 days of Government, it is important there is regular reporting to the Dáil and Seanad on the success of the Bill.
Significant tax breaks are being given to companies, those involved in research and development and where VAT on business up to a value of €1 billion is concerned, while the ordinary working person is being hammered in respect of pensions. The purpose of the recommendation is to ensure that what comes out in the wash is that more people are working as a result of these measures, that we get value for money for the significant tax breaks we are giving business and that the measures are worth it.
It is important the tourism industry, hotels and restaurants get tax breaks. We have no provisions that ensure they must employ people as a result, but we are hoping and expecting they will do so. There is no provision either to force them to give reductions but let us hope prices fall, which makes the sector more competitive. Work has happened on that already.
We are giving significant tax breaks to the newspaper industry. That industry is a significant employer, but it is also an industry controlled by multinationals. There are few small businesses now involved in the newspaper industry and most local newspapers are nationally or internationally owned. We are giving them a significant tax break with no comeback as to whether the price of the newspaper will be reduced to make it more affordable to read or whether they will employ more people. We have seen significant redundancies among journalists, even those covering the Oireachtas, over recent months. Some people whom we know well have been made redundant. We see that happening in the newspaper industry. Where is the job strategy in terms of the tax breaks to that industry? What I propose in my recommendation is that evidence would be given to show what is working in respect of each taxation measure proposed by the Bill. It is critical to allow the people to judge the Government on what it has actually done and I will be asking for some measures in relation to my recommendation. I understand that looking for the figures every two months puts a great deal of work on the Department, but some level of reporting is required.
We had a good discussion yesterday and I thank the Minister of State for returning to the House. As I said on behalf of our group, there are many measures in the Finance (No. 2) Bill 2011 that we support. Senator Byrne has outlined a mechanism whereby Government must report back more regularly. As Senator Byrne intimated, it may be onerous to report on it every two months but I do not think it is any harm in the interests of transparency. We all agree on that. The Government has outlined that on a jobs initiative such as this, it will allow a regular report, but I think it should be to both Houses as opposed to a press conference. Earlier today, when discussing another item, we stressed the importance of announcements being made in the Oireachtas, be it in the Dáil or Seanad, instead of at a press conference. We want to encourage the creation of new jobs and jobs growth. There are measures in the initiative that we hope will lead to that. I do not believe the Government has anything to fear — we would be flexible on the two month period — about tying into the Bill the requirement to give regular updates to the Oireachtas on how the measures are performing in different areas. That is crucial.
Some of our other recommendations have been ruled out of order. Will the Minister of State comment on how the Government proposes to review the approved retirement fund aspect? I know the Minister for Finance, Deputy Michael Noonan, indicated he would look at it if he felt that approved retirement funds were not sufficiently taxed already. I put it to the Minister that approved retirement funds are taxed on the basis of a 5% withdrawal. Should someone withdraw no money from the fund, the person is taxed on the basis of 5% of drawings and on the marginal rate of tax for the individual concerned. I made our case yesterday and I am not going to go over all the ground on the basis that we fundamentally disagree on the raid of private pension funds. I suggested that if the Government must levy, it should levy on tax free lump sums across the board, from public and private pensions, PAYE, self-employed proprietary directors. The Government decided not to do that, which is what the Government gets to decide on.
This recommendation tabled by Senator Byrne, if accepted, would show that the Government is willing to come back and report to the Oireachtas on the progress of the jobs initiative. That is the reason our group supports this recommendation.
Does the Deputy wish to come in again?
When I spoke initially, I did not have to hand the tax breaks the Bill will give. It is important to note that we are giving tax breaks to big business in the interests of creating employment. That is what makes this recommendation so important. The air travel tax break is worth €315 million, the reduction in VAT is worth €880 million, which is almost €1 billion in tax relief to business
The VAT reduction is in section 3. We are on section 1.
The recommendation is seeking reports on the number of jobs created as a result of each taxation measure.
I am just going through the taxation measures. The amendment was carefully drafted to allow a wide-ranging discussion in the expectation that the Bill would be guillotined. I think that is the idea. I hope the Cathaoirleach will bear with me.
Ten out of ten.
We used to be on the other side of the fence.
I have been reading what the members of the Government used to do when they were in opposition. I will see how it works. I am not doing too well, judging by the number of recommendations the Cathaoirleach has ruled out of order. I hope this recommendation will do the job. We are giving €1 billion to business in the form of a VAT reduction. As I keep saying, the newspaper industry is included in the reduction. It is a massive amount of taxpayers' money at a time when we do not have much tax coming in. We are having to introduce a pension levy to fund this initiative. The next Bill will provide for a €500 million tax break on employers' PRSI and an additional €41 million of expenditure on activation measures. The amount of additional capital spending will be just €13 million. I hope that is not all tied up by foreign companies. There is not much we can do about that, but it would annoy many people.
I would like to make an important point about the pension levy, which will raise €1.88 billion. At least €115 million more will be raised through the levy than will be spent on employment measures. I have gone through the various tax breaks we are providing. I understand the justification for many of them, including the reduction in the air travel tax and in the rate of VAT, but only if it is clear where the jobs are being created as a result. It is important we receive regular reports every three months or six months. That is more important than keeping these measures going for a few years. That important point needs to be addressed.
The Government is celebrating, but I am glad it is taking this issue seriously. By introducing this Bill, it is putting jobs first on its agenda. It is doing a good job of packaging stuff we did previously, such as activation measures. We spent more on the summer works programme last year and the year before than the Government is spending this year. The Government has pulled off a public relations coup by packaging it as a jobs initiative or budget. I congratulate it on what is not much more than a public relations coup. On capital spending, we managed to fix many schools last year. We got a great deal of work done in my area of Meath. We are raising taxes and providing tax breaks. I know it is not in this Bill, but the reduction in employers' PRSI is, in effect, a means of asking the taxpayer to pay for the increase in the minimum wage. We are passing the burden from the private sector to the general taxpayer. That is what we are doing in the interests of creating employment. I have illustrated why this amendment is necessary.
I would like to be helpful to colleagues. My understanding is that a number of recommendations were ruled out of order. I fully respect the views of the House on that issue. With respect to Senator Byrne, rather than having a single discussion on an omnibus recommendation, it might well be more beneficial to discuss all the recommendations, including those that cannot be proposed. If we raise and deal with all the issues as part of a substantive debate, it will be fair to those colleagues who have tabled recommendations.
The recommendation has a substantive purpose.
The Minister of State is not the Cathaoirleach.
We can deal with the various issues as they arise during the debates on the sections.
We can turn them into questions on the sections. I am not trying to be difficult. We are not celebrating. No one is celebrating today. People need to stop being so hurt about all this. It is beyond me how anyone can suggest that any group of politicians in this country could be celebrating at a time when 14.5% of the people are out of work.
The Minister of State——
I did not interrupt the Senator. We really have to stop this kind of silly Punch and Judy performance. We are here to do a serious task. We should deal with it together in a comprehensive way. I hasten to add that no one on this side is celebrating 100 days of anything. We have to be honest about that. Yesterday, I described this entire initiative as a modest proposal. No one is making extravagant claims one way or the other. It is a fundamental confidence-building measure as we try to reboot the domestic economy. I emphasise that these measures are being pursued as a means of generally trying to improve employment opportunities for people in the domestic economy. There is a fair wind for them. There is fundamental disagreement with regard to some aspects of the levy. Colleagues spoke about that yesterday and we can deal with that.
Senator Byrne's specific recommendation on the question of reports is in order. I congratulate him on that. I will go through the speaking note before we discuss it back and forth. The suggestion as set out in the recommendation is not possible owing to the limitations in the data available to the Department of Finance. The Central Statistics Office produces employment data four times a year in the quarterly national household survey. While this data set provides employment information on a broad sectoral basis, it is only available on a net basis. It does not provide the information on job creation and job destruction that makes up the net figure. While a new job data set produced by the CSO will allow a distinction to be made in the future, it will do so only on an annual basis and with a significant lag. It does not provide the information on a current basis, such as every month or two months. There is a lag. Therefore, it would be difficult to capture what is required in a report every two months. Data are only available up to 2009.
The argument the Government is making in this regard is that it is not possible to concede to this proposal in the absence of current information. One might have a point if one were to say there is a need to improve the gathering of information. We can all accept that. However, it is just not possible to include this provision in the legislation when the necessary information is not available. We cannot escape the fact that the resources needed to fund large-scale policy initiatives that would help to generate economic activity are not available. The Minister for Finance emphasised that when he launched the jobs initiative.
I remind Senator Byrne that the jobs initiative was launched in the Oireachtas. It was not done by means of a press conference. It was launched in Dáil Éireann, as was the bank restructuring plan. The Minister, Deputy Noonan, announced that plan in the Dáil. I think that is a welcome departure from the approach that was adopted over the last decade. During the lifetime of the previous Administration, the Dáil and the Seanad were routinely put to one side so that announcements could be made in the Government press centre. The Government is acutely aware of the need to make major policy announcements in the Oireachtas. It is not a question of making 100-day announcements here, there and everywhere.
The Minister of State should say that to the Minister, Deputy Reilly. Perhaps he will make tomorrow's major health statement in the Oireachtas.
The Minister of State to continue, without interruption.
I think it is taking the fellows opposite a while to realise where they are. This is Seanad Éireann.
I realise it well.
They will be here for a long number of years.
The Minister of State was here at one stage.
As someone who has been in the Oireachtas for 14 years, I can assure them it is easier to do it this way.
On the recommendation, please.
We are very cognisant of the importance of the Seanad and the Dáil. That is why major initiatives are announced in this place and the other place.
If certain areas are to be targeted for employment growth, there should be some standard by which that growth can be measured. It is shocking that the Department is saying that what the Government is doing cannot be measured. We are being asked to sanction almost €1.8 billion in tax breaks with the aim of creating jobs in a small number of sectors. I am not criticising the overall approach, but I think it should be measured carefully and regularly. What would happen in two years' time if, having spent so much tax money on this approach, it transpired that it was not working? We would have a problem. If it could be measured, at least we would be able to tell whether something was being achieved. In such circumstances, we could consider expanding it to other sectors. We would support that if it was shown to be working. I apologise if I offended the Minister of State when I spoke about celebrating. At a press conference later today, the Taoiseach and the Tánaiste will boast that this Bill has been passed.
We are moving away from the scope of the recommendation.
No, we are not. This is very much within the scope of the Bill.
I referred to the scope of the recommendation.
This is very much within its scope.
In fairness, Senator Byrne is responding to a comment made by the Minister of State.
I said it would be far better if the press conferences were held later in the year. As the Minister of State said, we all hope this works. I hope it can be shown later in the year that it is working. Figures that were released today show that the official seasonally adjusted unemployment rate has decreased. Some analysts have said the reasons for that may not be as good as they appear. I think it is good news and I hope it continues. If it does, I hope we can give some of the credit for that to this Bill. If we are to spend billions in taxpayers' money, we need to be able to measure it and show what it is being used for. The Government needs to be able to show that it is working. I do not accept that the Department cannot get this information.
I agree with the main point made by Senator Byrne, which is that this needs to be tracked. The Minister of State cited a response from the Department, suggesting it would be difficult to do so. We are able to get regular updates on progress on the Croke Park agreement, a matter which is important and which we discussed this morning. It seems in that instance when we are looking at savings within the public sector from a deal that was widely criticised outside the House, I did not share in that criticism, we are able to get regular updates. The Minister of State might understand the inference of my question. Why can we not get regular updates? It need not be every two months. It is crucially important because we are looking not at a jobs initiative across the entire economic spectrum in the country but at specific sectoral areas. In those sectoral areas, the Department should be able to track on a biannual basis the progress being made within these sectors and perhaps give a commitment that this would be something that should be looked at because we need the information.
One of the valid criticisms of previous Governments is that things happened and were not realised until it was too late. I would hate the Government to spend over €1.5 billion of taxpayers' money on jobs initiatives that two years down the line were not working. I do not accept the view from the Department that this cannot be tracked. I am not saying that it must be tracked down to the single job, but we should be able to track the process within sectors. If we cannot do it, how will the Department of Finance, with the Department of Transport, Tourism and Sport, be able to track the airlines on the new routes and new passengers that are coming in and whether they are worthy of the abolition of the travel tax? I assume that is one area that the Department will be able to track. If one takes that piece out of it, we would not need to track too much else. On the reduction in VAT rates in those sectors, surely the Department of Finance with its collective experience should be able to track, in the case of retail sales and income in the tourism sector, the impact of the reduction in VAT which we welcome.
I ask the Department to examine this issue. This is important on the basis that the Government would see that its initiative is working. Perhaps it will come to a stage in a year's time where the Minister finds that it is not working as well as he wished in those sectors and maybe we should move towards other sectors. For example, there are announcements on the research and development sector which are also welcome. Ten years ago there was no research and development sector to speak of in the economy but now Ireland is one of the world leaders in this area. That is tracked within the Department.
From my experience as a former member of the Committee of Public Accounts in my previous life in the Dáil, when one seeks information sometimes it is like pulling teeth but one will get it in the end. It is important. What will happen otherwise? Will the Minister, Deputy Noonan, wait for four years when he states he will stand down the levy to pay for the jobs initiative to find out whether it has worked or not? I hope it works but we need regular reviews on this. Deputy Brian Hayes needs to insist on this, with the power that he has as Minister of State at the Department of Finance, as does his colleague, the Minister, Deputy Noonan. They are the Ministers. They were elected by the people. I would like to hear the Minister of State's view on that issue.
I am sure the Department would have had discussions with the various industries on the prospects for job creation. While the recommendation describes a report, it does not describe a report informed by CSO statistics.
We regularly get Ministers making jobs announcements. They are not based on CSO figures. Unfortunately, we often hear that some of the jobs do not always materialise. It would be helpful if we had some information, at least in the report, that was available to the Ministers, not necessarily from the CSO.
I ask specifically that the Minister inform us of what representations the newspaper industry made on the VAT reduction, what undertakings it gave on the jobs it would create and whether it gave any undertakings that it would stop letting staff go because, as I stated, many journalists have been let go from various newspapers.
It is a general enough recommendation which would allow us to discuss something. In fairness, there are regular debates in both Houses. Presumably, when the committee system to which Members in this House will be party gets up and running, those reports by Government to those committees, and to both Houses, will provide an opportunity to discuss these issues.
No one makes the claim that one tax change or a group of tax changes will automatically lead to X number of jobs. What is important is that we have made tourism a key aspect of our jobs initiative. There is an acceptance of that. Built into that is the reduction on VAT from 12.5% to 9% for a number of key areas as a means of boosting demand within the sector, and also reductions on the PRSI side. Another key aspect of the jobs initiative, which is not in this Bill but is in the forthcoming Social Welfare and Pensions Bill, is the reversal of the decision on the minimum wage taken by the previous Government.
In the round, it is the view of Government that we can stimulate the domestic economy. We cannot disaggregate all of the jobs created from this initiative from jobs in the general economy. Our purpose here is the same, namely, that we will have an opportunity on a regular basis, whether bimonthly or not, in this House, the other House or in committees, to have a debate.
If one looks at the clear proposals we are setting out on the airport tax, as Senator O'Brien will be aware, in the first instance it only comes about when we have new deals with the airlines. Second, by the end of 2012 we can change tack on passenger numbers if we have not seen those numbers increased. That is a specific area where there are real live data. Perhaps Senator O'Brien's point is well made, that we need to improve the way in which the data for other aspects of the economy are governed and brought to the attention of the CSO and the Department of Finance.
There is no great difficulty with what Senator O'Brien wants. We will have those debates. It will also be patently obvious, come the end of the year and halfway into next year, whether we are seeing improvement in the tourist numbers. That is the key aspect of what is at the heart of this proposal.
Senator Byrne asked about the newspaper issue. I am not aware of that specifically but I will to get an answer to that later in the debate.
I appreciate what the Minister of State is saying and we will be debating this. However, it concerns me.
The Government is looking at a tax measure over four years of €1.8 billion. The Department of Finance would not be happy to know that we are raising a significant €470 million a year on the basis of the levy and will not be able to track the output of it. I understand the Government can do it on passenger numbers. That is easier to do. This is not necessarily an easy provision. However, it is a major taxation measure. It amounts to over €1.5 billion over a four-year period. I put it to the Minister of State that he would want to know whether or not this is working. I would not be happy with a situation whereby the matter will be regularly debated in committee or in the Seanad. What will be debated? Will we have any figures on the taxation measures here and the reductions in VAT and the various matters that we have covered, and not be able to track how successful that will be?
It is very important to get a handle on this. If the officials cannot quite do it now, the Minister of State should be asking them to find a way through Tourism Ireland and the retail sector. No doubt it will not be 100% scientific. Surely the Government would want to know that the jobs initiative is working. We are talking about a lot of money — nearly €1.8 billion. If I was in the Minister of State's shoes, I would not be happy implementing these measures and taxing existing pension schemes — we went through that yesterday and we disagree with the fundamental point — but not knowing the outputs.
I listened to the Minister of State and to some of the debate on this issue in the Lower House as well. I have never believed that Governments can create jobs. The best they can hope to do is to create an environment where the private sector will create the jobs. In that regard, it is interesting that what is endeavoured to be done here is reducing specific taxes in certain areas in order to try to generate activity within sectors such as tourism in the hope that additional jobs will follow as a consequence. That should be paid for by reducing costs. The cost of government is much too high. Everybody working in the public service, including Oireachtas Members, is overpaid, probably by one third, as are people in the private sector. We need to bring the economy into alignment with our main competitors, specifically developed economies such as Germany, France, Britain and the Benelux. I am not even making comparisons with eastern European countries.
Perhaps I misheard the Minister of State, but I understood from his contribution that he believed increasing the minimum wage would lead to the creation of jobs. I hope I misunderstood his words.
The increase in the minimum wage is part of the package.
The Minister of State's comment that the increase forms part of the jobs initiative package implies that it is a mechanism to generate jobs. What the Government has done in restoring the minimum wage to its previous level is place an obstacle in the way of creating jobs. I could bring the Minister of State to people in any part of my county, as could the Fine Gael Party finance spokesperson in the Seanad, whose businesses are failing as a result of the level of the minimum wage and rates set by the joint labour committees and so forth. He obviously does not speak to business people, given that he is shaking his head.
I admired the courage of the Minister for Jobs, Enterprise and Innovation, Deputy Richard Bruton. I hope there is a sufficient number of sensible individuals in the Government parties to bring to fruition that which needs to be done in this respect. If we do not restore competitiveness in the economy, there will be a drag on the economy and few gains in employment for the next decade.
The Senator is departing from the scope of the recommendation.
I am responding to the point the Minister of State made which is fundamental to this debate. Much of the commentary I have heard from Government backbench Deputies and members of the Government has been unfortunate. The exception has been the Minister for Education and Skills, Deputy Ruairí Quinn, who stands out because he has stated exactly what needs to be done and appears to have the courage to follow through on it. If the Government does not show backbone, we will have serious difficulties.
It is erroneous of the Minister of State to assume that increasing the minimum wage or taking €1.8 billion from private pension funds will in some way assist the objectives of the Bill. On the contrary, the proposed measures will be highly counterproductive. How can we have a minimum wage which is between 40% and 50% higher than the rates set in much stronger economies such as Germany, France and Britain?
The Senator's contribution is not related to the recommendation.
It has everything to do with the Minister of State's comments on increasing the minimum wage, which is part of the parcel of job creation. The minimum wage is related to the recommendation through the job creation programme.
The Senator's contribution is pertinent to the section rather than the recommendation.
We have an equation to which the answer is jobs. All of us want more jobs to be created. The Government believes taxing the pension pots of ordinary workers to give a tax break to large and small businesses will generate employment. However, the Minister of State is unable and unwilling to provide a figure for the number of jobs that will be created by this measure. If taxing ordinary workers to pay for tax breaks for business will lead to the creation of jobs, the Government has an obligation to inform us, on a regular basis, how many jobs will be created by this measure.
In reply to Senator Jim Walsh, I stand over the package in its totality. It is crucial that we create an environment in which tax on new jobs will be reduced — we have done this in the legislation dealing with employer's PRSI — and people are given a clear incentive to take up employment. The PRSI changes announced in the package are clear and will be funded directly by overturning the previous Government's decision to reduce the minimum wage. Although 14% of the labour force are out of work, it should be noted that 1.8 million people are still in employment. It is crucial that every single one of these jobs is maintained in the real economy. Achieving this objective requires a mixture of policies, one of which is to incentivise people to take up work by restoring the minimum wage to its previous level. The race to the bottom, which Senator Jim Walsh and others appear to propose, is inherently wrong. If we are trying to have a competitive economy in which work is rewarded, while also ensuring the necessary competitive aspects of the economy are put in place, we——
Does the Minister of State not believe there is a component of competitiveness involved?
Please allow the Minister of State to continue, without interruption. The debate is departing from the scope of the recommendation.
I am probably responding to another agenda, for which I apologise. While I do not propose to accept recommendation No. 1 for the reasons I have outlined, I thank the Senators opposite nonetheless.
Recommendation No. 2 has been ruled out of order.
Recommendation No. 3 has also been ruled out of order.
Will the Cathaoirleach please explain the reason? It appears the word "declaratory" does not require the Minister to do anything. Perhaps the Cathaoirleach might explain the meaning of the word in this context.
It is declaratory in nature and I have ruled the recommendation out of order.
Recommendation No. 4 in the name of Senator Byrne is ruled out of order as it is outside the scope of the Bill. Recommendation No. 5, which is also in the name of Senator Byrne is also ruled out of order.
I understand my recommendations are ruled out of order, but it is important to highlight what is being done here. This specific part of the Value-Added Tax Consolidation Act reduces the VAT rate for a number of services, to which a 13.5% tax rate applies, to 9%. The difficulty I have with the section is that it applies only to a certain number of services, but it is for the benefit of providing jobs, which is very important. These services include meals, restaurants and hairdressers. One Dáil Member suggested the reason hairdressers are included is because they now operate in all the hotels. I do not have time to get my hair cut in a hotel, but perhaps the Minister will explain why hairdressers are included. I hope the reduction will benefit hairdressers and they will lower their prices and be more competitive. However, I do not feel hairdressers are subject to competitive pressures in the area of cross-Border or tourism trade.
Newspapers have also been included in the VAT reduction. The Minister of State undertook to come back to me with regard to why they are included and as to what representations the industry made, what jobs it promised and what would be delivered. That sector certainly does not have much to do with tourism. I hope the reason it has been included is to do with competitiveness. I hope the reduction in VAT will help cut the price of newspapers, enable them keep people more informed of what is going on and maintain balance and freedom of the press.
Products that have not been included in this section are household fuels such as oil and coal and the range of products that people use to heat their homes. These have a VAT rate of 13.5% and it is a pity there is no tax break for people in that regard. A reduction in this area would create jobs. Currently people ration their fuel during the winter, particularly those who use oil and who must buy in bulk and pay a lump sum. If those people got a tax break, we would see more jobs in the area and we would see more deliveries of oil to houses. However, there is no tax break for people who want to heat their homes during the winter. There are tax breaks for people who want to go for a meal or stay in a hotel all in order to create jobs. Why are there no tax breaks for ordinary people who cannot afford to stay in hotels, eat in restaurants or, in many cases, go to the hairdresser? Many of them do not even buy newspapers because they are too expensive. These people have not been provided for in the Bill. This is unfortunate because we want fairness across all levels of society. There should be fairness for those in fuel poverty, but there is no provision for them in the section.
On that issue, yesterday I stated that we have a difficulty in this State because our cost base is too high. One area in particular where the cost base is too high is hairdressing. The problem has more to do with the black market rather than the green economy. The black market economy provides nothing for the State. It deals in cash. The cash goes into somebody's pocket and the State gets no opportunity to gain merit from that activity via VAT. Senator Byrne asked about hairdressing. There is an industry in this area where people with the skills visit people in their homes and get paid money which goes into their back pockets. The State sees no portion of that. What we need to do, as suggested by Senators Byrne and Walsh, is to reduce costs. If we do not reduce our costs, we will lose more jobs. Members want to know how many jobs will be created by this measure. We cannot say for certain, but we know how many jobs those industries have lost in the past two or three years — 25% of them. That is a significant number of jobs. We do not know what number of jobs will be created over the next three to four years, but we must arrest the decline.
I did not comment on section 1 as I did not want to move outside the scope of the debate, but I ask the Cathaoirleach to allow me comment now. Several years ago, the then Minister for Finance, Mr. Charlie McCreevy, reduced capital gains tax from 40% to 20%, without at that stage being able to quantify the impact that would have on the market. However, when the decision was made, capital gains tax returns increased significantly. There are, therefore, methods the Government can find to be proactive. This is what the Government is doing with this Bill.
I agree with the points being made by my colleague, Senator Byrne. It is very difficult to understand how the newspaper industry qualifies for a reduction in VAT. He has pointed out that the industry has been shedding jobs. Not only I, but people who share their time between our jurisdiction and other countries also in deep recession believe the negativity of the media here has ensured that any confidence that may be engendered by any Government initiative will founder. If the media industry closed down completely for 12 months, this would assist some sort of economic recovery.
I accept the point made by Senator D'Arcy with regard to the black economy and the hairdressing industry. One significant industry that has been omitted from the section is the construction sector. I do not understand the reason for that. The construction sector has contributed most to unemployment. Many former construction workers face great difficulties in ever getting work again because of their lack of skills. People in the State sectors charged with retraining believe it will be almost impossible to reskill these people at a scale that will reintroduce significant numbers of them to employment. Given the over-supply of residential and industrial units, this will be very difficult. However, anything that can be done to incentivise employment in this area should be done. It is for that reason I am strongly opposed to the increase in the minimum wage and to the continuance of the JLCs. These are a sop to the unions, which are grossly overpaid, mostly through employees in the public sector. Unless reality dawns, our economy could implode. The consequences will be enormous.
Can some consideration be given to the construction sector? I suggest that a zero VAT rate should be applied to specific areas of the construction sector to generate jobs. This might create more jobs than in any other sector because of the number of people who have left the sector in recent years.
I find the comments of Senator Walsh interesting. In the past five or six years he has made many predictions. We thought those predictions dire and overly pessimistic at the time, but sadly they came to pass. He has maintained a consistent line with regard to the need to reform the economy and the public service and to keep costs down. I take on board what he has said. However, with regard to his comments on the construction industry and his efforts to provide some degree of assistance, it must be acknowledged that as part of the broader jobs initiative, money has been set aside for energy and insulation grants. That will be beneficial for the construction industry, even if it is on a small-scale basis. The Minister for Education and Skills has also introduced an initiative to provide significant assistance to the schools building programme. That will also create jobs.
I welcome section 3 as a whole. It is not often that the Minister of State or his colleagues come into this House and do what we ask them to do. There has been a strong demand across the sector to reduce VAT on these services and the tourism industry in general. This Bill will do that. We would love if it could go further, but we have to appreciate the very difficult economic times we are in and the fact that the Government's choices are limited.
It is interesting that the reduction in the section will only apply for a set period. It is a little like the air travel tax. Representatives of sectoral interests have told us that if we do certain things, they will create a certain number of jobs. As a result of this reduction for a limited time, we will be in a position to put the challenge to people in this sector and await their response. I hope it will be positive and effective.
The history of taxation in this economy going back to the 1980s has been that when we have provided incentives, they have resulted in economic activity and job creation. There was an excess in respect of property tax reliefs, but a simple rule of economics is that when income taxes are reduced, particularly income tax and VAT rates, additional economic activity is generated.
I look forward to the introduction of this section. It will be beneficial. Under the constrained circumstances in which the Government finds itself, it is as far as we can expect to go at this stage.
I welcome the reduction. I have advocated this on a number of occasions in the House, especially as it applies to tourist-related activities, which initially was the main thrust of the initiative. However, there is inequity in the small print, as my colleagues have pointed out.
I will focus on one aspect of the section, which the Minister of State might clarify. It refers to "certain musical performances". Perhaps he could elaborate as to what "certain musical performances" are. I assume it means that the major concerts taking place in the O2 and in various other places will now be subject to the lower rate of VAT. I welcome anything that would generate economic activity, but with the Take That concert in Dublin this weekend, there has been much criticism of the manner in which the hotels have jacked up their prices. One hotel source was quoted in the newspaper this morning as saying that as they offer relatively cheap rooms for the rest of the year, jacking up the price and doubling or trebling the rate for this weekend evens out across the year. It may even out their books, but where does the consumer come into this? This is not unique to this country as it happens everywhere there are sporting, musical or other events taking place over a weekend. Not only do the hotels indulge in jacking up prices, but the airlines also do it for international football and rugby matches.
I welcome the reduction because it will be a pull factor for international acts to come into the country as they will be paying less to the Government. However, one should also remember that while Take That and other musical acts are providing a great deal of entertainment, there are hundreds of thousands of euro going out of the country in fees and so on to bring them in.
I will also focus, in the context of "certain musical performances", on what is euphemistically referred to as the live band industry here. There is a live band industry which is in decline primarily due to the lack of promotion on our national airwaves, but local radio fulfils that gap to some degree. I am talking about many of the indigenous Irish singers and bands; not necessarily those that are playing country music, but those who are playing Irish traditional, folk and other forms of Irish music. Will the venues presenting indigenous Irish music be able to take advantage of the reduction in the VAT rate? These bands, groups, artists and the venues pay VAT. If these venues are to be exempt from the higher rate and will be able to take advantage of the lower 9% rate, this will be a good thing because it means that their cost base will be reduced considerably. That will be in the interests of the consumer.
I welcome the reduction in the VAT rate as it applies to cinemas and theatres. We pride ourselves on our artistic endeavours and inclinations. The point has been made that while it will be cheaper to go to the cinema and theatre, businesses with high fuel bills will not be exempted. However, reducing the VAT on cinema attendance is a positive move. Going out to the cinema and the theatre can be very expensive. It is not necessarily contained in the admission price, but it is often in the ancillaries. I used to advise my children, when they were going to the cinema, to go to the shop across the road to buy their popcorn, because it was three times the price in the cinema. They contributed in a small way to the local business while the cinema was getting the admission price.
To sum up, the thrust of my contribution is to ask exactly what the "certain musical performances" are.
It is difficult to know where to start. Perhaps I should start by commending the Opposition for their valiant efforts in finding something to criticise in a VAT reduction. I am new to this Chamber, but I am not new to the English language. It is with some disbelief that I hear Senator Byrne opposing VAT relief in section 2 and proposing that we extend the VAT relief to the construction and energy industry in section 3. Perhaps being new to the House makes me miss the point here.
I see that the legislative text refers to a reduction of VAT on certain tourist-related goods and services, yet the debate from the Opposition seems to be in the area of construction, energy and so on. As an aside and from listening to Senator Walsh, I would like to know whether it is Fianna Fáil policy to reduce the minimum wage again and reduce public service salaries by 30% in a bid to create more jobs.
There is very little in this section that is anything other than positive. This is a stimulus. It has been noted before in this debate that governments do not create jobs. That is universally accepted, but governments create the framework under which jobs are provided. That is the point of this section in the Bill and I welcome it.
I would like to clarify for Senator Gilroy the reason I am disappointed at this VAT relief, which we are not opposing and which we welcome. We are not opposing the section. We are concerned that the VAT has not been extended to other items that are included in Schedule 3 of the Value-Added Tax Consolidation Act 2010. That schedule contains a list of goods and services. This Bill refers specifically to sections 3(1), 3(2), 3(3), 7, 8, 11, 12 and 13(3) of that Schedule, and I wonder why section 17(1), which includes household fuels — that is, costs that affect the poorest people in society — is not included. Why are they not getting a break? That is the point. It is not that we oppose measures that may, and I hope, will create jobs — we are just looking for fairness. I have not mentioned the construction industry, but what about the energy industry? Section 17(1) of the Schedule applies only to the home energy industry, including suppliers of home fuels, oil, coal and so on. Why is this measure not being extended to them, while the media barons are getting a break, although there is no demonstrable benefit? The Minister has failed several times to answer the questions I asked about newspapers.
I disagree with my party colleague on cinemas. Ireland has one of the highest rates of cinema attendance in the world. I regularly go to my local cinema at the weekend. I went to see "The Hangover Part II" last Friday night with my wife and it was very enjoyable — I must say I disagree with the critics on that one. It is very pricey to go to the cinema, yet the place is packed. It does not seem to me that there is a problem there. There are many people employed in the cinema industry, which is by and large a multinational industry, yet we are giving them in a tax break in the hope and expectation that they will create jobs. I certainly hope they will create jobs.
On section 3, I want to clarify for Senator Gilroy that the VAT reduction in the tourism sector is very positive. However, it is important that the Government and the responsible bodies, including Tourism Ireland, go out to the world, tell people we have reduced our prices and ask them to come here. The Minister said the proof would be in the tourism numbers. I hope we will be able to show increased numbers of people coming to the country, but that will only happen if we let them know. I have often questioned the value of advertising tourism products within Ireland, although I accept that domestic spending is important. With regard to the brochures that we get in the newspapers every couple of months showing us the deals, however, it seems to me the money would be far better spent abroad in an attempt to attract new money into the country. The Irish people certainly know that prices will come down, and I hope they will come down because there is no provision in the Act to force them to come down. I also hope this will create jobs. However, the best way to ensure that happens is to let people know abroad that we have made our product more competitive.
It is important to note that the Irish tourism product has become much more competitive in recent years. I often thought it was a shame that we were not advertising across the world. We have luxury hotels all over the place — we might call them NAMA hotels, but they are fairly luxurious compared to what one gets in other countries — and they seem to offer rooms at very low prices. There is a major opportunity now to tell this to people around the world. They are used to really bad hotels when they go on holidays — in America, particularly, the standard of hotels is generally much lower than here. This is also the case, it must be said, in Great Britain. Moderately priced hotels in Great Britain are usually terrible places to stay. One cannot find nice places such as we have here. The message needs to go out abroad that one can find a really nice place to stay here for a low price. Now, thanks to this measure, the prices are even cheaper. I hope we will see jobs created as a result of that and the unemployment rate going down.
I hope this Bill will be successful. I want the Government to win on the Bill because in this case, a win for the Government is a win for the country.
I was impressed by Senator Jim Walsh, who spoke from the heart about his concerns that if we do not manage to get our economy right we will implode. There is little doubt that to achieve this we must be competitive. We have not been competitive; we really lost the run of ourselves in recent years. I have told the story before of going to Dundalk and meeting two butchers who were losing their jobs. I said to them that they would probably have to travel to Newry to get jobs, but they said "No — in Newry they pay one third of what we earn here." That is the sort of difference that existed. We have to do something about jobs, and the way we will do this is by incentivising job creation through tax measures. That is a delicate plant.
Senator D'Arcy impressed me with his comments about how the former Minister for Finance, Mr. Charlie McCreevy, reduced capital gains tax from 40% to 20% and took in more as a result. A better example is his reduction of the betting tax, for which I was here at the time. The tax was reduced from 20% to 10%, and the Opposition howled and accused the Minister, who came from County Kildare, of helping his friends in the horse racing business. He came back in a year later and said that as he had taken in far more money at 10% than at 20%, so he was reducing it to 5%. He came in again the following year and said he had taken more at 5% than he had at 10%. The reason I am taking pains to explain this is to demonstrate that adjusting tax rates is a delicate operation. He could not keep reducing the tax to 0% and hope he would take in more. However, there is little doubt among those of us who have been in trade, especially the grocery trade, that when one reduces prices one can sometimes make more money. It is delicate and must be done cleverly. The reduction in the travel tax must be promoted, because if people abroad are not aware of it, it will have no effect.
I know we are not discussing the minimum wage at this point, but it seems to me that there are a certain number of jobs that do not exist at a certain rate. Because of this, I am not a believer in a minimum wage. An example of this is the state of Colorado in the US, which reduced the minimum wage because it is linked with inflation — it did not have a choice, as it is set up that way. There are opportunities to reduce tax and take in more money on that basis. What the Government is doing on this occasion deserves support, although I do not quite understand why it has selected some products rather than others — Senator Byrne touched on this. I am also not sure why newspapers and hairdressing are included while other goods and services are not. This is not a Bill whose aim is to be fair; its aim is to try to create more jobs. It is going in that direction and it deserves support, particularly the provision we are discussing now.
I will add a few brief comments on the section, which I support. While we wholeheartedly support the reduction in the lower rate of VAT, we have some concerns about the programme for Government commitment to limit the top rate of VAT to 23% and the effect this will have on retail and trade and ultimately on jobs, especially in the Border areas, if people start going North to do their shopping. I would have supported the amendment providing for an impact assessment, but I must register my concerns about the increase in the higher rate of VAT to 23%.
This is an interesting debate on all sides and we will do our best to answer all the points made. Senator Quinn is right in saying that this is a delicate plant. It is not an exact science. Our commitment in the programme for Government was to reduce tax on labour-intensive industries from 13.5% to 12% across the board. We examined this again and, as an initial measure, decided the way to go was to concentrate on the tourism sector, which is the most ready, willing and able to ramp up the numbers of tourists. We have made a significant announcement about the air travel tax and about PRSI. It makes logical sense, if we are encouraging people to experience this country, to do whatever we can to reduce their costs on a whole range of different activities that they will engage in while they are in the country. The Government has adapted its approach. Rather than implementing a blanket reduction in VAT from 13.5% to 12% for all labour-intensive industry, we focused on tourism to try to increase visitor numbers and get an early win in terms of additional jobs. That is exactly what the objective is.
With regard to Senator Reilly's point, there is also a commitment to re-examine increasing the top rate of VAT. The Senator is right in saying that this could have unintended consequences, particularly along the Border area, where there is such a difference in tax from one side of the Border to the other. These proposals must be examined in the round. We are seven months away from the next budget and the Minister for Finance is engaged with all of this. We are very aware that a change in one area of tax could have a devastating effect on employment in another area. We must see how this initiative works first.
Senator Byrne's amendments were ruled out of order, but they are fair points to make. Why include one set of goods and services and not others? He does need a reply on that. The Senator has proposed that a poverty impact assessment be undertaken on the basis that the VAT reduction is not being applied to certain sectors. There is a cost in all of this, as the Senator is well aware. Given that the entire package must be fiscally neutral, we were obliged to weigh up the cost of reducing VAT in one part of the economy as opposed to another. The Senator makes a fair point in referring to the many citizens who are being pushed to the pin of their collar and will be even more so as winter approaches and there are substantial home heating bills to be paid. However, it is better to deal with that issue through the social welfare code rather than as a stand-alone VAT issue. The budget allocation for the existing national fuel allowance scheme is €230 million this year, a substantial commitment which may well increase next year based on the numbers finding themselves in a poverty trap because of high fuel costs. It is something we will have to review separately. It is the view of the Minister for Finance that it is better to deal with it by way of the social welfare rather than the VAT code.
Senator Thomas Byrne has also asked why newspapers are included in the VAT reduction. The 9% rate will apply to printed materials such as brochures, maps, programmes, leaflets, catalogues and newspapers. As many of these goods are relevant to tourism and EU legislation allows for such a reduction, it was decided to include printed material among those items to which the new lower rate would apply. Buying these types of printed material is part and parcel of the tourism experience for many visitors.
That is a large stretch.
That is why newspapers were included.
The Senator also asked why hairdressing was included. The rationale is that, first, it is a labour intensive service and, second, if there is any improvement in the domestic economy, it is one of the areas in which we will see some pick-up in terms of people getting their hair done for a night out and so on. It is not something I have done often myself.
The Minister of State is thinking of long-haired literary types who read the newspaper while getting their hair done.
I am told by people who get their hair done on a regular basis that it can be expensive. That is why this measure was included.
Senator Jim Walsh makes a fair point about the construction industry which has gone through an enormous collapse from a point some years ago where it employed 85,000 to the current dire situation. Despite all the palaver about developers and the like, the reality is that we need a construction industry. At some point we will have to get back to building houses and investing in infrastructure. However, it is prohibited under EU law to reduce to a zero rate unless that rate was in place in 1991 when the new tax rules were introduced.
As Senator Paul Bradford observed, there was positive news in the initiative on issues such as the schools building programme, retrofitting and so on. For example, the Minister for Communications, Energy and Natural Resources, Deputy Pat Rabbitte, has made an announcement on the allocation of €30 million, which will obtain another €30 million in private sector investment. This will provide employment for some 6,500 people this year in retrofitting. However, we need to do more in this regard. One of the best ways to reduce heating bills is to have one's home retrofitted.
It is one of the areas in which the economy is doing well. We must ensure our approach is successful in stimulating greater demand and facilitating the creation of jobs.
We have done our best, as part of the initiative, to introduce new funding on the construction side. We will not get back to the numbers employed in the industry at the height of the boom, but I agree that we must work to stimulate employment in the sector. I have made the point recently that there are some 4,000 vacant housing units in Dublin, of which 85% are apartments. If the economy were to turn quickly, we would be faced with a huge housing shortage.
Nobody wants to talk about this and the fact that not everybody wishes to live in an apartment. We must acknowledge that the construction industry is part of the country's future, despite all of the understandable anger directed at certain people because of the effects of the property bubble.
Senator Paschal Mooney asked about certain musical performances. I understand from my officials that this refers to cabarets and shows in venues where food and drink are served. The rationale is that tourists staying in an hotel will often pop down the road to have a meal and a drink and watch while enjoying a musical performance. They may wish to see Daniel O'Donnell, for instance.
I welcome the Minister of State and congratulate him on his appointment. I look forward to his continued support for the excellent work of the Office of Public Works. It is important that resources in this area are protected not only for the benefit of our artists and cultural organisations but also for the tourism industry.
I am confused by the inclusion of theatres in the categories to which the new 9% VAT rate will apply, given that theatre has been exempt from VAT for some time. Will the Minister of State clarify the matter and whether it represents a change in Government policy? I will be sure to get a haircut before the end of 2013 to avail of the lower VAT rate.
I accept the Minister of State's rationale for the inclusion of hairdressing in the lower rate. My point was that it was something of a stretch for a Government Deputy to say on radio that it had been included because hair salons were increasingly located in hotels. Nevertheless, the Minister of State has made his point well. However, it is certainly a stretch to include the newspaper industry. The reality is that this sector is controlled by many of the people who would be in the top 20 rich lists compiled by some of these newspapers such as The Sunday Times. These are the people who will benefit from this tax break. Senator John Gilroy wondered why I was opposing these provisions. I do not oppose the section, but I wonder why, if the provision is extended so far as to include newspapers, why it could not be extended to include household fuels. I am not talking about the energy industry or motor fuels but household fuels.
The Minister of State did not fully answer my question as to whether representations had been made by the newspaper industry, including promises of jobs. In fairness to them, we constantly hear representatives of the tourism industry lobbying on this issue. They have made a very good impression as a representative body and we can be hopeful the industry is gung ho to create jobs as a consequence of this initiative. It has certainly raised expectations and played a good game and I am confident it will do a good job. However, I am not convinced that the same applies to the newspaper industry. We have not heard its representatives on radio lobbying for these changes; therefore, I wonder what form their lobbying might have taken. The sector does not have a good record in terms of employment. I raise this issue as a matter of social justice. Senator John Gilroy may criticise me for raising it, but he will have to go back to his constituents and admit that the Government gave a tax break to the Irish Examiner but household fuel prices will remain the same.
I welcome the Minister of State's indication that there may be more money for the fuel allowance scheme. He mentioned the home energy saving scheme and the warmer homes scheme, initiatives introduced by the last Government. He is correct that the best way to keep a home warm is to retrofit it. That was a very successful programme, but one of the first actions of the new Government as part of the jobs budget was to reduce the grant available toprivate contractors under the scheme in what was a booming industry. That has made life more difficult for them. If the provision has the effect of having more houses retrofitted, I will support it.
The Minister of State also referred to the summer works scheme. As I said before, there are fewer projects going ahead this year, certainly in my own county of Meath, than there were last year, but these measures are dressed up successfully as part of the jobs initiative.
My questions on the newspaper industry were not satisfactorily addressed by the Minister of State, but my colleagues and I will not oppose the section on that basis.
How does the Minister of State propose to police the VAT reductions? We did away with price controls when they were needed at a time of significant growth in the economy. Consequently, a great deal of profiteering occurred. Previous speakers referred to obtaining good value in hotels and restaurants. That is undoubtedly true of certain establishments. However, it is not true in respect of many establishments. I recently met someone from the Continent who visited Dublin and who stated that it remains hugely expensive.
Newspaper prices have increased significantly in recent months. I presume this is not cost-related because in light of existing pressures, all good businesses are cutting their costs. The only entity not cutting its costs is the public service. I do not expect that the increases in price can be justified on the basis of costs. I wonder if these increases were anticipatory in nature in order that when the reduction in VAT arrives, profits will either remain steady or perhaps increase. This type of behaviour will be difficult to police.
In respect of the programme for Government, there were some good innovations in the context of what the Taoiseach did in reconfiguring Departments. I agree with some of the changes introduced but not with others. If the country needs anything, then it must be a Department to deal with consumer affairs and competitiveness. Surely any Government's main objectives would lie in these areas. If it were possible to do so tomorrow, I would advocate reducing wages across the entire economy. However, there would be a corresponding need to reduce prices. If we could engage in such a wholesale reduction, we could make great strides towards overcoming some of the difficulties we are experiencing.
I do not wish to make dire predictions but we are heading towards a point where we will be forced to devalue. The consequences of such an eventuality have not been contemplated at all. The alternative is to reduce costs and salaries across the economy. This constitutes a significant part of the correction that must be made. If we make such a correction, we can then begin to rebuild and restore confidence because we will once again reach the point where wages will increase.
It will not be possible to deal with our current difficulties over the period of a decade. In such circumstances I urge the Minister of State to consider how we might ensure that the envisaged reductions will be passed on to the consumer. If they are not passed on, jobs will not be created. I will be interested in hearing the Minister of State's comments in respect of that matter.
The Senator's prediction of a forced devaluation is somewhat apocalyptic in nature. As he is well aware, all of our debts are in euro. Were we to leave the euro and join another currency or re-establish the punt, all of our debts would, in effect, double overnight. If the Senator is of the view that we currently have a problem in respect of public and private sector debt, then he should just wait until that which he describes happens. I hope that the eventuality to which he refers will not come to pass because we must work our way through out difficulties as they stand.
I made the point on Second Stage that in the 1980s, one third of all taxes collected were used to pay interest on our national debt. Under current projections and in a worst case scenario, up to 20% of all taxes collected will go towards paying off our national debt. This is sustainable. There is no doubt that the situation is difficult. Our debt to GDP ratio currently stands at 95% and this will rise to 118% by 2013. At present, Greece's debt to GDP ratio is 165%. We may be in a difficult position but at least it is not as bad as that occupied by Greece. Our debt is manageable if we can encourage the economy to grow. That is why the measures in the Bill, small and modest though they may be, are designed to spark some hope within our domestic economy.
The Senator is correct when he refers to the necessity for competition. We need to ensure that we have a properly deregulated economy in which there is competition. I fully agree that there is a real need for labour reform. The package of measures relating to the reform of the JLCs which the Minister for Enterprise, Jobs and Innovation, Deputy Bruton, is due to bring before the Cabinet shortly is crucial in the context of ensuring that — in view of the collapse in the economy to the tune of 15% during the past three years — we will have a labour market that is fit for purpose.
Senators inquired as to how we will know whether what is proposed is working. I accept that there is no domestic policeman who will inform us about whether that which we are attempting to do will be passed on. However, the consumer price index, which is issued on a monthly basis, sets out information on a basket of goods and services. I understand it is possible to ascertain from the index the tourism-related information that will indicate which prices are increasing or decreasing. By collating this information we will be able to discover whether the initiatives in the Bill are making a difference. The monthly consumer price index will assist us in respect of this matter.
I thank Senator Mac Conghail for raising the matter about which he is concerned. He also discussed it with me privately yesterday. The Senator is absolutely correct. There is a zero rating of VAT on theatres.
Are they exempt?
Yes, theatres are exempt. I had thought the exemption applied just to the national theatre but apparently that is not the case. I understand it relates to all theatres. However, there are some theatres which have restaurants attached to them. If there is food and drink available, then one pays VAT as one goes in. What we have done in this exemption is remove them for the purposes of placing these theatres on the same footing as other theatres in respect of which a different rate of VAT applies in order that they might compete with them on a regular basis. I hope that clears up the ambiguity.
It does not apply in respect of ticket sales.
Recommendations Nos. 9 and 10 are related and may be discussed together.
I move recommendation No. 9:
In page 12, to delete lines 44 to 57 and in page 13, to delete lines 1 to 3 and substitute the following:
"(a) a chargeable person who is an insurer pays an amount in respect of the duty in relation to a contract of assurance, the amount shall be deemed to be a necessary disbursement from the pension fund of the insurer. Notwithstanding that, the insurer may not adjust accordingly any benefits under the contract.”.
We are dealing with recommendations Nos. 9 to 11, inclusive. I wish to defer to my colleague, Senator O'Brien, in respect of this recommendation No. 9 if that is acceptable.
Recommendation No. 9 seeks to ensure that benefits agreed in respect of current schemes will not be reduced by a scheme's trustees in order, effectively, to pay the levy. As stated on Second Stage, an average sized company might have a scheme which has been in operation for 20 to 30 years and this might incorporate a mix of retired members — with their retained benefits — and members who are currently working and contributing. If a scheme has combined assets of approximately €50 million, there will a charge on it under the levy of approximately €250,000.
We are seeking to ensure that the trustees of a scheme will not just simply reduce the existing benefits relating to the scheme.
For the purposes of clarification, will the Leas-Chathaoirleach confirm that we are dealing with recommendations Nos. 9 and 10?
That is correct.
I apologise for interrupting the Senator.
The overall point I make is that someone who has been a member of a scheme for a long period will obviously pay more. We have already discussed my views on the levy and the inequality relating to it. The Minister of State must recognise that the larger the scheme, the greater will be the charge upon it. In the context of the levy, we are discussing work schemes which, in the main, are employee pension schemes.
We are not discussing proprietary director schemes in the main as they will not be hit as hard because of the approved retirement funds, ARFs, exemption inserted by the Government in the legislation. The longer a person has been in a scheme, the more he or she will pay. A person in a defined benefit scheme, with two or three years to go before retirement, may have an expectation that on retirement he or she would get two thirds of his or her final salary as an annuity for the rest of his or her days, which would be a good scheme, but now the scheme trustees will have to pay this levy. More than 70% of defined benefit schemes are underfunded. If a company is short of money, which many are, it might decide to reduce retirement benefits for its members, with the agreement of the scheme trustees, from two thirds to 50% of final salary or from 50% to 30% of final salary. That would have a grave impact on people who have an expectation of receiving in the short term a pension into which they have paid contributions for a substantial period of time.
The Minister of State stated clearly in his contribution yesterday, if I understood him correctly, that trustees would be given a free hand such that they could amend the structure of their pension schemes after they had paid the levy. That indication is being given to scheme trustees and to employers, who sponsor a large portion of defined schemes in particular which are expensive currently because there has been such a dip in equity and property markets. Many of what would have been seen as the base scheme assets have been hammered over the last three or four years. The average return — there is not an annualised return — on a managed fund in a ten-year period is approximately 1.6% according to the IAPF. The imposition of the levy will take out nearly half of that growth, which is minimal. We are now saying to the employer or the trustee, in many instances they are one and the same, that we understand that they cannot afford this levy and, therefore, inviting them to hammer the scheme, to reduce the benefits under it, thereby reducing the funding requirements of it simply in order that they can pay the levy.
This levy will penalise people who have made a conscious decision, encouraged by successive Governments, to prepare for and separately fund for their retirement, thereby reducing the financial impact on the State on their retirement. A pensions crisis is looming from 2030 onwards because of our ageing population. The longer people have been in a scheme, the more they will pay. The main contributors to pension schemes, who in most instances are employers, will be let off the hook. While our recommendation proposing a review of this measure was defeated, I take the Minister of State at his word that the jobs initiative will be reviewed, which I welcome, but such review should cover the impact of this measure on pension schemes and pension benefits. The Government will ensure that this levy will be imposed and paid this September and I could almost certainly say that in 12 months time there will be wholesale reductions in the composition of pension schemes, in promised pensions, retirement funds and retirement values paid out to employees. That would be a colossal impact of this levy, particularly if a person is close to retirement.
If a person has been contributing to a pension scheme since he or she was 20 or 21 years of age and has been building up a maximum entitlement of 40 years' service in the scheme, he or she will be hammered on foot of this measure. The Government will give employers, who in the most instances are the trustees of the pension scheme albeit it a separate legal entity from the company, a free hand to reduce the benefits, thereby allowing them to pay the levy. The purpose of recommendations Nos. 9 and 10 tabled by Senator Thomas Byrne is not to permit that and not to take the legs from under the benefits of existing members of pensions schemes. I read from a letter from the airline pension fund yesterday, which has 15,000 members, one third of whom are retired, a third of whom have retained benefits and a third of whom are sill working. That letter clearly states that for existing annuitants within the fund, the pressure the levy will put on the fund will see a 9% reduction in the annuities paid out to existing members. This is a significant pay cut. Effectively, one tenth of a retired person's income will be taken to pay for the jobs initiative.
I said to the Minister of State previously that we agree with many aspects of the jobs initiative. However, by levying pensions, the Government is exempting the majority of the pensions sector in what it proposes here. It should have examined levying tax free lump sums. If it needed to raise the money for this initiative, and I understand that governments need to raise money, it should have examined that option. The vast majority of people will have an element of a tax free lump sum on retirement. They will have the option of that, be they self-employed, propriety directors and those in the public and private sectors. The Government could have examined, say, levying 0.6% of one's retirement fund, one's tax free lump sum. That would take into account the fact that a person could walk away with €500,000 in a tax free cash sum and be able to hive the rest of it into an ARF that will be exempted from the pensions levy, and simply to be taxed on a nominal 5% withdrawal from it every year and to be left with that. The ARFs can pass to a spouse following the death of the retiree, with very few implications in terms of inheritance tax. We are letting that whole sector off the hook completely with this measure. The Minister of State can shake his head but we are. We will push these recommendations on the basis of protecting what is there. At the very least we must protect the expectation that pension scheme members have, particularly those who are closer to retirement. We accept the Minister of State will go ahead with imposing the levy, with which we disagree, but he should not allow the pension scheme trustees to reduce the benefits of existing members in funds.
I do not want to speak specifically on the recommendations but to raise the issue concerning ARFs which I brought to the Minister of State's attention yesterday. I am raising a different angle on ARFs, namely, the increase from €12,000 to €18,000 in the minimum amount required for qualification for entry into a fund. Senator O'Brien spoke about those on the upper echelons of the scale who pay into ARFs, but there are people who can only afford the minimum amount of €12,000 to participate in such a fund. They are now being denied access to the ARFs because they cannot afford the €6,000 difference between the current minimum amount of €12,000 and the new increased amount of €18,000 required for entry. Those people would need to have in their pension pot savings of €120,000 to €150,000 to accrue that amount. It is not feasible for them to now join ARFs.
There is also the qualification that contributors would need to leave their money in the fund until they are 75 years of age. If a person was able to afford the €18,000 minimum qualification required for entry to an ARF scheme, he or she would need to freeze €120,000 of their pension benefit until the age of 75. Who, other than the very rich about whom Deputy O'Brien spoke, would want to do that? There are two sectors in ARFs. For example, people such as the ground staff of local authorities who have put their life savings in AVC schemes will decide that they cannot afford to contribute and they will opt out of the fund. Rather than having people opt out of these funds, this requirement should be revisited. The Minister of State, Deputy Hayes, kindly said yesterday that he would come back with a further answer on this point today and I appreciate that.
It is fair to say that in the past 20 years careful citizens who wished to make prudent provision for their own future and for that of their families generally followed the careful, conservative advice of serious financial advisers who told them they should invest in two things, namely, their family home and a recognised pension product. Others decided to follow more speculative, casino-like proposals, investing in international property, hotels or whatever, but careful, prudent people who did not wish to take a wild punt did those two things with any discretionary funds they had left after week-to-week expenses were looked after.
The thrust of a big chunk of Government policy appears to be to penalise people for making those two decisions. One of the penalties will be to impose different forms of taxes on the real estate asset people have. The second one is now to impose an involuntary, unplanned for tax on the moneys which are collected in their pension funds. I wish to suggest an alternative which not only makes greater moral sense but which would raise far more money. I urge the Minister to consider the suggestion and to bring it to the attention of his colleagues on the financial side of the Administration. Rather than imposing an involuntary raid on pension funds, why not look at people who are facing personal catastrophe, those who may lose their home, those with crushing weights of personal debt, not because they made wild investments but because they bought a house. They bought the same kind of house their fathers, mothers and grandparents bought only they had to pay more for it in the highly inflated real estate environment in which they found themselves. Contrary to the canard which is being propagated in Der Spiegel and other continental newspapers, it was not a case of wild Irish “Dodge City” dwellers taking the money from careful German hairdressers and investing it in Mercedes cars and foreign property. In general, it was people taking that money because they were advised to do it and buying a house.
The alternative suggestion relates to people who are facing crushing weights of personal debt because they made the prudent decision to buy a house, who at the same time have large amounts of money locked up in pension funds which they cannot access. It appears that approximately 1 million people in this country have private pension funds and the total amount of money held in those funds is about €85 billion. To quote US Senator Dirksen, "A billion here, a billion there and pretty soon you're talking real money." I do not say that everyone would make the decision to access 100% of the money they have locked in their pension fund but many people would make the decision to access some of the money if current pension law could be amended to allow for them to get premature access to the money. This is a win-win situation. It would enable people to reduce their level of personal debt, one which in the next few years could result in them not having the luxury of looking forward to their pension coming in but looking forward to being homeless if the bank forecloses or their house is confiscated in response to negative equity. If they could get that money and free up some component of their debt it would help their personal circumstances.
There is a tax liability and a tax benefit associated with making pension investments. Many people who would wish in this emergency to get that premature access would be happy to pay their tax and perhaps pay the tax with some kind of penalty in lieu of the early, premature maturation of the policy. That would give money to the Government which clearly needs it. Every billion raised would be a billion which would not have to be raised in bond markets or bailouts.
In terms of the general thrust of the Finance Bill, which is to improve employment prospects, it is generally recognised that one of the key limitations on employment creation in the country currently is the lack of liquidity which is being made available by banks to entrepreneurs and various other investors who may wish to start businesses.
I put it to the Minister that if people paid off a chunk of their mortgage with the money which was taken from their newly liberated pension funds that money could be designated at bank level for reinvestment in job creation schemes. Rather than incurring possible censure from people who feel they have no control over their pension fund being raided, in a situation that does not appear to be benefitting them particularly but is rather for the common good, something which we all support, this alternative would perhaps allow us to raise more money, make people see where the money was going and provide it for the three categories in society which need it most — the banks, and ultimately the people who will benefit from the loans they would get, the Government, which needs it for public services, and people who are in danger of losing their homes. As far as I am informed, the current estimate is that in excess of 90% of those funds are outside the State. That would be a massive repatriation of Irish wealth at a time when it is urgently needed.
We heard much talk in recent years about good banks and bad banks. Will the Minister consider the possibility of trying to think of some creative scheme that would incentivise some other component of the money which is held overseas to be reinvested in some new national repatriation bank? There are a number of ways of looking at the issue but it would probably require more time than we have in today's debate.
In response to Senator Byrne's earlier admonition that we should all see "The Hangover Part II", I ask if Members have been made aware of the interesting correspondence in The Irish Times this week which suggested that “The Hangover Part III” is going to be set in Two Mile Borris. I thank Members for their attention.
I welcome the Minister. I support Senator Crown's idea on having access to the pension fund. Perhaps it could be defined that the money must be used to pay off a mortgage on a private house rather than on speculative investments. I take the Opposition's view on the matter lightly because the reason pensions are being talked about so much today is due to the emphasis that was put on property. Governments in the past 15 years did not try to promote pensions in the same way they promoted property.
That is not true.
It is true.
The biggest change in pensions legislation was introduced by the previous Government. That is not true at all.
Senator O'Brien should allow me to finish my point. The buzzword in the country in the past 15 years was that people should buy a house to act as a pension, be it an apartment in Bulgaria or a property anywhere in the world as it would do much better as an investment than any pension fund. I was involved in the insurance brokerage business when pensions were taken out for proper reasons. As Senator Crown indicated, people who were in business put their money away each month. They could work out fairly easily what they would get back, based on a 5% or 8% growth rate. It was a pretty straightforward business until we were told that pensions were only for ordinary people and the real money was to be made in property. That came across. We all know that talk at dinner parties and in bars was about how much one's house or apartment was worth in London or Paris. That is the road we went down and that is what has brought us to the situation where we must talk about taking money from the pension fund.
The Minister referred yesterday to the massive commission earned by investment banks. I agree wholeheartedly. Pension funds and managers make a lot of money. One is talking about half of 0.6% twice a year. We should make them work a bit harder for their money. If I was investing a lot of money directly with an investment banker I would ask him how it was performing and why I am only getting 4% if another fund is getting 5%. Everyone else is taking a hit so there is no reason investment bankers cannot. One can see in the news how investment banks around the world are still making serious money in spite of the collapse of many banks. That is where the real money is made. Even in this country big salaries are paid to investment bankers not the ordinary teller at the bank desk or the local bank manager. I do not know whether the Government has any influence on pension fund managers in terms of them taking a cut. It is a commercial issue but it is something they should be encouraged to do if not made do.
Anyone in business is currently finding it difficult to put money into their pension. If the 0.6% is taken away from a fund to create jobs it will bring money back into the system which is a good long-term investment. I cannot comprehend the short-term criticism of it. We are not talking about a massive amount of money. It is not being done for the next 20 years. It is being done to stimulate growth. I know many people in business who cannot afford to put any money into their pension because they cannot afford to run their business. They just stopped paying it. Having spoken to insurance brokers who deal in the pensions market, it is clear there has been a massive fall-off in pension retention. Most people in business find it difficult, but many people just stop paying it. Their fund is not growing at any percentage rate because markets are so bad, but in the case of a retailer or any business where liquidity in the market is needed, the only way that can happen is by stimulating job creation. Obviously, the money circulates and then the pension fund matters, but it does not matter if someone is getting 0.6% of a pension fund if there is no fund to speak of. The bottom line is that we must get money back into the system to encourage people to invest in their pensions.
In terms of releasing the flow of credit, the Minister of State may not have been present yesterday when I asked that the issue of the Credit Review Office be examined because it is difficult for people to go to the Credit Review Office after the bank has turned them down. Small business persons say that they need not bother going to the Credit Review Office if the bank has refused them credit . If the process was reversed for a while and small business persons or anyone could go to the Credit Review Office first and get a good report, they could then go to the bank with some encouragement. If I was refused money by the bank, I might decide to give up. Many people in business do not have the energy to go to the bank twice and their business might have closed or been compromised. I ask the Minister of State to examine that because the board of the Credit Review Office is made up of former bankers from all the big banks and perhaps people should get its imprimatur first rather than after the bank has refused credit. There is little point in the Credit Review Office agreeing someone should get credit only for the bank to refuse it but the Credit Review Office does not have any powers in that regard. I do not know if that is a runner, so to speak, with the Minister of State or whether a view could be got from the Credit Review Office because, from what I read, it is not too busy at the moment. My suggestion may speed up the process and give a small company some encouragement to go to the bank subsequently rather than the other way around.
I wish the Minister of State good luck with the Bill. Pension funds will always turn around in the long term and 0.6% is not a great percentage. The bigger issue is getting started early, but we did not encourage that. As Senators will be aware, the graph on contributions to pension funds indicates that, if someone starts contributing at the age of 25 or 45, the difference in the fund on retirement is phenomenal. We should encourage people to set up pension funds at an early age and as soon as they are eligible. Even a small amount builds up. The longer one waits, the more difficult it will be and the funds will be so small at the end of the term, they will be worth very little.
I express my opposition to section 4, the central tenet of which is the imposition of a 0.6% pension levy. I will address the recommendation shortly. The pension levy is not about burden sharing on an equitable basis. It is deeply inequitable and, because it excludes approved retirement funds used by higher earners to invest in their pensions, we are opposed to it. It makes no differentiation between the pensions held by ordinary workers — those working on the ground in council yards, for example — and high earners.
Our recommendation No. 6 has been ruled out of order but we had said that standardisation of pension tax reliefs at the lower rate would have been a better option for raising revenue for the jobs initiative. Not only would it have removed an unjustifiable inequity in the current system, it would also have generated significant revenue for the State to invest in the much needed economic recovery.
On recommendations Nos. 9 and 10, while we are opposed to the levy and to the section, we must ensure that, if this section is enacted, the cost of the fund is absorbed by the fund managers and not passed on to pension holders by way of a reduction in their pension entitlements. We will support recommendations Nos. 9 and 10.
Some of my remarks relate to the section. The Minister of State has just come into the Chamber, but it would be fair to say we have covered a wide ambit, not only on the section but on debt forgiveness or debt relief. Some innovative suggestions were made by Senator John Crown with regard to allowing people access their pension fund before pension age to allow them pay off a mortgage, for example, which might be crippling them. There is some merit in that but we must look at the macro picture. In terms of our demographics, we are fortunate that we have a young population compared with other European Union countries, but that will change over time. People are living longer because of health care improvements and, as a consequence, everyone recognises that funding the elderly into the future is a serious issue for the country.
I agree with Senator Crown's point that many people were prudent in putting away their scarce resources to build a fund for their retirement. While that was done, we must recognise that only about half the working population are in a pension scheme. There is a coterie of people who are not in a scheme.
I listened with interest to what Senator Harte said about the fact that the amount is insignificant. I should have declared an interest at the outset that I have a small PPF but that will not influence my remarks. The 0.6% seems small but in terms of the maximum cap that has been put on it now of €2.3 million, if someone is to pay that contribution over the period, on my reckoning it will amount to approximately €56,000, which is €14,000 per year. In terms of what the salary might be to generate that sum, if, say, the person is on €70,000, €80,000 or even €100,000 and he or she has built up this pot, that is the equivalent of a 14% levy on his or her income, which I believe we would all agree is considerable.
There has been much changing of the goalposts with regard to pensions and that uncertainty is undermining the concept of encouraging the population to become involved in providing for their own future. Failure to do that means they will be reliant on the State, but it appears the State will not be in a position to cope with that for some considerable number of decades. Anything that flies in the face of that must be seriously questioned. I am not saying that because the Minister is present. I would have argued against the previous Government bringing in the notional disbursement and taxing a notional disbursement. That was wrong. When it increased from 3% to 5%, it was decided somewhere in the Department of Finance that this was a way of getting a revenue stream. I will outline a solution to the revenue aspect shortly. What it does is take away from people wanting to invest in pensions. That is the opposite direction to the one in which we must travel.
While we are accumulating a great deal of debt now, there is fair criticism that what we are doing is mortgaging the next generation's future. I believe we have a moral responsibility not to do that and that is the reason I advocate we deal with our problems in our lifetime and try to cut that.
I suggest to the Minister that the exclusion of the public sector from the levy and also people with significant sums in approved retirement funds, as Senator Darragh O'Brien——
That might be more appropriate to the section. I will let the Senator speak on that on the section.
I am about to conclude. While it is being argued that the increase in the pension levy is an imposition on all those of us who work in the public sector, it should be noted our contributions are only between 13% and 15%, approximately, of our salaries. The cost of our pensions is in the order of 42% to 43%. Therefore, we are only contributing a fraction of the overall cost.
Let me outline my solution. I would not have gone near the pension fund. The Government is wrong in this regard and I intend to oppose the section as a consequence. If the Government had applied a 2.5% levy for four years on those who work in the public sector, it would have brought in an equivalent sum of money. This would have been fairer because those who are better paid than many in the private sector — the productive sector — would then be contributing towards the cost on a short-term basis. What the Government has done has created many anomalies, only some of which have been touched on in the House. Some, including the one mentioned by Senator Darragh O'Brien, are important to consider. For example, many employers are shifting from defined benefit to defined contribution schemes. The Government's approach will only encourage this trend, which is not to be welcomed.
We must remember that the biggest tax relief available in the State has been for pension funds.
It is not tax relief but a deferred tax.
It is up to 40%, which is substantial and has been helpful. It has been helpful in that it has encouraged people to start paying into pension funds in the first instance. A figure of 0.6% is modest. In the 30 to 40 year lifespan of a pension fund, this will not have a very significant impact. Some who may be approaching retirement could be affected more than others, but, unfortunately, that is just the way it is.
I want to touch on what Senator John Crown stated. While it is not relevant to the Bill, I would appreciate it if the Minister and his officials examined in detail the option of exiting pension schemes early. I do not see the point in having a pension fund that is to become available in 15 or 17 years if one loses one's house in the meantime. A little common sense must prevail in such cases. Perhaps this might be considered in the subsequent Bill or the next budget for those in difficulty whose schemes are subject to very strict criteria.
I will not pursue the matter further. Suffice it to say that if Senator Jimmy Harte is concerned about administrators' and managers' charges, he should note the recommendation is an attempt to deal with them. While it may not be properly drafted, we certainly had in mind that one should not be able to cut people's benefits. The Taoiseach said one could talk to the banks or fund managers in the hope they would not pass on the charges, but that is not good enough. The Government can introduce laws to deal with such issues.
I oppose the section and support the recommendation. I do not agree with previous speakers that private pension holders accept the logic of the levy and see its benefit in terms of jobs. I have spoken to many of them and they are fearful. They are fearful because they know private pension funds across the globe have been affected by the crash of recent years. That is the reality. Many are very fearful about what they will get back from their funds when they get older. They have put much hard-earned money into funds and much of it has been lost.
Let me cite, as I did yesterday, the example of the Waterford Crystal workers. They lost almost all of their pensions and are now taking the Government to court because of a failure of the State to implement properly an EU directive that would have afforded some protection with regard to pensions. The directive, as the Minister of State will know, was challenged by the British Government. It was supported at the time by the Irish Government. It compels states to have some insurance protection built into private pension funds. The failure of the Government at the time to implement the directive meant the workers in Waterford Crystal were exposed and lost most of their pensions. Many people with private pensions saw what happened to the Waterford Crystal workers and are wondering what will happen to them. They ask how many more funds are insolvent. There is a very real fear among many private pension holders about the value of their funds. I support the recommendation. While I oppose the levy, the cost should be absorbed by fund managers, not by pension holders for the reasons I have given. The Minister of State needs to appreciate the real fear among private pension holders.
I agree with Senator Jim Walsh that we should not frighten people from investing in private pensions. I support universal pensions and would prefer if all State money went towards supporting public pensions such that the very wealthy could not put huge sums of taxpayers' money into pension funds. We want to see equity across the system.
The Minister ought to be aware of the very real concern and fear that is evident. Anything that adds to that fear is wrong and the levy could have this effect. Many people to whom I have spoken are very concerned about the imposition of the levy and also about their pension funds. Perhaps the Minister of State will refer to this, in addition to the EU directive, which is important.
Senator Jimmy Harte referred to investment managers and the cost of managing pension funds. Deputy Shane Ross suggested pension fund managers should carry the cost. I would love them to do so if it were feasible. The average cost of managed pension funds, the funds associated with workers' schemes, is 0.75% per annum, as any of the Minister of State's officials would tell him.
More up-market pension funds are complex. There can be a 1% or 1.25% charge, sometimes more, on which people make a decision. Other pension funds have with-profit arrangements. They incur a fund management charge of 0% and the arrangement involves a bid-offer spread between the purchase and valuation price. Therefore, the idea that the pensions industry alone can carry the cost is not correct.
Foreign companies which locate their European headquarters here employ over 5,000 people in Dublin. These are Irish jobs and the staff are normal working people who are contributing to pension schemes. It is valid, however, for the Government to ask pension fund managers to examine the cost of managing funds. I am sure the Minister of State and the Department are aware that in recent years there has been a great contraction in management charges for funds because of the competition in the market. Scheme trustees and companies shop around regularly and switch funds from one fund manager to another on the basis of the management charge and performance. Some funds are managed on the basis of performance alone. In this case, where there is a reduction in the fund in a given year, no management fee is paid. I know of many such arrangements.
It is the responsibility of pension scheme trustees to seek changes to management charges. It is not correct for Senator Jimmy Harte and Deputy Shane Ross to state the cost can be borne by the industry alone. The Minister of State rightly stated he must be aware of taxation measures or reductions and how they affect other sectors. What is good for one sector may not be good for another. If the screw were turned completely on fund managers and pension companies in this city and elsewhere in the country, there would be substantial job losses in the insurance sector among normal workers who are themselves contributing to pension schemes. It is important to put on record that very few funds charge 2% or 1.65% or more, and they usually are the Rolls-Royce type schemes. Normal pension funds charge approximately 0.75% per annum. While I await the Minister of State's imminent response to the many questions raised, this issue must be addressed. Moreover, in the contacts between the Department of Finance and industry representatives such as the Irish Association of Pension Funds and the Irish Insurance Federation, what view did they give on potential payments they could make instead of the levy? What was the industry's view of the fund charges? Did its representatives claim the industry had no cash, was on its uppers or was employing X numbers? As I am sure the Department broached that issue with the industry, the Minister of State should outline its perspective in this regard.
I will be brief. It has been stated that the art of revenue raising is akin to plucking a goose, with the objective being to get as much down as possible with the least amount of hissing. The Opposition is determined that the goose will hiss loudly and, for the record of the House, I wish to correct one or two of the figures that have been suggested. While I do not like to mention Senator Byrne in his absence, Senator Jim Walsh mentioned sums such as €56,000, as well as €14,000 per year or €9,000 per year. Those figures would be accurate were the levy on the entire pension fund to become available on the amount of money that has been drawn down. It is not accurate to state it is the equivalent of €9,000 per year or €14,000 per year or €56,000——
No, it is not.
I can go through the figures with the Senator.
I can take the contrary view and can explain to the Senator how these figures are wrong. If the entire 0.6% charge applied over a €2.3 million pension fund became payable on the portion of money that was being drawn down at the time it was being drawn down, then the Senator's figures are correct. However, this, of course, is not the way it will work. The levy is being applied——
The pot is €2.3 million. All one needs to do is to calculate 2.4% of that as an example.
If I may——
Senator Gilroy to continue, without interruption.
The 0.6% levy of course will be spread across four years of the entire life of the pension fund and, consequently, the purpose of quoting such figures is to make the goose hiss very loudly.
I understand that recommendations Nos. 9 and 10 are in the name of Senator Byrne. May I respond to them first and then deal with the other issues raised in the context of the section? In dealing specifically with recommendations Nos. 9 and 10——
The Minister of State may deal with the other issues as part of the debate on the section itself. He should deal with the recommendations first.
I am in the Cathaoirleach's hands. These recommendations seek to deny an insurance company or pension scheme trustees the option to adjust current or future benefits of the pension scheme or contract of assurance to take account of the levy being paid by them. It is up to the trustees and administrators to decide whether and how the levy should be passed on and who should be affected, as well as to what extent, given the particular circumstances of the pension funds or pension plans for which they are responsible. The Minister for Finance has sought to provide, in so far as he can, that where the option to reduce benefits is taken by the trustees of a pension scheme, the imposition of the levy is not carried out in a disproportionate way. The Bill also gives the Revenue Commissioners authority to review any cases where assets are disposed of by administrators or trustees to pay the levy to ensure that any such disposals are in keeping with or are needed to pay the levy. It also gives the Revenue Commissioners oversight authority to review instances in which benefits are adjusted as a result of the payment of the levy to ensure that any such adjustment is made in accordance with the requirements of the levy legislation. The Minister for Finance has made known to pension industry representatives his view that there is scope for the industry to absorb the impact of this temporary levy by way of a reduction in fees and charges made on these schemes. He has written to the industry representatives in this regard and awaits their response.
As Senator O'Brien has observed, however, each individual pension scheme is different and it is a matter for the trustees of each scheme to determine the appropriate manner in which the levy will be paid. The point being made in the legislation is there are many means by which this can be absorbed. In the first instance, for example, a fund could have a good year. The point was made during an earlier part of the debate that 90% of these funds have been invested outside the country and, at one level, that is a good thing given the collapse of property prices and investments in Ireland in recent years. However, the point is that the charge could be absorbed if a fund does well in one particular year. I accept both that there is no standard across-the-board management fee and that the larger the fund, the greater the management fee. At the same time, however, one must be honest in this regard. Those who pay into such funds also are consumers and fundamental questions must be asked about the management fees that have been charged willy-nilly across the pensions industry for a considerable time. While I do not suggest that all funds charge fees of 2% or 1.5% — such a suggestion was made in the other House — and am sure there are many examples of fees of 0.7% or 0.8%, some of this levy can be absorbed if people manage their business. Everyone must do that and the entire objective of the banking restructuring plan is to be able to absorb some additional costs by having a restructuring plan and reducing costs. That is my point regarding the absorption question.
I also wish to respond to the general issue unless the Cathaoirleach wishes——
We will deal with the recommendations first.
Specifically on the recommendation, I thank the Minister of State for clarifying his position. It is interesting to note, and I take the Minister of State at his word, that the pensions industry has not responded to correspondence from the Minister for Finance at a point when the Bill is before this House and will be dealt with this week. This is an indictment of the industry that I find incredible. I should not say "incredible" as I believe it, but from the industry's perspective it is incredible that its representatives have not responded to correspondence from the Minister with regard to the absorption of some of this levy.
While I will not go back over old ground, the Minister of State made the point for the recommendations themselves in that they remove the retrospection from this tax. Let us call this a tax because that is what it is. This tax is retrospective because it is taxing a value of a fund into which one could have paid in the past 20 or 30 years. The point of the recommendation is that if the Government must go ahead with the levy to pay for the jobs initiative, and it must find money somewhere, it should not crucify those who have been prudent, have made a decision and who have cut their cloth to measure to ensure they have sufficient funds on retirement. Incidentally, it was mentioned that 50% of people do not pay into pensions at all, some because they simply cannot afford to so do and others because they chose not to and opted for other, non-approved products or invested in property and so on.
In respect of management charges, the Minister of State will be aware that in 2002 or shortly thereafter, on foot of the changes in pensions arising from the PRSA legislation, a fee cap under PRSA arrangements of a maximum fund value of 1% was introduced at the time. This had the effect of lowering management charges for existing schemes that were above that. The point is that people who have paid into their schemes, especially on the defined benefits side, have an expectation that they will have a certain percentage of their final salary as a pension for life. This is particularly true for those who are within a year or two of their retirement. The Finance (No. 2) Bill effectively lets the trustees, employers and insurers off the hook. The Government proposes that the Minister will ensure that any impositions or changes will not be disproportionate. However, there is no definition of what that is. There are different categories within different schemes, different types of employees, different types of membership of a scheme and, consequently, this provision is far too loose.
While I understand the point, this is not some centralised Soviet republic in which, through law, the Government effectively can tie the hands of administrators and trustees to such an extent that——
That sounds like Soviet republics which take people's savings as well.
My apologies. Maybe I am being a little dramatic in how this can be applied. The Senator said that this is about retrospection. Let us be honest, this is a temporary tax on the current value of these funds for a number of years.
It is a wealth tax.
In 1988, the Members opposite proposed a levy.
I was in school then.
The Senator's party proposed a levy for one year.
I must interrupt the Minister of State, as the Leader has indicated that he may wish to change the Order of Business.
We have ample time to discuss the recommendations, but in deference to the Minister of State I propose that we should extend the time available to 5.30 p.m. to complete all stages.
Is that agreed? Agreed.
I was just making the point that in 1988 a levy was introduced. In 2002-03, a levy was also introduced, but both those levies were later removed. This is a temporary levy or tax. One of the reasons the Pensions Board has not replied is that, despite all the comment about this 0.6% levy, the bigger issue for the pensions industry is the very point that Senator Reilly referred to earlier — whether people will continue to be able to get tax credits on their pension cover at the marginal rate.
I remember the comments made by the pensions industry before the general election, but I think people could bear the levy. This issue has been blown out of proportion, given that historically there were other levies in place that came to an end. We have given a commitment that this one will come to an end in 2014. It is being introduced for the specific, net purpose of encouraging employment within our domestic economy and getting people back to work. People are being asked to pay a small amount on a current net value asset, which is their pension pot. The Minister and the Government have said that, as set out in the legislation, there are ways in which this matter can be absorbed with a bit of commonsense, particularly concerning pension schemes that are doing well. I understand where the Senator is coming from, but I cannot accept the idea that we can tie the hands of administrators by the imposition of recommendations Nos. 9 and 10 in respect of the specific requirements that would be inserted. For that reason I have to oppose both recommendations.
I ask the Senator to be brief because we have had a good debate on these recommendations.
We have and, in fairness, I do not want to delay the debate any further. The Minister of State made the point as to why the Government should accept these recommendations. He said the pensions should find a way to absorb this fee. If so, why in God's name let them off the hook by stating in the Bill that the Minister can adjust benefits within an existing scheme for people who are due to retire shortly?
The reason is that the Bill gives power and authority to the Revenue Commissioners to review these cases where assets are disposed of. Power currently exists within the Revenue Commissioners to make findings of fact on these matters, which could be beneficial in terms of the full implementation of this measure.
I am glad to hear that because we might be able to find a way of dealing with this matter. As the Minister of State said, under current legislation the Revenue Commissioners are entitled to review any approved pension schemes, which is fine. They can write to any administrator and say they want to review any schemes, as can the Pensions Board. What therefore will the Revenue Commissioners actually review? Under existing legislation they are able to examine any scheme and tell trustees they have released assets to pay for the levy or have reduced the benefits of a scheme. However, what is the definition of "disproportionate" and how can the Revenue make a finding against a scheme's trustees on that basis?
The Commissioners have significant oversight authority to review instances where benefits are adjusted as a result of the payment of the levy to ensure that such adjustment is made in accordance with the requirement of the levy legislation. That power is already in place for the Commissioners to use at their discretion. That requires a level of public awareness of the role of the Commissioners and of the rights of consumers who pay into these products. The more cases that are brought to the attention of the Commissioners, the greater the number that can come out of that.
The trustees can reduce the benefits of any member, or class of members, up to the amount of their share of the levy, but not by more. Trustees do not have any obligation under this wording to reduce the benefits of all members by the same amount, though their freedom to be too arbitrary would be constrained by trust law considerations. The Revenue Commissioners have the powers to make these findings where cases are brought to their attention.
That is useful information, but I must pose a question on the basis of the Minister of State's briefing note. Is he saying that no one member in the scheme can pay more than 0.6% or the equivalent reduction in their entitlements? This is an important point because if that is to be the case, I want clarification on it.
It concerns the assets backing that person's liability.
That person individually.
That highlights the real inequity of this measure. It goes back to the point made by Senator Darragh O'Brien at the start of his contribution — that the levy on the portion of somebody who is a relatively new member, quantum wise, will be small. That is because his fund will be small, unlike somebody who is almost at the end of his working life and who may well have shipped considerable losses in the interim. I note Senator Darragh O'Brien's point on defined benefit or contribution schemes, which means that the quantum of money being taken from those people is considerable. I was not aware of that because I thought the application was on the fund itself and therefore it was down to the fund's ability to fund its ongoing liability.
Seeing that the levy was being individualised, was no consideration given to putting a limit below which the levy would not apply? The Government decided some years back that a €5 million fund should be sufficient to meet the requirements of a reasonable standard of living for retirement. There are many private funds, however, with in excess of that amount. Many people used it for tax deferral reasons. It is not tax avoidance, it is tax deferral because they pay their taxes at the end of the day.
Would the Minister of State not agree that in a situation where funds have been so badly hit because of the economic recession and particularly the investment in bank shares — Irish and foreign banks have all taken a major hit — we need incentives and not deterrents for people to invest in pension funds?
That is outside the remit of the recommendations.
It is very much part of the overall debate.
Please, Senator Walsh, we are dealing with the recommendations. I call an tAire Stáit.
If we limit this at a certain threshold, we are affecting the total yield that can be taken in. The purpose of this measure is to take in a yield, which can allow us to stimulate the economy.
Will it be on a percentage, for example?
One could look at any option one wants, but for the purpose of obtaining funds to help job creation we were left with that. The Senator rightly pointed out the different liabilities of a person who has paid in over a long period of years, compared to someone who has only been in the scheme for a short time.
Is the answer to that not that given that the person who has paid in over many years has effectively been given a tax treatment at the marginal rate of 41%,——-
Not all of them.
Let us be fair about this.
It is a deferred tax.
Can I reply?
The Minister of State to continue, without interruption.
One of the benefits for the pensions industry is that tax treatment on contributions is at the marginal rate. We all know that. That is one of the reasons there has been rightly a significant amount of money put away.
Those who have contributed over that period have been given a substantial effective tax subsidy by the State as a means of allowing them put money into such a vehicle. The State wants that to happen because we want to ensure that people have some means of income for themselves in their later years. There is clear evidence that we need some certainty in that regard, but we must be fair. If people are given a substantial tax break of 41% over a period of years at the top rate, which last year, as I understand it, was worth approximately €3.5 billion of the €13.5 billion that Revenue handed out, as against this small imposition of a temporary levy that will be in place for a matter of three or four years at a rate of 0.6%, I would ask them to have a sense of proportion and to be fair about that. One can make any argument one likes for the purposes of dramatic effect, but let us be fair about this.
Not all pension holders receive the relief at the marginal rate, as the Minister of State is aware.
We are on the recommendations.
On specifically what the Minister of State has said, people who invested, many of them in their earlier years, would have been on the standard rate——
——and, as they progressed with their careers, would have gone on to the top rate. In fact, every amount that they put in plus any increase — in this instance, they may well be looking at decreases — will be taxed now at their marginal rate, which, in most instances, will be the top rate of tax. All one is doing is deferring tax. If the Government did not provide that incentive, there would be no reason for anybody to put a penny into pensions because one does not have the control of one's money and the regulations attaching prohibit use of it as one's own asset. It is prescribed as to how one must deal with it. In many instances, people must buy annuities with it, which is one of the great scams. I do not want to open up that debate.
Neither are we having it on the recommendations.
I was glad of the Minister of State's clarification on the maximum charge being 0.6% of the assets of a fund. I want to put to bed this idea that in all instances this 0.6% is a small charge and a small imposition. Is it correct that based on the 0.6% charge on an average pension fund of someone who has been contributing to a fund for 30 years plus, he or she could be looking at up to a 9% reduction in retirement values and retirement pension? The charge of 0.6% seems tiny and the Minister of State may say that one can carry that, but I refer to the overall context. For someone who has paid right the way through — I am not going back over the argument — I want him to clarify for the House that it is not merely 0.6% for someone who is nearing or at retirement. I am sure the Minister of State's officials have tables. Could he tell me, based on the average pension fund, the average reduction to a person's retirement annuity? It certainly will be a damn sight more than 0.6%.
The Minister of State made the point about the benefit of the tax relief available — €3.5 billion out of €13.5 billion of tax reliefs put on Revenue. Also, people have had the benefit of having funds that have the benefit of the tax relief being placed into a management fund that makes profit. The tax relief that the State has given is also increasing in value because the profits are available.
There is this small amount of money, a temporary amount. As I stated, some people will be caught more than others but the State has given the individuals and the industry the opportunity, with the tax relief, to go into a fund, which then makes profit. The individual is getting the tax relief that is increasing in value with the profitability of the fund over decades and then those people also at this stage are having the maximum benefit of decades of accrual of profit. The Opposition is choosing to ignore that also.
Some 1.5% over 10 years.
We are not in a position to make any assessment as to how much this would affect one case against the next. It all would depend on the information in each case.
I heard Senator O'Brien, earlier in the debate and yesterday, state that there could be a 9% reduction in the yield to one individual. No one knows that as a matter of fact.
A reduction in their pension benefit.
No one knows that. It all would depend on the terms and the circumstances.
On the question of tax relief — I will not go on about this — I made the point about the 41% marginal rate. In fairness to other Senators, not everyone is getting the yield at that. I make the point that pension treatment here is genuinely generously covered under the existing law.
Senator Cullinane wants to get back to the standard rate, according to an earlier recommendation.
One must be consistent about it. If one is saying knock out one and not the other, it is not consistent.
On the question of the funds roll-over,——
I am not saying that.
——as the funds roll over in the course of their existence this gives income and capital gains exemptions while the fund is accumulating, which is another significant benefit to people who put money away.
Same as ARFs, which are exempt.
As people exit, there is a tax-free lump sum. Between the marginal rate of tax, the fact that people are not eligible for income and capital gains exemption for the period of the funds rolling over and the lump sum, fair is fair here. In a circumstance where the country is where it is, I regard this as a measured proposal.
I cannot accept recommendations Nos. 9 and 10.
We have been an hour and a half on those two recommendations. I am putting the question.
As it is now 5.30 p.m., I am required to put the following question in accordance with the order of the Seanad of this day: "That, in respect of each of the sections undisposed of, the section is hereby agreed to in Committee, that the Title is hereby agreed to in Committee, that the Bill is accordingly reported to the House without recommendation, that Fourth Stage is hereby completed, that the Bill is hereby received for final consideration and that the Bill is hereby returned to the Dáil."
Arising from the omission to vote by Senator Power, who was present in the Chamber, the result of the division as shown on the display board has been amended with the agreement of the tellers on both sides. The amended result will appear in the Journal of the Proceedings of the Seanad.
When is it proposed to sit again?
Next Tuesday at 2.30 p.m.