Finance (No. 2) Bill 2023: Committee Stage
Sections 1 and 2 agreed to.
NEW SECTION
I move recommendation No. 1:
In page 10, between lines 5 and 6, to insert the following:
“3. The Minister shall, within 3 months of the passing of this Act, prepare and lay before the Houses of the Oireachtas a report on the merging of the USC with income tax as a means of simplifying the administrative burden of tax on businesses and organisations.”.
The Minister is welcome. In February of this year, the Irish Tax Institute warned that the tax compliance burden on businesses is compromising Ireland's competitiveness. At the annual institute dinner, at which I believe the Minister was the guest of honour, the institute's president said the complexity of our business taxes is damaging Ireland's reputation as an easy location for doing business. In terms of competitiveness, the Institute for Management Development ranked Ireland 11th out of 63 countries in 2022, which is a good score. However, Ireland achieved sixth place in 2017, so there has been some slippage. The KPMG enterprise barometer for 2023 found that more than half of respondents - 57% - expressed concern about the administrative burden attached to the Irish tax regime, particularly for smaller businesses. In the same survey, less than a quarter of respondents believed the tax regime in Ireland encourages entrepreneurship and growth. One way to address this is to explore merging USC and income tax. When USC was introduced by the late Brian Lenihan, it was as a temporary measure in the 2011 budget, which was delivered in December 2010. It was declared that our system is unduly complex and the USC was seen as some sort of simplification. Perhaps the Minister would consider the benefits or otherwise of merging the USC and income tax if he believes it would have a positive effect on the administration of business.
I thank Senator Kyne for his recommendation. The Senator's proposal relates to producing a report on the merging of the universal social charge with income tax as a means of simplifying the administrative burden of tax on businesses and organisations. By way of background, USC was designed and incorporated into the Irish taxation system in 2011 to replace two other charges, namely, the health and income levies. The primary purpose of USC was to widen the tax base and to provide a steady income to the Exchequer to provide funding for public services. Both income tax and USC are taxes on income. However, they are structurally different with some material differences between the two in the systems income base, range of reliefs available and the manner of assessment. Income tax applies to all sources of income earned by an individual as calculated in accordance with provisions of the income tax Acts. Income tax also applies to certain income of trusts and non-Irish resident companies. An individual's entitlement to tax credits and their standard rate cut-off point is determined based on his or her personal circumstances. The income tax system provides for a wide range of tax reliefs, deductions and exemptions which may be used to reduce either the amount of income on which an individual is taxable or the individual's ultimate income tax liability.
Eligibility for these reliefs is subject to the individual meeting the relevant conditions attached to each measure. Within the income tax system, married couples or civil partners may be able to transfer tax credits, tax bands and reliefs from one partner to the other, whereas the USC is an individualised tax. This means that a person's liability to the tax is determined on the basis of his or her own individual income and personal circumstances. Similar to income tax, there are different rates of USC and cut-off points. However, the rates and cut-off points differ from that of the income tax regime.
The USC system incorporates different rates applicable to different levels of income and different sources of income. It should also be noted that some expenditure that qualifies for relief from an income tax perspective may not qualify for relief from a USC perspective. Such expenditure includes payments into a pension scheme and permanent health benefit contributions.
Further to this, all Department of Social Protection payments and similar type payments made under the Social Welfare Acts are exempt from USC, while some payments by the Department of Social Protection are not exempt from income tax. An amalgamation of income tax and USC into one tax would require fundamental changes to the structure of the personal income tax system and may have consequential impacts on Exchequer receipts. It would likely present a number of considerable challenges in relation to the systems underpinning both income tax and USC.
In 2016, research undertaken jointly by the Department of Finance and the ESRI found that USC represented a more stable form of revenue than income tax. The findings highlighted that USC revenues would fluctuate by less than income tax revenues whenever income is volatile, for example, where the economy moves from a boom into a bust. Given the openness of the Irish economy and its subsequent susceptibility to economic shocks, the contribution that USC makes the stability of the State’s revenue sources is considerable.
On the face of it, a single unified system of personal income tax may appear to offer advantages as compared with current arrangements. However, as Senators will be aware work was carried out on examining the possibility of an amalgamation of USC and PRSI. Many of the significant challenges outlined in the Report of the Working Group on the Amalgamation of USC and PRSI, which was published in September 2018, remain valid in the context of an amalgamation of USC and the income tax. The report is located on gov.ie.
There are no plans at present to carry out further analysis on the proposal as suggested by the Senators and therefore I cannot accept the recommendation at this time.
I thank the Minister for his response. I would like to acknowledge the cut he made to the rate of USC this year. This was the first change in five years, and I welcome that. You could argue that there was a time before USC and maybe there will be a time without USC again. It was introduced as a temporary measure, but I accept the explanation the Minister has given. I will not press the recommendation.
Recommendation, by leave, withdrawn.
Section 3 agreed to.
Sections 4 and 5 agreed to.
SECTION 6
Recommendations Nos. 2 to 4, inclusive, have been ruled out of order as a potential charge on the Revenue.
Recommendations Nos. 2 to 4, inclusive, not moved.
Question proposed: "That section 6 stand part of the Bill".
The Minister is welcome. I also welcome my good friend, Gail Dunne. We have competed and soldiered in elections together, but through all that time we have always remained good friends. That is very important in politics today.
When submitting the three recommendations, I knew they would probably be ruled out of order, but I wished to continue my focus on what I believe is a certain inequality in relation to the operation of the help-to-buy scheme. We all know the importance of the help-to-buy scheme, which has assisted more than 42 families to now own their own homes. The advent of the first-home scheme last year has now given another cohort of families an opportunity to own their own home, when they could probably never have aspired to do so. Yet, across my work in both these sections and in dealing with the public, I have come across a number of live cases, and this continues to happen on a weekly basis, where the mortgage people can receive is less than the 70% that is allowable under the help-to-buy scheme. They need the assistance of the first-home scheme to allow them to purchase that house.
My question is always about how this cohort of people probably need this intervention more than some of the others. We can refer to reports, such as the Mazars report, and the issue of the “deadweight”.
The people who require the first-home and help-to-buy schemes are not deadweight. That those people can only get a mortgage to 67%, 68% or 69% means they are ruled out and the aspiration to own their own home is ruled out.
The Minister has referred to macroprudential rules in this regard. The first two recommendations I proposed intended to see if I could incorporate with the first-home scheme a definition for the service charge as similar to interest and define funds received from the first-home scheme as similar to a loan from a bank. Those recommendations have been ruled out of order.
This goes back to the fundamental principle and the question of what is different about these people compared with somebody who can get a mortgage in excess of 70% of the value of the home. Why are these people being excluded? They have sweated everything they can sweat. They have got the maximum mortgage possible. They have used whatever savings they can and still have a shortfall, a gap, for which the first-home scheme intervenes to provide the money. That gap should be taken into account in the loan-to-debt ratio. That was the purpose of my proposed recommendations.
My final recommendation related to reducing that 70% limit to 60%. That was proposed in case the first two of my recommendations did not get through. The proposal would ensure that another cohort of people could qualify for the help-to-buy scheme.
I will continue to work on this issue because I believe it is right to do so. It is right for the people who need it. A wider debate is going on in the Departments of Finance and housing about how the help-to-buy and first-home schemes interact and what their interactions will look like in the future. In the meantime, I know 15 families who have lost the aspiration of owning their own homes because their mortgage percentage fell between 65% and 69%. That is unfair and unequal, particularly when we talk about the deadweight associated with the help-to-buy scheme. I thank the Minister for his work on this issue. I appreciate it.
We all agree that the need to accelerate the delivery of additional new houses remains acute. Section 6 of the Bill provides support to the new-build housing market by extending the help-to-buy scheme for a further year to the end of 2025. Section 6 also amends the help-to-buy scheme to enhance its interaction with the local authority affordable purchase scheme. This amendment will enable the use of the affordable dwelling contribution received by purchasers through the affordable purchase scheme for the purposes of calculating the 70% loan-to-value requirement, thereby facilitating access to a greater number of affordable purchase scheme purchasers to the help-to-buy scheme.
The Senator recommends that the definition of "loan" be amended to include a service charge as provided by the first-home scheme and that the definition of the loan-to-value ratio change to include qualifying funds received from the first-home scheme. I do not intend to accept those recommendations at this time for the following reasons. The Minister for Housing, Local Government and Heritage launched the first-home scheme in July 2022. The scheme, which is jointly supported by the State and participating mortgage lenders, has been established to make it easier for first-time buyers to afford a new home. The scheme aims to support first-time buyers to bridge an affordability gap by providing them a portion of the purchase price for their home in return for an equity stake in the purchased home. Under the first-home scheme, a special purpose vehicle, jointly funded by the State and participating mortgage lenders, offers equity finance to first-time purchasers of new builds. The maximum equity stake is 30% unless the purchaser is availing of the help-to-buy scheme, in which case under the terms of the first-home scheme, it is 20%.
The first-home scheme is administered by First Home Scheme Ireland Designated Activity Company, DAC, and the eligibility of persons to receive the equity support for home purchases is governed by the regulating documents of the joint venture. The Minister for Finance signed up to the joint venture agreement in July 2022, along with the other founding participants, in this case the three pillar banks and the chief executive of the already incorporated DAC. One term of the joint venture agreement was that the eligibility of customers be regulated by an agreed product rule book, developed out of negotiations among the founding participants.
As such, there is no legislation underpinning the operational aspects of the first home scheme. The first home scheme already has a built-in mechanism that allows it to work in tandem with the help-to-buy scheme, by reducing the equity stake available to purchasers to 20% in cases where the help-to-buy scheme is claimed. This was put in place when the scheme was established to afford prospective homeowners the opportunity to avail of both the first home scheme up to a maximum of 20% of the value of the house and the help-to-buy scheme. Any potential changes to the first home scheme and how it interacts with the help-to-buy scheme would have to be agreed by all members of the joint-venture agreement.
I do not propose to accept the Senator's recommendation to lower the loan-to-value, LTV, ratio from its current rate of 70% to 60%. The help-to-buy scheme was originally intended to be limited to individuals who took out mortgages of at least 80% of the value of the property. However, a decision was taken to reduce the LTV ratio to a minimum of 70% to ensure that first-time buyers do not feel compelled to borrow larger amounts in order to qualify. The rationale for not reducing it further is that those who are in a position to avail of a mortgage at a lower LTV are considered to have sufficient resources to meet the deposit requirements of the macro-prudential rules and thus to be less in need of assistance from the Exchequer. Lowering the LTV ceiling would increase the dead weight in the scheme. The independent review of the scheme carried out in 2022 recommended that the LTV ratio be increased to 80% for purchasers who avail of the help-to-buy scheme. Housing is a top priority, and I confirm that the help-to-buy scheme will continue to be examined and, if required, additional changes will be considered next year.
I acknowledge Senator Casey's work on this issue. We are making a change in the interaction of the help-to-buy scheme with the local authority affordable purchase scheme, which has been welcomed by many, but a number of other stakeholders are directly involved in the process that relates to its interaction with the first home scheme. Neither my Department nor I are directly in control of it. However, I will continue to examine the issue the Senator raised. I accept the point he made that it makes a difference right now for some individuals between being able to buy a home using the help-to-buy and first home schemes in combination and not being in a position to buy. We had engagement with other stakeholders, but it was not possible on this occasion to make the amendment to the Finance Bill that is being sought.
I thank the Minister for his answer. He spoke to me about it privately so I was aware of what was coming.
I will not give up on this because it is the right thing to do. If we need to get the relevant Ministers and bodies into a room to try to sort this out, we should. This cohort of people are the very people we should assist. I fully accept the Minister's point about the LTV ratio. I intend to try to get this cohort of people across the line. That is all. I read the Mazars report that stated the ratio should be increased to 80%. To be honest, at this stage I would accept 80% if the two schemes were combined and the 80% were to be allowed to be the base rate.
The families I spoke about are real. They honestly thought they had the chance to own their home and then they were ruled out. Last week, a couple were in with me who had a mortgage approved, but Bank of Ireland came back two weeks later and stated it had made an error of €30,000. That brought their mortgage down from 71% to 68.5% and their chance of owning a home in Newtown is now completely eroded and gone. When we talk about the LTV, we must acknowledge that the first home scheme is a debt. It is a loan. It might operate differently as regards the service charge and the repayment of the equity, but it is a debt. These people are not dead weight. The people who are dead weight do not need the scheme in the first place. These families need both the help-to-buy and first home schemes. I will continue to work with whoever I must to address this. I thank the Minister for his efforts to date.
I support the points Senator Casey made about this. I made the case to the Ministers, Deputies Darragh O'Brien and Donohoe, about the changes we implemented this year relating to the interaction with the local authority affordable purchase scheme. Thankfully, those changes have now been made.
To echo Senator Casey's point, the people we are talking about are a different cohort. You can differentiate between a cohort just using the help-to-buy scheme and a mortgage, and those who are using the help-to-buy scheme and the first home scheme. By virtue of using the first home scheme, it has been determined that a person faces a challenge in reaching that purchase price. In the same way as the Government has acknowledged that a person cannot buy on the open market if he or she is accessing the local authority affordable purchase scheme, the same principle applies in the context of the first home scheme. I support us doing the exact same as we have determined with the local authority affordable purchase scheme in its interaction with the first home scheme. That does not change the parameters for somebody who does not require the first home scheme. That stays at 70%. There is no further interaction. We will talk about the help-to-buy scheme in the next section. However, on that point, there is a differentiating factor and it can be easily determined.
I thank both Senators again, and I understand the issue they have raised. Senator Casey, in particular, took me through a number of specific examples of a constituency impacted by this. I followed up on the issue and examined it to see what could be done. In the case of the interaction with the local authority affordable purchase scheme, it was more straightforward because that is a statutory scheme and did not involve any other parties that had to be consulted and whose agreement had to be provided. The first home scheme is a non-statutory scheme. There are a number of parties involved in it. I will continue to examine it and I suggest it is an area where perhaps the joint committee on housing could, as the Senator suggested, bring in the relevant parties to tease out the detail of it and understand the different perspectives available on the issue. For my part I will continue to examine it. We have made the change where it was more straightforward in the case of the local authority affordable purchase scheme. It was, unfortunately, not possible in the case of the interaction with the first home scheme because there are a number of different stakeholders involved in that particular scheme.
Question put and agreed to.
NEW SECTION
I move recommendation No. 5:
In page 14, between lines 29 and 30, to insert the following:
“7. The Minister shall, within 3 months of the passing of this Act, prepare and lay before the Houses of the Oireachtas a report on the operation of the Help-to-Buy Scheme since its introduction in 2017 and since its expansion in 2020.”.
We have touched on the help-to-buy scheme. It was introduced in 2017. When I think back to that time, one of the issues raised with us as Fine Gael representatives, as I am sure it was with other representatives, was deposits. At that time, the difficulty for first-time buyers was that they were not able to get their deposit together. Over recent years that has abated for first-time buyers to a large extent because of the help-to-buy scheme. It provides up to €30,000 back of the tax a person has paid in the previous four years. It is a positive measure by Government.
Some in the Opposition would say it should be abolished and that we should not have a help-to-buy scheme to support first-time buyers. I disagree fundamentally with that position. They say they will give a month's rent in tax with one hand, but they will take away €30,000 with the other. By any measure that is an exceptionally bad deal for a first-time buyer looking to get their foot on the ladder.
Help-to-buy is a positive measure. I would like a report within three months on its operation and perhaps to feed in the pieces referred to by Senator Casey. Having that deposit is a lifeline for so many people. More than 1,100 people in my own county of Waterford have used the help-to-buy scheme over recent years.
While some people will say that they did not need it, I can give countless examples from those 1,100 people for whom it was the difference between them being able to purchase or build a home or not at all. When I have put it to the Opposition spokesperson as to what Sinn Féin would replace it with, he starts talking about genuinely affordable homes. Who would disagree with genuinely affordable homes? However, as the Minister knows, a genuinely affordable home still requires a deposit. A €270,000 house requires a €27,000 deposit and the Opposition wants to take that away. The help-to-buy scheme has been an exceptionally positive measure since it was implemented and I welcome that it has been extended to the end of 2025.
I think the Minister will acknowledge that the help-to-buy scheme has been very popular and beneficial since it was initially introduced in budget 2017 and extended in the July 2020 stimulus plan. It provides a maximum of up to €30,000 or 10% of the purchase price for first-time buyers. In my own county of Galway some 2,168 people or couples have benefited from this with a drawdown claim of €45.3 million. This is the deposit for these people to get their first home and to get a start on the property ladder. In some cases, it may even be their forever home. It is a very popular scheme. Some 103,000 applications initially have been made to the scheme and 44,523 for the help-to-buy scheme across the country. It proves its worth and proves its value. Is assists people, including couples, throughout the country with the deposit needed to get their first home.
The help-to-buy scheme announced in budget 2017 is an income tax incentive measure designed to assist first-time buyers with the deposit required to purchase or self-build a new house or apartment to live in as their home. With a view to increasing the supply of new housing and stimulating demand, the relief is already available in respect of new builds. In the July 2020 stimulus plan, the scheme was amended so that the level of support available to first-time buyers was increased to the lesser of €30,000, up from €20,000, or 10%, increased from 5%, of the purchase value of a new home or self-build property or the amount of income tax and DIRT paid in the four years before the purchase or the self-build.
As colleagues have said, to date the scheme has supported over 42,000 people in acquiring their own home. Revenue publishes statistics every month which include the number of help-to-buy claims as well as the amount of refunds that have issued. Each approved claim represents a qualifying property. However, the number of claims will not equal the number of applicants as there will be both individual and group applications.
As I have stated before, an increase in the supply of new housing remains a central aim and priority of Government policy. For this reason, help-to-buy is specifically designed to encourage an increase in demand for newly built homes in order to support the construction of an additional supply of such properties. The Central Statistics Office figures for the 12 months to the end of September show that there were over 31,500 new home completions. This is the highest level of new home completions in a 12-month period since the series began in 2011. The signs of future completions are also positive. There were over 2,600 housing commencements in September which is 18% higher than in the same month last year. Fundamentally, the help-to-buy scheme is there to drive supply and all the evidence points to supply increasing. I strongly believe the help-to-buy scheme is resulting in more homes being built.
For many prospective homeowners it represents the difference between them being able to own a home and not being able to do so. The extension of the scheme for a further 12 months to the end of 2025 reflects the role the scheme has played in facilitating greater numbers of first-time buyers while also encouraging the delivery of new housing units by the construction industry. The scheme will continue to be examined and if required additional changes will be considered next year.
As Senators will appreciate, the scheme has already been subject to three formal reviews, the most recent of which happened just last year.
In addition, statistics on the uptake and costs of the help-to-buy scheme are published on the Revenue website monthly and annually. Therefore, I do not believe a further such report is required.
Recommendation, by leave, withdrawn.
Section 7 agreed to.
Section 8 agreed to.
Cuireadh an Seanad ar fionraí ar 2.50 p.m. agus cuireadh tús leis arís ar 3.06 p.m.
Sitting suspended at 2.50 p.m. and resumed at 3.06 p.m.
SECTION 9
Recommendations Nos. 6 and 7 are related and may be discussed together by agreement. Is that agreed? Agreed.
I move recommendation No. 6:
In page 17, between lines 6 and 7, to insert the following:
“(2) The Minister shall, within 3 months of the passing of this Act, prepare and lay before the Houses of the Oireachtas a report on increasing the standard rate cut-off point with respect to income tax to €45,000 and also to €50,000.”.
I thank the Minister. These recommendations concern protecting the squeezed middle and putting money back in people's pockets. The first concerns increasing the standard rate cut-off point to €45,000 and, progressively, to €50,000. People on modest incomes begin to pay the top rate of tax too early. While we have made progress, average incomes now are about €50,000 and people are caught by the higher tax rate. For years, Revenue underestimated the number of people paying the top rate of tax until it changed its approach this year. Now, 1 million workers pay the top rate of tax, which is over 50% more than has been reported for years. We need to do more for those on modest incomes and to continue to work towards increasing the standard rate cut-off point, thereby reducing the tax workers have to pay.
I intend to speak to both recommendations Nos. 6 and 7. We have made progress, as Senator Kyne has said. Only a couple of years ago, €36,800 was the standard cut-off point. We are now at €42,000 in budget 2024, which is to be greatly welcomed. However, the number of people paying that higher tax rate has increased, notwithstanding the fact we have more people in employment. We believe we need to continue to examine the burden on the middle and to improve upon it to ultimately reach a €50,000 level. On recommendation No. 7, we also need to examine how that might be achieved that in the context of a potential 30% tax rate. I understand this has been mooted and examined by Revenue but,l as of yet, we have not seen the feedback and data on the cost of implementing that.
I thank the Senators for their recommendations Nos 6 and 7. They are seeking reports on the following issues: increasing the standard rate cut-off point to €45,000 and to €50,000, and the introduction of a 30% income tax rate.
The Senators will be aware of the programme for Government commitment, which states:
From Budget 2022 onwards, in the event that incomes are again rising as the economy recovers, credits and bands will be index linked to earnings. This will be done to prevent an increase in the real burden of income tax, to prevent more low-income workers being taken into the tax net because of no changes to the tax system and to ensure there is no increase in the number of people having to pay higher income tax and USC rates.
Budget 2024 included a personal income tax package amounting to €1.3 billion in 2024 and €1.5 billion on a full-year basis. The package was built on three key pillars: changes to USC, tax credits and the standard rate cut-off point.
With regard to USC, the budget included the largest USC package since 2016. The ceiling of the 2% USC rate band will be increased by €2,840, from €22,920 to €25,760.
This will ensure that a full-time worker on the minimum wage, who will benefit from the increase in the hourly minimum wage rate, will continue to remain outside the top rates of USC. In addition, the 4.5% rate of USC will be reduced to 4%. I also extended the reduced rate of USC concession for medical card holders for a further two years, until the end of 2025. Additionally, the main tax credits - personal, employee and earned income - are being increased by €100, which equates to a 5.6% annual increase, from €1,775 to €1,875. Furthermore, the home carer tax credit will be increased by €100 to €1,800, the single person child carer credit will be increased by €100 to €1,750 and the incapacitated child tax credit by €200 to €3,500. The standard rate cut-off point will increase, as the Senators said, by €2,000 to €42,000 per annum for single individuals in 2024, with commensurate increases for jointly assessed married couples, civil partnerships and individuals who can avail of the increased band for single parents. When examined on a cumulative basis, the last three budgets have seen a significant increase in the main tax credits and the standard rate cut-off point. The main tax credits have increased by €225 from €1,650 to €1,875, representing an increase of 13.6%, while the standard rate cut-off point has increased by €6,700 from €35,300 to €42,000 for a single individual, an increase of approximately 19%. These changes have been carefully designed to ensure workers do not pay more income tax solely because of inflation, while preserving a broad and stable income tax base to ensure our personal tax system is competitive and resilient.
With regard to the cost of the Senators’ proposals to further increase the standard rate cut-off point, according to the latest available ready reckoner, on a post-budget 2024 basis, Revenue estimates the cost of increasing the standard rate cut-off point by €3,000 to €45,000 at approximately €645 million on a first-year basis and €740 million on a full-year basis, while the cost of increasing the standard rate cut-off point by €8,000 to €50,000 is €1.7 billion and almost €2 billion on a first-year and full-year basis, respectively.
Moving on to the issue of a report on the introduction of a 30% rate of income tax, I must point out that last year, the tax strategy group examined the issue of an intermediate or third rate of income tax. Furthermore, as Senators will be aware, budget 2023 included a commitment to expand on the work of the TSG and to carry out further analysis on the issue of introducing an intermediate or third rate of income tax. This analysis was carried out as part of the personal tax review, which was published on budget day, 10 October. Chapter 7 of the report included a detailed analysis of the issue, outlined policy considerations, operational and implementation issues such as systems design, testing, development, potential timelines and associated costs, options for an intermediate rate of income tax and possible alternative options. Given programme for Government commitments regarding indexation, the significant progress made to date in delivering on these commitments in recent budgets and the fact that the personal tax review addressed the information sought on the introduction of a 30% rate of income tax, the reports suggested by the Senators are not required at this time.
It is important to accept that we cannot just not do something because it might create a bit of work for Revenue. If it is worth investigating, it is important that we examine it. It is important to note that 30% of taxpayers pay the higher rate. If the thresholds are retained and not increased consistently, more standard rate taxpayers will pay at the higher rate even though their income would be quite modest. That is the importance of it. I acknowledge the Minister's work and that of the previous Minister, Deputy Donohoe, on increasing the threshold for the higher rate of tax. I think 30% was suggested. A report was to be done. As my colleague said, I am not sure if that has been highlighted regarding the impact of a 30% tax rate on the tax take and the benefit for those who would pay the higher rate sooner, in particular.
Perhaps the Minister might be able to advise on that.
The report I referred to, the personal tax review, was published on budget day in October. It has a whole chapter on the option of a third rate of income tax and goes into quite some detail on the issues that arise, the policy considerations, the costings and so on. To summarise, among the issues that would need to be considered is that of cost. If there were to be a third rate of income tax, the width of the band would need to be at least €5,000, or probably considerably more. The cost of implementing that would have to be considered, as would the impact on pension tax relief – for example, in respect of those currently getting pension tax relief at the 40% rate. If their marginal rate became a lower rate, they would incur a reduction in the tax relief on their pension contributions. That would need to be considered as well, in addition to the distributional impact of the introduction of a third rate. Therefore, I suggest that some consideration be given to what was published on budget day. It involves significant work as part of the personal tax review and examines the issue of a third rate of income tax.
Recommendation, by leave, withdrawn.
Recommendation No. 7 not moved.
Section 9 agreed to.
Sections 10 and 11 agreed to.
NEW SECTIONS
Recommendations Nos. 8 and 9 are related and may be discussed together, by agreement.
I move recommendation No. 8:
In page 18, between lines 9 and 10, to insert the following:
"Report on relief for renters
12. The Minister shall, within six months of the passing of this Act, prepare and lay before Dáil Éireann a report on the introduction of a refundable tax credit payable to private rental tenants not already in receipt of any State subsidy, equivalent to 8.3 per cent of annual rent payable, at a minimum value of €750 and maximum value of €2,000, accompanied with the introduction of a ban on rent increases in the private rental sector for a period of 3 years.".
The Minister is very welcome. This recommendation calls for a report on the introduction of a refundable tax credit payable to renters, equivalent to one month's rent, set at a minimum value of €750 and a maximum value of €2,000, coupled with a ban on rent increases for a period of three years. Since the Government took office, rents have increased by a staggering 27%. This, in any market, is a quite shocking increase. According to the Daft.ie reports, the average rent has increased by €405 per month under the Government, which is nearly €5,000 per year. Renters are facing crippling housing costs under the Government and its housing crisis.
For years, Sinn Féin has called for the introduction of a refundable tax credit to put one month's rent back in renters' pockets, together with a ban on rent increases for a period of three years. For years, the Government rejected this proposal, claiming it would be, in the words of the Minister for Public Expenditure, National Development Plan Delivery and Reform, Deputy Donohoe, a direct transfer of public money to landlords. The Tánaiste said it would push up rents. Of course, that is what could happen in the absence of a ban on rent increases. That is precisely what the Government has done. Without capping rents, the rent tax credit introduced would go straight into the pockets of landlords, providing ample reason for them to increase the rent on their tenants. The rent tax credit is not refundable. Moreover, only a fraction of those eligible to claim the rent tax credit have done so.
It is also clear that the credit is insufficient to adequately support renters under severe financial pressure as a result of the Government's housing crisis. The recommendation therefore calls for a report on the introduction of a refundable tax credit, equivalent to 8.3% of a renter's annual rent – in other words, one month's rent – with a minimum credit available of €750 and a maximum credit available of €2,000. Crucially, the report would also analyse the proposal together with a three-year ban on rent increases.
Recommendations Nos. 8 and 9 are grouped, so the Senator could have spoken to recommendation No. 9 if he had wanted.
I wish to speak about both recommendations. Recommendation No. 8 is on the rent freeze.
This sounds great in theory but in practice, where it was implemented by the left-wing government in Berlin, it was struck down by the supreme court within 12 months and it resulted in a 50% reduction in rental supply. Does Sinn Féin think that is somehow going to be different in Ireland as opposed to Germany? I do not quite understand the assertion they are making on the rent freeze, apart from the fact that it sounds good in a soundbite clip on TikTok or Instagram.
With regard to the measures we have implemented around the rent tax credit, obviously it has been expanded on in budget 2024. It is important to say that people have four years to claim that rent tax credit back, so we probably will not see the full extent of the refunds in tax credits out until 2026. There are a number of people who are excluded from that rent tax credit, including those people who are renting legitimately from a family member. As that property does not have to be registered with the Residential Tenancies Board, RTB, they are therefore excluded from the rent tax credit. It is an issue that I highlighted at the joint Oireachtas committee a few weeks ago, and it is a matter that the RTB acknowledged before the committee. Perhaps that is something the Minister can take away and examine in the context of the rent tax credit system.
Finally, with regard to the Daft figures that were referenced, obviously we do not go by the Daft figures. They are asking rent figures. The real figures for rent are published by the Residential Tenancies Board and were published last week.
In my budget address, I acknowledged the challenges that we face with regard to housing, and that it remains a top priority for Government. As part of the response, to assist renters, I announced an increase of the rent tax credit to €750. This is to assist those renters in the private rental sector with the affordability of their rent. The credit will continue to be available until the end of 2025.
Eligibility for the credit is also being extended to parents who pay for their student children’s rental accommodation in the case of rent-a-room accommodation, or so-called "digs". This change will apply retrospectively to the years 2022 and 2023. Previously, parents could only claim the credit in respect of their qualifying student children in the case of accommodation registered with the Residential Tenancies Board.
The rent tax credit is intended to provide assistance to those in the private rented residential sector pending further progress on the Government's Housing for All strategy. That strategy aims to deliver more homes of all types for people with different housing needs, including those who wish to rent at an affordable price.
The most recent Housing for All action plan update and quarter 3 progress report published by the Department of the Taoiseach demonstrates that housing supply is increasing and notes that the Government fully expects to meet its 2023 delivery target of 29,000 homes. Additional supply will help to moderate housing costs in both the purchase and rental sectors.
On making the tax credit refundable, as I noted earlier, the matter of refundable tax credits was examined as part of this year’s tax strategy group, TSG, process in advance of the budget, and the analysis and findings of the review were published in the income tax TSG paper, which is available on my Department's website.
In summary, the review noted that making tax credits refundable could lead to unintended consequences for labour supply, would be operationally and administratively complex, and would come with a significant cost.
I do not propose to accept the recommendations put forward, and if I can, I wish to outline to the House the up-to-date position. As of mid-November, we had almost 312,000 rent tax credit claims made by over 268,000 taxpayer units. As Senators know, a taxpayer unit can involve two people. That consisted of over 203,000 taxpayer units that made claims for 2022 alone, for example. The total cost of the rent credit claimed for the year 2022 is over €118 million in respect of PAYE taxpayers.
As the Senator said, people have four years within which to make the claim. These numbers will now be updated, taking account of the claims made as part of the recent returns from the self-employed, self-assessed cohort in the income tax system.
Recommendation put and declared lost.
Recommendation No. 9 not moved.
Section 12 agreed to.
SECTION 13
Recommendation No. 10 in the names of Senators Gavan, Boylan, Warfield and Ó Donnghaile is out of order as it involves a potential charge on Revenue.
Recommendation No. 10 not moved.
Section 13 agreed to.
NEW SECTION
I move recommendation No. 11:
In page 26, between lines 4 and 5, to insert the following:
"Report on Mortgage Interest Relief
14. The Minister shall, within one month of the passing of this Act, prepare and lay before Dáil Éireann a report on the introduction of temporary mortgage interest relief, available in respect of mortgages on principal private residences, applied at source on a monthly basis and equivalent to 30 per cent of the difference in interest paid in the relevant month relative to interest paid in the relevant month under the interest rate charged to the relevant mortgage in June 2022, capped at a maximum benefit of €1,500 per relevant household, for a period of 12 months.".
This recommendation calls for a report on the introduction of an alternative form of mortgage interest relief, providing monthly relief at source based on the interest that would have been paid in each respective month under the prevailing interest rate in June 2022, prior to the increase in the main ECB lending rate. It proposes a cap of €1,500 during the scheme's duration on the maximum benefit per household. There are a number of differences between this proposal and the Government's proposed form of mortgage interest relief. First, there are no balance restrictions. Second, as the Government's MIR provides relief based on total interest paid in 2023 compared with 2022, it will not capture the full scale of interest rate increases that have taken place over the course of 2023 and will take place in 2024.
Senator Gavan is requesting a report on the introduction of mortgage interest relief for principal private residences. The relief proposed by the Senator would be equivalent to 30% of the difference in interest paid in the relevant month relative to the interest rate charged in 2022, capped at a maximum benefit of €1,500 per household for the duration of the scheme or for a period of 12 months, whichever is the lesser. It is also proposed that the relief would be applied at source. However, it is not clear when the taxpayer would actually receive the benefit and to which year the relief would relate. For example, if relief were applied at source, the earliest the monetary benefit could arise would appear to be from January 2024, when relief is applied at source in respect of the mortgage payment for that month.
The Government is acutely conscious of the impact of rising interest rates and mortgage costs on many taxpayers. For this reason, as part of the budget, I announced a temporary one-year mortgage interest tax relief. As I have stated many times, it is not possible or desirable for the Government to alleviate the full impact of increased interest rates on all mortgage holders. However, the measure I am introducing is temporary and targeted and will go some way towards supporting those householders who have experienced increases in their mortgage costs associated with the recent increase in interest rates.
It is expected that Revenue will be in a position to start processing claims for mortgage interest tax relief in January 2024. As part of the design feature for this tax relief, I explored the feasibility of administering the relief at source, given this was a feature of the previous version of mortgage interest relief. However, I was advised by Revenue that the IT infrastructure used for the previous version of mortgage interest relief has been discontinued and could not be used for the purposes of the new relief being introduced on 1 January 2024. In addition, to scope, design, build and test a new system would be very complex and would come with a large monetary and opportunity cost for Revenue. It would also involve significant engagement with the financial institutions and other entities and would require linking any new Revenue system with their internal systems. This process would also likely require separate IT developments and associated costs by the financial institutions.
These significant tasks could not be delivered within the limited timeframe of 1 January 2024. A key priority for me is to ensure the tax relief can be claimed by households at the earliest possible opportunity. Therefore, the more effective and immediate solution is to administer the relief via a tax credit. Furthermore, I am confident that the design of the tax relief is appropriately calibrated to ensure it provides households most impacted by the interest rate increases with sufficient support while also considering the broader Exchequer implications.
On the basis that I am introducing a temporary one-off mortgage interest tax relief as part of this finance Bill and it is anticipated that claims can be submitted early next year, I do not believe a report along the lines requested by the Senator is necessary or warranted at this time. For that reason, I cannot accept this recommendation.
Recommendation put and declared lost.
Sections 14 and 15 agreed to.
NEW SECTION
I move recommendation No. 12:
In page 26, after line 41, to insert the following:
"16. The Minister shall, within 2 months of the passing of this Act, prepare and lay before the Houses of the Oireachtas a report on increasing the size of the VAT Compensation Fund for Charities to €40 million per annum.".
The VAT compensation scheme was introduced by the Minister, Deputy Donohoe, in budget 2018 to reduce the tax burden on charities. It helps to partially offset the VAT paid by charities and community and voluntary organisations. The refund is available at a proportion of their VAT cost based on non-public funding. Over the last number of years, the claims made by charities have been more than €40 million, which is well in excess of the cap of €5 million. While budget 2024 is doubling the cap to €10 million, many organisations are still unable to be fully recompensed. It is a missed opportunity to help charities and community and voluntary organisations with the costs that have arisen over the last two to three years. It is a small amount of money, but would make a big difference. I ask that this be considered for next year's budget as well. As a precursor to that, preparing and laying a report on increasing the cap before the Houses would be of assistance.
I thank the Senator. With regard to the VAT compensation fund for charities, the Senators will be aware I announced my intention in budget 2024 to increase the size of the fund from €5 million to €10 million. The background to the scheme is that it was originally introduced in budget 2018 to reduce the tax burden on charities and partially compensate them for the VAT incurred in delivering on their charitable purpose. Under the scheme, charities are entitled to claim a refund of a proportion of their VAT costs based on their level of non-public funding. Where the total amount of eligible claims from all charities in a year exceeds the capped amount, claims are paid on a pro rata basis. Since the start of the scheme this has resulted in payments between 12% and 17% of the total claims. As an increase in the fund to €40 million would represent a further €30 million on top of the already announced increase, it would represent a significant cost to the Exchequer. Any changes to the fund for the VAT compensation scheme will be considered as part of the normal budget process. I reiterate we are doubling the amount in the fund in this budget. I will of course consider in future budgets what potential there is to go further than that.
I thank the Minister for his response and acknowledge that he will consider it in future budgets. I welcome the doubling of the fund to €10 million, but we are talking about the community and voluntary sector. We are talking about charities that do very important work and the non-public element of it. I welcome what has been done and hope that in budget 2025 this can be looked at again for this very important sector.
Recommendation, by leave, withdrawn.
Sections 16 to 19, inclusive, agreed to.
SECTION 20
Senator Gavan does not want to move recommendation No. 13.
Recommendation No. 13 not moved.
Section 20 agreed to.
SECTION 21
Question proposed: "That section 21 stand part of the Bill."
We are absolutely opposed to the proposed landlords' tax relief - we want to remove it - so we are opposed to this section.
Question put and declared carried.
NEW SECTIONS
Recommendations Nos. 14 and 15 are related and may be discussed together by agreement. Is that agreed? Agreed.
I move recommendation No. 14:
In page 33, between lines 17 and 18, to insert the following:
“Report on landlords’ tax relief
22. The Minister shall, within six months of the passing of this Act, prepare and lay before Dáil Éireann a report on the introduction of the new personal income tax allowance introduced with respect to individual landlords in the private rental sector, assessing its distributional impact, deadweight loss of the relief and implications for social equity within the personal taxation system.”.
The Bill provides a generous tax break for landlords despite all the warnings from Department of Finance officials. As the Department noted in 2022:
Finally, taxation of rental income is often cited as a push factor for Buy-to-Let investors. In fact ... the way in which rental income is treated for tax purposes hasn't changed. Personal rates of income tax have always applied to rental income.
Landlords have benefited from the changes to the personal taxation system every year. The Department went further, stating: "Any favourable treatment of passive personal income such as rent would raise legitimate questions around social equity." This is the core of the issue. Why should a landlord enjoying passive income be taxed any less than a nurse or any other worker?
The Department assessed the option of a separate method of taxing rental income, such as a flat rate or separate rate of tax or other tax reliefs. It noted:
The breadth and depth of argument necessary to support such a fundamental shift in policy has not been provided to the extent necessary to support such a significant change. More specifically, the rationale as to why passive income from property rental should enjoy a lower or preferential rate of tax as compared with, for example, earned income has not been set out.
The Government has not heeded this advice.
Regarding the policy rationale, a survey by the Society of Chartered Surveyors Ireland found that the top three reasons for landlords leaving the rental market were the complex and restrictive nature of rent regulations, landlords finding compliance with rented housing requirements too onerous, and net rental returns being too low. As the Department of Finance noted:
In the case of accidental landlords, it is difficult to envisage any reasonable policy intervention that could dissuade such people from selling their property. People in this situation are keen to sell once they have escaped negative equity and public policy options to prevent such action are extremely limited. In relation to regulation, successive Governments have made a series of specific policy choices to more heavily regulate landlords. This was done in order to respond to legitimate concerns around tenant rights and security of tenure. Changes have been made to the point where the regulatory environment has changed utterly from that which existed before the financial crisis. A natural consequence of these policy choices is the departure of 'amateur' landlords who may not have the time, money or risk appetite to continue with their property in such an environment. The corollary of that is the professionalisation of the rental sector.
It is the case that many landlords are, in effect, cashing out, given the high level of property price growth. As the Department indicated, no tax lever can compensate them for the gains they would otherwise enjoy through selling. It is difficult to disagree with the assessment given by Dr. Barra Roantree, formerly of the ESRI, the Government’s own think-tank, who said that this tax break would cost between €100 million and €150 million, with the vast majority of that going to landlords who never even thought of leaving the market. In his words, it may be “the stupidest tax relief of recent times”.
There are some who like to pretend that you could have a properly functioning private rental market without landlords, but as the Minister well knows, that is impossible. The Government always strives to strike a balance in keeping landlords in the market. I do not accept that we should just throw our hands up in the air and say of those landlords who are leaving, “So be it”. There is a place for the Government to encourage landlords to remain in the market, as we need a strong private rental market. The IPOA and the IPAV are before a joint Oireachtas committee at this moment, and I will have to excuse myself shortly to attend that meeting. I am sure that the IPOA is saying that its members want to remain in the market but that there is simply not enough in it for them to do so.
There has been a vilification of landlords by people in this Chamber and in the other House for far too long. The narrative out there that landlords are awash with money and able to make significant sums is simply not the case. In a report commissioned as part of Housing For All, CSO data shows that around 80% of landlords own one to two properties. Many landlords either owned a property before they got married and then had a surplus house, inherited property from a deceased family member or purchased it with a second mortgage. These are small landlords who provide much-needed housing for individuals and families. They have been vilified by many in the Opposition and that is not appropriate because they provide much-needed rental accommodation. I welcome the introduction of this tax credit but do not believe it goes far enough in order to retain landlords in the market. Let us not forget that without these landlords there are no tenancies and without tenancies we would have more people in homeless accommodation. That is the reality of the matter and to pretend that we can have one without the other is simply fantasy.
I thank Senators for their recommendations. The purpose of the residential premises rental income relief is to provide for a new tax incentive for small-scale landlords. This measure is specifically targeted at attracting and retaining small-scale landlords in the private sector. The purpose of this relief is to support the continued participation of small-scale landlords in the rental market, an objective being progressed through Housing for All, the Government’s housing plan to 2030.
Landlords are an essential feature of a functioning housing market. Rising rents are driven by a shortage of supply so stabilising and increasing the supply of rental properties should ease upward pressure on rental prices and make it easier for prospective tenants to find affordable homes. The Government is acutely aware of the difficulties in the housing market. As I have said on many occasions, the key problem is a lack of supply. This is why the Government is committed to increasing the supply of all types of homes including social, affordable, rental and owner-occupier.
In my budget address I acknowledged that housing is undoubtedly the biggest domestic challenge we face today and remains a top priority for the Government. I also acknowledged that in recent years we have seen a decline in the number of small investors in the market owning one or two properties. A full 86% of landlords in the market own just one or two properties and they have a vital role to play. However, we are seeing the departure of a significant number of small-scale landlords and I believe taxation is a factor in that regard. The evidence demonstrates a change in our rental market. There has been a significant reduction in the number of small-scale landlords owning one or two properties. The most recent data from the RTB on notices of termination show that from quarter 3 of 2022 to quarter 2 of 2023, some 20,000 notices of termination were received by the RTB. The number of such notices where the reason given was because a landlord was selling the property was in the order of 60%. In 2017, the number of registered tenancies with the RTB was 313,000, falling in consecutive years. For 2022 the latest figure from the RTB, which now has a system of annual registration, was 246,000. That is a significant reduction over that period. The evidence is clear that small-scale landlords are leaving the market in significant numbers.
This proposal seeks to encourage investment which is already in the market to stay in the market. It will also try to address that dramatic imbalance between the exodus from the market and the very low level of entry into the market in respect of the provision of private rental accommodation. It is necessary to have a rental sector where there is a continued supply of private rental accommodation in the market. This measure can make a contribution towards achieving that goal.
In respect of the recommendation put forward by Senators Kyne, Ahearn and Cummins, the relief will be as follows: €3,000 in the tax year 2024; €4,000 in 2025; €5,000 in 2026; and €5,000 in 2027. This will equate to a tax credit of up to €600 in year one, €800 in year two and €1,000 in each of years three and four. As the credit increases from €600 to €1,000 during the lifetime of the relief, I do not believe it is necessary to prepare a report on changing the rate of the relief at this time.
Recommendation put and declared lost.
Recommendation No. 15 not moved.
Sections 22 to 24, inclusive, agreed to.
NEW SECTION
I move recommendation No. 16:
16. In page 35, between lines 6 and 7, to insert the following:
“25. The Minister shall, within 3 months of the passing of this Act, prepare and lay before the Houses of the Oireachtas a report on the operation of the tax relief measure introduced in Budget 2023 to encourage the retrofitting and the making of rental homes warmer and more energy efficient for renters.”.
We know the importance of a warmer home to any tenant. It is hugely important. Obviously, there is a cost incurred by landlords. Unfortunately, we have seen cost inflation and price inflation through all sectors of the economy, particularly in construction. I will give an example that my colleague, Senator Micheál Carrigy, gave in a Commencement debate recently of some of the costs that have increased over the period. The grant per house for retrofitting is €11,000. In 2020, the average amount expended on retrofitting was €20,865. In 2022, it was €35,926. This means that there was an increase of 72% over the three-year period. In 2023, these costs are projected to be an average of €45,280, due, in particular, to construction cost inflation. This is coming not just from the local authority but also from the Society of Chartered Surveyors Ireland, who are obviously experts in this regard.
The maximum reimbursement from the Department to local authorities is €11,000 per dwelling, with additional costs to be funded from the authorities' own resources. Senator Carrigy has raised questions about the refunding of that money to local authorities. That gives an example of the added cost that has incurred in respect of this very important retrofitting work.
A new tax incentive was introduced in Finance Act 2022 for small-scale landlords who undertake retrofitting works while the tenant remains in situ, which has the aim of retaining small-scale landlords in the private rental sector as well as encouraging retrofitting of rental properties. This measure is provided for in section 97B of the Taxes Consolidation Act 1997. The provision is intended to provide for a deduction of certain retrofitting expenses incurred by landlords on rented residential properties in calculating their case V rental profits. The expenses that qualify for deduction are those in respect of which the landlord has received a home energy grant from the Sustainable Energy Authority of Ireland, SEAI. The expenses incurred must be in respect of the period 1 January 2023 to the end of December 2025. Furthermore, the maximum amount of tax deduction that can be claimed is the lesser of the qualifying expenditure incurred or €10,000, and a landlord is only entitled to claim the relief on a maximum of two of his or her rental properties.
As introduced in the Finance Act 2022, the conditions in order to qualify for the relief were that the landlord must have been tax compliant, be compliant with the Residential Tenancies Act 2004 and be registered with the RTB. Certain landlords are exempt from registering with the RTB because their properties fall under the Housing (Private Rented Dwellings) Act 1982 and were therefore unable to avail of the deduction for retrofitting expenditure. Section 24 of this finance Bill aims to correct this by amending section 97B to permit landlords of properties that fall under the Housing (Private Rented Dwellings) Act 1982 to avail of the deduction for retrofitting expenditure, subject to meeting all of the other relevant eligibility criteria.
The deduction operates in the same manner as any other permitted rental deductions. However, unlike other rental expenses it will not be deducted for the year in which it is incurred. Instead, the deduction will be claimed against the rental income of the year following that in which the expense was incurred. For example, expenses incurred on retrofitting works in 2023 should be included in calculating rental profits for 2024 and may be claimed by a landlord on their income tax return for that year. As such, relief under this measure will be claimed for the first time in 2025, in respect of the 2024 tax year. Income tax returns for 2024 are not due until quarter 4 of 2025 and as such, Revenue has advised me that it is not currently possible to provide information on the take-up of the deduction for retrofitting expenditure but we will provide it to the Senator as soon as it becomes available.
I wish to welcome residents from the active retirement group from Bushy Park in Galway city who are in the Gallery as my guests. They are very welcome. Apologies, I did not get to meet them when they entered but I am here with the Minister, Deputy Michael McGrath.
They are all very welcome.
I thank the Minister for his contribution and his comments. It is important that this be kept under review because there are significant pressures as regards cost inflation. It is important for landowners on local land, homeowners, renters and local authorities that we maximise the number of grants that are drawn down for retrofitting and to make our homes warmer. It is so important in terms of health and well-being for renters. This benefit is very important for all concerned.
Recommendation, by leave, withdrawn.
Sections 25 to 28, inclusive, agreed to.
NEW SECTION
I move recommendation No. 17:
In page 37, between lines 1 and 2, to insert the following:
“29. The Minister shall, within 3 months of the passing of this Act, prepare and lay before the Houses of the Oireachtas a report on the take up of the tax credit to recompense householders for the renewably generated electricity fed back into the national grid.”
This recommendation relates to the tax-free amount available to homeowners for the electricity generated by their solar panels and wind turbines that is fed back to the national grid. With regard to the number of homeowners that are feeding into the grid, according to the Minister, Deputy Eamon Ryan, there is no single register to record the number of microgenerators exporting at any one time. ESB Networks maintains a register of NC6 submissions which records the number of microgenerators that have had their export capabilities registered. As of 3 November this year, ESB Networks received 73,286 valid NC6 form applications from microgenerators nationwide, which amounts to approximately 273 MW of electricity generation capacity. This is an increasingly important area. It is important that we monitor the uptake of the tax-free amount available for electricity generated. I hope this area will be one that will continue to grow and provide support for those who are investing but also in terms of the national grid.
In my budget address I acknowledged the challenges we face in relation to climate. The finance Bill provides for a number of climate-related tax measures including the enhancements to the tax relief available to qualifying individuals in respect of excess electricity from domestic microgeneration that is supplied to the grid. This tax measure is intended to remove a barrier for entry for those who engage with the clean export guarantee scheme. This is a scheme which introduced an obligation on suppliers to offer the clean export guarantee tariff to new and existing microgenerators so that they will receive payment for excess renewable electricity they export to the grid, reflective of the market value. Section 28 of this Bill 2023 amends section 216D of the Taxes Consolidation Act 1997 to provide that the €200 exemption for income from the microgeneration of electricity will be increased to €400. It also extends the exemption to the 2025 year of assessment.
I should note that the exemption applies automatically. In general, microgeneration of electricity generates relatively small amounts of electricity and the payments from selling this electricity are modest. The purpose of the exemption is to ensure that the administrative burden associated with declaring and paying tax on these modest amounts does not act as a disincentive to participation in the microgeneration support scheme.
For PAYE employees, where exempt income from the microgeneration of electricity is their sole source of other income aside from their salary, they will not need to complete a form 12 income tax return. Any income in excess of the €200 or €400 exemption threshold which is earned from microgenerated electricity must be declared by the individual on their annual tax return and will be subject to income tax, USC and PRSI in the normal manner. Given that exempted income is not required to be declared, data is not available on the rate of take-up. New and existing microgenerators who wish to avail of the clean export guarantee scheme will need to have a suitable ESB Networks export grid connection and a smart meter, where available. ESB Networks reports that there are currently more than 70,000 registered microgenerators, with approximately 55,500 of those with a smart meter installed. This information provides some indication on the number of potentially eligible claimants. Therefore, I do not propose to accept the recommendations put forward by the Senators.
Recommendation, by leave, withdrawn.
Sections 29 to 38, inclusive, agreed to.
NEW SECTION
I move recommendation No. 18:
In page 65, between lines 20 and 21, to insert the following:
“Report on private pension tax reliefs
39. The Minister shall, within six months of the passing of this Act, lay before both Houses of the Oireachtas a report on private pension tax relief including:
(a) an assessment of the cost to the exchequer;
(b) a comparative gender analysis of tax reliefs;
(c) the distributional impact; and
(d) the potential impacts or benefits of a shift from a marginal rate to a 30 per cent standard rate approach for private pension tax relief in respect of cost to the exchequer and gender impact.”.
Recommendation No. 18 touches on an issue we raise consistently in this House, namely, that of private pension tax relief. In recent years, there has been much discussion about the supposed unaffordability of our pension system. These discussions regularly fail to mention the approximately €2.9 billion annual spend on private pension tax relief. To put this in context, the Commission on Taxation and Welfare estimated that a universal pension at the same level for everybody in the State, including all women and men, would cost approximately €3 billion. More than 70% of the tax relief for private pensions accrues to the top 20% of earners. Therefore, we are spending a huge amount of money each year on a trickle-up policy, all the while claiming that a universal pension - and even our current pension system - is somehow unaffordable.
All this has taken place in the context where there is a concerted effort to make our pension system more exclusionary and less secure. Plans have been announced by the Government to introduce a tiered pension system whereby only those who work until 70 years of age will be able to access the highest payments, effectively condemning certain types of workers to real-term cuts in pension payments for years to come. It goes without saying that this system would punish manual labourers, nurses, hospitality workers, front-line workers and all those in the kinds of jobs that take the highest toll on a person's body. They simply cannot keep working until they are 70 years of age.
On the issue of when contributions move from ten to 20 years, women in particular found themselves on a reduced rate of pension. If we move to 30 years, we are likely to see even more women on a reduced rate. If we go to 40 years, you can be guaranteed that an extraordinary number of workers in this State will not have 40 years' worth of contributions. Let us bear in mind that only 20 years can be from a combination of PRSI credits while on a social protection payment or caring credits.
What we have from the Government can only be described as some form of collective cognitive dissonance, because, on the one hand, workers are being told the State cannot afford their pensions into the future and that it would be somehow unthinkable for us to spend €3 billion annually on a universal pension. On the other hand, we spend €2.9 billion per year on a policy that disproportionately benefits the highest earners in society. Recommendation No. 18 calls for a detailed report on private pension tax relief, specifically with regard to gender and distributional impact.
I thank Senator Ruane for the recommendation. As Senators are aware, Ireland operates an exempt, exempt, tax, EET, system. This means that contributions to pensions are exempted from income tax, subject to age-related percentage and income limitations. Pension fund gains are exempted from income tax, but income from pension drawdown is taxed.
Data is available in relation to the Exchequer cost of tax relief for pensions. This data is publicly available and included in Revenue's publication on the cost of tax expenditures, as well as in the Department of Finance report on tax expenditures, which was published with the budget earlier this year.
With regard to a distributional analysis, I am advised by Revenue that prior to the introduction of real-time reporting, that is, PAYE modernisation, in January 2019, pension contributions were reported to Revenue at an employer level rather than an employee level. As the Seanad is aware, while there were some delays in the processing and publication of the data following the implementation of the new system, Revenue has been publishing data and some more detailed analysis on its website as it becomes available.
The Department of Finance report on tax expenditures and the Revenue cost of tax expenditures publication both contain information on the cost to the Exchequer of tax expenditures, including tax relief for pension contributions. In 2020, the cost associated with tax relief for employee pension contributions was €1.154 billion. This is a significant cost but it is an important part of encouraging savings for retirement.
Revenue informs me that over 1 million employees made pension contributions at some point in 2022. In 2022, pension contributions made through employments for employees and employers totalled €3.6 billion and €2.6 billion, respectively. These include contributions to occupational pensions, additional voluntary contributions, AVCs, contributions to personal retirement savings accounts, PRSAs, and contributions to retirement annuity contracts. Those with higher incomes make greater contributions to their pension, but the average share of income set aside as a pension contribution is relatively consistent across the income ranges, typically between 3% and just under 7%, and below the maximum age-related percentage thresholds which apply to pension contributions.
I am, however, aware of the importance of additional data in this area. The interdepartmental pensions reform and taxation group, which reported in November 2020, was tasked with a number of actions relating to the pensions roadmap, including proposals aimed at simplifying and harmonising the supplementary pension landscape and an assessment of the cost of State support for pension savings. The actions identified in the report are being worked through. The report notes that the tax treatment of pensions represents one of the largest Exchequer tax expenditures. However, in common with other countries operating EET systems, the exact cost of this is difficult to quantify due to the general nature of tax expenditures and also specific pension-related challenges, such as limited data availability on some features of the pension regime in Ireland. It is, therefore, challenging to capture the exact data needed to comprehensively analyse the varying types of pension relief.
The group's report recommended further consideration in the area of pensions to specify and collect the necessary data to support policy analysis. In addition, the Commission on Taxation and Welfare has identified improving the data available on pension contributions as a necessary action. The group has collected data that is available, identified data constraints in this area and will propose options on how these could be addressed. There is, as already outlined, data available and published by Revenue relating to pension contributions. The same level of information is not available to Revenue in respect of the cost of tax relief provided as pensions savings grow and at drawdown due to the nature of these phases of a pension and how the tax relief is provided. The group is continuing to consider these aspects of the data challenge and where actions fall to the Department on foot of these recommendations, my Department will be working to implement any necessary changes.
In terms of gender analysis, my Department is incorporating equality budgeting into the budgetary process. In terms of pensions specifically, the interdepartmental group report published in 2020 considered the issue of gender. The report noted that the key drivers of pension coverage and adequacy for women relate to labour market factors. The combination of reduced working hours and breaks in employment due to caring duties can have significant implications for women's duration of working life and lifetime earnings and limit the capacity to maximise the size of the final pension fund for women who do contribute to a supplementary pension. The Commission on Taxation and Welfare also notes that it took equality impacts, including gender, into account in its considerations and recommendations.
In terms of a move to a flat rate of 30% for income tax relief on pensions contributions, this point was considered by the Commission on Taxation and Welfare in the context of its report published last year.
The Commission noted that, while marginal rate relief is seen by some as costly and favouring those on higher incomes, others point to the deferred tax implicit in our EET system, which means tax will be paid on draw down. While there may be merit in moving all contributors to the same rate from an equity perspective, a number of concerns arise. These include the overall cost and deadweight associated with moving to a higher rate of relief; the disincentive effect that might result if contributors were standardised to a rate below their marginal rate of tax; and the impact such a change might have on supplementary pension provision. On balance, the Commission concluded that the existing approach of marginal relief was appropriate on the basis that such contributions represent a deferral of income.
Finally, I note that an examination of the standard fund threshold regime is taking place. The standard fund threshold, SFT, sets a limit on the level of pension at retirement that will benefit from tax relief. This examination, which will be led by an independent expert, will include a public consultation to allow all interested parties to share their perspective on this important part of the tax treatment of supplementary pensions and I encourage Senators to participate in the consultation. Given that work is already under way to examine the SFT and to consider how the data available on tax reliefs for pensions can be improved and that more granular information is now available following PAYE Modernisation, a further report is necessary at this time.
Recommendation put and declared lost.
Sections 39 to 41, inclusive, agreed to.
NEW SECTION
I move recommendation No. 19:
In page 84, between lines 34 and 35, to insert the following:
“42. The Minister shall, within 3 months of the passing of this Act, prepare and lay before the Houses of the Oireachtas a report on the impact of the regional uplift for the film and TV production sector outside Dublin and Wicklow which has been phased out
with a view to its re-introduction.”.
We know the importance of section 481 to the film industry. Previously a regional uplift was provided. I understand it received state-aid approval because it was regarded as being short-term, tapered support, designed to stimulate the development of new pools of talent in the regions. By "the regions", I mean areas outside Dublin and Wicklow. The regional support fund is designed to support the development of skills across the country. I understand there is progress in different areas, such as in Limerick with Troy Studios and in Connemara. Luaim an tábhacht a bhaineann le TG4 agus leis na meáin sa Ghaeltacht. Regional Ireland has a lot to offer in film production. The talent is there and is there to be nurtured as well. Looking again at regional uplifts, if possible, would be positive for the film industry across the regions.
It is important to put on the record what is happening in this Bill in relation to section 481 this year. As I announced on budget day, I am increasing the cap on qualifying expenditure on audio-visual productions from its current level of €70 million to a new cap of €125 million. This change has long been sought by the sector. The increase will support the continued development of the creative film sector and will ensure that Ireland remains an attractive location to produce high-quality films and television series into the future.
Turning to the recommendation put forward by the Senators, the Finance Act 2018 introduced a short-term, tapered regional uplift for productions being made in areas designated under the state aid regional guidelines. The uplift is an approved state aid. The premise upon which it was originally notified to the European Commission is that it would be temporary in nature and would be withdrawn on a tapered basis. For the uplift to be changed or retained for a further period, a further notification process with the European Commission would be required. In addition, it should be noted that a further extension of the uplift in its current form would not be possible. While it is not an EU regional aid, it uses the regional aid map to identify geographic areas in which the relief is available and, as it was introduced in 2018, the map referenced is the regional aid map for Ireland applicable from 1 July 2014 to 31 December 2020.
As the Senators will be aware, a new regional aid map covering a smaller geographic area within Ireland was introduced in April 2021.
While approval was granted by the European Commission for the uplift to continue to reference the previous map for the remaining term of the current relief, it is not expected that a similar approval would be granted for a longer extension. I am aware of how well the uplift was received upon its introduction. However, as discussed by Senators on Second Stage in this House and as with all targeted reliefs, there was dissatisfaction in those areas not qualifying for the relief. For these reasons, a decision has been taken to focus on enhancing the main film tax credit of 32%, which is available for qualifying productions in all areas of the country. As stated, the cap on eligible expenditure of the main credit is increasing significantly this year. I believe this will have a positive impact on the industry as a whole, including productions in the regions.
I also note there are other non-tax supports available to regional productions, such as Screen Ireland's regional support fund. The fund is designed to support the development of skills around the country, outside of the established hubs in Dublin and Wicklow. It is targeted at crew across all grades, including new entrants, and will require commitments in the areas of diversity and inclusion, sustainable production and on-set initiatives. I, therefore, do not propose to accept the recommendation.
Recommendation, by leave, withdrawn.
Sections 42 to 45, inclusive, agreed to.
NEW SECTION
Recommendations Nos. 20 and 21 are related and may be discussed together. Is that agreed? Agreed.
I move recommendation No. 20:
In page 88, between lines 33 and 34, to insert the following:
“Report on deferred tax assets
46. The Minister shall, within six months of the passing of this Act, lay before both Houses of the Oireachtas a report on the potential for restricting banks from utilising the deferred tax assets scheme.”.
The issue of deferred tax assets is something we raise year in and year out and nothing has been done thus far to fix what is clearly an issue with our tax regime. It has been well publicised that Irish banks benefit hugely from this scheme due to the amount of historic losses they had from the financial collapse in 2008, which for most people caused untold suffering and did not result in an effective tax write-off for them. In 2017, those banks shaved €400 million from their tax bills by offsetting financial crisis losses against taxable profits. What is most shocking about this policy to the average person is that these losses can be carried forward indefinitely to shield banks' future profits from tax. These banks are effectively avoiding the payment hundreds of millions of euro in tax, which they owe, by shielding profits with losses that occurred a decade ago. Prior to 2012, there was a 50% limit in place, imposed by the former Minister, Brian Lenihan. However, this was lifted by another former Minister, Michael Noonan, and has resulted in a number of banks being able to avoid paying taxes on profits. While I acknowledge the existence and application of the banking levy to which banks are subject, it is unacceptable that the banks are being shielded from paying taxes on these profits.
This scheme has a huge cost. The Comptroller and Auditor General has estimated that the future cost of forgone tax revenue from deferred tax assets could be as much as €29 billion, with €12 billion relating to the financial and insurance sector. This is revenue that could be used for housing, climate action, poverty reduction or healthcare but is instead being used to allow large financial institutions to avoid paying tax. Last year we saw banks start saying they have moved on from the crisis and are ready to start paying their bankers more than €500,000 and no longer want to apply pay restrictions. This is a signal that banks are ready to start paying tax again. If a bank is willing to start paying more than €500,000 to senior staff, it cannot also say it is still experiencing huge losses and is struggling because of the losses of a decade ago. It is reasonable that any bank which chooses to no longer apply the restriction or pay cap should no longer be able to avail of the deferred tax assets scheme. It should be able, since it can pay large salaries, to pay its tax contribution to the State. This is what recommendations Nos. 20 and 21 do.
I thank Senator Ruane for speaking to these recommendations.
Recommendation No. 20 requests a report on a restriction of loss relief for banks. As Senators are aware, loss relief for corporation tax is a long-standing feature of the Irish corporation tax system and a standard feature of corporation tax systems in most OECD countries. It recognises that a business cycle runs over several years and that it would be unfair to tax income earned in one year and not allow relief for losses incurred in another.
There have previously been proposals for the reintroduction of a limitation on loss relief for banks, and this has been discussed in detail in the Oireachtas on a number of occasions. A detailed technical note on considerations relevant to a restriction of loss relief, both for banks and for companies generally, was prepared in 2018 by my Department for the Committee on Finance, Public Expenditure and Reform, and Taoiseach, and is available online.
Considerations set out in that paper include the difficulty of discriminating between industries, or individual entities within the same industry, in the use of loss relief, as state aid implications would arise in respect of such a targeted measure.
The reintroduction of a tax-loss restriction of this nature could also have a number of negative impacts, discussed in some detail in the published technical paper. These include considerations relevant to the capitalisation of the banks, consequential impacts for consumers, and the current and future value of the State’s remaining shareholdings.
It is important also to understand that the State has received value from the banks’ deferred tax assets through its share sales to date and through the current valuation of the remaining shareholdings. As of today, the value of the State's remaining shares in the banks is in excess of €5 billion. A restriction on the use of losses could damage the State’s credibility with investors and could negatively impact on future share sales.
For these reasons, a change to the tax treatment of bank trading losses is not currently under consideration and, as a detailed technical note has already been prepared and published on this issue, I do not accept the recommendation for a further report.
Recommendation No. 21 concerns a potential to link entitlement to use losses carrying forward to the cap on bankers’ pay. Regarding the cap and other restrictions on bankers’ pay, the Senator will be aware that, up to last year, Government policy on banking remuneration had remained unchanged since the financial crisis. The restrictions introduced at that time affected approximately 20,000 workers across the three banks in which the State has or had a shareholding, including junior staff. By last year, it had become clear that these restrictions were creating recruitment and retention problems for the banks involved.
The skill set required in the banking sector is evolving all the time, with the greatest demand for staff now arising in areas such as the digital economy, risk management, legal and compliance. These skills are in demand right across the economy, meaning that the banks are competing for this talent against companies which have more flexible and attractive remuneration structures.
Therefore, following the retail banking review in 2022, a decision was taken by my predecessor to ease some of the restrictions on bank pay. In the case of Bank of Ireland, a bank in which the State is no longer a shareholder, restrictions were removed in respect of contractual pay and the bank can make awards of variable pay up to but not exceeding €20,000 per annum along with offering fringe benefits. The State continues to have significant shareholdings in AIB and Permanent TSB, therefore while restrictions around variable pay up to €20,000 and fringe benefits have been removed for both of these banks, the total compensation cap of €500,000 per annum remains in place and remains under consideration.
It continues to be the Government’s policy to ultimately return the banks fully into private ownership. We have seen good progress in reducing our remaining shareholdings and, should market conditions allow, we will look assess further disposal options for both banks in 2024.
Recommendation put and declared lost.
I move recommendation No. 21:
In page 88, between lines 33 and 34, to insert the following:
“Report on deferred tax assets
46. The Minister shall, within 12 months of the passing of this Act, lay a report before both Houses of the Oireachtas outlining the potential for removing the qualification to utilise deferred tax assets from any bank which seeks to act on a removal of restrictions on pay or bonuses.”.
Recommendation put and declared lost.
Sections 46 to 51, inclusive, agreed to.
NEW SECTION
I move recommendation No. 22:
In page 112, between lines 22 and 23, to insert the following:
“Report on wealth tax
52. The Minister shall, within six months of the passing of this Act, lay before both Houses of the Oireachtas a report on the potential revenue raised from, and distributional impact of, a wealth tax of 1 per cent on all households with assets of over 10 million euro.”.
The recommendation calls for a report on the potential revenue raised from, and distributional impact of, a wealth tax of 1% on all households with assets of over €10 million. According to Oxfam’s Survival of the Richest report, globally since 2020 the richest 1% has captured almost two thirds of all new wealth, nearly twice as much money as the bottom 99% of the world's population. Billionaire fortunes are increasing by $2.7 billion per day, even as inflation outpaces the wages of at least 1.7 billion workers. Food and energy companies have profiteered from the cost-of-living crisis, having more than doubled profits in 2022, paying out $257 billion to wealthy shareholders while over 800 million people did not have enough food. According to the report, a tax of up to 5% on the world’s multimillionaires and billionaires could raise $1.7 trillion per year, enough to lift two billion people out of poverty and fund a global plan to end hunger.
The recommendation proposes a 1% wealth tax on all households with assets of over €10 million. It is a modest proposal and one which should be urgently implemented. From the pandemic to the cost-of-living crisis to the climate crisis, companies are profiting from crises and governments are not willing to take on such profiteering. Ireland is a particularly bad example as our tax regime has negative implications for human rights and development globally. Earlier this year, the United Nations Committee on the Rights of the Child called on the Irish Government to ensure its tax policies do not lead to corporate profit-shifting, which takes resources away from low-income countries and prevents them having the resources they need to protect and enhance children’s rights. That is just one example. I urge the Minister to give proper consideration to this proposal.
Sinn Féin fully supports this proposal and all the Civil Engagement Group recommendations tabled today. It is noticeable and significant that, whenever proposals are made to tax wealth or claw back some of the reliefs on banks, Fianna Fáil and Fine Gael are entirely united. They oppose anything that may require those in the wealthiest parts of our society to pay even a small amount more. It is telling of where our politics are at and of what the debate will be in the coming year as we face local and European elections, and probably a general election. There is no reason to oppose a report that will at least detail what is possibly to be found from a wealth tax, but it is par for the course, unfortunately, for Fine Gael and its sister party, Fianna Fáil.
I thank both Senators. The recommendation seeks the preparation of a report on the revenue that would be raised from, and the distributional impact of, a wealth tax of 1% on all households with assets over €10 million within six months of the passing of this Bill into law.
As Senators from all sides of this House will be aware, wealth can be taxed in a variety of ways, many of which are already levied in Ireland. These include capital gains tax and capital acquisitions tax, which are, in effect, taxes on wealth, in that they are paid by an individual or company on the disposal or acquisition of an asset through gift or inheritance. There is deposit interest retention tax, currently charged at 33%, with limited exemptions, on interest earned on deposit accounts. There is local property tax, a tax based on the market value of residential properties. Another is stamp duty, which is charged on the transfer of shares, stocks and marketable securities of Irish-registered companies, as well as on the purchase of property, both residential and non-residential. It follows that any revenue raised from a wealth tax, no matter what form it takes, may not be additional to the existing forms of wealth taxation, as revenues from those taxes could be affected by the introduction of a wealth tax.
On the issue of household wealth, in September 2020 the Central Bank published a report entitled Household Wealth: What is it, Who has it, and Why it Matters. It presents the results from the household finance and consumption survey, HFCS, which collects data on households’ financial positions.
That survey was undertaken before the pandemic, but in time will provide a starting point against which to benchmark its impact on household finance positions and consumption patterns. It reports that the survey data indicates an improved financial position and resilience for households prior to the Covid-19 crisis when compared to the situation leading into 2008.
I am informed that the Household Finance and Consumption Survey indicates that household net wealth grew by over €76,000 for the median household, or by 74%, to €179,200 from 2013 to 2018, driven primarily by house price growth and declining mortgage debt. The report therefore is clear that a significant portion of wealth for most households is tied up in the family home. This net wealth grew across the entire wealth distribution while inequality, as measured by the Gini coefficient, fell over the same period. The decline in negative equity from 33% in 2013 to 4% in 2018 was a key driver of this. While the net wealth of the top 20% of households increased by approximately 52%, from €560,000 to €853,000, the relative share of net wealth held by the top 10% of households, which stood at 50.4% in 2018, decreased by 2.6% from 2013 and is 1.3% below the equivalent figure for the eurozone as a whole.
In examining the topic, the Commission on Taxation and Welfare, which reported in 2022, identified challenges that would impede the implementation of such a tax. It concluded that a new tax on net wealth should not be introduced without first attempting to substantially amend Ireland’s existing taxes on capital and wealth. As an alternative to introducing a new tax on wealth, the Commission believes the more productive route is to re-examine the capital gains tax and capital acquisitions tax. These are, as I have already noted, existing taxes on wealth that have well-established but distinct bases, and are well understood in their operation.
In addition to wealth taxes, the Government takes action against inequality through our tax and welfare system. For instance, the strong redistributive role of the Irish tax and welfare system is evident in the range of supports that were introduced to help mitigate the impact of the Covid-19 pandemic and in the series of measures designed to limit the impact of the current cost-of-living pressures facing so many. Ireland has one of the most progressive systems of taxes and social transfers of any EU or OECD country, which contributes to the redistribution of income and to the reduction of income inequality. It is estimated that the top 1% of income earners, those earning in excess of €290,000, will pay 24% of the total income tax and USC collected in 2023, while those earning less than €69,500, which represents the bottom 80% of income earners, will contribute 21% of total income tax and USC receipts.
In conclusion, I can assure Senators that all taxes and potential taxation options are kept under constant consideration It remains a priority of mine to ensure that Ireland maintains its progressive taxation system. I do not see the benefit of committing to a further report on these issues.
Is the Senator pressing the recommendation?
Recommendation put and declared lost.
SECTION 52
I move recommendation No. 23:
In page 113, to delete lines 8 to 15 and substitute the following:
"
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11 October 2023
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€606.39
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€606.39
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€526.83
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€526.83
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€526.83
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€60.00
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€164.23
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€149.09
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€142.76
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€79.17
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€9.36
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1 April 2024
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€638.91
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€638.91
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€551.22
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€551.22
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€551.22
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€60.00
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€164.23
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€163.96
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€142.76
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€79.17
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€9.36
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1 May 2024
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€638.91
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€638.91
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€551.22
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€551.22
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€551.22
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€122.83
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€164.23
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€178.83
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€142.76
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€79.17
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€9.36
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1 August 2024
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€654.07
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€671.43
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€555.53
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€575.61
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€575.61
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€122.83
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€164.23
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€178.83
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€142.76
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€79.17
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€9.36
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9 October 2024
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€654.07
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€688.78
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€555.53
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€595.68
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€595.68
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€122.83
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€164.23
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€178.83
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€142.76
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€79.17
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€9.36
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"
This recommendation seeks to pause any increase in excise or carbon tax on consumer fuels, such as petrol and diesel, for the duration of 2024. It also seeks to reduce the level of excise applied to home heating oil by more than 50% until 1 May 2024, saving households approximately €64 per tank fill. The policy objective of the carbon tax was to establish a price floor on carbon-based fuels. It is acknowledged that the carbon tax is regressive, with the cost disproportionately borne by low-income, rural and single-parent households.
With regard to the stated policy objective of increased carbon taxes to set a price floor on carbon-based fuels, it is now widely anticipated that, in the words of the High Representative of the EU for Foreign Affairs and Security Policy, "The energy transition will for sure be accompanied by a rise in the price of fossil fuels." At present, Ireland has the seventh highest carbon tax in Europe and among the highest energy prices in Europe as well.
Under the stewardship of Fianna Fáil, Fine Gael and the Green Party, we have exhausted almost 50% of the 2021 to 2025 carbon budget in the first two years. We are on track to exhaust 123% of the allocated carbon budget by 2030. By refusing to depart from its business-as-usual approach, the Government will almost certainly max out the 2025 carbon budget before it has left office. Successful environmental and climate action cannot be reduced to any one single policy, with supply-side investment yielding results being crucial in the transition to a low-carbon economy.
I thank Senator Gavan for this recommendation, which proposes a reduction in the current rate of mineral oil tax applied to kerosene used for non-propellant purposes, as well as further deviations from the proposed rates of mineral oil tax applying to other fuels. I acknowledge the impact of fuel prices on the current cost-of-living crisis and welcome the discussion of this important matter today. I am happy to address the recommendation that has been made by the Senator.
The Government is very aware of the impact of increased fuel prices on households and businesses, which are driven by volatility in global energy markets. It is not possible for the Government to fully insulate consumers against these price impacts. However, a number of very important steps have been taken to lessen the impact of increased fuel prices. As the Senators will be aware, in my budget speech I announced a deferral of the final tranche of the fuel excise restoration, which was due to take place on 31 October 2023. The temporary rate reductions amount to 8 cent per litre on petrol, 6 cent on auto diesel and 3.4 cent on marked gas oil, MGO. These rate reductions are now being extended until 31 March 2024, with phased restorations taking place in two stages in April and August 2024.
The programme for Government committed to multi-annual increases in the carbon tax out to 2030. This measure is a key pillar underpinning the Government’s climate action plan to halve emissions by 2030 and reach net zero not later than 2050. In line with Government policy, the additional revenues raised from increases in carbon tax are allocated to expenditure measures, which ensure a just transition through targeted social welfare measures, investment in energy efficiency and funding for the agricultural sector.
As the Senator will be aware, in the budget carbon tax was increased by €7.50 per tonne of CO2, with the estimated revenues raised from this increase allocated to climate action and just transition measures in line with the programme for Government commitment. In 2024, this allocation is €788 million from the carbon tax. That is up €165 million on 2023. On budget day, we published a paper called Budget 2024: The Use of Carbon Tax Funds and we provided a detailed breakdown of exactly where that €788 million is being spent. The carbon tax is going up in a phased and gradual manner, but all the proceeds from those increases are ring-fenced and we set out in an open and transparent way on budget day every year how those revenues are being spent on helping farmers in the transition to low-carbon farming, measures to tackle fuel poverty and, indeed, on supporting the investment in energy efficiency in homes all over the country.
Recommendation put and declared lost.
Section 52 agreed to.
Sections 53 to 64, inclusive, agreed to.
SECTION 65
I move recommendation No. 24:
In page 119, between lines 29 and 30, to insert the following:
“(2) The Minister shall, within 6 months of the passing of this Act, prepare and lay before the Houses of the Oireachtas a report on the impact of this section.”.
This recommendation seeks a report on the operation of the section of the finance Bill, which reduced the VAT rate on audiobooks and e-books to 0%. While this is a most welcome measure, clarification is needed on who will benefit most from it. The main organisations in the audiobook sector, for example, are major multinationals and we would like to know how we can ensure that this measure helps booksellers locally, writers, voice actors, etc., as well as consumers.
I thank the Senator Doherty. As she will be aware, this finance Bill provides for the application of the zero-rate of VAT to electronic books, or e-books, and audiobooks from 1 January 2024. There is no requirement in the amendment that an electronically supplied book or audiobook must have a printed equivalent to benefit from the zero-rate of VAT. A book or audiobook that is published only in digital or electronic format will also attract the zero-rate of VAT.
It should be noted that it was not possible to make this change prior to amendments made to Annex III of the VAT Directive in 2022. The estimated cost of this measure is €3 million.
As the measure restores a level of parity between physical books and their electronic and audio equivalent, I am satisfied that it was the appropriate decision to make and I believe it will meet the particular needs of a wide range of people who use such books. Therefore, I do not propose to prepare a report at this stage but we will consider the issue the Senator has raised and we will monitor the impact of this reduction in VAT once it comes into effect in the new year.
Recommendation, by leave, withdrawn.
Section 65 agreed to.
Sections 66 to 78, inclusive, agreed to.
NEW SECTION
I move recommendation No. 25:
In page 129, between lines 17 and 18, to insert the following:
“79. The Minister shall, within 3 months of the passing of this Act, prepare and lay before the Houses of the Oireachtas a report on increasing the small gift
exemption threshold to €5,000.”.
We would like a report because we are not sure what the actual outcome of this particular intended amendment is.
As the Senators will be aware, the small gift exemption is an annual capital acquisitions tax, CAT, relief available to all recipients of gifts. This means a person can receive a gift to the value of €3,000 free of CAT. For example, a parent may give a gift up to the value of €3,000 to a child or, indeed, anyone else, each calendar year without any CAT arising. Two parents can make gifts of €3,000 each to a child, resulting in a gift to the value of €6,000 in any year free of CAT. It should be noted that there is no limit on the number of small gifts a person can receive in a year from different donors.
According to Revenue, the estimated cost of increasing the small gift exemption to €5,000 is €1.3 million. However, it is important to note that there is no requirement for beneficiaries to submit a claim for the small gifts exemption to Revenue. As a consequence, there is no data available regarding the number of beneficiaries availing of this exemption each year and it is likely that this figure represents a significant underestimation of the actual cost of such an increase.
The Senators will be aware that there would be a significant cost in making further changes to the small gift exemption for CAT purposes. An increase in the small gift exemption must be balanced against competing demands on the Exchequer.
A wide variety of further exemptions and reliefs from CAT, and capital taxes more generally, are also available. In particular, for a gift from a parent to a child, CAT is only paid on the value of cumulative gifts above a lifetime tax-free threshold of €335,000. In other circumstances, including where gifts or inheritances are given by a grandparent to a grandchild, or gifts between siblings, CAT is only paid on the value of the gifts or inheritances above a lifetime threshold of €32,500. A tax-free threshold of €16,250 applies for instances of gifts or inheritances between individuals with relationships not covered by the other thresholds.
My Department publishes tax strategy group papers, including matters for consideration as part of the annual budget and Finance Bill process each year. Capital acquisitions tax and the small gift exemption were considered as part of this year’s tax strategy group process. I do not propose a further report at this time.
Recommendation, by leave, withdrawn.
Sections 79 to 91, inclusive, agreed to.
NEW SECTION
Recommendations Nos. 26 and 38 to 40, inclusive, are related and may be taken together. Is that agreed? Agreed.
I move recommendation No. 26:
In page 148, between lines 11 and 12, to insert the following:
“Report on vacant homes tax
92. The Minister shall, within six months of the passing of this Act, prepare and lay before Dáil Éireann a report on the vacant homes tax, including an assessment of options to include derelict properties within its scope, and to increase the amount of vacant homes tax to be charged in respect of a residential property in proportion to the length of time during which that property remains vacant.”.
This recommendation calls for a report on the vacant homes including options to include derelict properties within its scope, increase the rate from year zero and increase the rate in proportion with the length of time it remains vacant to provide an adequate deterrent from vacancy and dereliction. I think we all agree we have a massive issue with vacant homes in the midst of the biggest housing crisis in the history of the State. I hope the Minister will support this recommendation.
The Senator is speaking to a grouping. Does he wish to mention recommendations Nos. 38 to 40, inclusive?
I think recommendations Nos. 38 to 40, inclusive, are mine. Am I correct?
Recommendation No. 38 seeks a report on options for making the vacant homes tax more effective, including by increasing the rate of tax by making derelict properties subject to the tax and changing occupancy rules such as that any property unoccupied for up to 90 days of the year becomes subject to the tax. It is welcome that the vacant homes tax is being increased from three to five times the basic rate of local property tax. This is clearly in recognition of the fact that the current rate, which amounts to about 0.3% of the value of the property, is simply not a deterrent from property hoarding. For the past decade, it has not been uncommon to see double-digit house price inflation in a given year. According to the CSO, property prices increased by 14% from June 2021 to 2022. Such high levels of inflation mean that if you leave a property vacant, you can easily make an annual gain of more than 10% of the value of the property while only having to pay back 0.3% in the vacancy tax. This is an incentive for property hoarding, not a deterrent. Slower house price growth this year is an outlier. We cannot simply assume we will continue to see this lower house price growth in coming years. While I appreciate the Minister has increased the tax, this increase is still not likely to be sufficient. Our amendment requests an exploration of a vacant home tax set at ten times the basic rate of LPT, which would amount to around 1% of the value of the property. This would create a more significant deterrent to property hoarding, which is, after all, the stated purpose of the tax.
Moving on to the issue of derelict properties, our group made similar arguments last year but we will repeat them as the issue has not gone away. That the vacant homes tax leaves out derelict properties entirely has been an oversight since the beginning. When former CEG Senator Grace O'Sullivan first introduced legislation to address the issue in 2017, her vacant and derelict sites Bill rightly treated both vacant and derelict sites as connected parts of the same problem. This is what experts have repeatedly called for since. To decouple the issue is short-sighted. Currently, the measure supposedly addressing dereliction is the derelict sites levy administered by councils.
To say this has been a failure is an understatement because we know that, in 2021, for example, only €1.1 million of the €4.5 million owed in derelict sites levies was actually collected by city and county councils. This was a collection rate of 23%. Eighteen councils failed to collect the levy at all. Therefore, we know the derelict sites levy is not working. What is going to be done to address the dereliction? In other countries, such as France, where vacant home taxes have been successfully introduced, derelict buildings have not been excluded or treated separately. It is essential that we treat dereliction and vacancy similarly. This is why our recommendation calls for a report on the potential to include derelict sites within the scope of the vacant home tax.
On occupancy rules, the threshold of only 30 days' annual occupancy for a property to be considered exempt from the proposed vacant property tax is extremely low by comparison with international norms. When the tax was first introduced, Dr. Gerard Turley, an economist at the University of Galway, writing for RTÉ, stated:
In other countries and cities around the world that have introduced a vacant property tax, the usual cut-off period is six months. In the Irish case it is one month, which is a very low bar or threshold to meet.
It is clear that the average holiday home will not be subject to the tax because the owner has only to spend a few weeks in it or let family or friends stay in it for a few weeks in the summer months and leave it empty for the rest of the year. This is sufficient to dodge the tax. This is surely not in the spirit of the tax, which is to bring vacant properties into use to address the devastating housing crisis, which is having such a negative effect on the lives of so many. Our recommendation calls for a review whereby the minimum occupancy period might be increased to 90 days. This would be closer to international norms and provide a stronger incentive to bring homes into use and provide rental accommodation to those who really need it.
In the past month, The Journal revealed that only 3,000 of 50,000 identified vacant properties were found to be liable for the vacant property tax since it was introduced. This tax is failing. Its purpose is to bring homes back into use for many desperate families who need them, yet only 6% of homes identified as vacant in Ireland actually fall within the scope of the tax. Will we solve the housing crisis by returning just 6% of vacant homes to the market? It is clear that the answer is "No".
Recommendation No. 39 would require a report on the issue of derelict sites, the potential revenue raised and the benefits of including derelict sites within the scope of the vacant home tax. I outlined some damning statistics on the derelict sites levy when I spoke about recommendation No. 38. I highlighted that, in 2021, only €1.1 million out of the €4.5 million owed through the derelict sites levy was actually collected by city councils. This meant a collection rate of 23%. This problem continues. The most recent available statistics show a similarly poor trend for 2022. According to The Journal, 14 local authorities did not impose the levy on any owners of the 314 derelict sites in their jurisdictions. Over €16 million in outstanding levies from 2022 and previous years remains unpaid. Another report, produced just yesterday by RTÉ, reveals that 90% of derelict site levies issued to owners in Cork since January 2023 remain unpaid. How can anyone seriously claim this method of dealing with dereliction is working? Could the situation not be improved vastly by imposing an appropriate tax on vacant and derelict properties and enforcing its collection through Revenue?
Again, we are looking for transformative change in housing and meaningful action to provide houses to the countless people around the country who need them. How can we be content to let a shambolic system continue – a system that is completely non-functional and provides absolutely no deterrent to dereliction, as levies seem to be entirely voluntary or part of a regime that is never enforced? Recommendation No. 40 seeks a report on the potential to link the rate of vacant homes tax to property price inflation statistics. As we proposed last year, a variable rate of tax is the most sure and direct way to remove incentives to hoard property. It would wipe out some of the increase in a given property's value annually but in a more targeted and proportional way.
The current system of a flat rate is ineffective because if property price inflation is way up at 14%, as it was in 2021 and 2022, then a tax of 0.5% of property value is no deterrent at all with regard to hoarding. If property price inflation was 5% in a given year, the tax should be in proportion to that 5%. This would have to be subject to a reasonable cap. Nobody would expect the tax and property price inflation to be directly linked, and nobody would expect owners to pay tax at 14% of the value of their property annually. However, there should be a relationship between the two figures, otherwise the tax fails to target the gains in property values and therefore fails to disincentivise hoarding. Higher gains in the value of a property in a given year should ensure higher taxes. It is a simple principle and the only one that makes sense.
Again, the key problem here is the scope of the tax and its enforcement. It will not matter how we set the rate of tax if a significant proportion of vacant or derelict properties are not captured within the scope of the tax. What is the purpose of this measure if only 6% of homes we know are vacant are brought back into use? This issue must be addressed first and foremost.
I thank both Senators for their contributions and I assure them that tackling vacancy is a priority for this Government. It is appropriate that every available lever is deployed to incentivise the use of existing housing stock across the country. This includes measures to deter vacancy alongside supportive measures such as grants.
For this reason, I announced in the budget that the rate of the vacant homes tax will increase to five times the property’s existing local property tax, LPT, rate. The increase will apply to the chargeable period that commenced on 1 November 2023 and all future chargeable periods. For the chargeable period just ended on 31 October 2023, the rate of tax remains at three times the amount of the LPT payable in respect of the property.
A number of Senators have made recommendations for reports on various aspects of the tax. As this tax is still a relatively new measure, it is important to see how the tax operates after coming into effect, including the most recent change in the rate of this tax, and then make an assessment as to how it is working. This will occur as part of the ordinary policy monitoring process conducted by my officials and by Revenue in respect of all new tax measures. My Department will monitor the tax and I will keep the issues raised under review.
In developing the tax, it was important to ensure that the tax is easy to understand and efficient to administer. This is why the rate of the tax was set at a multiple of a property’s base LPT charge, as the LPT system is well understood. A vacancy tax charged using a different methodology such as a percentage of a property’s market value would require property owners to self-assess the market value of their property precisely. This would add cost and complexity and, considering the relatively small number of properties expected to be in scope for this tax, it is not considered efficient or the best use of resources to add further complexity to the system. While this tax will play an important role in addressing vacancy, care must be taken to get the balance right between achieving the objective of encouraging the use of available housing, without excessively penalising a limited group of property owners.
Regarding derelict properties, the tax seeks to target properties that are habitable and ready to be occupied quickly. Accordingly, the vacant homes tax is applied to properties that are residential properties for the purposes of LPT, that is, properties that are suitable for use as a dwelling. In this way, the tax targets properties that could be put to greater use with immediate effect. The issue of dereliction is related for sure but it is a separate matter. Senators will be aware that the Derelict Sites Act 1990 falls under the responsibility of my colleague the Minister for housing. I understand that his Department continues to liaise with local authorities on the implementation of the Derelict Sites Act with a view to improving its effectiveness. I understand that a report is about to be concluded on that issue because the numbers raised by the Senator are quite low.
We can also point to the various grants that are now in place and launched under the vacant homes action plan. We have the vacant property refurbishment grant and the ready to build scheme under the Croí Cónaithe towns fund. We have received 5,500 applications to date, of which nearly 2,800 have been approved.
The Government recently decided to raise the target for homes refurbished to 4,000 by 2025.
In terms of evaluating the tax's impact, the legislation provides for a register of vacant homes to be established and maintained by the Revenue Commissioners. It will contain a list of vacant properties and their associated chargeable persons. The collection of data on vacant homes and the maintenance of this data on the register will allow changes in the number of vacant properties to be monitored. It will contribute to a better understanding of the number of vacant residential properties, the location of those properties and the reasons they are vacant. We recently received a first set of returns. My officials, the Revenue Commissioners and I are considering the content of that data set.
I am satisfied that the matters raised by the Senators will be sufficiently considered through appropriate channels in due course once further information and data are available in respect of the tax. I have demonstrated in this budget a willingness to revisit the issue of the vacant homes tax. I can assure the House that this willingness will continue, based on the evidence I see once we consider the data we are receiving.
Recommendation put and declared lost.
SECTION 92
Recommendation No. 27 in the names of Senators Gavan, Boylan, Warfield and Ó Donnghaile is out of order as it involves a potential charge on Revenue.
Recommendation No. 27 not moved.
Section 92 agreed to.
NEW SECTION
I move recommendation No. 28:
In page 153, between lines 11 and 12, to insert the following:
"Report on residential zoned land tax
93. The Minister shall, within one month of the passing of this Act, prepare and lay before Dáil Éireann a report on the residential zoned land tax including options for the exemption of actively farmed and agricultural land from its scope."
It is a pity that recommendation No. 27 was not allowed because it is related to this proposal. Recommendation No. 28 is self-explanatory. We are proposing that the Minister urgently bring forward solutions to resolve the issue of actively farmed land being subject to the residential zoned land tax.
The residential zoned land tax, RZLT, is a new tax introduced in the Finance Act 2021. It seeks to increase housing supply by encouraging the activation of development on lands that are suitably zoned and appropriately serviced. It is important to note that to come within the scope of the RZLT, farmland must be both zoned for residential use and serviced. Farmland that is zoned for residential use but not currently serviced is not within the scope of the tax and will only come within its scope should the land become serviced at some point in the future.
Agricultural land that is zoned solely or primarily for residential use currently meets the criteria set out within the legislation and therefore falls within the scope of the tax. Agricultural land that is zoned for a mixture of uses, including residential, is not in scope. These zonings are considered to reflect the housing need set out within the core strategy of the relevant local authority area. Landowners within such zonings may fall within the scope of the tax in the interests of ensuring an appropriate supply of housing on zoned lands.
This tax measure is a key pillar of the Government's response to address the urgent need to increase housing supply in suitable locations. However, it is important that affected landowners have sufficient opportunity to engage with the mapping process and that a fair and transparent process is applied when local authorities consider what land should be placed on the RZLT maps. Therefore, as part of the budget, it was decided to extend the initial liability date of the tax by one year, from February 2024 to February 2025. The purpose of this deferral is to allow for the annual mapping cycle to complete and to afford landowners, including landowners of actively farmed land, another opportunity to make submissions if their land is included on the maps prepared by local authorities.
In addition, the Department of housing has indicated to me that the Minister, Deputy Darragh O'Brien, intends to write to local authority chief executives requesting that local authorities give strong consideration to requests for rezoning, some of which relate to agricultural land, taking into account existing planning policy that seeks to focus the approach to zoning on the sequential development of settlements, particularly lands that are located closest to the centre of settlements, along with housing targets contained in their development plans. Therefore, I do not propose to accept the recommendation.
Recommendation put and declared lost.
SECTION 93
Recommendations Nos. 29 and 30 are related and shall be discussed together by agreement.
I move recommendation No. 29:
In page 153, in line 13, to delete all words from and including "amended—" down to and including line 37, to delete pages 154 to 158, and in page 159, to delete lines 1 to 34 and substitute the following:
"repealed.".
This recommendation simply proposes to repeal the defective concrete products levy. Recommendation No. 30 calls for a report on the impact of the levy on construction costs and the viability and affordability of housing projects.
As the ESRI has said, the burden of the levy will likely fall on residents of newly built homes, not to mention the financial implications it will have for those trying to remediate affected properties. The Society of Chartered Surveyors Ireland, SCSI, has said that given the shortage of construction workers, spiralling construction costs and rising interest rates, it is vital that the Government does everything possible to drive down construction costs. According to the CSO, since the levy was first legislated for in November 2021, the price of cement has increased by 37%, ready-mix mortar and concrete by 38% and concrete blocks and bricks by 30%. The SCSI has stated: "[T]to tackle rising costs of construction, including the most recent material and labour hyperinflation, every facet of the input costs of residential development needs to be reduced." That is what the SCSI is calling for. It provisionally estimates that the levy will increase the cost of a typical three-bedroom semi-detached house by €1,200. Since then, in September 2022, the CSO has stated that the price of cement had increased by 15%, ready-mix mortar and concrete by 14% and concrete blocks and bricks by 13%. The levy just does not make sense.
Both of these recommendations pertain to the defective concrete products levy, DCPL, but they have separate purposes. I will speak on each of those purposes in turn.
The effect of Senator Gavan's first recommendation would be to eliminate the levy, which was introduced through section 99 of the Finance Act 2022 and only came into effect on 1 September this year. It is important to underline the purpose of the levy. It is intended that the revenue from it will contribute towards offsetting the cost to the State arising from the enhanced defective concrete blocks grant scheme. That scheme, designed to provide redress for those home owners whose homes have been affected by defective concrete blocks, has an estimated cost in the region of €2.7 billion.
It is essential that the entire cost of the redress scheme, which, after all, arises from the use of defective concrete blocks and other concrete products, is not borne in full by the Exchequer and, through it, every Irish taxpayer. The cost of the scheme, or at least the portion of it represented by the revenue that is expected to arise from this levy, must be borne by the construction sector. I accept that the introduction of the levy comes at a time when the cost of construction is high and we are experiencing significant, albeit easing, construction materials inflation. However, that does not take away from the fact that the cost of constructing a new home is expensive. I firmly believe that where we commit a significant amount of money, as we have done with the grant scheme, it is important that we can point to a revenue stream that, over time, will make a contribution towards those costs.
I now turn to the second of Senator Gavan's two recommendations on the DCPL. As Senators will be aware, a wide range of factors influence the viability of developments. They include the dynamics of our planning system, infrastructure requirements and land costs, and hard and soft costs. While housing policy and remediation for home owners affected by defective blocks are matters for my colleague, the Minister for housing, measures have been rolled out by the Government and that Department to specifically address market conditions applicable to the provision of housing. The Government's Housing for All plan has identified a number of actions across all areas of the housing market to address these challenges, with a record €5.1 billion in capital investment funding being made available for housing in 2024. As part of the work undertaken on the impact the defective concrete products levy would have on construction sector costs, the Department of housing has commissioned two bottom-up scientific analyses, the first in September 2022 and the more recent one in November 2023. They were both carried out by an independent construction economics cost consultant. The 2022 report was published on my Department's website following budget 2023. The 2023 report will be published on the website in due course.
Recommendation No. 30 calls for a report on the impact of the levy on the cost, viability and affordability of construction and housing projects within six months of the passing of this Bill. This is not necessary. As I have already mentioned, a further cost impact report has been prepared by an independent construction economics cost consultant and will be published. Senators can be assured that the impact of the levy will continue to be closely monitored by my officials, who will review its impact and operation on an ongoing basis, as is the case with all charges that are placed on taxpayers.
Recommendation put and declared lost.
Section 93 agreed to.
NEW SECTION
I move recommendation No. 30:
In page 159, between lines 34 and 35, to insert the following:
"Report on impact of defective concrete products levy on cost, viability and affordability of construction and housing projects
94. The Minister shall, within six months of the passing of this Act, prepare and lay before Dáil Éireann a report on the defective concrete products levy and its impact on construction costs, the viability and affordability of housing projects, and the cost of remediation for homeowners affected by defective concrete products.".
Recommendation put and declared lost.
Sections 94 to 99, inclusive, agreed to.
NEW SECTIONS
Recommendation No. 31 in the names of Senators Ruane, Black and Flynn is out of order.
Recommendation No. 31 not moved.
I move recommendation No. 32:
In page 302, between lines 32 and 33, to insert the following:
"Report on diesel and kerosene subsidies
100. The Minister shall within six months of the passing of this Act publish a report outlining the amount of fossil fuel subsidies provided by the State, through tax relief or revenue forgone, in respect of—
(a) diesel for agricultural vehicles,
(b) diesel for HGVs and other Haulage Vehicles, and
(c) jet kerosene.".
This recommendation calls for a report outlining the amount in fossil fuel subsidies provided by the State through tax relief or revenue forgone in respect of diesel for agricultural vehicles, HGVs and other haulage vehicles, and jet kerosene.
According to the Central Statistics Office, the Government provided €2.4 billion in subsidies to the fossil fuel industry in 2019. This was 1% higher than in the previous year and nearly 70% higher than in 2000, when the subsidies totalled €1.4 billion. Fossil fuel subsidies can support either production or consumption activities. The CSO figures show that indirect subsidies arising from revenue forgone due to the tax abatement accounted for nearly 20% of the €2.4 billion total. The single biggest subsidy was the excise duty exemption for jet kerosene used for domestic and international commercial aviation. The revenue forgone from this measure in 2019 was €634 million. Revenue forgone from the lower excise duty on diesel fuel was estimated at €400 million.
There have been several calls for these measures to be unwound given the higher rate of nitrous oxide and particulate matter, PM, emitted from diesel fumes, both of which have been linked to premature death and strokes in humans. The Government continued to subsidise peat-fired electricity in 2019, which is one of the most polluting ways of producing electricity, through the public service obligation levy on electricity consumers. This amounted to €25 million, although that was down substantially on the €66 million subsidy the previous year. Peat is still burned at Bord na Móna's Edenderry power station, which has applied for planning permission to burn biomass instead of peat.
Globally, it is estimated that the chances of staying in any kind of safe zone regarding climate change are 33% or less. We are increasingly looking at a catastrophic crisis globally. The countries that have contributed the least to the crisis, that is, those that have not contributed the greatest volume of carbon emissions, are already bearing some of the most devastating impacts. As the Minister is aware, COP28 is ongoing. Quite frankly, we are running out of time.
Subsidising fossil fuels is not the answer. We need a rapid, just transition that will protect the most vulnerable. I might suggest that the money we use to subsidise fossil fuels should be used for the urgent transformation we need.
The Senator will be aware that the Government is committed to tackling climate change and decarbonising the economy by 2050, and is therefore very much aware of the challenges that subsidies pose to our collective effort to disincentivise fossil fuels. The programme for Government, the climate action plan and the Climate Action and Low Carbon Development Act form a broad policy and legislative framework for moving away from fossil fuels to renewable energy and alternative fuels and technology. However, it is recognised that this must be a gradual transition. While some subsidies may pose difficulties for our environment, there are often long-standing and important social and economic rationales for their existence. Therefore, I believe a balance needs to be struck in phasing out subsidies and incentivising alternatives.
I will now address each of the specific report requests in turn. Marked gas oil, MGO, or green diesel, is a type of fuel primarily intended for use in agriculture. As per recent temporary changes in excise rates, MGO is currently subject to an overall excise rate of 14.9 cent per litre on a VAT-exclusive basis, compared with the overall rate of excise on auto diesel which is 52.6 cent per litre. The provision for this reduced rate is contained the EU energy tax directive and is permitted as it is limited and targeted to primary sectors in the economy. It should be noted, however, that MGO is subject to carbon tax and therefore the trajectory of increases set out in the 2020 Finance Act will apply to it.
The diesel rebate scheme, DRS, provides a relief to the maximum value of 7.5 cent per litre when the price of diesel is above €1.23, VAT inclusive. As with MGO, it is a specific and targeted relief permitted under the current EU legislative energy tax framework. The scheme is a necessary support to essential road users in the short term and is aimed at maintaining the competitiveness of the road haulage sector and minimising the impact for the sector and related businesses which rely on road haulage services. Passenger transport is also benefited by this scheme, which is available to passenger bus operators.
As a fossil fuel subsidy, there have been many calls to curtail this scheme, from an environmental perspective. In light of national and international commitments which seek to remove fossil fuel subsidies, this is a scheme that will have to be scaled back in the future. Indeed, the ongoing revision of the EU energy tax directive proposes to restrict or remove such subsidies. While I recognise the need to remove incentives for fossil fuel use, in the current inflationary context, the DRS remains of significant importance to the viability of essential road users in the immediate short term. The scheme will be kept under review both as part of the annual budgetary process, and in the context of ongoing negotiations of the energy tax directive at EU level.
In the context of aviation kerosene, Ireland is subject to energy taxation rules set out in the EU energy taxation directive. Under the current directive, member states are obliged to exempt certain fuels used for commercial aviation purposes from excise duty. A member state may waive this exemption where it has entered into a bilateral agreement with another member state to tax fuel for intra-community flights. Ireland has not entered into such arrangements to date. With regard to fuel for international transport, the scope for a member state to take a unilateral approach to taxation is currently limited by international law and a range of bilateral and multilateral agreements that operate under the 1944 Convention on International Civil Aviation, also known as the Chicago Convention. As I have mentioned, a proposal for a revised energy tax directive is currently being negotiated and one of the provisions under consideration is the removal of aviation and maritime fuel tax exemptions. Ireland is engaging with the EU Commission and other member states in regard to the proposal.
The Government is committed to emissions reductions. Examining fossil fuel subsides will be an integral part of delivering on that commitment. My Department published a review of fossil fuel subsidies in the transport sector as part of the tax strategy group papers earlier this year. I also note that through my Department’s tax expenditure report, green budgeting and publications from the CSO, there is significant reporting on the monetary value of such subsidies through the tax that is foregone. Furthermore, my Department is engaged in work at the OECD level on international approaches to standardise reporting of fossil fuel subsidies. Given the amount of work that is ongoing in this area, as well as the amount of reporting that is currently taking place, I do not propose to accept the recommendation.
Recommendation put and declared lost.
Recommendation No. 33 has been ruled out of order.
Recommendation No. 33 not moved.
I move recommendation No. 34:
In page 302, between lines 32 and 33, to insert the following:
“Report on local authority revenue raising powers 100. The Minister shall, within 12 months of the passing of this Act, lay a report before both Houses of the Oireachtas outlining the potential for the transfer of certain taxation and expenditure competences from the Government to local authorities and the potential implications for such a transfer in respect of the delivery of public services, the responsiveness of taxation policy to geographic-specific contexts and the potential benefit in respect of strengthening local democracy and community wellbeing.".
Ireland has one of the weakest local democracies in Europe. This year, Ireland has been found to be compliant in only eight of the 20 principles of the European Charter of Local Self-Government by the Congress of Local and Regional Authorities of the Council of Europe. Taxes are a central source of revenue for local authorities. Many states afford local authorities the power to set tax rates. However, this power is usually limited by legislation and the overarching power of the national governments who set the permissible parameters of the rates of tax that are to be imposed. The local authorities are thus restricted by these legislative parameters.
Most local authorities have the power to procure loans, buy and sell property and engage in business activities. This will often be provided for by legislation. Additionally, many local authorities have the power to establish companies, co-operatives or foundations for performing the authorities' functions. A large number of countries surveyed have national constitutions that include provisions relating to the powers and autonomy of local authorities. In Germany, for example, municipal financial sovereignty includes the power to manage income and expenditure on one's own responsibility, in other words, to freely dispose of the financial resources available within the framework of a legally ordered budgetary law. This also includes the municipalities. The ability to raise revenue is one power that is needed; participatory budgeting is another. Fundamentally, if we want to empower local communities, we need to end the stranglehold the Government has on local government. I urge the Minister to accept this recommendation.
The funding of local authorities is a matter for the Department of Public Expenditure, NDP Delivery and Reform, and the Department of Housing, Local Government and Heritage. The Finance (No. 2) Bill legislates in respect of fiscal matters only, such as taxation. That said, there already exists provision for budgeting at the level of local authorities via the local property tax, LPT, which facilitates the responsiveness of taxation policy to geographic-specific contexts. The LPT is an essential source of funding for local authorities, accounting for approximately 9% of current income this year. The annual LPT allocation supplements local authority income from commercial rates, from the provision of goods and services and from Government grants. The LPT provides appropriate levels of financial support to individual local authorities allowing them to sustain their continued efforts to achieve balanced budgets. It helps fund important local services such as parks, libraries, leisure amenities, fire and emergency services, maintenance and cleaning of streets and street lighting, all of which benefit people directly.
Since 2015, local authorities have had the power to vary the rates of LPT in their areas by up to 15%. If an authority decides to vary the LPT basic rate upwards by up to 15%, it retains 100% of the additional income collected in the area. If the rate is reduced, the authority forgoes the full amount of the reduced LPT income collected. This is in line with the commitment in the programme for Government. The LPT allocation mechanism changed from 2023 onwards to allow for 100% of the estimated yield to be retained locally within the local authority area where it is collected. Twenty-two local authorities voted to increase LPT above the basic rate for 2022. These authorities benefit from just over €24 million in additional LPT income for their own use this year as result of their decisions to vary the rates upwards. Four have a reduced rate, with a corresponding reduction in income foregone. As LPT helps fund local services, local authorities are encouraged each year to communicate to the public regarding how funds are spent. I do not propose to accept the recommendation.
Recommendation put and declared lost.
Recommendations Nos. 35 to 37, inclusive, have been ruled out of order.
Recommendations Nos. 35 to 37, inclusive, not moved.
I move recommendation No. 38:
In page 302, between lines 32 and 33, to insert the following:
“Report on increase in rate of Vacant Homes Tax
100. The Minister shall, within three months of the passing of this Act, lay before both Houses of the Oireachtas a report on options for changes to the Vacant Homes Tax, including— (a) options to increase the rate of tax to ten times the basic rate of Local Property Tax; (b) options to widen the scope of taxable properties to include derelict properties; (c) options to increase the 30 day minimum occupancy threshold to 90 days.”.
Recommendation put and declared lost.
I move recommendation No. 39:
In page 302, between lines 32 and 33, to insert the following:
“Report on including derelict properties within scope of Vacant Homes Tax
100. The Minister shall, within three months of the passing of this Act, lay before both Houses of the Oireachtas a report on the Vacant Homes Tax, including an assessment of potential revenue raised and potential positive impacts on housing supply of including derelict properties within its scope, and an assessment of the potential benefits of this in terms of the failure of local authorities to collect Derelict Sites Levies.”.
Recommendation put and declared lost.
I move recommendation No. 40:
In page 302, between lines 32 and 33, to insert the following:
“Report on variable rate of Vacant Homes Tax linked to property price inflation
100. The Minister shall, within three months of the passing of this Act, lay before both Houses of the Oireachtas a report on options for applying a variable rate of Vacant Homes Tax, which varies annually and is linked to annual residential property price inflation data as recorded by the Residential Tenancies Board, with particular assessment of the revenue raising potential of such a measure, and its potential deterrent effect to property hoarding.”.
Recommendation put and declared lost.
Sections 100 to 102, inclusive, agreed to.
Schedule agreed to.
Title agreed to.
Bill reported without recommendation.
When is it proposed to take the next Stage?
Question put: "That Report Stage be taken next Tuesday."
The Seanad divided: Tá, 26; Níl, 6.
Tá
- Blaney, Niall.
- Carrigy, Micheál.
- Casey, Pat.
- Cassells, Shane.
- Chambers, Lisa.
- Conway, Martin.
- Crowe, Ollie.
- Cummins, John.
- Currie, Emer.
- Daly, Mark.
- Davitt, Aidan.
- Doherty, Regina.
- Dolan, Aisling.
- Dooley, Timmy.
- Fitzpatrick, Mary.
- Gallagher, Robbie.
- Hackett, Pippa.
- Keogan, Sharon.
- Kyne, Seán.
- Lombard, Tim.
- Martin, Vincent P.
- McGreehan, Erin.
- O'Sullivan, Ned.
- Seery Kearney, Mary.
- Ward, Barry.
- Wilson, Diarmuid.
Níl
- Boylan, Lynn.
- Flynn, Eileen.
- Gavan, Paul.
- Moynihan, Rebecca.
- Wall, Mark.
- Warfield, Fintan.
Tellers: Tá, Senators Robbie Gallagher and Regina Doherty; Níl, Senators Paul Gavan and Lynn Boylan..
Pursuant to Standing Order 57A, Senator Alice-Mary Higgins has notified the Cathaoirleach that she is on maternity leave from 19th June to 19th December, 2023, and the Whip of the Fianna Fáil Group has notified the Cathaoirleach that the Fianna Fáil Group has entered into a voting pairing arrangement with Senator Higgins for the duration of her maternity leave.
Question declared carried.
When is it proposed to sit again?
Cuireadh an Seanad ar athló ar 5.38 p.m. go dtí 10.30 a.m., Dé Céadaoin, an 6 Nollaig 2023.
The Seanad adjourned at 5.38 p.m. until 10.30 a.m. on Wednesday, 6 December 2023.
