Vol. 297 No. 13
I remind Senators that a Senator may speak only once on Report Stage except for the proposer of a recommendation, who may reply to the discussion on the recommendation. On Report Stage, each non-Government recommendation must be seconded. I welcome the Minister of State, Deputy Jennifer Carroll MacNeill.
Recommendation No. 1 is in the name of Senators Ruane, Black and Flynn and arises out of committee proceedings.
I move recommendation No. 1:
In page 65, between lines 20 and 21, to insert the following:
“Report on private pension tax relief
39. The Minister shall, within 12 months of the passing of this Act, lay a report before both Houses of the Oireachtas on private pension tax relief which shall include an assessment on both the gender and distributional impact and an assessment of 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.”.
I second the recommendation.
This recommendation relates to the report on private pension tax relief. It states, "The Minister shall, within 12 months of the passing of this Act, lay a report before both Houses of the Oireachtas on private pension tax relief which shall include an assessment on both the gender and distributional impact and an assessment of 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."
I spoke about this on the previous Stage. I know Senator Black wants to come in on this. I have held the spot for her for as long as I could.
As long as was necessary.
I apologise for running in late. I welcome the Minister of State to the House. Recommendation No. 1 calls for a report by the Minister on private pension tax relief, including "an assessment on both the gender and distributional impact and an assessment of 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." I know the Minister of State had an exchange with my colleague, Senator Ruane, on Committee Stage on this point. We tabled a similar amendment to again raise the issue of private pension tax relief. Each year, we spend approximately €2.9 billion on private pension tax relief, while at the same time, the Commission on Taxation and Welfare estimates that a universal pension at the same level for everybody in the State, including all women and men, would cost around €3 billion. On one hand, we have a tax relief of which 70% accrues to the top 20% of earners and, on the other, we have a policy which would be much more equitable and have huge economic and social benefits for a great many people in this country.
On Committee Stage, the Minister of State indicated that more data was necessary and that she had asked the interdepartmental pensions reform and taxation group to examine this policy. I know the Minister acknowledged the role of equality budgeting in his Department. Would the Minister consider tasking this interdepartmental group with specifically looking at the gender and distributional impact of the policy or commissioning independent research on this?
I thank Senator Black for outlining her position on this. As a female Minister of State in the Department of Finance, I have a very acute interest in the gender distribution of policy made in the Department and particularly on the inequitable outcomes for women in pensions and on pension poverty. I am aware of that in everything we do. I appreciate the Senator has had an exchange with the Minister for Finance on this. I know he has outlined the work of the interdepartmental pensions reform and taxation group. I do not wish to repeat anything my colleague has said and treat the House like that but I will outline some of the broader work being done on identifying opportunities for better pension equity between men and women in particular. It arises out of a number of different policy fall-offs where women have stepped out of the workforce for different reasons and have been at a strategic disadvantage over time. It is a historical issue and it cannot be allowed to be a current issue as well.
There is something I think is particularly important on this, albeit from a slightly different angle to that suggested by the Senator. It is a key focus and one of the real drivers around capital markets union at EU level, for example. I was at a Eurogroup meeting facilitated by the Minister, Deputy Donohoe, which had a specific focus on capital markets union and how access to wealth development and to small investment products, particularly on a retail basis, can really contribute to better pension equity. There are very strong habits in the Dutch financial system where people get involved in developing investments at a much earlier stage and in a much more balanced way throughout society. We see how it is not the preserve of any particular class or profession but rather there is a much more balanced approach across the economy and there is very little pension poverty, in part as a consequence of that approach. One thing we want to do at a European level is have a better retail investment strategy. There is a particularly strong opportunity for women who, from more and more of the data I look at, appear much less likely to engage in investment or are much less likely to place a focus on their own pension provision than is often the case. It is a really serious issue and I suggest there are a number of different ways of coming to this. One is a focus on gender budgeting in the Department. Of course, as a female Minister of State I would say that if you have enough female Minsters making policy decisions over time that you are less likely to need to place a gender lens on every decision and that those things should be much more natural and much more inherent in the policy development process but it is also about recognising the gaps in the private market where women have not felt themselves as comfortable or as included in some of the products that are available. I say all of this in addition to the point the Senator makes and not necessarily as an alternative. It just to say that this is something that is a very strong focus for me as Minister of State in the Department where I think the voice of women has been under-represented over time. We see it in taxation decisions, around decisions on coming back to the workforce and the marginal tax implications that may impact on a person’s decision about whether to come in and out of the workforce. It has fallen in a poorly distributed way against women time and time again.
I note the broad thrust of what the Senator is trying to do with this recommendation and I admire it. As she is aware, I am not in a position to take recommendations of this kind at this Stage of the Bill but I do not wish to leave the Senator with any sense that this is not to the front of my mind in terms of developing pension equity and gender equity through a number of different financial instruments.
I am disappointed -----
Because Senator Black did not propose the recommendation, Senator Ruane did, she is not allowed to come back in. She may decide what she would like to do about the recommendation. Does the Senator wish to press the recommendation or withdraw?
I will press it.
I move recommendation No. 2:
In page 88, between lines 33 and 34, to insert the following:
“Report on limitation of deferred tax assets
46. The Minister shall, within 6 months of the passing of this Act, lay a report before both Houses of the Oireachtas outlining the potential revenue implications for the State if the 50 per cent limit on deferred tax assets was reimposed.”
I second the recommendation.
This calls for the Minister to produce a report outlining the potential revenue implications for the State if the 50% limit on deferred tax assets was reimposed. Every year, my group raises this issue at each Finance Bill. It seems we have made little progress on this area.
It has been well publicised that Irish banks benefit hugely from this scheme due to the amount of historic losses they have from the financial collapse in 2008. That caused untold suffering for most people and did not result in an effective tax write-off.
In 2017, those banks shaved €400 million from their tax bills by offsetting financial crisis losses against taxable profits. What is most shocking to the average person in respect of this policy is that these losses can be carried forward indefinitely to shield their future profits from tax. The banks are, in effect, avoiding paying hundreds of millions of euro in tax that they owe by shielding profits with losses that occurred a decade ago. Before 2012, a 50% limit was imposed by former Minister, Brian Lenihan. However, this was lifted by former Minister, Michael Noonan and the result is a number of banks being able to avoid paying taxes on profits.
While the banking levy is in place, it is unacceptable that banks are being shielded from paying tax on profits. This scheme is costly. The Comptroller and Auditor General has estimated that the cost in future of foregoing tax revenue from DTAs could be as much as €29 billion, with €12 billion related to the financial and insurance sector. This revenue could be used for housing, healthcare, mental health or climate action. Unfortunately, it is instead being used to essentially give large financial institutions a tax break. I hope the Minister of State will accept this recommendation.
Before I bring the Minister of State back in, I would like to welcome to the Gallery former Senator, Ian Marshall, who is very welcome, and some of his colleagues. I hope you and your guests enjoy your time in Leinster House. It is always good to see you here.
I thank Senator Black. The recommendation requests a report on the potential revenue implications for the State if a 50% limit on deferred tax assets was imposed. As Senators are aware, loss relief for corporation tax is a long-standing feature of the Irish corporate tax system and a standard feature of corporation tax systems in most OECD countries. It recognises the fact that a business cycle runs over several years and it would be unfair to tax income earned in one year and not allow relief for losses incurred in another.
A restriction on the amount of loss relief available to NAMA participating institutions was introduced in 2009. It limited the relief such that losses could be used to shelter only 50% of taxable profits in any given year. The cap only affected the timing of the relief; it did not affect the overall quantum, with restricted losses in any given year being carried forward to subsequent years for offset. The restriction was repealed in 2013. This was for reasons including protecting the value of the State’s investments in the banks as, by that stage, the State had acquired substantial shareholdings in the banking sector and a restriction on loss relief was considered to be working against the State’s interests. It was a very different time.
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 for banks and companies more generally was prepared in 2018 by the Department of Finance for the Joint Committee on Finance, Public Expenditure and Reform and Taoiseach. As far as I am aware, that remains available online. Considerations set out in that paper include the difficulty of discriminating between industries or individual entities within the same industry regarding 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, as discussed in some detail in the published technical paper. They include considerations relevant to the capitalisation of the banks and consequential impacts for consumers. It is also important to understand that the State has received value from the banks’ deferred tax assets through its share sales to date and the current valuation of the remaining shareholdings. A restriction on the use of losses could damage the State’s credibility with investors and negatively impact on future share sales. For these reasons, a change to the tax treatment of banks is not currently under consideration and a detailed technical note has been prepared and published on this issue.
The Senator raised the bank levy. It is important to look over time at what the levy has generated and what is expected. The levy generated €93 million in 2020 and €64 million in 2021. The lower figure in 2021 was due to the exit of KBC and Ulster Bank. It is important to highlight the revised bank levy to apply in 2024. There was a public consultation on the future of that. The levy will now be charged at the rate of 0.112% of the value of deposits held by each liable bank on 31 December 2022. The annual target yield from the levy is now €200 million, which is considerably increased and is a considerable charge on the operation of banks.
For the reasons outlined in the 2018 paper and the broader reasons for the State’s participation with the banks over time, we cannot accept the recommendation.
I move recommendation No. 3.
In page 112, between lines 22 and 23, to insert the following:
“Report on wealth tax
“52. The Minister shall, within 6 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 2 per cent on all households with assets of over 20 million euro.”.
I second the recommendation.
The recommendation calls for a report by the Minister on the potential revenue raised from and the distributional impact of a wealth tax of 2% on all households with assets of more than €20 million. My colleague, Senator Ruane, had an exchange with the Minister on this issue on Committee Stage. We have slightly revised the recommendation to a higher threshold. According to Oxfam's Survival of the Richest report, globally since 2020 the richest 1% have 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 increased by $2.7 billion a 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 their profits in 2022, paying out $257 billion to wealthy shareholders while more than 800 million people did not have enough food. It is quite shocking. According to the report a tax of up to 5% on the worlds' multimillionaires and billionaires could raise $1.7 trillion a year. That is enough to lift 2 billion people out of poverty and fund a global plan to end hunger. While I acknowledge the position that the Government has argued, it does not hold up in the face of the stark wealth inequalities in this country and globally. We are in a climate emergency that is being aggravated in the most extreme ways by our current economic model, and we need radical social and economic transformation. We need to start introducing more equitable wealth in our world.
I wish to speak in favour of this recommendation. As Members may know, it has been Sinn Féin's consistent policy to support a wealth tax. Of course, this is just a request for a report on a wealth tax. It is simply to investigate what a wealth tax might actually bring in. For all the points that Senator Black has raised, namely, the issues of equality and of this society where we continue to see a small percentage of people, the 1%, getting richer even as working-class communities throughout the country struggle, it has to be worth an investigation.
It has to be worth an investigation. It is not surprising but it is disappointing that Fine Gael seems so completely closed-minded to this very reasonable and sensible proposal.
This proposed recommendation seeks the preparation of a report on the revenue that might be raised from and the distributional impact of a wealth tax of 2% on all households with assets over €20 million within six months of the passing of the Bill into law.
As Senators from all sides of the House are aware, wealth can be and is taxed in a variety of ways. Many such taxes are already levied here in Ireland. They include capital gains tax and capital acquisitions tax, which are taxes on wealth, in that they are paid by an individual or company on the disposal or the acquisition of an asset through gift or inheritance. There is also deposit interest retention tax, which is currently charged at 33%, with limited exemptions, on interest earned on deposit accounts. There is also local property tax, which is a tax based on the market value of residential properties. Another is stamp duty, which is charged on the transfer of shares, stocks or 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. The tax would not necessarily be additive.
In examining this 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 amend Ireland's existing taxes on capital and wealth. As an alternative to introducing a new tax on wealth, the commission believes that the more productive route is to continually assess CGT and CAT. Those 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. That is really important. 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, notwithstanding the broader transfers that are made through our social protection system. Ireland has one of the most progressive systems of taxes and social transfers of any EU or OECD country. That contributes to the redistribution of income and to the reduction of income inequality, even at a time of rising incomes. That is a really important underlying economic condition.
By way of example, in 2024 it is projected that the top 1% of taxpayer units, who are those with annual income of in excess of €290,000, will pay just over 24% of total income tax and USC. That is a very large proportion of the total income tax and USC from such a small cohort of taxpayers. In comparison, 80% of taxpayer units, which is the cohort of income earners who have annual income of less than €69,500 and account for about 2.74 million taxpayer units, will pay only 21% of total income tax and USC. To further demonstrate the high amount of tax being paid by high earners under the current income tax and USC system, in 2024 it is expected that there will be approximately 3.425 million taxpayer units, including married couples under joint assessment, and total yield from income tax and USC is projected to be €34.3 billion. Of that yield, approximately €7.372 billion will be paid in total by approximately 2.7 million taxpayer units with incomes of under €69,500 per annum. The remaining yield, over €26.9 billion, will be paid by fewer than 682,300 taxpayer units earning over €69,500.
I assure Senators not only that we have a very strongly redistributive system and a strongly progressive tax system but also that all taxes and potential taxation options are kept under constant consideration. The commission on taxation produced an analytic report on taxation in this State, and it remains a priority of this Government and of mine to make sure Ireland maintains the progressive taxation system we have developed over time. I do not see the additional benefit that may be gained from a report of this nature at this time. I cannot therefore accept the recommendation.
I move recommendation No. 4:
In page 112, between lines 22 and 23, to insert the following:
“Report on corporation tax
52. The Minister shall, within twelve months of the passing of this Act, lay a report before both Houses of the Oireachtas outlining an evaluation of the impact of Ireland’s corporate tax regime on human rights, welfare and in particular child welfare in the Global South.”.
I second the recommendation.
Recommendation No. 4 calls for a report by the Minister outlining an evaluation of the impact of Ireland's corporate tax regime on human rights, welfare and in particular, child welfare in the global south. Earlier this year, the United Nations Committee on the Rights of the Child called on the Irish Government to ensure that its tax policies do not lead to corporate profit shifting, which takes resources away from low-income countries and prevents them from having the resource they need to protect and enhance children's rights.
We also have research from Christian Aid, which demonstrates that base erosion and profit shifting is detrimental to large organisations and that multinational corporations using complex corporate structures to shift profits across borders into low- or no-tax jurisdictions has hugely negative implications for the global south. A 2022 paper from Christian Aid highlights how changes to Irish tax law have continually protected the ability of multinational companies to shift profits out of developing countries and elsewhere. These structures have mostly relied on the same two-step practice whereby companies book sales income as an Irish entity that acts as a sales hub and then ships profits to a low- or no-tax jurisdiction through payments to an Irish registered but overseas resident company, originally dubbed the "double Irish". This mechanism and its many variants have arguably been one of the world's most used corporate tax avoidance structures. As an indication of its scale, in 2019 alone, Google used this mechanism to shift more than $75.4 billion of profits from worldwide advertising income through Ireland to Bermuda where the standard rate of tax is 0%.
As the Irish Government began to phase out the tax residency rules that made the original double Irish structure possible, some multinationals were able to replace them by relying instead on tax breaks introduced on the transfer of intellectual property, IP, to Ireland. This allowed these companies to continue to book sales income in Ireland from around the world and, ultimately, incur a very low tax on the sale in Ireland itself rather than having to ship the profits on to a third country like Bermuda. This arrangement came to be known as the "green jersey" and was facilitated by a series of measures that significantly expanded the tax deductions available for the acquisition of IP by one company from another within the same multinational group.
In 2014, in the same legislation in which it claimed ended the double Irish, the Irish Government simultaneously increased to 100% the amount of related profits companies could shield in this way, thereby shrinking the effective tax rate on those profits from 2.5% to 0%. After public opposition, this was restored to 80% in September 2017, but the huge amounts of IP that multinationals had moved into Ireland prior to September 2017 were explicitly exempted. Therefore, while some multinationals relied on the onshore tax structure, others have instead turned to a new version of the original offshore double Irish dubbed the "single malt". This new structure allows multinationals to achieve the same effective result as under the double Irish by shifting profits to low-tax jurisdictions with which Ireland has signed tax treaties, including Malta. While the current Minister’s predecessor announced an agreement to end the facilitation of aggressive tax planning, due to the weakness of this agreement, a number of companies have been able to set up single malt tax structures.
It is unbelievable, really, when you think about it. We need to get real about the implications of our tax structures and the impact it is having on some of the world's most vulnerable communities, while at the same time allowing huge multinationals making bumper profits to minimise the tax they will pay. Our facilitation is morally wrong and undermining our goals in terms of sustainable development.
The proposed recommendation attempts to create a link between the Irish corporation tax system, on the one hand, and human rights and welfare, including child welfare in the global south, on the other. These are distinct policy considerations. I will address reform, and the extensive work in recent years the Department of Finance has undertaken to update the Irish corporate tax system, much of which is included in this Bill in terms of the OECD's base erosion and profit shifting project, of which we have been supporters since its inception. Most of those actions have been relevant for the interaction of Ireland's tax system with other jurisdictions, including developing countries. They are, of course, considered in detail in the update on Ireland's Corporation Tax Roadmap, which was published in 2021.
Ireland has been a committed participant in the OECD's BEPS project since its inception. Ireland was one of the first countries to sign and ratify the then BEPS multilateral instrument. This ground-breaking international agreement significantly reduces the potential for tax treaties to be used for tax avoidance purposes.
Our commitment to transparency and the exchange of information has received international commendation. Indeed, Ireland is one of a small handful of jurisdictions worldwide to be twice recognised as fully compliant with all international best practice by the OECD-led Global Forum on Transparency and Exchange of Information for Tax Purposes.
We are a leader in tax transparency at both OECD and EU level. We have negotiated, agreed and implemented significant new tax rules on tax transparency to ensure tax authorities have access to tax rulings, anti-money laundering information, country-by-country reports, and the mandatory disclosure of tax planning agreements by tax advisers and digital platforms. We signed up to the OECD's two-pillar solution to address the tax challenges arising from the digitalisation of the economy in October 2021 and we are already delivering on that commitment. Pillar 2 of the agreement, which we are implementing in this Finance Bill, provides for a 15% global minimum effective tax rate, on a jurisdictional basis, for large multinational enterprises with an annual turnover of €750 million. The purpose of that pillar is to put a floor under international competition and level the playing field for all countries, including in particular developing countries, competing to attract foreign investment.
I shall turn now to actions specifically relevant to developing countries, which I think are important. Ireland was one of the first countries to commission an independent spill-over analysis of the impact of our tax system on developing countries. That research project was commissioned by the Department of Finance. The methodology was designed and carried out by the independent, and highly respected, International Bureau of Fiscal Documentation. The independent research project included: an analysis of trade and capital flows between Ireland and developing countries; an analysis of Ireland’s tax treaty network with developing countries; and a review of relevant provisions in domestic tax legislation. The analysis, which was published in 2015, concluded that there were no negative spillovers from the Irish tax regime on the economies of developing countries. Two older double tax agreements were renegotiated on more favourable terms for our partner jurisdictions in light of the report.
I wish to note that, following Government approval, Ireland’s first double tax treaty policy statement was published in 2021. The policy statement outlines a series of economic drivers for potential new partners, including through the creation of a priority list. More importantly, there is a specific policy for the least developed countries in the world. This commits to not approaching any least developed country for a treaty and, where approached by such a country, a commitment to be cognisant of the specific needs of such countries, and to ensuring that any treaty will deliver economic benefits for the treaty partner before agreeing to such a treaty.
I wish to highlight some of the outputs of what we are able to do because of our fiscal position, which demonstrates our continued commitment to international aid and support, particularly for the global south. In the past two weeks, Ireland's commitment is pledged to reach by next year €225 million in climate finance directly for projects that are needed around the world but particularly recognising small island nations and smaller economies, where Ireland has contributed €25 million to the COP28 loss and damage fund that was announced. At the time the fund was announced, and I am saying that in case we have been overtaken by events, Ireland was the second largest contributor per capita globally after the UAE. It is a hugely significant commitment. In the same week, we gave €12 million to the UN's Central Emergency Response Fund, which put us in the top ten in absolute terms as contributors, not just on a per capita basis. Of course, we fund the UN development programme with its commitment to developing sustainable finance centres around the globe and its commitment to gender in that, in particular. So we have a hugely outward looking aid policy in every Department.
That includes the Department of Finance, the Department of energy and the Department of Foreign Affairs. We are certainly committed to that in terms of tax as well. The evidence is very clear in that regard.
I move recommendation No. 5:
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 options to increase the rate of tax to ten times the basic rate of Local Property Tax and the potential for the inclusion of derelict properties within the criteria for taxable properties.”.
I second the recommendation.
Recommendation No. 5 calls for a report on options for changes to the vacant homes tax, including options to increase the rate of tax to ten times the basic rate of local property tax and the potential for the inclusion of derelict properties within the criteria for taxable properties. It is welcome that the vacant homes tax is being increased from three times the basic rate of local property tax to five times. 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 to 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 June 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 its value, while having to pay back only 0.3%. This is an incentive for property hoarding, not a deterrent. The slower house-price growth this year has been an outlier, so we cannot simply assume we will continue to see it in coming years. While I appreciate that the Minister has increased the tax, this increase is still not likely to be sufficient. Our amendment requests an exploration of a vacant homes tax set at ten times the basic rate of the local property tax, which would amount to around 1% of the value of the property. This would create a more significant deterrent to property hoarding. This is, after all, the stated purpose of the tax.
Moving on to the issue of derelict properties, our group made similar arguments last year. However, 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 Civil Engagement Group Senator Grace O’Sullivan first introduced legislation to address this issue, back in 2017, her Bill, the Derelict and Vacant 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. Therefore, to decouple the issues is short-sighted.
Currently, the measure supposedly addressing dereliction is the derelict sites levy, administered by councils. To say it has been a failure is an absolute understatement. In 2021, for example, only €1.1 million out of the €4.5 million owed in derelict site levies was actually collected by city and county councils. This was a collection rate of 23%.
Eighteen councils failed to collect any levy at all, so we know the derelict site levy is not working. What is going to be done to address 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 amendment calls for a report on the potential to include derelict sites within the scope of the vacant homes tax.
On the 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 in comparison to international norms. When the tax was introduced, Dr. Gerard Turley, an economist at the University of Galway, writing for RTÉ, said:
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 this tax, because all an owner has to do is spend a few weeks there, or let friends or family stay there for a few weeks in the summer, 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 that is having such a negative effect on the lives of so many.
I can certainly see the point the Senator is making on derelict properties. We have introduced a whole host of schemes to incentivise bringing properties back into productive use. Not only is there the refurbishment grant of €70,000, but also the repair and lease scheme and the buy and renew scheme. Some local authorities have used these schemes to great effect, while some have not used them at all. Some 50% of all repair and lease units in the entire country have been delivered in County Waterford. Applications to the vacant property refurbishment grant have also been made for more than 5,500 properties. According to the latest figures I have, there have been approximately 2,500 approvals. I can, therefore, see the point being made concerning the dereliction element of the recommendation.
In terms of the increase of the vacant homes tax from three to five times the rate of the local property tax, we need to see how this will bed in over the course of 2024. The Minister for Finance is on record as saying this will be kept under review. I am not sure the proposal for ten times the amount is necessary in the review. That will be openly considered by the Government in this context. However, where the State has intervened to introduce a whole host of schemes to incentivise addressing these derelict properties, perhaps there is scope in respect of the local property tax to bring these properties within it. It is true that they can be captured in the context of the Derelict Sites Act 1990. Some local authorities, such Limerick City and County Council, have been using this measure to great effect in respect of putting derelict sites on the register. Compulsory purchase orders are then carried out under that Act, as opposed to under the Housing Act, which can be a slow and arduous process. Certainly, other local authorities need to step up to the plate in this respect. If we are looking at something in the context of the Derelict Sites Act 1990, with a council or a local property tax in terms of revenue, perhaps this balance, only in the context of what we have done in terms of the other schemes, needs to be reviewed.
To follow on from what Senator Cummins said regarding the reasons we are bringing in the vacant homes tax, it is intended to incentivise the use of properties that have been put out of use, especially when we are doing everything as a Government to provide as much housing as possible.
My county of Galway is one of the counties with the highest number of applications for the Croí Cónaithe scheme. With regard to the Minister of State's role in the Department of Finance, particularly with regard to credit unions, we need to look at how we expand their role to try to support people to think about applying for the Croí Cónaithe scheme. Some of the challenges with it have been with regard to whether staged payments could be considered for the scheme. It is only after the works are done and an inspector comes out to look at them that payment can issue to those who applied for the Croí Cónaithe scheme. The scheme has been in action but it is a new incentive, as is the vacant homes tax, to encourage people to see how to use properties that have been left vacant and derelict in Ireland, particularly in rural towns and villages throughout the country. We need to make sure that we maximise all of the properties available to Irish citizens, the State and businesses. Many of the properties can be used in many different ways.
In her response, I ask the Minister of State to speak about the supports in place for people accessing the Croí Cónaithe scheme and the importance of the vacant homes tax to make people see the options and opportunities out there to develop properties, and for these properties to become places of residence and places for people to live and call home. It is also for people who want to take on a second property to rent out. We are in dire need. In my home town of Ballinasloe people are crying out for properties to rent. We are to have 79 social housing homes in Ballinasloe and families will move into them before Christmas. They will be able to have a home. This will mean that rental properties will be opened up because people will be taken off the housing assistance payment and out of rental accommodation and given a home. It will mean that more rental properties will open up in the town. These are needed for people who are working there and for young families.
This is a challenge and I appreciate work being done by the Minister of State with regard to how credit unions can support people in accessing these opportunities. I am thinking about the fact that purchasing a home and having a mortgage may be more beneficial than paying rent on a long-term basis. It all comes back to financial literacy for young people and people of all ages so they can see there are benefits to looking at Croí Cónaithe and SEAI schemes with regard to bringing older properties back into use.
Tackling vacancy is an urgent priority for the Government and every Member of the Houses. It is appropriate that every available lever is deployed to incentivise the use of existing housing stock throughout the country. This includes measures to deter vacancy, alongside supportive measures that Senators have mentioned, such as grants. For this reason, the Minister for Finance announced in the budget that the rate of the vacant homes tax will increase to five times the existing base local property tax 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 the vacant homes tax remains at three times the amount of local property tax payable in respect of the property.
We are discussing the recommendation of a report on various aspects of the tax, such as increasing the rate and the inclusion of derelict properties within its scope. As the vacant homes tax is still a relatively new measure, it is important to see how it 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. It is working only if it brings properties back into use. Ideally, the tax would be paid on fewer and fewer properties and the tax take would decrease. That would be a measure of success, unlike most taxes. We will monitor this as part of the ordinary policy monitoring process conducted by Department of Finance officials and Revenue in respect of all new tax measures. We will monitor the tax and, if appropriate, we will review the matters outlined.
In developing the tax it is important to ensure that it is easy to understand and efficient to administer. We want the tax to work and have the desired effect. This is why it was set at a multiple of the property’s base local property tax charge, as this system is already well understood. By increasing the rate of the tax in the Finance Bill, we hope the vacant homes tax will have the effect of penalising any property owner whose property remain vacant in the first and current chargeable period. It also sends an important signal that it is no longer socially acceptable to retain vacant properties and they must be brought into use.
The tax will play an important role in addressing vacancy but we have to make sure we are also providing incentives, with the objective of encouraging the use of available housing.
It is important to recognise, as Senator Cummins did, that grants of up to €70,000 are available to make derelict properties into habitable homes. It is essential those grants are availed of and used. As Senator Dolan pointed out, it can be difficult to absorb the up-front cost of doing up a house and there is a timing question on the application of these grants, which is, as yet, unresolved. As I stated in this House before, I have discussed the matter with the credit union movement. Some credit unions offer bridging finance for people to be able to meet the needs at an earlier stage in recognition that the State will definitely repay its part of the loan. There is flexibility to be achieved as more and more credit unions take up that option. However, it is a decision for individual credit unions and not something I can mandate. However, it is interesting to see how effective it can be when an individual manager takes such a decision. We have seen similar proactive actions being rewarded in Senator Cummins's county of Waterford in respect of the repair and lease scheme which has gone exceptionally well. We saw something similar in Louth in the past, where there were exceptionally good outcomes in the compulsory purchase order, CPO, process. Such initiatives, driven by individuals or groups, can be incredibly effective, which raises questions about why vacancy persists in some local authority areas when others have had extremely good results from targeted use of the available measures.
Specifically, regarding derelict properties, the tax seeks to target properties which are habitable and ready to be occupied quickly. Vacant homes tax applies to properties that are residential properties for the purposes of local property tax, which means properties are suitable as a dwelling. In this way, the tax targets properties which could be put to greater use with immediate effect.
The issue of dereliction is related. Senators will be aware that the Derelict Sites Act falls under the responsibility of my colleague, the Minister for Housing, Local Government and Heritage. I understand that his Department continues to liaise with local authorities on the implementation of the Derelict Sites Act 1990 with a view to improving its effectiveness. I understand a report on that will be forthcoming very soon.
At this point, the vacant homes tax is one part of a broader suite of measures. The Minister for Housing, Local Government and Heritage launched a vacant homes action plan in January of this year. This document outlines the progress made in addressing vacancy, along with the actions that being pursued to return as many vacant and derelict properties to use as possible, as quickly as possible. It is important to point out that the incentives provided, such as the vacant properties refurbishment grant and the ready to build scheme under the Croí Cónaithe towns fund, are important. The vacant properties refurbishment grant has been successful with 5,500 applications received to date, of which 2,800 have been approved. There has been some success to date, but there is long way to go with that. The Government recently agreed to raise the target and to have 4,000 homes refurbished by 2025. Again, I underline the opportunity to use CPOs.
I will take the opportunity to clarify some figures I quoted to Senator Black in respect of the bank levy earlier. I was given a note which gave me three figures, which I will correct. The yield reported for the bank levy in 2020 was €150 million. In 2021, it was €150 million and in 2022, it was €87 million. I will write to the Senator directly on that point with a full outline. I apologise for the error in my note.
I move recommendation No. 6:
In page 302, between lines 32 and 33, to insert the following:
“Report on aviation kerosene
100. The Minister shall, within six months of the passing of this Act, lay a report before both Houses of the Oireachtas outlining the potential for Ireland to waive the excise exemption on aviation kerosene by entering into bilateral agreements to tax fuel for intra-community flights.”.
I second the recommendation.
Recommendation No. 6 calls for the Minister to produce a report outlining the potential for Ireland to waive the excise exemption on aviation kerosene by entering into bilateral agreements to tax fuel for intracommunity flights. On Committee Stage, my colleague Senator Ruane stated that the Government provided €2.4 billion in subsidies to the fossil fuel industry in 2019, according to the Central Statistics Office, CSO. This was 1% higher than the previous year and almost 70% higher than in 2000, when subsidies totalled €1.4 billion. Fossil fuel subsidies can support either production or consumption activities. The CSO figures show indirect subsidies arising from revenue forgone due to tax abatements accounted for almost 90% of the €2.4 billion total. The single biggest one 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, while the revenue forgone from the lower excise duty on diesel fuel was estimated at €400 million. There have been several calls for this to be unwound given the higher rate of nitrous oxide and particulates emitted from diesel fumes, both of which have been linked to premature deaths and strokes in humans.
Our recommendation reflects the exchange Senator Ruane had with the Minister on Committee Stage and looks to the mechanisms by which the exemptions can be waived. I urge the Minister to accept the recommendation.
Senators will be aware the Government is committed to tackling climate change and decarbonising the economy by 2050, and we are very much aware of the challenges subsidies pose to our collective effort to disincentivise fossil fuels. We are stuck in a difficult transition period as we try both to help people meet their energy bills and to transition the economy to renewable energy sources.
The programme for Government, the climate action plan and the Climate Action and Low Carbon Development Act form broad policy and legislative frameworks for moving away from fossil fuels to renewable energy and alternative fuels and technology. Carbon tax is an especially important part of that and those who are committed to climate change mitigation would, of course, support that. It is nonetheless recognised it is a transition for households and businesses in this country and we have yet to build many of the renewable opportunities that are in front of us. In my constituency, a renewable project could cheaply and cleanly power up to 700,000 homes in Dublin, and it is these sorts of projects that require support and activation.
Ireland's excise duty, more specifically on the treatment of fuel used for air navigation, is governed by the European Union law as set out in Directive 2003/96/EC on the taxation of energy products and electricity, commonly known as the energy tax directive, ETD. The provisions of the current energy tax directive relating to aviation fuels were transposed into Irish law in the Finance Act 1999, as amended, which provides for the application of excise duty in the form of mineral oil tax on liquid fuels used for motor and heating purposes. Heavy oil is the most commonly used fuel type in commercial air navigation and the ETD currently obliges all member states to exempt heavy oil for intracommunity and international air transport purposes. A member state may waive this exemption for intracommunity flights where it has entered into a bilateral agreement with another member state to tax fuel, but no such agreements are in place in the EU at present.
In addition, Senators will be aware that in July 2021, as part of the Fit for 55 package, the European Commission published a proposal to revise the energy tax directive and that taxation of intracommunity forms part of the proposal to date. This has proved to be one of the more contentious aspects of the file because of the wish of certain member states to maintain the exemption on the taxation of excise fuel.
Given that no bilateral agreements are in place and that the energy tax directive is currently subject to renegotiation, with the taxation of aviation fuel on the agenda, the Minister for Finance does not see any potential for bilateral agreements to tax fuel for intracommunity flights at present. Instead, he believes a collaborative EU-wide approach is the most effective way of addressing this issue. Accordingly, Ireland will continue to engage with the Commission and member states to reach a well-balanced and effective compromise on the proposal.
Separately, as Minister of State with responsibility for financial services, I note the aircraft leasing industry in this jurisdiction, which leases more than half of the world's aeroplanes, has a strong interest in developing the renewable opportunity here and developing sustainable aviation fuel from this jurisdiction, with an important parallel opportunity for the State in the development of that economy. I cannot accept the recommendation, for the reasons I outlined relating to the EU.
I might slightly segue here, so I ask the Minister of State to give me a little leeway in that respect. Under the Finance Act 2022, relief from natural gas carbon tax was provided for in respect of the horticultural industry but it has not been commenced. I understand this has been debated inside out and upside down but it is very important for that sector and it has not yet been commenced. The Minister of State might touch on that in her response.
I thank the Senator for highlighting that, given it was agreed to in the 2022 Act, as he said.
I have confirmed with my officials that Revenue continues to work on it. It is a priority for the Department of Finance that it is active. Officials have been in touch with Revenue in the last week or so to make sure that is so. The Department of Finance is keen that it be implemented shortly by Revenue.
When is it proposed to take Fifth Stage?
Is that agreed? Agreed.
