Paul McGrath
Ceist:61 Mr. P. McGrath asked the Minister for Finance if he is satisfied with the tax treatment of the housing sector; and if he will make a statement on the matter. [30129/04]
Amharc ar fhreagraTuesday, 23 November 2004
Ceisteanna (12, 13)
Freagraí ó Béal (15 píosaí cainte)
Government policy in the housing market has focused, among other things, on improving supply, assisting home ownership particularly for first-time buyers, facilitating the expansion of the private rented sector and promoting the regeneration of certain areas. In this context, a range of tax incentives exist in regard to the housing market in the case of first-time buyers and other owner-occupiers, for tenants and investors. I can detail these for the Deputy if he desires.
The years 2002 and 2003 were the eighth and ninth successive years of record housing output with 57,695 and 68,819 completions, respectively. This positive trend in supply has continued into 2004, with statistics for the six months to June showing that overall house completions at 35,957 were up 21.4% on the same period last year. The rate of house building is now more than double that in 1996. We have had some success in our tax policy but we do not claim all the credit.
Like all other goods and services, the State finds it necessary to raise taxes from this area. However, there has been some badly informed commentary recently in regard to the tax take from new homes. Figures in excess of 40% have been attributed to the amount the Government raises in tax from each new home. However, this figure is wrong. The cost of a new home that accrues directly to the Exchequer through taxation is more like 28%, based on both Dublin and national prices. This is broadly in line with the tax take on the overall economy.
The housing market is a complex and dynamic one and demands continuous monitoring and adjustment to address changing circumstances. As the Deputy will appreciate, it is not the practice to comment on the possibility or otherwise of tax policy changes in the lead-up to the annual budget.
I would appreciate if the Minister would forward to me the figures to which he has referred rather than put them on the record of the House. The figures put forward by the Construction Industry Federation, to which the Minister appears to be alluding, suggests that on a house in Dublin costing €295,000, VAT amounts to €35,000; site taxes, €30,000; labour taxes, €29,000; and profit taxes, €11,000. Perhaps the Minister will detail the figures with which he disagrees.
The Minister will be aware that stamp duty for first-time buyers is increased on property costing more than €190,000. However, it is not just the cost in excess of €190,000 which is taxed, stamp duty must be paid on every euro the house costs. Will the Minister examine this cost because the threshold is very low and it is a very heavy tax on first-time buyers? Will he agree that the reward for people in private rented accommodation in terms of tax breaks is extremely low. It might be tax efficient to increase the tax relief because there might be more reporting by tenants and more claims for tax relief. It would be self-financing in terms of bringing more people into the tax net.
The figures the Deputy is using are figures presented by the Irish Home Builders Association as part of its pre-budget submission last year, which estimates that the total tax take from the cost of a new home is more than 40%. However, the calculation by the IHBA is based on the presentation of statistics in a manner that is open to question. In its calculation, the IHBA included VAT as a percentage of the house price net of VAT. Normally one would show the tax as a percentage of the overall price, including tax. If, for example, a person who earns €10,000 pays tax at 40% and PRSI at 3%, it would not be the case that the individual's liability for tax and PRSI would be expressed as a percentage of net income, namely, 75%. To say one is paying €4,300 out of €5,700 would be misleading.
Taking the base figure used by the IHBA, and presenting the statistics, as would commonly be done in practice, as a percentage of the total cost, including VAT, the actual cost of a new home that accrues directly to the central Exchequer through taxation is in the order of 28%, based on both south Dublin and national prices. This is broadly the order Exchequer tax represents on all economic activity across the economy. In addition, the IHBA has included in its calculations pay-roll taxes, even though it accepts that construction labour might be employed elsewhere in the economy.
Given the high levels of employment currently experienced in the building industry, and that it is a pay-roll tax and not specific to housing, it appears there is a strong argument for exclusion of that tax. Removing this element reduces the central Exchequer tax take to almost 18.5% for a house in Dublin and under 17% based on national prices. On the basis of the figures used by the IHBA for a new house in Dublin, the Exchequer tax take, comprising capital gains tax, stamp duty on site transaction and corporation tax on profit and VAT, excluding pay-roll taxes and other local authority charges and levies, is €54,365 of an average house price of €295,000, which is less than 18.5%.
Even if we add the estimates of home builders for other charges, which are not strictly Exchequer taxes but rather local authority charges such as the development levy application to each house and the cost per house of the obligation of the developer to transfer land under Part V of the Planning and Development Act 2000, that brings the total take by the State, excluding pay-roll taxes, to just under 26%, or €76,010, for a house in Dublin and less than 23% for a new house based on national prices.
On the other question——
May I ask the Minister a question?
The Minister has given a comprehensive reply.
The Minister is filibustering.
We have spent seven minutes on the question.
How can the Minister condone the payment by a first-time buyer of €75,000 in tax on a new house in Dublin costing €300,000?
Joan Burton
Ceist:62 Ms Burton asked the Minister for Finance the investigation that has been carried out by the Revenue Commissioners into the reported use of single premium insurance policies as a tax avoidance mechanism; the information available to him or to the Revenue Commissioners on the extent of this practice; and if he will make a statement on the matter. [30013/04]
Amharc ar fhreagraI am advised by the Revenue Commissioners that as part of their ongoing assessment of potential tax risks, various methods used by taxpayers to hide undisclosed income or gains are identified. Some of these have been the subject of major investigation projects. The information assembled by Revenue from various sources, including disclosures made by taxpayers in the course of some of the recent investigation projects, indicates that there may have been use of insurance products for the purpose of hiding undisclosed income or gains.
Revenue's concern relates to the status of the moneys which are invested by the taxpayer into the relevant policies and whether they were undisclosed income or gains of the taxpayer. The research into this area, which Revenue has been carrying out for some time, will now be used to drive a further investigation project aimed at recovering any previously undisclosed liabilities arising from the use of insurance products as a vehicle for evasion.
The structure of the investigation is a matter for the Revenue Commissioners but I understand from them that while the precise nature of the investigation has not been decided the successful approach taken in the investigations of bogus non-resident accounts and offshore accounts is likely to form the basis for this latest investigation. This is likely to involve discussions with the industry to seek its co-operation, a defined period for voluntary disclosure and subsequent pursuit of those who failed to come forward in the voluntary phase. Preparatory work is under way and the investigation itself will begin next year.
Does the Minister agree this Revenue investigation is likely to yield at least another €1 billion, probably €1.5 billion, in unpaid taxes and penalties as a consequence of people investing untaxed or undeclared money in insurance-based products?
The Minister stated that a voluntary disclosure scheme is to be set up. Does he agree that for some of these people this will be the fourth opportunity they have been given by the State to come clean. We have had two tax amnesties and an investigation into non-resident deposits. Now they are being given another chance. What are compliant taxpayers to make of this?
The Minister referred to the financial institutions co-operating. What exactly does that mean? Most small business people did not wake up one morning and decide to buy a single premium insurance product. It had to be sold very aggressively to them with its consequent tax advantages. Is the Revenue likely to take action against financial institutions which may have been selling products conscious that those products offered tax evasion opportunities to certain individuals who were not tax-compliant?
What people should take from this is that they should place their trust in the integrity, competence and professionalism of the Office of the Revenue Commissioners to deal with this matter comprehensively as it has dealt with other matters that come to its attention. That is what people should make of it. I have spoken to the Chairman of the Revenue Commissioners, who comes to visit me from time to time regarding developments and issues that arise, and he has my total confidence. That is based on an outstanding performance by him and his staff. Compliant taxpayers may be assured that anyone who has been involved in tax evasion, which is an offence, will be dealt with and that the returns to the taxpayer will be what one would expect based on the investigations which are continuing.
Neither the Chairman of the Revenue Commissioners nor anyone else is in a position, because it is too early in the investigations, to comment on the likely receipts. That issue, with a range of factors, will be considered in forecasting tax revenue. This issue has been under investigation by the Revenue Commissioners. The preparatory work has been done. Revenue has an outstanding record of success in dealing with the most difficult task of tracing income which was not declared for tax purposes. The Office of the Revenue Commissioners will get to the bottom of this, as it has got to the bottom of other matters.
Does the Minister agree that the expected €1 billion or €1.5 billion which will arise next year from these inquiries should be set aside for capital investment, particularly in areas that would benefit compliant taxpayers who paid their taxes in the 1980s when others were putting their money offshore or into special products to hide it from the tax man? It should be borne in mind that it was the Minister's predecessor and people in the Revenue who argued at the time of the tax marches that there was not a pot of gold in terms of unpaid taxes, yet time and again we have seen evidence of a huge industry of non-compliance regarding the payment of taxes.
I am not aware of any geographic area that has greater virtue than any other in terms of compliance with taxation in the 1970s or any other decade. Neither do I believe the Deputy is so aware.
Does the Minister not follow the tribunals?
Furthermore, it was my predecessor who introduced a package of powers that can cater for investigations of the type being planned in this instance. Much of the taxation which was not paid is now being paid because of a more compliant culture brought about by the policies pursued by this Government. Those policies contrast starkly with the policies of the Administration that was in place when I was first elected to this House in the mid-1980s, which ensured effective taxation rates of 73%.