Thursday, 16 Jan 2014

Written Answers Nos 1-35

Credit Availability

Ceisteanna (10)

Thomas P. Broughan

Ceist:

10. Deputy Thomas P. Broughan asked the Minister for Finance further to Parliamentary Question Nos. 147 and 171 of 26 November 2013, if he will provide an up-to-date report on the work of officials in his Department and their counterparts in Germany to progress the establishment of a mechanism so that the German development bank, KfW, can begin lending to businesses here; and if a potential value on the level of assistance to be provided to Irish businesses by KfW has been agreed upon. [1510/14]

Freagraí scríofa

Minister for Finance

As the Deputy will be aware, the Taoiseach mentioned in this House shortly before the recess that he had held discussions with Chancellor Merkel on finding ways to reinforce Ireland’s economic recovery by improving funding mechanisms for the real economy, including access to finance for Irish SMEs. The German Government has asked KfW, the German development bank, to work with the German and Irish authorities swiftly, in order to deliver on this initiative at the earliest possible date.

Officials at my Department with assistance from staff of the NPRF have worked quickly to investigate ways to ensure that the benefit of this cooperation to Irish SMEs can be maximised.

A small party of my officials travelled to a meeting with their counterparts in Berlin in early December and a week later a similar meeting was held at KfW’s headquarters in Frankfurt. Officials from KfW and the German Ministry have also met with the project team from Ireland in Dublin for a further exchange shortly before Christmas. Both sides have been represented at senior management level for each engagement. In addition, there have been regular conference calls between the parties.

As the Deputy may be aware, KfW channel their funding for SMEs in Germany through a system of on-lending using commercial banks in Germany as the distribution mechanism. Typically the SMEs can avail of KfW funding at different terms and conditions applicable to that offered directly by the financial institutions. This model is similar to the on lending arrangements available to Irish domestic institutions using funds from the European Investment Bank.

The precise arrangements for the structure, level of funding and distribution options are the subject of the discussions between the relevant officials at present and will have to adhere to EU State Aid considerations. Experience in other countries suggests that any lending facilitated by a state sponsored investment institution like KfW is generally complementary to SME lending already taking place in an economy and can in fact assist in improving both the supply and demand for finance.

The Government recognises that SMEs are the lifeblood of the Irish economy and play a crucial role in employment growth in our country. Since March 2011 Government policy has concentrated on ensuring that viable micro, small and medium sized enterprises have access to capital, equity and debt funding from a more diverse range of sources. The potential new arrangement with KfW, which my officials are currently exploring, represents a continuation of this Government’s concerted focus on ensuring that viable SMEs have access to finance in a manner that supports economic recovery and employment growth.

NAMA Operations

Ceisteanna (11)

Sean Fleming

Ceist:

11. Deputy Sean Fleming asked the Minister for Finance his views on the impact of recent allegations regarding the alleged leaking of confidential information from the National Asset Management Agency on the organisations ability to fulfil its mandate; the way security of information can be guaranteed within NAMA; and if he will make a statement on the matter. [1633/14]

Freagraí scríofa

Minister for Finance

The Deputy, as a member of the Dáil Committee of Public Accounts (PAC), will be aware that the Chairman and Chief Executive of NAMA appeared before that Committee on 20th December 2013 and robustly defended the Agency against allegations that had been circulated to certain outlets in the media and to certain members of the Oireachtas during the preceding week.

The NAMA Chief Executive stated clearly that the allegations, in so far as NAMA had knowledge of them, were unsubstantiated. The NAMA Chairman stated clearly that NAMA has no tolerance for misdemeanour or any wrongdoing and that where it is made aware of any complaint, it fully investigates it and, if appropriate, refers the matter to the Gardaí.

I am advised by NAMA that it will fully and robustly continue to defend its position in relation to any allegations made against it in such proceedings, and I am further informed that NAMA has a 100% track record in defending any such cases.

Members of this House will be aware that s.19 of Criminal Justice Act obliges anybody with information which might be relevant in the context of the potential commission of an offence by any person, to disclose that information to a member of An Garda Siochana, and this section makes it an offence not only to fail to disclose that information, but to fail to disclose it as soon as it is practicable to do so.

Valuations

Amongst the allegations was a claim that NAMA engaged in a deliberate process of manipulating the valuation of property which was collateral for its acquired loans. NAMA refuted this allegation and set out their position during the PAC proceedings in December. The NAMA Chief Executive indicated that NAMA did not in fact set the property valuations and that the entire valuations process was subject to extensive independent auditing, including on behalf of the European Commission and by the Comptroller and Auditor General. I note that the Comptroller and Auditor General, Mr McCarthy, also advised the PAC that he could not see on a broad scale how there could have been any undervaluation of loans acquired by NAMA given the Agency’s approach to securing independent valuations.

Safeguards to protect the confidentiality of information

There are extensive safeguards in place to protect the confidentiality of information held by NTMA employees, including those assigned to NAMA. Employees assigned to NAMA by the NTMA, as is the case with all NTMA staff, are subject to Section 14 of the National Treasury Management Agency Act, 1990 which prohibits an employee from disclosing any information obtained while carrying out their duties as employees of the NTMA. Employees assigned to NAMA are also subject to a prohibition on release of confidential data under Sections 99 and 202 of the NAMA Act 2009. All NTMA employees, including those assigned to NAMA, are subject to the Official Secrets Act. Contravention of these prohibitions is a criminal offence. On conviction there is a fine not exceeding €5m and/or imprisonment for a term not exceeding five years. These protections do not cease at the point of resignation but rather apply indefinitely and extend to former employees.

The NAMA Chairman outlined to the PAC in December that NAMA has enhanced IT arrangements in place that limit access to information: access for staff is now confined and limited only to the information that the individual needs to do his or her work on a day-to-day basis. The NAMA Chairman also pointed out that there is an extensive audit trail right across NAMA IT systems in respect of e-mails and documentation making it possible for NAMA to track access and printing of documents. The NAMA Chairman added that while the NAMA systems are now well advanced, the Board remains focused on continual improvement.

Progress

I would like to draw the Deputy’s attention to the NAMA’s 2013 End-of-year Review, which was published on the 3rd of January and which details the continued significant progress that the Agency is making by reference to the objectives set for it by the Oireachtas; it is also available on NAMA’s website www.nama.ie. This includes the generation of €16.5bn in cash inflows from inception to end-December 2013, some €5.8bn of which was generated in 2013, and the repayment of €7.5bn or one quarter of its senior debt by end-2013. The achievement of its first major debt repayment milestone is very significant, not only for NAMA in terms of its own progress, but also because it was a key Troika target and it reinforces, at a critical time in our recovery, the very positive international perception that Ireland as a country is resolute in addressing its difficulties and meeting its targets. I also point out that NAMA has generated sufficient cash reserves to cover its costs, including debt interest and loan servicing fees. It is important to note that NAMA is self-funding and does not draw on the Exchequer and therefore is not a burden for the Government in the context of its annual budgetary arithmetic. NAMA is also in a position, as a result of its strong performance, to invest in various commercial and residential projects which, when completed, are expected to yield returns to assist the economy.

Conclusion

When addressing the PAC, the NAMA Chairman made clear the NAMA Board’s determination that the Agency will not be deflected from achieving its objectives by the circulation of allegations designed to serve not the interest of Irish taxpayers but rather the narrow interests of individuals who are in dispute with the Agency. Members of the House should, I believe, consider carefully what both the NAMA Chairman and Chief Executive have had to say on this matter. NAMA has been the subject of efforts to spread damaging and unfounded stories about it in the past. At no stage since its inception has NAMA been deflected by these efforts from doing its work on behalf of Irish taxpayers and I fully accept the NAMA Board’s commitment that it will not allow itself to be so deflected now or at any time in the future. I would regard it as a more serious matter if NAMA was not being criticised but rather was being universally praised by debtors and others as this would tell an altogether different story of how NAMA is working to recover monies for the State. By necessity NAMA has to have a hard edge in the work it does.

Mortgage Resolution Processes

Ceisteanna (12)

Sean Fleming

Ceist:

12. Deputy Sean Fleming asked the Minister for Finance if he is still pursuing an arrangement to deal with loss making tracker mortgages in Irish banks; when he expects progress to be make in this regard; and if he will make a statement on the matter. [1634/14]

Freagraí scríofa

Minister for Finance

As the deputy will be aware Tracker mortgages were a particular feature of the Irish mortgage market in the recent past with many tracker mortgages originated during the property market boom in 2004 to 2008. Tracker mortgages were lent for both primary dwellings and buy-to-let investments and represent 60 per cent of the aggregate mortgage lending of AIB, BoI, and PTSB. These are low interest earning assets with a variable rate set at a fixed margin above the ECB policy rate –the majority of which result in a negative carry for the originating banks, that is, the rate that tracker mortgage borrowers pay on their mortgage is lower than the rate the banks fund themselves.

Although, these assets continue to be loss-making and represent a drag on the Banks profitability the situation is improving and is not preventing the banks returning to viability.

Improvements in Bank funding

In the past year improved confidence in the Irish Sovereign and its Banks together with the normalisation of money market interest rates in the Euro area has helped to further stabilise the domestic banking sector. This has allowed the profile of Bank funding to revert to a more normal sustainable mix. Funding rates in the wholesale markets are also starting to converge towards the banks more higher- rated European peers.

As recent capital market transactions have demonstrated the Irish banks have been able to access both secured and unsecured funding at competitive rates in a range of maturities across the curve. In addition, the deposit base has stabilised resulting in reduced reliance on central bank funding. Taken together this has helped to reduce the impact of the negative carry associated with tracker mortgages.

Furthermore, over the medium to long term an eventual increase in ECB policy rates will further reduce this negative carry, insofar as the differential between the rate that the banks fund themselves on the markets and the rate that tracker mortgage borrowers pay on their mortgage will narrow or ultimately yield a positive margin.

Banks becoming profitable again

Recent interim results and disclosures by the Banks indicate that the banks have made a lot of progress on re-pricing deposits and certain loan portfolios. In addition, operating costs and government guarantee fees are falling, boosting pre-provision profits. Both AIB and BOI have signalled a return to profitability in 2014 and over time it is expected that both banks will trade their way into sustainable profitability. This will place them in a better position to absorb the impact of the Trackers mortgages.

Self help measures

In recent times the Banks have pursued self-help measures to address this issue by introducing innovative solutions such as offering negative equity type mortgages and allowing borrowers to retain tracker facilities when moving house for a fixed period. These initiatives together with the recovery in the property market and an associated rise in housing transactions will also help to alleviate the issue.

Conclusion

In conclusion as I have previously advised the house, during recent Review Missions of the Troika the Irish authorities discussed the issues associated with tracker mortgages though these interactions did not yield any viable solution to the problem. While the trackers are less of a concern for the banks than in the recent past, we naturally remain interested in examining any sensible ideas that could help lower the funding cost associated with these assets.

Tax Reliefs Application

Ceisteanna (13)

Seán Kyne

Ceist:

13. Deputy Seán Kyne asked the Minister for Finance if he will confirm regarding the rent a room tax relief scheme if the income up to €10,000 threshold per annum is exempt from PRSI in addition to the exemption from standard income tax; and if he will make a statement on the matter. [1553/14]

Freagraí scríofa

Minister for Finance

Section 216A of the Taxes Consolidation Act 1997 provides for the rent-a-room scheme. This scheme was introduced in Finance Act 2001 as an incentive to encourage individuals to let rooms in their principal private residence in order to bring about an increase in the availability of rental accommodation, particularly for the student sector.

The scheme provides an exemption from Income Tax, PRSI and USC on rent received where a person rents out a room or rooms in his or her principal private residence and the rent received does not exceed €10,000 per year. This was increased from €7,620 in Budget 2008.

In order to qualify for the exemption, it is necessary for the residential premises to be situated in the State and occupied by the individual as his or her sole or main residence during the tax year.

The relief only applies to individuals. It does not apply to companies or partnerships. In addition, an individual cannot avail of the relief in respect of payments for accommodation in the family home by a child of the individual. There is no restriction where rent is paid by other family members, for example, nieces or nephews.

The latest figures available relate to the tax year 2011 when the cost of the relief was estimated at €5.6 million and was availed of by 3,920 claimants. This equates to rental income of €21.7 million. The corresponding 2010 cost was €5.3m and was availed of by 3,770 claimants.

Figures relating to PRSI foregone are not captured by the Revenue Commissioners. Any queries in relation to PRSI should be directed to the Minister for Social Protection.

Proposed Legislation

Ceisteanna (14, 16)

Mattie McGrath

Ceist:

14. Deputy Mattie McGrath asked the Minister for Finance the reasons for his opposition to the introduction of a mandatory invoicing system for all work carried out by farm contractors; and if he will make a statement on the matter. [1555/14]

Mattie McGrath

Ceist:

16. Deputy Mattie McGrath asked the Minister for Finance if he will introduce an amendment to the Finance Act to mandate for the requirement of all farm contractors to produce a receipt to match payment made by cheque or other monetary means and so eliminate the ongoing threat to registered farm contractors posed by unregistered operators in the so called black economy; and if he will make a statement on the matter. [1554/14]

Freagraí scríofa

Minister for Finance

I propose to take Questions Nos. 14 and 16 together.

I am informed by the Revenue Commissioners that farmers and agricultural contractors are subject to the same requirements in relation to record keeping as other businesses. All businesses are required to keep proper books and records and to retain such books and records for a period of six years. In particular, any farming or other business that claims a tax deductible expense for any expenditure must have a satisfactory record of that expenditure.

I am also informed by the Revenue Commissioners that they tackle the problem of the shadow economy through a range of compliance and audit interventions including through targeted special projects. In addition, they deploy a range of compliance activities such as risk analysis, covert surveillance, intelligence gathering, information exchange with other State Agencies, working with Government agencies and working with business representative bodies.

The Revenue Commissioners keep their tax compliance programmes under constant review to ensure that they are focussed on the areas of greatest risk, including risks from the shadow economy. I am conscious that the need to tackle the shadow economy must be balanced against imposing additional administrative burdens and cost on business, but I will respond positively where Revenue makes a persuasive case for further powers or new obligations on business to strengthen their hand in dealing with shadow economy activity. In this regard I am aware that representative bodies representing agricultural contractors have raised concerns about tax evasion and unfair competition in the agricultural services sector and I would encourage them to provide whatever information they have to the Revenue Commissioners. I understand that the Commissioners would be very happy to meet the representative bodies to discuss their concerns and to receive any information they have about specific instances of fraud.

Consumer Protection

Ceisteanna (15)

Pearse Doherty

Ceist:

15. Deputy Pearse Doherty asked the Minister for Finance the legal protections provided for under the Consumer Credit Act for mortgage holders whose distressed mortgages have been sold by their original lender to a debt factoring company or other financial service provider; and if the holders of these mortgages continue to have recourse to the mortgage arrears resolution process and code of conduct on mortgage arrears. [1648/14]

Freagraí scríofa

Minister for Finance

I have no statutory role in the sale of loan books which is a commercial matter for the financial institutions concerned.

The Code of Conduct on Mortgage Arrears and the Consumer Protection Code apply to services providers regulated by the Central Bank. The Consumer Protection Code obliges the regulated entities to ensure that their own activities and any outsourced activity, such as debt collection, complies with the requirements of the Code. This means that activity should uphold principles in the Code such as the requirement for institutions:

- not to exert undue pressure or undue influence on a customer;

- to act honestly, fairly and professionally in the best interests of customers and to act with due skill, care and diligence in the best interest of its customers; and

- to prohibit personal visits or oral communications except in specified circumstances.

The Code of Conduct on Mortgage Arrears sets out requirements for mortgage lenders dealing with borrowers facing or in mortgage arrears. The CCMA provides a strong consumer protection framework to ensure that borrowers struggling to keep up mortgage repayments are treated in a fair and transparent manner by their lender, and that long term resolution is sought by lenders with each of their borrowers.

The matter of sales of loans or transfers of loans is a very complex legal area, particular to the terms and conditions of individual consumer agreements and the specific ‘transfer’ involved. For example, some transfer documentation includes a clause which stipulates that the lender (not the transferee) remains responsible for administration including setting interest rates and arrears handling.

The position may be further complicated where the transferee (the new holder of the loan book) engages in a restructuring which changes the terms of the credit to the consumer.

Where Central Bank regulated financial institutions sell part, or all, of their mortgage loan book to another regulated financial institution, the same protections apply to borrowers, including the Code of Conduct on Mortgage Arrears and the Consumer Protection Code. Any agent acting on behalf of a regulated lender must comply with the requirements of Irish financial services law. Failure to do so may result in the Central Bank imposing penalties on the regulated lender concerned.

By virtue of an exemption in Part V of the Central Bank Act 1997 (as amended), an unregulated entity to which a cash loan is transferred by a regulated entity is not subject to Central Bank supervision under the Consumer Protection Code and CCMA.

However, statute law provides for certain protections where the property is a principal private residence. For example, the Land and Conveyancing Law Reform Act 2013 provides the power to a Court to adjourn repossession proceedings in respect of a principal private residence for a period to see if a Personal Insolvency Arrangement could be agreed as an alternative resolution of the matter. This statutory provision will be applicable in all repossession cases that involve a principal private residence, irrespective of the particular categorisation/status of the mortgagor.

I should also point out that to all debt collectors that operate across any or all sectors of the economy, including private individuals and debt collecting firms are subject to the provisions of the Non-Fatal Offences against the Person Act 1997. Under section 11 of this Act, it is an offence to demand payment of a debt in a way that is designed to cause alarm, distress or humiliation. A person found guilty of offences under this Act is subject to large fines and up to 14 years imprisonment.

Question No. 16 answered with Question No. 14.

Economic Policy

Ceisteanna (17)

Pearse Doherty

Ceist:

17. Deputy Pearse Doherty asked the Minister for Finance the reason the medium-term economic strategy contained only forecasts based on a baseline macroeconomic economic assumption and a high growth macroeconomic assumption; if other forecasts were made based on other assumptions such as lower growth; if he will publish these forecasts; and if he will make a statement on the matter. [1652/14]

Freagraí scríofa

Minister for Finance

The baseline scenario set out in the Medium-Term Economic Strategy (MTES) is based on the Budget 2014 projections out to 2016. Projections thereafter are based on an estimate of Ireland’s potential output, factoring in assumptions regarding population growth, participation rates and labour productivity growth. Projections over 2017 to 2020 benefitted from input from PMCA consultants and constitute a reasonable trajectory for real growth, labour productivity and employment. The baseline scenario represents my Department’s current best estimate of the future path of the macroeconomic variables set out in the MTES. GDP growth over 2013 to 2020 is projected to average 2.6 per cent per annum, compared with an equivalent figure of 3.6 per cent in ESRI’s July 2013 Medium Term Review.

It is important to emphasise that the high-growth scenario which the Deputy refers to is not a forecast for the economy. Rather, my Department, working with the ESRI’s HERMES model, sought to quantify the economic impact of a suite of potential policy measures. The range of conditions modelled included greater dividend from existing labour market activation policies, re-orienting the tax system away from labour-related taxes, a lower cost of credit, and improvements in the stock of human capital. In broad terms, the aggregated effect of these was added to my Department’s baseline projections to show what the impact of implementing policies to support such conditions would be on the economy. Their combined impact on output, employment and the public finances constitutes the ‘high-growth scenario’. Again, I stress that it does not represent a forecast for what will happen to the economy; rather the objective was to demonstrate the impact which reforms would have on the economy.

As part of its enhanced risk function, my Department constantly evaluates emerging economic risks, both positive and negative, and assesses their potential impact upon the economy. In undertaking this modelling exercise, a number of different potential policy measures were considered. Not all of these measures were modelled and not all of the measures that were modelled were included in the final suite of policy measures included in the MTES high-growth scenario. As the HERMES model results are broadly symmetric, the results of a number of the policy measures modelled can be considered as having either a positive or negative impact upon output. For instance, the results of an improvement in competition policy which lowers inflation and boosts growth can also be interpreted negatively as the results of a deterioration in competition which raises inflation and lowers growth.

Packages of policy measures which negatively impact upon the economy were also considered. The purpose of modelling these policies was to quantify downside risk and estimate the potential cost of policy errors. However, as the Government does not intend to knowingly undertake erroneous policy choices, the results of these scenarios were not included in the MTES.

Ministerial Correspondence

Ceisteanna (18)

Pearse Doherty

Ceist:

18. Deputy Pearse Doherty asked the Minister for Finance if he will release the letter of 19 November 2010 from Jean-Claude Trichet in view of the investigation by the European Parliament into the role of the troika in Ireland and other countries. [1649/14]

Freagraí scríofa

Minister for Finance

The European Parliament has decided to draft an own initiative report evaluating the structure, role and operation of the Troika’s actions in euro area programme countries, including Ireland.

The EU Parliament’s review of the role and operations of the Troika is ongoing, indeed a delegation from the Parliament’s Economic and Monetary Affairs Committee is in Ireland today and tomorrow for meetings as part of the review.

However, the Parliament’s review has no connection with the core issue of your question on which the position remains as I outlined in my replies to Parliamentary Questions 155 of 28th June 2011, 125 of 18th July 2013 and 37 of 3rd October 2013.

While the immediate crisis that this Government inherited when it took office has been averted, it remains important for relationships between institutions to be developed and sustained, in order to allow for confidential negotiations to take place, especially on particularly sensitive issues. This is particularly the case in relation to the Irish authorities dealing with the ECB. It is normal practice for states to protect the confidentiality of these discussions, and in fact is usually enshrined in the rules of association of institutions.

Requests to release the letter have been considered a number of times under the Freedom of Information Acts. The decision has been made to refuse these requests in line with the relevant sections of the Act. This provides for exemptions for records relating to, for example, information received in confidence, commercially sensitive information and the financial and economic interests of the state in sections 26 and 31 and particularly 24.2. These factors counterbalance the public interest, protecting the ability of the Government when negotiating or deliberating on matters of national importance. The refusal to release the letter has been upheld on one occasion by the Office of the Information Commissioner.

I do however understand that, on foot of a special request from the European Ombudsman, the ECB is to consider the release of the letter, and should they decide to do so, the need to respect the confidentiality of the letter will no longer apply.

Budget 2014

Ceisteanna (19)

Richard Boyd Barrett

Ceist:

19. Deputy Richard Boyd Barrett asked the Minister for Finance in view of recent ESRI analysis of budget 2014, which stated that the budget hit the lowest income bracket hardest, if he intends remedial measures or adjustments to the budget to address this issue; and if he will make a statement on the matter. [1656/14]

Freagraí scríofa

Minister for Finance

I would firstly point out that the ESRI analysis showed that the highest income decile was the hardest hit in Budget 2014 not the lowest income decile. Furthermore, notwithstanding the fact that the lowest income bracket was impacted significantly, I note that the ESRI’s research continues to show that the highest losses have been borne by those in the highest 10 per cent of the income distribution.

While the ESRI’s assessment does suggest that significant losses have occurred in the lowest decile, the estimate of the effect on the lowest decile is strongly influenced by the changes to indirect taxes. As the best way to tackle poverty and inequality is to create jobs and reduce unemployment through economic growth, and evidence from the OECD shows that indirect taxes are less harmful than income taxes. Indeed, implementing this policy is bearing fruit with employment increasing by some 60,000 in the first three quarters of 2013 and unemployment decreasing to 12.4% from a peak of 15.1%.

The ESRI also acknowledge some difficulties in their paper with capturing the effects of some of the budgetary measures likely to impact upon higher earners, particularly in relation to increases in DIRT and Capital Gains Tax. For this reason, we have to treat the results with a degree of caution.

The ERSI assessment indicates that the overall consolidation process from 2009 to 2014 has not been regressive and it is worth re-iterating that the OECD and the European Commission have shown that Ireland still retains one of the most progressive income tax systems in the developed world.

Looking to the future, the research of the ESRI will inform deliberations in advance of Budget 2015.

Stock Markets Regulation

Ceisteanna (20)

Denis Naughten

Ceist:

20. Deputy Denis Naughten asked the Minister for Finance the steps being taken to regulate food securities trading on the stock market; and if he will make a statement on the matter. [1607/14]

Freagraí scríofa

Minister for Finance

Proposals to regulate food securities at an EU level form part of the current MiFID II and MiFIR proposals which aim to make financial markets more efficient, resilient and transparent, and to strengthen the protection of investors.

The Irish Presidency achieved a Council General Approach on this file which has enabled negotiations, via Trilogues, with the European Parliament and the European Commission.

Under the current MiFID II proposals, the level of exemptions available has been reduced and more products will be defined as derivative financial instruments when compared with MiFID I, and will therefore fall within the scope of MiFID II and other financial legislation such as Market Abuse. MiFID II also contains important provisions relating to position management, position limits and product intervention. These provisions are in respect of all financial instruments, including commodity derivatives, and have the purpose of providing regulators with tools to avoid excessive speculation in financial instruments, including commodity derivatives. The Council is proposing that competent authorities, with the guiding hand of ESMA, will be obligated to establish and apply position limits on the size of a position in a commodity derivative which a person can have over a specified period of time.

Furthermore, subject to the final agreement between the co-legislators, competent authorities will have product intervention powers whereby they may prohibit or restrict trading of financial instruments or prohibit or restrict investment activities when there is a threat to the orderly functioning and integrity of financial markets or commodity markets. The European Securities and Markets Authority (ESMA) will have contingency and coordination powers in position management and product intervention to ensure consistent application across all Member States. In the exercise of its powers, ESMA will also have to consult public bodies competent for the oversight, administration and regulation of physical agricultural markets.

MiFID II contains important provisions which set out new rules for commodity derivative markets. However, the regulation of commodity derivative markets, including where they take place Over the Counter (OTC) and as they are related to the physical commodity markets, must be assessed based on how they are dealt with across the totality of financial services files.

The MiFID II proposals complement the European Market Infrastructure Regulation (EMIR), which seeks to make the derivative markets, including commodity derivative markets, safer and more transparent. This is achieved by obligating entities to report all derivative transactions, to put in place risk mitigation techniques and to centrally clear contracts with counterparties, where the entity holds a large position. In addition, regulators will now have full information on this market which has not previously been available. The provisions contained in the European Market Infrastructure Regulation (EMIR) will be activated upon the entry into force of the relevant technical standards.

The Market Abuse Regulation, agreed under the Irish Presidency, also extends its scope within commodity derivative markets and to spot commodity markets. It clarifies that the manipulation of benchmarks, including commodity derivative benchmarks, will be an offence.

This will be complemented by two other EU legislative instruments, a criminal sanctions Directive on Market Abuse and a Regulation on Benchmarks. The Regulation on Benchmarks is set to be particularly prescriptive towards commodity benchmarks.

All of these EU financial services files combined are expected to result in a tighter regime for all commodity derivative markets, including food securities, whether traded OTC or through exchanges. This new legislative environment will be much more prescriptive than the current situation and will serve to prevent market abuse and to support orderly pricing in commodity derivatives and related commodity markets.

We support the stronger rules as applied to commodity derivative markets to guard against market abuse and support price stability. This will curb excessive speculation and serve to reduce price volatility in the underlying commodity markets. Negotiations continue under the Greek Presidency and we will continue to monitor developments on the MiFID II file throughout the legislative process.

Economic Policy

Ceisteanna (21)

Bernard Durkan

Ceist:

21. Deputy Bernard J. Durkan asked the Minister for Finance the extent to which he continues to remain satisfied in the matter of this country’s economic performance in the wake of the exit from the bailout and with particular reference to the need to remain competitive in the context of all other European countries inside and outside the eurozone and the wider global community with whom this country trades; if he can foresee greater opportunities for economic recovery in the emerging climate; and if he will make a statement on the matter. [1587/14]

Freagraí scríofa

Minister for Finance

Recent Quarterly National Accounts data show that the Irish economy recorded a second successive quarter of growth in the third quarter of 2013, with real GDP increasing by 1.5 per cent when compared with the second quarter. Particularly encouraging have been the recent tentative signs of recovery in domestic activity, with total domestic demand increasing by 2.4 per cent over the quarter to Q3 – the strongest such growth in over three years. This was driven by double digit investment growth in the quarter – a clear sign that confidence is returning to businesses domestically. Indeed core investment (excluding the volatile aircraft component) has now increased robustly in each of the last three quarters.

Further improvements in confidence are important to support a continued recovery in domestic demand. In this context, the ending of the programme of external financial assistance will help to further enhance confidence as it clearly demonstrates that we have moved to the next stage of our recovery.

On the external side, although goods exports continue to be impacted by sector specific issues related to the pharma-chem sector, services exports were up by 3.3 per cent in year-on-year terms in the third quarter. The strong performance of services exports has been supported by the significant competitiveness gains achieved in Ireland over the last number of years. Irish unit labour costs are forecast to improve by 23 per cent relative to the euro area average between 2008 and 2015 according to the latest Commission forecasts. Price levels have also corrected considerably in Ireland in recent years, with annual inflation rates in Ireland below the euro area average for every year since 2009.

Encouragingly, the positive output trends are having a favourable impact on the labour market, with year-on-year employment growth of 3.2 per cent – the highest rate in the entire EU in the quarter – recorded in the third quarter, representing an additional 58,000 jobs over the year. In line with these developments we’ve seen the unemployment rate fall nearly 3 percentage points in less than two years, down to 12.4 per cent in December.

Looking towards the future, my Department is forecasting growth of 2.0 per cent for this year – a figure endorsed by the Irish Fiscal Advisory Council – and for growth to average around 3.0 per cent over the medium-term. Central to these projections is the assumption of a sustained recovery in our key trading partners. In this regard I am encouraged by developments in key trading partners of late.

Better Energy Homes Scheme Administration

Ceisteanna (22)

Charlie McConalogue

Ceist:

22. Deputy Charlie McConalogue asked the Minister for Finance his plans for the better energy home scheme and the reason his Department is penalising this sector under the new home renovation incentive scheme by introducing the rule that qualifying expenditure over €4,405 plus VAT under this scheme will be reduced by three times the amount of any grant for the works as opposed to being reduced by the total amount of the grant; and if he will make a statement on the matter. [1635/14]

Freagraí scríofa

Minister for Finance

As the Deputy is aware, I announced the Home Renovation Incentive in the recent Budget. This scheme came into operation on 25 October 2013 and will run until 31 December 2015. The incentive provides tax relief for homeowners by way of a tax credit at 13.5% of qualifying expenditure incurred on repair, renovation or improvement work carried out on a principal private residence. Qualifying expenditure is expenditure subject to the 13.5% VAT rate. The work must cost a minimum of €5,000 (inclusive of VAT) which would attract a credit of €595. Where the cost of the work exceeds €30,000 (exclusive of VAT) a maximum credit of €4,050 will apply. The credit is payable over the two years following the year in which the work is carried out. Works carried out between 25 October 2013 and 31 December 2013 will be considered to have taken place in 2014 for the purposes of awarding the tax credit.

I do not accept that I am penalising the energy efficiency retrofit sector, as works which are grant-aided by the SEAI under the Better Energy Homes Scheme will also qualify for the incentive. Three times the amount of the grant will be deducted and any additional expenditure will attract the tax credit of 13.5%. This is to align with best fiscal practice in that relief is not provided twice for the same expenditure. The reason that the qualifying expenditure is reduced by three times the grant amount is because the SEAI state that the cash grants under the Better Energy Homes scheme are set values based on 30% of the average cost of energy efficiency works.

It is worth noting that the deduction in respect of grant-aided work is not taken into consideration for the purposes of reaching the minimum spend threshold of €5,000 (including VAT).

The Better Energy Homes scheme is administered by the SEAI and, as such, any queries about the future of the scheme should be directed to the Minister for Communications, Energy and Natural Resources.

Equality Proofing of Budgets

Ceisteanna (23)

Pádraig Mac Lochlainn

Ceist:

23. Deputy Pádraig Mac Lochlainn asked the Minister for Finance following the the recent analysis by Social Justice Ireland which stated that Ireland’s poorest 10% lost 18.4% of their disposable income since the start of the crash in 2008 and, by contrast, the richest 10% lost 11.4% of their disposable income, if he will support the introduction of equality budgeting or the equality impact assessment of all future budgets. [52791/13]

Freagraí scríofa

Minister for Finance

The Social Justice Ireland (SJI) report to which the Deputy refers, makes reference to the percentage change in average real incomes by decile of disposable income per adult equivalent between 2008-2011. These figures capture wider effects on incomes over the period which are not as a direct result of budgetary measures taken during the period. A more recent analysis by the ESRI focuses on the impact of budgetary measures and shows that the largest reduction in income on this basis over the period was experienced by those in the top decile. The lowest reduction in income was experienced in the third decile from the bottom. This is consistent with previous analysis by the ESRI, the European Commission and the IMF which showed that the richest bore the highest burden. Whilst it is regrettable that the first decile may have experienced losses of close to 12%, this is far below the SJI estimate of 18.4% and also below the ESRI estimate of the losses experienced by the highest decile of close to 16%. I also note that the ESRI estimate of losses for the top decile is higher than the SJI estimate for that decile.

Maintaining fairness in the budgets while ensuring the public finances return to a sustainable level is of upmost importance and my department has a number of procedures in place to assess the distributional impact of budgets. These procedures include a distributional analysis of taxation measures, published in the budget book and performed on various income levels for the different categories of income earners. These categories include single individuals, married one-earner couples with no children and married one-earner couples with children. Where possible a separate distributional analysis estimating the impacts on disposable income by income decile using SWITCH, the ESRI Tax-Benefit model, is also undertaken in evaluating various taxation options. Illustrative examples are included in the budgetary documentation.

In addition to these measures I would advise the Deputy that my Department received over 700 pre-budget submissions this year from a variety of sources, both from individuals and organisations. It is a standard part of the budgetary process that each submission is examined and taken into account during the formulation of budget measures. This allows for the opinions of a cross section of society to be considered in the preparation of the overall budgetary package.

While achieving a fair and balanced budget is an important guiding principle in preparing budgetary options, the surest way of making a positive impact on disadvantaged people is through jobs and growth. The budgetary measures over the period concerned have been formulated with a view to promoting economic growth and this is reflected in the most recent employment data showing strong jobs growth in the economy and reductions in unemployment.

In addition, beyond the evaluation of budgetary measures; the Cabinet handbook requires a statement on the likely effects of the decision sought on gender equality, persons experiencing or at risk of poverty or social exclusion and persons with disabilities to be included in Memoranda to Government. Furthermore, I would like to reiterate that the State and its bodies take the provisions of equality legislation into account in the development and delivery of policies and services. These procedures ensure fairness and balance in Government decision-making beyond the budgetary process.

Credit Unions Regulation

Ceisteanna (24)

Michael McGrath

Ceist:

24. Deputy Michael McGrath asked the Minister for Finance the steps being taken by the regulatory authorities to ensure the health of the credit union sector and that any weak credit unions are supported; and if he will make a statement on the matter. [1630/14]

Freagraí scríofa

Minister for Finance

Under section 84 of the Credit Union Act 1997, the functions of the Registrar of Credit Unions at the Central Bank are to regulate credit unions with a view to the protection by each credit union of the funds of its members and the maintenance of the financial stability and wellbeing of credit unions generally.

The Registry of Credit Union applies a risk based approach to the supervision of credit unions which supports early identification of problems and mitigation by credit unions of risks identified. The Probability Risk and Impact System - PRISM, is the Central Bank’s risk-based framework which allows for the identification of risks by their impact on financial stability and the consumer and by the probability of the risk occurring.

The Government established the Commission on Credit Unions in May 2011 to make recommendations in relation to the most effective regulatory structure for credit unions, taking into account their not-for-profit mandate, their volunteer ethos and community focus, while paying due regard to the need to fully protect members’ savings and financial stability. The Commission published its final Report in March 2012 and over sixty of its recommendations have been implemented in the Credit Union and Co-operation with Overseas Regulators Act 2012. The Government has accepted fully the Commission on Credit Union’s Report and the recommendations are currently being rolled-out under the Credit Union and Co-operation with Overseas Regulators Act 2012.

The Credit Union and Co-operation with Overseas Regulators Act 2012 helps underpin the stability of credit unions. The Act contains measures to reform and strengthen credit unions and deals with four broad areas namely:

- Prudential regulation: including reserves, liquidity, lending and risk management

- Governance: dealing with the roles and responsibilities of the Chair, Board, Manager and Board Oversight Committee

- Restructuring, including the establishment of the Credit Union Restructuring Board – ReBo: restructuring via transfers, mergers and amalgamations on a voluntary, incentivised and time-bound basis

- Stabilisation: provision of support to credit unions that are viable but undercapitalised

The Act is being commenced in accordance with the published Implementation Plan, which will allow credit unions sufficient time to prepare for these changes.

The Government has made available €500 million to support the stability of the credit union sector. This amount is divided between two funds with €250 million in each. The Resolution Fund which provides funding for credit unions requiring resolution and the Credit Union Fund which provides funding for voluntary restructuring under ReBo. A stabilisation levy will be introduced in 2014 to support credit unions that are under capitalised but are otherwise viable.

ReBo is a statutory body set up to facilitate the restructuring of credit unions on a voluntary, incentivised and time-bound basis. The focus of restructuring is to bring stability to the credit union sector without impinging on some credit unions to succeed on a standalone basis. All restructuring proposals require Central Bank approval.

Under the Central Bank and Credit Institutions (Resolution) Act 2011 the Central Bank can take resolution action where necessary via a High Court process. This provision was used to safeguard members’ savings at Newbridge Credit Union.

The Registry of Credit Unions introduced a Fitness and Probity regime on 1 August 2013 for credit unions with total assets of greater than €10m. This was the beginning of a phased approach to the introduction of Fitness and Probity measures for all credit unions, with the second phase due to commence on 1 August 2015 when all remaining credit unions will be brought within the scope of the regime. Currently relevant credit unions require pre-approval by the Central Bank for a Chair and Manager prior to either of these positions been taken up. This will ensure that any individual carrying out these roles is fit and proper to do so.

This Government has introduced a number of measures in relation an effective regulatory structure for the sector and I am satisfied that these measures will underpin a stable credit union sector into the future.

Fuel Laundering

Ceisteanna (25)

Denis Naughten

Ceist:

25. Deputy Denis Naughten asked the Minister for Finance the estimated loss to the Exchequer as a result of fuel laundering; the steps taken to curb this practice; and if he will make a statement on the matter. [1606/14]

Freagraí scríofa

Minister for Finance

I am advised by the Revenue Commissioners, who have responsibility for the collection of mineral oil tax and for tackling illicit trade in mineral oil products, that estimating the extent of any illegal activity and the associated cost to the exchequer is inherently problematic.

The most serious risk in relation to illicit trade in mineral oil products is from the laundering of markers from diesel that is subject to a reduced rate of mineral oil tax on condition that it is not used for road vehicles. Revenue collects some €1.1 billion annually in excise duty from road diesel and, while there is no reliable estimate of the scale of the problem, they recognise that the potential for loss of tax revenue from fuel laundering represents a significant threat to the Exchequer and to the legitimate trade.

Fuel laundering, to remove the marker added to lower-taxed mineral oil for off-road use, has been a problem for many years. However, it remained a marginal activity because the sulphur content of marked fuel was higher than that for road fuel and therefore the sulphur content continued to distinguish laundered fuel from genuine road fuel. Environmental requirements in relation to the sulphur content of fuel changed from the beginning of 2011, which resulted in marked fuel with the same sulphur content as road fuel coming onto the market. With the change, fuel laundering became more viable and criminal gangs intensified their laundering and distribution activities dramatically from the first half of 2011.

In response to the intensification of fraud in this area, Revenue has made action against fuel laundering one of its priorities and is implementing a comprehensive strategy to tackle the problem through enhanced supply chain controls, the acquisition of a more effective fuel marker and continued robust enforcement action.

Revenue’s strategy included strengthening the licensing conditions for auto-fuel traders in 2011 and the introduction of a new licensing system for marked fuel traders in October 2012. In addition, since January 2013, all licensed fuel traders are required to make electronic returns to Revenue of their monthly fuel transactions. These supply chain control measures are designed to make it difficult for fuel criminals to source marked fuel for laundering and to get laundered product onto the market. Analysis of the monthly returns enables Revenue to identify suspicious or anomalous fuel transactions and patterns of distribution. Traders found to be involved in suspicious activity are investigated and if they are unable to account properly for the source or disposal of product face revocation of their licence, tax assessment and prosecution, where appropriate.

In addition, Revenue and HM Revenue & Customs in the UK are collaborating on identifying a more effective marker for use in both jurisdictions and signed a Memorandum of Understanding in May 2012. A number of proposals for a new marker were received in response to an Invitation to Make Submissions and were evaluated by a joint evaluation group. The evaluation group has completed the final evaluation and presented its recommendations to the joint project board. The final decision on the implementation of any new marker rests with the Economic Secretary to the Treasury in the UK and the Board of the Revenue Commissioners in Ireland; the Revenue Authorities expect to make an announcement shortly.

Revenue, in co-operation with other law enforcement agencies on both sides of the border, continues to intensify enforcement action against fuel fraud and this work has yielded significant results to date. In the period from 2011 to end December 2013 119 filling stations throughout the State were closed for breaches of licensing conditions. Since the beginning of 2011, over 2.7 million litres of fuel have been seized and 29 oil laundries detected and closed down, including 9 oil laundries in 2013.

Revenue regularly reminds motorists and the public generally that, in addition to its impact on the exchequer and legitimate trade, they should be aware of the risks that the use of laundered fuel poses to their vehicles and that sourcing fuel in this way is funding criminal activity.

The legitimate trade can also contribute to closing down this illicit trade by providing information on the outlets that are selling laundered diesel. Revenue chairs the Hidden Economy Monitoring Group (HEMG) and has established regional sub-groups of the HEMG to facilitate the reporting of information by traders through their representative associations. Retailers who suspect or have evidence that laundered diesel is being sold in their area should report this through their representative associations to Revenue. Any such reports are treated as confidential and are fully investigated by Revenue.

Real Estate Investment Trusts

Ceisteanna (26)

Mick Wallace

Ceist:

26. Deputy Mick Wallace asked the Minister for Finance the reason real estate investment trusts were introduced in Ireland, despite the fact that, according to budget 2013, they entailed a loss to the Exchequer of €14 million; and if he will make a statement on the matter. [1511/14]

Freagraí scríofa

Minister for Finance

The introduction of tax framework for Real Estate Investment Trust companies was announced in Budget 2013, and enacted in Finance Act 2013 in March of last year, and the Deputy may recall that detailed discussion of the proposal took place at that time. I would like to highlight again that the REIT regime is not a tax relief. It can better be understood as a structural reform of property investment vehicles, allowing for lower-risk, sustainable long-term investment.

The overarching objective of the REIT regime is to remove a tax bias - caused by a double layer of taxation – which has typically discouraged collective investment in property through a company.

The 2013 Budget Book estimated cost of introducing REITs was €2 million in 2013, rising to a potential €14 million per year in a mature REIT market. The cost estimate relates to a potential fall in tax revenue related to foreign investors in Irish REITs, to the extent that REITs displace direct ownership of investment property. Direct owners of investment property are taxable under Irish income or corporate tax rules. In contrast foreign REIT shareholders will be liable to a flat Dividend Withholding Tax of 20%, with potential to reduce this to a lower rate if they qualify for relief under a tax treaty.

Where an Irish-resident investor invests in property through a REIT rather than directly, the rate of taxation is the same, so no cost is associated with Irish investors.

This potential cost to the Exchequer was felt to be outweighed by the benefits which REITs could bring to the market, including the following:

1. Attraction of new investment capital to the Irish property market.

2. Freeing up bank finance from the property market, allowing it to be re-directed to other businesses in need of bank financing.

3. A new, lower-risk, property investment option for small and large investors alike.

4. Professional property management and improvement of standards for tenants.

NAMA Operations

Ceisteanna (27)

Pearse Doherty

Ceist:

27. Deputy Pearse Doherty asked the Minister for Finance if he shares the view expressed by the National Asset Management Agency that there is an organised campaign of misinformation whose objective is to undermine the effectiveness of NAMA; and if he will make a statement on the matter. [1650/14]

Freagraí scríofa

Minister for Finance

It is not clear to me what the motivation behind these allegations is or how they found their way into the media or to the Oireachtas member who made a statement in the Seanad in December. It is unfortunate that the press coverage and speculation appears to call into question the integrity and professionalism of NAMA and its staff. The progress the Agency is making in hitting its targets is a testament to the focus and hard work of the staff, management and board of NAMA.

I was encouraged by NAMA’s request to appear before the Public Accounts Committee and felt this gave both NAMA and the Oireachtas an opportunity to air their respective concerns and clarify any confusion or misunderstanding.

I would like to reiterate, in relation to the recent reports, if any party has evidence of any impropriety, they are legally obliged, under Section 19 of the Criminal Justice Act 2011, to bring it to the immediate attention of the Garda Siochana. Needless to say if any matter is brought to the Garda or NAMA’s attention, it will be fully investigated.

Central Bank of Ireland Investigations

Ceisteanna (28)

Michael McGrath

Ceist:

28. Deputy Michael McGrath asked the Minister for Finance if he is satisfied with the progress being made by the Central Bank of Ireland in its investigation into the misselling of payment protection insurance policies; when the investigation will be completed; the expected number of customers who will be entitled to some remediation; and if he will make a statement on the matter. [1631/14]

Freagraí scríofa

Minister for Finance

On 3 October 2013 the Central Bank issued an update on its on-going investigation into the sales of Payment Protection Insurance (PPI). Eleven firms are reviewing their sales and, where appropriate, offering a refund to their customers where the PPI sale is found to be in breach of the Consumer Protection Code since July 2007.

I have been informed by the Central Bank that the review of the eleven firms is drawing to a close and that all customers covered by this review have been contacted, with the majority of those eligible for a refund, having already received their refunds.

I am satisfied that the investigation is progressing. Pending completion of the investigation, I will not comment on the expected number of customers to receive remediation.

When the investigation has been completed to its satisfaction, the Central Bank will issue a statement.

Economic Policy

Ceisteanna (29)

Richard Boyd Barrett

Ceist:

29. Deputy Richard Boyd Barrett asked the Minister for Finance in view of the recent acknowledgement to the EU Parliament in responses to its questionnaire on the troika programme that the lowest income bracket had been disproportionately affected by austerity measures under the programme, the policy measures he proposes to address this unfairness; and if he will make a statement on the matter. [1655/14]

Freagraí scríofa

Minister for Finance

As the Deputy will be aware, the response given to the questionnaire was referring to an assessment, recently published by the Economic and Social Research Institute (ESRI), of the distributional impact of the budgetary adjustments undertaken since the onset of the financial crises in 2008.

Over the full period from 2009 to 2014, the study found that all income groups experienced losses, but it continues to show that the highest losses have been borne by those in the highest 10 per cent of the income distribution.

While the ESRI’s assessment does suggest that the next highest losses have occurred in the lowest decile, the estimate of the effect on the lowest decile is strongly influenced by the changes to indirect taxes. As the best way to tackle poverty and inequality is to create jobs and reduce unemployment through economic growth, and evidence from the OECD shows that indirect taxes are less harmful than income taxes. Indeed, implementing this policy is bearing fruit with employment increasing by some 60,000 in 2013 to the third quarter and unemployment down to 12.4% from a peak of 15.1%.

Finally, the ERSI assessment indicates that the overall consolidation process from 2009 to 2014 has not been regressive and it is worth re-iterating that the OECD and the European Commission have shown that Ireland still retains one of the most progressive income tax systems in the developed world.

Looking to the future, the research of the ESRI will inform deliberations in advance of Budget 2015.

Banks Recapitalisation

Ceisteanna (30)

Pearse Doherty

Ceist:

30. Deputy Pearse Doherty asked the Minister for Finance if he proposes to apply for a retroactive recapitalisation of Ireland’s banking debt in 2014 through the ESM; and if he will make a statement on the matter. [1651/14]

Freagraí scríofa

Minister for Finance

The Euro Area Heads of State or Government (EU HoSG) agreed in June 2012 to break the vicious circle between banks and sovereigns, and that when a Single Supervisory Mechanism, involving the ECB, is in place and operational, the European Stability Mechanism could, following a regular decision, have the capacity to recapitalize banks directly.

The Eurogroup meeting of 20th June 2013 agreed on the main features of the ESM’s Direct Bank Recapitalisation instrument (DBR). The DBR instrument will come into effect when the SSM is operational. There is a specific provision included in those main features that provides for retroactive recapitalisation. This provision states that: “The potential retroactive application of the instrument should be decided on a case-by-case basis and by mutual agreement.” Therefore, the agreement that we were active in negotiating keeps open the possibility to apply to the ESM for a retrospective direct recapitalisation of the Irish banks should we wish to avail of it. The SSM is expected to be place and operational towards the end of 2014.

The Eurogroup has agreed that there will be strict eligibility criteria as well as a clear pecking order for the ESM DBR instrument, so any possible application for DBR will be determined on its own merits within the rules laid down by the ESM’s DBR instrument.

The overall framework agreed in Summer 2013 builds upon the earlier Euro Area Heads of State or Government agreement secured on the 29th of June 2012, and is an important step in the Eurozone’s efforts in this regard.

I remain confident that the commitment made by the EU HoSG in June 2012 to break the vicious circle between banks and sovereigns will be respected.

The question of whether Ireland may apply for retroactive recapitalisation of our banks has yet to be decided upon and will, in due course, be a matter for Government, with any recommendation based on what is in Ireland’s best interest.

Road Safety

Ceisteanna (31)

Seán Kyne

Ceist:

31. Deputy Seán Kyne asked the Minister for Finance if he will give consideration, in the context of the recent road safety statistics, to exempting safety equipment such a helmets, visibility clothing and so forth from VAT; and if he will make a statement on the matter. [1552/14]

Freagraí scríofa

Minister for Finance

The VAT rating of goods and services is subject to the requirements of EU VAT law with which Irish VAT law must comply. The VAT Directive does not make specific provision for a reduced or zero rate, or an exemption from VAT, to apply to safety equipment, including helmets and visibility clothing. As such, they are subject to the standard VAT rate, which is currently 23%.

However, for historic reasons the zero rate of VAT applies to safety clothing, helmets and visibility clothing, for children up to 10 years of age, while the supply of such clothing for adults and children older than 10 years is liable to VAT at the 23% rate. As Ireland applied the zero rate to clothing and protective clothing for children up to 10 years of age on 1 January 1991, we are entitled to retain that zero rated application. However, as the standard VAT rate applied to safety equipment and safety clothing for adults and older children on 1 January 1991, it is not possible to apply a reduced or zero rate to them, nor to exempt them from VAT.

Tax Code

Ceisteanna (32)

Clare Daly

Ceist:

32. Deputy Clare Daly asked the Minister for Finance the reason he has not introduced a third band of taxation for high earners. [1507/14]

Freagraí scríofa

Minister for Finance

As the Deputy is aware, a progressive taxation system ensures that the burden of taxation falls most heavily on those with a higher ability to pay. The latest OECD data indicates that Ireland already has the most progressive tax system of the 21 EU countries which are members of that organisation. It is in this context that the Government has committed in the Programme for Government not to increase the marginal rate of income tax.

The Revenue Commissioners estimate that in 2014 the top 5 per cent of income earners will pay 44 per cent of the total income tax collected and those earning €50,000 or less, which represents 77 per cent of income earners, will only pay 19 per cent of the total income tax collected. In addition, 856,000 individuals, representing approximately 39 per cent of the income tax base, will be exempt from income tax altogether.

Since 2008 marginal rates of taxation on income have increased from 43.5% for PAYE workers and 46.5% for the self-employed, to 52 per cent and 55 per cent, respectively. Moreover, single employees incur this relatively high marginal rate where their income exceeds €32,800 per year. From an international perspective, Ireland is already considered to have a high marginal rate of tax on income. According to the latest data, Ireland has the 9th highest marginal tax rate out of the 34 members of the OECD.

Marginal tax rates are important because they influence individual decisions to work, or indeed to work more. A further increase in the marginal rate would reduce the incentive for income earners to work extra hours or for the self-employed to expand their business and take on more employees. Higher marginal rates of taxation undermine the competitiveness of businesses operating in Ireland, and act as a disincentive to future foreign direct investment. The OECD in its working paper ‘Tax and Economic Growth’ points to the “possibility that high top marginal rates will increase the average tax rates paid by high-skilled and high-income earners so much that they will migrate to countries with lower rates resulting in a brain drain which may lower innovative activity and productivity” .

For all of the above reasons, I have decided not to introduce a third band of taxation for high earners.

Corporation Tax Regime

Ceisteanna (33)

Clare Daly

Ceist:

33. Deputy Clare Daly asked the Minister for Finance if he has undertaken a cost benefit analysis of the effect of increasing Ireland's corporation tax rate; and if not, the reason this sector has been excluded from tax increases. [1508/14]

Freagraí scríofa

Minister for Finance

It is possible to estimate the full year yield to the Exchequer of increasing the standard rate of corporation tax. I am informed by the Revenue Commissioners that the full year yield to the Exchequer, estimated in terms of expected 2014 profits, of increasing the standard rate of corporation tax from 12.5% to 13.5% is tentatively estimated on a straight line arithmetic basis to be about €326 million.

However, while such an estimate would be technically correct it does not take into account any possible behavioural change on the part of taxpayers as a consequence. In terms of an increase in the 12.5% rate, estimating the size of the behavioural effects is difficult but they are likely to be relatively significant.

To give the Deputy an idea of what the effects of such a change would likely be, an OECD multi-country study found that a 1% increase in the corporate tax rate reduces inward investment by 3.7% on average. On this basis, it would take only a 2.5% increase in the rate (to 15%) to decrease Ireland’s inward investment by nearly 10%. This OECD study assumes the average applies across the board but in fact the effect is likely to be more extreme for Ireland, given the economic challenges faced by a small island such as ourselves.

The very major importance of maintaining the standard 12.5% rate of corporation tax to Ireland’s international competitive position in the current climate must also be borne in mind. Ireland, like other smaller member states, is geographically and historically a peripheral country in Europe. A low corporate tax rate is a tool to address the economic limitations that come with being a peripheral country, as compared to larger core countries. Ireland’s low corporation tax rate plays an important role in attracting foreign direct investment to Ireland and thereby increasing employment here. Recent research by the OECD also points to the importance of low corporate tax rates to encourage growth.

Cost benefit analyses aside, it also would be difficult to justify such a move in the context of Ireland’s stated position that we will not change our corporation tax strategy. Even a marginal change would undermine both our long held stance on this issue and the certainty of business, domestic and international, in our resolve to maintain that position.

Illicit Trade in Tobacco

Ceisteanna (34)

Charlie McConalogue

Ceist:

34. Deputy Charlie McConalogue asked the Minister for Finance the cost to the State in 2011, 2012 and 2013 of the illegal cigarette trade; the procedures and plans his Department has in place to tackle this growing problem, especially in Border counties, in view of the fact that a nationwide survey found that 24.5% of cigarettes sold in Letterkenny are illegal compared to a national average of 13%; and if he will make a statement on the matter. [1636/14]

Freagraí scríofa

Minister for Finance

I am advised by the Revenue Commissioners that the extent of the illicit cigarettes market in Ireland is estimated through annual surveys of smokers. These surveys are undertaken for Revenue and the National Tobacco Control Office of the Health Services Executive by IPSOS MRBI. The survey for 2012 found that 13% of cigarettes consumed in Ireland are illicit. The comparable figure for 2011 was 14%. This would suggest that the extent of the problem is being contained, as a result of the extensive action being taken against the smuggling and sale of illicit product. A further survey was carried out at the end of 2013 and that the results of this will be available in the coming months.

The Deputy will of course appreciate that estimating the scale of any illegal activity and the resultant tax loss is difficult. I am however satisfied that the IPSOS MRBI survey is the best indicator of the extent of the market in illicit cigarettes. This is because of the methodologies used and the consistent manner in which the survey has been undertaken over a number of years. In addition, the survey methodology is, unlike other methodologies such as empty pack surveys, capable of distinguishing between legal personal imports and illicit cigarettes. The survey is also geographically representative and takes social class, age, gender and nationality into account. Data from the IPSOS MRBI surveys would indicate a nominal annual loss in the order of €240 million in excise duty and VAT.

I am assured by the Revenue Commissioners that combating the illegal tobacco trade is, and will continue to be, a high priority for them. Their work against this illegal activity includes a range of measures designed to identify and target those who are engaged in the supply or sale of illicit products, with a view to seizing the illicit products and prosecuting those responsible. This multi-faceted strategy includes ongoing analysis of the nature and extent of the problem, developing and sharing intelligence on a national, EU and international basis, the use of analytics and detection technologies and ensuring the optimum deployment of resources at points of importation and within the country.

Interception of illicit tobacco products is achieved through a combination of risk analysis, profiling, intelligence and the screening of cargo, vehicles, baggage and postal packages. Revenue officers also target the illicit trade at the post-importation level by carrying out intelligence-based operations and random checks at retail outlets, markets and private and commercial premises.

There is extensive cooperation with An Garda Síochána in combating the illicit trade, and the relevant agencies in the state also work closely with their counterparts in Northern Ireland, through a cross-border group on tobacco enforcement, to target the organised crime groups that are responsible for a large proportion of the illegal tobacco market. In addition, cooperation takes place with other Revenue administrations and with the European Anti-Fraud Office, OLAF, in the ongoing programmes to tackle the illicit trade at international level.

In relation to tackling this problem in border counties in particular, Revenue advise me that they have an enforcement presence at key strategic locations in the border counties, and enforcement strength is regularly augmented with additional personnel on a risk-assessment basis, or when particular operations against illegal activity are taking place. 10.66 million illicit cigarettes were seized in Revenue’s Border Midlands West Region in 2013, and there were 15 convictions during 2013 arising from detections in the Region of the selling or smuggling of illicit tobacco products

The Revenue Commissioners will remain committed to acting against all stages of the supply chain for illicit tobacco products and will continue to make very effort to ensure that those involved in the illicit trade are brought to account before the Courts for their criminal activities.

Departmental Reports

Ceisteanna (35)

Thomas Pringle

Ceist:

35. Deputy Thomas Pringle asked the Minister for Finance the date on which the report on the standard bank account pilot project is due to be published; and if he will make a statement on the matter. [1644/14]

Freagraí scríofa

Minister for Finance

The Report on the Standard Bank Account pilot project was published on my Department’s website on 10 January 2014.

The Financial Inclusion Working Group (FIWG), chaired by my Department, and including stakeholders from other Government Departments, the Central Bank of Ireland, retail banks, An Post, the National Consumer Agency and voluntary sector organisations will work closely together on the finalisation and roll out of the Standard Bank Account. It is expected that the rollout of the Standard Bank Account will be achieved during 2014.