Other Questions
6. Deputy Billy Kelleher asked the Minister for Finance the consultations he and his Department have undertaken with the Department of Health with regard to the cap for tax relief on private health insurance introduced in the last budget; and if he will make a statement on the matter. [22577/14]
Amharc ar fhreagraLast year in his Budget Statement the Minister announced a cap on the tax relief for private health insurance. At that time he said that only gold-plated private health insurance policyholders would suffer as a result of the €1,000 tax relief cap. Of course, that has not transpired. The vast majority of families who are struggling to pay for private health insurance find themselves facing a huge increase in the cost of that insurance. What consultation did the Minister's Department have with the Department of Health in view of the fact that this policy flies in the face of the Government's intention to move to universal health insurance, whereby everybody will be compelled to have private health insurance?
Decisions regarding tax matters are primarily a matter for my Department and the Office of the Revenue Commissioners. However, the budget was agreed by the Government before being announcement on budget day. From 16 October 2013, tax relief for medical insurance premiums has been restricted to the first €1,000 per adult and the first €500 per child insured. Any portion of premium paid in excess of these ceilings no longer qualifies for tax relief. Previously, income tax relief for medical insurance premiums was provided at source on the entire premium amount at the standard rate of income tax, regardless of cost. This meant the State was paying 20% of the cost of all private medical insurance premiums. The cost of income tax relief in respect of medical insurance, which has increased significantly in recent years, was estimated at €404 million in 2011, €448 million in 2012 and €500 million in 2013. Despite the increasing cost of the relief, the number of those insured is estimated to have decreased by approximately 170,000 over the same period. At the same time, the level of medical cover has decreased on some policies. Against this background, the increase in costs was unsustainable. If the relief had remained unchanged while the trends continued, the cost would have increased to approximately €1 billion per annum by 2020.
Notwithstanding the recent reform, the tax system is still supporting those who can afford private medical insurance to the tune of approximately €400 million per annum. In effect, some taxpayers who could never afford private health insurance or who have had to give up their policies due to personal circumstances are continuing to provide financial support via the tax system to those individuals who can afford such insurance. In its 2009 report, the Commission on Taxation recommended the retention of medical insurance relief but suggested it should be limited. The introduction of an upper ceiling on the amount of medical insurance premiums that will qualify for tax relief achieves this recommendation. The new ceilings ensure continuing support via the tax system for those who purchase medical insurance policies, while reducing Exchequer exposure to more expensive policies.
The difficulty we have is that the Minister got it spectacularly wrong when he announced that his intention was to introduce a cap on private health insurance that would only affect gold-plated policies. With all due respect to the Departments of Health and Finance, the definition of "gold-plated" leaves a great deal to be desired. The vast majority of ordinary families who struggle daily to purchase private health insurance are finding that the cap on the tax relief is affecting their ability to continue to fund their premiums.
I want to know what discussions the Departments had. Was there an examination of the broader health policy in view of the fact that families will be forced from 2019 onwards to take out compulsory health insurance? The idea should have been to attract more people in to sustain the private health insurance market during the move to universal health insurance. The opposite has been the case with the decision to cap tax relief on ordinary families.
The Deputy should look at the text of my budget speech in which I used the phrase "gold-plated". It was not as the Deputy is describing it. The tax relief that was provided was a relief at the standard rate of tax of 20%. The cap is at €1,000 per adult. Somebody who pays up to €1,000 per adult continues to get the 20% relief. If it goes over €1,000, the tax break is lost on the balance above that. They will still get the relief on the €1,000. Where somebody has an adult policy of €1,200, 20% of €200, would be €40. The big tax take is from those who have very expensive schemes. That is what I am talking about.
I am acting in line with the report of the Commission on Taxation. Given that 44% of the community has private health insurance, the Deputy's proposition is to the effect that they should be subsidised without any limit by the other 56%.
That is what the relief scheme is about. From where does the Deputy thinks the money comes? It comes from other taxpayers. If he is talking about equity, he must look at this aspect. It was unaffordable and will not continue. I will not continue with having 56% of the people who cannot afford private health insurance subsidising those who can. As that is what it is about, we limited the figure, which was reasonable and fair.
The Minister has forgotten that the people who pay private health insurance are subsidising the public health system. It is very much a merry-go-round because many families are making extraordinary efforts to maintain private health insurance and removing the responsibility from the State to provide health care for them. In effect, they are subsidising the public health system by taking out private health insurance. Coupled with this, the Government has decided to charge full cost for private patients in public beds. There is cross-subsidisation. We do not want the State to subsidise gold-plated health insurance policies, but the definition of gold-plated means that ordinary health policies without bells and whistles are being directly affected. The cost increases are exerting major pressure on families, more of whom are dropping out of the private health insurance market. This is undermining the market. I am referring not to the policies with bells and whistles but to ordinary health insurance policies.
There is no impact on adults with health insurance policies costing under €1,000 gross. There is an impact above that figure. It does not have much of an impact on people with modest health insurance policies but impacts a little on people at the top. I do not disagree with the Deputy that people with health insurance and those on middle incomes are finding it hard to live. He should direct his attention towards the massive increases in costs by the health insurance companies. The cost has increased by 86% in four years. If the Deputy thinks I will automatically link with them and automatically subsidise them as they increase the cost further, that is not the case. We are capping the figure and it has been capped. We will not start to cap it at a lower rate in the next budget. I defend the policy decision taken. It was a very good one because we could not continue to ask the 56% of people who did not have private health insurance to subsidise through their taxes those who did.
Deputy Denis Naughten is not present for Question No. 7.
8. Deputy Mick Wallace asked the Minister for Finance his plans for a mortgage insurance scheme for first-time buyers; and if he will make a statement on the matter. [23047/14]
Amharc ar fhreagraThe Government's document, Construction 2020: A strategy for a renewed construction sector, states consideration will be given to the concept of a mortgage insurance scheme. Specific reference is made to the Help to Buy scheme in the United Kingdom. Will the Minister elaborate on plans in this regard?
The Government recently launched Construction 2020: A strategy for a renewed construction sector. The purpose of the strategy is to underpin the future competitiveness of the country, ensuring we will continue to be well positioned to attract the inward investment that has been so important to our economic development. The strategy includes the Government's desire for a return to sustainable levels of mortgage lending as part of a healthy market. This involves the consideration of measures to stimulate the development of housing. In order for developers to be supported, they need confidence that customers will be capable of accessing finance to purchase new builds. This means mortgage products being available to potential purchasers with an ability to support repayments.
In Ireland's recent abnormal housing market we have seen lending volumes decline dramatically. The banks are highlighting the lack of supply of houses in particular urban areas as a contributing factor in the lack of drawdown of approved mortgage facilities. I look on the development of this initiative as being an aid to encouraging and facilitating the supply of new homes, particularly for young families. In other jurisdictions such as the United Kngdom and Canada mortgage insurance markets have been developed to support bank mortgage lending, particularly to first-time buyers. Mortgage insurance allows banks to share the risk of mortgage lending, either with the public sector or private sector insurance companies, with the aim of increasing bank lending in general or to target groups.
My Department is committed under this strategy to examining the concept of a mortgage insurance scheme and how it might benefit new housing completions in the Irish market. The objective of any scheme would be to ensure adequate availability of mortgage finance on affordable terms for new completions, particularly for first-time buyers, as the economy recovers. In doing so we would aim to provide the certainty needed to support greater levels of investment in new housing, with the associated benefits for the construction sector and ultimately for the consumer.
As the construction strategy mentions, my Department is undertaking an economic impact analysis which will assess the impact such a scheme would have on the Irish housing market, taking into consideration time limits, targeting first-time buyers or owner-occupiers and focusing on new housing. The analysis will draw lessons from mortgage insurance initiatives undertaken in other countries and will include questions as to the appropriateness of a price cap as well as regional or geographical restrictions. Once this analysis has been completed and presented to me, I will consider the next steps.
The Minister would surely agree with me that supply is a bigger problem than demand. He might argue that the sort of incentive he mentioned might indirectly increase supply. However, there is a fear now that any Government moneys spent on increasing demand will only facilitate another property boom and the banks. This is difficult to understand, given that the banks would be out of business but for the help they got from the Government and taxpayers. It beggars belief that we cannot tell the banks what to do at any level. We do not seem to be able to encourage them to lend as much as they should without the provision of some sort of subsidy by the Government. The elephant in the room, and the reason supply is so poor, is that the Government no longer builds social housing. Would the Minister agree that the most positive move the Government could make now would be to start a huge social housing programme?
There are more than 70 recommendations in the construction initiative published by the Government, and through the Cabinet sub-committee the Taoiseach will, on a month-by-month basis, ensure these initiatives are introduced and developed. The Deputy is aware that the housing market and the building industry have been in crisis for many years and that they constitute an impaired sector of the economy. Many good builders have had to go out of business. Deputy Wallace understands that there are fundamental rules but, based on comments they have made, many other Deputies do not understand these rules. First, no builder builds a house unless he knows he can sell it for more than it cost to construct it. We have only barely passed that point in some areas in the past 12 months, but have not reached it yet in some parts of the country. Second, a builder must finance the build.
This initiative is not a demand-side initiative, because we are not applying it to second-hand houses. If we introduce this, it will be for new houses only. The initiative in the United Kingdom has increased the supply of new houses outside London by one-third in the two-year period since it was introduced. It is a supply-side initiative, not a demand-side one.
George Osborne's Help to Buy scheme has cost the British taxpayer £12 billion and has led to a serious increase in the price of housing. The Minister is right that a builder cannot build unless he can make ends meet and the project makes a profit. Does the Minister not agree that the biggest problem in Ireland is the land bank accumulation that goes on? It is not the builders that are accumulating land, but a different type of individual. A very small group of people here control most of the development land. Surely the time has come for the State to take an active part in controlling the price of development land.
In his response to Deputy McGrath's question on NAMA and bank sell-offs, the Minister said there was good money coming into the country. I suggest to him that the selling off of big blocks at a price of €100,000 or less per unit will prove problematic.
There are units for which the ordinary individual would have to pay in the region of €230,000 or €240,000. Large investors buying huge numbers of them at a time are getting them for €100,000 or less each. Not only are we selling off valuable assets at a knockdown price, but these people are gaining serious control over the rental market. Never in the history of the State have so few people controlled such a number of units that are available for rent, which is adding to the problem of housing availability and homelessness.
The Deputy is on a different question.
These are considerations that the Government always takes into account. However, we are dealing with a situation in which the whole building industry collapsed for reasons we are aware of. Many good builders can no longer build. We are trying to take initiatives to get it going again. We have succeeded to a great extent by removing the overhang in Dublin through sales of property by NAMA and IBRC, and there are cranes on the skyline again. We are so far away from one of these unsustainable building booms that I do not know why people talk about it. People can only analyse things through the lens of the past. They would want to start looking at the future and ask what we can do to put 25,000 houses a year into this country again when last year we built 8,000. Much of that needs to be done through supply-side measures. I will do an economic analysis on the subject matter of the question, and if I think it can improve supply, I will take action in the Finance Bill; if I think it will not, I will not.
9. Deputy Thomas P. Broughan asked the Minister for Finance if savings can be made on servicing the national debt next year; the expected interest payments required for the national debt for 2015; his views on the growing burden of interest payments on the national Exchequer; and the measures he will take at a European Union level to have these payments greatly reduced. [22321/14]
Amharc ar fhreagraMy question is premised on concerns held by people in my constituency and elsewhere, which we heard so vociferously in the past six or eight weeks, regarding the desperate impact that the national debt and interest repayments are having on the national budget and how that will constrict whatever efforts the Minister might try to make in October to have a more expansionary budget.
The stability programme update, SPU, published last month, provided an estimate for general Government interest expenditure of €8.45 billion in 2015. This is a reduction of €300 million on the corresponding budget 2014 estimate, primarily reflecting an improvement in the interest rate environment generally.
The interest expenditure projection for 2015 will be further reviewed in the context of budget 2015 in the autumn and will reflect developments in the interim as well as the outlook at that time, including for interest rates and funding requirements.
As regards 2016 onwards, the SPU shows that interest expenditure is projected to increase in nominal terms over the forecast horizon. This is primarily a reflection of further, albeit decreasing, deficits in the public finances in the coming years, which are driving an increase in general Government debt in nominal terms over the forecast horizon. When measured as a percentage of GDP, however, general Government debt is projected to trend downwards from this year onwards. These reducing deficits are part of the phased correction of the public finances. This policy of phased correction, implemented in as fair and equitable a manner as possible, has allowed growth in the economy to return.
While the continuing Exchequer deficits add to the national debt and the associated interest costs, the size of the deficit is continually decreasing each year. My Department's most recent forecasts show a primary surplus is projected next year, both in Exchequer and general Government terms. This means that, excluding interest costs, revenue will be more than sufficient to meet expenditure commitments. Furthermore, the medium-term budgetary objective of a balanced budget in structural terms is set to be achieved in 2018. This should help to lower interest costs.
Importantly, general Government interest expenditure when expressed as a percentage of total general Government revenue is projected to remain at more or less the same level over the medium term and well below levels seen in the 1980s. It is important to recognise what has already been achieved in reducing the interest burden. In 2011 the interest margins originally charged on the EFSF and EFSM facilities were removed, with significant benefits in terms of reducing interest expenditure. The restructuring of the IBRC promissory notes, delivered last year, also has significant benefits in reducing general Government interest expenditure.
I will deal with the Minister's final point first. The reductions to which he refers to some extent relate to debts that no one ever even attempted to pay down. The reality is that the €8.5 billion in income tax to which he refers equates roughly to the entire education budget. In the past three years the Government of which he is a member has imposed savage cuts in the health budget, which is a little bigger than that for education. The Fianna Fáil-led Administration which preceded the Government also imposed savage cuts in the health sector in the three years prior to 2011. The total figure for the cuts to which I refer is currently running at €32 billion, a phenomenal sum in the context of the national budget. Should the Government not be more robust in its efforts to have some of the overhang relating to the disastrous blanket bank guarantee reduced to a significant degree? The burden with which the people have been saddled is huge. Many economists are of the view that GNP is a better indicator of the level of the burden. When one uses GNP as the method of comparison, it becomes obvious that the country is operating in the shadow of an enormous monolith of debt. I am sure the Minister has read Plan B: How Leaving the Euro Can Save Ireland by Cormac Lucey. I am not suggesting the Government is going to adopt a plan B, but some of the figures put forward by Mr. Lucey and others are truly frightening. There may come a point when the Government - not just individual Ministers within it - is long out of office and the nation, as a result of its incompetency, is still burdened with a savage amount of debt.
Most countries have national debts; I do not know of any country which does not have such a debt. If one is running a national debt, one pays interest on outstanding loans. That is the way countries behave if they wish to remain solvent. Ireland's national debt is just in excess of €200 billion, of which some €64 billion arises from the situation with the banks, while €138 billion relates to the fact that we and our predecessors in government have run deficits. That is why we are obliged to reduce our deficit. On each occasion on which we run a deficit, the national debt increases and the interest burden which the Deputy deplores also rises. If we were to implement what all those who advocate additional expenditure and no cuts in expenditure are seeking, the debt would rise again and we would be obliged to pay more interest on it. It is not possible to have it both ways.
The Deputy has stated the final point I made in my initial reply is not real. Of course it is real. There is no longer a margin on the official debt relating to Europe, which is down to the rate which applies to borrowing. That is of huge advantage to Ireland because it reduces our interest rate.
The Deputy has also referred to the deal on the promissory notes and stated it has had no benefit. Some €30 billion was involved in that regard. The Deputy will recall that up to two years ago a bill of €3 billion in respect of the promissory notes had to be paid each March.
It was not paid.
It was paid in the first year in which we were in government, when the Deputy was still a member of the Labour Party.
It was not paid.
It was not paid after that and we then negotiated our way out of it. The effective rate of interest on all of that money now stands at approximately 1%. The money to which I refer is not of the pretend variety; it is real.
I am not sure the European Central Bank would agree.
The Deputy should not be concerned with that old guff.
At this time last year, other Members and I on the left in this House presented alternative budgets and alternative ways of raising money. However, the Minister informed us that we were crazy. That is the reality. We were prepared to balance budgets and know how to do so. We also indicated that we were prepared to facilitate effective budgets and address the problems relating to the national finances left behind by the disastrous Fianna Fáil-Green Party Government. Unfortunately, for the past three years the Government has implemented remedial policies similar to those put in place by the previous Administration. Earlier today the Minister referred to history judging people. Many future historians will say the Government of which he is a member carried on the policies implemented by the Administration which preceded it and that those in the Labour Party were insane to take power with Fine Gael.
The point is, whatever way we look at it, an education budget and a health budget are being spent on interest repayments, ultimately, to refund gamblers in the Irish banking system. This continues to be an outrage.
More than two thirds of the Irish national debt is due to previous Governments running deficits. That is a fact. Less than one third is due to what Deputy Broughan deplores, that is, bust banks that had to be recapitalised and bailed out.
Deputy Broughan should not pretend that foreign bankers imposed this on us. Much of the burden of the debt was done domestically, over two thirds of it in fact. As we continue to run deficits - we will run one this year and next year - it increases the debt. As we increase the debt, it increases the amount of interest we have to pay. It is simple economics.
Finally, history will be a good deal kinder to the Tánaiste, Deputy Eamon Gilmore, than to Deputy Tommy Broughan when an assessment of this is made in future.
We will see what the historians say.
The next question is in the name of Deputy Lucinda Creighton. Since Deputy Creighton is not here we will call Deputy Seán Kyne, who has tabled Question No. 11.
11. Deputy Seán Kyne asked the Minister for Finance to outline the steps being taken to prepare for e-day in September, after which Departments and public sector agencies will no longer issue or accept cheques; if this includes local authorities; and if measures are being implemented to ensure continued ease of payment, in particular for the public and small local businesses. [16788/14]
Amharc ar fhreagraWhat steps are being taken or have been put in place for e-day in September 2014 in respect of the use or issuing of cheques?
From 19 September 2014, e-day, public sector bodies such as Departments, State agencies and local authorities will no longer issue cheques to or accept cheques from businesses. This is being implemented as part of the national payments plan for Ireland to help reduce cheque usage generally in an effort to tackle late payments, improve cashflow and reduce costs for Irish businesses. E-day only applies to businesses and not to the public at large. For example, it will not impact on social welfare cheques. It applies to all public bodies, including local authorities.
The majority of affected public bodies already offer alternatives to cheques and by e-day they should all be offering some or all of the following payment options: electronic funds transfer, EFT, direct debit, whether single payment or recurring, credit card payments and debit card payments.
On 22 May 2014 my Department issued a reminder to all Departments, Government offices, local authorities and State agencies that e-day comes into effect on 19 September 2014. A press release was issued on 23 May 2014 and related documents are available on the Department's website.
E-day was launched in September last year to give businesses and public sector bodies 12 months to prepare for the smooth transition to electronic payments. Cheque usage has halved in Ireland since 2005 but Irish businesses still write 33 million cheques every year. The particular focus of e-day is to encourage SMEs to migrate from cheque usage.
The Department's reminder letter to Accounting Officers attached a guide produced by the programme office of the national payments plan setting out several payment options with pros and cons as they relate to the operations of State agencies. Accounting Officers were reminded that any exceptional cases should be kept to an absolute minimum, a timetable should be established for the elimination of exceptional cases and any residual exceptions for which a timetable cannot be established should be identified and reported to the Department of Finance. Accounting Officers were also encouraged to consider the needs of people with disabilities when deciding on what payment options are to be offered.
Additional information not given on the floor of the House
The national payments plan notes that businesses and consumers will benefit when Ireland reduces its dependence on cheque and cash payments in favour of safer and more efficient electronic payments. Cheques are an expensive means of payment for businesses because of bank charges, stamp duty, postage, time spent making lodgements, unpaid cheques and the cheque-is-in-the-post culture of late payments. Businesses in most other EU countries have stopped using cheques. Businesses are advised to prepare for e-day by discussing payment solutions with the relevant contracting Government bodies and banks.
There is concern among some small and medium-sized enterprises, sole traders, community organisations and groups that they may be at a disadvantage. I know this has been an issue. Is the Minister satisfied that enough has been done to make these groups aware?
I am aware that cheques as a method of payment are being removed in the long term in favour of new technology. When is this likely? What has been put in place to advise people of the change?
I welcome the fact that Deputy Kyne has raised the issue because September is not far away. Public attention needs to be drawn to the fact that e-day is coming. Although it does not apply to the public in general or to social welfare payments it will apply to all businesses and State agencies. There needs to be increased public awareness and I hope Deputy Kyne's question gets some publicity to this end.
