Thursday, 20 Oct 2016

Written Answers Nos. 77-89

Tax Code

Ceisteanna (77)

Michael Healy-Rae

Ceist:

77. Deputy Michael Healy-Rae asked the Minister for Finance his views on the case of a person (details supplied) regarding a tax; and if he will make a statement on the matter. [31227/16]

Freagraí scríofa

Minister for Finance

I am advised by Revenue that as part of their ongoing monitoring of tax compliance Revenue officials met with the person concerned and his agent in early September 2016. In the particular instance and having regard to the case circumstances and the Code of Practice for Determining Employment or Self-Employment Status of Individuals (available on www.revenue.ie), Revenue is of the view that the arrangements constituted an employment to which PAYE / PRSI, rather than Relevant Contracts Tax, should apply. The basis for Revenue's conclusion was explained to and discussed with the person concerned and his agent.

Ireland Strategic Investment Fund Investments

Ceisteanna (78)

Róisín Shortall

Ceist:

78. Deputy Róisín Shortall asked the Minister for Finance his plans to recommend that the strategic investment fund divests itself of fossil fuel investment as part of the autumn review of its strategy; and if he will make a statement on the matter. [31232/16]

Freagraí scríofa

Minister for Finance

I refer the Deputy to my replies to recent Parliamentary Questions on this matter, specifically PQ 29899 from Deputy Thomas Pringle and PQ 30222 from Deputy Clare Daly.

As previously outlined in replying to those Parliamentary Questions, I am informed by the Ireland Strategic Investment Fund (ISIF) that its shareholdings with fossil fuel exposure include certain investments inherited from its predecessor the National Pension Reserve Fund (NPRF).

These shareholdings are in companies based outside Ireland and, as such, are held in ISIF's global portfolio. The global portfolio has been restructured and is being sold over time to fund Irish investment commitments as they arise, in keeping with ISIF's mandate to invest, on a commercial basis to support economic activity and employment, in Ireland.

ISIF's total equity holdings in the Energy sector are valued at €11 million (0.14% of ISIF's assets under management). ISIF has also invested in circa. €97 million of short term fixed income investments in energy corporations, representing just over 1% of ISIF's assets.

Such investments should be considered in the context of ISIF's Irish portfolio and its significant commitment to renewables. ISIF's investment strategy is aligned with government policy and the State's commitment to make the transition to a low carbon, climate resilient and sustainable economy. The strategy states that ISIF's €800m energy allocation will include a significant element of renewables investment. To date such investment commitments include:

- €44 million for the €500 million Dublin Waste to Energy project.

- €35 million commitment to NTR's onshore wind fund.

- Investment in Bluebay SME credit fund which has made loans to Gaelectric and Mainstream, Irish headquartered renewable energy developers.

- Being a cornerstone investor in the Irish Infrastructure Fund (IIF) which holds a number of Irish onshore wind assets, forestry, and a designer/manufacturer of high power density high efficiency power supplies.

As part of its on-going commitment to operate to high international standards ISIF has recently published its Sustainability and Responsible Investment Policy which is available online at: www.isif.ie/wp-content/uploads/2016/07/SustainabilityandResponsibleInvestingPolicyJuly2016.pdf.   

The Policy emphasises climate change as part of the integration of Environmental, Social and Governance (ESG) into its investment decision making.

Many major funds internationally have made significant divestments from fossil fuels such as coal, while other such funds have adopted an approach of engagement with energy companies to establish their strategy and positioning for the transition to a low carbon economy.  ISIF continually reviews its carbon exposure and the investment case for companies that may not be aligned with the long term transition to a low-carbon economy.

The National Treasury Management Agency (Amendment) Act 2014, which established ISIF on a statutory basis provides that ISIF shall review its investment strategy after 18 months of operation and that in reviewing its investment strategy shall consult with the Minister for Finance and the Minister for Public Expenditure and Reform, and that the Minister for Finance may consult with other Government Ministers, as appropriate. This review will be completed in Q4 2016 and the issues of decarbonisation and Ireland's long term transition towards a low carbon economy are being considered as part of this process. 

Living City Initiative

Ceisteanna (79)

Peter Fitzpatrick

Ceist:

79. Deputy Peter Fitzpatrick asked the Minister for Finance if he will reconsider his decision not to include Dundalk in the city living initiative in budget 2017, in view of Brexit and that the Border areas, including Dundalk, require assistance to negate the effects of Brexit; and if he will make a statement on the matter. [31236/16]

Freagraí scríofa

Minister for Finance

As the Deputy will be aware, the Living City Initiative was enacted in the Finance Act 2013 and commenced on 5th May 2015. The Initiative was extended beyond the original planned pilot cities of Limerick and Waterford, to include the cities of Dublin, Cork, Galway and Kilkenny. In line with my Department's commitment to evidence based policy-making, the inclusion of these additional four cities followed the completion of a comprehensive, independent ex-ante cost benefit analysis.

I announced a number of changes to the scheme in the Budget which aim to get the design of the Initiative right so that it can work in an effective manner.  Once this is achieved, it will then be possible to consider how, or if, the Initiative could be extended to other locations. The Deputy will be aware of a further commitment in the Programme for Partnership Government, to examine the introduction of a similar scheme to the "Living City Initiative" to regenerate town centres and villages throughout Ireland. It is important that the underpinning scheme is made more effective, as until that has been achieved, extension of eligibility for it to other towns would be largely meaningless.

The Deputy will also be aware of the measures I outlined in the Budget to get Ireland Brexit ready. These measures are listed on the infographic which is available at the following link www.budget.gov.ie/Budgets/2017/Documents/Getting_Ireland_Brexit_ready_infographic.pdf.

Tax Reliefs Eligibility

Ceisteanna (80)

Noel Grealish

Ceist:

80. Deputy Noel Grealish asked the Minister for Finance if he will consider introducing capital or other allowances for single farm payment entitlements with a base cost to allow the cost, now regarded as a loss since December 2014, to be written off against income tax; and if he will make a statement on the matter. [31246/16]

Freagraí scríofa

Minister for Finance

I am informed by Revenue  that a single farm payment entitlement is a chargeable asset for capital gains tax (CGT) purposes. All entitlements held by farmers under the Single Payment Scheme (SPS) expired on the 31 December 2014 when it was replaced by the Basic Payment Scheme under the EU Common Agriculture Policy (CAP). Accordingly, any gains/losses arising on the disposal of entitlements prior to the abolition of the SPS fall within the scope of CGT in the same manner as chargeable gains/allowable losses made on the disposal of any other chargeable assets.

Finance Act 2014 introduced section 604C in the Taxes Consolidation Act 1997 in order to provide an exemption from CGT for certain farmers who were required to dispose of their single payment entitlements on foot of changes being introduced at that time under CAP. The exemption is available in respect of any chargeable gains arising from the disposal by the owners of payment entitlements under the SPS where all of those entitlements were leased out in 2013 and where the owners, because of the change in CAP regulations, were advised by the Department of Agriculture, Food and the Marine, to transfer their entitlements to an "active" farmer by 15 May 2014. Losses arising on the disposal of payments entitlements in such circumstances are treated as allowable losses for CGT purposes in the normal manner.

In addition, a claim for CGT relief may arise under section 538 of the Taxes Consolidation Act 1997 in respect of losses incurred by farmers as a result of the abolition of single farm payment entitlements where the entitlements were purchased by the farmers concerned. The allowable loss is the capital loss equivalent to the amount incurred by the person when the entitlement was acquired.

Where a claim for relief for an allowable loss is made, the amount of the loss can only be set off against other chargeable gains made by the farmer in that year or in any subsequent year. Capital losses incurred as a result of the abolition of single farm payment entitlements, as with all capital losses, are not allowable against income.  I would also point out that there is no time limit within which the loss may be carried forward and set off against future chargeable gains.

Fiscal Policy

Ceisteanna (81, 90, 103)

Róisín Shortall

Ceist:

81. Deputy Róisín Shortall asked the Minister for Finance his Department's estimates of Irish GDP, GNP and GNI for 2017 and 2018, assuming average euro-sterling exchange rates (details supplied). [31254/16]

Michael McGrath

Ceist:

90. Deputy Michael McGrath asked the Minister for Finance the basis of his Department's estimate, as contained in the economic and fiscal outlook accompanying budget 2017, that the euro-sterling exchange rate will be at €1:£0.85 for the 2017 to 2021 period; if he will confirm, for example, the impact on projections for exports, economic growth and employment levels if the exchange rate averaged €1:£0.90 for the period and if it averaged €1:£0.95; and if he will make a statement on the matter. [31351/16]

Pearse Doherty

Ceist:

103. Deputy Pearse Doherty asked the Minister for Finance the impact on growth projections and fiscal space projections if his Department's current technical assumption for the euro-sterling exchange rate of €0.81 for 2016 and €0.85 for each of the years 2017 to 2021 is revised in view of the fact that the rate of exchange is currently above €0.90 and it appears that this current exchange rate is a structural change for the coming years as opposed to a cyclical fluctuation; and if he will make a statement on the matter. [31432/16]

Freagraí scríofa

Minister for Finance

I propose to take Questions Nos. 81, 90 and 103 together.

The updated macroeconomic and fiscal forecasts underlying Budget 2017 are contingent forecasts i.e. they are based on assumptions for key inputs such as growth in our main trading partners, the evolution of exchange rates and oil prices.

The external assumptions underlying the Budget 2017 macroeconomic forecasts include an assumption of unchanged exchange rates as of mid-September 2016.  As a result, the euro-sterling exchange rate is assumed to be unchanged at €0.85 from 2017 onwards.  Such an assumption is a normal feature of all macroeconomic forecasts both in Ireland and internationally. Professor John McHale, Chair of the Irish Fiscal Advisory Council (IFAC), has noted that this is the appropriate approach. The Department's Budget 2017 forecasts have been endorsed by IFAC.

In the Fiscal and Economic Outlook published with the Budget the Department of Finance has highlighted currency developments as a particular risk noting that  "the euro-sterling rate has appreciated significantly over the past year, and further appreciation remains a distinct possibility with adverse implications for Irish exports to the UK (especially for the more 'traditional' sectors)." (Budget 2017 Fiscal and Economic Outlook, Table 19, Page C.40).

Currency movements are volatile and hard to predict and that is the reason for the standard assumption about unchanged rates as of a particular cut-off date.  This is also recognised in a note to Table 2, External Assumptions, page C.11 of the Fiscal and Economic Outlook, which acknowledges that the euro-sterling bilateral rate has appreciated since the mid-September cut-off date.  The cut-off date used by the Department of Finance to fix its external assumptions, including exchange rate assumptions, is determined by the requirement to provide these assumptions to the IFAC as part of the endorsement process.

A sustained appreciation of the euro against sterling, compared to the standard assumption in the Budget 2017 forecasts, would, all else equal, result in a deterioration in Ireland's competitiveness, with a consequent reduction in Irish exports and growth rates. In this context, the Risk and Sensitivity Analysis chapter in Ireland's Stability Programme April 2016 Update (SPU) included an illustrative assessment of the impact of a 5 percentage point (pp) depreciation of sterling (SPU page 27). The analysis suggested that such a shock would decrease Irish GDP growth by approximately 0.6 pp and 0.2 pp relative to baseline in the first and second years following such an event, i.e. 2017 and 2018, respectively. Employment and export growth would also be negatively impacted.

The Department of Finance will produce a revised set of macroeconomic and fiscal forecasts, including projections of fiscal space, next April as part of the Stability Programme Update. These forecasts will incorporate information available at that time including exchange rate developments.

Excise Duties Yield

Ceisteanna (82)

Róisín Shortall

Ceist:

82. Deputy Róisín Shortall asked the Minister for Finance if he will provide an analysis of the expected yield of excise duty for 2017 by sub-group, that is, VRT, tobacco, alcohol and so on; the percentage increase over the expected 2016 outcome; and if he will publish the underlying assumptions used in calculating the figures published in table 9, page c.24 of the economic and fiscal outlook published on budget day. [31255/16]

Freagraí scríofa

Minister for Finance

I am informed by Revenue that the expected yield from Excise duty in 2017, by sub group, is provided in the following table. These values are based on the Excise forecast as contained in Budget 2017.  

Sub group	Expected Yield 2017 (€m)	Percentage increase over the expected 2016 outcome (%)
VRT	810	2%
Tobacco	1,044	6%
Alcohol	1,246	5%
Mineral Oil Tax + Carbon	2,810	7%
Other Excise	75	2%

The allocation of Excise duties across the different subgroups may be subject to revision. As a significant proportion of receipts are yet to be collected in 2016, the allocation of the Excise forecast across the subgroups for next year may require revision.

The aggregated excise forecast is prepared using a number of macro-economic drivers which are applied to the excise revenue base to assist in projecting excise receipts.

Excise Duties Collection

Ceisteanna (83)

Róisín Shortall

Ceist:

83. Deputy Róisín Shortall asked the Minister for Finance the likely loss of excise duties and VAT in 2017 for scenarios (details supplied) arising from the current and ongoing weakness in sterling and the methods used to calculate the response to the scenarios. [31257/16]

Freagraí scríofa

Minister for Finance

I am informed by Revenue that the estimated losses of Excise duties and VAT for the scenarios supplied are shown in the following table. These estimates reflect reductions for alcohol and tobacco but do not include the vehicle element outlined by the Deputy. I am advised by Revenue that given the potential variation in reaction of consumers in response to a displacement of car purchases, it is not possible to reliably predict a cost for this element of the scenario.

	Excise	VAT	Total
	Loss	Loss
	€m	€m	€m
Scenario A	315	201	516
Scenario B	As per Scenario A
Scenario C	352	230	582

In estimating the above scenarios, it is assumed that the decline in sales of alcohol and tobacco in the Republic is not replaced by any other purchases, resulting in a complete loss of both VAT and Excise duties to the Exchequer on those sales.  These estimates are based on the Excise forecast in Budget 2017.  As a significant proportion of receipts are yet to be collected in 2016, the allocation of this forecast across the different commodity types may be subject to revision.

Deposit Interest Rates

Ceisteanna (84)

Peter Fitzpatrick

Ceist:

84. Deputy Peter Fitzpatrick asked the Minister for Finance the reason the exit tax has not been reduced in line with the reduction of 2% on DIRT as announced in budget 2017; and if he will make a statement on the matter. [31267/16]

Freagraí scríofa

Minister for Finance

Deposit Interest Retention Tax (DIRT) is deducted by Irish financial institutions from deposit interest paid to the accounts of Irish residents. The basic rate at present is 41%.

DIRT is a "final liability tax" that is, it satisfies the individual's full liability to Income Tax in respect of deposit interest.  The individual may still be liable to PRSI on the interest.  Deposit interest subject to DIRT is not subject to the Universal Social Charge. 

As you are aware, in my Budget speech last week, I announced that the rate of DIRT will be cut by two percentage points for each of the next four years, so that it will have been reduced to 33% by 2020.

It is estimated that the overall cost of each 2% reduction in the rate of DIRT is some €9 million in a full year, so that by the time the full reduction is in effect in 2020, the annual full year cost is estimated to be approximately €36 million.

I am aware that in the past the rates payable on a series of other taxes, including Exit Tax, have tended to move in line with DIRT, however on this occasion I took a decision that those other rates would not be reduced.  I decided on this change for the following reasons.

The cost of reducing the rates of the other taxes  (where the rates payable have tended to move in line with the rate of DIRT) by two percentage points was tentatively estimated by the Revenue Commissioners to be (allowing for rounding) about €14 million per annum, or (allowing for rounding) about €56 million per annum by 2020 the period over which DIRT is to be reduced. It was therefore too costly to the Exchequer to reduce the rates applying to these taxes in the same manner as the reduction in DIRT.  

When the rate of DIRT was originally increased, it was aimed at revenue raising and at encouraging consumer spending to boost economic activity. As consumer expenditure has now increased significantly it is now possible to reduce DIRT rates to encourage saving and improve the return to the small saver.  I am conscious of the impact of DIRT rates on the small saver who invests in retail savings products and where there has been a long period of low interest rates and consequently a low rate of return on such products. 

In common with all taxes, Exit Tax is subject to ongoing review, and in this process the rate of tax as well as all reliefs and exemptions are carefully considered.

Tax Code

Ceisteanna (85)

Michael D'Arcy

Ceist:

85. Deputy Michael D'Arcy asked the Minister for Finance the current threshold for a tax free award from an employer to an employee under the Revenue small benefits exemption scheme; his plans to change the threshold; and if he will make a statement on the matter. [31278/16]

Freagraí scríofa

Minister for Finance

I increased the annual tax free benefit that an employer may give to an employee from €250 to €500 in last year's Finance Act. Section 112B of the Taxes Consolidation Act 1997 provides that the benefit must not exceed €500 in value, must not be in the form of cash and may not form part of any salary sacrifice arrangement between the employee and the employer. Only one such benefit may be given in any tax year. The exemption applies to benefits granted on or after 22 October 2015.

The Programme for a Partnership Government states that, working with the Oireachtas, we would increase the Small Benefits Exemption (voucher) from €500 to €650. In my Budget statement I noted that we will be true to the commitments we made in that Programme. However I also said that we will divide the resources available between increased investment in public services and tax cuts in proportions of at least two to one in favour of public services.  Therefore the Deputy will understand that not everything can be accomplished in or more years and I am not proposing to make any changes to this measure at this particular time.

Tax Code

Ceisteanna (86)

Niall Collins

Ceist:

86. Deputy Niall Collins asked the Minister for Finance his views on a circumstance (details supplied); if he will rectify this situation; and if he will make a statement on the matter. [31321/16]

Freagraí scríofa

Minister for Finance

Where a couple is cohabiting, rather than married or in a civil partnership, each partner is treated for the purposes of income tax as a separate and unconnected individual. Because they are treated separately for tax purposes, credits, tax bands and reliefs cannot be transferred from one partner to the other. Cohabitants do not have the same legal rights and obligations as a married couple or couple in a civil partnership, which is why they are not accorded similar treatment to couples who have a civil status that is recognised in law.

The basis for the current tax treatment of married couples derives from the Supreme Court decision in Murphy vs. Attorney General (1980). This decision was based on Article 41.3.1 of the Constitution where the State pledges to protect the institution of marriage. The decision held that it was contrary to the Constitution for a married couple, both of whom are working, to pay more tax than two single people living together and having the same income. 

To the extent that there are differences in the tax treatment of the different categories of couples, such differences arise from the objective of dealing with different types of circumstances while at the same time respecting the constitutional requirements to protect the institution of marriage. Any change in the tax treatment of cohabiting couples can only be addressed in the broader context of future social and legal policy development in relation to such couples.

From a practical perspective, it would be very difficult to administer a regime for cohabitants which would be the same as that for married couples or civil partners. Married couples and civil partners have a verifiable official confirmation of their status. It would be difficult, intrusive and time-consuming to confirm declarations by individuals that they were actually cohabiting. It would also be difficult to establish when cohabitation started or ceased. 

There would also be legal issues with regard to 'connected persons'. To counter tax avoidance, 'connected persons' are frequently defined throughout the various Tax Acts. The definitions extend to relatives and children of spouses and civil partners. This would be very difficult to prove and enforce in respect of persons connected with a cohabiting couple where the couple has no legal recognition. There may be an advantage in tax legislation for a married couple or civil partners as regards the extended rate band and the ability to transfer credits. However, their legal status has wider consequences from a tax perspective both for themselves and persons connected with them.

The treatment of cohabiting couples for the purposes of social welfare is primarily a matter for my colleague, the Minister for Social Protection, Mr. Leo Varadkar TD. However, it is also based on the principle that married couples should not be treated less favourably than cohabiting couples. This was given a constitutional underpinning following the Supreme Court decision in Hyland v Minister for Social Welfare (1989) which ruled that it was unconstitutional for the total income a married couple received in social welfare benefits to be less than the couple would have received if they were unmarried and cohabiting.

EU Directives

Ceisteanna (87)

Róisín Shortall

Ceist:

87. Deputy Róisín Shortall asked the Minister for Finance the discussions he has had with EU partners regarding the overly restrictive nature of the EU VAT directive, Council Directive 2006/112/EC and the inability of member states to respond to emerging needs of their population through significant VAT reform; if Ireland has adopted a formal position on seeking greater flexibility; and if so, if he will outline this position. [31344/16]

Freagraí scríofa

Minister for Finance

The EU VAT Directive, with which EU Member States' VAT law must comply, sets out the general rules and conditions of VAT based on the origin principle, where VAT is taxed in the Member State of the supplier. In order to minimise distortion of competition when goods or services are purchased from suppliers in different Member States, the VAT Directive restricts the flexibility of Member States in setting VAT rates, while ensuring the neutrality, simplicity and workability of the VAT system.  VAT rating is restricted with lower limits on the levels of the VAT rates and a list of the goods and services which could benefit from reduced rates.

The VAT Directive provides that Member States must apply a standard VAT rate, generally between 15% and 27%. Ireland's rate is currently 23%.  The Directive also allows Member States to apply up to two reduced VAT rates to goods and services as listed in Annex III of the Directive. The application of the 9% VAT rate to tourism activity is possible because of this provision. Article 110 allows for the continuation of the application of a zero rate or a rate less than 5% to goods or services where that rate applied on and from 1 January 1991.  Ireland takes advantage of this provision in our application of the zero rate to most food, books, medicine and children's clothing, as well as our application of the 4.8% VAT rate on livestock.  

Furthermore, Article 118 of the Directive allows Member States to retain the application of a reduced VAT rate of 12% or more on goods and services not contained in Annex III that had applied at a reduced VAT rate on and from 1 January 1991. The application of the 13.5% VAT rate in Ireland to domestic fuels, commercial construction and some labour intensive services is based on this provision.

While the VAT Directive places restrictions on VAT rating to avoid distortion of competition where VAT is based on the origin system, the VAT system is in the process of moving towards a destination principle, where all supplies are taxed in the Member State of the consumer and not the supplier.  In such a scenario a consumer would pay the same VAT on purchases made from any Member State, and as such, there is less of a need for harmonisation of VAT rating among Member States. In this context, the European Commission's Action Plan on VAT was adopted on 7th April 2016 and contains a proposal to look at VAT rate policy across the EU in 2017. The Action Plan's proposal on rates may offer Member States more flexibility in the future in determining VAT rates applicable to goods and services. This forum will provide an opportunity to discuss VAT rates applicable to goods and services, and my Department will engage fully in this process. However, the Deputy will be aware that any proposed changes to the current EU VAT Directive would require unanimous agreement from all member states.

VAT Registration

Ceisteanna (88)

Róisín Shortall

Ceist:

88. Deputy Róisín Shortall asked the Minister for Finance further to Parliamentary Question No. 33 of 13 October 2016, the other measures that are in place to support businesses supplying services who experience a very significant tax step effect at the VAT entry level. [31345/16]

Freagraí scríofa

Minister for Finance

As stated previously, Irish VAT law must comply with the EU VAT Directive (Council Directive 2006/112/EC), including the provisions governing VAT registration thresholds and therefore there is no scope to increase the existing thresholds at present. However, I would point out again that Ireland's VAT registration threshold for small businesses supplying services is the seventh highest in the EU.

Where a business registers for VAT it must charge and account for VAT on its taxable supplies and is entitled to recover any VAT incurred on goods or services used for the purposes of its taxable supplies.

The measures in place to assist small business in relation to VAT include:

Cash Receipt Basis

VAT is usually accounted for on the basis of invoices issued. However, the cash basis of accounting provides traders with the option to account for VAT on a cash receipts basis. This means that the trader is not required to pay VAT until payment for the supply is received.  Availing of this option assists firms in the critical area of cash flow.  In order to avail of this option, a business must be supplying goods or services mostly to unregistered persons, or have an annual turnover of less than €2 million.

Returns and Payments 

Generally, returns and payments must be made to Revenue by the 19th day of the month following the end of each two monthly taxable period.  An extended deadline of 23rd of the month is applied where returns and payments are made electronically to Revenue. 

Exceptions to the main rule include:

- Returns may be submitted for a six monthly period by persons with annual liabilities of €3,000 or less.

- Returns may be submitted for a four monthly period by persons where the liability is between €3,001 and €14,400.

- An accountable person with a bi-monthly VAT liability of up to €50,000 may pay VAT by direct debit in monthly instalments, which assists seasonal businesses in managing their cash flow.  

Simplified/Summary Invoicing

A simplified invoice, credit note, settlement voucher or debit note may be issued either where the amount of the invoice is not greater than €100. Summary invoices may be issued where multiple supplies are made to the same customer during a calendar month. Minimum particulars are required to be included on a simplified invoice or a summary invoice.

Electronic Invoicing

Electronic invoicing reduces burdens on business, supports small and medium sized enterprises and provides more flexibility for business regarding their invoicing obligations. 

Other tax measures in place to assist small business include:

Corporation Tax

For small businesses that are conducted through a company, a corporation tax measure is in place to support new business development. This takes the form of a relief from corporation tax which is available for start-up companies in their first three years of trading.  The relief is granted by reducing the corporation tax payable on the profits of the new trade and gains on the disposal of any assets used for the purpose of the new trade.

The availability of the relief is linked to the amount of Employers' PRSI paid by a company in an accounting period, subject to a maximum of €5,000 per employee and an overall limit of €40,000. Where the total corporation tax payable by a qualifying start-up company for an accounting period does not exceed €40,000, the aggregate amount of corporation tax referable to income and gains of the qualifying trade in that period will be reduced by the amount of qualifying Employers' PRSI.  Any relief not availed of in the first three years of trading, due to losses or insufficiency of profits, may be carried forward for use in subsequent years. This is subject to the amount of relief in any year not exceeding the Employers' PRSI contributions of the company, with relief for these contributions capped at €5,000 per employee and €40,000 in total for a year.

The overall limit of the relief is €40,000 in each of the three years and marginal relief is available where the company has a corporation tax liability between €40,000 and €60,000. No relief is available where the corporation tax payable is €60,000 or more. The maximum relief allowable over three years is therefore €120,000.

The relief is not available in respect of certain activities, including where the trade consists of service company activities as defined in section 441 of the Taxes Consolidation Act 1997. This includes companies whose business consists of carrying on a profession or the provision of professional services.

Employment & Investment Incentive (EII)

Small businesses, in their start-up phase, that need to raise additional capital may be entitled to do so under the Employment & Investment Incentive (EII).  Under EII, individuals who buy shares in qualifying companies are entitled to income tax relief.

Filing of returns on a quarterly basis

To further reduce the administrative filing burden and to improve cash-flow for small businesses where these businesses have annual PAYE/PRSI or RCT liabilities of less than €28,800, these businesses are eligible to file returns on a quarterly basis rather than on a monthly basis.

Fiscal Data

Ceisteanna (89, 104)

Michael McGrath

Ceist:

89. Deputy Michael McGrath asked the Minister for Finance the amount of the estimated fiscal space of €1.2 billion for 2018 that has already now been accounted by the taxation and expenditure items announced in budget 2017; if he will provide a breakdown of the items that use up 2018 fiscal space; and if he will make a statement on the matter. [31349/16]

Pearse Doherty

Ceist:

104. Deputy Pearse Doherty asked the Minister for Finance the gross and net fiscal space for each of the years 2018 to 2022; and if he will make a statement on the matter. [31433/16]

Freagraí scríofa

Minister for Finance

I propose to take Questions Nos. 89 and 104 together.

Estimates of the gross and net fiscal space for the period 2018 to 2021 can be found in Table A7 Annex 2 of the Budget 2017 book. No fiscal or other estimates have been undertaken for 2022.  For the convenience of the Deputy, the gross and net fiscal space for the period 2018 to 2021 is set out in the following table.

€billions	2018	2019	2020	2021	Total
Gross fiscal space	1.8	3.2	3.5	3.6	12.1
Net fiscal space	1.2	2.7	2.7	2.7	9.3

Gross Fiscal Space is simply the permitted fiscal space arising from applying the currently forecast benchmark growth rates to the projected expenditure aggregate for the preceding year. These amounts are not final and are based on indicative projections for the GDP deflators, reference rates and convergence margins for each of the relevant years as set out in Budget 2017 (see Table A.7). The actual GDP deflators, reference rates and convergence margins values used by the Commission to assess compliance with the rules each year beyond 2017 will be based on Commission estimates for each year compiled in their Spring forecast of the preceding year, and in relation to the GDP deflator, the Autumn forecasts as well, each year. 

Another source of potential variance relates to the precise composition of the general government expenditure outturn of the preceding year. This is due to the fact that some items such as interest and the level of cyclical unemployment expenditure are excluded from the expenditure benchmark calculation while gross fixed capital formation is smoothed over a 4 year period. With regard to cyclical unemployment, the Commission's estimates are based on their own data. Given the volatility of estimates of structural unemployment for Ireland, which is used to derive cyclical unemployment, calculations of fiscal space are also subject to change due to this factor.

In the year after a member state reaches its Medium Term Objective (MTO) set under the balanced budget fiscal rule, the convergence margin requirement under the expenditure benchmark ceases.  As outlined in Table 12 in Chapter 3 of the Budget 2017 book, my Department forecasts that Ireland will reach its MTO of a balanced budget in structural terms, defined as -0.5 percent of GDP,  in 2018.  As a result, the convergence margin would not be applied to the expenditure benchmark calculation from 2019 on. This leads to a significant increase in the projected fiscal space from 2019 onward, based on the assumption that Ireland will meet its MTO in 2018.

The net fiscal space is the additional room available beyond spending assumptions included in the Budget's baseline spending projections whilst still complying with the upper limit posed by the Expenditure Benchmark. The baseline spending projections shown in Table A7 are on an ex-ante basis and do not include the unallocated resources captured in the baseline expenditure projections set out in Table 12. However, Table A7 does include pre-committed expenditures such as the annual cost of providing for demographic spending pressures together with a number of other anticipated elements such as the Public Capital P lan, the cost of the Lansdowne Road Agreement and a number of other calls on the Central Fund, including increases to the EU budget contribution.  Net fiscal space also takes account of discretionary revenue measures that increase or decrease general government revenue.  The additional revenue generated from a political decision not to proceed with indexation, estimated to yield just below €450m, is included in the discretionary revenue measures set out in Table A7.

On the basis of the above assumptions, gross fiscal space for 2018 to 2021 amounts to a cumulative €12.1 billion and net fiscal space amounts to a cumulative €9.3 billion.  

With regard to 2018, the carryover effect of tax measures outlined in Budget 2017 will absorb some €172.5m of the available €1.2billion net fiscal space set out in the table above.

As set out on page 36 of the Expenditure Report 2017, published by the Department of Public Expenditure and Reform, there is an estimated carryover impact into 2018 of approximately €½ billion arising from certain of the increases in Departmental expenditure included in the Budget Estimates for 2017. Expenditure estimates in Table A7 will be updated as the details in relation to implementation of Budget measures are further developed.

The spending review, scheduled to be carried out next year in advance of Budget 2018, will among other issues, consider the policy options for meeting the additional cost arising in 2018 of the Budget 2017 expenditure measures.

Finally, it is important to stress that the figures, as always, are work-in-progress estimates and will evolve over time.