Tuesday, 29 Sep 2020

Written Answers Nos. 51-75

Public Liability Insurance

Ceisteanna (51)

Ruairí Ó Murchú

Ceist:

51. Deputy Ruairí Ó Murchú asked the Minister for Finance her plans to address the rising costs and limited access to public liability insurance; and if he will make a statement on the matter. [24340/20]

Freagraí scríofa

Minister for Finance

I am very much aware of the problems faced by many businesses, community groups and voluntary organisations in relation to the availability and affordability of public liability insurance.  However, as this is a commercial matter for insurers neither I, nor the Central Bank of Ireland, can direct the pricing of insurance products, and neither can we compel any insurer operating in the Irish market to provide cover.  This position is underpinned by the EU Single Market framework for insurance (the Solvency II Directive) which expressly prohibits Member States from doing so.

As the Deputy will appreciate, there is no single policy or legislative fix to remedy the cost and availability of insurance issue.  The Programme for Government identifies a range of issues that the Government will prioritise so as to benefit consumers and businesses and work will advance on this matter through the Cabinet Committee on Economic Recovery and Investment.

In terms of addressing the affordability and accessibility of public liability insurance, a necessary step is to bring the levels of personal injury damages awarded in this country more in line with those awarded in other jurisdictions. The establishment of the Judicial Council in December is very important in this regard, and it is expected that the Personal Injuries Guidelines Committee will submit draft Guidelines to the executive board of the Judicial Council shortly. While the adoption of those Guidelines will be a matter for the Judicial Council, it is desirable that the Guidelines could play a role in the lowering of award levels and also could lead to a more consistent application of making awards in courts.  Insurance Ireland has indicated that if award levels come down so will premiums charged by its members. I believe that this is a very important statement and this Government intends holding the insurance industry to this commitment.

In conclusion, I wish to emphasise that prioritising delivery on the commitments to insurance reform remains a priority for the Government and this is reflected in the Programme for Government. 

Covid-19 Pandemic

Ceisteanna (52)

Pa Daly

Ceist:

52. Deputy Pa Daly asked the Minister for Finance the contingency planning that has taken place within his Department about an indefinite period of restrictions on VAT generating sectors of the economy such as hospitality. [26344/20]

Freagraí scríofa

Minister for Finance

The COVID-19 pandemic continues to present us with unprecedented economic and social challenges. In dealing with these challenges, the Government has acted swiftly in bringing forward measures that immediately and directly support the economy and help to actively retain and create jobs.  The July stimulus package contained measures to foster economic activity, support businesses and get as many people back to work as quickly as possible.

The level of unprecedented support provided by Government is only available to us because of the work that has been done in recent years in placing the public finances on a sustainable trajectory. It is essential that, as we recover and look to the future, we return the fiscal position to a sustainable and credible trajectory at the appropriate time.

As the Deputy will be aware, it is a longstanding practice of the Minister for Finance not to comment, in advance of the Budget, on any tax matters that might be the subject of Budget decisions. 

Tax Code

Ceisteanna (53)

Seán Canney

Ceist:

53. Deputy Seán Canney asked the Minister for Finance if he will reform inheritance tax rules for agriculture by which the relief can be extended to favourite successor relief to reflect the changing demographics and family structure; and if he will make a statement on the matter. [26862/20]

Freagraí scríofa

Minister for Finance

As the Deputy will be aware, a fundamental principle of the Capital Acquisitions Tax regime is that inheritance or gift tax is levied on the beneficiary and that the level of taxation is determined according to their relationship with the disponer. The reason for this approach is that the capital being transferred has not been earned by the beneficiary. In this context,  the effective taxation of windfall capital is an important tool for addressing income and wealth inequality, thus enabling our tax code create a fairer society.

In my view, there are already very generous rules in relation to inheritance tax on agricultural property. For instance, qualifying farmers can avail of agricultural relief, which reduces liability to CAT by 90%. The relief operates by reducing the market value of ‘agricultural property’ (including farmland, buildings, stock) by 90%, so that inheritance tax is calculated on an amount, known as the ‘agricultural value’, which is substantially less than the market value.

To qualify for agricultural relief, 80% of the beneficiary’s assets, after having received the gift or inheritance, must consist of qualifying agricultural assets. The beneficiary must also be an active farmer, or lease the land to one.

In addition, another valuable CAT relief is the CAT Favourite Nephew or Niece relief. This relief allows a nephew or niece to be treated as a child for CAT purposes, subject to certain conditions. This means that they will be entitled to the Group A tax-free threshold of €335,000, instead of the Group B tax-free threshold of €32,500, which would normally apply to this relationship.

The aim of this relief is to target a nephew or niece who  has worked for their aunt or uncle over a 5-year period prior to inheritance for a minimum number of hours per week, putting their labour and expertise at the disposal of the aunt or uncle and making a sustained contribution to the business before inheritance.

When combined with CAT Agricultural Relief, this relief is intended to support the intergenerational transfer of a family farm and is particularly important in circumstances where a farmer may not have a direct descendant (e.g. child) to whom they may bequeath the family farm.

However, extending the Favourite Nephew or Niece relief to allow the nomination of a ‘Favourite Successor’ would clearly represent a fundamental departure from the principles underpinning our current CAT regime, as well as a significant departure from the policy rationale of the Favourite Nephew or Niece relief. Such a move would also lead to an erosion of the revenue base. For example, this could result in a beneficiary who does not have a family relationship with the disponer becoming entitled to the same tax-free threshold as a child of the disponer, currently €335,000, instead of a tax-free threshold of €16,250.

In addition, this would most likely be followed by pressure to extend this to other reliefs, such as CAT business relief, or more broadly for disponers to seek to nominate a ‘Favourite Successor’ for their estate.

On this basis, there are currently no plans to extend the CAT Favourite Niece or Nephew Relief or to amend the operation of CAT Agricultural Relief to allow for the nomination of a Favourite Successor.

 

Question No. 54 answered with Question No. 49.

Question No. 55 answered with Question No. 46.

Question No. 56 answered with Question No. 49.

Brexit Issues

Ceisteanna (57)

Bernard Durkan

Ceist:

57. Deputy Bernard J. Durkan asked the Minister for Finance the extent to which he expects the economy to remain competitive in the short to medium-term notwithstanding the impact of Brexit and the Covid-19 virus; and if he will make a statement on the matter. [26671/20]

Freagraí scríofa

Minister for Finance

Approaching the pandemic, Ireland was in a strong macroeconomic position, with robust economic growth in recent years and an improved fiscal position. While the effects of Covid-19 and Brexit are expected to be severe, these factors support the enduring competitiveness of the Irish economy.

The Stability Programme Update (SPU) published in April this year projected a sharp decline in GDP in 2020.  This decline will be particularly evident in the labour market, where an unemployment rate of over 15 per cent was recorded in August. As was announced on the 16th of September, Budget 2021 will be framed along the assumption of a disorderly Brexit in January 2021, which will further negatively impact the Irish economy.

While the domestic sector suffered a severe hit in the second quarter this year, the multinational sector has proven resilient demonstrating the competitiveness of Irish exports on world markets.

As the global economy is experiencing the shock of the Covid-19 pandemic in a reasonably symmetric way, Ireland’s relative competitiveness on the international stage is not expected to be significantly affected. The recent series of external surpluses in Ireland’s modified current account is expected to continue. The pandemic has put downward pressure on prices meaning significant inflationary pressures are not expected to impact competitiveness in the short to medium term. The 2020 IMD World Competitiveness Yearbook recently ranked Ireland as the 4th most competitive country in the EU and the 12th most competitive country in the world.

The extent of the recovery over the short to medium term will be a function of many factors, including the path of the virus, the future availability of a vaccine, and the success of containment measures, both domestically and abroad, as well as the future trading relationship with the UK.

Question No. 58 answered with Question No. 45.

Vehicle Registration Tax

Ceisteanna (59, 290, 291, 292)

Verona Murphy

Ceist:

59. Deputy Verona Murphy asked the Minister for Finance if he will seek to introduce significant reductions in vehicle registration tax in Budget 2021; and if he will make a statement on the matter. [26524/20]

Imelda Munster

Ceist:

290. Deputy Imelda Munster asked the Minister for Finance the changes he plans to introduce to the VRT system to reflect the world harmonised light vehicle test procedure requirements; the safeguards he plans to introduce regarding potential increases to the VRT rate; if the rate will increased as a result of the changes; and if he will make a statement on the matter. [27019/20]

Imelda Munster

Ceist:

291. Deputy Imelda Munster asked the Minister for Finance his plans to introduce changes to the VRT to encourage the purchase of new vehicles; and if he will make a statement on the matter. [27020/20]

Imelda Munster

Ceist:

292. Deputy Imelda Munster asked the Minister for Finance the tax incentives he plans to introduce to encourage the purchase of new cars including new electric vehicles; and if he will make a statement on the matter. [27021/20]

Freagraí scríofa

Minister for Finance

I propose to take Questions Nos. 59, 290, 291 and 292 together.

As the Deputy will be aware, it is a longstanding practice of the Minister for Finance not to comment, in advance of the Budget, on any tax matters that might be the subject of Budget decisions.  

Brexit Issues

Ceisteanna (60)

Pearse Doherty

Ceist:

60. Deputy Pearse Doherty asked the Minister for Finance the value of funds expected to be drawn down by Ireland in 2021 from the Brexit adjustment reserve announced as part of the EU multi-annual financial framework; the way in which it will be allocated across sectors and measures; and if he will make a statement on the matter. [26795/20]

Freagraí scríofa

Minister for Finance

As the Deputy will be aware, on 21st July 2020, Heads of State and Government reached agreement on the Post-2020 Multiannual Financial Framework (MFF) and Next Generation EU, totalling €1.82 trillion. Difficult discussions took place over four days, but the Government welcomes this agreement. This is a fair and balanced outcome and demonstrates that Europe can work collectively to deal with this once-in-a-generation crisis. Council conclusions set out the leaders’ agreement for the European Commission to borrow €750 billion, supporting Member States with €390 billion in grants and €360 billion in loans. Agreement was also reached on a new MFF from 2021 – 2027, totalling €1.074 trillion, which will support rural and regional development, and the transformation of our economies in line with the climate transition, research and development, and digital agendas.

As part of the final agreement reached, leaders also agreed on the setting up of a new special Brexit Adjustment Reserve of €5 billion. This Reserve will help to counter the unforeseen and adverse consequences in Member States and sectors that are worst affected by Brexit. Leaders invited the European Commission to present a proposal on the Brexit Adjustment Reserve by November 2020.

We await publication of the European Commission's proposal including their proposal for allocating the funds. Thus, I am not in a position to provide details on how much Ireland may be able to draw down from the Reserve in 2021 or in the years after or indeed on the way in which funds may be allocated across sectors and measures. However, I can assure the Deputy that I am aware of the importance which this Reserve is likely to have for Ireland. I can also assure the Deputy that the Government will continue to communicate with the European Commission and other Member States the needs arising from our unique situation in relation to Brexit, in order to ensure that Ireland, as the Member State likely to be the hardest hit by Brexit, receives its fair share of the Brexit Adjustment Reserve. 

Question No. 61 answered with Question No. 42.

National Debt

Ceisteanna (62)

Ged Nash

Ceist:

62. Deputy Ged Nash asked the Minister for Finance the way in which he plans to avail of the favourable debt dynamics as cited in the recent Central Bank Governor’s pre-Budget letter; his views on the need to retain a long-term perspective regarding the social return from high-quality public investment; and if he will make a statement on the matter. [26799/20]

Freagraí scríofa

Minister for Finance

The fiscal supports put in place to mitigate the worse effects of the pandemic - including business and household supports - have been largely financed by additional borrowing.

For this year, the National Treasury Management Agency (NTMA) plans to issue debt instruments at the top end of the revised €20-€24 billion bond funding range announced in April.  So far this year, the NTMA has raised almost €21.5 billion, and has also increased its borrowings from short-term debt markets.

Notwithstanding the favourable interest rate environment at present, the debt that has been accumulated - warranted and necessary in the current circumstances - must be repaid or refinanced at a future date.  There is no guarantee the current favourable interest rate climate will continue into the future; we in Ireland know just how quickly market sentiment can change.

To ensure that Ireland can continue to access capital markets (to refinance maturing debt), it is important that the Irish fiscal position does not become an outlier.  Moreover, the Government will, in the spring, bring forward a medium-term strategy to eliminate the deficit over the medium term.  This will ensure that the debt-income ratio is put on a downward trajectory.  The Programme for Government also sets out that windfall gains will be used for debt reduction.

Public investment is, of course, a matter for my colleague, the Minister for Public Expenditure and Reform.  But what I can say is that notwithstanding the pandemic, investment under the National Development Plan is set to reach €9.2 billion next year.  This investment is required for the development of new social, economic and climate infrastructure.

In line with Programme for Government commitments, it is expected that the Minister for Public Expenditure and Reform will shortly bring a memorandum to the Government regarding the launch of a phased, structured and in-depth review of the National Development Plan.

The purpose of the review is to align the priorities identified in the Programme for Government including climate change, housing policy, transport policy, implementation of Sláintecare and balanced regional development to the associated resourcing requirements.

Corporation Tax

Ceisteanna (63)

Mairéad Farrell

Ceist:

63. Deputy Mairéad Farrell asked the Minister for Finance the sectoral breakdown of the €1.7 billion increase in corporation tax receipts for the first half of the year as shown in the June fiscal monitor; and if he will make a statement on the matter. [16652/20]

Freagraí scríofa

Minister for Finance

I am advised by Revenue that a complete analysis of 2020 Corporation Tax receipts will be provided when tax receipts for the year are fully collected and analysed. Due to the role of large companies in annual receipts and the varying payment timelines for Corporation Tax, receipts for the first six months may not offer a reliable guide to the final 2020 outturn.  

Revenue has also advised me that, based on the available information in respect of Corporation Tax receipts at the end of June 2020, the four sectors responsible for the bulk of the Corporation Tax receipts were ahead of profile. The relevant sectors are Information & Communications, at 38% of receipts, Manufacturing, at 26% of receipts, Finance & Insurance at 17% of receipts, and Administrative & Support Services, at 10% of receipts.

These sectors were also the most significant at the same period in 2019.

Wage Subsidy Scheme

Ceisteanna (64, 80)

Paul McAuliffe

Ceist:

64. Deputy Paul McAuliffe asked the Minister for Finance if taxi drivers will be transferred to the employment wage subsidy scheme in view of the fact that the income from their business has been greatly reduced and once they return to work they are no longer eligible for the pandemic unemployment payment; and if he will make a statement on the matter. [25970/20]

Richard Boyd Barrett

Ceist:

80. Deputy Richard Boyd Barrett asked the Minister for Finance if he will meet with the four taxi representative groups (details supplied) to discuss a wage subsidy scheme for their industry; and if he will make a statement on the matter. [26719/20]

Freagraí scríofa

Minister for Finance

I propose to take Questions Nos. 64 and 80 together.

Bearing in mind my schedule in the run up to the Budget, I would be happy to arrange a meeting between senior officials from my Department and the groups mentioned.   

However, I would also like to inform the Deputy that I am aware already of the concerns that have been raised from a number of quarters regarding the pace of recovery for certain sectors of the economy and that it has been suggested that the application of the EWSS should be delineated on the basis of explicit sectoral qualification criteria. 

At the same time, the reality of COVID-19 is that our whole economy and labour market have been rapidly transformed by this unprecedented shock and nearly all sectors have been negatively impacted either directly or indirectly. 

The EWSS has therefore been deliberately designed as an economy wide measure that is open to all sectors as was the case for the TWSS before it.

The availability of the support by reference to a turnover test means that the scheme can be applied across the whole economy while at the same time remain targeted at employers who are considered to be most in need of support.

For those businesses who need further support, there are a number of options open to them – including State backed loans which may be repaid using EWSS funds as well as grants.  Particular attention is drawn to the comprehensive package of business and employer supports that have been made available as part of the July Stimulus Plan - including the Credit Guarantee Scheme, the SBCI Working Capital Scheme, Sustaining Enterprise Fund, and the Covid-19 Business Loans Scheme.

The ongoing economic impact will continue to be monitored closely, as will the recovery.

Wage Subsidy Scheme

Ceisteanna (65)

Ruairí Ó Murchú

Ceist:

65. Deputy Ruairí Ó Murchú asked the Minister for Finance the number of persons in County Louth aged between 18 to 21, 22 to 25, 25 to 30, 30 to 35 and 35 to 40 years of age respectively, in receipt of the employment wage subsidy scheme in tabular form. [26519/20]

Freagraí scríofa

Minister for Finance

The Temporary Wage Subsidy Scheme (TWSS), which was provided for in section 28 of the Emergency Measures in the Public Interest (COVID-19) Act 2020, expired on 31 August 2020. It was replaced by the Employment Wage Subsidy Scheme (EWSS) from September 1 2020, which was legislated for under the Financial Provisions (Covid-19) (No. 2) Act 2020.  The specific nature and terms of the EWSS are separate and distinct from the TWSS.

It is important to emphasise that the EWSS is a subsidy to the employer, unlike the TWSS which was an income support to the employee paid via the employer.  The EWSS is an economy-wide scheme that focuses primarily on business eligibility, delivering a per-head subsidy on a flat rate basis.  A subsidy of either €151.50 or €203 may be claimed by the employer retrospectively for every worker who is paid between €151.50 and €1,462 per week.

EWSS registered employers must file payslips with Revenue for claims in respect of relevant pay periods. Until these processes are completed it is not possible to know the number of employees (nor their characteristics or locations) that will be supported under the scheme. For example, the payslip information for EWSS recipient employers for September will be available in mid-October and Revenue has confirmed that it will publish employee level information as soon as is practicable after that date.

The Deputy may be interested to note that Revenue has already begun to publish weekly statistics updates on the EWSS as employers continue to complete the registration process. These statistics are available on www.revenue.ie.  By 25 September 2020, some 36,746 employers had registered for EWSS. The statistics show the breakdown of the registered employers by size, sector and county.

Tax Code

Ceisteanna (66)

Paul Murphy

Ceist:

66. Deputy Paul Murphy asked the Minister for Finance if he will consider introducing a wealth tax in budget 2021. [26790/20]

Freagraí scríofa

Minister for Finance

It should be noted that Ireland already taxes wealth in a variety of ways, such as our Capital Gains Tax (CGT) and Capital Acquisitions Tax (CAT) which are levied on an individual or company on the disposal of an asset in the case of CGT, or the acquisition of an asset through gift or inheritance, in the case of CAT.

The Local Property Tax, which was introduced in 2013, is a tax based on the market value of residential properties, and can also be categorised as a form of tax on wealth. 

It is also important to understand where Ireland stands in relation to the distribution of wealth. In 2013, the Central Statistics Office conducted the Household Finance and Consumption Survey (HFCS) providing the first comprehensive data on household wealth in Ireland. The survey provides information on the ownership and values of different types of assets and liabilities along with more general information on income, employment and household composition. The data indicated that wealth inequality in Ireland for 2013, as measured by the Gini Coefficient, was lower than the euro area average.

The Central Bank recently published a research report presenting results from the 2018 HFCS which highlights the improved financial position and resilience of households prior to the COVID-19 crisis.

The Central Bank's new report 'Household wealth: what is it, who has it and why it matters' shows that Irish household net wealth grew by over €76,000 for the median household between 2013 and 2018, and that wealth inequality here for 2018, as measured by the Gini Coefficient, remains lower than the euro area average It also notes that "the data highlight the improved financial position and resilience of households".

The report highlights that a significant portion of wealth for most households was tied up in the family home,  and that increases in house prices (74% increase for the period) was a major factor in the reported increase in household wealth.   

My officials continue to examine all issues related to taxation, including wealth taxation, on an on-going basis, and they and I will monitor and consider any additional information and data that comes to light. I do not, however, have any plans to introduce a tax measure along the lines of that sought by the Deputy at this time.

Question No. 67 answered with Question No. 45.

Property Tax

Ceisteanna (68)

Richard Boyd Barrett

Ceist:

68. Deputy Richard Boyd Barrett asked the Minister for Finance if he will abolish the local property tax and replace it with an enhanced local government fund from central funding; and if he will make a statement on the matter. [26720/20]

Freagraí scríofa

Minister for Finance

The Local Property Tax was introduced in 2013 to provide a stable and sustainable funding base for local authorities and is a significant base-broadening measure. LPT has yielded over €3 billion for local authorities since its introduction. The taxation of property through a recurring annual tax is less economically distortionary than tax imposed on either income or capital. This is supported by analysis and international experience where, for example, the OECD in 2011 suggested that tax on property is considered the least harmful to growth. It is also the International and European norm. If the tax were abolished revenue from other taxes would have to be raised to make up the difference in funding for local government.  

The 2020 Programme for Government includes the following commitments in relation to LPT-

1. To bring forward legislation for the LPT on the basis of fairness and that most homeowners will face no increase. 

2. To bring new homes, which are currently exempt from the LPT, into the taxation system, and that

3. All money collected locally will be retained within the county. This is to be done on the basis that that those counties with a lower LPT base are adjusted via an annual national equalisation fund paid from the Exchequer.

I recently announced my intention to defer the valuation date for LPT from 1 November 2020 to 1 November 2021 and that I will advance legislative proposals early in 2021 to implement the LPT commitments in the Programme for Government.

I have no plans to abolish the Local Property Tax.

Covid-19 Pandemic

Ceisteanna (69)

Pa Daly

Ceist:

69. Deputy Pa Daly asked the Minister for Finance the impact Covid-19 has had on the fiscal position of the State; and if he will make a statement on the matter. [26343/20]

Freagraí scríofa

Minister for Finance

The Covid-19 pandemic has had a severe impact on our public finances. As a direct result of taking the necessary measures to support our economy and our health service, we have seen our fiscal position deteriorate sharply from a budget surplus last year to a very significant deficit now in prospect.

As of end-August, the Exchequer deficit stood at nearly €9.5 billion, reflecting the unprecedented level of Government intervention in the economy throughout this crisis. To date, fiscal support in response to the pandemic amounts to approximately €24.5 billion.

Preparation for Budget 2021 is currently underway. As I announced on September 16th, we will take the cautious and sensible approach of framing the Budget on the assumption of a ‘no trade agreement' Brexit scenario. Budget 2021 will continue counter-cyclical support for the economy in the short term, while targeting an improvement in the headline fiscal position.

It is essential that Ireland's fiscal position remains in line with that of other EU member states and that we do not become an outlier. The reason that we have been able to intervene on the scale that we have, is because of the work we have done over recent years to place the public finances on a sustainable trajectory.

Covid-19 Pandemic Supports

Ceisteanna (70)

Éamon Ó Cuív

Ceist:

70. Deputy Éamon Ó Cuív asked the Minister for Finance the effect the recent European Banking Authority advice in relation to Covid-19-related payments breaks is likely to have on those whose businesses or personal incomes continue to be affected by the ongoing Covid-19 pandemic; if he has had discussions with the banks operating here in relation to this matter; and if he will make a statement on the matter. [26624/20]

Freagraí scríofa

Minister for Finance

Payment breaks provided substantial and rapid relief to allow households and businesses to absorb the shock and impact of COVID-19. In April the European Banking Authority (EBA) published guidelines which provided regulatory flexibility to banks who offered borrowers a temporary payment break due to COVID-19. These guidelines were originally applicable until 30 June 2020 and their application was subsequently extended to 30 September 2020. Recently the EBA announced that there would be no further extension to the guidelines.

The guidelines were put in place to ensure banks could effectively manage the large volume of requests for payment breaks anticipated the beginning of the pandemic. Following the 30 September deadline, the pre COVID-19 standards will apply whereby banks consider requests from borrowers on a case by case basis.

The expiry of the guidelines do not prevent banks from engaging with customers who continue to experience difficulty beyond the deadline and all applicable consumer protections remain in place.  Borrowers who cannot return to full repayments following the conclusion of their payment break should engage with their lender as early as possible. The Central Bank expects lenders to take a consumer-focused approach at this worrying time for some of its customers.

Covid-19 related payment breaks provided under the industry led moratorium fall under the EBA guidelines which require that such loans are not automatically classified as defaulted. The Central Bank calculated that the number of Irish mortgage accounts with payment breaks provided by lenders was over 73,000 up to 29 May.

The longer term impact of COVID- 19 on bank capital levels will take some time to materialise however some increase in non performing loans is to be expected. The key retail Banks announced a significant increase in their provisioning for the first half of 2020 and this can be attributed to the deterioration in macroeconomic outlook due to COVID-19 and the potential risk that some loans may not be repaid.

However, it is important to note the efforts undertaken by the Central Bank of Ireland and the EU institutions to ensure that banks can absorb losses and continue to lend into the economy. The Central Bank have reduced the Countercyclical Capital Buffer (CCyB) from 1% to 0% and they estimate this will free up about €940 million of capital across the Irish retail banks to facilitate lending or help banks absorb losses. At an EU level, a number of support measures have already taken place. The European Central Bank announced that banks can temporarily operate below the Capital Conservation Buffer (CCB). Member States also passed a package of temporary measures known as the ‘Capital Requirements Regulation (CRR) quick fix’ which are designed to mitigate the economic consequences of COVID-19 and ensure that banks have sufficient capacity to lend.

I had a constructive meeting with the five CEOs of our retail banks and with Banking and Payments Federation Ireland (BPFI) yesterday, Monday 28 September. This discussion focused on payment breaks, the options available to borrowers once payment breaks expire and also on the level of credit and lending in the economy.

Economic Data

Ceisteanna (71)

Jim O'Callaghan

Ceist:

71. Deputy Jim O'Callaghan asked the Minister for Finance his Department’s current projection of the extent to which the economy will contract in 2020; and if he will make a statement on the matter. [26712/20]

Freagraí scríofa

Minister for Finance

My Department publishes macroeconomic forecasts twice a year, in the spring as part of the Stability Programme Update (SPU) and in the autumn as part of the Budget. At the time of the SPU, my Department projected that GDP would decline by -10.5 per cent this year. This was based on a scenario in which COVID-19 related containment measures remained in place for three months. Thereafter, a very gradual recovery commencing in the third quarter was assumed.

As expected, the suspension of all ‘non-essential’ economic activity during the second quarter of the year resulted in the Irish economy suffering the largest contraction on record, with a contraction in GDP of 6.1 per cent relative to the previous quarter.  As a result, the level of GDP was three per cent lower year-on-year. However, modified domestic demand, perhaps the best indicator of domestic economic activity, declined by 15.7 per cent year-on-year in the second quarter indicating that the domestic economy took the brunt of the economic shock.

Looking forward, a partial recovery in GDP is expected for the third quarter.  Retail sales in July were 4.7 per cent above the pre-pandemic (February) level with a range of ultra-high frequency indicators (e.g. payments data) pointing to a general stabilisation in August and September. Similarly in the labour market the numbers of persons on the pandemic unemployment payment has fallen by around two-thirds from a peak of 600,000 in early May, with large declines seen throughout July and early August.

Overall, while a contraction of the economy is still likely this year, it is not expected to be as severe as the GDP projection at the time of the SPU. This is largely due to the earlier than expected re-opening, and the resilience of Ireland’s export portfolio. However, the hit to the domestic economy will still be severe.

My Department will continue to analyse incoming domestic and global economic data, along with epidemiological developments, in preparation for its upcoming forecast as part of the Budget.

Corporation Tax

Ceisteanna (72)

Paul Murphy

Ceist:

72. Deputy Paul Murphy asked the Minister for Finance if he will consider introducing an emergency corporation tax levy in Budget 2021 on profitable corporations in areas unaffected or boosted by the pandemic such as medical devices, pharmaceuticals and information technology. [26789/20]

Freagraí scríofa

Minister for Finance

The trading profits of companies in Ireland are generally taxed at the standard corporation tax rate of 12.5 %.

In response to the effects resulting from Covid-19, this government has introduced a number of interventions that have focused on supporting individuals and businesses to continue to trade, thus supporting employment and incomes. For example, as part of the July Stimulus Plan, a number of tax measures were introduced or put on a legislative basis including: liquidity supports in the form of enhanced income tax and corporation tax loss reliefs, wage subsidy support and the warehousing of certain tax liabilities.

It is acknowledged that some sectors of the economy continue to trade profitably and may even have experienced increased demand as a result of the pandemic. However, the sustained tax receipts from these sectors, including corporation tax, VAT and income taxes, are critical to maintaining Exchequer revenues. In addition, all businesses, regardless of profitability, have had to adapt to operate in accordance with public health guidelines through the physical adaptation of premises to ensure social distancing, the provision of PPE and the facilitation of remote working, thus facing additional costs.

Changing the current corporation tax rate (or imposing additional levies on corporate profits) for specified businesses would involve increased complexity and could change the attractiveness of Ireland's corporate tax offering. It is not possible to accurately predict the effect that changes to the rate would have on the behaviour and decisions of multinational or domestic companies. While it is possible that imposing such a levy could lead to theoretical gains, it could also potentially lead to lower levels of economic activity and/or to companies passing the additional tax burden onto their staff, customers, suppliers and/or investors. Taking all these factors into account, I do not feel an additional levy of the nature proposed by the Deputy would be appropriate at this time. 

Question No. 73 answered with Question No. 49.

Credit Unions

Ceisteanna (74)

John Lahart

Ceist:

74. Deputy John Lahart asked the Minister for Finance if he will report on the review of the policy framework within which credit unions operate. [26718/20]

Freagraí scríofa

Minister for Finance

The Government welcomes the important work credit unions are doing to support communities throughout Ireland at this difficult time and recognises the key role that credit unions play in the delivery of financial services in local communities across Ireland.

There are a number of commitments set out in Programme for Government, including a review of the policy framework in which credit unions operate. Department officials have already begun work on this review, which will be expanded upon in the coming weeks and months, taking into account work already completed such as a recent Credit Union Advisory Committee (CUAC) review of the sector and a separate CUAC report on directors, which was finalised in February 2020. I recently discussed the review with the credit union bodies on a conference call on 2nd September. The views of key stakeholders will be taken into consideration as part of the review.

Mortgage Lending

Ceisteanna (75, 281, 288, 301)

Pádraig O'Sullivan

Ceist:

75. Deputy Pádraig O'Sullivan asked the Minister for Finance the engagement he has had with banks on their mortgage interest rates being amongst the highest in the Eurozone; and if he will make a statement on the matter. [26812/20]

Paul McAuliffe

Ceist:

281. Deputy Paul McAuliffe asked the Minister for Finance if he has had discussions with the banks as to the reason Ireland has amongst the highest mortgage interest rates in the eurozone; and if he will make a statement on the matter. [26715/20]

Paul McAuliffe

Ceist:

288. Deputy Paul McAuliffe asked the Minister for Finance if he has had discussions with financial institutions as to the reason that Ireland has one of the highest mortgage interest rates in the Eurozone; and if he will make a statement on the matter. [26991/20]

Bernard Durkan

Ceist:

301. Deputy Bernard J. Durkan asked the Minister for Finance the steps that can be taken to bring interest rates charged to home borrowers and others here into line with the levels prevailing throughout the Eurozone; and if he will make a statement on the matter. [27246/20]

Freagraí scríofa

Minister for Finance

I propose to take Questions Nos. 75, 281, 288 and 301 together.

While interest rates in Ireland remain higher than in many other European countries, the Central Bank has advised that trends show that they have been falling in recent years, providing benefit to consumers. For example, interest rates on fixed rate mortgages (excluding renegotiations) have fallen from 4.11% in December 2014 to 2.67% in July of this year. There have also been reductions in interest rates on loans to SMEs from 5.19% to 4.26% from Q1 2015 to Q1 2020, as well as reductions in interest rates on consumer loans (for example, from 8.13% to 7.08% on APRC consumer loans over the same period).

Nevertheless, it should also be noted that Irish loans, particularly with respect to Irish mortgages, can have different characteristics from those offered by other EU banks making direct comparison of headline mortgage rates inconsistent. For example, many Irish banks include incentives such as cash back offers, which reduce the effective Irish mortgage interest rate. Irish mortgages are also not subject to upfront fees typically charged by banks in other EU jurisdictions, and which can result in lower EU headline rates.

Nevertheless, there are a number of important factors determine the interest rates charged on Irish mortgages. These include operational costs, certain structural factors as referenced above (such as incentives offered), as well as the fact that pricing will reflect:

- credit risk and capital requirements which in Ireland are elevated due to historical loss experience;

- the level of non-performing loans which is higher in Ireland relative to other European banks (as provisioning and capital requirements are higher for these loans to reflect their higher risk and this in turn results in higher credit and capital costs for the Irish banks);

- there are lower levels of competition in the Irish banking market compared to other jurisdictions (however, it is noted that a new entrant has recently entered the residential mortgage market and that it is offering fixed rate mortgages at competitive interest rates).

The Central Bank has a range of measures to protect consumers who are taking out a mortgage.  The consumer protection framework requires lenders to be transparent and fair in all their dealings with borrowers and that borrowers are protected from the beginning to the end of the mortgage life cycle; through protections at the initial marketing/advertising stage, in assessing the affordability and suitability of the mortgage and at a time when borrowers may find themselves in financial difficulties.

In particular, the Central Bank introduced of a number of increased protections for variable rate mortgage holders which came into effect in February 2017. The enhanced measures, which are provided for in an Addendum to the Consumer Protection Code 2012, require lenders to explain to borrowers how their variable interest rates have been set, including in the event of an increase. The measures also improve the level of information required to be provided to borrowers on variable rates about other mortgage products their lender provides which could provide savings for the borrower and signpost the borrower to the CCPC’s mortgage switching tool.

The Central Bank also introduced additional changes to the Consumer Protection Code in January 2019 to help consumers make savings on their mortgage repayments, provide additional protections to consumers who are eligible to switch, and facilitate mortgage switching through enhancing the transparency of the mortgage framework.

Ultimately, however, the price lenders charge for their loans is a commercial matter for individual lenders.  Nevertheless, I will continue to work with the Central Bank and also engage with lenders to encourage, within a framework which seeks to maintain overall financial stability, greater price and other competition in the mortgage market, both for new and existing borrowers.  It is, therefore, a welcome development that a new residential mortgage lender has recently entered the market and it will be of benefit to new mortgage borrowers and also to borrowers, in particular to borrowers who may still on a standard variable rate with the lender, who may wish to consider switching to a new lender.