Thursday, 16 Jun 2022

Written Answers Nos. 1-20

Mortgage Interest Rates

Ceisteanna (4)

Mattie McGrath

Ceist:

4. Deputy Mattie McGrath asked the Minister for Finance the steps that he is taking to improve the competitiveness of mortgage interest rates particularly with rates due to increase and the withdrawal of banks (details supplied) from the Irish market; the steps that he is taking to bring the variable interest rates here back in line with the Eurozone average rate of 1.46 % compared to Irish average variable rates of 3.64 %; and if he will make a statement on the matter. [31521/22]

Freagraí scríofa

Minister for Finance

I am aware that the general level of new lending interest rates in Ireland are higher than is the case in many other European countries. However, the price lenders charge for their loans is a commercial matter for individual lenders. As Minister for Finance I cannot determine the lending policies of individual banks including the interest rates they charge for loans including mortgages.

Despite this, it should also be noted that recent trends indicate that certain mortgage rates have been falling in Ireland. For example, the interest rates on new mortgages (excluding renegotiations) have fallen from 4.05% in December 2014 to 2.77% in April 2022. (The average for the euro area in April 2022 was 1.59%, although rates varied considerable across countries).

The weighted average interest rate on new fixed rate mortgage agreements stood at 2.59% in April 2022, down from a series high of 4.11% in December 2014. It is also worth noting that a significant portion of new mortgages – 82% in April 2022 - are now fixed rate mortgages and this will protect borrowers in the event of a rise in official and market interest rates at least for the period that the interest rate is fixed. There has also been a reduction in the interest rates charged on loans to SMEs and consumers over the same period.

However, Irish mortgage and other loans can have different characteristics from those offered in other countries. For example, many Irish banks include incentives such as cash back offers, which reduce the effective Irish mortgage interest rate. Also Irish mortgages are generally not subject to upfront fees which are typically charged by banks in some other EU jurisdictions.

There are also a number of important factors which will likely influence the interest rates charged on Irish mortgages. These include for example 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); and

- higher cost-to-income ratios which has been a characteristic of the Irish banking sector in recent years

To support consumers when considering what mortgage option is best for them, the Central Bank introduced a number of increased protections for variable rate mortgage holders in 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 which could provide savings for the borrower and signpost the borrower to the Competition and Consumer Protection Commission's (CCPC) mortgage switching tool.

The Central Bank also introduced additional changes to the Consumer Protection Code in 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.

Consumers can reduce average pricing in the mortgage market by availing of switching options to ensure that recent and potential future price reductions through increased competition pass through to the greatest number of customers possible. Indeed a Central Bank study estimated that three in every five ‘eligible’ mortgages for principal dwelling homes stand to save over €1,000 within the first year if they switch and €10,000 over the remaining term.

To conclude I appreciate that greater sustainable competition in the credit market will be of benefit to consumers and other borrowers. Accordingly, the review of the retail banking market which is now underway in my Department will consider how the banking system can best support economic activity, assess competition and consumer choice in the market for banking services and consider options to further develop the mortgage market.

Questions Nos. 5 to 12, inclusive, answered orally.

Flexible Work Practices

Ceisteanna (13)

Alan Dillon

Ceist:

13. Deputy Alan Dillon asked the Minister for Finance if he will support future changes to the current tax arrangements to reinforce support for remote working given the Government’s policy to facilitate same; and if he will make a statement on the matter. [31359/22]

Freagraí scríofa

Minister for Finance

The Programme for Government includes a commitment to facilitate and support remote working. The National Remote Work Strategy aims to make remote work a permanent feature of the Irish working experience in a way that maximises the economic, social and environmental benefits.

As part of the national remote working strategy: Making Remote Work, in 2021 the Tax Strategy Group (TSG) reviewed the tax arrangements for remote working in respect of both employees and employers. The TSG paper outlines the effects of Covid-19 on remote working in Ireland, provides an international comparison of remote working tax rules, sets out options for consideration with regard to enhancing the tax arrangements for both employers and employees in respect of remote work and evaluates those options in accordance with the Department of Finance Tax Expenditure Guidelines. The paper is published on the gov.ie website.

The TSG paper noted that changes to the tax arrangements for remote working may give rise to issues of deadweight loss and economic inefficiencies, as well as equity issues in the personal income tax system. The paper also noted that in the context of a whole of Government policy to facilitate and support remote working, it may be considered appropriate to enhance or amend the current tax arrangements in order to underline and reinforce public policy decisions in this area.

Taking these factors into consideration, as the Deputy will be aware, in the Finance Act 2021, were enhanced and formalised the tax arrangements for working from home in line with Government policy to facilitate and support remote working. Accordingly, for the tax year 2022, an income tax deduction amounting to 30% of the cost of vouched expenses for electricity, heat and broadband in respect of those days spent working from home can be claimed by taxpayers.

The amount of the relief will depend on the particular circumstances of the remote worker in terms of the level of costs incurred and their marginal tax rate. However, this measure provides some relief for those with additional expenses arising from working from home, and at the same time it ensures that the traditional burden of employer related costs are not transferred from the employer to the State and the wider body of taxpayers.

There are no immediate plans to further increase the tax relief for working from home.

Credit Unions

Ceisteanna (14)

Michael Moynihan

Ceist:

14. Deputy Michael Moynihan asked the Minister for Finance when he will bring forward his proposals on reforming the credit union policy framework; and if he will make a statement on the matter. [30071/22]

Freagraí scríofa

Minister for Finance

This Government recognises the importance of credit unions. The Programme for Government contains commitments to:

- Review the policy framework within which credit unions operate;

- Enable and support the credit union movement to grow;

- Support credit unions in the expansion of services, to encourage community development; and

- Enable the credit union movement to grow as a key provider of community banking in the country.

With regard to fulfilling the commitments in the Programme for Government for credit unions, the Review of the Policy Framework has been completed.

In March I met with all the credit union representative bodies who broadly supported the proposals emanating from the Review process. Legislation to implement the proposals will go to Cabinet shortly.

The policy proposals contained in the Review address five key objectives:

1. Improving member services

2. Supporting investment in collaboration

3. Supporting Governance

4. Recognition of the role of credit unions

5. T ransparency of regulatory engagement

Cumulatively, the desired outcome of these objectives is to strengthen the role of credit unions as a provider of community banking and to further enable credit unions to focus on priorities that will better position the sector to face the challenges and opportunities of the future.

In developing these proposals I have met the Irish League of Credit Unions, the Credit Union Development Association, the Credit Union Managers Association, the National Supervisors Forum, the Registrar of Credit Unions, the Credit Union Advisory Committee, the CEO Forum, collaborative ventures and many individual credit unions.

In total, I have held over 40 stakeholder meetings with the credit union sector and considered well over 100 proposals.

Inflation Rate

Ceisteanna (15, 25)

Bernard Durkan

Ceist:

15. Deputy Bernard J. Durkan asked the Minister for Finance the extent to which he expects to be in a position to counter inflation in a way which best affects the economy and taxpayers; and if he will make a statement on the matter. [31271/22]

Bernard Durkan

Ceist:

25. Deputy Bernard J. Durkan asked the Minister for Finance the degree to which he put in place anti-inflationary measures in a way which safeguards the economy and is in the interest of the Irish taxpayer; and if he will make a statement on the matter. [31272/22]

Freagraí scríofa

Minister for Finance

I propose to take Questions Nos. 15 and 25 together.

Inflation picked up sharply over the course of the last year and in May stood at 8.3 per cent, a multi-decade high. Almost every advanced country in the world is in the same position, with euro area inflation reaching a record 8.1 per cent in May.

The key driver behind the elevated level of inflation at present is the sharp rise in wholesale energy prices since the onset of the war in Ukraine. Looking ahead, increases in wholesale energy prices will continue to feed into higher energy inflation over the coming months. Pass-through price effects are expected in other sectors, such as food (via fertilisers and fuel costs) and consumer goods (via higher energy inputs). Indeed, the recent rise in core inflation suggests that inflationary pressures are becoming increasingly broad-based.

The Government is acutely aware of the cost pressures currently facing households and businesses and has responded to help alleviate some of this burden. On a cumulative basis, the Government has announced €2.4 billion in cost of living measures since last October. These measures include changes in tax and social welfare, the provision of an energy credit for households, a temporary reduction in the rate of VAT on the supply of gas and electricity and a reduction in the excise rate for petrol, diesel and marked gas oil.

Whilst the Government will continue to work to minimise the fall-out on those who are least-equipped to respond, resources are limited and we cannot cushion all households and businesses from the entire impact of the current shock. Furthermore, in calibrating how we respond to the current challenges, it is important that we strike the right balance and ensure that policy doesn’t inadvertently add further inflationary pressures into the system.

Finally, it is worth pointing out that monetary policy is the first line of defence against inflation. In this context, the European Central Bank has indicated a tightening of policy in the coming months. By slowing demand in the economy, this should help bring demand and supply back into balance, with positive implications for inflation.

Tax Code

Ceisteanna (16)

Aengus Ó Snodaigh

Ceist:

16. Deputy Aengus Ó Snodaigh asked the Minister for Finance if consideration has been given to temporarily lowering the VAT rates, as was done for the hospitality industry on building materials and services to address the hyper-inflation which is driving the cost of homes further out of reach of young couples and delaying other projects due to spiralling construction costs; and if he will make a statement on the matter. [31303/22]

Freagraí scríofa

Minister for Finance

I am advised by Revenue that the VAT rating of goods and services is subject to EU VAT law, with which Irish VAT law must comply. In general, the Directive provides that all goods and services are liable to VAT at the standard rate unless they fall within Annex III of the Directive, in respect of which Member States may apply either one or two reduced rates of VAT. Ireland currently operates two reduced rates of VAT, 13.5% and 9%, as permitted by the Directive. Hotel and holiday accommodation is listed in Annex III of the Directive and, therefore, can be subject to VAT at a reduced rate.

However, building materials are not included in the categories of goods and services on which the EU Directive allows a lower rate of VAT or an exemption to be applied, and so they are liable to VAT at the standard rate. By way of special derogation from the general rule though, Ireland is permitted to continue its long-standing practice of applying a reduced rate, currently 13.5%, to the supply of ready-to-pour concrete and certain concrete blocks but there are strict restrictions on this derogation, including that the rate cannot be reduced below 12%.

In addition, under the EU VAT Directive the supply of construction services is liable to VAT at the standard rate generally across the EU but Ireland applies a 13.5% reduced rate of VAT to all construction services under a derogation from the EU VAT Directive, again subject to strict restrictions. The Deputy will be aware that this derogated rate also applies on sales of new homes.

Following lengthy negotiations the new agreement on VAT rates that came into force in April allows Ireland to maintain this derogation rather than apply the standard rate of VAT.

Economic Policy

Ceisteanna (17)

Matt Shanahan

Ceist:

17. Deputy Matt Shanahan asked the Minister for Finance the concerns that he may have regarding recent reports that Ireland’s domestic economy has contracted by 1% quarter-on-quarter in the first three months of the year; the steps that he and his Department are taking to ensure rising inflation does not spiral beyond manageable levels; and if he will make a statement on the matter. [31006/22]

Freagraí scríofa

Minister for Finance

The first quarter of this year was a weak one for the domestic economy. This was a result of numerous headwinds at the start of the year, including the Omicron wave of the virus, inflationary pressures, and the high level of uncertainty stemming from the war in Ukraine.

Modified domestic demand, my preferred measure of domestic economic activity, declined by -1 per cent in the first quarter. Consumer spending, a major component of MDD, decreased by -0.7 per cent, reflecting the impact of restrictions that were in place in the early part of the first quarter along with the weakness in consumer sentiment and the spike in prices following the outbreak of the war in Ukraine in the latter part. Business investment softened somewhat in the first quarter, although we did see strong growth in new housing investment. This followed a very high level of business investment in the fourth quarter of last year.

The weak first quarter for the domestic economy comes at a time of unprecedented geopolitical instability and uncertainty. The onset of the war in Ukraine and the associated economic and financial sanctions represent a large ‘supply-side’ shock to the world economy, one which has resulted in inflationary pressures rising sharply – and globally – as a result. Consumer price inflation in Ireland rose to a multi-decade high of 8.3 per cent in May.

The Government has responded to help ease the impact of price rises, with the announcement of €2.4 billion in measures to address the cost of living to date including measures announced in Budget 2022 . The Government will continue working to ensure the fall-out is minimised for those who are least-equipped to respond, but we cannot shield all households and businesses from the entirety of the impact.

On a positive note, the labour market has remained resilient despite these challenges. Employment levels were very strong in the first quarter, with a record 2½ million people in employment. Wages are rising, with total earnings up 2½ per cent over the first quarter. The external side of the economy also continues to perform very strongly with exports in the quarter exceeding €150 billion.

Tax Code

Ceisteanna (18)

Brendan Griffin

Ceist:

18. Deputy Brendan Griffin asked the Minister for Finance the measures that he is considering to reduce the burden of taxation on renters, renovators, first-time buyers and landlords with single properties; if he will consider a special package to assist the categories aforementioned; and if he will make a statement on the matter. [31299/22]

Freagraí scríofa

Minister for Finance

Housing policy is a matter in the first instance for my colleague the Minister for Housing, Local Government and Heritage.

The Deputy's question is focused on a number of specific categories of stakeholder in the property market. However, I would like to highlight that the Government's ‘Housing for All ’ strategy sets out the Government comprehensive policy to address housing in all its various aspects and to create a sustainable housing system into the future.

The strategy is a multi-annual, multi-billion euro plan to improve Ireland’s housing system and deliver more homes of all types whilst addressing pressures within our housing market. This approach is expected to benefit both prospective owner-occupiers and renters by addressing the mismatch between demand and supply which has been a long-standing characteristic of the housing market.

The role of the Minister for Finance is in relation to taxation. The specific actions which the Department of Finance is tasked with delivering under Housing for All are:

1. Consider extension to Help to Buy; this was completed in Q4 2021.

2. Introduce a new vacant land tax, which was the Residential Zoned Land Tax, completed in Q4 2021.

3. Assess the adequacy of funding for Housing for All targets, which was completed also in Q4 2021;

4. Review the Help to Buy scheme to ensure it is appropriately calibrated, which was completed in Q3 2021. In this regard, I might note that the current comprehensive review of the scheme arose on foot of a recommendation made in that 2021 exercise;

5. Collect data on vacancy with a view to introducing a vacant property tax; this is due for completion at the end of Q2 2022;

6. Review the options on the tax and fiscal treatment of rental accommodation providers, which is due in Q3 2022;

7. Expand data sharing efforts between the Residential Tenancies Board and Revenue and the Department of Housing, Local Government and Heritage, which is due in Q1 2023; and

8. Increase funding for the Land Development Agency, which is due in Q1 2024.

In relation to first-time buyers, the Help to Buy scheme was extended in Budget 2022 until 31 December 2022 and, as I referenced already, the scheme is being reviewed in a comprehensive way at present.

On the question of the tax treatment of landlords' rental income, as I said, my Department is committed to review the recommendations of the Report of the Working Group on the Tax and Fiscal Treatment of Rental Accommodation Providers (2017) . A copy of the 2017 report is available on the Department's website [at: www.gov.ie/en/collection/51d1c-budget-2018/ ]. I understand that the review is currently in hand.

As indicated to the Deputy previously in the replies to his questions no. 82 dated 1 June 2022 and no. 208 of 2 June 2022, proposals for any new tax reliefs must be assessed in accordance with my Department's Tax Expenditure Guidelines. These make clear that it is important that any policy proposal which involves tax expenditures should only occur in limited circumstances. In particular, they provide that a tax-based incentive should only be considered where it would be more efficient than a direct expenditure intervention.

Ireland’s past experience with tax incentives in the property sector strongly suggests the need for a cautionary stance when considering State intervention.

Covid-19 Pandemic

Ceisteanna (19)

Colm Burke

Ceist:

19. Deputy Colm Burke asked the Minister for Finance the current position pertaining to the Covid-19 related tax warehousing given the impact of rising costs on businesses; and if he will make a statement on the matter. [31254/22]

Freagraí scríofa

Minister for Finance

The Debt Warehousing Scheme was introduced to provide a vital liquidity support to businesses suffering a downturn due to the Covid-19 pandemic. Under the scheme, businesses can temporarily ‘park’ certain tax debts on an interest free basis until the end of this year (or until 30 April 2023 for businesses most impacted by the most recent public health restrictions and who are eligible for certain Covid-19 support schemes).

Debt warehousing allows for the deferral of the payment of VAT, PAYE (Employer) and certain self-assessed income tax labilities, and overpayments under the Temporary Wage Subsidy Scheme (TWSS) and the Employment Wage Subsidy Scheme (EWSS). It provides a vital liquidity support to businesses experiencing cash-flow and trading difficulties due to the COVID-19 pandemic.

As of 31 May 2022, €2.9 billion has been warehoused, comprised of €1,362 million in VAT, €1,371 million in Employers PAYE, €56 million in Income Tax, €53 million in TWSS overpayments and €37 million in EWSS overpayments.

Almost 90,000 individual entities are availing of Debt Warehousing, including 8,000 taxpayers who have warehoused €172 million under the recent extension to warehousing for certain businesses.

To retain the benefits of the scheme, it is essential that all tax returns are filed, even if the liability cannot be paid or there is no liability. This has been a key condition of the scheme since its commencement. In addition, current taxes must be paid as they fall due.

Recent reports indicate that Government supports, including the debt warehousing scheme, have so far prevented the level of business failures that would otherwise have been expected from trading restrictions. The ESRI estimated that the level of financial hardship would have been 72% higher without the €10 billion in wage subsidies paid by the Government during the pandemic. The CSO published data on rates of business survival in 2020-2021 which found that 84% of enterprises trading normally in 2019, employing 1.4 million people, had survived by the end of 2021.

Tax Code

Ceisteanna (20)

Pádraig O'Sullivan

Ceist:

20. Deputy Pádraig O'Sullivan asked the Minister for Finance if he plans to engage with his counterparts in the European Union with a view to revising the VAT treatment of home heating oil in Ireland similar to the recent VAT reduction in electricity and gas; and if he will make a statement on the matter. [31282/22]

Freagraí scríofa

Minister for Finance

As the Deputy will be aware, Minister Donohoe has already engaged with Commissioner Gentiloni on this issue. The Deputy should note that in his correspondence the Minister outlined the various actions he had taken to mitigate the cost of energy for households and businesses in Budget 2022, as well as the additional €505m support package introduced in February. He also outlined the further package of measures in March which provided for a reduction in excise duty on petrol of 20 cent; diesel 15 cent and Marked Gas Oil of 2 cent.

The Minister acknowledged the importance of the Energy Tax and VAT Directives, in particular the framework they provide for a consistent application of these taxes across all Member States. However, in the context of the significant increases in energy prices, he outlined the limitations of the recent changes to Annex III of the VAT Directive given that reduced rates may only be applied to gas and electricity, and therefore other fuels remain outside the scope of the reduced rates. In this context the Minister asked the Commission to consider allowing Member States to respond to the crisis with greater flexibility than is permitted under the Directives.

On 23 April, Commissioner Gentiloni wrote to all Finance Ministers in relation to the energy crisis, responding to points Minister Donohoe and his European counterparts have raised. The Commissioner highlighted the current flexibility provided by EU Directives, including the newly agreed amendment to VAT rates. The Commissioner indicated that the Commission does not envisage any further revisions of the EU taxation framework to respond to the current crisis.

Minister Donohoe and his officials will continue to engage with the Commission and with their European counterparts to seek the maximum degree of flexibility for Member States to respond to the current energy crisis. It should be noted that any change to the VAT Directive would require unanimity from all Member States and that the recent amendment to VAT rates within the Directive was the result of four years of negotiations.