merrion street

I made the point at the start of this Debate on Tuesday that this Finance Bill contains a number of measures designed to support investment, stimulate research and, ultimately, create jobs. This Government considers the labour market to represent its biggest challenge and the Bill must be viewed as part of a package of measures designed to help us achieve our employment objective

This objective is itself a part of a larger overall agenda where we attempt to maintain the progress we have made so far as we journey back towards economic prosperity and fiscal autonomy.

I will now turn to the points made by Deputies during the course of the debate. 

In relation to SARP, I would make the point to Deputies McGrath, Doherty and Murphy that the production of a cost-benefit analysis for this scheme would involve pure supposition, as regards potential uptake and the knock-on potential for additional job creation. As I have previously indicated, the exemption will be provided for an introductory period of three years (until tax year 2014), at which point it will be reviewed. In tandem with our corporation tax rate, this relief will help us to compete for Foreign Direct Investment.

As regards linking the relief available under SARP to investment and job creation, which was raised by a number of Deputies, I would like to make it clear that this scheme is designed to reduce the costs of businesses in assigning key individuals to the Irish based operations of their employers, by ensuring that such individuals are not out of pocket, as a result of taking up such an assignment. However, job retention is also a valid policy objective of the scheme.   While Deputies McGrath and Doherty expressed concerns that the relief could be used to assign an individual to wind down a project or business, the requirement that an individual must be assigned for a minimum period of one year for the SARP to apply, should protect the Exchequer in this regard.

Deputy McGrath also suggested the 30 day limit on the amount of time that a qualifying individual under SARP can spend outside the State should be relaxed and this will be examined for Committee Stage.

Deputy Doherty asked about the model on which SARP was based and I would like to inform him that it is loosely based on the relief available in the Netherlands.

I would like to assure Deputy McGrath that Irish citizens who are the subject of assignments back to Ireland under SARP will qualify for the scheme provided they have not paid tax within the previous 5 years in Ireland.

Deputy Nulty made reference to the scheme of relief that SARP will replace. I understand that there was little take up of that scheme and thus it was not helping Ireland to compete for foreign direct investment with other European countries. . This brings me on to the points made by Deputies Halligan and Daly regarding evaluation of the scheme that SARP will replace. That scheme was unsuccessful and thus there are no data on which to base an evaluation of it.

I note Deputy McGrath’s comments in relation to the foreign earnings deduction.. It is only at the end of the tax year that the total number of days spent in the BRICS countries can be ascertained. However, similar to SARP, it has been introduced on a trial three-year basis.

Deputy Fleming suggested that the requirement to be present in the relevant countries abroad for 10 days in a single trip is too onerous. This condition has also been raised by others and I propose to consider the matter for Committee Stage.

I note that the changes to the R&D tax credit scheme have been broadly welcomed. However, it has been suggested that the measure to reward key employees is too restrictive in nature.  This is a new measure and I am introducing it on the basis that it will not cost the Exchequer anything. My Department and the Office of the Revenue Commissioners will be monitoring the use of this measure closely. 

Deputy Lyons also mentioned the Canadian R&D regime which gives generous tax breaks to the gaming industry in particular. Our R&D scheme is subject to State Aid rules, which is a restriction to which my Canadian colleagues do not have to adhere. 

I would like to thank Deputy McGrath and Deputy Doherty for broadly welcoming the changes to the Universal Social Charge.  As Deputy Doherty pointed out, the exemption increase from €4,004 to €10,036 will remove some 330,000 income earners from the charge to the USC and will benefit part-time and low paid workers.

Deputy McGrath mentioned that move for the USC to cumulative system would “claw-back” €11 million more than the exemption would cost.  The estimated full year costs and savings from these measures are broadly similar.  The important point is that the savings made from moving to a cumulative system has allowed me to remove 330,000 low paid workers from liability to USC altogether, and on a cost neutral basis. 

I note Deputy Colreavy’s (SF) welcome for my proposals introducing an enhanced scheme of stock relief for registered farm partnerships.  

These proposals, which are part of a range of measures related to farming, reflect this Government’s commitment to supporting and facilitating growth and expansion in the key agri-food economic sector.

Deputies Doherty and McDonald spoke at length about the impact of income tax changes from the previous Government’s Budgets and Finance Bills   If the Deputy consults the 2012 Budget Book he will see, set out in tables, that families on low and middle incomes do not see any increase in their income tax liability as a result of my Budget.  I thank Deputy Donohoe for making this very point during the debate.

I would like to thank Deputies McGrath, Murphy and Donohoe for welcoming the Mortgage Interest Relief measure provided for in the Budget.  

Deputy Kevin Humphreys and Deputy Troy said that they felt that the mortgage interest relief was not targeted enough. Firstly, the measure is limited to the four year period when house prices were at their peak.  Secondly, the measure is limited to first-time buyers who purchased their first property in that particular period.  Thirdly, the relief is applied to the interest on the loan and is most effective in the early years of a mortgage when the interest portion of the repayment is at its highest.

I would like to thank Deputies Harris and Heather Humphreys for welcoming the changes to Mortgage Interest Relief and the USC. I thank Deputy O’Reilly also and I would like to agree with him that the measures being introduced in relation to the taxation of Civil Partnerships in this Bill are positive in relation to social equality.

Deputy Stanley said that the removal of the tax exemption for the first 36 days of Illness Benefit and Occupational Injury Benefit is an attack on the sick.  That is simply not the case.  The exemption is being removed because in some instances, individuals who were in receipt of one of these benefits, and being paid by their employers, had a higher take home pay than when they were working. 

Deputy Healy mentioned the possibility of introducing a wealth tax; Deputy Donnelly suggested a similar measure. Deputy Healy suggested the potential yield from such a tax could be €10 billion.  Based on tax returns for 2010, fewer than 5% of all taxpayers had incomes in excess of €100,000 and fewer than 1% of all taxpayers have income over €200,000, so the base for a wealth tax on individuals with income over €100,000 is quite small. 

Capital Gains Tax (CGT) and Capital Acquisitions Tax (CAT) are, in effect, taxes on wealth. This Bill increases the rate of both these taxes from 25% to 30%, to align the rates with the “high earners restriction”.  

Deputy Healy also mentioned “tax exiles”.  This Bill makes provision for the Budget announcement that the citizenship condition for the Domicile Levy should be abolished.  I thank Deputy Nash for acknowledging the change to the Domicile Levy.

I also announced in the Budget my intention to undertake a public consultation process on our tax residence rules.

National Pensions Reserve Fund

Deputy Nulty asked why the National Pensions Reserve Fund could not be used for investment in Ireland. The Government announced the establishment of the Strategic Investment Fund In September 2011.

The Strategic Investment Fund will, following appropriate legislative changes to the statutory investment policy of the National Pensions Reserve Fund (NPRF), channel commercial investment from the NPRF towards productive investment in the Irish economy. 

In response to the points raised by Deputy Donnelly, my colleague the Minister for Public Expenditure & Reform is continuing vigorously to pursue further cost saving measures that are fair, targeted, and appropriate across the public service. 

Budget 2012 introduced a package of adjustment measures totalling €3.8 billion. I can assure Deputy Donnelly that the Government is well aware that these measures are having an impact on the living standards of our citizens. But I have to stress again that we cannot spend money we do not have. 

Deputies Stanley and McConologue raised the issue of bondholder repayments. This is not a Finance Bill issue and I think the Deputies will be aware that the Government has committed to ensure that there is no forced or coerced involvement by the private sector burden sharing on Irish senior bank paper or Irish sovereign debt without the agreement of the ECB. 

Deputies Fleming and O’Donnell raised the matter of the availability of cheap alcohol.  I acknowledge that it is a problem which needs to be addressed  and Minister of State Shortall is considering a number of options in this regard. 

Deputy Fleming also raised the matter of the large level of illicit cigarettes available in this country. I can tell the Deputy that in 2011 Revenue enforcement officers seized 109 million cigarettes with a retail value of €46 million and 11,158 kgs of tobacco with a retail value of €4 million, and secured a large number of convictions as a result. Figures to date in 2012 show that 2.6 million cigarettes with a retail value of €1.13m and 1,572 kgs of tobacco with a retail value of €582,000 have been seized, with further convictions secured.  

I thank Deputies Phelan and Kevin Humphreys for their support for the measures contained in the Bill to combat revenue offences. In response to concerns raised by a number of Deputies, including Deputy Dooley and Deputy Heather Humphreys, I would point out that the Bill includes specific additional powers for Revenue for the purposes of investigating serious tax criminality, including oil laundering and cigarette smuggling.

In response to the points on VAT raised by Deputies Doherty and Fleming I would say that the Budget increase in the standard VAT rate was part of a general package of raising revenues measures to contribute to Exchequer funding and is in line with commitments made in the Programme for Government and in the EU/IMF Programme.  The €670 million raised by this VAT increase will go some way towards funding other costs in Exchequer spending.

To Deputies McGrath, Fleming, Flanagan, McDonald and Nulty I would say this 2% VAT increase should not disproportionately affect those less well off.  The increase in the standard rate of VAT will have no impact on the price of basic food and domestic fuels, children’s clothes and shoes and oral medicines.  Nor will it impact on hotel and restaurant services, housing and construction, and labour-intensive services. 

Deputies Fleming and Donnelly questioned whether the VAT increase estimate takes into account consumer behaviour. The projection for personal consumption in 2012, upon which the Budget 2012 VAT forecast is primarily based, takes account of the rate change along with other factors affecting household spending (such as uncertainty and balance sheet rebuilding). 

Finally on VAT, I will look at the issue of VAT on historic houses and gardens which was raised by Deputy Harris.

Regarding the suggestion by Deputies Murphy & Flanagan to ring-fence the carbon tax revenue with a view to using it for retrofitting of homes, it is the general practice not to ring-fence revenues for specific purposes but rather take an overall view on priorities in the context of Expenditure decisions which, of course, are dependent on Exchequer revenues.  In this regard receipts from taxation, including the carbon tax, are used to fund, among other things, energy efficiency. 

The Deputies may wish to note that the Minister for Communications, Energy and Natural Resources, Pat Rabbitte T.D. published the Affordable Energy Strategy on 27th November last.  

Before I conclude, I would advise Deputy Stanley that the issue of local authority loans is a matter for my colleague, the Minister for the Environment, Community and Local Government. However I am aware that his Department is currently preparing updated guidance to local authorities in consultation with the City and County Managers Association.  

To conclude, I would like to thank the many Deputies who have made considered and useful contributions to this debate. There are still a small number of matters under consideration for inclusion at Committee Stage and I look forward to another informed discussion.  Consideration will, of course, be given to any constructive suggestions put forward during the Debate here over the last number of days.