Finance (No. 2) Bill 2023: Second Stage

Minister for Finance (Deputy Michael McGrath)

I move: "That the Bill be now read a Second Time."

We are here to start our consideration of the Finance (No. 2) Bill 2023, which will give the necessary legal basis to the decisions announced in the budget and make a number of other necessary changes to tax legislation. I will begin by outlining the aims of the Bill and move on to highlighting certain key measures before discussing the more granular contents.

In my Budget Statement two weeks ago, I noted Ireland’s positive economic performance. Inflation is persisting, however, and many households and businesses are facing considerably challenges due to rising prices. Accordingly, budget 2024 will provide further support to individuals, families and businesses at a time when the cost of living remains high. The total budget 2024 package amounts to €14 billion, comprising a core expenditure package of just under €5.3 billion and a tax package of more than €1.1 billion, which give a total core budget package of €6.4 billion. This is in line with the budgetary parameters set out in the summer economic statement last July. There is also a package of one-off cost of living measures of €2.7 billion, net of windfall revenues from the energy sector. In addition, there is non-core expenditure of €4.75 billion, including an additional €250 million for the public capital programme funded by windfall corporation tax receipts.

The Bill will make a number of changes to tax legislation to reflect international developments, with a large portion dedicated to the implementation of the EU minimum effective tax rate for large groups and companies. The Bill will implement a range of targeted tax changes including the cost-of-living supports to families and businesses, introduce new measures and amend existing measures specifically targeted at supporting the housing market and encouraging investment in certain businesses. It also contains a number of administrative changes and seeks to protect and enhance the integrity of our tax code. I look forward to bringing this important Bill through the Oireachtas over the coming weeks.

For the third year in a row, the Government has provided a significant income tax package. The package I announced on budget day, I believe, helps avoid a situation whereby an individual would end up paying a higher burden of tax as their income rises. The changes are in line with the programme for Government and will ensure people at all income levels benefit. The €1.3 billion package for 2024 includes raising the personal, employee PAYE and earned income tax credits by €100 each to €1,875. The standard rate cut-off point for income tax will also increase by €2,000 to €42,000 for a single person, with commensurate increases in the bands applying to married persons and persons in civil partnerships. Furthermore, the Bill will increase the home carer tax credit to €1,800, in line with the programme for Government commitment to support families. Likewise, the single-person child carer credit will increase to €1,750, while the incapacitated child tax credit will increase to €3,500.

To take account of the national minimum wage increase, which will apply from 1 January 2024, the 2% rate band ceiling for the universal social charge will increase to €25,760. Moreover, the 4.5% rate of universal social charge, USC, applicable to incomes between €25,761 and €70,044 per annum will reduce to 4%. The Bill will also extend the concession for those who have a medical card and earn less than €60,000 per year, such that those individuals will pay a reduced rate of USC until the end of 2025.

Other elements of the Government’s cost-of-living support package include a 12-month extension of the reduced, 9% VAT rate for gas and electricity. Estimates indicate consumers using electricity will save an additional €90 on average during this period, while those who use gas will save an additional €62. Given the recent volatility in international oil prices, the Bill will also defer the final tranche of fuel excise increases, which were due to happen at the end of October. A phased restoration will take place in two equal instalments, on 1 April and 1 August 2024.

In respect of the benefit-in-kind, BIK, regime for company vehicles, the Bill will extend for a further year the temporary universal relief of €10,000 on the original market value, OMV, on vans and certain categories of cars. Additionally, the Bill will provide for a temporary suspension of the tapering of the preferential BIK relief for battery electric vehicles. This will maintain the existing €35,000 OMV reduction for 2024 and 2025, followed by a reduction to €20,000 in 2026 and €10,000 in 2027, supporting Government policy to incentivise the transition to electric vehicles while allowing lead-in time for fleet planning by businesses.

Indigenous businesses are the backbone of our economy. As such, one of the budget priorities this year was to create and maintain an environment that allows businesses to thrive. The Bill, therefore, will bring a number of changes to existing tax measures to support enterprise, such as in respect of the research and development tax credit, and increase the credit from 25% to 30% so as to maintain the net value of the credit for businesses subject to the new 15% minimum effective tax rate.

It also delivers a real increase for companies that do not fall within scope of that new regime. Further, the Bill doubles the first year payment threshold from €25,000 to €50,000 to provide valuable cashflow support to companies engaged in research and development projects. I plan to introduce a new targeted relief for angel investors to offer additional funding support for innovative start-up SMEs. This will apply a reduced rate of capital gains tax to gains up to the twice the value of the initial investment. While not included in the Bill as initiated, the necessary provisions will be introduced by means of a Committee Stage amendment. In the same vein, the employment investment incentive scheme provides SMEs and start-ups with an alternative source of funding. The Bill enhances the scheme by standardising the investment period to four years and doubling to €500,000 the amount of relief an investor can claim. These enhancements will help unlock more equity investment in smaller, early-stage businesses, which are typically most in need of funding.

As farming is the lifeblood of rural communities across Ireland, the Bill also augments a number of important agricultural tax reliefs. These reliefs provide important supports to our farmers and the farming sector generally. For example, the registered farm partnerships stock relief is generally limited to a maximum threshold of €15,000 per claimant over a three-year period. However, as facilitated by revisions to the EU’s agriculture de minimis regulation, the Bill increases this threshold to €20,000. The Bill also increases the maximum aggregate lifetime limit of a number of farm-related reliefs from €70,000 to €100,000, to reflect recent changes to the agricultural block exemption regulation. These are the young trained farmer stamp duty and stock reliefs and the relief for succession farm partnerships. In addition to these changes, I propose to bring forward an amendment on Committee Stage in respect of the existing tax exemption for certain income arising from the leasing of farm land. As I announced on budget day, my intention is to restrict eligibility to ensure that those who purchase land on or after 1 January 2024 must own the land for a period of at least seven years before they can avail of the relief.

The Bill complements the important Government interventions to support availability of housing, whether for purchase or rent. With regard to supports for tenants, section 11 increases the amount that can be claimed under the rent tax credit for 2024 and 2025 from €500 to €750, or from €1,000 to €1,500 for a jointly assessed couple. In addition, the Bill extends eligibility for the credit to parents who pay for their student child’s tenancy in the case of rent-a-room accommodation or a digs arrangement. This change applies retrospectively to the years 2022 and 2023. A further amendment restricts claims for the credit by Members of the Oireachtas who receive certain allowances in respect of a tenancy otherwise eligible for the credit.

Section 21 provides for a residential premises rental income tax relief. This relief can reduce the tax due on a landlord’s residential rental income by up to €600 in 2024, €800 in 2025 and €1,000 in the 2026 and 2027 years of assessment. An important condition of this measure is that the rental properties held by the claimant must remain in the rental market for at least four years, otherwise the full amount of the relief can be clawed back.

In light of the impact of rising interest rates and mortgage costs on many households, section 13 introduces a temporary one year mortgage interest tax relief, capped at €1,250 per property. This measure will assist homeowners who had an outstanding mortgage balance of between €80,000 and €500,000 on their primary dwelling house on 31 December 2022. The relief is available in respect of the increased interest paid on the mortgage in 2023, as compared with that paid in 2022, at the standard rate of 20% income tax. Although housing remains one of the biggest challenges facing the country, the tax system is just one lever in a whole of Government approach toward addressing this challenge. Nevertheless, as I will detail later, the Bill contains a number of other provisions, such as the help-to-buy scheme and the vacant homes tax.

To take a step back and consider the Bill as a whole, I recognise that it is the largest Finance Bill introduced since 2012. This is primarily owing to the large volume of legislation required to transpose the EU minimum tax directive. This directive contains the rules regarding the so-called Pillar 2 reform - a system of top-up taxes to ensure a 15% minimum effective corporation tax rate on a defined tax base.

I will now provide more detail on the specific contents of the Bill. I have spoken to a number of key measures already, but as the Bill runs to 270 pages, Deputies will appreciate that I cannot detail every section in the limited time available. However, I will outline some of the other contents of the Bill.

Section 6 extends the help-to-buy scheme to the end of 2025, to provide certainty to prospective home buyers and to the market. The scheme is also being amended to ensure that the affordable dwelling contribution received through the local authority affordable purchase scheme is taken into account when calculating the loan-to-value requirement for the help-to-buy scheme. This will facilitate access to help to buy for a greater number of local authority affordable purchase scheme buyers.

As recommended by the interdepartmental group on pension reform and taxation, section 19 makes the necessary legislative changes to allow pension retirement savings accounts, PRSAs, to be used as a whole-of-life pension product. Previously, following retirement, PRSA holders could draw down the funds over time until they turn 75. The Bill removes this age limit.

Section 28 increases the exemption from tax on income arising from domestic microgeneration of electricity which is supplied to the national grid.

The Bill will increase the amount of the income tax exemption from the first €200 to the first €400 from 1 January next and will extend the exemption to the end of 2025.

Section 29 extends the accelerated capital allowances scheme for energy efficient equipment to the end of 2025. The scheme allows companies and unincorporated businesses to deduct the full cost of expenditure on eligible equipment from their taxable profits in the year of purchase.

Section 30 extends the farm safety scheme for a further three years to the end of 2026. This scheme provides accelerated capital allowances at a rate of 50% per annum over two years for farm safety equipment.

Section 35 includes legislative measures to introduce new defensive measures applying to certain outbound payments towards jurisdictions on the EU list of non-cooperative, no tax, and zero tax jurisdictions. These measures are aimed at the prevention of double non-taxation to meet commitments contained in Ireland's national recovery and resilience plan.

Subject to EU State aid approval, section 39 provides for an increase in the project cap on qualifying expenditure under the existing film relief. The cap will be increased to €125 million to provide additional support to the continuing development of the creative film sector in Ireland and enhance our reputation as a centre of excellence for screen production. This applies to films certified after 1 January 2024 or after commencement of the section, whichever is later.

Retirement relief supports the intergenerational transfer of businesses and farms. While retirement relief can be claimed from the age of 55 onwards, currently a higher consideration is eligible for the relief when the business assets are disposed of before the age of 66.

Section 47 extends the upper age limit for the relief from 65 until the age of 70. From 1 January 2025, the reduced relief, which is currently available on disposals from age 66 onwards applies from age 70. The section also implements a recommendation from the Commission on Taxation and Welfare to introduce a limit on retirement relief to children up to the age of 66. A limit of €10 million will apply from 1 January 2025 for disposals from age 55 up to the age of 70.

Section 50 increases the excise duty on a packet of 20 cigarettes by 75 cent, with a pro rata increase on other tobacco products. These increases support the public health objective of a tobacco-free Ireland by 2025.

In recognition of the role that fiscal incentives continue to play in delivering on the electrification of the car fleet, section 52 extends the vehicle registration tax relief for battery electric vehicles with a value of up to €50,000 for a further two years to the end of 2025.

Section 55 increases the existing VAT registration thresholds for businesses to €40,000 for services and to €80,000 for goods from 1 January 2024 in line with EU limits.

While modest, these changes will provide more latitude to small businesses whose turnover is close to the existing thresholds.

On the basis of macroeconomic data received from the CSO and the Revenue Commissioners for the period 2021 to 2023, from 1 January 2024 section 59 adjusts the flat-rate VAT scheme for unregistered farmers from 5% to 4.8%. Section 62 reduces the VAT rate on e-books from 1 January 2024 to match the zero rate of printed books. It also provides that the zero rate applies to audiobooks.

As Deputies may recall, earlier this year I introduced a measure in the Finance Act 2023 to reduce the VAT rate on the supply and installation of solar panels for private dwellings to zero from 1 May 2023. Section 63 extends this measure to schools with effect from 1 January 2024.

Consanguinity relief is a vital measure which supports the transfer of farms from one generation to the next. This relief applies a reduced rate of stamp duty where agricultural land is transferred to certain close relations. Section 67 extends this relief to the end of 2028.

Section 70 introduces a revised form of the bank levy for 2024. It provides that this levy is based on a measure of deposits held by Bank of Ireland, PTSB and AIB, which includes EBS. My intention is to review the levy again next year to ensure it remains appropriately calibrated.

In line with the Commission on Taxation and Welfare recommendation, section 76 amends existing legislation to ensure foster children can avail of the group B capital acquisitions tax threshold based on their relationship to their foster parents.

Tackling vacancy in the housing sector is a priority for this Government. For this reason, section 86 increases the vacant homes tax, which was introduced last year, to five times the property’s existing base local property tax rate. The increase takes effect from the next chargeable period, commencing next month.

Having regard to the important work done by Irish museums in conserving our heritage, section 87 increases the maximum aggregate value of items that can be donated under the donation of heritage items scheme in any one year from €6 million to €8 million.

The residential zoned land tax is an important action under the Government’s Housing for All action plan. However, it is also important that affected landowners have sufficient opportunity to engage with the mapping process. Therefore, section 88 extends the liability date of the tax by one year.

As pre-cast concrete products represent a significant and innovative export sector for the State, section 89 amends the defective concrete products levy to exclude the value of pouring concrete used in pre-cast concrete products with effect from 1 January 2024. A refund scheme to reclaim any levy already paid on such concrete will be introduced for four months from that date.

Sections 90, 91 and 92 implement the Pillar Two minimum effective corporation tax rate. The new provisions apply to multinational and large-scale domestic businesses with global annual revenues of €750 million and above in at least two of the preceding four years.

There is still a small number of matters under consideration, which may be brought forward as amendments during future legislative stages. The Bill will give effect to the tax measures announced in budget 2024. In doing so, it will offer valuable support and certainty to taxpayers across the country. I commend the Bill to the House.

Deputy Pearse Doherty

This Finance (No. 2) Bill gives effect to a number of tax changes announced in budget 2024, in addition to a number of other important provisions and changes to our tax code.

We cannot consider this legislation before setting out the context in which it has been introduced. Our economy has faced a number of inter-related shocks in recent years. We have seen an energy price shock; a spike in inflation, which has impacted prices across so many goods and services; and a tightening of monetary policy, which has increased borrowing costs for households and firms.

Despite these challenges, the domestic economy has displayed resilience. However, considerable risks remain. The impact of inflation and performance of the labour market has been uneven. Higher prices hit low- and middle-income households hardest while research has indicated that the incomes of such households have either fallen or stagnated in recent years.

The deepening housing crisis poses real threats not only to the living standards of our citizens, but also to the competitiveness of our economy. Our health service is under threat, with underfunding by the Government posing a serious risk to patients and healthcare staff.

The most immediate concern of workers and families is the cost-of-living crisis that has dragged on incomes and household finances for well over a year. While the rate of annual inflation has fallen from its peak of last year, it remains high at 6.4% in September. While the Department of Finance expects this rate to moderate to 2.9% next year, it is important to note that prices are not expected to fall. The increases in prices are here to stay.

The tax code can play an important part in supporting workers and households with the cost-of-living crisis but it is always important that any tax package is fair and ensures the benefits do not accrue disproportionately to those on the highest incomes, but instead support those who need it most.

For a number of years, Sinn Féin has argued the fairest way to reduce the tax burden on families and households is through cuts to the universal social charge, USC. Given the discussion preceding the budget, it is clear that Sinn Féin has won that argument. The tax packages in recent years have been unfair and regressive, providing much more to those on the highest income levels than to low- and middle-income earners. Sinn Féin’s alternative budget proposed a tax package that focused on cutting the bottoms rates of USC and increasing the entry point to the third rate, beginning the journey of removing the first €30,000 workers earn from the liability of USC.

In this Finance Bill, the Government has taken a different course. It is regrettable that under sections 2 and 9 someone earning €35,000 a year will benefit by less than €310, while somebody earning €200,000 will benefit by more than €860. The distributional impact of this tax package does not seem to pass the fairness test.

There are provisions in the Bill that we welcome. The extension of the USC concession for medical card holders was a measure we called for. There are necessary provisions, including the extension of relief for benefit-in-kind with respect to company cars, without which many workers would have seen a significant increase in their tax liability. The decision to extend the current benefit-in-kind regime with respect to electric vehicles is a common sense proposal, without which the incentive for companies to transition to electric vehicles would have been undermined.

The spike in energy prices has been a key factor in the cost-of-living crisis for many households, with the price of petrol, diesel, electricity, gas and home heating oil all spiralling since 2022. Section 56 extends the reduced 9% rate of VAT applying to electricity and gas, which is a measure Sinn Féin repeatedly called for before its introduction.

As we all know, the price of petrol and diesel at the pump has been rising in recent months. The Government increased the tax applied to fuel in September and was set to hike petrol and diesel prices further on 31 October. Sinn Féin called on the Government to adopt a common sense approach and scrap these planned tax hikes. Thankfully, the Government has heeded that advice, as is reflected in section 49. That is despite the Minister making the point during the passage of the Finance Bill last year that he was not minded to do this, regardless of the price at the pumps.

It is deeply regrettable that the Government pushed ahead with a further carbon tax hike on 11 October. That increased fuel prices, with further hikes to come in May and October of next year. This is in the middle of a cost-of-living crisis and is the wrong approach. It reflects the Government’s wider policy. Without providing access to affordable public transport and retrofitting, households risk being punished without any real or affordable alternative. It is far too much stick and too little carrot. It is time for the Government to change its approach.

A clear gap in this legislation, again, concerns home heating oil. One third of households across the State, and two thirds in the north west, rely on home heating oil as their main fuel source.

However, there is no measure to reduce its price despite rising costs. Sinn Féin proposed slashing the rate of excise duty to reduce the cost of filling a tank by €64. This proposal was not implemented by the Government. Instead, households are set for another price hike in home heating oil come May of next year through a further increase in carbon tax.

As I referenced earlier, while the rate of inflation is set to ease, the fact remains that prices will remain elevated and the high cost of living will persist. Nowhere is this more the case than with respect to the housing sector. Since July of last year, the European Central Bank has increased its key lending rate ten times. The impact has been significant, with mortgage interest costs soaring by 50% in the past year. It is estimated that one in five households would have seen their annual mortgage costs rise by more than €3,000, and a further one in five have seen their mortgage costs rise by more than €5,700. This was before the latest ECB hike took effect.

Then, of course, we have the 80,000 households who had their loans sold to vulture funds, with many of them facing interest rates much higher than those in the mainstream mortgage market. For several months, Sinn Féin has called for the introduction of temporary and targeted mortgage interest relief to support these struggling households, absorbing 30% of increased mortgage costs capped at a maximum benefit of €1,500 per household. The Government refused to implement our proposal and, instead, for months criticised it. Indeed, it was scathing of it.

Section 13 represents a screeching and belated U-turn on the part of the Government. The mortgage interest tax relief proposed, at 20% of increased costs with a cap of €1,250, bears a striking resemblance to the scheme we proposed. Another argument won by Sinn Féin. However, there appear to be serious problems with this section of the Bill. It disqualifies a household from the relief if the outstanding balance on a mortgage at the end of 2022 was less than €80,000. That makes no sense. Households who have, for example, been on a tracker rate with an outstanding balance of less than €80,000 will still have seen their mortgage costs rise by nearly €2,000 in the past year. The Minister should clarify why these households are exempt. It makes no sense whatsoever. The reason for the restriction is unclear, as is the estimated number of households that would have otherwise qualified for the relief had this restriction not been in place. As is often the case, it seems the Government has, despite initially opposing it, implemented Sinn Féin policy but with significant shortcomings. We can see that time and again as the Government tries to play catch up. We need to get this right, and I look forward to scrutinising section 13 on Committee Stage.

As we know, the Government’s housing crisis has become a social disaster. With every passing month the situation is worsening. It speaks volumes that the Government decided in the budget to stick with housing targets that are doomed to fail and with no further increases in housing investment beyond them. I note changes to the residential zoned land tax in section 88. We have raised the issue of farmers since the last Finance Act. The Government ignored us and now, because it has not fixed the issue, it is deferring the whole bloody thing for a year. The decision to postpone this has to be taken now because the Government has not done anything over the past year, something that was pointed out when the Minister was dealing with the Finance Act last year. We know the concern of the agricultural community and it is important we get this right. However, the Government should have got this right during the year rather than postpone the whole thing for another year.

One of the most surprising provisions of the Bill - maybe it is not surprising, given we have a Fianna Fáil Minister for Finance who, with the support of Fine Gael, is introducing this budget - is a tax break of €600, rising to €1,000, for landlords. Do not take my word for it. Professor Barra Roantree, formerly of the ESRI, described this tax break as perhaps “the stupidest tax relief of recent times, against stiff competition”. We all know this tax break will cost up to €160 million in the first year. The vast majority of it will go straight into the pockets of landlords who have never had any intention of leaving the market. I am sure many of the Minister's Government colleagues who are landlords probably have no intention of leaving the market either.

The Minister’s Department has made its thoughts on this issue crystal clear. First, the tax measures will have little impact, if any, on the supply of rental properties. Second,such a measure would raise considerable equity issues in the tax code. That is exactly what the Minister has done. I again ask him why he introduced a Bill which will mean a nurse will pay more income tax than a landlord. The nurses are leaving, and in bigger numbers than the landlords. They are going to Australia. They are in Perth, Sydney, London and Canada. Why is the Minister saying a nurse has to pay more tax than a landlord with multiple properties who has no intention of leaving the market? It is a disgrace and, as Professor Roantree said, it is the stupidest tax relief of recent times, especially when it will have no impact other than increasing the bank balance of landlords.

It is depressing for renters and struggling home buyers that the Government has chosen to prioritise an expensive, ineffective and unfair tax cut for landlords, but it is not surprising. What is surprising is the Government has given more money to landlords in this budget than it has to struggling renters. This was a landlords’ budget, not a renters’ budget. We needed a renters' budget.

It is disappointing the Government did not take the opportunity to introduce legislation to scrap its flawed and counterproductive concrete products levy. This is the second year the Government has faced this issue. In the middle of a housing crisis, it introduced a plan to increase the cost of building a house by €1,200. The plan was so flawed last year that it made two major mistakes, which we pointed out on Committee Stage and it then guillotined the Bill. The last words I had on the Bill was that the Government got it wrong in terms of the concrete levy because it defined "concrete" incorrectly. The core materials of concrete were wrongly defined in the Bill. It is a levy on housebuilding in the middle of a housing crisis, a cost that is being borne by those trying to buy their first home.

Section 89 addresses serious flaws in the levy and the Bill, which I raised with the Department and the Revenue Commissioners, regarding precast concrete products and autoclaved aerated concrete. It was made clear to us in the finance committee that the reason autoclaved aerated concrete had to be included was because of legal advice relating to substitution. However, that is not being included at this time. It is a flawed proposal and the original Bill was badly drafted. The Minister would not listen to what was being said about the Finance Act. Now the Government has to introduce a rebate scheme because it got it wrong. It guillotined that Bill, just as it is doing with this Bill, to ensure the Opposition could not tell the Government how it got it wrong in terms of drafting something that should never have been drafted in the first place.

As we know, a key driver of revenue growth over recent years has been corporation tax. As I have said many times, that revenue stream could be volatile and its future course uncertain. The scale of expected surpluses and their nature has led to wide discussion on how these should be treated and what use they should be committed to. The Government has outlined its intention to save a portion of these receipts by establishing two separate funds, namely, the future Ireland fund, to be earmarked for future costs such healthcare and pensions arising from demographic change, and the infrastructure, climate and nature fund. Sinn Féin supports the objectives of saving a portion of these receipts to fund expenditure and investment in the medium and long term and we have made our position crystal clear.

Notwithstanding this, we have also made it clear that the level of public investment next year in housing, healthcare and climate action is insufficient to meet the needs of our society. As I have said, the concentration of tax receipts among a small number of foreign-owned multinationals points to a clear risk but also indicates a clear need to increase the growth and profitability of indigenous firms to support balanced growth, investment and job creation.

Sinn Féin has long argued for the introduction of a research and development tax credit. It should be increased to 30% and there should be payable credits to firms in the first year. The Bill goes part of the way in that regard.

A key part of the Bill comprises sections 90 to 94, inclusive, concerning pillar 2 of the OECD tax agreement involving almost 140 countries. Pillar 2 aims to ensure businesses with consolidated group revenues of €750 million or more pay a 15% effective tax rate on their profits in each jurisdiction they operate in. These provisions of the Bill are highly technical and will require consideration on Committee Stage. Pillar 2 involves a number of linked rules, namely, the global anti-base erosion rules and a number of rules that need to be clearly scrutinised. The Bill is introducing the qualified domestic top-up tax, QDTT, to afford the Revenue Commissioners the opportunity to claim the primary taxing rights over excess profits of low-taxed constituent entities located here. I understand the reasons for this course of action and look forward to dealing with this on Committee Stage. The Bill contains a significant change to our tax code, one that has been reached following long negotiations at OECD level and it is good to see that it has finally made its way into proposed legislation.

After all the press releases that have been issued about the threat of Sinn Féin increasing corporation tax, I want to make the point that it is a Fianna Fáil Minister for Finance who has actually produced the legislation to increase corporation tax. That notwithstanding, we support the OECD proposal with regard to base erosion and profit shifting, BEPS. I look forward to scrutinising this further on Committee Stage.

Deputy Rose Conway-Walsh

I welcome the opportunity to speak on the Finance (No. 2) Bill, which will give effect to the tax measures of budget 2024. It is important to set the budget in terms of the commentary. I was really struck by Social Justice Ireland's analysis that from April 2024 onwards, the gains accruing to welfare-dependent households as a result of this budget will fall by between 35% and 46%. These budget 2024 decisions have skewed resources in favour of higher incomes for individuals and households. Consequently, the Government's presentation of the budget as progressive is misleading. It gives the least to the 514,316 lower-income workers. It is important to get that into context. As well as the other important changes that are discussed in this Bill, such as the introduction of pillar 2 of the OECD global tax agreement, the effective taxation of large multinational companies is vitally important and Ireland must play its part in this regard.

I welcome that the Government has finally recognised the need for mortgage interest relief. I know many homeowners with a mortgage of less than €80,000. What about people in this category who have a loan that is in arrears? The measure being proposed is absolutely not the right way to go. The mortgage interest relief in itself cannot come soon enough for many struggling households, but too many people are excluded from the scheme. I hope the Minister will work to improve the scheme as it is currently presented in this Bill. As was said earlier, too often Sinn Féin policies are reluctantly half-adopted and badly implemented.

A clear example of this is the renters' tax credit. Sinn Féin wants to see a month's rent returned into renters' pockets. The Government has gone some way in this regard, but without a cap on the rents, it is as much a support for landlords as it is for renters. That could be fixed if Fianna Fáil, backed by Fine Gael, had the political will to do so. These questions go to the heart of what is right and fair. I note what ICTU has to say regarding the taxation for landlords:

The tax breaks for landlords are frankly bizarre. They will do almost nothing to increase rental supply and will make the taxation system even more regressive. It is difficult to conceive of a more ineffective and regressive tax break. Do they really believe that a landlord on the same income as a nurse should pay a lower effective tax rate on his passive income? Retention of the help to buy scheme also makes little sense and is regressive. Is it a Government policy to artificially inflate house prices?

This demonstrates that it is not only the ESRI making this point; ICTU and Social Justice Ireland are doing so as well. It is truly shocking that the Government would hand out tax breaks to landlords. It has attached no conditions, essentially, to what it is doing in terms of the rent increase. There is no money in the budget to build student accommodation. Public investment is vital if services are being sacrificed in favour of tax expenditure. Sinn Féin has shown how this could be done. The finance Bill costs €1.3 billion. That is a lot of money and we see no additional resources given to health and we see the state of our health services are in.

Deputy Ged Nash

I am pleased to have an opportunity to speak on the Finance (No. 2) Bill on behalf of the Labour Party. This legislation gives effect to many of the proposals announced in budget 2024 two weeks ago, including the important changes to the corporation tax code, which are the most significant and far-reaching since 1997.

While the finance Bill, by definition, focuses on the taxation changes, many of which were articulated in the budget, it is important that we take a step back and look at budget 2024 in the round. For the first time since 2013, when we said goodbye to the troika, the living standards of the people of Ireland have fallen. We are in a period of polycrisis, involving war, climate catastrophe, an ageing population and the challenge of meeting those costs. We have emerged from a pandemic that exposed the vulnerability of our already stretched public services, especially the health service.

Economic growth is slowing down. Real average annual wage growth out to 2030 is forecast to be 2.2%. At the same time, corporate profits are at record levels, diverging all the time from wage growth. Profits are rising much faster than wages and this is now a structural problem. As the Central Bank has stated, profit-taking has caused most of the domestically sourced inflation we are experiencing, with those on low and modest incomes paying the price. At a time when there is huge demand for more investment in the social wage and in the health, childcare and education services on which we all depend and which should be universal, the Government reached for the lazy option of tax cuts. As the economy slows, the competition between tax and investment will intensify.

This year, the Minister announced spending of €1.3 billion on a personal tax package, which will favour in financial terms the higher income earners, and just over €1 billion on the actual budget 2024 package for those most exposed to rising costs. This will end up stoking inflation and ensuring it lasts longer. Damningly, the pretence that budget 2024 is progressive did not last long. Like last year, once the one-off payments are gone, they are gone. As the ESRI has said, if we look at the permanent changes announced two weeks ago, we will see that they make negligible change to at-risk-of-poverty rates at a time of plenty. The elderly will actually see an increase in their at-risk-of-poverty rate. That is some trick to pull off a time of unprecedented largesse available to the State. This is something that Fianna Fáil would never have stood for in the past. The ESRI has also said that after this Government's four budgets since 2020, households will have lower purchasing power in 2024. If you are poor today, it is more than likely that you will still be poor this time next year.

Budget 2024 told us nothing. It had no vision of how we could make the structural changes needed to our economic and welfare model in order to take as many as possible of the almost 800,000 citizens we have in poverty out of it. It is unforgivable that the Minister and his Cabinet colleagues have contrived to create and sign off on an Estimate for our health service that the Minister knows know fine well, and the Minister for Health has more or less said, is a work of fiction. That charade is not only a two-fingered salute to hardworking health service staff and patients waiting for appointments or for surgery and treatment; it is also a two-fingered salute to the Dáil. In no other supposedly mature and serious democracy would an executive expect a legislature to wave through what amounts to a fraudulent estimate on a critical public service. This is a challenge to parliamentary democracy. If this is to go through on the nod, serious questions will be asked of the Government’s commitment to accountability. It is just not credible and the Dáil should not be expected to pass it. If this kind of charade happened in Westminster, given the state of UK politics, or anywhere else, the Minister responsible would not survive contact with reality. However, that is not the case in Ireland, where our commitment to accountability appears to be selective.

I will turn to the Bill itself, and the personal tax and USC changes proposed in it. One of the most important institutional innovations in recent times to address the scourge of low pay has been the establishment of the Low Pay Commission. At the time of the acceptance of the commission's first recommendation, on the rate of the national minimum wage for 2016, it was accepted that whatever USC and PRSI changes necessary to ensure that workers on the statutory minimum hourly rate would take home as much as possible, or indeed all, of the increase awarded would be made. It is positive to see in Chapter 2 the adjustments that have been made to the USC to ensure this convention continues to hold. This is a measure that the Labour Party established and we continue to support that approach.

The Irish political system is extraordinary in more ways than one. We are unique in that we have some parties describing themselves as being on the left while demanding the abolition of what is, in fact, the single most progressive and fair revenue-raising measure we have without having a serious plan as to how this crucial revenue we use to fund our public services should be replaced. More extraordinary still these are among the same outfits who argue we should get rid of what, at least for the rich, is a minor inconvenience - the minor inconvenience of the local property tax.

The debate on this year's budget kicked off in earnest with three Fine Gael Ministers of State demanding big tax cuts for the better off. They got some of what they wanted with the cut to the 4.5% rate of the USC, changes to credits and the changes to the point at which the 40% rate of income tax is paid, which have benefited the cohorts of higher income earners in real cash terms. This is another case of the Government seeking to buy votes with the voters' own money. As I said earlier, it is the lazy option - this mantra of putting money into people's pockets when all of the polling and our direct personal experience as representatives show that what is actually needed is more significant investment in poorly performing public services. Those are the kinds of breaks which would really give working families the chance they need, not €5, €7.50 or €8 which would hardly buy a sandwich.

Labour, in our costed alternative budget, proposed indexation against wage inflation of both personal tax and USC bands, and credits alongside weekly social welfare rates. That is not inexpensive. All told, taken together, the bill for those complementary measures would come in at around €2 billion a year. However, it would be the mark of a modern sophisticated system of government if we, as a society, settled that this would happen as a matter of course every year and as part of the embedded budget and fiscal planning system. It happens in some of the countries we like to compare ourselves with, so can we not consider that here?

At the very least, I will propose on Committee Stage that a report on indexation would be required to be published each year, possibly with the summer economic statement, detailing the cost of such a move and the mechanics of how it would happen. This is far preferable to having to withstand what I describe as the annual ritual of pre-budget leaks and spinning from Government that might allow the administration of the day to have some control over the news agenda but it is critically also playing with people's lives. That is not fair and there is no dignity in that. Taxation and the distribution of resources are the essence of parliamentary democracy. However, it would be a mark of our maturity if we decided to take this approach instead.

I welcome that the extension of the reduced excise duty on petrol and diesel will remain in place for a number of months. During the debate on the financial resolutions on budget night, we in Labour argued for the extension of that position right up to the budget in October 2024. There is a strong argument for that. Why do I say that? We know that the price of crude oil and fuel more generally is uncertain and will become increasingly uncertain with the current conflagration in the Middle East and the geopolitical problems there. It would be wise for the Minister to review the position and to extend it at least until the budget in October 2024 when we will have a clearer view about making a more certain decision for the future.

I turn to the housing-related measures in the Bill. Access to housing is the single most important civil and workers' rights issue of the day. However, the plant of the Minister, Deputy Darragh O'Brien, is manifestly failing. The numbers speak for themselves. Since its inception homelessness has doubled with almost 13,000 people in homelessness. Rents have risen dramatically and house prices continue to grow. On the spending side, budget 2024 will see no meaningful improvement in the supply of social housing outside the already inadequate targets.

The Minister for Finance would do us all a service by taking the opportunity today to clarify what the Minister, Deputy Darragh O'Brien, meant on budget day when he announced the further €6 billion capitalisation of the Land Development Agency, LDA. There was no mention of that in the speech of the Minister for Finance or in the budget book. What has happened to this? Where will the money come from? In the engagement my party leader, Deputy Bacik, had with the Taoiseach today, it was very unclear as to what the situation with that €6 billion capitalisation is or whether, in fact, it will be €6 billion at all.

At a time when housing is the principal social and economic problem we face, when we look at this Bill, it is incredible that the Government seems to think help to buy, tax breaks for landlords, the disgraceful postponement of the residential zoned land tax, the small increase to the vacant homes tax and a botched attempt at giving some selective cash relief to those paying higher monthly mortgage costs hold the answer to our housing crisis.

Help to buy is a con job and it is supposed to be on the way out. The Government has extended it by yet another year. The evidence against it is absolutely black and white. Of course, it is naturally popular with anyone who wants to buy a new home yet it has served as predicted to put up the price of new homes. The market has simply added the subsidy to the price of the house as predicted and developers cannot believe their luck. It is a downright stupid use of public money. The Government was warned of the deadweight effect by Department of Finance officials time and again as the Minister knows. The deadweight effect, of course, involves State support for market activity that would happen in any case. I believe we have spent over €700 million on help to buy since 2016 or 2017. Mazars reviewed the scheme and suggested that if the Government was continuing with it, it needed to be reformed and targeted. I quote the experts, the consultants paid for by the Department:

The scheme is poorly targeted with respect to incomes, location, house prices and other socioeconomic factors. As a result, it has socially regressive impacts, there is a considerable deadweight associated with [it].

Those are the words of Mazars, not my words or those of anyone else but those of the consultants engaged by the Government to review the scheme. How many times and in how many ways does the Government need to be told to drop this scheme? It has already cost 50% more than forecast with extremely questionable, to put it mildly, social returns, but at a huge financial cost. The Government would be better advised targeting the resources we have at delivering social and affordable homes to those who, at this rate, will never be able to purchase a home in the conventional way, and to focus too on delivering cost rental across the country at scale and where it is needed.

The need for some form of relief for renters is understandable, but the tax relief for landlords is an absolute shocker. Why should landlords be paying less tax than a PAYE worker on their income? As a policy measure, there is no evidence whatsoever that this relief, which will cost well over €150 million next year, will do what the Government claims it wants it to do, namely, to retain small landlords in the market. As a previous speaker said, the respected economist Dr. Barra Roantree said in advance of the budget announcement on his Twitter account that this is maybe the stupidest tax relief of recent times, against stiff competition. This is a Government that specialises in stupid tax reliefs. I am asking the Minister today to publish the advice he received from his own officials in advance of the budget on this move. I think we can say with some certainty that this wheeze would not have found too much favour in Merrion Street. This relief takes some beating. It is an expensive relief that nobody was asking for. We know some landlords are leaving the sector and it is not for the want of small but, taken in the round, expensive and ineffectual tax reliefs worth a few hundred euro a year.

The residential zoned land tax is a policy innovation that was needed a long time ago. Arguably, its motives were in the spirit of the famed Kenny report. It is unconscionable that landowners, some of whom may have been made very rich overnight by the rezoning of land, would get to hoard and leave serviced land undeveloped when homelessness span out of control. In his first budget as Minister for Finance two weeks ago, he announced that the imposition of the levy will be delayed. Who got to the Minister? Who convinced him to delay the imposition of that levy because the explanation for the delay does not stack up?

The Minister should put on the record who got to him, who encouraged him to do that and why, and come up with a convincing explanation as to why this tax is being further delayed. Landowners will now be given multiple chances to dodge this charge before the completion of final maps.

What is the real motivation behind this unacceptable delay? There will be plenty of blame to go around between the Minister and Sinn Féin, which relentlessly pressed him on the need for the return of mortgage interest relief, with at least three separate Dáil motions this year. Our focus, when it comes to the high cost of servicing mortgages for many in difficult situations, should be on assisting those who are getting nailed by credit-servicing firms to move back to the main retail banks. Instead, we have the return of a form of mortgage interest relief with which not even those who are in the target group are all that happy. Once introduced, it would be a brave Minister who would unwind such a relief. Mark my words: I believe we will be here next year discussing this again and whoever is in the Minister's position will decide to extend it again for another year.

We very much welcome the extension of the bank levy. The Minister has explained how it is to be applied and how it was devised, based on the level of deposits held by institutions. However, at any point in his deliberations on the extension of the bank levy did the Minister consider covering other financial institutions that may have significant deposits as well - fintech companies, for example, which are relatively new arrivals to the market but which may have significant deposits and are significant players in the market.

I wish to talk briefly about section 481 film tax relief and the cap. This is a very significant and important measure to support the film industry in Ireland, of which we can all be proud, but I have a basic rule of thumb when it comes to significant tax expenditures: there should be no cash without conditions. This is an important relief, and the introduction of a higher cap is something we welcome in principle, but we should use this subsidy to drive better outcomes in the film and TV industry and improve the collective bargaining arrangements and, therefore, the pay and terms and conditions of those without which we would not have a film industry at all. We will table amendments to the Bill on Committee Stage in two weeks' time.

I will conclude by making some remarks on the part of the legislation that applies to the new Pillar 2-inspired corporation tax regime. This is the single most significant set of changes to our corporation tax system since my colleague, the former Minister for Finance, Ruairi Quinn, legislated for the 12.5% rate in 1997, which came into effect subsequent to that. The 12.5% corporation tax rate was a very significant feature of our national industrial strategy for a very long time and it assisted in transforming our economy, but it is less important now. In more recent times it has become less important than skills, the research and development environment, competitiveness, and our membership of and commitment to the European Union. I called this early, back in 2021, and was criticised by the Government and by Sinn Féin for doing so. Labour said Ireland would and should sign up to the 15% rate. It was not only the moral and ethical thing to do but also important in light of the challenges of the pandemic, the fight against climate change, an ageing society and the digital transition. We needed to make sure that we broadened our tax base, that those who have the most pay the most and that the cost of a better future be spread much more fairly. That is one of the reasons we proposed early that Ireland should move to the 15% rate and sign up to the OECD proposition. Ireland belatedly came to that viewpoint, and I am pleased we did. The world cannot meet the myriad challenges we have in 2023 and beyond through tax competition and by beggaring neighbours in a race to the bottom that is ultimately in nobody's interests. I look forward to examining those provisions in closer detail over the next few weeks and proposing appropriate amendments on Committee Stage.

Dáil Éireann debate - Tuesday, 24 Oct 2023