This section is a purely technical section which, for ease of reference, contains a definition of the principal Act for the purposes of Part 1 of the Bill dealing with universal social charge, USC, income tax, corporation tax and capital gains tax. Where the term is used in Part 1 it means the Taxes Consolidation Act 1997.
Finance Bill 2017: Committee Stage
SECTION 1
Question proposed: "That section 1 stand part of the Bill."
Question put and agreed to.
SECTION 2
Question proposed: "That section 2 stand part of the Bill."
This section amends section 531AN of the Taxes Consolidation Act 1997 to give effect to the USC changes I announced on budget day. These changes are a continuation of a process of progressively reducing the marginal tax rate on low and middle-income earners in a manner that maintains the highly progressive nature of the Irish tax system. My aim is to make it more attractive for people to return to work and stay in work while preserving a broad and stable income tax base to ensure our personal taxation system is both competitive and resilient. The section reduces the 2.5% USC rate to 2% and increases the ceiling for this new rate from €18,772 to €19,372 to ensure that full-time workers on the increased national minimum wage of €9.55 per hour do not pay the upper rates of USC. The 5% rate of USC is being reduced to 4.75%. This reduces the top marginal rate of tax on income up to €70,044 to 48.75%. This is the fourth budget in a row in which this marginal rate has decreased. I have also extended for a further two years the relief from the higher rates of USC which is available to medical card holders with incomes up to €60,000. In the longer term, I noted in my budget speech that I am establishing a working group to plan over the coming year the process of amalgamating USC and PRSI in the medium term. It is my intention that throughout this process the income threshold of €13,000 will be maintained as the general point of entry to the new, amalgamated charge.
Can we get some clarity on the Minister's thinking on this? Can he explain to the committee what a middle income earner is? What is the range? What salary does a middle income earner earn?
It is somebody who is on a salary of between €30,000 and €70,000.
There is €40,000 between €30,000 and €70,000. The vast majority of people in the State earn below that. That is a big range.
I am conscious that even though a person has a level of income that is seen as being high for many people, the outgoings a person will have off that level of income could also be high. I am conscious that many people who might be seen by others to have a relatively high level of income might, for example, have a very expensive mortgage and a lot of outgoings because of children and so on. The take-home pay obviously goes down but what they have left after they meet all their outgoings can in many cases be a moderate amount of money.
If Denis O'Brien goes and buys a yacht, a jet and a couple of palaces, does he then become a middle-income earner because he has a net disposable income of €40,000 or €50,000 because he has a certain amount of outgoings? Surely middle income is a point. We know, for example, that the average industrial wage is a certain figure; it is between €36,000 and €37,000. We know that half the population have an income of about €28,500. There is surely a way of calculating this. We can get a breakdown of how many people earn between €10,000 and €20,000, and €20,000 and €30,000. Would the Minister not agree that when one is at the €70,000 mark - and I agree with the point the Minister made that many of them have liabilities or other pressures - it does not take away from a statistical point of view that they are in receipt of nearly twice the average industrial wage? In any jurisdiction, would the Minister agree that somebody on twice the average wage in a country is a middle-income earner?
I agree with the statistical point the Deputy is making. I am simply making the point alongside that that for a single-earner family of two parents and three children with a mortgage, an income of €65,000 to €70,000 is of course far higher than somebody who only has an income of €25,000. Statistically that is completely correct but if a one-income family has children in school and a mortgage and so on there can sometimes be a lot of pressure on what is left at the end of the week or at the end of the month.
I understand that but I am not talking about these pressures but about statistics and how the Government defines a low, middle and high income earner which is important in the debate. Accordingly, when we decide to cut taxes for middle-income earners, are we actually cutting taxes for high-income earners which the Government decided to brand as middle-income earners? I am trying to understand the rationale behind how the Government has taken the €70,000 mark as somebody on a middle income. Of the 2.1 million taxpayer units in the State, what percentage of them earn above €70,000? That might be a way of figuring out if they are in the middle or upper end?
I have information on the progressivity of our tax code which is worth sharing. There are 2.6 million taxpayer units. The total yield from income tax and USC, universal social charge, is approximately €22 billion. The top 0.1% of income earners in receipt of 4.9% of gross income pay 11.4% of total income tax and USC. The top 25% of income earners in receipt of 60% gross income pay 83% of total income tax and USC.
The Minister defines somebody on €70,000 as a middle-income earner. What proportion of the overall 2.6 million taxpayer units is made up of those earning over €70,000? I imagine 80% of taxpayer units would be below that figure.
I have a table of the figures concerned. If the Deputy gives me a moment, during the course of further questions, we will aggregate the figures and I will be able to answer his question.
For the sake of clarity, I said between €30,000 and €70,000. I agree with the point made by the Deputy that somebody on €30,000 is clearly on a significantly lower level of income than somebody on €70,000.
We had two crashes. We had a crash with the banks, primarily because of commercial property, and then we had a fiscal crash because our tax income and expenditure did not match. I served on the banking inquiry and we saw that, in the Charlie McCreevy era, personal taxation was cut quite substantially and spending increased. Obviously, stamp duty made up the shortfall.
I am concerned about the sustainability of the tax code. We need to look at data, instead of talking about middle-income earners. In the Organisation for Economic Co-operation and Development, OECD, we have the 29th lowest tax wedge among the 35 member states. How will the Minister convince me that we should actually reduce the tax wedge further? For the average single worker, the tax wedge decreased by 1.8% from 28.9% to 27.1% between 2000 and 2016. In the same period across the OECD, half of the reduction was recognised, almost 1%. We have one of the lowest tax wedges in the OECD. However, the Minister is asking us to endorse taking another €350 million out of the tax net, forgetting all the good we could do in addressing problems with that. He wants to mark Ireland out further as a very low tax economy. Why?
I believe tax reduction and reform has a role to play in a resilient economy. I have outlined a specific agenda on this. As I said on budget day, and reiterated at this committee, I do not want to put in place measures that remove people from the tax net entirely, whether that be on top of the people already out of the tax net. In other words, I do not want to find myself embarked on a policy course that narrows our tax base in terms of income tax and USC.
That is why I have identified putting a particular focus on marginal rates of taxation. Marginal rates of taxation for somebody on a middle income of in excess of 45% are high and are out of keeping with many of the economies with which we will compare ourselves. In stark contrast to the period Deputy Pearse Doherty focused on, the tax measures in question involve €300 million out of total tax take of €58 billion to €60 billion. I am meeting the 2:1 requirement for expenditure and tax reduction to ensure it is done in an affordable and moderate way. I am not looking to put in place any form of a tax decrease on personal taxation which we find we are not in a position to pay for in the future. This is one of the reasons I made a change to stamp duty on commercial property where I am looking to broaden the tax base.
I do not give a damn about the 2:1. That is an arrangement between Fine Gael and Fianna Fáil which is not based on any empirical evidence or international comparisons. It is based on how the Minister believes the budget should work. I am concerned about the sustainability of the State's finances. When one measures this State against the OECD, in 2106 we ranked at the 29th lowest tax wedge out of the 35 OECD countries. We had the same position in 2015. In 2016 the average single worker in Ireland faced a tax wedge of 27.1% when the OECD average was seven points higher at 36%.
That is not thinking fuzzily or about what we think are middle-income earners. That is looking at the tax system in this State and comparing it with our peers across the globe. The evidence is clear that we have one of the lowest tax wedges in the OECD and the Minister wants to drive that lower.
The evidence also points to the fact we have marginal tax rates that are very high in comparison to other countries in the OECD against which we compare ourselves. Workers enter the higher rate of income tax at a low level in the Irish tax code. Over time, I want to change this. The Deputy may take a different view, but I do not believe it is fair that somebody on an average wage is already paying the higher rate of income tax. Over time, that is something I want to see changed.
We can use different statistics to suit our arguments. The Minister is obviously using the marginal tax rate whereas in reality the effective tax rate is the best measure to compare internationally. We can have a high marginal tax rate but there could also be tax credits not available in other jurisdictions. The Government has consistently argued that the marginal tax rate is a drag on employment. Does the Minister believe that?
Yes, I do. I also believe it is an issue when people work extra hours either through overtime or additional work or take on additional responsibility and the amount of income they get for that. Once they pay these high levels of marginal taxation, their additional efforts are not merited.
We are entitled to different political views on the matters. The OECD and other analyses comparing our personal tax code to those of other countries point to a high marginal tax rate in Ireland and the fact we are an outlier in terms of how quickly one enters the higher rate of income tax.
The OECD comparison relates to the tax wage which is the big issue in terms of employment and how much it costs an individual to employ somebody, to provide them with a decent wage, PRSI and so forth.
What evidence does the Minister have, bar somebody telling him that it would be better for their company if the marginal tax rate was reduced? It would boost their profits if they were able to pay less to their employees but what empirical evidence is there to suggest there is a drag on employment as a result of marginal tax rates as the Minister has suggested? Let me read out a comment from a representative of the Economic and Social Research Institute, ESRI:
[As] with all policies, where possible evidence should be used to assess proposals and alternative approaches to achieving the same goal should be considered. I will use the USC [case] as an example [again]. It is sometimes argued that high tax rates are a disincentive to work. At some point this is probably true but we can ask if is there evidence to suggest that the current tax rates are leading to widespread withdrawals from the labour market. The most recent figures show that employment increased by 56,000 in the year ending quarter 2, 2016, or almost 3%. Evidence on this issue should be gathered in a more sophisticated manner but even this simple approach raises the question of whether tax is acting as a significant disincentive to work. It could be the case that child care is a [bigger] disincentive. If this is true, then a greater effect on labour supply could be achieved through child care subsidies as opposed to income tax cuts, including USC cuts.
We can have our ideological debate for as long as we want but this committee has to consider the evidence and the statistics. The ESRI tells us there that we do not have evidence to suggest that, as a result of the job growth in the economy, marginal tax rates are a drag on employment. The Minister should show me the report that says otherwise. The ESRI is saying, and this is what I want to push the Minister on, that we need to assess proposals and consider them and that assessment needs to be evidence-based. Despite all the problems in our society the Minister is saying middle-income earners earn twice the average wage and we need to reduce marginal tax rates because they are a drag on employment yet there is no evidence to suggest or support either of those proposals. This is Fine Gael on a tax-cutting agenda despite the fact that in recent weeks, people died on the streets of our capital city because of the homelessness crisis.
If the Deputy considers the budget in its totality he will see that the tax reform and reduction we deliver in respect of personal taxation is by and large offset by revenue-raising measures elsewhere. I struggle to see how the Deputy can describe this as a tax-cutting budget overall, given that its total revenue-raising measures are in excess of €700 million. He is correct to say that I have tried to reduce marginal taxation. I have outlined why. This is because of our high rate of marginal taxation. I can provide the reports that have been furnished to me to show how that tax code differs from those of other countries with which we compare ourselves. I believe that we need to make steady progress on this but the total revenue-raising measures within this budget are in excess of the personal tax reduction package, as the Deputy knows. He can certainly disagree with my assessment of the need to cut personal taxation but in its totality, this budget raises revenue.
I am not going to have this argument all day and there are other people who want to speak but I am not asking for a report to compare our tax system with others. We can all get those from the website of the OECD, or other websites such as those of the international taxation institutes. I am asking for evidence to support the theory that the current marginal tax rate is a drag on employment. The ESRI came before this committee last year and told us there is no such evidence. It is pointing us in the direction of investment in child care, which it says would do more for the labour market than cutting marginal tax rates. Of course, if marginal tax rates are raised to a certain point they will be a drag on employment but there is no evidence to suggest this now. If the Minister or his officials can tell us they have a report that says otherwise I am happy for them to send it to the committee. There is no point, however, in the Minister's telling us that he will send us other reports that I am not asking for.
We need to start having statistical arguments here. Tax is raised in the budget. I acknowledge that and have argued for it in some areas. Are they as sustainable as income tax? The Minister is doing exactly what Charlie McCreevy and the Progressive Democrats did. They reduced the income tax rate, which is one of the most stable forms of taxation and placed the tax burden on other transient taxes. The Minister has raised tax on stamp duty and intangible assets and others. Let us see how stable they will be in the next few years. The Minister is paying for that by cutting income tax so that it is the lowest in the OECD countries.
That is wrong.
It is true.
No, it is wrong. The Deputy needs to consider the total amount of funding this budget has raised. As he knows, most of the budget day package went into additional expenditure in many areas where the Deputy would welcome it, whether in social welfare or the maintenance and steady growth of a universal child care model to try to tackle the issues surrounding the quality and affordability of child care. That has happened. The Minister for Children and Youth Affairs is in the second year of putting that scheme in place.
In respect of the resilience of the tax-raising measures I have put in place, I reacted to the Deputy's inaccurate assertion that this is a tax-cutting budget. It has reduced personal taxation but it has increased tax in other areas. If the Deputy considers the changes we have made in stamp duty on non-residential commercial property, the total yield of such measures to our tax revenue is less than half of what it was in the pre-crash period. Beside that, we have a rate of expenditure growth which is significantly lower, as the Deputy knows, than the expenditure growth in the pre-crash period. We have broadened our tax base and we have increased expenditure at a rate that is below, from a current point of view, how I expect the economy to grow next year and that is a fraction of the expenditure growth in the period leading up to our economy's crash.
That is not true. During the McCreevy era, he was recording surpluses which means the economy was growing at a faster rate than expenditure. What the Minister has done today is exactly from McCreevy's script. He has talked about stamp duty increases on the one hand to fund personal tax decreases on the other. Stamp duty increases and some of his other tax-raising measures, while welcome, are not things on which the Minister should be banking for the long term. Cutting tax to a point where the Minister wants to bring it to the lowest in the OECD at a time when we have all these different pressures is not a prudent fiscal stance.
The Deputy is wrong. As we get into this Bill I have no doubt we will thrash this out in detail and frequently. I never made any reference to what the former Minister for Finance, Mr. McCreevy, did with his surplus. As the Deputy knows, I pointed to a fact that is correct, which is that at a time when the economy was growing and approaching full employment - I think it is possible this economy will do the same again - there was a rate of current expenditure growth between 8% and 12%. The rate of planned current expenditure growth for this budget next year is 3.4%.
The Deputy has called many times for the tax base to be broadened, for our tax code to be made more resilient. He has disagreed with how I have done that and thinks that in some areas I should have done more. We will get into that. When I have broadened the tax base, as I have done in several areas, most of the revenue that is being raised is going into expenditure, not tax reduction. The contribution those tax heads is making to our total tax collection is, as the Deputy knows, a fraction of where it was in the past. I reject entirely any assertion here that the budgetary policy I am putting in place is reminiscent of what caused such difficulty in the past, because the figures show it is not.
The Minister has said that middle-income earners are those earning between €30,000 and €70,000. Does that mean he disagrees with the Taoiseach who said that minimum wage earners were middle-income earners?
If the Taoiseach defined people who are on middle income as people who are in receipt of the minimum wage, I have to say that up to this point I would have seen people on minimum income as being on minimum to low income overall. That is why I would see the middle wage definition starting at around €30,000.
The Taoiseach took the argument of the Government about how the phrase "middle income" or "middle class" is used to a ridiculous point when he defined minimum wage workers as being middle class or middle-income earners.
It proves the point and takes it to a point of absurdity that the Fine Gael Party and the Government play with the notion of middle income in order to create the illusion that low-paid earners have the same interests as high-paid earners and to create an illusion of common interest between low-paid workers and the top decile of income earners. Do the Minister or his officials yet have the figures that Deputy Pearse Doherty sought about the percentage of income earners earning more than €70,000? Do they have the figures on median earnings in the State?
Revenue records show that 770,000 taxpayers are exempt from the USC and therefore do not have USC liability. Approximately 500,000 taxpayers pay the lower rate of USC, which represents about 19% of taxpayers. About 1.1 million taxpayers, representing about 43% of taxpayers pay the next phase of USC, currently 5%, which will fall in January. The top rate of USC is paid by more than 224,000 taxpayers. That is the information I have in response to Deputy Doherty's question.
The Minister said that 224,000 are paying the top rate.
Some 40% of income earners are earning between €30,000 and €70,000.
Can the Minister break that down further to indicate the percentage of income earners earning between €20,000 and €50,000?
We will do that and I can give the Deputy the answer during the session.
People earning €70,000 are not the kinds of people we are seeking to have pay more tax. Under our proposals they would not pay any USC. They are relatively high-income earners, but they are not the kind of super rich at whom our policies are aimed. It is not statistically accurate to suggest that people on those relatively high incomes are middle-income earners. Approximately two thirds of all income earners are earning less than €40,000 or €45,000. Would that be accurate?
It sounds consistent with the figure I gave a moment ago, which indicated that 40% of people were earning between €40,000 and €70,000. It truly would be a McCreevy-esque policy to say that people earning €70,000 or less should pay no USC at all.
That is not at all the case when combined with transforming society along the lines of our proposals, which entail scrapping the USC and replacing it with a high-income social charge on those earning more than €90,000 and new tax bands going upwards.
The point is that the language around middle-income earners is designed to shroud the reality behind a curtain. Much has been made of the budget being another fiver budget - that phrase has been used. Is the Minister not embarrassed at the idea that a single-income earner on €20,000 or €25,000 a year gets a total benefit from all the tax changes of €1 a week, or a change in net income of 0.3%, whereas someone earning €75,000 would get a weekly increase of €6 and a change in net income of 0.7%? Therefore sections of higher-income earners benefit more from the tax changes, both USC and income tax, than relatively low-paid earners, who make up quite a substantial portion of taxpayers in this economy.
I make two points on that. I should have responded to the Deputy's earlier question. I entirely take his point and it might surprise him that I agree with him that the income interests of people on very low income are of course entirely different from those on very high incomes. This is why I have tried to prioritise resources that are available to me on the standard-rate cut-off point as opposed to what we would do with the percentage reduction in the higher rate of income tax. It gives me the opportunity to be able to concentrate resources on particular income cohorts and bands.
On the Deputy's second question, I accept the income tax or personal tax gain is quite low for people on low income. As he will know, when people are paying very little personal taxation in the first place, it is very difficult for me to reduce it further without taking them out of the tax net entirely. Because of the changes that have been made to the entry point for liability for USC and income tax, the aggregate amount of personal taxation that people on low income are paying is now at a relatively low level. The only way I can reduce it further is by taking those people entirely out of the tax net and I do not believe that is a path we should take. We are getting to a point - it is a policy background to the point I just made - that personal income tax and USC changes will be tools of increasingly less significance for income distribution for people who are on low income because the total amount of USC or personal tax they are paying in the first place is quite low in comparison with what it was in the past.
The Government often likes to make much of the fact that Ireland has a progressive income tax system. I think the argument is that it is one of the most progressive income tax systems in Europe. Obviously, that misses something, which is that the Government is shifting away from income - direct - taxation towards indirect taxation, which is inherently far more regressive. Considering the overall percentage of income spent on taxation by different deciles of income we can see it is not a very progressive system at all with the bottom 10% paying almost as much as the top 10% as a total percentage of their income.
My second point is that if the Government claims to have a progressive income tax system, it is contradicting that in the moves it is making in this budget whereby while the extremely low-income earners are getting relatively speaking a percentage gain, it is from a very small base, but the big numbers of income earners on €20,000, €25,000 or €30,000 get very little from the budget and the big benefits go to those earning €55,000, €75,000, €100,000 and upwards. That is also the case with percentage change of net income.
The Deputy knows the reason for that. Those who are on low levels of income already pay lower rates of tax than they have paid in the past. Let me give some figures on that. Somebody earning €15,000 will have an effective tax rate next year of 0.8%. By comparison, somebody earning €55,000 will have an effective tax rate of 28.9%. As the Deputy knows, the income gains in nominal terms are higher for people who are at the top than people who are on middle and low incomes because they are paying more tax and their effective tax rates are higher. A person earning €18,000 will have an effective tax rate in 2018 of 4.2%. A person earning €75,000 will have an effective tax rate in 2018 of 34.4%. Therefore the more people earn, the higher the contribution they make in personal taxation and the higher their effective tax rate is. That is progressive personal taxation.
Let us consider the change that is taking place. We can all pick examples from the tables to suit our arguments. Let us consider a single-income earner on €25,000 which is probably not far off the median earnings in the State. It may be €2,000, €3,000 or €4,000 off the median earnings. It is not far from representing a middle-income earner in the State. Such people gain €1 a week and their change as a percentage of net income is 0.3%, versus an income earner on €75,000 who gets €6 a week - six times more in euro terms, which is 0.7% in percentage terms.
That is not a progressive change relative to the €25,000 earner, which is not far off the average in reality, versus the €75,000 earner. That is a regressive change in their relationship. Does the Minister accept that as a matter of statistical fact?
I do not. It is not a case of me trying to pick figures to illustrate a particular argument. I am just trying to give an overall view of where our tax code is at the moment. I go back to a point I have emphasised a number of times here. If a person is on low levels of income in our society, his or her effective tax rate is substantially lower than someone who is a middle or high-income earner. In addition, because the amount of tax one is paying at present is far lower than in the past, income tax changes do not offer the kind of income growth that they did in the past as we took people out of the tax net. That is not a path I am going to go down again. What the Deputy is also missing in his analysis, if he is looking at the same table as me, is that for earlier income levels that table also takes account of the change in the minimum wage.
To be clear, the Minister does not accept it is a regressive change in the taxation system in relation to the comparison between a €25,000 income earner and a €75,000 income earner, when the €25,000 income earner has a net income change of 0.3% and the €75,000 income earner has a net income change of 0.7%. The Minister does not accept that this is regressive.
I do not. The reason is that the person who is on a higher level of income has a higher effective rate of tax and is paying more in taxation in cash terms as well. The only way in which I can undo the kind of effect that the Deputy is referring to is by taking more and more people out of our personal tax space, which will go right back to the policies that caused us such difficulty in the past.
I welcome the Minister and his officials. Has the Minister a figure for what is saved by the non-indexation of the personal tax system for 2018 in terms of bands and credits for example?
We will have that figure for Deputy McGrath in a moment. As I am giving that figure, I now have some of the figures that were asked for earlier on in the session. I gave the figure overall that we have 400,000 taxpaying units between €20,000 and €30,000. We have 217,000 between €20,000 and €25,000, another 61,000 between €25,000 and €27,000 and 122,000 between €27,000 and €30,000. We will get the figures for the non-indexation of tax bands as the session goes on.
We will come back to that point.
Speaking to section 2, the Minister said on budget day that he will establish a working group to plan over the coming year the process of amalgamating USC and PRSI over the medium term. Will the Minister define what he regards as medium term? What are the Government's plans for the amalgamation of USC and PRSI? Can the Minister give members any detail of how this will work in practice? In the PRSI code, for example, there is a link between contributions made and the benefits derived as a result of those contributions. Is the Minister saying that after an amalgamation, there no longer will be any separate identity between USC and PRSI? Will it be a full merger? Pensioners of course pay USC but they do not pay PRSI.
As for the State pension, the Government's plan is to move to a total contributions approach in 2020. If USC and PRSI are being amalgamated, how is that going to work? The Minister may not be able to answer those detailed questions but in terms of the overall plan and timeframe, when will the Minister set up the working group and when does he hope to make the first tangible steps towards amalgamation? When does the Minister expect it to be completed?
I aim to set up the working group after the passage of the Finance Bill. My ambition is that I will get an update or a report from the working group in advance of budget 2019. As for how long it will take to do, it is a very significant piece of work that will take between three and five budgets. I am going to proceed with great care. The object of the approach is actually to strengthen the contributory principle that the Deputy is referring to and not in any way to dilute it.
One of the things that I am struck by in dealing with how people see personal taxation overall, is that they see the social insurance element of their contributions in a different light from how they see their personal taxation contributions or even USC contributions. They feel that at a point in the future, they will get a benefit back from their social insurance. I would like to see how we could move more of our tax collection code into that space.
In terms of the difficulties that I would have to deal with, which is why I am being careful about saying how long it would take, the most significant ones of which I am aware are how and to where the revenues would accrue. As the Deputy will know, from a tax point of view revenue that is generated through tax accrues to the Exchequer and revenue that is generated through PRSI accrues to the Social Insurance Fund. On operational matters, such as a pensioner not being liable to PRSI but being liable to USC, we collect them in a very different way. PRSI is done on a week-by-week basis while USC is done on a cumulative basis.
To recap, the working group will be established after the enactment of the Finance Bill.
That is my objective.
The Minister envisages that full implementation would be over a span of three to five budgets?
Yes, three to five budgets.
The new combined charge or contribution, call it what one may, will determine one's benefits. It is going to be a contributions-based approach?
I think it is too early for me to give Deputy McGrath a definitive answer on that. At the moment, even though our social insurance system has a deficit within it, people will still get benefits to which they are entitled. That is because we use general taxation at times to complement where we are in the Social Insurance Fund to make sure that people get benefits to which they feel they are entitled or to which they have been told they are entitled, more particularly. One of the matters I want to be careful with is that if we do move to a purely contributory system - I do not have my mind made up on this - we would not in any way undermine the ability of taxpayers and citizens to be able to access a certain number of core benefits.
Just in relation to the-----
I do not want to undermine the kind of social contract approach that we are trying to build up here. Many people face circumstances during their lives and we are aware of one of them at the moment in which social insurance contributions lapse and so on. I am determined that we do not end up in a position that the contributory principle is extended to such a degree that it in any way undermines people's entitlement to a certain number of benefits I believe should be at the core of a social contract for our country in the coming years.
The analysis the Minister provided earlier, we have seen it previously, regarding the percentage of income earners in different bands and categories of income and paying different rates of tax is based on the total number of taxpayer units of approximately 2.6 million. A taxpayer unit is either an individual or a couple jointly assessed. It includes anyone with taxable income, including people who do not have employment income such as pensioners. Is the Revenue working on any project whereby one could provide corresponding information in respect of people with employment income? It would make the analysis much more meaningful in my view if the Minister could provide us with all of those data in respect of employment income only, in addition to what is already there. The taxpayer unit model is not the best model for some of the analysis we should be trying to do in respect of employment-based income.
I will come back to the Deputy with an answer before we move off this section.
My question concerns the Minister's ambitions to bring the PRSI and USC systems together to some extent. When the ESRI first produced papers on the USC back before the crash, it was intended that it would become contributory, that is, a universal social contribution. When it was brought in by the then Fianna Fáil-Green Party Government during the first years of the collapse, however, it then became a charge. It was, in fact, a very effective form of taxation. If the Minister is agreeing to merge or blend the two systems, will whatever portion of the USC that is transferred to be joined with PRSI then count as a contribution for those who have paid it? As the Minister mentioned himself, it is clear from the data we have on life expectancy, population growth and so forth that unless workers and their employers have adequate contributions - many employers nowadays do not provide private pensions- people could themselves wholly reliant on a retirement pension when they reach retirement age. If that funding is to be augmented by transferring USC to it over a period, I assume that whatever remains of the USC will then become a contribution as opposed to a tax. This means, in other words, that it will move into the category of PRSI.
There are certain things that worry people as they approach pensionable age that may not have bothered them when they were much younger. The first of these is the issue of medical expenses. Does the Minister have a model that includes, for instance, the hypothecation of some of the joint PRSI-USC contribution so as to be targeted to provide people with certain levels of medical cover? This would amount, in other words, to a contribution towards people's medical expenses based on an insurance model that would bring us closer to a universal medical system provision or some element thereof. What does the Minister think about these issues?
As I said to Deputy Michael McGrath, my early thinking on this is that it is a very complicated project and that I have yet to get to the point of even determining the terms of reference that would eventually lead to the paper I mentioned earlier. I want to deepen the contributory principle. From my experience of these systems in other jurisdictions, however, I want to evaluate whether such a system should be entirely contributory. I do not want to get to a point where we put in place a system that deepens some of our present difficulties whereby people are aware of benefits to which they believe they are entitled, only to subsequently find out that their contributions are simply nowhere near enough to allow them to get access to those benefits. I want to think through this issue carefully if we are looking to have a broader, more resilient form of social insurance. I aim to do this through setting the terms of reference for this paper and then having the work completed across next year.
On Deputy Burton's point about medical expenses, I think that system could possibly include such a provision. At this early point, however, I am looking more at services and at benefits that we could deliver to people. Looking at some of the changes that we are beginning to make to dental and optical benefits for the self-employed, for example, I am aware that people have been articulating similar needs for invalidity and sickness benefits for such people. This, then, is also one of the areas that I want my Department to work through for me.
Life patterns have changed considerably and we now have many people studying or training until the age of 22 or up to 28 perhaps. We also have people who might take one college course but then go on to retrain, as primary teachers perhaps. This, again, means that these people may enter the workforce relatively late in life. There are others who go abroad for a period and then come back. One element absent from our current system as it recovers is the facility to allow people to purchase contributions, as is also possible in some pension systems. This might apply where somebody, due to force of circumstance, has missed out on relatively small numbers of contributions. Would the Minister include this in the template? Looking at how life patterns are changing, this facility might be particularly necessary for people who stay in education for a prolonged period of time, which is of course what we want them to do. Under a total contributions approach - which does of course have much in its favour - I believe that we have to include provisions for people, particularly younger people, in this situation. By and large people do not think about pensions in their 20s and 30s. If they have in fact spent a prolonged period in full-time education or in non-remunerated training of some kind, they will not have contributions for this period and will not be entitled to credits. It is necessary that we provide for them.
The Minister also mentioned the self-employed. I do not know if the Minister intends to take this into account but one of the problems here is that we have vast additional numbers of self-employed in the economy at present. What is very obvious is that quite a large number of those self-employed are in fact only designated as such because in order to gain employment they have to agree to identify as self-employed. This applies both to contractors in sectors like construction and IT, who may in some instances be very well-paid, but also to a large number of people in very low-paid jobs. Notwithstanding the Minister's proposal to expand benefits for the self-employed, it will be a long time, if ever, before the system can provide the same level of cover for self-employed people of any category, but particularly those on low incomes, as it does for employees because the employer's contribution of 10.5% does not apply to the self-employed. The Minister should comment on this issue.
My final question concerns the Minister's working group. What is the format of that group? Is it an internal Civil Service working group based on co-operation between the Departments of Finance and Employment and Social Protection, for example? Is it a commission? If so, which groups are likely to be represented on that commission? A commission-type structure would obviously include broad groups of society. I assume that both employers and workers' representatives - such as trade unions - would be part of such a structure because both groups have extensive practical experience of the system. If the working group is entirely drawn from the public service, however, public service experience of PRSI is rather different from that of either employers or employees in the private sector.
If the employers are no longer funding private pensions in the way they used to, those people could be left extremely exposed with their particular interests not being addressed. I would like to know if the Minister will consult with the Dáil on the composition of this working group. It is absolutely essential that it includes people from different kinds of employment and in different types of situation, as well as employers who employ people in different ways and for different times.
What I am thinking at the moment is that it would be a working group rather than a commission and would consist of the Departments and Government bodies that will be affected by this such as the Revenue Commissioners and the Departments of Employment Affairs and Social Protection and Finance. It would be a working group that would have to instigate a period of public consultation in which all bodies would be able to participate, including the different stakeholders to which the Deputy has referred.
In response to her question about the self-employed, on which the Deputy also questioned me during Priority Questions in the Chamber recently, I am looking forward to seeing the paper on this matter. I am looking forward to receiving it and then seeing it published. She also put a point to me regarding the fact that the benefits somebody who is self-employed can get are very different from those who are employed for the key reason that the employer's rate of PRSI is missing. That is why I am careful about saying, even at an early stage, that this system should move to a purely contributory system. If it moves to a purely contributory system, I will exercise great caution to make sure we do not, at a time in which we are trying to perhaps expand benefits in a number of areas, deepen the inability of people actually to access them. This is one of the things we want to work through.
I strongly advise caution on the Minister's proposal to have the working group receive submissions from workers and employers who are actually in the system, rather than having those people represented within the group. I will tell the Minister why. In 1992, in a previous Government, I was a Minister of State at the then Department of Social Welfare. At that point, it was on the menu to try to have more integration and interface between PRSI and taxation. The Minister is at risk of just taking into account public service employees in terms of how the system operates, and not fully including people who are operating on the other side of the system. The system is so varied because of employment and self-employment situations nowadays.
I look forward to that report being published. Neither the Taoiseach nor the Minister for Employment Affairs and Social Protection indicated today that it was going to be any time soon. I think it is an awful pity. It is one area of the system where a lot of the people in this room, particularly those on the official and the tax side, know that we are being taken to the cleaners by employers who are creating structures where people have to opt in to self-employment. No matter how much the Government expands benefits for the self-employed, on a cost basis it will not be able to expand them to the point where somebody gets the same level of benefits as if they were in employment, particularly if that employment turns out to be sporadic, maybe for three or five years, and there are breaks in it because of ups and downs in the economy and so on.
In terms of the working group, might the Minister agree down the line, when the Finance Bill has been passed, to publish a paper laying out his thoughts on that? This kind of change is very important. I am conscious of the fact that quite a number of countries have moved from what was in effect a contributory system with a lot of benefits which are relatively clear - although they are not always clear. We might follow other jurisdictions and actually move to a much more means tested system, which would mean that a lot of people would not get the contributions for the principal retirement pension to which they felt they had contributed.
That is exactly why I am taking such care in committing to a purely contributory system. It is exactly for the kind of risk the Deputy has identified, of which I am well aware. I believe we have an opportunity to put in place a structure that allows it to be clearer to citizens how we can pay for the maintenance of existing benefits and, hopefully, the creation and expansion of new ones in the future. The other issue is that when people look at their wage bill, we have three different ways of collecting income from people at the moment. I want to identify whether there is a simpler way of doing that while at the same time linking it to the maintenance of benefits in the future and the creation and expansion of new ones.
To go back to a point the Deputy made earlier about the changing demographics, there will be significant changes in people's working lives, when they go into education and when they go back to work, as well as the frequency at which all that happens. I want to see if we can better cater for these changes in the future.
The Minister and members will probablyl be aware that amendment No. 4 deals exactly with topic we have been discussing for the last 30 minutes or so, namely, the merger of USC and PRSI. I am not going to discuss that now because we have not got to that section but I want to go back to close off on another matter. The Minister was going to provide figures and data. I have looked at the data myself. Does the Minister accept that somebody on €70,000 is in the top 15% of income earners in the State?
I think statistically they are at the higher end of income earners in our State, yes. Where I differ with the Deputy is that I think the effect of that income on people's living standards varies dramatically.
I agree with that. The point I am making-----
I will go back to the point I made to the Deputy earlier. I think these two points can coexist beside each other. There can be people who are on an income of €70,000, which is a very high level of income in comparison with somebody who is on €25,000 or €30,000. They are at the higher end of the income ladder in our State as defined by the statistics that I am sure will be available to us. However, their actual discretionary income at the end of that can still be low.
I am not having this kind of argument just for the sake of having an argument about language. My view is that there has been a deliberate classification of "middle income" in this State which bears no relationship with the reality of the levels at which incomes are actually earned. For example, the Minister gave a figure of €30,000 but more than 50% of people have an income of less than €30,000. If I asked my 11 year-old son Pádraig where was the middle, he would say somewhere around 50%, yet the Minister's middle starts above that mark and goes right up to 85%. That is done deliberately. When the Government then says it is reducing taxes for the middle-income earners, it is a different message. I am sure Leo's strategic communications unit would not be too happy if it was going out saying, we are reducing taxes for the top 15% of income earners. Indeed, it is probably actually worse. We will come to that later in respect of another amendment, when I will talk about the way Revenue is collecting statistics. What we do know is that someone on €70,000 at present is in the top 15%, but that is taxpayer units. Such a unit might comprise a husband and wife, where one individual has an income of €40,000 and the other an income of €30,000.
However, that is taxpayer units. As such, those individual units may consist of a husband and wife of €40,000 and €30,000. If we have individual incomes, it is likely that they are closer to the top 10% of income earners in the State. I do not take away from the fact that someone on €70,000 finds it difficult to put a child through college, meet mortgage payments or deal with high child care fees or as to the pressure in their lives, but let us have an honest debate on finances. The Minister cannot square the circle where he said somebody on €70,000 is on the higher end while still believing that is somebody who is on a middle income. A middle income must be somewhere in the middle. The Minister cannot redefine the middle; it is not possible. The middle is the middle and it cannot be the other end.
If this is an argument, it is a reasonably polite one at this point on the Finance Bill. I take the Deputy's point that in terms of the income distribution, someone on €70,000 is clearly at the higher end. I accept that point. I think the Deputy can see my side of the coin also in terms of the pressure that person might face. However, it is because of my recognition also that if I change the standard rate cut-off point, as I have done, those income benefits are concentrated in a particular cohort of income earners. That will miss people who are earning less than €34,500 if I only focus on the standard rate cut-off point. That is why the move in the standard rate cut-off point was accompanied by a move to reduce the 2.5% rate of USC to 2%. I was trying to ensure the income growth benefit was also made available to people on incomes below €35,000 or €70,000.
As a vote has been called in the Dáil, is it agreed to postpone our vote on section 2? Agreed.
Sitting suspended at 7.27 p.m. and resumed at 7.47 p.m.
Before the suspension, we were about to put the question, "That section 2 stand part of the Bill".
Question put:
The Committee divided: Tá, 4; Níl, 2.
Tá
- Burke, Peter.
- Donohoe, Paschal.
- McGrath, Michael.
- Neville, Tom.
Níl
- Doherty, Pearse.
- Murphy, Paul.
Question declared carried.
NEW SECTIONS
I move amendment No. 1:
In page 8, between lines 16 and 17, to insert the following:
"3. The Minister shall, within 6 months of the passing of this Act, bring a report on the cost and implications of abolishing the Universal Social Charge for everyone earning less than €90,000 per annum.".
If we could move an amendment to simply abolish the USC for everyone earning less than €90,000 we would obviously do so. We cannot, however, as such an amendment would be ruled out of order. What we have instead, then, is this amendment calling for a report on the costs and the implications of such a move. The argument in favour of an abolition is that the USC is a tax hated by workers. It was introduced as an emergency tax during the economic crisis but has instead become a permanent feature of our tax landscape. It hits ordinary workers, including low and middle-income earners, as well as high earners. Our figures suggest that approximately 7% of tax units earn more than €90,000 a year. In the Solidarity-People Before Profit budget statement, we proposed the abolition of the USC for those earning under €90,000 per annum and the conversion of the USC into a high-income social charge for those earning more than that sum. Part of the reason for this proposal is to counter the notion that the left stands for increased taxation on ordinary workers. We do not, in fact, as we think that there would be sufficient potential tax revenue from the wealth and profits held by the top 7% earners at the very top of society. Rather than hitting ordinary workers, this is the section of society that should be targeted. It is not a choice between tax increases and ongoing high taxes for ordinary workers on the one hand and public services on the other. Public services should be paid for instead through increased taxation on very high earners and particularly through a significant increase in corporation tax and the introduction of a millionaires' tax.
I understand that it is the Deputy's intention to propose a tax system under which all of those earning up to €1,731 per week would be exempt from USC entirely. The current exemption threshold for USC stands at €13,000 per annum and it is now estimated that from next year, 29% of all income earners will no longer be liable for USC. To further increase this entry threshold to €90,000 would exempt 95% of income earners from USC and increase the number of taxpayers exempt from personal tax entirely to 37%. This would therefore considerably narrow the income tax base and expose our economy to significant risk in the event of a future economic downturn.
Deputies will recall that during the economic crisis, we reached a point where 45% of all income earners were exempt from income tax. That was unsustainable as it placed an unfair burden on those earners who were contributing to the income tax base, and exposed the vulnerability of our income tax system to economic shocks. It is my view that a broad-based, progressive income tax system, where the majority of income earners make some contribution according to their means, is the fairest and most sustainable income tax system in the long term. The Deputies will be aware that in this budget I have retained the current USC threshold of €13,000 to maintain the existing USC base, and that I have also expressed my commitment to retaining that figure as the entry point to taxation in future.
I also note that the abolition of the USC for those earning less than €90,000, assuming that those earning above €90,000 would pay USC on all their income at the new 2018 rates, would have an Exchequer cost in the region of €2 billion on a full-year basis. Significant expenditure cuts or alternative tax raising measures would therefore be required in conjunction with such a measure. Taking these considerations into account, I am not minded to support the precise terms of the amendment put forward by the Deputy and cannot accept the amendment.
I can, however, agree to the proposition that a report should be prepared which presents the analysis relating to the amalgamation of the USC and PRSI, and it is my intention that this report will be made available to the Dáil in advance of budget 2019.
That is a different report. It is fair enough that the Minister agrees to that different report but he does not agree to this one. The wording is not entirely clear and there was some confusion when we were submitting parliamentary questions in advance of the budget. We were talking about the USC, renamed effectively as a high income social charge applying to marginal income exceeding €90,000, of which we understood the yearly cost would be €2.8 billion. In our budget statement, we also outlined a series of new bands for high income earners that would raise in excess of €2 billion. We will come to this later in the context of our amendments. That would significantly reduce the cost of those changes. The Minister is not going to agree and that is understandable.
Amendment put and declared lost.
I move amendment No. 2:
In page 8, between lines 16 and 17, to insert the following:
“3. The Minister shall, within one month of the passing of this Act, prepare and lay before Dáil Éireann a report on the impact on income equality of the changes in income tax and USC made in this Act.”.
I want to withdraw amendment No. 2. I will reserve the right to reintroduce it on Report Stage.
Amendment, by leave, withdrawn.
I move amendment No. 3:
In page 8, between lines 16 and 17, to insert the following:
“3. The Minister shall within 6 months of the passing of this Act, prepare and lay before Dáil Éireann an analysis of individual tax payers in the State, in light of the current reporting deficit whereby the breakdown of the number of taxpayers and their associated income are provided in the form of tax payer units which includes a mix of joint earners as well as individual earners.”.
This was touched on earlier. I am not sure if the Minister has seen the budgetary committee's report on the budget. This is one of the proposals the committee agreed to include in that report. It is something I argued for and am thankful it was included. In the present scenario, we do not have a clear breakdown of individual incomes in terms of taxpayers. We are dealing with taxpayer units. That is the point I made earlier today about those earning €70,000. Are they in the top 15%? Yes and no. Some of them are combined incomes. There is no way of knowing how many people in the State are paying tax on a single income of €70,000 because we use taxpayer units. For USC, we use a different method because it is individualised. We are a good bit of the way there with USC, yet we are using taxpayer units in terms of income tax.
The other issue was referred to earlier by Deputy Michael McGrath when he alluded to the fact that there are 2.6 million taxpayer units in the State. In terms of employees and self-employed people, the number is a lot less than that. That is because some of those incomes are pensions and so on. They are taxable and are therefore counted by Revenue.
We need far more granular detail in how we collect data. I have huge regard for the Revenue Commissioners. I think their systems are very good. The Revenue online service, ROS, is among the best that is out there. It is very easily usable and so on. The Revenue Commissioners collect a great amount of data. Like other members of the committee, I submit a lot of parliamentary questions and we get great, valuable data from Revenue. However, still in 2017 we do not have very simple data on individual incomes.
This throws up problems in terms of policy development. I will talk about a proposal that is in the Government's own papers, about tapering out tax credits. This is something we examined and for which we have argued for some time. We cannot progress it because it cannot be costed. It cannot be costed because we are dealing with taxpayer units. For this reason, it is decided to taper tax credits out at a starting point of €80,000. We do not know if we are hitting a couple with two incomes of €40,000 or an individual on €80,000. Obviously, if the Government is doing the tapering out of tax credits - a possibility it is proposing - it needs that type of data.
The proposed amendment provides that within six months of the enactment of this Bill, the Minister will prepare and lay before the Dáil an analysis of individual taxpayers in the State in light of the current reporting deficit. I think it is time that we moved on this and got the detail. I hope it is not a huge amount of work for the Revenue Commissioners. They do have all of this detail. They just do not have it in such a form that the model or programme they are using can spit out the information we are looking for in terms of individual income. We are talking about 2.6 million taxpayer units. In respect of each taxpayer unit, Revenue knows that Mr. A is on €30,000 and Mrs. B is on €50,000 but it cannot give us that detail.
The Deputy’s amendment refers to the current system of reporting data based on taxpayer units, whereby jointly or separately assessed couples are recorded as a single tax unit. This is an inevitable consequence of a tax system which allows for the assessment of married couples and civil partners based on the joint income of the couple. It is not possible at the moment for Revenue to provide an analysis on an individual basis as the tax liability of these individuals is not separately recorded, assessed or determined.
Under the Irish tax system there are three options for assessment of married couples or civil partners which form the basis of assessment for tax purposes: joint assessment, separate assessment and separate treatment. Under joint assessment, one spouse or partner is chargeable to tax on the total income of both members of the couple and can avail of the allowances, credits and reliefs available to both partners. Jointly assessed spouses can transfer certain tax credits, standard rate bands, losses and tax reliefs between them. Under separate assessment, each spouse is assessed separately but where one spouse’s allowances, reliefs or rate bands are not fully used they may be transferred over. These tax units cannot be disaggregated into two separate individuals for reporting purposes as it is likely that, in many cases, the taxable income and tax payable by the tax unit is not equivalent to the sum of the income and tax figures for the two spouses had they been assessed to tax on an individualised basis. In 2015, jointly assessed and separately assessed taxpayer units accounted for approximately 34% of all taxpayer units – that is, approximately 787,000 taxpayer units, comprising 1.57 million individuals, amounting in total to over half of the individuals in the tax system.
I would, however, note that my officials also have an interest in obtaining data, to the extent possible, on an individualised basis, and are working with colleagues in Revenue to investigate how we can do it. If robust aggregate data can be produced on an individualised basis, this data will be made available to Members of the Oireachtas. However I must note that the scope for individualised analysis will always be subject to limitations while joint assessment is a feature of our tax system. Taking these technical limitations into account, I cannot accept the amendment proposed by the Deputy.
How stands the amendment?
It stands that we are going to discuss it a wee bit further. I think this is crucial. Unless we can get sight of this type of data, it will be very difficult to develop policy and costings for policy. There are a lot of guesstimates at work. I know if the Minister were to come forward with a proposal on tax tapering, for example, Revenue would give him its best guesstimate on the costs and effects of that. As members of the Opposition, Revenue will not give us those guesstimates, and I understand why it will not. The Government is going to enact it in legislation whereas we are using it as an alternative, as such.
In today's world, there must be a way to look deeper into joint and separate assessment. With everything we have and all the data we are looking at, in terms of the number of income earners in the State, a certain proportion of that information is false. We are misreading the data, given the fact that 34% are taxpayer units made up of two individuals with two incomes. It is a completely false read of where income distribution is in the State.
It is impossible to develop good tax policy without sight of the details. I take the Minister's point that the Department also wants the data and that it is working with Revenue on that but I would like something more substantial and concrete. For example, I have previously asked for a report to be prepared, looking at the analysis of individual taxpayers. Will the Minister, at least, agree to the Department and Revenue examining how information on the breakdown of income components of jointly assessed and separately assessed taxpayer units could be garnered?
I, too, want the information as it will allow me to form the best view I can of the current state of our tax base because one could reach different conclusions in relation to how many taxpayers are paying tax as opposed to how many tax units are paying tax. Given the value I place on maintaining the breadth of the tax base, I want this information too. Prior to the Deputy raising this issue with me, I had a number of discussions within the Department on how best to gather this information. I am unable to accept the amendment because there are two issues at the heart of this matter, namely, the manner in which the information is provided, which I have touched on in my response to the Deputy, and the way the information is tracked and captured within the Revenue Commissioner systems. It is possible that the Revenue Commissioners will respond to the effect that it cannot give me the information in the way I or the Deputy want it. If I can get the information, I will be happy to share it with the Deputy and the committee. If the Revenue Commissioners come back to me to conclusively on why they cannot provide the information, I will share that with the Deputy too.
In regard to the Deputy's point about tapering, he is correct that the Revenue Commissioners cannot provide that information directly to him. Were the Deputy to ask me for my judgment on these figures, I would give it to him with all kinds of caveats, including that we have to use judgments because of the system limitations I touched on earlier. The figures were shared with me. I do not have them with me today but I am happy to share them with the Deputy. I cannot accept the amendment because it is possible that I will not be able to do what the Deputy asks. If I can get the information, I will share it with the Deputy and if I cannot do so, I will explain why.
I appreciate that. I have been dealing with this issue for a couple of years with Department of Finance officials in the context of obtaining costings and so on. I want to extend my appreciation to them in that regard, and also to the Revenue officials in terms of their assistance in trying to drill down into this data. There must be a way of collecting this data. I heard what the Minister said. The Revenue Commissioners will be before the Committee on Budgetary Oversight in December and this is one of the issues we will be discussing with them. I take it at face value that the Minister is going to pursue this and that he will update us at a later date on where he is at in this regard. As stated, I will also discuss it with the Revenue Commissioners.
This data would be very useful. While I take the Minister's point that this is quite technical, I think it is a systems issue. The raw data exist but they are aggregated because, in terms of the taxation system, the Revenue view a couple who are jointly assessed as one person. The raw data are available so it is primarily a systems issue. If additional investment is needed it should be made available. I would also welcome a separate analysis based on employment income only. I think that would be extremely useful as well because we currently do not have accurate data on the various bands in terms of employment income only.
In regard to employment income only, is the Deputy speaking about income separate to that which could be received from the State?
Separate to pension income, for example.
Amendment, by leave, withdrawn.
I move amendment No. 4:
In page 8, between lines 16 and 17, to insert the following:
“3. The Minister shall, within six months of the passing of this Act, prepare and lay before Dáil Éireann a report on options available regarding the merger of USC and PRSI.".
This amendment calls for a report on the options available regarding the merger of USC and PRSI to be laid before the Dáil within six months of the passing of the Act. This concept was given life in the middle of the Taoiseach's election campaign, which is never a good time to develop policy, particularly in terms of tax that in the next number of years will bring in approximately €5 billion. I note from the Minister's earlier comments that the Government does not know where this is going at this point in time, which is fair enough. It is an idea-concept that we need to be careful with it. We should not be limping from Finance Bill to Finance Bill in terms of chipping away at the USC and providing for some of it to go to the Social Insurance Fund without a clear roadmap as to where we are going. I am open to ideas. Looking to international standards, we fall short here in terms of employee and employers' PRSI. That said, if we move a €4 billion - soon to be €5 billion - tax head into the Social Insurance Fund we will have a €5 billion hole in terms of the tax take required to fund different services, unless the social insurance contributions are to be used to fund existing services. We need a detailed roadmap. I do not expect that this would be completed within six months.
The social insurance system is complex enough without having it merged with the USC. However, I believe that within six months, which will be a year after the Government announced this proposal, we should have a paper setting out options. We need options set out on paper. I note what the Minister had to say about a working group and terms of reference to be drawn up. This is too big a measure not to have it properly scrutinised. We cannot wait for further announcements on the floor of the Dáil of next year's Finance Bill. That would be wrong. We need proper legislative scrutiny of this measure. This is not about cutting taxes or increasing taxes, rather, it is about the different ways taxes are paid and the services they provide for. I hope the Minister is open to the preparation of the report sought given as he outlined earlier he proposes to establishment a working group and so on. I am asking for a commitment that within six months we would have some options for consideration by the Committee on Budgetary Oversight, which is the appropriate committee for the working group to feed into in terms of its work and where it is at.
I have an idea about where I want to go on this, which I outlined earlier. I am clear on the role which this integration could play. Following the passage of the Finance Bill 2017, I propose to establish a working group, with terms of reference, which will lead to a paper, which when completed I will publish and make available to the Deputy. The main reason for my not being able to accept the amendment is the six months requirement. Given the amount of work involved, it is possible that work on the report may continue into next summer. I do not want to find myself in the situation whereby having made provision for something in the Finance Bill, I would be infringing it because I am trying to get a complicated piece of work done. The report will be produced and published.
That is fair. A Finance Bill is not the appropriate place for these types of measures. What I am seeking from the Minister is a commitment that as in the case of the local property tax report, this report will not be published on budget day and an announcement made that this tax is to be retained. This is too important a measure to be dealt with in that way. I can understand that it is hard to know if the working group will produce proposals in six or eight months' time but publishing a report at the start of October and announcing measures thereafter would be the wrong thing to do.
If we are going to pay any respect to the new budgetary process, the budgetary committee should be looking at these options. That means they have to be published before the budget in order to give the committee an opportunity to express its opinions and issue feedback. Rather than publishing something and announcing it within a window of a week or two, the Minister should give the committee the respect it deserves.
My difficulty is with the period of six months. I am happy to give a commitment that well in advance of any significant change that is made as part of the merger, I will publish a report on the options that are open to us. I will not publish that report on the day such changes commence. This is a big piece of work. As I have said, it will take between three and five budgets to complete it. My decision on when that work should start will be informed by the issues that are generated. If, in return for the potential withdrawal of this amendment, the Deputy wants me to give him a commitment that I will publish a report in advance of the commencement of any significant work on this issue in the context of a budget, I am happy to give such a commitment.
I will withdraw the amendment on that basis. When does the Minister expect to publish the terms of reference for the work of the group?
We aim to do that early next year.
Is it the Minister's intention that the entire proceeds from the USC - this figure is expected to reach approximately €5 billion by 2020 - will be transferred into the social insurance fund?
It is too early in the work I want to do in this regard to be able to answer that question. As Minister for Finance and Public Expenditure and Reform, I am intimately aware of how the health of the Social Insurance Fund - whether it is in surplus or deficit - makes a big difference to the figures at budget time. I have too much work to do. That is why I want this work to be done before I can indicate what kind of transfers will be happening.
Can I take it that the terms of reference will not stipulate that this process should involve the complete merger of the USC? Is it the case that all possible options, including partial merger and complete merger, will be considered? My concern is that this will not add up unless the services that are currently being provided through general taxation are funded from the Social Insurance Fund. One cannot cut between €4 billion and €5 billion of tax, put it into a fund which cannot be used for general taxation and think we are going to be okay.
I am well aware of that. I have a very clear view on where I want this to go. I want to find a way in which, at a minimum, either some or all of the USC, as it is currently structured, can make a contribution to the firm maintenance of the benefits we have at the moment. I do not have a view on where we are in that continuum. I want to look at ensuring the new benefits for which there is a demand in our society are funded through the Social Insurance Fund, as they should be and as they are in other jurisdictions. We need to see whether we can use a piece of work like this to fund such benefits. That is my long-term objective for this work. The terms of reference will outline some of the thinking about how the group will be able to help me in this regard.
Amendment, by leave, withdrawn.
SECTION 3
Question, "That section 3 stand part of the Bill," put and declared carried.
I propose that we suspend for a vote in the Dáil.
Sitting suspended at 8.24 p.m. and resumed at 8.42 p.m.
SECTION 4
Question proposed: "That section 4 stand part of the Bill."
This section amends section 466A of the Taxes Consolidation Act 1997, which provides for the home carer tax credit. The amendment was announced in my budget speech and will increase the value of the credit from its current level of €1,100 to €1,200. The increase will assist married couples or civil partners where one spouse or partner works primarily in the home to care for children or an elderly or incapacitated relative. The credit is of benefit to over 80,000 families annually.
Question put and agreed to.
SECTION 5
I move amendment No. 5:
In page 9, to delete lines 14 and 15 and substitute the following:
“(a) In paragraph (a), by substituting “€1,400” for “€950”, and
(b) In paragraph (b), by substituting “€1,400” for “€950”.”.
The progress in terms of equalising the self-employed tax credit with the PAYE tax credit is too slow. I made the point during discussion on last year's Finance Act that we should have gone further than we did and that it should have been done over a three-year period. It was decided to go to €950 last year and the Government is proposing an increase of €200 to €1,150 this year. The amendment proposes an increase to €1,400 and full equalisation in the next finance Bill. The policy has taken a number of years to bring about the equalisation and there is no reason not to go beyond the increase to €1,150 upon which the Minister has decided this year. The amendment proposes an increase to €1,400.
In the Finance Bill, I have provided for an increase of €200 in the earned income credit to bring it up to a value of €1,150 per year. The €200 increase provides a significant benefit to small business owners across the country, including small retailers, publicans, farmers and tradesmen. It is estimated that the credit will be of benefit to approximately 151,600 individuals and business interests in 2018. In view of the limited resources available to me in budget 2018 and in light of the competing demands for amendments to the tax system, it is not possible to increase the earned income credit by €450 to €1,400 as proposed by Deputy Pearse Doherty. Such an increase would cost over €37 million in 2018 as compared to the €17 million first-year cost of the €200 increase, which was achievable within the resources available to me. It would have given a disproportionate benefit from the budget to the self-employed as compared to all other individuals, including PAYE workers, pensioners and welfare recipients.
I accept that differences remain between the taxation of employees and the self-employed. However it must be acknowledged that some of the differences are to the benefit of the self-employed. For example, the self-employed continue to benefit from a broader expense deduction regime than that available to employees and there are significant timing benefits regarding the payment of tax liabilities which are available to the self-assessed but which are not available to PAYE workers, depending on the accounting period used by the taxpayer. Deputies will also be aware that the overall contribution to the Social Insurance Fund by the self-employed is significantly less than that of employees because, as Deputy Burton pointed out earlier, no equivalent to the employer PRSI contribution is payable. However, Deputies will be aware that A Programme for a Partnership Government contains a commitment to increase the earned income credit to €1,650. The budget 2018 increase of €200 is a significant further step in that direction and it is my intention to make further progress on increasing this credit in budget 2019, subject to the available resources.
For the reasons outlined, I do not propose to accept the amendment.
The Minister may have already clarified this but is he committed, as was his predecessor, to full equalisation of the credit with PAYE workers?
I am.
Does he have a view as to when we can expect there to be full equalisation?
That will depend on the resources that are available to me next year and beyond. However, I aim to make a more significant step on it next year, depending on available resources.
I find the Minister's approach to the issue rather disappointing because the previous Government, of which I was a member, had an achievable ambition, as he knows, to achieve equalisation in a three-year period. It is now November and I am sure the Minister's officials are having a close look at the self-employed tax returns.
To go back to a point I made earlier, it is important to understand that the current number of self-employed and the extraordinary growth in self-employment figures in the economy are both somewhat false in a certain sense because, particularly at lower income levels and in large parts of the construction sector, people on relatively low incomes are being forced into self-employment. Their choice and that of those who administer the tax system would be for them to be employees. However, as evidenced by the Paradise Papers, there will always be those who play the system and that is what is being done in this case.
The Minister's Cabinet colleagues have been holding back in addressing what is an abuse of the tax system. The logic of it is that if people are being abused and being forced into self-employment, then some of the anomalies, such as the self-employed tax credit, should be of equal status with the tax credit for people on PAYE. Looking at the figures, there would probably be a surge of up to €400 million to €500 million because of the extraordinary growth in self-employment.
There is a view of the self-employed as being somehow or other well-off. The trades where people are effectively forced into self-employment can range from the building industry to labour-intensive areas such as personal services of different kinds. Their take-home pay is relatively small, however. Giving them the same tax breaks as PAYE workers makes a lot of sense in fairness and in economic terms.
I understand the die is cast for this year. However, it is a wrong decision but, clearly, the Government decided it had a particular framework for spending. I noted a confidence survey published last weekend stated people did not feel anything from the budget. I am sure the Minister's officials brought it to his attention. The reason for this is simple. If the Minister had just indexed the bands and the allowances at whatever level - certainly for inflation - people would have done better than the notional €5 a week, as previous speakers have suggested. I am disappointed he has failed to give self-employed people parity, when so many of them are in forced self-employment. I do not know what economic sense it makes. The Minister can talk about balancing the books but when he is close to eliminating the deficit, this kind of balance does not really say much.
Will the Minister share with us how the returns from the self-employed are actually going? I am sure the Department is looking at it constantly. Are they up to expectations or, as I expect, exceeding expectations? Unless, somehow or other, there has been a flight of self-employed people out of the country, it is hard not to see there being a surge, particularly as the big return to employment and self-employment started four years ago.
October is the first month in the tax year so far in which our tax collection has moved into line with our profile and what we expected to do. While there is much focus from the Deputy and others as to where we will end up in November, it has to be seen in the context of a year in which, up until October, we were behind profile. While we were ahead of where we were a year ago, we were behind the targets set. Anything that happens in November will be seen by me in that context.
On the point on how people felt after the budget, we went through several budgets where people felt significantly better the day after. However, we saw the cumulative cost of those budgets. I was clear in the run-up to budget 2018 that I wanted to make steady progress. If we end up in a situation where people feel dramatically better off the day after the budget, it is a sign to me that we are going down a path which will bring us back to where we were in the past. That is not a journey on which I intend to go.
The cost of indexing our income tax system for a full year would be €550 million, money which is not available to me. That is why I had to make choices with the smaller amount of funding available.
If I had made the choice to move to full parity in a single budget, it would have meant a move to €1,650, which would mean an increase of €700. This would have meant that a single self-employed individual earning €25,000 would have gained €15 per week, while a PAYE employee on the same income would have gained €1 per week. That is why I am looking to do it over several budgets. I am looking to make a bigger move on it next year than this year.
I do not believe anybody should be forced into self-employment. That is not to say there are issues which will have to be addressed. I am aware of the Deputy's point and wider concerns about the nature of employment contracts in different occupations. It is a matter on which I have indirect experience. I want to see the Minister for Employment and Social Protection's work on this conclude and report. It is a matter about which I have questions. If the questions are answered in a bad way, I would have potential concerns.
The Minister's commitment to publishing the report is welcome. I hope he will pass on that thought to his colleague, the Minister for Employment and Social Protection.
The Revenue Commissioners know there is a significant loss to the Exchequer through what is happening with bogus self-employment. Much of that may be contained in the report whenever it is published. Essentially, we are getting 4.5% as opposed to 14.75% plus from next year through the increase for certain employers in the training levy. It is a loss of 10.5% in PRSI which could be utilised both to make the system fairer, but also to improve it. I accept the Minister's bona fides in that he cares about people's cover for when circumstances change and how they may require social protection. It makes no sense, however, from the point of view of the overall economy to allow what is effectively a fraudulent system of bogus self-employment to grow.
People are devising more and more ways in which to push people into the path of self-employment. The consequence for the Social Insurance Fund and for the Revenue Commissioners, the collectors of income tax, PRSI and USC, is a significant loss of income. It particularly affects many young self-employed people who are struggling on lower salaries and wages and reduced terms and conditions than their employed colleagues. It is fundamentally unfair and destructive in terms of social justice.
The report in question has been ready for quite some time. I have no idea whether it is being revisited in some way or redacted because there are problems with some sectors or companies. However, it is unfair to those working, many working extremely hard, and this is what they get.
They are comparing their situation to that of their brother, sister or spouse who is an employee and has an income tax credit. Notwithstanding promises this could and would be done within a three year period, it does not seem that it will be looked after next year because the Minister has said the bar is so high. How was it that at a time when the economy was in a very early stage of recovery it was possible to increase the credit by a third? That was possible because a choice was made to give it to those who required it. There is a need to start eliminating some of the phoney stuff in the system in regard to self employment that does not play to people's advantage but, rather, to that of certain employers.
The scale of the overall package of budget day announcements was smaller than some of the budgets to which the Deputy is referring, which, therefore, meant the resources available for measures such as the earned income credit were smaller. I reiterate that I do not believe people should be forced into self-employment. As we move into November there will be a focus on the level of self-employed returns. It is inconsistent to say the growth in the self-employment sector is undermining our self-employed tax receipts because those tax receipts could potentially increase in November. We should wait to see what happens in that regard.
There is a very easy answer to that. There is an enormous surge in the number of self-employed, in particular at lower levels of pay. That is evident from statistics. Many people are in their third or fourth year of self employment. As the Minister knows, the pattern for the self-employed is that by the third year and once the start-up costs and so on of whatever it is they are doing have been accommodated, the income of those people is then hopefully likely to finally rise to a significant point close to the average industrial wage. Unless such increases occur, how will such people pay for rent or, better still, put a deposit down on a house, get a mortgage and be able to become financially independent?
I have a strong interest in seeing if there is evidence to back up many of the concerns raised by the Deputy. That is why I anticipate the report to which I have referred the Deputy on a number of occasions will be brought to Cabinet and published soon and should provide an evidence base for examining the issue. In the context of our earlier discussion on the future of the USC, I have very strong views that in light of all the challenges people face we have to look at ways in which we can renew a social contract. One way a social contract will be fractured and undermined is through the potential growth of employment practices that would deny people benefits in the future. I aim to make the report on this matter available soon to provide an evidence base on the issue.
I accept the Minister's bona fides and commitment to the issue and that is very good to hear. If for some unknown reason the report is further delayed, would the Minister assist members by publishing the submissions that were made to the report? Submissions were made by various interested parties with views on the issue. Perhaps the Minister could arrange with his Cabinet colleagues to have that information published in order that members can get a sense of who the lobby and interest groups are that, for whatever reason, seem determined to resist very necessary change. I am sure the Minister's officials in the Department of Finance and the Revenue Commissioners have told him the kind of loss this is to our PRSI system.
I do not anticipate------
Before the Minister comes in, I would like to know who authored the report. Was it the Department of Social Protection?
The Departments of Social Protection and Finance.
And the Department of Finance. I know we have strayed a little from the topic but my point is in respect of the self-employed. There is guidance and a checklist on the Revenue website to determine the employment status of an individual and whether they have a contract of employment or a contract for service. What the Deputy said is correct and it does not just apply to those at the lower levels. There are some very high profile people in this country who are apparently self-employed. The Revenue checklist to determine if one is an employee states that, "While all of the following factors may not apply, an individual is normally your employee if: you control how, when and where the work is carried out; they supply labour only;" they are on a fixed payment; they cannot sub-contract their work, etc. The report will make for interesting reading. What work is the Revenue doing on this issue and the differentiation between those who are in a contract of employment and a contract for service? It seems to me that there are many instances where the de facto employer determines all of the issues such as the place and time of work and the payment, yet those working for them are deemed to be self-employed. There is a real issue there and it needs to be examined.
I do not anticipate we will have to require the publication of submissions in lieu of the report. I want the report to be published.
Amendment put:
The Committee divided: Tá, 3; Níl, 3.
Tá
- Burton, Joan.
- Doherty, Pearse.
- Murphy, Paul.
Níl
- Burke, Peter.
- Donohoe, Paschal.
- McLoughlin, Tony.
Amendment declared lost.
Staon: Deputy Michael McGrath.
Deputy Michael McGrath has voted to abstain. Standing Order 97(1) negatives a question when there is an equality of votes.
Amendment declared lost.
Question, "That section 5 stand part of the Bill", put and agreed to.
SECTION 6
Question proposed: "That section 6 stand part of the Bill."
I intend to table an amendment to section 6 on Report Stage.
Section 6 deals with mortgage interest relief. During all of the discussion on the tracker mortgages, what struck me is how the Revenue would deal with redress payments by the banks. Can it be agreed that the Revenue Commissioners will not pursue people who effectively get the benefit of mortgage interest relief when they are paid compensation at a later stage and will not attempt to claw back the mortgage interest relief?
I have been informed that the banks are committed to covering any tax liability that may arise due to that.
An additional angle is that as a result of a change made in recent years, some people would have lost their mortgage interest relief by virtue of the fact that they were in arrears because they had been pushed into arrears as a result of the loss of a tracker mortgage or being put on the wrong interest rate. The Minister must ensure that people in this situation are not disadvantaged.
I will have to come back to the Deputy on that matter.
There is a great deal of confusion and uncertainty. I am sure people are approaching the Minister as well as every other Member as to whether they should have been put on a tracker mortgage. People may have negotiated a tracker mortgage and at a certain point the bank indicated that the tracker option which had been part of the deal was no longer available. Will there be a better public information system for people? The success rate of people who are trying to access the documentation on the details of their deal is variable. I would like to know about the information system that is in place and whether it will be improved.
I know some of this is perhaps the responsibility of the consumer information section of the Central Bank but it is important because for many people the sums involved are significant and a number of families have been through a lot. As the Minister is aware, some financial institutions have been much more recalcitrant than others in addressing the issues.
While it is a matter that is separate from the Finance Bill, on the Deputy's question, my understanding is that the Central Bank does have an information line or service through the consumer affairs division for dealing with this matter. Any issue relating to individuals being able to access their documents is something the Central Bank should be able to help them with.
Will the Minister clarify the status of the mortgage interest relief for private dwelling houses, PDHs, and buy-to-lets? Will it apply to both?
No, it only applies to private dwellings.
It does not apply to buy-to-lets.
No. That is because there is an income from that which is treated differently for taxation purposes. It is tax deductible.
In terms of the tax code, where is the definition of a buy-to-let property? How is it defined? Is it when a loan is taken out or drawn down?
It is in section 97 and it is primarily determined on whether one has rental income from a property. In a moment I will tell the Deputy exactly where it is located in legislation.
In the case of a family home that was purchased by a family, which made it a PDH, but the family then emigrated because they lost their job or for whatever other reason and they rented out the house for a year, would the classification of that home change to being a buy-to-let?
From the time it becomes a rental property, it is considered a buy-to-let.
Are those definitions the same definitions that are used by the Central Bank in determining whether a property is a buy-to-let or a private dwelling house?
I will have to come back to the Deputy on that. I am just getting some information on it and I will come back to him before we finish at 10 p.m.
We are dealing with tax relief at source so it goes directly to the financial institution and the institution then writes down the mortgage to the appropriate level. It goes straight from Revenue to the financial institution. In light of the revelations we have seen in the past 48 hours, in particular with the State-owned bank, that bank which would receive the mortgage interest relief on behalf of its customers and which failed to provide the Revenue with details of potential tax evasion, is the Minister satisfied that the bank which is predominantly owned by him, given that he is the main shareholder, has at this stage provided to the Revenue officials all of the relevant data that were required from its subsidiary in the Isle of Man? Is the Minister also satisfied that neither his predecessor nor anybody else in the Department was aware that the bank was targeting Irish individuals for tax avoidance measures? Has he investigated whether the public interest director who was appointed by his predecessor to the bank was aware of that happening during that period?
I spoke to the chairman of the Revenue Commissioners yesterday on foot of the information that was contained in the Paradise Papers. He has told me that any matters that require further investigation or action from the Revenue Commissioners on foot of anything contained in the papers will happen. I have not spoken to him since then.
That is the Revenue Commissioners. I appreciate that. I think the Minister put that on the record earlier today, or at least the Taoiseach did. On the matter of the bank, however, the Minister is the main shareholder in AIB. What the Paradise Papers tell us is that a subsidiary of AIB, at a time when it was State owned, refused access to information that the Revenue Commissioners required. We were also told that as a banking strategy, at a time when the bank was State owned and the Minister for Finance held 99.8% of the shareholdings in the bank, it targeted Irish individuals for tax evasion purposes to boost the deposits of that subsidiary which would benefit the overall AIB group. Has the Minister lifted the phone to contact the CEO of AIB or the former public interest director? Has he asked the former Minister, Deputy Noonan, whether he was aware of any of that at the time? Were any reports ever given to the Minister by anybody within the Department? This is a very serious issue. We are discussing a measure that will see Revenue transfer funds to the same financial institution and it is appropriate that we know that these issues are not just brushed under the carpet. The Revenue Commissioners will do their job, but as the majority shareholder of AIB, the Minister has a responsibility also to be satisfied on the issue.
The people who will give me that assurance are the Revenue Commissioners. They will not comment on any individual case, because it is up to them to do their work in that area. I spoke to the chairman yesterday morning. To use Deputy Doherty's phrase, I lifted the phone to him to say that I was obviously very concerned about the information that was contained in those papers and I wanted an update from him. I asked him for an update on work that was done. He informed me yesterday that in terms of general avoidance of people's tax obligations through being involved in offshore activity, the Revenue Commissioners in recent years have generated an additional €1 billion in revenue. He assured me that this matter on any company or individual was and is taken very seriously by him. No doubt in my future engagement with the chairman on this matter he will give me an update on this issue.
There is a difference between tax avoidance and tax evasion. The Revenue Commissioners will pursue tax evasion with rigour. I hope they have the resources to go through those papers and make sure that no stone is left unturned on looking at areas of tax evasion. On tax avoidance, which is perfectly legal, but completely unethical, it is bad enough from the high flyers in society but when it is a bank that the Irish public bailed out to the tune of €21 billion, sticking up two fingers to us and basically saying that as part of its strategy it would target Irish individuals for tax avoidance, surely the Minister has a responsibility to ask the public interest director – I think at the time Mr. Dick Spring was appointed to the board – whether he was aware of that. Was he aware that a subsidiary was doing this as part of its business plan? Was the board aware of that? Was the Minister aware of that? There cannot be a stand-off approach to this.
We are focusing on section 6. That is the question before us. Deputy Doherty has made the point very clearly.
If you will allow me to conclude on it, Acting Chairman, there is not a stand-off approach from me on the matter. That is why I contacted the chairman of the Revenue Commissioners on this matter yesterday. My understanding is that the entities that were involved in the behaviour to which Deputy Doherty referred were shut down. I am glad they were.
Does the Minister share my view that AIB and its subsidiaries, in whatever form they exist today, should provide information to the Revenue Commissioners when it is sought by the Revenue with as much ease as possible?
Any taxpayer should do so. If information is required from any taxpayer or any company via the Revenue Commissioners, he or she or it should do it, full stop, whether it is a bank, individual or anybody else. That is why I contacted the Revenue Commissioners about the matter yesterday. In the ongoing engagement I have with the Revenue Commissioners on this and other matters, while they will not give me any details on an individual case and nor would I ask, I expect they will give me an update regarding the general response on this matter. However, any entity should be meeting the requirements and requests of the Revenue Commissioners in this regard. They are the Revenue Commissioners.
Question put and agreed to.
SECTION 7
Question proposed: "That section 7 stand part of the Bill."
I welcome section 7 but it is quite limited. In relation to the issue of electric vehicles, there was an opportunity for the Minister to go further in promoting them. At present, the measure is only directed at employees who get a car through work. In our alternative budget, Sinn Féin argued that the bands would be increased by €1,000 and this would encourage more people to take up electric vehicles. I am asking the Minister to consider the proposal. There are numerous reasons we should do that. I understand the Government has moved in certain areas but in terms of the affordability of electric vehicles, I believe we need to continue to subsidise and make it more attractive. The best way to do that is by looking at the different bands in terms of the Sustainable Energy Authority of Ireland, SEAI, grant and increasing those levels appropriately. We argue they should be €1,000 per band.
I was not in a position to go any further than the measures that are included in section 7 of this Bill. That was because of the resources available to me in this budget. It does contain two measures, which the Deputy is acknowledging, in respect of the zero rate for benefit-in-kind, BIK, for employer-provided vehicles and an exemption for benefit-in-kind charges for charging stations the employer would provide. I cannot go any further than that at this point because I do not have the funding available to me to do it.
I welcome the section. It is fine. I am for promoting electric cars. However, if there is any idea in the Department or the Government that the answer to reducing the amount of greenhouse gases produced by the transport sector is electric cars, then it is missing the point. Transport is the second biggest producer of greenhouse gases in Ireland. The way to reduce greenhouse emissions by the transport sector is to change the entire mode of transport and to get people from individual vehicles into public transport. That is the way that there will be a serious impact on the problem as opposed to just incentivising and pushing electric cars in particular. The problem is that the Government's approach on public transport is to slash and burn. The subvention has been drastically reduced by €67 million since 2008. That is a cut of 70%. We can see the results at present in the attacks on wages and conditions and the necessary strike by Irish Rail workers. Does the Minister agree that while electric cars and vehicles are positive, they are not the main answer to dealing with the problem of the transport contribution to greenhouse gas emissions?
I welcome the section. It is a modest step but a welcome one. Why is the exemption limited to one year? The Minister stated an overall review of benefit-in-kind vehicles will inform decisions in the next budget but it is not great certainty to be giving a company that might be considering providing an electric vehicle to an employee that the exemption has a commitment for one year only. I am not sure what impact that will have.
I do not believe the take-up of electric vehicles on their own is the answer in the entirety to the emissions coming out of the transport sector. However, I do believe it is more of a part of it than Deputy Paul Murphy suggests. It needs to be accompanied by further improvements in public transport. Did Deputy Murphy say the public service obligation, PSO, was slashed by 70%?
Since 2008.
Can the Deputy give me the base?
The figures I have state that across the three branches of CIE, Government subvention is down €67 million from 2008.
That is not a 70% reduction.
Can the Minister explain the figures? Or give me the figures that he has?
I remember from my time as Minister for Transport, Tourism and Sport that while the subvention that was made available to the CIE group had gone down, it is not a third of where it was in the past. The subvention going into the CIE group for this year is approximately €265 million. I think that is the figure, though I stand to be corrected on it. It is at least flat on where it was a year ago, if not an increase. Deputy Murphy's approach of describing the Government's attitude to public transport as being slash and burn would come as a bit of a surprise to all those commuters I am looking forward to seeing getting on Luas cross-city in the second week of December, which is an investment in public transport of many hundreds of millions of euro. Investment is under way in respect of how we improve public transport both at a capital and current level. It needs to be accompanied, however, by encouraging the roll-out of electric vehicles. This is on top of what we have at the moment. We have VRT relief of up to €5,000 per vehicle. We have an SEAI grant of €5,000 for individuals and €3,800 for businesses.
On Deputy Michael McGrath's point, it is my ultimate intention to have the 0% benefit-in-kind in place for the medium term between three and five years. I did say that in my budget speech. I also stated, which pertains to the Deputy's point, that I would look to review it after a year. The reason for that is I expect to have the review of benefit-in-kind for vehicles back with me by then. However, I take the Deputy's point that it is important to give medium-term certainty, particularly to employers who will be providing these cars. It is my intention that it will be in place for a minimum of three years.
I checked the figures and I think the €67 million figure was incorrect. It was meant to be 67% and that has been rounded up on the other thing. However, the figures that repeatedly come across in various discussions in the Dáil, both in the committee on Transport, Tourism and Sport and in the Dáil as a whole, refer to a total subvention to the CIE group of €321 million in 2008. That is down - certainly in 2015 it was down to €188 million - and I would say it has come down since then further to around €150 or €160 million, and that does take us into the ballpark of close to a 70% cut.
They are not the figures that I recollect. This may be a debate for another committee on another day. However, with regard to investment in public transport in general, the figures of which I am aware show a different story compared with that of Deputy Murphy. On Deputy McGrath's question about the medium-term objective in respect of benefit-in-kind, I made that point in my Second Stage speech on the Finance Bill and not in my budget day speech.
Question put and agreed to.
SECTION 8
Question proposed: "That section 8 stand part of the Bill."
How many health policies will be affected by this change in the tax code?
I will see if I can get the information for the Deputy.
Does the Minister have information available on tax relief at source, that is paid on these policies at the moment?
Is that in relation to how much money is forgone on it?
Yes.
My other key question relates to a company providing a health care policy free of charge to an employee. Let us take it that it is just the employee as opposed to the spouse or children being added to it. That health policy will now be deemed as a benefit-in-kind and will have a taxable charge. Who is liable for that? Will the individual or the company be liable for that charge? Benefit-in-kind would usually apply to the individual. However, is there a way for the company to pay that charge or does it have to be on the individual?
In response to the Deputy's last question, it would be the individual for whom the charge needs to be paid, but the employer has a responsibility to inform him or her of it.
Does this kick in in January?
It will kick in upon the passage of the Finance Bill which will be on 1 January.
So-----
Excuse me; it will become applicable whenever the Bill is signed.
Let us consider a hypothetical case. I understand it is not that uncommon in some of these companies for an individual's partner and child to be included in the insurance policy. If a policy costing €3,000 is provided by the company, that €3,000 is seen as benefit-in-kind and therefore taxable at a rate of approximately 48% when USC etc. is included. Is that correct? This individual will have an additional tax burden of €1,400 or €1,500. How will that be paid? Will it be paid weekly or at the end of the year? Many of these people will be PAYE employees and completely unaware that this additional tax bill will be coming down the line just before Christmas.
The tax will be collected similar to any benefit-in-kind which is at source. It will be collected on somebody's wage slip. On the potential magnitude of the issue, we have no indication at the moment that this will affect a huge number of people, but we will examine the matter in the coming while. Our identification of the issue came from the audit that we had under way into the implementation of this Act.
The implementation of which Act?
The Taxes Consolidation Act 1997.
We do not know the number of individuals that will be affected. Do we have any guesstimate? Are we talking about, for example, 10,000 or 30,000?
We do not have any expectation that it is a figure anywhere near that.
It could be in single thousands.
Potentially.
I would imagine some of the larger multinationals are providing these types of packages for their employees.
This is where it is an employee of a health or dental insurer or a tied insurance agent.
It is if they are directly employed by them. Okay.
It is not general employers; it is an employer in the sector.
It is the employer providing the product that it provides to the public.
Obviously if the Department does not know how many individuals, it has not identified the likely revenue stream from it.
I do not anticipate this will generate a significant revenue stream because we expect the number of people affected to be low, although we cannot guarantee it at the moment. We expect it to be low because it is just a particular employer in a particular sector. As an employee of a company not in the sector is liable to benefit-in-kind taxation, we need to ensure there is a level playing field with everybody else.
Why does the existing legal basis for applying benefit-in-kind, BIK, to the health insurance policy an employee of a multinational, for example, might get as part of his or her employment not already cover an employee of VHI or any other health insurer?
The reason is that the section of the Bill requires the employer to incur a cost which in turn generates the tax. Companies in this sector are supplying the product. My understanding is that the supply of this product is seen as free because they are working in that sector.
Therefore the existing BIK legislation that applies to employees in other sectors does not-----
It is based on the generation of a cost. Because we are talking about people who work within the sector, it is possible that people have not seen there being a cost in relation to the supply of this policy and we are dealing with that matter here.
Okay.
I am not familiar with the practices of these health insurance companies. For example, I am not familiar with how the contracts of employment are working in VHI. I am not sure if the people answering telephones and looking after front-office desks are being provided with free health insurance as part of their remuneration package. Many of them would not be on substantial incomes and may now face a substantial tax bill. The package they signed up to may be reduced by a €1,000 liability. VHI operates in my parish in Gaoth Dobhair. I am not familiar with the details of those packages, but many people work in desk jobs and I cannot imagine that their salaries are massive. Obviously it is a State-owned company as well. Has the Department considered the impact on employees as a result of people who would have taken up employment at a certain level of remuneration but were offered a health insurance package as part of that remuneration which was untaxed and was therefore worth a certain amount of money but is now only worth half what they expected it to be worth?
It depends on the kind of contract an employer will have with the employee. Of course, the converse applies. Somebody working in another company located beside the office the Deputy mentioned, who is provided with a health insurance policy, is paying tax on it. In the interest of a level playing field in our tax code, the employees of both companies should be paying tax on the benefit of that policy to them.
I am not arguing against the Minister; I agree with the proposal. In developing the proposal, is the Department familiar with a State-owned company which may be paying certain staff - I am not certain because I am not familiar with this - minimum wage but in addition provided a health policy which was worth €3,000 for them and their family, but is now only worth €1,500 as a result of this measure? If that were the case I am not arguing we should not do this measure, but obviously employees deserve fairness in this regard.
I do not have the information on VHI.
I return to the question of why the section is necessary. The Minister explained why the existing BIK legislation does not already apply. In other employment sectors where the employer provides an advantage to an employee, a benefit-in-kind, which is intrinsic to the nature of that business, for example, a bank providing a lower interest rate, a wholesaler providing goods at cost, a motor dealer selling a car at cost, are all of those already captured by BIK legislation? If they are, I do not understand why a health insurer providing a health insurance policy to employees is not already captured.
The Deputy raised a number of examples, some of which could be subject to BIK and others of which will not be. The Revenue Commissioners are broadly confident that the BIK policy, as currently defined, is being implemented consistently across the economy. During their review of it, though, they identified this gap, which is what we are looking to address. We have no evidence of there being significant comparable issues in other sectors. Were that to change in any way, no doubt the Revenue Commissioners would revert to me and make a request, and I would make a legislative change in that area.
I ask that the Minister monitor the situation. I just Googled it and it seems that it is standard practice for VHI to offer all of its employees a tax-free health package. That is stated on its website. For low-income earners, this is a take home pay cut. It is a tax, so it should be monitored where we have the power to do so.
Question put and agreed to.
SECTION 9
Question proposed: "That section 9 stand part of the Bill."
Will the Minister read out his note on section 9, please, if he would not mind? It will just be a clarification.
This section makes a technical amendment to section 458 of the Taxes Consolidation Act 1997 to clarify that the earned income tax credit and the fisher tax credit are non-refundable tax credits. The effect of section 458 is to ensure that the value of a tax credit cannot exceed the tax due, as such a scenario would result in a refund to the taxpayer from Revenue. These two tax credits should have been previously included in the table in this section; this was an error. There is no change in policy.
I thank the Minister for his clarification.
Question put and agreed to.
NEW SECTION
I move amendment No. 6:
In page 13, between lines 25 and 26, to insert the following:
“10. The Minister shall, within 6 months of the passing of this Act, bring a report on the additional revenue that could be raised by introducing new tax bands for earnings over €100,000 as follows:
(a) Earnings between €100,000 and €140,000 - 50 per cent;
(b) Earnings between €140,000 and €180,000 - 55 per cent;
(c) Earnings between €180,000 and €250,000 - 60 per cent;
(d) Earnings over €250,000.”.
I will be brief. This amendment calls for a report on the introduction of a different series of higher bands of income tax. They are listed in the amendment, although the rate for earnings over €250,000 should be 65%. This forms part of our overall tax proposal, including the abolition of USC for income under €90,000, shifting the tax burden onto very high-income earners and making income tax more progressive.
In Spain, for example, there is an income tax band from €175,000 to €300,000 and another band over €300,000. Germany's highest tax band is over €250,000. Statistically speaking, the more bands a state has, the greater the possibility of making income tax more progressive. The Government makes much of the income tax system being progressive.
The Deputy's proposal would see the current two-rate income tax system expand to become a five or six-rate system. This would be in addition to a USC system with five separate rates and a PRSI system with further distinct features. It is my view that our current three-part system of personal taxation is already complex and can be difficult for taxpayers and employers to understand. If further tax bands were introduced, it would lead to an even more complicated system of taxation. It would also significantly increase the marginal rate of tax.
It is not clear from the text of the amendment what rate the Deputy would propose to apply on earnings above €250,000, but the rate of 60% proposed for the preceding band would result in a marginal tax rate of 72% for employees and 75% for the self-employed. Marginal tax rates of this level would have consequences. My intention is to focus on encouraging work.
For the Deputy's information, I have been informed by Revenue that the estimated annual yield from the increased tax rates that he proposes, on a tax unit basis, would be €1.9 billion if a rate of 60% were to apply on income over €250,000 and €2.2 billion if an increased rate of 65% were contemplated.
For the policy reasons that I have outlined in the course of this debate, I am not inclined to commit further resources to the analysis of the proposal outlined by the Deputy. For this reason, I cannot accept the amendment.
The Government likes to focus on marginal rates of tax, but the key issue for workers, be they low, middle or high-income earners, is the effective rate of tax on an overall basis. If this amendment were combined with our proposal to abolish the USC on income under €90,000, the effective rate of tax paid by even relatively high earners would still be approximately 50% or lower as opposed to the high figures that the Minister has referenced. The amendment is meant to read "65 per cent", so €2.2 billion would be raised by our approach of taxing high-income earners in our society.
As I was making my response to the Deputy, I thought to myself that he probably would not have much concern about very high marginal rates of taxation for people earning more than €250,000.
Amendment put and declared lost.
I will not be moving amendments Nos. 7 to 9, inclusive, but I will consider resubmitting all of them on Report Stage.
Amendments Nos. 7 to 9, inclusive, not moved.
SECTION 10
I move amendment No. 10:
In page 14, line 31, to delete “is incorporated and resident in the State, or” and substitute the following:
“is incorporated in the State, or in an EEA state other than the State, and is resident in the State, or”.
Amendments Nos. 10 to 12, inclusive, relate to the new key employee engagement programme, KEEP, which was introduced in budget 2018. This is an SME-focused share option programme intended to help small, growing companies to attract and retain key staff. It operates by providing that any gain realised on the exercise of qualifying KEEP share options will not be subject to income tax, PRSI or USC at the date of exercise. The gain will, however, be subject to capital gains tax on a future disposal of the shares.
The relief, therefore, has a twofold benefit. First, it reduces the tax payable from income tax to capital gains tax rates. Second, and possibly more important, from the perspective of small unquoted companies, it provides that the tax will become payable on disposal of the shares when the sales proceeds would be available to pay the tax due.
These amendments make a number of technical changes to the KEEP legislation in order to ensure that it operates as intended and is in compliance with EU requirements.
Amendments Nos. 10 and 11 amend the definition of "qualifying company" to ensure that it is compliant with the EU freedoms. It expands the definition of "qualifying company" to include a company resident in Ireland and incorporated in an EEA state other than Ireland. It also allows for companies with a listing on similar or comparable markets to the enterprise securities market in an EEA state or a tax treaty country.
Amendment No. 12 ensures that a double relief cannot be claimed by providing that relief under the employment and investment incentive, EII, cannot also be claimed where relief applies under KEEP. I commend these amendments to the committee.
I would also note that my officials are continuing to engage with small business representatives following the publication of the KEEP legislation to ensure that the technical legislative provisions are operable in practice and that the scheme is effective in meeting its policy objective. I therefore wish to inform the committee that I may introduce further amendments to the legislation on Report Stage if necessary in order to ensure that the relief can operate as intended.
However I would also caution that any further amendments must be compatible with state aid approval and as such a balance may have to be struck between what is desirable and what is feasible.
As it is now 10 p.m. we will adjourn.
Progress reported: Committee to sit again.
The select committee adjourned at 10 p.m. until 10 a.m. on Wednesday, 8 November 2017.