The Minister of State, Deputy D’Arcy, might remember that a few weeks ago I raised the issue of tax expenditures with the Taoiseach on Leaders’ Questions. I put to the Taoiseach that all 11 or 12 budgets introduced by Fianna Fáil and Fine Gael during the decade or more of austerity were accompanied by Finance Bills which provided for continually massive tax expenditures. I refer to briefing paper 13 of 2018 by our diligent and excellent Parliamentary Budget Office, which estimated basic tax expenditure costs at over €5 billion in 2016, rising from €4.7 billion in 2014. Of course, the Department of Finance only began reporting on these vast expenditures in 2014. Members received the Department’s report on the 2017 expenditures on the day after the budget was introduced as opposed to with the rest of the documents relating to the budget.
Data on these expenditures are deficient and many of them have not been subjected to review for many years in spite of the recommendations of the 2009 report of the Commission on Taxation. The scale of the expenditures is remarkable. For example, the research and development tax credit cost an estimated €670 million in 2016, capital acquisitions tax agricultural relief cost €141 million in 2017 and a range of reliefs supporting business cost nearly €560 million in 2015. The Parliamentary Budget Office rightly declares that tax expenditures represent a departure from the equity principle of taxation and that an illusory fiscal effect is produced when such expenditures are perceived as tax cuts as opposed to what they are, namely, spending increases.
When I survey the Bill, it reminds me – as has been the case with every Finance Bill introduced since I became a Member of the House – of the vast scope of tax expenditures provided for in the Taxes Consolidation Act 1997 and developed over the years leading to this point. The Minister for Finance, Deputy Donohoe, will argue, as he did earlier in the day, that much of the Bill is an attempt to close out tax loopholes and strengthen anti-tax avoidance measures. However, the sheer detail of section 23, which addresses tax relief for investment in corporate trades, section 24, which includes amendments to tax relief for investment in films, and section 25, which implements Articles 7 and 8 of EU Directive 2016/1164, makes it very difficult for ordinary citizens to assess the net costs and benefits to the Exchequer. The presentation of the budget and the Finance Bill must be addressed in a far more transparent and open manner.
The Minister tried to quantify income tax and some other changes on budget day. However, I seek clarity regarding the Government estimate of the tax expenditures included in the Finance Bill and, indeed, overall tax expenditures in 2017 and likely expenditures in 2018. I read the 2017 report, which focused on a number of major expenditures rather than providing an overall view of what current tax expenditures amount to.
The greatest anger directed at the Government in the recent weeks in the context of the budget relates to section 21, which provides for the amendment of section 97 of the principal Act regarding computational rules and allowable deductions. Under section 21, residential landlords will be permitted to deduct from their rental income 100% of the interest on a loan used to purchase, improve or repair rental residential premises. Up to this year, the relief was capped at 85% of such interest. Section 97 (2J) currently allows for a loan interest cap of 90% for 2019 and 95% for 2020. Why was this change a priority for the Government in light of the continuing relentless rise in domestic household rents and its ideological refusal to address the fundamental issue of supply of housing, which should be driven by State and local authority direct development and construction? The Residential Tenancies Board annual report for 2017 shows that almost 50,000 landlords control two or more tenancies. This tax relief is squarely aimed at those hugely profitable businesses rather than the so-called accidental landlords spoken of lyrically by a colleague of the Minister of State opposite, namely, the Minister for Planning, Development and Local Government, Deputy Eoghan Murphy. Will the Minister of State outline the cost of this concession in tax expenditure terms and provide an estimate of the total cost of section 97 (2J) of the Taxes Consolidation Act 1997? Section 21 of the Bill is just another example of how Fine Gael and Fianna Fáil remain completely in thrall to their big property and landlord backers and, indeed, to the Members of this House who are landlords and who, therefore, have something of a vested interest in the matter.
Generally, I welcome section 22, which finally begins the process of regulating short-term lettings.
Many constituents believe that Airbnb lettings could not have been tax exempt under the rent-a-room scheme introduced by Charlie McCreevy where a householder can earn up to €14,000 per year tax free from renting out a room in their house. The new “28-day rule” provided for in section 22 amending section 216A of the 1997 Act states that the room must be rented out for at least 28 days and expressly excludes short-term lettings from the incentive. Last month, AirBnb reported that 640,000 guests used AirBnb in Ireland during the summer months. It has been estimated that this and other regulatory measures will return around at least 1,000 units to longer-term rental use.
The changes to the USC and standard rate and home carer credit in sections 3, 4 and 5 are also welcome. In my own pre-budget submission to the Minister, which we called “A Budget For All Our People”, I asked for an increase of €1,000 to €35,550 and €44,550 in the income tax standard rate bands, which was costed at €168 million in the first year and €195 million in a full year. I argued that it would alleviate current economic pressures on individuals and families who are genuinely hard-pressed to make ends meet. I thank the Departments of Finance and Public Expenditure and Reform for providing a facility for those of us on the Opposition benches to cost some of the ideas we had and some of the ideas we thought were coming forward in the budget. This was very valuable and we are grateful for it. I also believed that a modest increase in income tax credits – perhaps at a cost of €100 million – would have further encouraged hard-working citizens and their families. Given the serious risks Ireland faces in 2019, I thought that a modest indexation of USC rate bands and exemption limits at a cost of perhaps €40 million might have been preferable to a further cut in rates, as advocated by Fianna Fáil and which is now before us, so I welcome sections 3 and 4 in this context. I note that the budget estimated the USC cuts at €123 million in a full year and the increase of €750 in the income tax standard rate band at €161 million in a full year.
Budget 2019 was generally very disappointing to citizens with disabilities. The €150 million or so that the Government came forward with seems to have been about addressing the demographics of our citizens with disabilities rather than introducing the cost of caring. The informal Oireachtas committee on disability estimated it would cost €20 per week. All the Minister did this year was set up a study that will cost €300,000. However, I welcome the increase in the home carer tax credit from €1,200 to €1,500. I also welcome sections 5 and 6 with regard to compensation payments for the victims of the Magdalen laundries and others and benefit-in-kind relief for our Defence Forces with regard to accommodation and medical treatment.
The Minister deliberately avoided increasing carbon taxes in budget 2019 or even addressing the disparity between petrol and diesel-fuelled vehicles. Section 9 does extend the exemption for electric vehicles down to the end of 2021, although it rightly applies a cap of €50,000 on this exemption.
Section 11 amends section 128F of the 1997 Act which provides for favourable tax treatment of share options granted under the key employee engagement programme, KEEP. We have heard a lot about this programme in the past year from the Minister’s colleagues in the Department of Business, Enterprise and Innovation and the Minister. One of the questions I submitted for oral parliamentary questions is whether the Minister for Finance will indicate how many companies and employees availed of KEEP so far in 2018 and what impact he expects to result from his proposed changes to the scheme in 2019. Media reports have called the programme “woefully unsuccessful”. There has been an inference, which the Minister of State might be able to confirm, that not even one company had applied for this tax relief. The Minister acknowledged the low take up during his own speech on budget 2019 saying that he was “taking early action” to address it. Of course, KEEP was introduced last year with the Finance Act 2017 and section 128F of the Taxes Consolidation Act 1997 provided that gains realised on the exercise of qualifying KEEP options by employees and directors will not be subject to income tax, USC or PRSI where the requirements of section 128F of the Taxes Consolidation Act 1997 are satisfied. However, capital gains tax is payable on the disposal of the shares. Section 11 now replaces the €250,000 limit in any three consecutive years of assessment with a lifetime limit of €300,000 and the limit of 50% of the annual emoluments in the year of assessment is now being increased to 100% of the annual emoluments so it will be interesting to see how these changes pan out.
Under section 56, from 1 January 2019, there will be significant changes to the operation of PAYE under the modernisation programme that has been undertaken by Revenue. Employers will now need to calculate and report on the pay and deductions of their employees as they are being paid in real time. It is said that this modernisation will improve the transparency and accuracy of the PAYE system. It is expected that approximately 200,000 employers will have to implement these changes, the biggest change in reporting in around 60 years. Of course, the first deadline of 31 October is fast approaching. From some of the feedback we have received, there does not seem to have been sufficient communication with, and assistance to, employers in getting ready for these changes. Perhaps the Minister might address this. Those employers who have not yet engaged with Revenue and who miss the first deadline of 31 October will be contacted by Revenue. Even then, it appears that the take up has been very low. It is heartening that the changes in section 77 and Schedule 1 of the Finance Act 2017 will require employers to file a monthly USC return alongside the current requirement to file an income tax return. Of course, the additional superannuation contribution will also be payable by public servants in accordance with Part 4 of the Public Service Pay and Pensions Act 2017 starting on 1 January 2019.
In my own pre-budget submission, I urged an increase in betting duty from 1% to 3%, which would have yielded €156 million in a full year. I also believed that Ireland should at least begin to equalise the levels of excise on petrol and diesel and I note that even a modest 5 cent increase in diesel excise would have yielded €165 million in a full year. In the event, section 33 increases betting duty to 2% for bookmakers and remote bookmakers – I note the arrangements for remote betting intermediaries – which the budget books estimate will raise nearly €52 million. Section 35 does, of course, introduce a 1% VRT surcharge for diesel engine passenger vehicles from 1 January next and is estimated to raise €25 million in a full year.
Based on the booming state of the hospitality industry, the Department of Finance assessment report, which we read carefully in the Committee on Budgetary Oversight, and the strong arguments advanced by the Irish Congress of Trade Unions, I argued in my own pre-budget 2019 submission that the VAT rate could be generally increased to 11% or 11.5% and the latter rate would have raised an additional €289 million for the Exchequer. Since the Minister and his Fine Gael Government were so averse to any significant effort to broaden the tax base by requiring more tax contributions from the very highest paid cohorts – I recommended changes for those earning over €120,000, particularly those earning over €150,000 – or to any initial steps to broaden carbon-related taxation, the Minister ultimately decided in one go to jump back to the 13.5% VAT rates for the hospitality sector and related businesses in a single budget in section 41 before us in the Finance Bill 2018. Like other Deputies, I have received serious complaints from small restaurants, hotels, hairdressers and other businesses that feel that given the anxieties about the effect of Brexit on tourism, the Minister might have adopted a phased or stepped approach to this change. I note and welcome the continuation of 9% for newspapers and the new paragraph 7A in Schedule 3 of the Valued-Added Tax Consolidation Act 2010, which applies to electronic publications. What does the Minister estimate will be the net additional revenues for the Exchequer in 2019 arising from section 41? I note that a colleague who spoke earlier attributed the changes in section 51 to the influence of the Minister for Transport, Tourism and Sport but we heard before the budget that there was a lot of canvassing from Fine Gael in respect of section 51 and that Fine Gael as a whole was very disappointed with the Minister’s decision to increase the Group A tax-free threshold in respect of capital acquisition tax from €310,000 to €320,000.
Many citizens will look at this Finance Bill and continue to be seriously worried at Ireland’s great dependence on corporation taxes from a small number of huge foreign multinationals.
They are also deeply concerned that the strong perception that the tax avoidance industry will remain untroubled by this Bill and that Ireland continues to be referred to as a tax haven in international studies like those conducted by Oxfam and others. While providing strong incentives for start-ups, section 23, which, with sections 24 and 25, makes up the bulk of the Bill before us, seems to include a serious attempt by the Department of Finance and Revenue to tighten up reliefs in schemes like the employment investment incentive, EII, scheme and the start-up relief for entrepreneurs, SURE, scheme. I also note the anti-avoidance provisions, that there seems to be provision for clawback of incorrect self-certified returns, and that EII and SURE are extended to the end of 2021. What are the latest estimates for tax expenditures under this section and the likely overall impact of these changes, including on promoting jobs, because that is what it should be about, which make up a large part of this Bill?
Film tax expenditures cost nearly €90 million in 2015. I notice the time-limited, tapered regional reliefs in section 24. How will they impact on tax expenditure? Section 25 refers to controlled foreign companies and is said to be an anti-tax evasion measure. The Minister said it is part of our international obligations under anti-tax evasion measures. We voted on the new anti-tax avoidance directive rules on budget night and the Dáil approved the 12.5% tax which many of us supported because we thought it was at least a start. It is for unrealised gains where companies migrate or transfer assets offshore. The Minister of State might explain how the new broadly based exit tax improves on what he called the pre-existing focused anti-avoidance exit charge that he referred to earlier tonight. What is the difference resulting from this very long section? The controlled foreign company rules in the detailed section 25 insert a new part 35B into the principal Act, but I notice that in the new chapter 3 there are very significant exemptions applied to the application of this new exit tax and perhaps the Minister will respond on the reasons behind such exemptions. The Minister said tonight that these measures in section 25 fulfil our commitment under the corporation tax roadmap, but constituents will ask whether this section finally begins to address tax evasion structures such as, for example, the single malt and other devices to evade taxes in our jurisdiction. That is something the Minister of State and the Minister might respond to as the debate proceeds.
Many constituents are also alarmed by the recent reports from the United Nations Conference on Trade and Development, UNCTAD, showing the total foreign direct investment inflows to the State declined by €71 billion in the first half of 2018. This follows the so-called Trump tax reforms and highlights the failure of the Government to broaden the Irish tax base. The Minister of State and the Minister might have had an opportunity to read the report entitled Budget 2019 – Issues for Members of the Houses of the Oireachtas produced yesterday or the day before by the Parliamentary Budget Office, PBO. That report raises significant problems with the publication of the budget and of this Finance Bill 2018. Besides querying whether the Minister has placed his total faith in an orderly Brexit and whether he is pursuing a countercyclical stance, the PBO raises important issues in the estimation of Votes. For example, can we believe the amounts estimated for the Department of Health or the Department of Justice and Equality? It has requested major improvements in the accessibility, accuracy and consistency in the reporting of budget information. The PBO identifies several errors in the document entitled Budget 2019 – Economic and Fiscal Outlook. Is the Department aware of this and beginning to address it? It asks that, once the text has been amended, the corrected information should be laid before the Oireachtas. It is a very serious charge that there are inaccuracies in documents presented to us along with the budget. The PBO welcomes the announcement made in respect of green budgeting and also asks for much greater progress in respect of equality and gender budgeting. We had a debate last Thursday on that matter.
On some of the questions asked in that report, for example, the publication of a fully costed estimate for Brexit contingency measures, we are almost as vague as Theresa May’s backbenchers on what will be the cost. The Minister of State might say that she says the divorce deal is 95% done but what kind of money are we talking about? Why are the Supplementary Estimates already included in Parts 1, 2 and 3 of the budget 2019 expenditure report? The PBO asks why Supplementary Estimates which were not approved by this House should be included in that report. Why, for example, is the Christmas bonus not included in the 2019 allocations? Is that not misleading Dáil Éireann? I hope the Minister of State and the Minister will respond to these criticisms. They are also very welcome to attend the Committee on Budgetary Oversight at an early date to answer all the questions rightly raised by the PBO. There are several welcome measures in the Finance Bill 2018 but there are also huge lacunae and gaps, particularly on tax expenditure. We need much fuller information and all the figures so that we can properly conduct the finances of the nation.