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 Header Item Financial Resolution No. 5: Excise (Continued)
 Header Item Financial Resolution No. 6: Income Tax

Wednesday, 5 December 2012

Dáil Éireann Debate
Vol. 785 No. 2

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Tánaiste and Minister for Foreign Affairs and Trade (Deputy Eamon Gilmore): Information on Eamon Gilmore Zoom on Eamon Gilmore I move:

Financial Resolution No. 6: Income Tax

(1) THAT Schedule 3 to the Taxes Consolidation Act 1997 (No. 39 of 1997), as it relates to relief by reduction of tax, be amended by inserting the following paragraph after paragraph 12---
“12A. (a) Notwithstanding section 201, paragraph 10 shall cease to apply to any payment in excess of €200,000 which is made on or after 1 January 2013 and which is chargeable to income tax under section 123.

(b) Paragraphs 11 and 12 shall apply for the purposes of this paragraph.".
(2) IT is hereby declared that it is expedient in the public interest that this Resolution shall have statutory effect under the provisions of the Provisional Collection of Taxes Act 1927 (No. 7 of 1927).

This resolution gives effect to the budget decision that top-slicing relief will no longer be available from 1 January 2013 on ex gratia lump sums paid to employees and officeholders in respect of either redundancy or termination of employment, where the non-statutory element of the payment is €200,000 or more.

  Top-slicing relief applies the average effective rate of tax for the previous three tax years applicable to an individual taxpayer to the taxable element of any ex gratia payment received from an employer on cessation of an employment. In this way, while the taxable element of the lump sum payment is added to increase the individual’s overall income for the year of assessment, the rate of tax applied to that taxable element of the payment will be the average effective rate rather than the marginal rate of tax in force for that year. The claim for top-slicing relief is made at the end of the year of assessment and is allowed as an additional credit in the computation of final liability.

  The resolution makes a change in Schedule 3 to the Taxes Consolidation Act 1997 by inserting a new paragraph 12A into the Schedule. The new subparagraph (a) provides that, with effect from 1 January 2013, any payment of an ex gratia amount to which section 123 applies which is of an amount of €200,000 or greater will not qualify for top-slicing relief. The calculation of this relief is set out in paragraph 10 of the Schedule.

  The subparagraph (b) provides that where two or more payments are made in respect of the same person, or in respect of the same office or employment, or where two or more payments are made in respect of different offices or employments, the amounts will be aggregated for the purposes of determining whether the limit of €200,000 has been breached.

  This restriction is a separate and distinct provision from the lifetime limit of maximum amounts of exemptions and reliefs that a taxpayer can claim in respect of ex gratia payments made to him or her which was introduced in Finance Act 2011. For example, an individual can receive a severance payment which is in excess of €200,000 and his or her reliefs in respect of exemptions provided for in section 201 of the Taxes Consolidation Act 1997 will be allowed up to the maximum lifetime entitlement. However, as the quantum of the severance payment equals or exceeds the amount of €200,000, he or she will not be entitled to claim top-slicing relief when his or her affairs are subsequently reviewed by Revenue.

An Leas-Cheann Comhairle: Information on Michael Kitt Zoom on Michael Kitt Twenty minutes have been allocated for this segment.

Deputy Sean Fleming: Information on Seán Fleming Zoom on Seán Fleming This is the one resolution I expect every Member of the House to support. I cannot see why anybody would oppose it. It deals with people getting what we would all call massive redundancy payments on a voluntary basis excluding the statutory payment. So where somebody, having been in an organisation for 20 or 30 years, gets €30,000 or €40,000 statutory redundancy, if he or she gets in excess of €200,000 on top of that there was an arrangement in place called top-slicing relief - I thank the officials for clarifying it to me. In the normal course of events if one got that amount of income in a year, one would have paid tax at one's top marginal rate. A special provision was introduced allowing the person to pay the average of his or her effective rate for the previous three years. So if people had extra allowances and were not quite at the top rate, they brought it down to their effective rate which was always going to be lower than the top marginal rate. They might end up only paying tax on the excess over €200,000 at considerably less than the 41% - they might be getting it at 30% or somewhere in that region.

It is only right that this little provision should be changed and those people who get non-statutory lump sums above that amount should pay tax at the top rate. I believe everybody would agree with that and I urge all sides to support it because I do not believe anybody could countenance in this day and age that we would continue to have a provision giving special tax concessions to those who are walking out with non-statutory lump sums of more than €200,000.

I will make one small political point to the Tánaiste. This sounds like something the Labour Party might have been keen to have included as it is seen as getting somebody at the top. However, the projected yield for 2013 is nil. It is a fig leaf to give the impression we are doing something. There is no money in this and I do not know of anybody who is getting payments of €200,000 over and above statutory redundancy. Those days are long gone. There is a projection that it might raise some money in future years. The officials may be taking the prudent view because they could not estimate accurately. By inserting "nil" if we end up getting something, it will be a bonus. I do not believe it will yield much money but the principle of the financial resolution is absolutely correct and everyone in the House should support it.

Deputy Mary Lou McDonald: Information on Mary Lou McDonald Zoom on Mary Lou McDonald Am I right in saying that this provision applies not just to redundancy payments, but also in the event of retirement? I agree with Deputy Fleming that there is, if not a universal view, certainly a growing consensus in this Chamber that issues of fair and equitable taxation for high earners must be addressed. The Government has not done so in this budget but it is starting to take baby steps in that direction. The same applies in respect of pension pots and lump sum payments to people.

Why is the figure set at €200,000, which seems very high? While I agree with ending the top-slicing practice, why pitch it so high? The Tánaiste, according to himself, is all about fairness and a fair sharing of the burden. Therefore, I would have expected the Government to have pitched it substantially lower at approximately €100,000, which I understand is the figure Labour Party backbenchers regard as high earnings and a very significant sum. I do not know if the Tánaiste will have the capacity to answer that this evening.

It would be remiss of me not to mention other lump sum payments, including public sector pensions which are funded from the public purse. A new pension regime has been introduced for new entrants into the public service but a small number of people are still on the most extraordinary pension arrangements. The TLAC terms, as they are called, still apply to a large number of senior civil servants - Secretaries General of Departments, including some who started on this Government's watch. It is staggering that a Government that makes any pretence at fairness and equity within the public sector has not moved very swiftly to stop those practices, stop the additional years and stop the big lump-sum payouts. There is a huge contradiction in the Government's approach. From this resolution, I take it the Government is conceding that things need to be done about large lump sums, although I believe it has pitched the level too high. It further emphasises all the things it has not done and that it is not politically willing to take on.

Deputy Róisín Shortall: Information on Róisín Shortall Zoom on Róisín Shortall It is incredible that when it comes to pension tax relief, this is the only proposal the Government has been able to introduce. The pension tax relief in this country is unbelievably generous and makes no sense from an economic or social point of view.


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