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Snippet Contents:

The Government's income tax package is a mishmash. It made significant play in recent months about cutting the marginal rate. We were told that high marginal tax rates were impeding foreign direct investment, but it has increased the rate of USC by 1% on salaries over €70,000 to offset the 1% reduction in the marginal rate. It is speaking out of both sides of its mouth on the issue. What is even more significant is that the income tax package is skewed towards higher earners. A minimum wage worker on €17,500 will pay €174 less tax and USC, while an employee on the average wage of €36,000 will pay €406 less. By contrast, an employee on €70,000 or more gains by €746 per annum. In simple terms, the higher one's income, the more one gains - up to four times more than those on the minimum wage. According to the Minister's figures, only one in every six income earners will get a "triple benefit", the USC changes combined with the rate and band changes focused on the higher rate of income tax.
Lower income workers must make do with the cut to the USC. There was no change to the PAYE or personal tax credits. When the Minister was raising taxes, he decided to introduce flat rate tax increases. The abolition of the PRSI allowance, for example, took €264 from the pocket of every worker, regardless of whether on €20,000 or €200,000 a year. Now that the Government is cutting taxes, with an eye to the next election, it is devoting the lion's share of the benefit to those on above average incomes.
As I mention the abolition of the PRSI allowance, I would like to make reference to the impact of the step change in how PRSI is applied. The Government created an anomaly whereby, at a certain income level, a person can be worse off than a person with a lower income. While someone earning €18,304 per annum pays an effective tax rate overall, between tax and PRSI, of 5.25%, someone who is paid €1 more will pay an effective tax rate of 9.25% as all that person's income becomes subject to PRSI. This is a disincentive to employers to increase wages or for employees to accept extra hours of work or a promotion. Over 120,000 employees who earn between €17,000 and €20,000 a year are potentially affected by this problem. The way to tackle the situation is to allow a partial PRSI refund for people earning just above the current level at which employee PRSI becomes payable so as to offset the impact of this anomaly. This would remove the current anti-work provision which this Government introduced. The Minister for Finance should address this issue with his colleague, the Tánaiste and Minister for Social Protection.
The Minister seems to have abandoned his previous concerns about the treatment of one income couples. One of the glaring anomalies of the budget is that a couple with one spouse earning €41,000 per annum is better off by just €174 or 0.4% of their income while, as I noted previously, a single person on €70,000 is better off by €746 or 1.7%. Quite a few years ago the Minister told Charlie McCreevy at the time individualisation was introduced, "You are forcing women to go out to work...you are changing the kind of Ireland we have known and changing it for the worse."
In 2007, the current Tánaiste said that while de-individualising tax entirely would be too expensive, other measures could be introduced, such as raising the home carer's credit, which was then €770 per annum, up to the level of the PAYE credit of €1,760. She noted that to do this in one year would cost up to €100 million. She said she believed it would be money well spent and that it would allow couples more space in which to decide what was best for them and their children and that it would allow greater options in lifestyle, particularly for families struggling to care for two or three young children in their early years. I have sympathy with the views the Tánaiste held previously. However, it is disappointing that in deciding how to divvy up the money it was making available for tax cuts, that families with a stay at home mother or father were effectively at the bottom of the Government's list of priorities.
Individualisation was one of the most significant changes ever made to the personal tax code, but we have remarkably little data on its societal impact. I heard John Fitzgerald on the radio at the weekend on the occasion of his retirement from the ESRI. He noted that, as well as its ongoing activities, the ESRI receives funding on a case by case basis to undertake certain studies in the public interest. I suggest that 15 years on from the introduction of individualisation, now would be a good time for the ESRI to be commissioned to examine how individualisation has impacted in practice and how it can be tweaked.
On corporation tax, issues only partially addressed in the Finance Bill are the closing off the "double Irish" regime and instituting a "knowledge development box" in its place. I said on budget day that the Minister had initiated a major change to Ireland's corporation tax regime. What is even more significant is that he is doing it pre-emptively. The BEPS process is still under way and unlikely to be concluded for at least another year. Let me be clear, I would not have made any unilateral changes which could undermine Ireland's corporation tax offering to multinationals. In this Finance Bill, the Minister is abolishing the "double Irish", but is not providing in legislation for the knowledge development box.
There appears to be a mixed message coming from the Government. It has put significant emphasis on preventing reputational damage to Ireland and closing off the "double Irish" to new entrants was a key part of that strategy. However, we read at the weekend in The Sunday Business Post that, essentially, shelf companies can be registered between now and the end of the year under the "double Irish" structure and these can then be purchased by other firms in future years, allowing them to avail of the advantages it conveys. I am interested in hearing the Minister's views on this and whether he considers it an attempt to circumvent the stated intent of the legislation.
Now that the Minister has decided to end the "double Irish", any substantial investment that was in the pipeline which was structured along these lines should be allowed to proceed. However, we should absolutely rule out a trade in shelf pre-2015 companies. The Department has experience of catering for projects that were already substantially progressed when introducing new rules. If necessary, this should be specifically provided for in the Bill. On budget day, I expressed some scepticism regarding the nature of the successor regime the Minister was putting in place, not least because announcements of much less consequence, such as the living city initiative, remain in abeyance long after they were originally put forward to the European Commission.
I note that Wolfgang Schäuble, the German finance Minister, has been quoted as saying that he was confident an agreement would be reached at the G20 summit in November on patent box tax incentives and that he was optimistic that G20 leaders would adopt the so called "Nexus approach" which is predicated on there being a link between research and development expenditure and the income arising from the patents developed. However, I understand the introduction of a "gateway" approach, which would be much broader in its application, is favoured by the UK. The outcome of the G20 summit and OECD meeting on harmful tax practices in Paris on 17 to 19 November will be an important stage in how the patent box issue evolves. Our aim should be to have a best in class regime and, importantly, a rate that is competitively below the UK rate of 10%. I await developments in this regard with interest.
I welcomed the announcement of a rebate on DIRT tax for first-time buyers when it was announced on budget day. In the meantime, I have had a chance to study the proposal in greater detail. According to the information I have received from the Department of Finance, it estimates that approximately 9,500 first-time buyers will benefit to the tune of an average €294 in 2015. While any help is welcome, the actual benefit will be a fraction of what first-time buyers previously got from mortgage interest relief and in most cases will be less than the annual property tax bill. This is only a drop in the ocean in terms of the costs of affording one's first home. As the Minister knows, first-time buyers can no longer avail of mortgage interest relief. The proposal has all the hall marks of a plan cobbled together to counteract the negative reaction to plans to impose new deposit restrictions on first-time buyers.
I welcome the consultation process that is under way and hope the Central Bank has a genuinely open mind on the subject. However, I find the intervention of the Taoiseach in recent days - when speaking about a deposit insurance scheme - to be unhealthy. The consultation process has a few more weeks to run and the Central Bank has outlined the rules it expects to introduce. If the Government disagrees with these, it can make a submission through the Department of Finance and seek to persuade the Central Bank of its view, just as I and others will do. The Taoiseach should not try to circumvent the policy of the Central Bank with an alternative initiative.