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Budget Statement 2013 (Continued)

Wednesday, 5 December 2012

Dáil Éireann Debate
Vol. 785 No. 2

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(Speaker Continuing)

[Deputy Michael Noonan: Information on Michael Noonan Zoom on Michael Noonan]  Dealing with personal debt is also vital. The Central Bank is overseeing the roll-out of a range of options to deal with unsustainable personal and commercial debt. I stress that these measures are focused on unsustainable debt as taxpayers cannot afford to fund blanket debt forgiveness. I welcome that Allied Irish Banks is committed to contacting 1,500 customers per month to work with them to restructure their mortgages.

Deputy Finian McGrath: Information on Finian McGrath Zoom on Finian McGrath It had better get on with it.

Deputy Michael Noonan: Information on Michael Noonan Zoom on Michael Noonan This is the level of ambition the Government expects from all banks, whether State-owned or not. These commitments to helping people who are in unsustainable debt are not just social obligations on the Government. It is critical that the issue of mortgage debt is addressed because we cannot sustain a situation where more than 100,000 families could be effectively excluded from participation in the economic recovery. I will now deal with the tax proposals in the budget.


  I will begin with the area of Government policy on pensions. The pensions sector is a very important part of the financial services industry in Ireland and provides a service to enable people to make provision for their retirement and old age. As it is in everyone’s best interest, the Government wishes to encourage as many citizens as possible to continue to invest in pension schemes.

Deputy Micheál Martin: Information on Micheál Martin Zoom on Micheál Martin Only two copies of the Minister's speech have been distributed.

An Ceann Comhairle: Information on Seán Barrett Zoom on Seán Barrett Please proceed, Minister.

Deputy Micheál Martin: Information on Micheál Martin Zoom on Micheál Martin Perhaps there have been some late changes.

Deputy Michael Noonan: Information on Michael Noonan Zoom on Michael Noonan However, some people have been allowed by previous Governments to benefit from hugely generous pension arrangements subsidised by the taxpayer. While the Government wants to encourage those on lower and middle incomes to save for pensions, it will not allow pensions of the scale previously allowed to be accumulated at the expense of taxpayers whose actual earnings are, in many cases, a fraction of those large pensions.

  I want to clarify the Government’s policy on a number of important issues. First, tax relief on pension contributions will only serve to subsidise pension schemes that deliver income of up to €60,000 per annum. This will take effect from 1 January 2014. Second, tax relief on pension contributions will continue at the marginal rate of tax. Third, the pension levy announced as part of the jobs initiative will not be renewed after 2014.

  The current arrangements governing the maximum allowable pension fund at retirement for tax purposes of €2.3 million still allow for very generous pensions for higher earners through tax subsidised sources, particularly by way of defined benefit schemes in both the public and private sectors. Therefore, the necessary arrangements to give effect to the programme for Government commitment to effectively cap taxpayers’ subsidies for pension schemes that deliver income of more than €60,000 per annum will be put in place in 2014. Consultation on the specific changes required to the existing regime will continue with, among others, the pensions sector and Departments of Public Expenditure and Reform and Social Protection. The retention of marginal rate relief on pension contributions coupled with the proposed changes in maximum tax relieved pension pots will preserve and target tax relief to those providing for pensions up to €60,000 per annum.

  Constitutional and legal constraints severely limit what steps the Government can take in relation to pensions already in payment. However, to ensure equity between all citizens based on their level of income, the reduced rate of the universal social charge introduced by the previous Government for those aged over 70 years with an income in excess of €60,000 will be discontinued from 1 January 2013 and the standard rate of the universal social charge will apply. In addition, in the interest of fairness, top slicing relief will no longer be available from 1 January 2013 on ex gratia lump sums in respect of termination and severance payments where the non-statutory payment is €200,000 or more. At present, the individual’s average tax rate for the previous three years applies to such lump sums rather than the marginal rate of 41%.

  I have been advised in numerous submissions of the value of allowing limited early withdrawal from additional voluntary contribution, AVC, pensions. Therefore, in the Finance Bill I will make provision for persons with AVCs to withdraw up to 30% of their value. Any amounts withdrawn will be subject to tax at the individual’s marginal rate since marginal rate relief was provided on the contributions. The option will be available for a three-year period from the passing of the Finance Bill in 2013.


  The contributory State pension is one of the key benefits funded by PRSI contributions and it represents, together with other PRSI benefit payments, excellent value for money. This is especially so for those on the lower part of the income distribution, those with shorter contribution histories and the self-employed. PRSI contributions are progressive and redistributive because people at the higher end of the income distribution generally get back less than they pay in.

  To ensure the stability of the Social Insurance Fund in order that it can continue to pay the pensions and benefits on which those earning the least are so reliant, there is a need to broaden the income base for PRSI. My colleague, the Minister for Social Protection, Deputy Joan Burton, will increase the minimum level of annual contribution from the self-employed from €253 to €500 and abolish the weekly allowance for employees. Both these measures will make a fairer link between the amount of contributions and the significant benefits received. The Minister will also bring forward legislation to change PRSI contributions as follows. Where modified PRSI rate payers have income from a trade or profession, such income and any unearned income they have will be made subject to PRSI with effect from 1 January 2013. Unearned income for everyone else will become subject to PRSI in 2014. This means PRSI will be payable on income generated from wealth such as rental income, investment income, dividends and interest on deposits and savings.

Deputy Mattie McGrath: Information on Mattie McGrath Zoom on Mattie McGrath That is robbery.

Deputy Michael Noonan: Information on Michael Noonan Zoom on Michael Noonan These changes in PRSI are progressive-----

Deputy Mattie McGrath: Information on Mattie McGrath Zoom on Mattie McGrath They are regressive.

Deputy Michael Noonan: Information on Michael Noonan Zoom on Michael Noonan -----as they will ensure that all sources of income are subject to PRSI.

Local Property Tax

  I will now turn to the local property tax, which the Government is introducing as a better alternative to increased taxes on income. Property taxes are used across the world as they are better for the protection and creation of jobs than taxes that increase the cost of employment. The local property tax will commence with effect from 1 July 2013 for the second half of the year. To design a tax that is equitable, the Government has accepted most of the recommendations made in the report of the expert group chaired by Dr. Don Thornhill. The report is being published this week.

  The main features of the tax are as follows. It will be collected by the Revenue Commissioners. Owners of residential properties, including rental properties, will be responsible for payment of the tax. The tax will be payable on the basis of the market value of the property, as assessed by the owner. To aid owners the Revenue Commissioners will provide valuation guidance to which owners can refer. Alternatively, owners will be free to use a competent valuer. The initial valuation will be valid up to and including 2016, which will provide three and a half years of certainty for property owners.

  The rate of the tax will be 0.18% of market value up to €1 million and 0.25% on values above that level. These central national rates will not be varied during the lifetime of this Government. Properties with a value of more than €100,000 and less than €1 million will be assessed at the mid-point of a valuation band of €50,000 width. For example, properties valued at between €150,001 and €200,000 will be assessed at 0.18% of €175,000, while properties with a value below €100,000 will be assessed at 0.18% of €50,000. Properties valued at more than €1 million will be liable at 0.18% on the first €1 million and 0.25% on the balance, without banding being applied.

  Property owners will be able to choose from a wide range of payment options, including payment by direct debit, credit or debit cards, cash payments or deduction at source from salary, occupational pension or certain State payments. Certain properties will be exempt from assessment and these exemptions will largely correspond to exemptions from the household charge.

  The Government is committed to real local government democracy and accountability.

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