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Financial Resolution No. 7: Income Tax (Continued)

Tuesday, 15 October 2013

Dáil Éireann Debate
Vol. 817 No. 1

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(Speaker Continuing)

[Deputy Joe Higgins: Information on Joe Higgins Zoom on Joe Higgins] In my view, removing these exemptions is another blow to people who are not wealthy by any means.

Deputy Richard Bruton: Information on Richard Bruton Zoom on Richard Bruton The information I just gave is inaccurate. These are figures for the end of the account, so the €480 figure is for three years rolled up and the €635 figure is for five years rolled up. Therefore, they are smaller concessions than previously indicated. They are very small and are roughly one third of the sum calculated. These are exemptions that were in place for longer-term products and those exemptions will no longer be provided. In compensation, people who invest in longer-term products obviously get a much higher rate of interest. At the moment, on ordinary bank deposit accounts, the interest rate available is tiny. Therefore, people investing in longer-term products are not doing badly relative to others. Essentially this is a measure to shore up the DIRT system and to avoid people switching to these accounts. Over the long term, such accounts will not have the concessions they hitherto enjoyed. People will not have additional concessions if they are saving by way of longer-term accounts rather than by way of ordinary deposit accounts. That is the intention of the change.

Deputy Róisín Shortall: Information on Róisín Shortall Zoom on Róisín Shortall I ask the Minister to clarify that. Is it not the case that self-employed people already pay PRSI on their savings and that the intention is to impose 4% PRSI on employees savings?

Deputy Richard Bruton: Information on Richard Bruton Zoom on Richard Bruton My understanding is that what has been introduced is PRSI on unearned income but PAYE workers who have money coming from a non-PAYE source that is of an insignificant amount do not pay PRSI on that money. That is the arrangement with the Revenue Commissioners. If a person has unearned income which is a significant source of income and makes a return, then in the normal course, as a chargeable person, he or she would be subject to PRSI on that income. However, as I said in the original reply, the Minister for Social Protection will be bringing forward measures in the legislation dealing with this element. It has been flagged that changes are forthcoming in 2014.

Deputy Róisín Shortall: Information on Róisín Shortall Zoom on Róisín Shortall I would like a bit more clarity on that. What is an insignificant amount? If a PAYE employee has savings and he or she earns interest on those savings, that interest is actually unearned income. Will that interest now be subject to 41% DIRT and PRSI, giving an effective rate of 45% tax on those savings? I ask the Minister to clarify that point because that is my understanding of these changes.

Deputy Richard Bruton: Information on Richard Bruton Zoom on Richard Bruton The note I have refers to Revenue Commissioner practice. Obviously interest rates are very low at the moment. On €10,000 in an ordinary deposit account for example, one might only earn €100 in interest in a year. Obviously, we will have to get information from the Revenue Commissioners as to the figure they use but they have an arrangement in place whereby if the non-PAYE source of income is insignificant relative to the PAYE source, they do not require such persons to make tax returns and they are not subjected to PRSI.

Deputy Róisín Shortall: Information on Róisín Shortall Zoom on Róisín Shortall A sum of €100 in interest can be significant to people. Is the Government now intending to take €45 out of that €100 in tax?

Deputy Richard Bruton: Information on Richard Bruton Zoom on Richard Bruton No. That is the point. It would not be taken out in the case of a PAYE worker. In that case, a PAYE worker is not a chargeable person and will not have a PRSI liability.

Deputy Richard Boyd Barrett: Information on Richard Boyd Barrett Zoom on Richard Boyd Barrett We are trying to get our heads around what is quite a technical motion and a change designed to impose a higher level of tax on savings but the explanations and assurances being given to us by the Minister are not really satisfactory. We have no examples whatsoever in front of us and there is a legitimate concern that small savers and ordinary people could be hit. This underlines the point that it is utterly unacceptable that we should even be discussing this without proper examples and briefings and we have no choice but to vote against it on that basis. We cannot support something that is not being properly explained, with examples provided and assurances given as to who and how many it will affect and so forth. We have no choice but to oppose this resolution.

Deputy Peter Mathews: Information on Peter Mathews Zoom on Peter Mathews The budget booklet from the Department of Finance states as follows:

The rate of retention tax that applies to deposit interest, together with the rates of exit tax that apply to life assurance policies and investment funds, is being increased and will now be 41% whether payments are made annually or more frequently (previously 33%) or are made less frequently than annually (previously 36%). The increased rates will apply to payments, including deemed payments, made on or after 1 January 2014.

Following on from what the last speaker said, we need to see examples here. Otherwise we are supporting, not supporting or abstaining on an issue that is not clearly understood. I do not like making decisions without seeing how something works. I like to see underneath the bonnet of the car before I buy it. In the case of life assurance policies and investment funds, I have an example which is pertinent here. About 25 or 26 years ago my wife and I started a life assurance savings fund with New Ireland. The purpose of the fund was to provide for fees for university or whatever might arise in 20 years time. Is that one of the life assurance policies and investment funds referred to by the Minister? What sort of exit tax would apply? The idea of those funds was that one saved up in the early years, accumulating with growth to a point where one could start drawing down money to pay fees or to support one's child in college and so forth. If I thought there would be an exit tax on any savings I made at anything resembling the level being proposed here, I would never have set up that fund. In that sense, the Government is discouraging people from being prudent. However, I could be wrong here. Maybe that is not the sort of fund that is being identified for this purpose. I would like an explanation and I would like a few examples so that the people outside can know what is involved. Otherwise it is voodoo land that we are in.

Deputy Michael McGrath: Information on Michael McGrath Zoom on Michael McGrath I will give my interpretation of this resolution. Much of the debate we have just heard is straying into areas that will be part of the Finance Bill, which will provide for the increase in DIRT to 41%. The issue raised by Deputy Mathews concerning exit taxes applying to life assurance policies and investment funds will be part of the Finance Bill. My understanding of Financial Resolution No. 7 is that it relates to very specific special term accounts within financial institutions that hitherto have been exempt from DIRT tax. The Government is removing that exemption and such accounts will be treated in line with all other accounts in financial institutions. That is the change we are making here.

Some of the answers on PRSI have not been satisfactory, to be frank but that is a matter for debate when the relevant legislation is brought forward. We can then discuss the issue of the treatment of PRSI on unearned income for PAYE earners and the self-employed.

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