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Finance Bill 2014: Second Stage (Continued)

Tuesday, 4 November 2014

Dáil Éireann Debate
Vol. 856 No. 1

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(Speaker Continuing)

[Deputy Michael McGrath: Information on Michael McGrath Zoom on Michael McGrath] If the 20% deposit rule is too high, I believe the place to make that case is through the Central Bank consultation. We cannot have conflicting national policies in operation.

It is disappointing that the Minister has not reviewed the thresholds on inheritance tax. The level at which an individual has to pay capital acquisitions tax on a gift or inheritance from a parent to a child has been reduced by 60% in recent years to €225,000, which reflected the very significant fall in house prices and asset values generally. The Government also increased the capital gains tax rate to 33%. Parents want to be able to pass on the benefit of their hard work to their children and grandchildren. Whether this is in the form of the family home or savings, it is very important to parents that they are able to provide for the future financial security of their family. In my view, there is an urgent need to review the present thresholds so they more accurately reflect current house prices. The reality is that, unless the thresholds are changed, many people who are far from wealthy will end up having to sell a property they inherit in order to meet their capital acquisitions tax bill.

The Minister could also have taken the opportunity to deal with the upcoming property tax bombshell that his backbenchers have been warning him about. The Government included a provision in the local property tax legislation which provided for a revaluation of properties in 2016. The previous valuation date of May 2013 was close to the point at which property tax values hit their lowest level. Since then, property prices have been rising steadily. According to October's CSO data, house prices in Dublin have risen by 29% in the 16 months since the last valuation date, while apartment prices have risen by 32%. Nationally, prices have risen by 15% since May of last year.

Even if there is a slowing in the current rate of growth in property prices, it is likely that the next valuation date will see many homeowners having to revise the valuation basis for their property tax declaration by 20% or more, and, for some Dublin residents in particular, it could be over 50%. For most properties, the effect of rising by one band valuation is an extra €90 per year. Many homeowners could see their home values rise by three or even four valuation bands, adding up to €360 to their annual bill. I will be tabling an amendment on Committee Stage to deal with this issue and I look forward to the support of those vocal Fine Gael backbenchers who have expressed concern on the subject.

One other area in respect of the local property tax where the Minister had promised action is in allowing the local property tax to be a deductible expense for landlords. He has previously signalled his intention to do so but has not brought forward proposals in this regard, including in this Finance Bill. It would be helpful if he could indicate what the cost of allowing this deduction would be and when he intends to proceed with that.

In replies to some parliamentary questions, the Minister had given some hope that he would tackle the problems of people I would call accidental landlords. A combination of falling incomes, rising personal taxes and changed family circumstances mean that tens of thousands of people are living in homes that no longer meet their needs. Negative equity is preventing many of them from being able to sell their homes. In such circumstances, the only option may be to rent their homes and, in turn, rent new properties for themselves to live in. Anyone who takes this course of action faces an array of charges, including income tax, universal social charge, fees to the Private Residential Tenancies Board and PRSI on rental income. They also face losing their mortgage interest relief and their tracker mortgage rate, if they are lucky enough to have one.

In practice, thousands of families are in significant financial difficulty, having to subsidise mortgages on their homes as well as facing significant income tax bills. A family with a €300,000 mortgage on an apartment earning rent of €1,200 a month could face a tax bill of up to €2,000 on an annual basis. What I have put forward is a simple change to the income tax code which would allow people who bought their houses between 2000 and 2009, and who have now moved out and are themselves renting, to offset this rent payment against rental income for a period of three years. This would substantially reduce or eliminate the income tax bill on their rental income.

I would like to mention the taxation treatment of alcohol. It is generally accepted that alcohol consumption in moderation does not pose substantial health risks and is an undoubted part of socialising for many. Ireland is currently seeing an increase in alcohol consumption in the home. One of the reasons often cited for this trend is the significant price differentiation for alcohol products between on-trade and off-trade establishments. Not only has this discrepancy affected social behaviour by discouraging people from consuming at public houses, it has also been cited as a contributing factor in the rise in binge drinking and underage drinking. There is an opportunity to establish a greater degree of fairness within the alcohol sales market and to raise revenue for the State by introducing a levy directed towards the sale of below-cost alcohol in supermarket multiples in particular. These supermarkets are pricing alcohol aggressively and using it as a loss leader to drive footfall into their premises. The introduction of a levy to level the playing field somewhat would also be beneficial to society as a whole, since the regulation of alcohol taxes is one of the most common ways to combat alcohol-related problems, especially within European societies. The Minister has previously stated in replies to parliamentary questions that such a measure would be contrary to EU regulations. I have been provided with legal advice that states it would be permissible. In this context, we made a suggestion prior to the budget that an all-party committee be established to look at this question. There are significant employment issues to be considered as well, given that the on-trade is much more labour-intensive. I would welcome a commitment from the Minister to engage with Opposition parties on the subject, as has been done separately on the subject of alcohol sponsorship in sport.

In regard to the enterprise measures included in the budget, the best description I can give of them is that they are hit and miss. While there are some welcome developments, domestic entrepreneurs and SMEs are still very much the poor relation when it comes to Government attention when compared to their multinational counterparts. I would have liked the Minister to expand the entrepreneurs' capital gains tax relief. As currently envisaged, the incentive works by offering relief to individuals who have recently paid capital gains tax and subsequently invest in a new business, before selling that new interest no earlier than three years after the investment date. The capital gains tax due on this sale is reduced by the lower of either the capital gains tax paid on the original disposal or half of the capital gains tax due on the new sale. This is quite restrictive and the second company must be involved in an activity "not previously carried on" by the entrepreneur or an associate. Our proposal is for a 15% rate of capital gains tax for entrepreneurial investors, regardless of whether they have invested in a new business, up to a limit of €5 million. This would create a clear distinction between passive investment and entrepreneurial activity.

The self-employed will again be disappointed that there has been no improvement in their relative tax treatment. In so far as possible, the tax system should treat people in an equitable manner. Self-employed people lose under the current regime because, while they receive personal tax credits, they cannot claim PAYE tax credits, which are worth €1,650 per annum. This has a particularly stark impact at lower levels of income. For example, a self-employed single person on an income of €15,000 pays almost six times as much income tax and PRSI as an employee on the same level of income. There is a strong case for addressing the unfair treatment of the self-employed, particularly those at a lower level of income.

I would like to have seen greater action to deal with the issue of lack of credit, which is affecting SMEs, particularly through the introduction of tax relief for individuals making loan capital investments to SMEs. We proposed a pilot scheme on crowd financing, similar to that supported by the UK Government, in order to give a new source of finance to smaller start-up companies, and it something that is due to come up again tomorrow during Oral Questions on finance.

I welcome the changes to the research and development tax credits, which, in my view, will enhance the offering we are making to companies. It can be a significant gateway to real investment and real jobs in this economy.

I also welcome the changes to the special assignee relief programme, SARP, which is an attractive regime for mobile talent and clearly improves the attractiveness of this location when a company is deciding where to invest. Similarly, for companies seeking to expand their export business, the foreign earnings deduction improvements will be welcome.

In conclusion, this budget has been a disappointment to the general public. The Minister had a real opportunity to use the scarce resources that have become available in a socially progressive manner, focusing, for example, on improving access to child care, increasing mortgage interest relief, reducing medical costs for families and providing a meaningful increase in the living alone allowance for older people. Instead, they have been frittered away. There has not even been an electoral dividend for the Minister's party, not to mention an economic one.


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