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Finance Bill 2014: Second Stage (Resumed) (Continued)

Wednesday, 5 November 2014

Dáil Éireann Debate
Vol. 856 No. 2

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(Speaker Continuing)

[Deputy Willie Penrose: Information on Willie Penrose Zoom on Willie Penrose] Will the funding be made available to financial institutions other than the pillar banks for distribution to applicants such as entrepreneurs and the people behind start-up companies?

There is currently an advertisement on television for AIB, a bank that needed one of the bigger State bailouts. In the advertisement, self-employed people in small businesses are described as brave. The bank is giving the impression that it is eager to lend to self-employed people, but the experience of many self-employed people is that whatever money is lent to them will come at a high interest rate and there may be a requirement for personal guarantees. If the bailed-out banks were lending to the self-employed and small businesses, the Government would not have needed to set up the Strategic Banking Corporation of Ireland. It is clear that repairing their balance sheets is more important to banks than lending for job creation. I know a business whose owners tried valiantly to get money from AIB but failed to do so.

Lip service is continuously paid to small and medium enterprises, SMEs, and the self-employed, which are responsible for 69% of the workforce. That is well and good, but action speaks louder than words, especially as the self-employed have been hammered in this budget. The universal social charge has been imposed at the top rate of 11% for self-employed people, while a person who is not self-employed is charged a top rate of 8%. This is a serious matter. Much of the budget discussion focused on taxation of multinational enterprises, but although these companies account for a large proportion of exports, they employ only a small share of our workforce; 99% of Irish-owned firms are SMEs and 69% of private-sector workers are employed by SMEs. Employment in SMEs has fallen much further since 2008 than the corresponding rate for multinationals.

Future economic growth depends on SMEs and our individual entrepreneurs, but despite a great deal of rhetoric about the importance of the self-employed and SMEs, some of the provisions of the budget are detrimental to the sector. There is no possible justification for the 11% USC rate to be imposed on the self-employed, particularly as they are not entitled to the same level of benefits as those people on lower rates. Given the outrage about the low levels of corporation tax paid by Apple and other multinational companies, it is worth noting that the 11% rate paid by a self-employed person earning more than €100,000 is approximately the same as the percentage of profits paid in tax by multinationals. Unlike the multinationals, however, the self-employed person faces a 40% marginal rate of income tax in addition to PRSI contributions. What is the justification for a marginal income tax rate of 55% for self-employed people? As a PAYE worker, I pay a marginal rate of 52%. It could be argued that, given the level of insecurity and risk that the self-employed have, they should pay a lower marginal rate than those people in secure employment. Some left-wing politicians and commentators seem to think all self-employed people are well off, when some take home little more than what they would earn on the minimum wage. The tax system has changed since the 1980s and 1990s, when the PAYE tax credit was introduced, and it is time for this to be made available to self-employed people.

Despite the rhetoric we constantly hear that Government policy should support the self-employed and people setting up small businesses, the income tax system discriminates shamefully against the self-employed. A self-employed worker with annual earnings of €15,000 - less than the average industrial wage, which we all want to rise above €30,000 - will next year pay 14.9% of his or her gross income in tax. If I worked in a job on that wage in the PAYE sector, I would have to pay 1.9% of my gross income in tax. The self-employed person will pay €2,235, which is almost eight times the €285 that I would pay if I earned that wage. The self-employed person would also be entitled to fewer benefits despite his or her larger tax contribution. After the collapse of the building industry in 2008, many self-employed building workers found themselves almost destitute. Despite having paid substantial amounts of income tax, they found that in some cases they were eligible only for strictly means-tested supplementary welfare allowances.

Far from being a path to riches, being self-employed or establishing a small business in Ireland is often a high-risk activity with little return. One of the most misleading figures quoted about Irish industry is that it is the most profitable in the European Union. When the multinationals are removed from the picture, Irish firms are among the least profitable in the European Union, as they are third from the bottom of the list, above only Lithuania and France. Employer PRSI is low in Ireland, but other business costs such as energy and professional services are among the highest in the European Union. I have always called for a mandatory social welfare system to be introduced for the sector, with self-employed people paying for it. They would not be afraid to do so.

The biggest social issue facing us as a people is the scarcity of housing, especially social housing. More than 100,000 of our citizens do not have access to housing, with many more living in substandard accommodation. This has come about because of a withdrawal from the construction of social housing by central Government, and I am glad to see a proposal to spend over €2.2 billion on public sector housing over the next three years. This will give much-needed employment, especially in rural areas, but these allocations should be unbundled so as to allow small, tax-compliant and efficient building contractors to get into a position to tender for smaller bundles of housing projects. The €2.2 billion figure is clearly inadequate, as it will provide approximately 10,000 new public housing units. That amount must be at least doubled in order to tackle the housing crisis. My colleague, Deputy Brendan Ryan, brought forward a very worthwhile document in this regard and we must implement its recommendations in order to tackle this crisis.

In my county of Westmeath, up to 3,000 households are now on the housing list, and this must be addressed by a sustained house-building programme. With rents increasing, the problem will get worse as more people seek social housing. The issue can no longer be put on the long finger. My colleague, the Minister for the Environment, Community and Local Government, Deputy Alan Kelly, clearly understands the matter, and I have every confidence in his ability and vision to tackle it wholeheartedly.

I welcome the commitment to end the pension levy next year. This will give some degree of certainty to people with a pension, who felt deeply aggrieved because of this imposition. There are a multitude of pension issues to be addressed, and whatever the shape or membership of any future Government, it will have to confront a related issue. Some of the loony-bin economic theories will not be of much use in this complex area. What will happen when the social insurance fund deficit, which is approximately €320 billion, has to be considered as part of the overall Government finances? This will happen in 2017 under EU rules.

It is important to recognise the role of agriculture and the efforts of the farming community to achieve the targets set out in Harvest 2020. The abolition of milk quotas next April will be an opportunity in this regard. I especially welcome the increase in the period of income averaging from three to five years from 2015, with a 50% increase in the amount of income that can be exempted for the purpose of qualifying long-term leases taken out after 1 January. The lower age threshold of 40 years has been removed in the eligibility requirements for the long-term leasing tax relief. I also endorse what was said about active farmers with regard to the taxation review. I urge the Minister of State to amend this.

Deputy Seán Kenny: Information on Seán Kenny Zoom on Seán Kenny I will make some brief comments on the Finance Bill which is the legislation that underpins the first budget that takes Ireland firmly from crash back to recovery. This recovery is clear from figures indicating GDP growth of 4.7% in 2014 and 3.9% in 2015. There will be 1.92 million people at work at end of 2014, an increase of 80,000 since the low point in 2012. An additional 48,000 jobs are forecast by end of 2015.

  There are a number of positive aspects of the budget that I want to emphasise. In budget 2015, all the levers of the tax system, including tax thresholds, bands and rates, have been utilised to target reliefs squarely at low- and middle-income workers and households. With regard to single PAYE workers, for example, a person earning €25,000 will see a 4.6% reduction in his or her total tax bill, including income tax, USC and PRSI. A single person earning €45,000 will see a 3.9% reduction in the bill and a person on €70,000 will see his or her total tax bill reduced by 2.9%. Similarly, a married couple on one income of €25,000 in the PAYE sector will see a reduction of 8.4% in the total tax paid. A similar couple on €45,000 will see a 5% reduction, with a couple on €70,000 receiving a 3.1% reduction in the total tax bill. This is clearly a progressive package of tax measures. More tax is being paid by the highest income earners than at the lower end, and the bottom line is that reliefs have been targeted at low- and middle-income workers. This highlights the Government's commitment to ensuring that low- and middle-income earners and families are prioritised when it comes to feeling the benefit of the emerging recovery in their pockets.

  In budget 2015 a relief from deposit interest retention tax, better known as DIRT, for first-time house buyers was announced, which is welcome. This applies to savings used by first-time house buyers towards the deposit on a house. This is to apply to houses bought between October 2014 and 31 December 2017. The refund of DIRT will be for up to four years prior to the purchase date and will apply to the amount of DIRT charged on deposits, up to the value of 20% of the purchase price. For example, if a house costs €200,000, a first-time buyer will be able to claim a refund of DIRT paid on the first €40,000 that he or she had on deposit up to the date of purchase. The refund will be for a period up to four years.


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