Personal Insolvency Bill: Committee Stage (Resumed)


Senator Zappone

I welcome the Minister of State.  I welcome several progressive measures in the budget.  The Minister of State has identified them, including the extension of PRSI to non-earned income, changes related to capital acquisitions tax and capital gains tax and the clampdown on sick pay in public service, to which the Minister for Finance, Deputy Noonan, referred as well.  I welcome the reforms related to political expenses.  For some time
my Independent colleagues and I have called for the abolition of the system of unvouched expenses, especially as it relates to the party leader’s allowance. However, the signalled change to tax relief on pension contributions is not a brave move; it is a missed opportunity.  It will not produce the more significant savings that would accrue from standardising the rate of tax relief, amounting to €700 million.  Most important, it will not take effect until 2014 and therefore there will be no savings in 2013.  There are no progressive measures on pensions for 2013. One key aspect of the Government’s taxation policy calls into question the reference to the budget overall as fair and progressive inasmuch as such measures are contained in the budget. I am referring to the Government commitment to maintain the corporate tax rate.  There is a significant difference between the nominal rate of corporation tax of 12.5% and the effective rate of tax that multinational corporations operating in Ireland actually pay.  Due to a varietyof tax breaks available to multinational companies, some sources put the effective tax rate for many of them as low as 5% or 6%.  These breaks are essentially a form of public spending.  The choice to have a low effective corporation tax rate represents a decision to provide subsidies to corporations.  I realise my remarks are significantly at odds with the earlier comments of the Minister for Finance, Deputy Noonan.  While the 12.5% rate may have been of extraordinary benefit to the Irish economy in the past - I acknowledge as much - its effect is waning.

Deputy Brian Hayes: It remains.

Senator Zappone

In the context of a race to the bottom in which other states are cutting their corporation tax rates, we should look to broaden the strengths of our economy beyond a dependence on multinational corporations.  Our low corporation tax rate has several negative effects on brand Ireland and the domestic economy.  It has the potential to cause real reputational damage.  Increasingly, we are being mentioned in the same sentences as genuine
tax havens, including the Bahamas and the Cayman Islands, in the international media.  Ireland is not a tax haven but it shares some of their worrying features.We should also be concerned about the medium-term sustainability of our corporation tax model.  There are several threats to the competitive edge Ireland has gained from it.  There has been movement by Germany, France and the European Union towards creating a common consolidated tax base.  It is also true that a downward shift in the corporation tax rate in another major economy - it has been discussed in the United States - could wipe out our advantage overnight.  Whether it disappears as a result of the race to the bottom or due to pressure to create a consolidated tax base, this advantage will not last.  We should recognise this and begin a discussion on how to wean the economy off our dependence on low corporate tax rates.This situation is also damaging to the development of small and medium-sized enterprises within Ireland and abroad, in spite of the welcome ten-point plan for SMEs.  Large-scale tax avoidance by multinational corporations places small and medium-sized enterprises, which cannot avail of methods such as transfer price manipulation or fixing, at a competitive disadvantage.  It also means that SMEs contribute to the maintenance of the public services that sustain their businesses while multinational corporations simply freeload off these public goods. Low corporation tax rates also have a negative impact on many developing nations as a consequence of transfer pricing through Ireland.  These aggressive tax avoidance strategies undermine the tax base of nations in the global south, hampering their development.  The point is that we have high public spending on wealthy multinational corporations while putting through a budget that has significant characteristics of austerity and features cutting the deficit by reducing benefits and public services. 

I will conclude by referring to one or two of the prime austerity measures in the budget.  The first is the reduction in the age of the youngest child of qualifying one-parent families to seven years, at which stage the families no longer receive the one-parent family payment.  Coupled with the 2012 budget change that reduced the earnings disregard for one-parent families, it represents a significant and adverse measure.  My concerns in this regard are shared by my colleague, Senator van Turnhout.  The statistics show that one-parent families experience the highest level of deprivation and poverty but they also suggest that 60% of single parents are working while 20% are engaged in education or training.  This demonstrates their fierce desire for economic independence, not dependence.  The Government policy evident in the budget will continue to move single parents from the one-parent family payment onto jobseeker’s allowance while the youngest child still needs to be cared for by an adult.The Minister for Social Protection, Deputy Burton, promised that this reform would only come into play if Ireland started to develop a safe, affordable and accessible child care system. I welcome the commitment to a €16.5 million investment in child care.  However, as my colleague across the room has noted already, there is also a €10 reduction in child benefit for every child of rich and poor parents alike.  This is not a progressive measure; it disproportionately affects lone parents.  It will block the healthy development and well-being of children of lone parents.  Savings from this change will amount to €136 million, a far cry from the money identified to be invested in child care.  It is a regressive approach to cutting child benefit.  A choice could have been made for a more equitable two-tier approach or a tax on child benefit.  This does not bode well for the most vulnerable families.  A single parent said on the news yesterday evening: “If they cut child benefit, I don’t really know what I am going to do.”

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