The corresponding percentage at this time last year was 51 per cent. In fact one has to go back to 1984 to find a better relative position at the end of the first quarter.
The drop in the level of borrowing is a direct consequence of the tight expenditure control and coherent overall budgetary strategy adopted by the Government since coming to office. We are now building on the success of last year and I am confident that the budgetary targets will again be achieved in 1988.
As well as indicating that the budget targets are on course, the Exchequer returns also demonstrated the excellent results of the Exchequer's funding programme in the first quarter. By the end of March the Exchequer had raised virtually all its borrowing needs for the year as a whole, with minimal recourse to net foreign borrowing, at £97 million, was at its lowest since the late seventies.
The good budgetary figures, and the strength of the Exchequer's funding position, gave a further boost to market confidence. This growing confidence in domestic markets helped to create the positive climate which enabled the Central Bank to cut its official interest rates — by three-quarters of a percentage point — on 11 April. This was quickly followed by reductions in interbank and Associated Bank rates.
At this point, key interbank interest rates are up to six percentage points below their level of 31 March, 1987. Whereas in March 1987 these rates were four percentage points above the corresponding UK rates, they are now below them. This is a major change in the space of a year and interest rates are now at their lowest level for ten years.
The growing confidence is not confined to the financial markets. The reaction from business and other circles has been equally positive. There is growing acceptance that the Government are on the right path in pursuing the closely-related objectives of improving the public finances and revitalising the economy. I have every expectation that 1988 will see a continuation of the economic progress made in 1987. I expect to see further strong export growth. Córas Trachtála have recently forecast a 9 per cent growth in the volume of exports, with a heavy emphasis on exports to our EC partners. With strong export growth, both the trade surplus and the surplus on the current account of the balance of payments should strengthen.
A further reduction in inflation to 2½ per cent or less, on average, this year is also in prospect. The annual inflation rate to February of 1.9 per cent is very encouraging and means that inflation here is now below the EC average. Lower inflation as well as the reduction in interest rates and the income tax concessions in the budget should improve the prospects for growth in private consumption. In addition, the climate for private investment has improved considerably and I look forward to a significant rise in the volume of private investment this year.
Overall, the volume of gross domestic product is expected to grow this year by between 0.5 per cent and 1 per cent. This would mean that, taking the two years 1987 and 1988 together, the volume of GDP would grow by over 2 per cent per year, a very creditable performance particularly in view of the scale of budgetary adjustment undertaken.
It is clear of course that there are significant structural and competitiveness weaknesses in the economy that we must continue to address if employment performance is to be stepped up. Achieving improved competitiveness is, therefore, a key element of our strategy. With the low level of inflation now prevailing and the significant income tax relief awarded in the budget, there is no justification for employees or employers to seek or agree pay increases above the parameters agreed in the context of theProgramme for National Recovery. In the short term, improved competitiveness is one of the most effective means open of improving employment prospects. The Government are, of course, continuing to pursue with the utmost vigour all possibilities of encouraging viable developments at a sectoral level. Indeed, some of the key provisions in this Bill are framed with that objective in mind and I shall return to these later.
Despite the significant progress made towards remedying the problems of the public finances I want to make clear that we cannot relax. The level of outstanding debt remains very high. We still have a significant budgetary gap to close if we are to stabilise the debt/GNP ratio and break clear from the debt spiral which has been pre-empting so much of our resources — resources that could otherwise be used to create employment. This is the only way we can create more room for manoeuvre, reduce interest rates still further, get down the overall level of taxation in the economy and bring about sustainable growth and increased employment.
The Government remain firmly committed, therefore, to the fiscal targets set out in theProgramme for National Recovery. The precise size of the budgetary adjustment that will be needed in 1989 will depend on various factors, including how the economy performs for the rest of this year and developments at the international level. It is fair to say, however, that the adjustment will have to be of significant proportions, probably of the same order of magnitude as in 1988. Arrangements for a repeat of last year's expenditure review procedures, with a view to securing the necessary savings, are already in train.
Notwithstanding the constraints to which I have referred the 1988 budget represents an important new phase in the Government's programme. The tax changes that I have announced, and which are incorporated in the Finance Bill, represent a major step on the road to tax reform. The combination in the Bill of significant income tax reductions, a major revamping of the corporation tax code, and the radical overhaul of the tax assessment and collection regime marks a significant movement in the right direction.
The result of the changes in income tax provided for in the Bill is that in the current tax year nearly 63 per cent of taxpayers will be paying tax at the standard rate. I am sure Deputies will agree that this represents considerable progress towards the Government's objective of having two-thirds of taxpayers paying tax at the standard rate only.
I assure the House, however, that this year's tax changes are the beginning, not the end, of the Government's intentions in regard to tax reform. The overall level of taxation here is still far too high. This in turn reflects the excessive level of public expenditure, notwithstanding continued substantial borrowing which must also be phased down. While the room for manoeuvre is narrow, because of the budgetary constraints, the Government want to reduce the overall level of taxation as soon as possible, so as to encourage initiative and enterprise in the economy. The task of reform will also be made easier according as the economy resumes a higher growth pattern. Taxpayers must share in the fruits of this growth. Pending a reduction in overall tax, there is still much more we can do to restructure and improve the present system.
In the restructuring of our tax system, we must also have regard to the proposals for harmonisation of indirect taxes in the European Community, as part of the moves towards the creation of an internal market in 1992. The proposals create particular difficulties for Ireland because of our heavy reliance on indirect taxes. Discussions in the Community on the Commission proposals, and on how the problems facing countries such as Ireland might be tackled, are still at a preliminary stage but I will keep the House informed as the discussions develop.
There is continuing pressure for tax incentives to encourage business and we now have a wide range of these incentives in our tax code. They are expensive in terms of tax foregone, and they are a factor in our high tax rate structure. Incentives are necessary but they must be on a selective basis as is provided for in the present Bill. The deciding factor in each case must be the balance of advantage to the economy and I am satisfied that the incentives in this Bill will boost economic activity. I would, however, welcome discussion in this debate as to how Deputies consider that the tax base should be widened.
I would now like to refer to individual sections of the Bill and to draw the attention of the House, in particular, to the more significant items. Full details of the individual sections are contained in the explanatory memorandum I have circulated with the Bill.
The first three sections of the Bill implement the income tax changes I announced in the budget. The changes go far beyond what was required to honour in 1988 the commitments made by the Government as part of theProgramme for National Recovery. Reliefs costing just over £30 million would have been adequate to fulfil our commitment this year. In the event, the reliefs in the Bill will cost £91 million in 1988 and £152 million in a full year. On a cumulative cost basis, the reliefs will cost over £400 million over the next three years, compared with the £225 million undertaking agreed in the programme. These figures demonstrate the Government's determination to achieve the targets set out in the programme.
On other specific aspects mentioned in the programme, the Bill also fulfils Government commitments. The PAYE allowance is being increased from £700 to £800, while the 35 per cent rate band is being extended by £2,000, from £9,400 to £11,400, in the case of a married couple, and by £1,000, from £4,700 to £5,700, in the case of a single person. We have also provided for increases in personal allowances of £100 for a married couple and £50 for a single person, with comparable increases in the widowed, widowed parent and single parent allowances. In this context I might mention that, following a commitment I gave to the House last year, section 3 of the Bill provides for an improvement in the position of widowers taxed under single assessment in the year in which they are bereaved: from now on, such widowers will be put on the same footing as widows in similar circumstances and will be entitled to the equivalent of the married personal allowance in that year. Finally, the Bill provides for increases both in the general exemption limits and in the two higher exemption limits which apply to persons aged over 65 and over 75 years.
Sections 4 to 6 of Chapter 1 deal with other items of importance. Section 4 provides for the renewal of the £286 PRSI tax allowance for the current year. Section 5 removes the prohibition on part time directors and employees from participating in the approved share option schemes provided for in the Finance Act, 1986.
Section 6 includes the process known as plant micro-propagation or plant-cloning in the relief for investment in corporate trades, more generally known as the Business Expansion Scheme. Deputies will recall that this process became eligible for the 10 per cent rate of corporation tax under last year's Finance Act. The Government are anxious to ensure that this innovative industry, which is only just beginning in Ireland, can exploit its full potential for the benefit of the economy by being able to generate the equity capital it needs through the Business Expansion Scheme.
Section 7 of the Bill gives effect to the extension of the deduction at sources system for certain professional fees to payments for in-patient treatment by medical professionals under health insurance policies. This extension was signalled in my Budget Statement when I indicated that the measure would be introduced in respect of payments under insurance contracts with the Voluntary Health Insurance Board. The Government have decided, however, that in the interests of equal treatment the withholding tax should apply to specified payments by all health insurers licensed under the 1957 VHI Act. In the main the licence holders are "in-house" schemes, providing cover only for employees, retired employees and their dependants. Total membership of these schemes is estimated at less than 50,000 as compared with about 400,000 policy holders in the VHI.
The section sets out how the withholding tax will be applied. The main features are as follows:
Deductions will be made at a rate of 35 per cent, with effect from 6 June next, from payments under health insurance contracts in respect of fees to medical professionals for services to in-patients of hospitals in the State;
to facilitate the medical insurer in making the tax deductions, the insurer will be required to pay the balance of the relevant claim — after deduction of the tax — direct to the medical professional concerned rather than the subscriber;
there will be no change in the existing arrangements for payments by the insurers to subscribers for maintenance costs in hospitals, and the withholding tax will not apply to these payments;
the subscriber will remain liable for any uninsured balance of the professional fee and the deduction at source system will not apply to this payment;
where a subscriber pays fees directly to a medical professional, the professional is required to refund to the subscriber any excess of the total amount paid by the subscriber and the health insurer — including withholding tax deducted — over the amount of the professional's fee;
the Minister for Finance is empowered to make regulations to secure the smooth operation of the deduction scheme for payments made by health insurers;
the health insurer and the subscriber are indemnified from any claims arising from the deduction of the tax.
Since publication of the Bill it has come to my attention that the Bill as drafted does not encompass certain forms of in-patient professional treatment for which benefit is paid under VHI policies. I will introduce amendments on Committee Stage to rectify this.
Concern has been expressed as to the effect this measure will have on holders of health insurance policies. I would like to stress that the measure does not affect the existing rights of subscribers under health insurance contracts. The coverage provided under insurance policies will be as before and the only change will now be that payments to medical professionals for in-patient treatment will be made directly to the professionals involved on behalf of the subscriber.
It has also been suggested that medical consultants may feel it necessary to increase their fees because of the new system of deduction. I must emphasise that there would be no justification for any such increase in fees. The withholding tax already applies to payments to other professionals and the system is simply being extended to include payments to the consultants by health insurers. The new system involves no more than a payment on account in respect of tax due at a later date on the payments in question. Thus, no additional tax liability is imposed on the medical professional who will get credit for tax withheld under this system. Substantial legal protection for subscribers is written into the legislation. The Government will, of course, monitor the operation of the arrangements so as to guard against abuses and make sure that the legal protection for subscribers is adequate.
Section 7 of the Bill also adds a number of bodies to the list of accountable persons for the purposes of the deduction at source system. Deputies will note the inclusion of voluntary private hospitals who are grant-aided by the Department of Health. This change will put such hospitals on the same footing as health board hospitals already operating the deduction scheme.
In the budget I announced a comprehensive package of inter-related measures which the Government propose to take to bring about a major and permanent improvement in the tax assessment and collection system. These changes are now being given legislative effect in the Bill.
The main changes are set out in Chapter II, comprising sections 8 to 20 of the Bill, and arise from the decision to introduce self-assessment for corporation tax and for income tax for the self-employed. As I indicated in my Budget Statement, because of the extent of the changes involved and the numbers of taxpayers affected, a full system of self-assessment must be phased in over a period to avoid undue disruption and protect revenue yield. The Chapter II provisions of the Bill represent, however, a major initial step on the road to full self-assessment. The key features of the new arrangements are:
in general there will be a mandatory obligation on self-employed and corporate taxpayers to make a return of income; there are specified exceptions to this obligation;
there will be a requirement to pay advance tax. Advance tax payment is essentially the same as the existing procedure under which the taxpayer specifies his own estimate of his tax liability in advance of that liability being finalised;
there is provision for the estimation of advance tax by the tax inspector and, if the taxpayer wishes, he or she can replace this estimate by the taxpayer's own estimate;
formal tax assessment will generally be made by the inspector only when a tax return is completed. If the taxpayer so wishes he may compute his own tax on the basis of the return of income that he is submitting;
the provisions establish rules for payment of tax, submission of returns, charging of interest, the levying of a surcharge in the absence of a return and for the making of appeals in specified circumstances.
The overall objectives of the new arrangements are to place more responsibility on taxpayers for meeting their own tax obligations, to reduce the levels of estimated tax and to streamline and significantly reduce the numbers of appeals.
Deputies will note that while a substantial part of the overall statutory framework for the move to self-assessment is being put in place, the computation of his own tax by the taxpayer himself is not a mandatory requirement at this stage. The taxpayers concerned will indeed be receiving new forms on which they can themselves compute and pay tax, but completion of the form and payment of the tax due on that basis will be a voluntary, non-statutory arrangement for the present. I should mention that the Revenue Commissioners are already operating, with a volunteer group of tax practitioners, a pilot scheme for the computation of capital acquisitions tax. The purpose of these voluntary schemes is to determine the practical considerations which would arise from the introduction of full self-assessment on a statutory basis.
The move to new return and assessment arrangements is accompanied by two other measures aimed at eliminating tax arrears and improving collection. These are the incentive to clear up arrears of tax provided for in section 68 of the Bill and the introduction of power for the Revenue Commissioners to attach the financial assets of tax defaulters, which is provided for in section 69.
The combination of the new arrangements for tax assessment and the introduction of the power of attachment will mean that tax defaulters will face a much more hostile climate in the future. This is only as it should be: we need to achieve a better balance in the system in favour of the majority of taxpayers who settle their tax obligations. In the changed circumstances defaulters are being given a once-off incentive to clear their arrears of tax. The incentive arrangements set out in section 68 provide for the waiving of certain outstanding interest charges and penalties, where the taxpayer brings his total liability to income tax, sur-tax, corporation profits tax, corporation tax, capital gains tax, value-added tax, PRSI, health contributions, employment levy and income levy up to date at any time between 27 January 1988 and 30 September 1988. The main taxes not covered by the incentive scheme are capital acquisitions tax and stamp duties. These are not included because they are not subject to the same collection problems as the other taxes to which I have referred.
The incentive scheme ends on 30 September 1988 and the power of attachment will come into force on 1 October 1988. I have been informed by the Revenue Commissioners that there has been a huge volume of inquiries in relation to the incentive and I am confident that it will make a very significant contribution to the clearance of arrears this year. The initial impact of the incentive scheme and of the improvement already made in collection arrangements is reflected in the good performance of tax revenue receipts in the first quarter of the year.
Section 69 of the Bill gives effect to the power of attachment. The section provides that, where the Revenue Commissioners believe from information available to them that a third party has an amount of money owed to a tax defaulter, they may direct the third party to pay the amount to them or to pay the actual amount of tax due by a defaulter, if less. The power of attachment will thus provide the Revenue Commissioners with a speedy and cost-effective response to default. This is essential if the fight against tax default and tax evasion is to achieve success. The power of attachment is available to Revenue authorities in other countries, notable the United States and New Zealand, and its introduction here was recommended by the Commission on Taxation. It will be particularly welcomed by the vast bulk of taxpayers who comply fully with their obligations and who will have nothing to fear from this new power.
I would like to outline briefly for Deputies the main features of the attachment process.
There is a starting date of 1 October next; thus as I have indicated earlier taxpayers may avail of the incentive arrangements to clear arrears before the new power comes into operation. The power extends to the employment levy, health contribution and PRSI as well as the main taxes. The power will not be used in respect of wages, salaries, pensions or social welfare payments. The taxpayer will have a one-month grace period following default before entering the period during which attachment may be used. The taxpayer will receive prior notice that he is entering the attachment phase. To implement attachment the Revenue may give a notice to a debtor, including a financial institution, to make a return and pay over to the Revenue, from a debt due to the taxpayer, the amount in default or, if less, the amount of the debt. Payment must be made within ten days of the notice being received. The debtor does not have to indicate how much is owed to the taxpayer where this exceeds the amount in default. The Revenue Commissioners must have reason to believe that there is an amount owing to a defaulter from a third party and they will continue to rely on their existing powers of information in operating the power of attachment. Only one notice of attachment per taxpayer can be in force at any one time and attachment will not apply to amounts in dispute or in a liquidation or bankruptcy situation.
Chapters III and IV of the Bill contain several provisions aimed at encouraging development of various sectors of the economy.
I announced in the budget that the tax relief known as "section 23" was being restored for a further three-year period. This measure, provided for in section 24 of the Bill, allows expenditure incurred after budget day on constructing new residential accommodation for renting to be set-off as a deduction against all rental income, including that derived from the particular "section 23" property. The maximum floor area limit for flats of 90 square metres, which previously applied, is being retained, but without the former restriction as to number of bedrooms required. Going beyond what was announced in the budget the Government have also decided to renew for a similar three-year period the earlier reliefs for certain costs incurred in the conversion and refurbishment of property for rental accommodation. Thus, expenditure on converting a qualifying building into two or more residential units will be allowed as a relief against all rental income, while that incurred on refurbishment of qualifying property will, as previously, be an allowable deduction against the income from that property only.
The overall effect of this package will be to provide a timely and significant boost to the construction industry and encourage the provision of moderately priced rented accommodation. It will also assist the improvement of low cost residential accommodation.
A further measure which will help the construction industry and the process of urban renewal is the two-year extension of the time limit originally applying to incentives in the designated areas in the five county boroughs of Dublin, Cork, Limerick, Waterford and Galway. This is provided for in section 23. The various tax and other incentives will now be available for qualifying expenditure up until 31 May 1991, in common with the other nine recently-announced designated areas.
Section 27 of the Bill gives exemption from income tax and capital gains tax for investments made by pension funds in financial futures and options, in order to facilitate the participation of pension funds in such transactions. Section 32 enables certain non-manufacturing companies located in the Shannon Customs-Free Airport to qualify for the 10 per cent rate of corporation tax in 1990. This special rate has been available to new companies which have set up in the airport since 31 December 1980. Section 32 provides that similar treatment will be given to existing companies located in the airport when their present tax exemption arrangement expires in 1990.
The Bill contains a number of measures which are designed to assist the development of the International Financial Services Centre being established in the Custom House Dock area. Before outlining these measures, let me bring the House up to date on progress in regard to this project. To date, two certificates have been granted to companies which will locate in the centre. In addition, some 20 further projects have been approved in principle. These 22 projects involve definite employment commitments — to be written into the certificates — amounting to over 700 jobs. This is a very positive result in a relatively short period and is indicative of the great interest, support and goodwill which exists in relation to the centre. I am confident that the coming year will see further substantial progress, resulting in many more projects and job commitments, and this will be helped by the provisions in the Bill.
There appears to be some confusion among Opposition Deputies about the procedure for granting certificates to companies establishing in the centre. The relevant legislation is drawn up on precisely the same basis as that governing certificates for companies in the Shannon Airport zone. There is the same requirement for ministerial approval. The Shannon legislation has been on the statute book since the late fifties and there have never been any charges or unfair ministerial decisions in regard to Shannon certificates. There is no basis for supposing that things will be otherwise in the case of the IFSC.
In fact, there is a very formal process of approval for IFSC companies before a ministerial decision is given. As is widely known, we have established a Certification Advisory Committee which is representative of my Department, the Department of Industry and Commerce, the Central Bank and the IDA. All projects must be submitted to this committee and examined by them before they are submitted to me with a recommendation for approval. Obviously, in deciding on an approval, I will have regard to the recommendations of the committee and this is a major safeguard against arbitrary or unfair decisions.
Section 33 of the Bill removes the requirement, which has proved to be unnecessary, that activities which are to be carried on in due course in the Custom House Docks area should be located in temporary accommodation not owned by the relevant company pending the availability of suitable premises there. Section 33 also extends the special 10 per cent rate of corporation tax in the centre to speculative commodity trading which is essentially financial in nature. Section 34 allows a deduction for tax purposes for interest on loans paid by a company in the centre to a non-resident parent company. Section 35 grants an exemption from withholding taxes on interest payments made by companies in the centre to lenders outside Ireland.
I also want to give notice of my intention to introduce amendments on Committee Stage to bring the investment income of life assurance companies and the income and capital gains of unit trusts located in the centre within the ambit of the 10 per cent rate. All of these measures will, as I have said, be of benefit to the promotion of the centre as an attractive location for international financial services.
Section 38 makes a novel provision for the repatriation to this country, free of tax, of dividends earned abroad by the subsidiaries of Irish companies. The intention is that the repatriated funds will be used for investment here with direct benefits to the economy. I would emphasise that in order to avail of this new relief, it will be necessary to show that repatriated funds are directed towards the maintenance or creation of employment here. Each individual application will have to receive, on a case by case basis, the prior approval of the Minister for Finance for its investment plan. The repatriation of funds under this scheme will result in a further addition to liquidity in the economy.
Section 22 provides for the increase from £4,000 to £6,000 in the capital allowances and the deduction for running expenses for motor cars. Section 45 renews for a further three-year period the favourable treatment of expenditure incurred on the construction of multistorey car parks. The existing relief, of a 50 per cent initial allowance and 4 per cent annual allowance expired on 31 March last, and its continuation will give a boost to the provision of off-street parking.
The Bill implements the major changes in the corporation tax structure which I announced in the budget. The main elements of the changes are provided for in sections 30, 42 and 43 of the Bill. These are a phased reduction in the first-year capital allowances for plant, machinery and industrial buildings, from 100 per cent to 50 per cent, and a parallel reduction in the standard rate of corporation tax from 50 per cent to 43 per cent. These measures are very much in line with the trend internationally towards lowering the tax rates, on the one hand, and available reliefs, on the other, and it is the Government's firm belief that these changes will improve the equity and economic efficiency of the tax code. The fact is that our tax incentives and exemptions have been rather generous, and have in practice tended to encourage capital investment at the expense of employment. The reduction in the standard tax rate will assist employment creation and, in particular, will act as a stimulus to the services sector which is recognised as an important source of new job opportunities.
Apart from the foregoing major changes in the reform of the corporation tax code there are also a number of related measures which I will briefly outline. In line with the reduction of the standard rate to 43 per cent, most lower rates of tax will be abolished under section 30 of the Bill. However, the 10 per cent rate for manufacturing and certain other activities is not affected. Under section 47 the reduction in capital allowances will not apply to contracts entered into on or before budget day, or to projects which are in course of negotiation with, and approved by the industrial development agencies by the end of this year. Likewise, the special building incentives in the designated areas for urban renewal, and qualifying services activities in the Custom House Docks area and in Shannon, will not be affected.
The arrangement introduced in 1981 whereby distributions paid by a company had firstly to be paid out of profits which had benefited from the 10 per cent tax rate — the Primary Fund — is being terminated. It no longer serves its original purpose, now that full advance corporation tax is in operation. It is now proposed, in section 29 of the Bill, that tax credits will be treated as coming proportionately from the tax mix of profits available for distribution. Tax credit rates for shareholders will, of course, be reduced under section 28 following on from the phased reduction in the tax rates themselves.
Section 36 provides for special exemption from corporation tax for five years for the profits of Nítrigin Éireann Teoranta arising from their gas trading activities. The purpose of this exemption is to enable Nítrigin Éireann Teoranta to service and pay off their debts. This exemption formed part of the arrangements agreed for the ICI-NET joint venture operation.
In the budget speech, I announced that it was proposed to impose, on a once off basis, a levy on the investment income of pension funds. The detailed provisions giving effect to this are contained in section 49 of the Bill. Following discussions with representatives of the pensions industry, the basis of implementation of the levy has been changed from that set out in the budget. Instead of being charged on actual income and realised gains, the charge will now be based on an imputed investment yield calculated by reference to the asset value of pension funds as of 1 January 1988. In addition to the exemption for small self-administered schemes, there will also be a parallel exemption for nongroup schemes run by life assurance companies. I am satisfied that the revised provisions will, overall, present fewer problems for pension funds, and their administrators. The changes now proposed will not affect the expected yield to the Exchequer.
Turning to excise duties the Bill confirms the budget changes. Section 54 provides for the repeal of section 43 of the Finance Act, 1968, which provides for the remission of road tax on vehicles converted for use by disabled drivers. This remission is to be subsumed in the proposed new scheme of assistance towards the mobility of the disabled. Discussions between the Minister for Health and representatives of the disabled drivers are continuing. I hope that agreement on the scheme can be reached in the near future. I want to stress that the decision to rationalise the existing scheme of assistance was not aimed at saving money but at eliminating unfairness and distortions which have been a feature of the present arrangements.
Part III of the Bill, comprising sections 56 to 59, confirms the VAT changes announced on budget day and which took effect on 1 March last. The imposition of a 5 per cent rate on electricity has not resulted in any price increase for domestic consumers because of the matching reduction in unit costs, while businesses have actually benefited because they can reclaim any VAT paid. As I stated in my budget address, this will enhance business competitiveness.
The reduction in the rate of farmers' flat rate addition from 1.7 per cent to 1.4 per cent has given rise to some adverse comments from farming interests but, as I have indicated on previous occasions, I could not allow the continuation of this mechanism at its former level while significant arrears of tax related levies remain unpaid by the farming community. The solution is clear. If the problem of the arrears is resolved I will be willing to look again at the matter in the context of next year's budget.
The corporation tax contribution from the banking sector is still at an unsatisfactorily low level, despite an appreciable increase in bank profits. The bank levy has remained at £25 million since 1983 and, in the circumstances, will now be increased to £30 million for 1988. Section 60 gives effect to this.
Section 62 of the Bill makes provision for the £10 duty on ATM cards which was announced in the budget. In the period since my Budget Statement I have received a number of representations in connection with this measure. I have given due consideration to the points raised and while there is some validity in the case made I am not convinced of the merits of the alternative proposals put forward for raising the projected yield elsewhere within the banking sector. The provision of banking services by use of electronic methods will continue to develop and this is something which has to be considered as part of the overall issue of the taxation of financial services.
Section 67 brings the tax treatment of securities issued by Bord Telecom Éireann and Irish Telecommunications Investments plc into line with the treatment of those of a number of other commercial State bodies, for example, the Electricity Supply Board and Aer Lingus. The purpose of the section is to enable ITI and Bord Telecom Éireann to raise more of their borrowings in unguaranteed form and so curb the growth in the contingent liabilities of the State.
Section 70 applies to income tax, corporation tax, capital gains tax, capital acquisitions tax and stamp duties the general principle of the Status of Children Act, 1987, namely, that relationships between persons are to be determined without regard to whether the parents of any person are or have been married to each other, unless the contrary intention appears. Deputies will recall that a commitment was given that the taxation implications of the Status of Children Act would be dealt with in a Finance Act. I am happy to be able to introduce a suitable provision in this year's Bill in fulfilment of that commitment.
In this opening address I have dwelt on general economic issues and tax reform as well as outlining the more significant elements of the Bill. I look forward to the opportunity on Committee Stage to discuss in more detail the individual sections of the Bill.
I commend the Bill to the House.