asked the Minister for Finance the estimated gain to the Exchequer which would accrue from providing that depreciation of capital assets should be done on an actual basis; the views of the Government on accelerated depreciation; and if he will make a statement on the matter.
Written Answers. - Estimated gain to the Exchequer. Capital Allowances Tax Yield.
16.
It is presumed that the change referred to in the question relates to the withdrawal of the accelerated rates of capital allowances and the restriction of capital allowances to the normal annual wear and tear rates only. If this change were to apply in respect of investment from 1 April 1988 onwards it is estimated that the yield in 1988-89 would be negligible. In 1989-90 and for some years thereafter there would be a yield to the Exchequer in terms of increased income tax and corporation tax revenue. It is tentatively estimated that this would reach a maximum yield of the order of £93 million in 1990-91, over and above the yield arising from the current rates of accelerated capital allowances. This additional yield would diminish in each subsequent year because the abolition of accelerated capital allowances would result in, and be balanced by, an increasing entitlement to annual allowances.
The Government's views on accelerated depreciation were set out in the budget and the necessary legislative provisions were incorporated in this year's Finance Act. The Act reduced the accelerated capital allowances from 100 per cent to 50 per cent, with effect from 1 April 1989. The reasons for this were basically twofold: to modify the existing bias in favour of capital at the expense of employment, and to finance the cost of the reduction in the standard rate of corporation tax. I should add that this reduction in accelerated allowances does not apply to a limited number of special cases including qualifying services activities in the Custom House Docks area and in Shannon, the incentives for the designated areas, and projects negotiated with and approved by the industrial development agencies by the end of this year.
17.
asked the Minister for Finance the estimated yield to the Exchequer for each of the years 1988 to 1992 inclusive, arising by way of modification of capital allowances announced in the recent budgets; in respect of such yields the amount which will accrue from corporation taxpayers and Schedule D income taxpayers; and if he will make a statement on the matter.
Chapter V of the Finance Act, 1988 provides, inter alia, for the reduction over two years of the maximum level of accelerated capital allowances in respect of machinery and plant and industrial buildings from 100 per cent to 50 per cent ceiling, together with the termination of the existing 30 per cent ceiling on capital allowances for machinery and plant claimed by farmers. The total savings to the Exchequer arising from these measures, taken in isolation from other tax changes, are tentatively estimated to be nil in 1988 and to be of the order of £38.5 million in 1989, being £24 million in corporation tax and £14.5 million in income tax; £77 million in 1990, being £48 million in corporation tax and £29 million in income tax; £70 million in 1991, being £44 million in corporation tax an £26 million in income tax; and £59 million in 1992, being £37 million in corporation tax and £22 million in income tax.
As I indicated in my reply to the previous question from Deputy Cullen, these reductions were made in order to redress the bias towards investment in fixed assets at the expense of additional employment and to finance the cost of the reduction in the standard rate of corporation tax.