I move: "That the Bill be now read a Second Time."
As I bring this Finance (No. 2) Bill 2013 to the Dáil it is perhaps appropriate to remind ourselves of some of the objectives of the recent budget. Looking first at the economic backdrop against which the budget was set, although we experienced a difficult first quarter, the Irish economy returned to growth in the second quarter and more recent figures such as purchasing managers’ indices provide room for optimism for the remainder of this year. On foot of these developments my Department is projecting a pick-up in growth over the second half of the year, with growth set to average 0.2% for 2013 as a whole. Looking to next year, a more supportive external environment and a continuation of the recent positive domestic developments should allow for more robust growth, with economic output expected to grow by 2% in the year.
The impact of the patent cliff which has weighed on goods exports this year should also ease in 2014, supporting a return to export growth. Domestic demand is expected to pick up next year and once again contribute positively to GDP in the year. Continued improvement in the labour market should act to boost household disposable incomes and, in turn, drive personal consumption, while the stabilisation in domestic activity should support continued improvement in investment spending.
Turning to the fiscal side, budget 2014 targeted a general Government deficit of 4.8% of GDP. While all targets under the excessive deficit procedure have been met to date, 2014 will be the first year in which we will be actively seeking to over-achieve the target. This over-achievement will form a prudent buffer to allow for any possible external shock to the economy and reassure the markets of Ireland’s steadfast commitment to restoring the sustainability of the public finances.
The year 2014 will also mark the first time since the crisis began that Ireland will have achieved a small primary surplus. This means that, excluding debt service costs, revenues are sufficient to meet expenditures. This is a key metric in assessing the underlying sustainability of Ireland’s public finances and a necessary first step towards lowering our debt levels. With over 90% of the required consolidation achieved, the deficit continues to track towards less than 3% in 2015. Furthermore, with continuing growth in employment and the wider economy, we can have cause for optimism as we approach our exit from the EU-IMF programme of financial assistance.
Turning to the Finance Bill, I would like to make a few points. As I said in my Budget Statement, while the Government has in the past two and a half years focused on implementing and ultimately exiting the EU-IMF programme, we have also been following a parallel programme to support businesses, create jobs and get people back to work. I am under no illusion that considerable work remains in getting the elevated number of unemployed back to work. However, I am pleased by the response of the private sector to a number of the budget measures designed to support job creation.
First, the positive response of the construction industry to the home renovation incentive, HRI, scheme is welcome. It is especially welcome to see contractors seeking to brand their services under the home renovation incentive label. I am also pleased by the response of the banks to the HRI, with both Bank of Ireland and Permanent TSB announcing that they have established funds to allow their customers to either extend their mortgages or take a personal loan to finance work under the HRI scheme. It is positive to see banks actively seeking to provide finance for their customers to allow them to invest in their homes.
I am also heartened by the response of Ryanair to the reduction in the travel tax to zero, which has seen it commit to bringing an additional 1 million extra passengers to Ireland, with 11 new routes already announced for Knock and Shannon airports. Employment growth in the hospitality sector was an objective that the Government targeted from the beginning of our time in office. The measures in the jobs initiative proved to be a real success and I am sure that the travel tax measure will be positive for job creation throughout the country.
I would like to highlight two particular measures contained in the Bill which have seen changes since their announcement in the budget. First, the HRI, to which I have referred, is being introduced. Tax relief will be granted at a rate of 13.5% on qualifying expenditure on home renovation up to a maximum of €30,000, exclusive of VAT. The minimum expenditure must be €5,000, exclusive of VAT. The scheme will run from 25 October 2013 until 31 December 2015. Works carried out in 2013 will be deemed to have taken place in 2014 and credit will be awarded in 2015 and 2016.
Second, the start-your-own business incentive will provide an exemption from income tax up to a maximum of €40,000 per annum for a period of two years for individuals who set up a qualifying, unincorporated business. In my Budget Statement I said the individual must have been unemployed for a period of at least 15 months prior to establishing the business. However, on further consideration I have decided to reduce the qualifying period of unemployment to 12 months. This will be dealt with in an amendment on Committee Stage.
I would like to highlight another critical aspect of the Bill, that is, the provisions relating to corporation tax. As I said on budget day, Ireland’s corporation tax policy is based on the 3 Rs – rate, reputation and regime. Our policy on the rate is clear, but it is no harm to reiterate the Government’s commitment to the 12.5% corporation tax rate. A country’s tax reputation is also important in attracting foreign direct investment. That is why the Bill will amend Ireland’s company tax residence rules to ensure an Irish-registered company cannot be stateless in terms of its place of tax residency. The competitiveness of Ireland’s broader corporate tax regime is also important and the Bill will implement the recommendations of the review of the research and development tax credit published on budget day.
I will take Members through the Bill and describe the main provisions contained therein. Deputies will appreciate that in the time available to me I will not be able to describe every section in detail. Sections to which I make no reference mainly cover minor or technical issues.
Section 2 ensures grants paid to employers who are participating in the JobsPlus scheme, administered by the Department of Social Protection, will not be subject to tax. Section 3 provides that tax relief for acquiring an interest in a partnership will be withdrawn on a phased basis over four years. Relief will not be allowed for new loans taken out after 15 October 2013. The relief will be reduced by 25% annually until its eventual total abolition in 2017. Existing claimants will retain the relief on a reducing rate basis until 1 January 2017.
Section 4 provides for the budget day announcement of the abolition of top slicing relief for ex gratia or discretionary lump sums paid on or after 1 January 2014. There has been some confusion about this measure since it was announced and I would like to make it clear to the House that it will have no impact on lump sums payable from occupational pension schemes. The existing exemptions for discretionary lump sums are also being retained. It is only the concessionary rate of tax that may apply to any taxable element of such lump sums that is being abolished.
Sections 5 and 6 deal respectively with the home renovation incentive and the start-your-own business measure I have already described.
I announced the abolition of the one parent-family tax credit and its replacement with a new single parent child carer credit in the budget and section 7 of the Bill provides for this change. Since the announcement was made, I have listened carefully to the views of Deputies and will be bringing forward an amendment to this section on Committee Stage which will allow the credit to be used by a non-primary carer in situations where the primary carer has no tax liability.
Section 8 provides for the budget day announcement of the new ceilings of €1,000 per adult and €500 per child on the amount of medical insurance premiums that will qualify for tax relief. I will be bringing forward an amendment on Committee Stage to provide that, where a student is being charged a full adult premium, the adult ceiling for relief will apply. The current scheme of relief requires a defined relationship between the policyholder and the individual insured in order for the tax relief to apply to premiums paid on behalf of others. I have decided to remove this requirement through an amendment on Committee Stage.
Section 10 provides for an exemption from income tax for the annual allowance, intended to cover out-of-pocket expenses paid to reserve members of the Garda Síochána. In section 14 an anti-avoidance measure is being introduced to prevent individuals who have received a refund of fees from the third level institution from claiming the relief having withdrawn from the course at the institution.
Section 15 extends the retirement relief for certain sports persons so as to allow it in cases where a sports person retires in another EU or EFTA country. This extension is required to address European Commission concerns that the existing relief was not consistent with the free movement of workers.
Section 16 provides that the employment and investment incentive will be removed from the high earners restriction for a period of three years in the hope it will stimulate investment in SMEs.
Also, capital allowances for plant and machinery used in manufacturing trades that are claimed by passive investors in a leasing trade will be included as a specified relief for the purposes of the high earners' restriction.
Section 18 contains a technical amendment to ensure that tax relief on spouses' and children's contributions deducted from the retirement lump sums of public servants who retired under the incentivised scheme of early retirement operates as intended. This section also relates to section 782A of the Taxes Consolidation Act 1997 and strengthens the override provision introduced to enable access to additional voluntary contributions without the need for changes to be made to pension scheme rules or trust deeds. Finally, this section provides for the reduction of the maximum allowable pension fund on retirement for tax purposes, the standard fund threshold, SFT, from €2.3 million to €2 million from 1 January 2014, with protection arrangements for individuals with pension rights valued above the reduced threshold at that date. In addition, the current single valuation factor of 20 used to place a value on defined benefit pension rights for SFT purposes is replaced from 1 January 2014 with a range of higher valuation factors that vary with the age at which the pension rights are drawn down.
Section 21 will increase the amount of expenditure eligible for the research and development tax credit without reference to the 2003 base year from €200,000 to €300,000. This section will also increase the limit on the amount of expenditure on research and development outsourced to third parties from 10% to 15% of the total amount of expenditure on research and development qualifying for the credit in a given year. It also amends the key employee element of the research and development tax credit, in conjunction with section 13 of the Bill, to ensure that the company, not the individual employee, will be liable for any claw-back of relief where a company makes an incorrect claim for the tax credit.
Section 23 makes a number of changes to deposit interest retention tax, DIRT. The main change is the increase of the rate to 41% with effect from 1 January 2014. The section brings dividends paid or credited to regular share accounts of credit unions within the deposit interest retention tax regime from 1 January 2014. The previous exemption from DIRT for certain interest paid on special term accounts offered by banks and building societies and special term share accounts offered by credit unions has been discontinued as and from budget night, 15 October 2013. Such accounts opened before budget day will continue to have the exemption for the term of the account. The exemption which previously applied to these accounts was on annual interest up to €480 for medium-term accounts, which had a minimum term of three years, and €635 annually for long-term accounts, which had a minimum term of five years. On budget night, it was incorrectly stated that the exemption limits applied for the full term of the account rather than annually, and I wish to correct any misunderstanding that may have been caused by that error. The section also provides for a number of consequential amendments to Part 8 of the Taxes Consolidation Act 1997.
Section 24 gives effect to the budget day announcement extending the definition of "eligible individual" for section 481 film relief, to include non-EU talent. This is subject to EU state-aid approval and a commencement order.
Section 25 provides for the withholding tax that will apply to payments made by companies qualifying for film relief under section 481 of the Taxes Consolidation Act 1997, to performing artists who are resident outside of EU and EEA member states.
Section 28 makes three separate amendments to provisions relating to the granting of double tax relief for foreign tax in TCA Schedule 24.
Section 29 amends sections 37 and 607 of the Taxes Consolidation Act 1997. These sections provide that interest on securities issued by certain commercial semi-State companies may be paid without deduction of tax, and that such securities will not be chargeable assets for capital gains tax purposes. The section adds Irish Water to the list of bodies which benefit from such exemptions.
Section 30 introduces a single rate of exit tax of 41%. This applies to payments and deemed payments from life assurance policies and investment funds, in place of existing rates of 33% and 36%. The higher rates applying to investments in personal portfolio life policies and personal portfolio investment undertakings have also been increased. The rate changes are to be introduced with effect from 1 January 2014.
Section 31 of the Bill extends the scope of the living city initiative to include residential properties, in certain designated areas, constructed up to and including 1914. There are also a number of technical amendments. This initiative is subject to EU state-aid approval and a commencement order. I announced in budget 2014 that the initiative would be extended to certain designated areas in the cities of Cork, Galway, Kilkenny and Dublin. The areas to be designated have not yet been decided. This will be done in conjunction with the relevant local authorities and other Government agencies.
Section 33 provides for the removal of the 50% restriction on the amount of prior year trading losses a NAMA participating institution can set off against trading profits. This should protect the value of deferred tax assets at the banks, improving capital ratios under the new Basel III rules and enhancing the valuation of the State's equity holdings in AIB and Bank of Ireland.
In light of recent rulings from the Court of Justice of the European Union, section 35 provides for an option to defer payment of exit tax in cases where a liability arises following migration of a company's residence to another EU or EEA member state.
Section 38 makes the necessary amendment to the company tax residence rules contained in section 23A of the Taxes Consolidation Act 1997 to ensure that an Irish-registered company cannot be stateless in terms of its place of tax residency.
Section 39 of the Bill amends section 29 of the Taxes Consolidation Act 1997, which sets out the persons chargeable to capital gains tax and the extent of the charge. Individuals who are resident or ordinarily resident but not domiciled in the State are only taxed on non-Irish chargeable gains in respect of amounts derived from those gains that are remitted to the State. This amendment clarifies changes made to the provision in Finance Act 2013 for chargeable gains made on or after 24 October 2013.
Section 40 restricts the extent of losses that may be claimed for capital gains tax purposes in situations where a loan or part of a loan relating to the purchase of the disposed asset has been forgiven or written off by the lender.
Section 41 extends capital gains tax retirement relief to disposals of leased farmland in circumstances where, among other conditions, the land is leased over the long term, the minimum lease being five years and the subsequent disposal is to a person other than a child of the individual disposing of the farmland.
Section 42 provides that the incentive relief from capital gains tax, in respect of the first seven years of ownership, for properties purchased between 7 December 2011 and 31 December 2013 is being extended by one year to include properties bought to the end of 2014.
Section 43 provides for a capital gains tax incentive to encourage entrepreneurs, in particular "serial" entrepreneurs, to invest in assets used in new productive trading activities as announced in the budget. Commencement of this measure is subject to receipt of EU state-aid approval.
In section 44, some minor technical changes are being proposed to the section dealing with the auto-diesel repayment scheme introduced in budget 2013. This section also provides that the diesel concerned must be purchased either as a bulk supply to the transport operator or by means of a fuel card approved for that purpose by the Revenue Commissioners.
The section amends the provisions for licensing of mineral-oil traders and those for the liability of persons in certain circumstances for the excise duty on an excisable product by introducing a provision aimed at addressing the problem of supply and delivery of marked-gas oil for laundering.
Section 45 addresses the liability of persons in certain circumstances for the excise duty on excisable products where those excisable products have been knowingly or recklessly supplied for use in the fraudulent evasion of excise duty.
Section 46 introduces a new section to general excise law to provide that alcohol products held for sale on an unlicensed premises are liable to forfeiture where the premises remains unlicensed because the person who should hold the licence does not qualify for a tax clearance certificate.
Section 47 amends section 138 of the Finance Act 2001 which provides that a persons suspected of an offence of dealing in or with unstamped tobacco products must provide information to a Revenue officer or a member of the Garda Síochána. It also provides that a Revenue officer or garda may search any bag or receptacle which he or she reasonably believes to contain tobacco products that are concerned in the offence.
Section 48 amends the provisions of general excise law to clarify that a Revenue officer may, while assigned to the Criminal Assets Bureau, continue to exercise the Revenue powers, functions and duties that have been delegated to that officer. This section also provides that appeals against excise decisions may now be made directly to the Appeals Commissioners with the exception of VRT matters, which will still be made to the Revenue Commissioners in the first instance.
Section 49 provides for the introduction of a relief from solid fuel carbon tax for solid fuels with a high biomass content. The relief will be limited to the biomass element of the finished solid fuel.
Section 50 gives effect to the increase in the rates of tobacco products tax which came into effect on budget night and which are estimated to raise €15.4 million in 2014. Section 51 gives effect to the increase in the excise rates of alcohol products tax which came into effect on budget night and are estimated to yield €148 million in 2014.
Section 56 provides for the retention of the 9% VAT rate on tourism-related services. Sections 57 to 60 contain VAT anti-avoidance measures.
Section 61 increases the VAT cash receipts threshold from €1.25 million to €2 million with effect from 1 May 2014. This change will assist small to medium businesses in the critical area of cash flow and reduce administration.
Section 62 increases the farmer's flat-rate addition from 4.8% to 5% with effect from 1 January 2014, as announced in the budget. Section 63 provides that the VAT rate applying to the supply of horses and greyhounds and to the hire of horses is increased from 4.8% to 9%, in compliance with a judgment of the European Court of Justice. I intend for this increase to be introduced by ministerial order. The 4.8 % rate will continue to apply to livestock in general and to horses that are intended for use as foodstuffs or for use in agricultural production. In addition, all insemination services for all animals will apply at the 13.5 % reduced rate.
Section 65 amends section 81AA of the Stamp Duties Consolidation Act 1999 to extend the relief from stamp duty on transfers of agricultural land, including farm houses and buildings, to young trained farmers. Three courses are being added to the list of qualifications in Schedule 2B, any one of which must be held to obtain the relief.
Section 66 provides for an exemption from stamp duty on the transfer of stocks and marketable securities of companies listed on the Enterprise Securities Market of the Irish Stock Exchange. The exemption is subject to a commencement order. Section 67 provides for an additional 0.15% stamp duty levy on pension fund assets for 2014 and 2015.
Section 68 applies a levy to certain financial institutions, set at 35% of the DIRT paid in 2011. The levy will operate for a period of three years and will be payable on 20 October in each of the years 2014, 2015 and 2016. The levy is projected to raise a sum of €150 million per year.
Section 71 clarifies requirements where a chargeable person is seeking a repayment of tax arising out of an error or mistake in the filed tax return. Section 73 is intended to ensure that ex gratia payments to women who were admitted to and worked in Magdalen laundries will not be subject to tax.
Section 74 amends section 1065 of the Taxes Consolidation Act 1997, to update the mitigation powers of the Revenue Commissioners and the Minister for Finance, in relation to various fines and penalties. Section 75 amends section 960R of the Taxes Consolidation Act 1997, which gives the Collector-General power to require tax defaulters to provide a statement of affairs. Section 76 amends section 851A of the Taxes Consolidation Act 1997 to ensure that external service providers who may be engaged by the Revenue Commissioners for the purposes of carrying out work relating to the administration of taxes and duties, are subject to the same confidentiality rules, as regards non-disclosure of taxpayer information, as Revenue officers. Section 78 sets out additions to the list of double taxation agreements and tax information exchange agreements between Ireland and other jurisdictions.
At this stage, a small number of matters remain under consideration for inclusion in the Finance Bill and I may bring these forward on Committee Stage. I will give consideration to any constructive suggestions put forward during the debate today and tomorrow.