I move: "That the Bill be now read a Second Time."
The economy is growing at the fastest rate in the European Union; the public finances are under control and our debt is on a downward trajectory. Budget 2015 was designed to sustain this recovery, broaden it throughout the country and continue the prudent and safe management of the public finances that has got us to this point.
The Finance Bill outlines the details of the budget measures. The budget has been designed to reduce our deficit to 2.7% in 2015 as a next step on the road to a balanced budget. The 2.7% deficit is inside our Stability and Growth Pact target of under 3% and highlights the Government's commitment to stable and prudent economic policies. The 2.7% deficit forms a prudent buffer to allow for possible external shocks to the economy and will reassure the markets of Ireland's steadfast commitment to restoring stability in the public finances.
A debt stabilising primary balance is forecast for 2014, an important metric in assessing long-term debt sustainability. Our debt is now on a downward trajectory and our debt ratio will drop below 100% of GDP in 2018. The cost of our borrowing continues to fall and this afternoon the National Treasury Management Agency successfully raised €3.75 billion in a new 15 year bond issuance at the rate of 2.487%, an historic low for a 15 year bond issuance by Ireland. This is the first time the State has issued debt of such length since 2009 and there was strong investor demand, with €8.4 billion offered. The yield achieved of 2.487% is a record low and provides a major vote of confidence in Ireland by investors. By comparison, the yield on the 15 year bond issued by the NTMA in October 2009 was 5.472%.
The policies the Government has pursued and the sacrifices of the people have got us to this point. The fiscal policy must aim at maintaining sustainable growth. As I said on budget day, there will be no return to the boom and bust model of the past. The people have made major sacrifices and the Government will not take risks with the recovery. While the majority of people will not see the full benefits of the budget until they open their pay packets in January next year, for the first time in several years they will see an increase in their take-home pay which will provide a further boost for households and the domestic economy.
For example, a working family with three children where both parents earn €50,000 each per year will have approximately €100 extra per month in their pockets.
A fair, efficient and competitive income tax system is essential for economic growth and job creation. I have long said the burden of the income tax system in Ireland is too high and acting as a disincentive for work and investment in Ireland. The income tax measures in the Bill are the first stage of a three year plan to reduce progressively the marginal tax rate on low and middle income earners in a manner that maintains the highly progressive nature of the tax system. As I outlined in the budget, my Department estimates a three year reform plan along these lines could boost employment levels by as much as 15,000 jobs when the full impact of the changes has taken effect in the economy.
The Bill provides for a reduction in the top rate of income tax from 41% to 40%. It also extends the standard rate band in which income tax is chargeable at the lower 20% rate by €1,000. Together with the accompanying reductions in the two lower rates of universal social charge, USC, and the extension of the threshold at which USC becomes payable, the budget announcements provided for in the Bill will ensure all those who currently pay income tax and-or USC will see a reduction in their tax bill next year. In addition, as a result of the reduction in the higher rate of income tax from 41% to 40%, the marginal tax rate has been reduced for all income earners who currently earn under €70,000 per year and pay income tax at the higher rate and remains unchanged for PAYE and self-employed workers earning over €70,000 per year. For example, a self-employed person earning €100,000 per year faced a marginal tax rate of 55% in 2014 and will continue to face a marginal tax rate of 55% in 2015.
Ireland already has one of the most progressive income tax systems in the developed world. To enhance its progressivity, the Bill also contains USC measures which have the effect of limiting the maximum benefit from this package of tax measures. Those on very high incomes will only benefit to the same extent as those with more modest income levels. As a result, in 2015 the top 1% of income earners will pay 21% of all income tax and USC collected. In contrast, the bottom 76% of income earners will pay 20% of the total.
The Bill also provides for the retention of the exemption from the top rates of USC for medical card holders with incomes that do not exceed €60,000 per year. These individuals will now only be liable to pay a USC rate of 3.5%, down from 4%. This reduced rate will also apply to the over 70s with incomes that do not exceed €60,000 per year, again down from 4%. These changes are designed to ensure work pays, help the transition from unemployment and remove potential barriers that may be deterring part-time workers from taking on additional hours of employment. The resulting increases in take home pay will have follow-on benefits for businesses and jobs in the domestic economy.
In the budget I announced a number of corporation tax changes as part of a strategy to "play fair and play to win." These changes have given certainty to companies and investors and been broadly welcome by companies, representative groups and international organisations such as the Organisation for Economic Co-operation and Development, OECD. I reaffirmed the Government's commitment to the 12.5% rate of corporation tax and published independent research commissioned by my Department from the Economic and Social Research Institute, ESRI, confirming the importance of the 12.5% rate to the economy. I have also published a "Road Map for Ireland's Tax Competitiveness" which contains a comprehensive package of competitive tax measures to provide the foundations for Ireland to maintain and expand as a thriving hub for foreign direct investment.
I will now outline the provisions of the Finance Bill. Deputies will appreciate that in the limited time available I cannot describe every section in detail.
Part 1 of the Bill deals with the universal social charge, income tax, corporation tax and capital gains tax. Sections 2 and 3 provide for the income tax and USC changes I have outlined.
To stimulate the supply of affordable rental accommodation, the threshold for exempt income under the rent-a-room scheme is being increased in section 8 from €10,000 to €12,000 per annum for 2015 and subsequent years.
Recognising the success of the home renovation incentive in stimulating activity in the legitimate construction sector and the need to increase and improve the housing stock, section 11 extends the incentive to include rental properties the owners of which are liable to income tax to encourage them to carry out renovations, repairs or improvements to their rental properties. It will apply to works carried out from 15 October 2014 until 31 December 2015. As is the case with principal private residences, the qualifying work must cost a minimum of €5,000, including VAT. While there is no upper limit on the cost of works, the tax credit will only be given in respect of a maximum expenditure of €30,000, excluding VAT.
As part of a range of measures forming the roadmap to secure Ireland's place as the destination for the best and most successful companies in the world, section 13 extends the special assignee relief programme for a further three years, until 31 December 2017. In addition, the upper salary threshold of €500,000 per annum that currently applies is being removed. The residency requirement is being amended to only require Irish tax residency. The exclusion of work carried out abroad is also being removed and the period of time for which an employee is required to be employed abroad by the relevant employer prior to his or her arrival is being reduced from 12 months to six.
To further support small and medium enterprises, SMEs, and other companies to grow their businesses and diversify into new and emerging markets, the foreign earnings deduction is being extended and enhanced for a further three years until 31 December 2017 in section 14. The list of qualifying countries is also being extended.
Section 17 provides for tax relief to be given for certain pension contributions of current and former fixed-term contract employees of National University of Ireland Galway, NUIG, to which they would have been entitled had there been no delay in the implementation of some aspects of the Protection of Employees (Fixed Term Work) Act 2003. The section will also close off a number of tax avoidance schemes which use approved retirement funds, ARFs, and other post-retirement funds. The section reduces from 5% to 4% the imputed distribution rate for ARFs and vested personal retirement savings accounts, PRSAs, beneficially owned by individuals aged between 60 and 70 years, where the value of assets in these products is €2 million or less. The section also introduces an annual draw-down option of a maximum of 4% for approved minimum retirement funds. The section provides for a more equitable sharing of any chargeable excess tax in cases involving pension adjustment orders, where the maximum allowable pension fund at retirement for tax purposes is exceeded.
Section 18 makes a number of amendments to the tax treatment of farmers to give effect to some of the changes announced in the budget following recommendations in the agri-taxation review. It increases the period of income averaging from three to five years for the years of assessment from 2015 onwards; it provides for the averaging of farming profits where a farmer or his or her spouse carries on another trade, provided that the trade relates to on-farm diversification; it provides for a 50% increase in the amounts of income that can be exempted for the purposes of qualifying long-term leases taken out on or after 1 January 2015; it introduces a fourth threshold for lease periods of 15 years or more, with income of up to €40,000 being exempted; it provides for the removal of the lower age threshold of 40 years for eligibility for the long-term leasing tax relief; it provides that a company can be an eligible lessee, provided it is not connected to the lessor; it adds a new third level course to the list of approved courses for eligibility by young trained farmers to claim 100% stock relief. Following the increase in the EU limits for de minimis state aid, it provides for an increase in the maximum amount of stock relief allowable for registered farm partnerships to €15,000 over three years. A number of other measures arising from the agri-taxation review are dealt with in later sections of the Bill.
Section 20 provides for refunds of deposit interest retention tax deducted from interest earned by a first-time purchaser of a house or an apartment on deposits of up to 20% of the purchase price of such a house or an apartment in the 48 months prior to the purchase. The provision will apply to purchases made up to the end of 2017.
Section 23 deals with the research and development tax credit and provides that the base year restriction will be removed fully for accounting periods commencing on or after 1 January 2015.
Section 24 makes a number of amendments to the legislation providing for the employment and investment incentive. First, the rate of relief is being aligned with the revised income tax rates from 1 January 2015. Second, the minimum required holding period for shares is being increased from three to four years. Third, the limits on the amount of finance that can be raised by a company annually and in a lifetime are being increased to €5 million and €15 million, respectively. Fourth, the incentive is being amended to include medium-sized enterprises in non-assisted areas, the management and operation of nursing homes and internationally traded financial services where they are certified by Enterprise Ireland.
Section 27 provides for the end of the 80% rate of income tax on windfall profits attributable to certain planning decisions and the equivalent rate of capital gains tax on any gain from disposals of land also attributable to certain planning decisions. Normal rates of income tax, corporation tax and capital gains tax, as appropriate, will apply to such profits or gains from 1 January 2015.
Section 28 makes changes to the living city initiative. It provides for an expenditure cap on the amount that can be claimed under the commercial element of the initiative. The cap will be €1.6 million of expenditure for companies and €400,000 of expenditure for individuals who invest in eligible commercial properties under the initiative. This change means that the initiative comes under EU de minimis state aid rules. There will be no expenditure cap on the residential element of the initiative.
Section 33 extends to the end of 2017 a scheme of accelerated capital allowances contained in section 285A of the Taxes Consolidation Act 1997 which has been designed to encourage companies to invest in energy efficient equipment.
Section 34 extends to the end of 2015 a measure that provides relief from corporation tax on trading income and certain capital gains of new start-up companies in the first three years of trading. This will allow for a review of the operation of the measure to take place in 2015, with a view to ensuring it meets its policy objective of encouraging start-up businesses and creating employment.
Section 35 provides for additional enhancements to section 291A of the Taxes Consolidation Act 1997 which provides capital allowances for expenditure incurred on the provision of certain intangible assets for use in an Irish trade. It removes the current cap on the aggregate amount of allowances and related interest expenses that may be claimed and amends the definition of intangible assets which may qualify for the relief to specifically include certain customer lists.
Section 38 will amend Ireland's company tax residence rules to provide that all companies incorporated in Ireland will be automatically tax resident here, unless otherwise determined under a bilateral tax treaty which supersedes domestic law. The change will come into effect for new companies from 1 January 2015, while a transition period will apply until the end of 2020 for existing companies. This change will bring Ireland's rules into line with the rest of the OECD jurisdictions and should address the reputational damage arising from the use of a corporate structure commonly referred to as the "double Irish". I have always been clear that the double Irish is not part of the Irish tax offering. It is just one example of the many international tax planning arrangements which have been designed and developed by tax and legal advisers to take advantage of mismatches between the tax rules in two or more countries. It is not claimed that this change will bring an end to international tax planning, as this requires co-ordinated action by many countries working together. However, the change will address the reality that Ireland's company tax residence rules have not kept pace with international developments and being associated with the double Irish is damaging Ireland's reputation.
Section 42 deals with the return of value made by Vodafone plc to its Irish shareholders earlier this year. Where the return is for an amount of €1,000 or less, it will be treated as a capital receipt for tax purposes, unless shareholders specifically opt to have the payment treated as income. This will mean that those Vodafone shareholders who are shareholders on foot of an original investment in eircom will have no tax liability on the capital receipt as the amount received is less than the cost of the original investment.
Section 43 extends the period within which the first transaction, that is, a sale, purchase or exchange of farmland in a farm restructuring, is to take place for the purposes of the capital gains tax relief from the end of 2015 to the end of 2016.
Section 44 amends capital gains tax retirement relief for farmers in a number of respects arising from the agri-taxation review. The amendments provide, respectively, for an increase in the total period for which land can be let immediately prior to disposal from 15 years to 25 and, in the case of disposals of farmland outside the family, that land let under conacre arrangements and disposed of on or before 31 December 2016 or which is leased for a minimum period of five years before that date can qualify for capital gains tax retirement relief on disposal, provided the lands were farmed by the farmer for a minimum of ten years prior to letting.
Section 45 gives effect to the commitment I made earlier this year to provide for an exemption from capital gains tax on any chargeable gain arising on foot of the disposal by farmers of payment entitlements under the single farm payment scheme, where these entitlements were fully leased out and the farmers concerned had no choice but to sell their payment entitlements due to changes in Common Agricultural Policy regulations.
Section 46 amends the capital gains tax entrepreneur relief which I introduced in last year's budget and the subsequent Finance Act and allows for the commencement of the relief from the beginning of 2014. The section also includes amendments to allow the relief to operate more effectively on the ground.
Part 2 of the Bill deals with excise. Section 48 provides for a deferral of the collection of excise on mineral oil, bringing it into line with the other excisable products. This amendment is subject to a commencement order.
Section 49 provides for the application of mineral oil tax, including carbon tax, to natural gas and biogas when used as a transport fuel and sets the excise rate at the minimum rate allowable under the EU energy tax directive.
Section 50 provides that to apply for or hold a mineral oil trader's licence the applicant or holder must comply with excise law in respect of all aspects of operating a business in the area of mineral oil trading.
Section 52 provides for the budget day announcement of the increase in the annual excise relief production ceiling for micro-breweries from 20,000 to 30,000 hectolitres.
Section 54 removes the requirement that, in respect of a disabled passenger, the cost of vehicle adaptation must consist of not less than 10% of the value of the vehicle, excluding tax and excise duty.
Section 55 provides for the extension of vehicle registration tax reliefs available for electric and hybrid electric vehicles to 31 December 2016.
Part 3 of the Bill deals with value added tax. Section 60 increases the farmer's flat-rate addition from 5% to 5.2% with effect from 1 January 2015, as announced in the budget.
Section 63 extends the VAT exemption to the management of defined contribution pension funds and green fees charged by member owned golf clubs, both changes resulting from decisions of the European Court of Justice. The section also extends the VAT exemption to all fostering services and the zero rate of VAT on unprepared tea to include herbal and fruit teas.
Part 4 of the Bill deals with stamp duties. Section 66 provides relief from stamp duty on a lease of land for a term not less than five years and not exceeding 35 that is used exclusively for farming carried on by the lessee on a commercial basis and with a view to the realisation of profits. Section 69 provides that, for a period of three years, consanguinity relief will be available in respect of transfers or conveyances of farmland where the person by whom the land is transferred or conveyed is not over 65 years of age and the party to whom the land is transferred or conveyed is a farmer who farms the land on a commercial basis and with a view to the realisation of profits for a period of not less than five years and for not less than 50% of the farmer's normal working time. Sections 66 and 69 arise from recommendations in the agri-taxation review.
Section 70 adds an additional qualification for the purposes of the young trained farmer relief, the BSc (Honours) in sustainable agriculture.
Part 5 of the Bill deals with capital acquisitions tax. Section 73 relates to the exemption from capital acquisitions tax of normal and reasonable payments made for the support, maintenance or education of children by their parents. The section restricts the exemption for payments made by living persons for these purposes to children up to the age of 25 years if in full-time education and also extends the exemption in the case of payments made from a trust set up by deceased persons to orphaned children up to the age of 25 years if in full-time education, where such payments were up to now exempt only if made to minor orphaned children.
Section 74 also arises from the agri-taxation review. It amends the definition of "farmer" for the purposes of the relief from capital acquisitions tax on gifts or inheritances of agricultural property in order to target the relief at individuals who will actively farm agricultural property themselves or who will lease such property on a long-term basis to active farmers.
Section 75 amends the relief from capital acquisitions tax applying to the gift or inheritance of business assets which is intended to encourage the inter-generational transfer of businesses.
Part 6, the final part of the Bill, covers miscellaneous provisions. Section 79 and Schedule 1 amend the general anti-avoidance legislation in the Taxes Consolidation Act 1997. As a transitional measure, it also provides that a person who entered into a tax avoidance transaction on or before 23 October 2014 and who, before 30 June 2015, makes a full disclosure and full payment of all tax due to the Revenue Commissioners, will not be subject to the surcharge provided for in section 811A. Also, any interest payable in cases covered by the transitional measures will be capped at 80% of the interest otherwise payable.
Section 80 and Schedule 2 introduce a number of changes to the mandatory disclosure regime. Among these is a provision that where the appeal commissioner makes a determination relating to a tax avoidance transaction under section 811C in relation to one of the specific anti-avoidance provisions or in relation to a transaction that was a disclosable transaction under the mandatory disclosure regime, the Revenue Commissioners may issue a payment notice to that taxpayer requiring payment of tax due on foot of the determination of the appeal commissioners.
Section 88 sets out additions to the list of double taxation agreements and protocols to double taxation agreements between Ireland and other jurisdictions.
At this stage, there is still a small number of matters under consideration for inclusion in the Finance Bill that I may bring forward on Committee Stage. I will, of course, also give consideration to the constructive suggestions put forward during our debate this week. I commend the Bill to the House.