I move: "That the Bill be now read a Second Time."
Two weeks ago I made my Budget Statement in the House. I noted that a decade had passed since the financial crisis. In a dynamic and ever-changing global environment, the Irish economy continues to strengthen and grow. A record number of our citizens have jobs. Our public finances are balanced. We have made progress and the darkest of days have passed. The House will be aware of the many risks that remain from abroad, for example as we confront the great challenge that is Brexit, and of the many social challenges we face across our country, the needs we have to respond to in terms of shelter and housing and the further progress we need to make with regard to public services. All of these are reasons why we need to continue to enhance the underlying strength and resilience of our economy. In order to build this resilience, we must continue to manage our public finances responsibly and keep our tax base broad, stable and sustainable.
When I made my budget statement two weeks ago, I said budget 2019 was designed to secure our future. It is a progressive budget with an emphasis on strengthening our national finances. It aims to be responsible, to reflect a modern and caring Ireland and to position us well at the centre of a changing world. Many of the changes required by the budget are contained in the Finance Bill 2018. I will shortly set out the Bill in more detail but first I will look at some of the key themes running through it.
The Finance Bill delivers on our commitment to continue to make targeted changes to the income tax system within available resources and make steady and sustainable progress in reducing the income tax burden, focusing on low and middle income earners. To ease this burden, the Bill will increase the entry point to the higher rate of income tax for all earners by €750, raising it to €35,300 in the case of a single worker. The third rate of the universal social charge will be reduced from 4.75% to 4.5%. As I said on budget day, the Government believes that workers enter the higher rate of income tax at too low a level of income. The impact of these changes means the top marginal rate on incomes up to €70,000 will be reduced to 48.5% and fewer people on incomes around the national average will have any income subject to the 40% rate of income tax. The Bill will also provide for a modest increase in the ceiling of the second USC rate band from €19,372 to €19,874 to take account of changes in the minimum wage. I am also happy to confirm an increase in the home carer credit of €300. This brings the value of the credit to €1,500 per year and is expected to benefit around 85,000 working families. For self-employed workers, the earned income credit will be increased by a further €200. To support the single affordable childcare scheme, I propose to amend section 194A of the Taxes Consolidation Act 1997 to ensure that payments to childcare providers under the scheme do not give rise to tax liabilities for the parents. It is not my intention that payments under the scheme should give rise to tax liabilities for parents or guardians.
In the absence of any legislative relieving provisions, the payments made under the scheme would be taxable, as they are made on behalf of the parent or guardian as a contribution towards the crèche fees. The effect of the proposal will also be retroactive to ensure payments made under similar administrative schemes are also exempt.
The Bill contains a number of measures relating to the key employee engagement programme, KEEP, the employment and investment incentive, EII, and the start-up refunds for entrepreneurs, SURE, which seek to advance the enterprise agenda. The take-up of KEEP has been limited and, therefore, I intend to double the ratio of share options to salary and increase the total value of options from €250,000 to €300,000. The company can currently grant options to the particular employee or director up to a maximum of €250,000 in any three-year period. I propose to change while keeping the €3 million overall limit for companies. Employees will not be restricted from entering into future KEEP arrangements with future employers.
As Deputies will be aware, I asked my Department to arrange a comprehensive review of these incentives with a focus on their efficiency and effectiveness. Having considered the recommendations contained in the recent report by Indecon economic consultants, I propose a package of measures. First, I propose changes to the application procedure for the incentives to a largely self-certification model. This should address the most significant problem with the current design of the scheme relating to delays in the application process. While primarily self-assessment, it is important to note that under the proposed new arrangements, companies may ask Revenue to confirm that they have met the requirements for general block exemption regulation compliance. This is a fair support for many companies and investors given that they may not be familiar with EU state aid rules.
Second, the new text also provides for a specific investor eligibility regime for investment in small enterprises through the start-up capital incentive. In particular, and in accordance with EU state aid rules, connected persons are permitted greater freedom to invest in limited amounts in small start-ups.
Third, the section includes a substantial consolidation and updating of the current text of Part 16 of the Taxes Consolidation Act 1997. The aim is to make the scheme more intelligible for stakeholders. In addition, the draft brings forward a number of technical adjustments to the incentives, which seek to simplify and clarify the legislative provisions. It also includes an anti-avoidance measure where, in the case that a holding company sells a subsidiary and the money is returned to the holding company, the holding company must return the capital to the investors immediately rather than, as at present, being able to retain the proceeds for the remainder of the four years without triggering a clawback of relief.
Finally, in light of the substantial review just undertaken, I also propose to extend EII and SURE by an additional year to the end of 2021, which is consistent with the procedures set out in my Department's tax expenditure guidelines. I intend that other issues raised in the Indecon report will be addressed in a subsequent finance Bill.
In the film industry, the film tax credit acts as a stimulus to the development of an indigenous audiovisual industry to support the expression of Irish culture and the creation of high-quality employment opportunities in the State. The relief is scheduled to end in 2020 but I propose a four-year extension of the credit until December 2024 to provide certainty to this important part of our economy. To support the development of the sector beyond the current established hubs, I also propose to introduce, subject to state aid approval, a new, short-term regional uplift for certain productions made in areas designated under the state aid regional guidelines. The regional uplift will commence at 5% and will be phased out over four years on a tiered basis.
I acknowledge that income volatility is a significant difficulty for farming families and that 2018 is turning out to be a particularly difficult year. I propose to make the income averaging scheme available to a greater range of farms. Income averaging allows eligible farmers to calculate their taxable income as the average of their income in the current year and the previous four years, on a rolling basis, thus smoothing their tax liability over a five-year period. I propose to extend the income averaging scheme to farmers with self-employed, off-farm income whose spouses have self-employed, off-farm income, with averaging only applying in respect of farm profits, to ensure its availability to the entire sector. In addition, the Bill renews for a further three years the 25% general stock relief on income tax, the 50% stock relief on income tax for registered farm partnerships and the 100% stack relief on income tax for certain young trained farmers.
Before I move on to other sections, I wish to address our commitment to the ongoing process of international tax reform. In budget 2019, I announced the introduction of two new measures from the anti-tax avoidance directive, ATAD, namely, an ATAD-compliant tax regime and new controlled foreign company, CFC, rules, which are designed to prevent the artificial diversion of profits to offshore entities in low-tax or no-tax jurisdictions. The new ATAD-compliant tax regime will impose a charge to tax at 12.5% on unrealised gains where companies migrate or transfer assets offshore in order that they leave the scope of Irish tax. It replaces a pre-existing focused anti-avoidance exit charge with a new, broad-based exit tax. The introduction of both these measures, in addition to the commitments to further action set out in the corporation tax roadmap published in September, clearly demonstrates Ireland’s commitment to ensuring that Ireland's tax regime is stable, legitimate and transparent, to support continuing investment and job creation in the State.
I wish to outline key elements of the Bill, although Deputies will appreciate that in the limited time available, it will not be possible to cover every section. Part 1 deals with the universal social charge, income tax, corporation tax and capital gains tax.
Sections 2 to 5, inclusive, deal with the income tax measures I have outlined.
Section 9 extends the benefit-in-kind, BIK, exemption for electric vehicles until 31 December 2021 to support policies to reduce carbon emissions in the transport sector. Having regard to value for money and tax equity considerations, it also applies a cap of €50,000 on this exemption such that an electric vehicle with an original market value exceeding this limit will be subject to BIK taxation on the amount in excess of €50,000.
Under section 14, I propose amending section 205A of the Taxes Consolidation Act 1997 to extend the same tax treatment for awards under the restorative justice process to women who were resident in institutions associated with the Magdalen laundries.
Section 15 is a technical amendment, while section 16 introduces new accelerated capital allowances for gas-propelled vehicles and refuelling equipment, which I signalled in my Budget Statement.
Section 17 amends and commences a relief, introduced last year in Finance Bill 2017, subject to a commencement order, which allows a benefit to employers who incur capital costs on equipment or buildings used for the purposes of providing childcare services or fitness facilities to employees.
Section 20 relates to the relief available to certain start-up companies in their first three years of trading. Following a review performed by my Department, I will extend the relief for a further three years to 31 December 2021.
Section 21 proposes that the amount of interest paid in respect of loans used to purchase, improve or repair a residential property that may be deducted by landlords will be increased to 100% from 1 January 2019. This change is an acceleration of the rate of the restoration of the full value of this relief.
Section 23 relates to ELI and SURE, section 24 deals with film relief and section 25 deals with CFCs, which I outlined earlier.
Section 28 amends section 603A of the Taxes Consolidation Act 1997. Broadly, this provides relief from capital gains tax on the transfer of a site by a parent or civil partner to a child of the parent or a child of the civil partner, where the transfer is to enable the child to construct his or her principal private residence on the site. The section is being amended to allow both a child and his or her spouse or civil partner to benefit from the relief available under the section.
Section 31 amends the definition of a "sugar sweetened drink" to ensure that certain categories of beverages will be subject to sugar sweetened drinks tax where they do not meet a minimum calcium content of 119 mg per 100 ml. The amendment fulfils the commitment made to the European Commission as part of the formal EU state aid notification process for sugar-sweetened drinks tax.
Section 32 confirms the budget increases in the rates of tobacco products tax and minimum excise duty for cigarettes in support of public health policy. Section 33 provides for an increase in the rate of betting duty and betting intermediary duty with effect from 1 January 2019. The rate of betting duty is increased from 1% to 2% for bookmakers and remote bookmakers while betting intermediary duty is increased from 15% to 25%.
Section 35 provides for a vehicle registration tax, VRT, surcharge of 1% on diesel cars in recognition of growing air pollution concerns from pollutants emitted in high amounts by diesel vehicles. Section 37 extends the VRT relief for hybrid electric vehicles until 31 December 2019 in support of climate change policy.
Section 41 gives effect to the budget increase in the VAT rate applying to tourism activities, with services and goods currently applying at 9% increasing to 13.5% from 1 January 2019, with the exception of newspapers and sports facilities. This section also provides for a reduction in VAT on digital publications from 23% to 9%.
Section 46 provides for the extension for a further three years to 31 December 2021 of the young trained farmers' stamp duty relief which I announced in budget 2019. This extension must be notified to the EU authorities and is therefore being made subject to a commencement order. This section also contains amendments to ensure a number of stamp duty related provisions in the legislation comply with EU state aid regulations and reflect current practice.
Section 47 provides for taxpayers having a right of appeal to the Appeal Commissioners against a decision made by Revenue in relation to a claim for a repayment of stamp duty which is not currently provided for in the legislation. Part 5 of the Bill deals with capital acquisitions tax, CAT, and includes section 50, which amends the dwelling house exemption to ensure that properties which have been placed in a discretionary trust are brought within the assessment criteria for determining if the beneficiary meets the conditions to qualify for the exemption.
Section 51 addresses my budget announcement to increase the group A tax-free threshold which applies to gifts and inheritances from parents to their children from €310,000 to €320,000. This will apply to gifts or inheritances received on or after 10 October.
Part 6 of the Bill deals with miscellaneous matters and here I want to mention that section 53 makes a number of technical amendments to facilitate the operation of the tax appeals process.
As is customary with the Finance Bill, there are still a small number of matters under consideration that I may bring forward on Committee Stage and, of course, I will also consider any suggestions put forward during our debate over the next couple of days.