When drawing up the budget for the current financial year, the Government were confronted by competing requirements. The strong upward trend in prices indicated the desirability of adopting a cautious budgetary stance which would in no way run the risk of adding to the prevailing inflationary situation while, on the other hand, the overall position of the economy called for the tackling of the problems of unemployment, slow growth and excess capacity in an imaginative and courageous way.
The Government considered that the economy required a further stimulus, additional to those provided in the preceding October and January. While the steps taken during the previous half year had not worked their way fully through the economy, it was clear nevertheless that some further relation of the economy was necessary.
To an opening deficit of £8½ million, I added £26¼ million by way of tax reliefs, improvements in social welfare payments, extra assistance to agriculture, parity to State pensioners and further help to old IRA veterans. These measures widened the current budget deficit to £34¾ million. To finance part of the gap, I decided to bring into the Exchequer a £7 million exceptional once-for-all receipt of surplus income of the Central Bank. This sum represents the build-up which resulted from the arrangements hitherto operating whereby the surplus income of the Central Bank was paid to the Exchequer three years in arrears. After account was taken of this receipt, a balance of £27¾ million remained to be financed. The budget, therefore, released additional spending power of about £35 million and will, I estimate, have the effect of adding 1¾ per cent to the growth rate of the economy over the coming 12 months. As well, the expansionary capital budget will also have a beneficial effect on employment and growth. To the extent that the budget adds to the value of the gross national product, there will be additional buoyancy of revenue. This, in turn, will reduce correspondingly the borrowing requirement and will reflect the success of this year's budgetary policy.
At this point, I would like to mention that the adoption of a deficit budget this year was in response to the special requirements of the economic situation and that it does not represent the beginning of a continuing practice to be adopted as a matter of course.
There are indications already that the budgetary strategy is proving successful. Foreign confidence in our economy has been consistently high over the past year as the level of the capital inflow reflected in our strong reserves position indicates. I am satisfied from the broad favourable reaction to the budget that our fiscal policy this year will reinforce this confidence and, by ensuring a higher level of employment, will provide a domestic fillip leading to a more buoyant economy better equipped to face the challenge and reap the benefits of EEC membership.
Sections 3, 4 and 5 of the present Bill provides for increases for all persons aged 65 and over in what is the equivalent of minimum earned income relief and for substantial increases for taxpayers generally in personal allowances and child allowances. These measures alone will cost some £11 million in the current year but, apart from according significant relief to all taxpayers, they will, in addition, remove some 50,000 people from the tax net.
The tax reliefs provided in the Bill for industry should also help to boost investment and output, namely, section 10 restores full deductibility of corporation profits tax payable by companies in determining profits for income tax purposes and section 42 ensures that the full cost of capital expenditure incurred between 1st April, 1971, and 31st March, 1973, on new plant and machinery can be written-off for tax purposes in the first year even though the asset has not been brought into actual use within that period.
While the remaining income tax reliefs provided in Chapter 1 of Part I of the Bill are not of the same general application as, say, the personal allowances, nevertheless they are of considerable importance to individual taxpayers. These include the raising, under section 6, of the income limit for the purpose of the dependent relative allowance to £295 which is the annual equivalent of the maximum non-contributory old age pension following the social welfare increases announced in the budget; and the removal, under section 9, of the upper limit of £500 health expenses that a taxpayer may claim in respect of each qualified person. In addition the provision, in section 2, for deduction, before subtracting any tax-free allowances from an employee's gross emoluments under PAYE, of the amount of the employee's superannuation contributions, obviates the need to effect subsequent adjustments of tax-free allowances in thousands of cases and ensures that employees are accorded relief for changes during the tax year in superannuation contributions which in many instances vary with income.
Apart from section 11, which enables the Central Bank to pay interest on reserve bonds without deduction of tax, the remaining sections in Chapter 1 of Part I of the Bill are of a technical character.
Section 1 imposes, as is customary, income tax and sur-tax at percentage rates corresponding to those for last year, but provides, as I announced in the budget, for the changing of both taxes on a permanent basis. One beneficial effect of this change will be that, in a year in which no variation in the rates of tax is proposed, it will not be necessary either to introduce a Financial Resolution or to include a provision in the Finance Bill for the charging of these taxes. Section 12 effects certain amendments set out in the Third Schedule to the Bill consequent on the charging of income tax and sur-tax on a permanent basis. Finally, both sections 7 and 8 are consequential on the raising of the limits of jurisdiction of the Circuit and District Courts by the Courts Act, 1971. The limit specified in section 485 of the Income Tax Act, 1967, which deals with the recovery of tax by a sheriff or county registrar, and in section 486 of the Act, which empowers authorised officials of the Revenue Commissioners to sue in the courts for the recovery of the tax due, are being raised in section 7 and 8, respectively, in line with the new court limits.
The purpose of Chapter II of Part I, together with the First Schedule, is to provide a single and more liberal code of tax to deal with superannuation schemes for employed persons in lieu of the three existing separate codes enacted in 1921, 1922 and 1958.
Pensions are increasingly coming to be seen as deferred remuneration and it is reasonable therefore to accord relief for tax purposes in respect of contributions made out of current income to secure a future pension which is chargeable to tax, like other income, in the hands of the pensioner. Relief in respect of contributions, by both employers and employees, to fully approved superannuation schemes is accordingly provided under section 16 of the Bill. Section 17 provides a corresponding relief in respect of employee contributions under a statutory scheme. As there is no reason why tax relief should not also be allowed where a commuted payment in lump sum form falls to be made in respect of superannuation contributions to either a private scheme or a statutory scheme, relief for such lump sums which may be apportioned over a number of years is accordingly provided for under sections 16 and 17. Relief will apply, under section 16, from the date of approval of a scheme under the new code and, under section 17, from 6th April, 1973.
I should also draw the attention of the House to the relief provided in section 25 of the Bill. Under existing law, relief for lump sum contributions is restricted to certain private schemes and to statutory schemes providing benefits for an employee but not for a widow or dependants. A similar restriction has applied up to the present for the purposes of giving relief in respect of the ordinary annual contributions under statutory schemes but relief for such contributions has been allowed, since 1968, on a provisional basis pending the enactment of appropriate legislation. This arrangement is being put on a proper legal footing in section 25 of the Bill in which relief corresponding to that under sections 16 and 17 is, in equity, also being extended to lump sum contributions made since 1968 under both private and statutory schemes.
A suitably devised superannuation scheme can, however, be a handy device for income tax and sur-tax avoidance. Some restrictions are, therefore, necessary in order to strike a reasonable balance between the legitimate interests of the Exchequer and those of beneficiaries under occupational pension schemes. Section 15 sets out accordingly the general basic conditions, namely, the "prescribed conditions", which, if a scheme complies with them, will entitle the scheme, as a matter of right, to approval. The section also confers discretionary power on the Revenue Commissioners in the interest of flexibility to approve schemes even though they may not comply with one or more of the prescribed conditions. If a scheme is not approved by the Revenue Commissioners, the charge imposed under section 18 will come into play, unless the scheme is set up either under statute or by a foreign Government for the benefit of its employees. The exclusions from the charging section are contained in section 19. The rules of existing retirement benefit schemes may need to be amended in connection with an application for approval, by the Revenue Commissioners, of the schemes to enable them to come within the gambit of the new code. Section 24 enables this to be done.
Sections 21 and 22 provide for the imposition of a uniform charge of 10 per cent on superannuation contributions refunded to employees and on the excess of lump sums paid to employees in commutation of pensions over the maximum amount which the employee would be entitled under the ordinary rules of the scheme. The Minister for Finance is given power under both sections to vary by order the rate of tax charged, subject to the order being laid before Dáil Éireann. Repayments made to an employer from a fully approved scheme are to be treated, under section 23, as a receipt of the employer's trade or profession and charged to tax accordingly, but only to the extent that relief was allowed in respect of his contributions to the scheme.
Sections 13 and 14 are concerned with questions of definition and interpretation, while section 13 in addition gives effect to the First Schedule which contains administrative, transitional and consequential provisions, and also widens the scope of the tax exemption under existing law in favour of life assurance companies in respect of that part of their investment income which is referable to pension schemes approved for tax purposes.
Finally, the application of PAYE under section 20 to pensioners paid under any scheme approved under the new code will obviate the necessity for some pensioners to make repayment claims in order to recover balances of tax due to them.
The new code will be of universal application with effect from 6th April, 1980. In the interim, new schemes established from 6th April, 1974, or existing schemes materially altered from that date, will be required to comply with the new code. On the other hand, an existing scheme and a new scheme established before 6th April, 1974, will have the option of adopting the new code as from 6th April, 1972.
Part II of the Bill, which deals with death duties, contains two anti-avoidance provisions: section 30 provides that all foreign debts must be deducted, for the purposes of estate duty, from all foreign property, and not merely from foreign personal estate only, before any balance is deducted from the Irish estate; while section 32 replaces section 21 of the Finance Act, 1965, which is being repealed under Part III of the Fourth Schedule of the Bill, with a new section to deal as comprehensively as possible with avoidance of estate duty through the medium of discretionary trusts. The remaining death duty sections afford additional reliefs.
Section 26 imposes a new scale of estate duty rates, as set out in the Second Schedule, which in effect abolishes the duty on estates up to £7,500 and reduces the rates of duty charged on estates in excess of that amount and up to £11,000. Section 27 increases, from £5,000 to £7,500, the general exemption limit for legacy and succession duties, and a consequential increase from £5,000 to £7,500 is made in section 28 in the special exemption for death benefits payable under superannuation schemes. Section 29 increases the widow's and dependent child's abatements to £2,000 and £1,000 respectively from the existing figures of £1,500 and £750. Section 31 increases from £500 to £50,000 the jurisdiction of the Circuit Court in cases of appeal against decisions of the property arbitrator in relation to the value of lands or house property for estate duty purposes. If the value of any other property is in dispute, there is already a right of appeal to the Circuit Court up to £50,000 in value. In relation to the value, for estate duty purposes, of non-quoted securities, however, I am providing in section 33 of the Bill for a right of appeal, in the first instance, to the Appeal Commissioners.
Following the provision, in section 33 of the Bill, for the right of appeal to the Appeal Commissioners in regard to the valuation of non-quoted securities for estate duty purposes, I am providing, in section 36, that the same appeal procedure should operate in the stamp duty field. The two other stamp duty provisions are in section 34 and 35. Section 34 exempts from stamp duty loan stock issued by a State-sponsored body where payment of interest on the loan is guaranteed by the Minister for Finance and section 35 provides for the extension to group pension policies of arrangements for the payment of stamp duty by way of composition. All three stamp duty sections are contained in Part III of the Bill.
I now turn to Part IV of the Bill which deals with corporation profits tax. The exemption from corporation profits tax of certain public utility companies, building societies and the Agricultural Credit Corporation is renewed under section 37 for a further year, pending completion and consideration of the report of the inter-departmental working group which are examining the position of building societies.
Section 38 abolishes with effect 19th April, 1972, which was of course budget day, the exemption from corporation profits tax in respect of companies precluded by their constitutions from distributing profits among their members and a new exemption in favour of companies permanently precluded from distributing profits to members is provided for in section 39. This is being done by adding to section 43 of the Finance Act, 1922—which already exempts certain companies from corporation profits tax—two new classes of company.
The first class is a registered company that by their constitution are prohibited from distribution profits to members and are required, in a winding up, to dispose of their surplus property to the Minister for Finance, a charity or another company with similar provisions in their constitution and, finally, are prevented from altering these provisions without the consent of the appropriate Minister of State. If a company were, before budget day, exempt from corporation profits tax under the old exemption they will be allowed a period of grace, up to 19th April, 1973, to amend their constitution in order to comply with the addition requirements that I have just mentioned.
The second class of company covered by the new exemption provision are statutory companies. As it is the intention that these companies should continue to enjoy exemption from corporation profits tax, the new provision is so worded that the necessity to amend their constitutions for the purposes of the exemption will not arise.
Finally, I come to Part V of the Bill which contains the annual provision, in section 40, fixing the annuity for the redemption of the debt incurred on voted capital services in 1971-72 and fixing provisionally a new annuity to redeem the estimated debt in 1972-73. Section 41 provides for the winding up of the Capital Fund and the transfer of its assets to the Exchequer.
Section 43 exempts a credit union, with effect from the date of its registration, from income tax and corporation profits tax on all their profits. Section 44 provides relief from death duties, stamp duty and customs duty for illegitimate children inheriting property from their mother as if they were legitimate, and section 45 provides similar relief in respect of children adopted abroad if the adoption laws in the foreign country have substantially the same effect in relation to property rights as our own Adoption Acts. Section 46 is a repeal provision. Section 47 and 48 are self-explanatory.
This Bill makes a serious attempt to alleviate the burden of income tax and of estate duty and, at the same time, to encourage initiative, enterprise and economic growth. However, Government action on its own cannot suffice. There must also be a full response from the community at large, particularly as we are now on the eve of membership of the EEC. I am confident that such a mature reaction will be forthcoming.
I commend the Bill to the House for a second Reading.