The Finance Bill is designed primarily to give statutory effect to the taxation proposals which I announced in the budget last January. The basic aim of that budget was to assist in the maintenance of employment and the preservation of living standards, in line with the strategy set out in the White Paper A National Partnership which had been published in November.
Because of the openness of the Irish economy the impact of adverse external economic forces is particularly severe. The increase in the prices of oil and other commodities, despite the impressive performance of exports, led in 1974 to a balance of payments deficit of the order of £300 million while the year to year rise in the consumer price index to November, 1974, was 20 per cent.
Allied to the high rate of inflation we had the phenomenon of steadily increasing unemployment during the course of 1974 with the result that by early January, 1975, the total number on the live register was, at 96,000, over 33 per cent up on the previous year and represented about 8 per cent of the work force. Industry was experiencing serious difficulties not only because of the fall in demand but also because of severe liquidity problems in conditions of accelerating inflation and, as well, agriculture was suffering from a slump in beef and cattle prices.
While the large external deficit would in the normal course call for immediate corrective action it was decided instead, in the light of the exceptional factors which had given rise to it, to bring the deficit into line in a phased manner over a number of years. The alternative which would involve precipitate action could have a damaging effect on the economy. It is, of course, of paramount importance that we should not embark on any course which would run counter to this strategy and harm the prospects of correcting our present external imbalance. The opening gap on the 1975 budget was £64.2 million. In the budget I provided a total of £78.6 million for increased public service pay, social welfare benefits and other schemes designed to encourage the training of workers and the stimulation of output. The social welfare increases are an indication of the Government's continuing concern, as shown in the last two budgets, for the less well off groups in the Community. The result is that the 1975 estimate for Exchequer expenditure on social welfare is, at £210 million, almost two and a half times the 1972-73 level. In addition, the dates on which the improvements take effect have been advanced by several months from October to April and provision has been made for another increase in the weekly payments from October next.
The budget also announced substantial tax concessions costing £27.8 million in respect of both personal income tax relief and company tax relief. The increase in the personal income tax allowances for the second year in succession has brought the cost of these measures in a full year to no less than £60 million. I would like to point out that this provides an unprecedented level of relief for income taxpayers despite the many calls on the Government for other easements and reliefs. The tax concession to industry which will cost about £12 million this year should substantially assist that sector in overcoming its liquidity problems.
After allowing for departmental balances I was left with a balance to be financed of £164.6 million. After a full consideration of the possible financing options open to me the Government decided that it was appropriate to obtain some of this balance by increasing taxation on less essential items and accordingly some £39.2 million is being raised from increased taxes mainly on alcoholic drinks and tobacco. This left a deficit on current account of just over £125 million.
The increase provided for in the public capital programme was of the order of 20 per cent with capital grants and loans to industry showing the greatest increase. The 1975 provision for capital expenditure by the Industrial Credit Company is £24 million which is many times more than the 1972-73 provision of £4.6 million. In addition the provision of £4 million in 1975 for Fóir Teoranta will help potentially viable enterprises to overcome temporary difficulties which are exacerbated because capital cannot be raised from normal commercial sources. A total in all of £90 million is provided for capital grants and loans to industry as compared with an estimate of £64 million for 1974-75. Furthermore the Government subsequent to the budget have decided that the local authorities should be enabled to spend an additional £7 million on the local authority housing programme in addition to the budgetary allocation of £51 million in the current year. This means that the State's allocation of resources to housing is now 125 per cent higher than two years ago, quite a remarkable achievement. This substantial additional injection of funds into the economy makes a valuable contribution towards the maintenance of investment and the creation of new jobs.
In fact the 1975 budget was the most reflationary ever introduced. With a current deficit of £125 million it means that rather than imposing extra taxation the Government are borrowing for current use £125 million or £1 for every £10 of current expenditure. As the Government are also borrowing £288 million for capital investment, a total of £410 million or about one quarter of the total expenditure for current and capital purposes is being borrowed. The only alternative to that borrowing would be higher taxation at home. Of course borrowing cannot be effected without risk or limit. The supply of borrowed money is uncertain because lenders, particularly foreign lenders, cannot be compelled to lend and whatever money is borrowed has to be repaid with high interest rates in short periods. Borrowing is certainly the proper course today to avoid even greater slump and unbearable taxation, but we cannot overlook that we are mortgaging the nation's future to relieve present difficulties.
Nevertheless developments since the beginning of the year vindicate the carefully expansionary stance which I adopted in the January budget. Policy makers in other countries are attempting to strike a balance between curbing inflation on the one hand and combating recession on the other. The steps to boost activity which some countries have taken should bear fruit later in the year when we should be in a position to take advantage of them.
In common with the experience of many other countries, we are finding that tax buoyancy is not now as elastic as it was in days when economic growth was assured. Inflation is pushing up the costs of Government as remorselessly as the costs of other sectors of the economy. Incessant demands for the Government to produce still more cash to relieve the burdens of various groups or to pay the increased wages and salaries of public servants resulting from national pay agreements cannot be met without resort to further taxation. Those asserting that the limit of taxable capacity has been reached should logically withhold demands for increased Government expenditure. This logic is singularly lacking in most cases.
It is necessary to speak bluntly like this because to judge from the vehemence and selfishness of many protesters seeking to use powerful muscle to extract more than their due from the public purse, many people are still wilfully and culpably blinding themselves to the unpleasant realities of today in which unacceptable levels of inflation and unemployment, if not threatening our very survival, are certainly postponing the prospects of a recovery.
While the Government accept and will not shirk their responsibility to grapple with the problems facing the country, we attach importance to obtaining the understanding and cooperation of the social partners in implementing any corrective action. That is why the Government have invited representatives of employers, employees and farmers to join an emergency working group to recommend remedial action for present difficulties. The Government, of course, reserve the right, at all times, to take whatever action may be required in the national interest.
I now turn to Part I of the Bill which is subdivided into five chapters dealing with income tax and corporation profits tax. The principal measures relating to allowances, reliefs and rates of tax are set out in Chapter I.
Section 1 raises from £409 to £497 the income limit of a dependent relative to ensure that the full dependent relative tax allowance can be claimed where the relative has no income other than the non-contributory old age pension.
Section 2 provides for the restoration as from 6th April, 1974, of the same cash differential which existed prior to then between the tax relief given to higher-rate taxpayers in respect of life assurance premiums on policies with Irish and non-Irish companies.
Section 3 to 8 inclusive provide for certain amendments and extensions of existing capital allowances. In considering this matter, the Government have been strongly influenced by the need for investment by the industrial sector at this time so that it can reap full advantage from the fruitful, but competitive, years that lie ahead. Sections 3, 6 and 7, which relate to the tax allowances which may be obtained in respect of new plant and machinery, extend from 31st March, 1975, to 31st March, 1977, the period of operation of the 100 per cent initial allowance, the free depreciation provisions and, in the case of expenditure in the designated areas, the additional 20 per cent investment allowance. Section 8 provides for the continued suspension of the special 40 per cent investment allowance for ships, which, I might mention, was introduced in 1957 when the rate of initial allowance was only 20 per cent and free depreciation did not exist.
Sections 4 and 5 relate to expenditure on industrial buildings. In order to give an immediate stimulus to the industrial and building sectors the rates of industrial buildings allowances are being temporarily increased, from 20 per cent to 50 per cent in the case of the initial allowance and from 2 per cent to 4 per cent in the case of the annual allowance. In addition, the initial allowance for market garden buildings is being increased from 10 per cent to 20 per cent—the same level as applies to farm buildings—which ensures that market gardeners will not be at a disadvantage in this regard as compared with farmers.
Section 9 exempts from income tax the new monthly payments— ranging from £25 to £75—by the Minister for Health to thalidomide children, which supplement the already-exempted awards from the West German fund for thalidomide victims.
The reductions in the higher rates of personal income tax, effective from April, 1975, to coincide with the introduction of Wealth Tax, are provided for in section 10. Section 11 provides for the increases in the personal tax allowances for 1975/76 which were announced in the Budget.
I now come to Chapter II which deals with the taxation of farming profits. Section 12 will ensure that, as from 6th April, 1975, land taken for grazing will for tax purposes be regarded as land taken for farming. This will remove the anomaly whereby land taken for grazing was not taken into account in determining a farmer's land valuation for the purposes of the taxation of farming profits. In effect, grazing profits, which hitherto were separately assessed to tax, will in future be treated as farming profits.
Sections 13 and 14 are to remove a doubt about the application of sections 15 and 16 of the Finance Act, 1974, in the case of those persons with land of £100 valuation or more who are also carrying on another trade or profession. Thus if these persons were held not to be within the scope of section 16 of the 1974 Act they would be entitled to marginal relief and to the option of being assessed on the notional basis. Since this was not the intention, sections 13 and 14 of this Bill have been designed to remove any possible doubt on this score. The sections will have effect as from 6th April, 1974.
Section 15 is an amendment to section 17 of the Finance Act, 1974. That section sets out the criteria for determining the occupation of land. It provides for apportionment of the rateable valuation of the land where the land is beneficially owned or occupied in partnership with others. During the passage of the Finance Bill last year, it was pointed out that the section as it stood might not cover such cases as tenancies in common. I think that section 15, which will be operative as from 6th April, 1974, will meet this point.
Section 16, introduced on the Committee Stage of the Bill in the Dáil, amends section 20 of the Finance Act, 1974, by extending from six months to 15 months the period of time in which a farmer may opt for a current year basis of assessment in respect of tax liability 1974-75.
As I indicated in my budget statement, the option provided for farmers under section 21 of the Finance Act, 1974, whereby they could elect for a notional basis of assessment for 1974-75, is being extended for a further year to 1975-76 and section 17 provides for this. This section also extends from six months to 15 months the time given to farmers to opt for the notional basis of assessment for the tax year 1974-75.
Section 18 provides for two further valuable concessions for farmers as follows:
Section 22 of the Finance Act, 1974, provided for an annual farm buildings allowance of 10 per cent. However as many farm buildings have a relatively short life it has been decided to provide, in addition, an initial allowance of 20 per cent.
Section 18 provides for this concession with effect from 6th April, 1974.
Section 18 also provides a further concession for those farmers now liable to tax who undertook heavy expenditure in the years immediately prior to 1974 to prepare themselves for entry into the EEC. In many cases these farmers raised substantial sums of money in the expectation that they could be repaid out of tax-free profits. Since this is not the case as far as those farmers now liable to tax are concerned the Government have decided, as an exceptional measure, to ease this particular problem by providing that the existing annual farm buildings allowance will apply to expenditure incurred on or after 6th April, 1971, instead of 6th April, 1974.
One other section in the Bill relevant to farming taxation is section 23 which ensures that the farm buildings capital allowances apply for corporation profits tax as well as for income tax.
Chapter III, comprising sections 19 to 22 together with the Second Schedule, deals specifically with one particular type of tax avoidance scheme. The essence of the scheme in question is the creation of special leasing arrangements between associated companies so that a large premium becomes deductible immediately for tax purposes by one company while the same premium, because it is expressed to be payable in instalments over a period of perhaps 40 years, is chargeable to tax in the hands of another company over a long period of years by reference to the instalments received.
The Bill counters these schemes by tightening up the existing tax legislation regarding leases.
Chapter IV of the Bill which deals with corporation profits tax, contains two sections, one of which, section 23, I have mentioned already. The other section, section 24, provides for the continuation, for a further year, of the exemption from corporation profits tax accorded to certain public utility companies, building societies and the Agricultural Credit Corporation Ltd. This provision is necessary in view of the already announced deferment to 6th April, 1976, of the introduction of the proposed single tax system of company taxation.
I now turn to Chapter V of the Bill, which deals with a number of miscellaneous taxation matters. Section 25 is designed to overcome difficulties which arise under existing law in the service of taxation notices. As matters stand, notices may be served on a company only at its last-known registered office and on an individual only at his last-known residence or place of employment. This requirement has given rise to difficulties not only for the Revenue Commissioners but also for taxpayers who may find themselves liable to pay interest on overdue tax because of delays in the transmission of demands to them from old addresses. The section therefore proposes that documents may also be served at places of business.
Sections 26 to 28 contain provisions relating to interest payable on late payments of tax to the Revenue Commissioners.
Section 26 provides that in cases where it is necessary after the end of a tax year to serve formal estimates so as to recover PAYE tax not remitted by an employer, interest will be payable by him from the end of the tax year in question to the date of payment.
Section 27 provides that interest paid to the Revenue Commissioners by a principal contractor, because of delays by him in remitting tax deducted from payments to subcontractors, will not qualify for tax relief, and so places such interest on the same basis as interest on other overdue tax.
Because of the very steep increase in the cost of borrowing, the rates of interest charged on overdue tax in recent years have been failing to discourage delays in tax payments or to compensate the State for the cost of its consequential borrowings. Section 28 accordingly provides for an increase to 1.5 per cent per month in the rates of interest charged on overdue tax.
Section 29 provides that in cases where a refund is made of the value-added tax paid in connection with capital expenditure on mining or farm buildings, the capital allowances shall be computed only on the net expenditure. A similar provision in relation to the capital allowances then existing was contained in the Value-Added Tax Act, 1972, but, as it is more properly concerned with income tax and corporation profits tax, the relative provision in the Value-Added Tax Act, 1972, is being repealed and instead a new comprehensive section is being included within the income tax and corporation profits tax code.
Section 30 provides for the passing on of relief to shareholders where dividends are paid by a company out of income from patent royalties which are exempt from tax under the Finance Act, 1973.
The Government proposals for giving relief through the taxation system to companies suffering from liquidity problems are detailed in section 31 and the Third Schedule. Because of the recent severe increases in the cost of replacing trading stock many companies, merely to maintain the same scale of operations, have had to plough back into their businesses profits which would otherwise have been free for other purposes.
In order to defer the collection of tax on such profits, it is proposed, generally speaking, to allow in the computation of taxable profits of certain classes of company a deduction of the amount by which the increase in the value of trading stock and work-in-progress exceeds 20 per cent of the trading profits. The relief will in general apply to corporation profits tax for accounting periods ending in the tax years 1973-74 and 1974-75, and to income tax for 1974-75 and 1975-76. This relief is a temporary expedient, aimed at giving help where it is most needed. The problems of business liquidity vary as between different sectors of the economy and as between individual firms in those sectors, depending on various factors such as profit margins, length of credit, and frequency of stock turnover. Clearly, the deferment of tax would not be justified for certain types of business. Accordingly, the proposed relief is being confined to companies engaged wholly or mainly in manufacturing, construction or farming or in the sale of plant, machinery or material to those sectors. It would not be administratively feasible to bring unincorporated traders in the qualifing sectors within the scope of the relief in this Bill but I propose to extend the relief to them in next year's Finance Bill.
Section 34 extends to buildings used by persons other than farmers for the intensive production of cattle, sheep, pigs, poultry or eggs the same level of capital allowances as is available in respect of farm and market garden buildings.
The remaining sections of Part I of the Bill are of a mainly consequential nature.
Sections 32 and 35 effect some minor textual and drafting corrections in existing legislation while section 33 provides a comprehensive up-dated definition of "capital-allowance" which will apply throughout the Income Tax Acts.
Part II of the Bill which covers sections 36 to 46 is concerned with customs and excise duties. With the exception of sections 44, 45 and 46, the sections confirm the various budget increases. Sections 36 to 40 inclusive confirm the increases in customs and excise duties on beer, spirits, tobacco, wine and table waters. Section 41 increases off-course betting duty from 15 per cent to 20 per cent. Section 42 raises by £60 the annual excise duty chargeable on licences for gaming premises with pro rata increases for shorter periods. Section 43 provides that a new excise duty will be imposed with effect from 1st June, 1975, on gaming machines in use on premises licensed for gaming under the provisions of the Gaming and Lotteries Act, 1956. These fiscal measures will assist in the implementation of the two basic aims of Government economic strategy in 1975 which are the maintenance of employment and the preservation of living standards.
Section 44 increases the dog licence duty from 25p—last fixed in 1925—to £1 and the duty on a general licence, which permits the keeping of any number of dogs, from £10 to £25. The section also increases the excise penalty for keeping an unlicensed dog from £2 to £10.
Section 45 confirms four orders made by the Government under the Imposition of Duties Act, 1957. Numbers 213 and 215 effected certain reductions in customs duties on goods of United Kingdom and Northern Ireland origin in accordance with the Anglo-Irish Free Trade Area Agreement. Number 214 increased the customs and excise duty on petrol by 13.3p per gallon in December last. The final order—Number 216—permits school buses which are taxed at the private car rate, and not the public service vehicle rate, to be used to carry teachers as well as school children and to carry them to or from school-related physical education activities as well as to or from school.
The effect of section 46 is to give the Government power to replace by order made under the Imposition of Duties Act, 1957, a customs duty of a fiscal nature or the fiscal element in such duty by an excise duty chargeable on the imported goods. Senators will be aware that the provisions of Article 38 (3) of the Treaty of Accession to the European Communities oblige us to convert our present customs duties of a fiscal nature or the fiscal element of such duties into internal taxes by 1st January, 1976. The need for the amendment to the 1957 Act arises from the terms of section 1 (h) of that Act which at present preclude the application of the relevant provisions of customs law to an excise duty on imported goods.
Part III of the Bill provides for the abolition as from 1st April, 1975— the effective date of operation of the proposed wealth tax—of death duties. The removal of these death duties and their replacement by the proposed reformed system of capital taxation will mean that over 90 per cent of those people who up to now have been at risk to death duties will be totally free in the future of death duties and any capital taxes.
Part IV, together with the Fourth Schedule, is concerned with Stamp Duties. Section 48 converts into permanent legislation the stamp duty increases announced in the budget. They were an increase from 3 per cent to 4 per cent in the case of property transactions between £20,000 and £50,000 in value, and from 5 per cent to 6 per cent on property transactions over £50,000. The order which gave temporary effect to these increases as from 1st March, 1975, is being revoked by section 49.
I now come to Part V of the Bill which contains four sections dealing with value-added tax. Sections 50 and 51 are anti-avoidance measures to which I referred in my budget statement and, as such, are designed with the same objective as the other anti-avoidance measures in the Bill, namely, the collection of properly due tax for channelling by the Government into the most worthy avenues of public expenditure. I can assure Senators that, in implementing these VAT anti-avoidance measures, the Revenue Commissioners will have due regard to any difficulties faced in the industries concerned and will devise procedures and guidelines which, as far as possible, will be fair and clear for all concerned.
Section 52 is designed to recoup to the Exchequer the cost of its advances to finance the cattle feed voucher scheme for farmers the PLV of whose farms is under £50 and who last winter experienced serious problems in feeding their young and store cattle. The sum involved—about £2.2 million— will be recouped through a temporary suspension of the VAT 1 per cent credit to registered purchasers of live cattle.
Section 53 is to correct a drafting omission consequential on the changes in VAT made by the Finance Act, 1973, in relation to the Third Schedule to the Value-Added Tax, Act, 1972.
The remaining Part of the Bill, Part VI, deals with a number of miscellaneous matters, of which the most important is the proposal outlined in section 55 to amend the Provisional Collection of Taxes Act, 1927. This arises from the revision of the Standing Orders of Dáil Éireann and consequential amendments to the 1927 Act enacted last year.
Prior to 1974 the time available for the passage of the Second Stage of a Bill confirming financial resolutions was 20 sitting days from the time the resolutions were approved by the Dáil as a whole. As, however, such resolutions were first passed by the Committee on Finance, for instance on budget day, and were not approved by the Dáil as a whole until up to ten sitting days later, the period available from the first approval of the resolutions for the passing of the Second Stage of the confirming Bill was in practice up to 30 sitting days.
However, the revision of Dáil Standing Orders in 1974 involved the abolition of the concept of the Committee on Finance and the 1927 Act was amended, accordingly, by the deletion of references to that committee. As a consequence of these changes financial resolutions are now moved in the Dáil as a whole so that the time limit for the passing of the Second Stage of the confirming Bill has been abridged effectively to 20 sitting days.
As it was not the intention of the changes made in the Standing Orders to reduce the time available for the preparation of the confirming Bill— for instance the annual Finance Bill —and for its consideration by the Dáil at the Second Stage it has been decided to restore the period of time previously available for these purposes by extending the 20 sitting-day period specified in the 1927 Act to one of 30 sitting days, and this is the object of section 55.
The other sections in Part VI are of a routine nature. Section 54 is the annual provision relating to the capital services redemption account, section 56 is the usual care and management provision, and section 57 provides for the short Title, construction and commencement of the Act.
I commend the Bill to the House for a Second Reading.