The main purpose of this Bill is to give statutory effect to the taxation changes announced in this year's budget. In addition, statutory provisions are being introduced to improve the administration of our taxation system. The Bill provides for improvements in tax allowances, excise duty increases, concessions on farmer taxation and also the incentives for construction of rented residential accommodation, toll roads and bridges and multi-storey car parks which I referred to in my budget statement.
Before I itemise the provisions of the Bill, I would like to outline again the budget strategy which is being implemented by the Government. We have sought a balance between the obligation to reduce the budget deficit and the need to promote employment. It is essential that the deficit be reduced progressively and eliminated. A sudden and sharp reduction in the deficit, however, would have undesirable consequences so our purpose is to phase it down gradually. We have accepted the obligation to bring down the deficit and we are working towards this objective.
At the same time we have launched a programme of capital investment which surpasses all previous efforts to raise the productive capacity of the economy. The 1981 Investment Plan mobilises a total capital investment of more than £1,700 million this year. The emphasis is on strengthening our infrastructural services and this will produce two welcome benefits; in the short term it will provide a substantial boost to employment and, for the longer term, it will provide a firmer foundation for the development of the economy.
The budget strategy, therefore, is designed to support a high level of economic activity while at the same time imposing a greater discipline on our public finances. This is the only rational approach in a situation of severe international recession where we have to absorb a huge increase in energy costs and where several traditional employment opportunities have been lost. The alternatives were to continue spending without regard to the cost or to go to the other extreme and impose a rigid clampdown on public spending. Either of these courses of action would have most undesirable consequences.
Competitiveness at home and in international markets is a key requirement if we are to sustain a high level of growth and make the best possible use of the employment opportunities which are open to us. We have to lower our expectations and settle for a more modest rate of increase in incomes. As a contribution to this the Government have recently increased subsidies on a number of essential foodstuffs, and this will have a big impact on the cost of living index. In turn, the Government expect that this will be reflected in a moderation of income increases in the period ahead. We have the potential to recover much of the advantage in competitiveness that has been lost, provided we continue to improve productivity and adopt a prudent approach towards income increases.
The international economic outlook is now more hopeful than it has been for a considerable period. The general consensus is that there should be a gradual resumption of international growth in the second half of this year. Inflationary pressures are also expected to ease, and this will help to foster confidence and to underpin the economic revival. The EEC Commission expects that unemployment in the Community as a whole will continue to increase. The prospect of growing unemployment is unacceptable to this Government, and this is why we have acted to reinforce, by domestic action, the expected beneficial effect of the international upturn.
Our action has taken the form of a major fiscal stimulus to the economy, and this stimulus is coming through the massive increase in public investment provided for in our Investment Plan to which I have already referred. As a result, the EEC Commission predicts that our growth rate this year will be about 2 per cent which will be the second highest in the Community. It will also be higher than that forecast for the OECD area as a whole. We confidently expect that accompanying this growth the rate of employment creation will accelerate in the coming months.
Recent economic indicators show that the upturn in our economy is already well under way and that investment is increasing, the rise in the numbers unemployed has been halted and the numbers of short-time workers continue to fall. This is consistent with the very encouraging recent performance of industrial output. The volume of output of manufacturing industry, seasonally adjusted, rose by 11½ per cent in January and February, a faster rate of advance than in any other two month period since 1975. There are, therefore, solid grounds for optimism but, as I have already emphasised, we must be prepared to modify our expectations and accept that we do not have an entitlement to an uninterrupted improvement in living standards.
I now turn to the individual sections of the Bill. Section 1 provides for increases in the general and age exemption limits announced in the budget. The general exemption limit is increased from £1,700 to £2,000 for single and widowed persons and from £3,400 to £4,000 for married couples. The exemption limit is raised from £2,000 to £2,300 for single and widowed persons aged 65 years or more but under 75 years and from £4,000 to £4,600 for married couples in this category. Revised exemption limits of £2,800 for single and widowed persons and £5,600 for married couples will apply for those aged 75 years or over.
Section 2 and 3 also confirm budget proposals. They contain provisions for increases in the special PAYE allowance, the 35 per cent rate band, the one parent family allowance and a number of allowances for handicapped persons.
Section 4 ensures that certificates from officials of the Revenue Commissioners will be admissable asprima facie evidence in legal proceedings for the recovery of penalties under the PAYE Regulations and section 5 provides a statutory basis for apportioning marginal relief where a married couple elect for separate assessment.
Section 6 relates to the new mortgage subsidy scheme for first-time house purchases. Its purpose is to ensure that the subsidy plus income tax relief will not exceed the amount of the annual loan repayments.
Section 7 confirms that, in certain circumstances, tax must be deducted at the standard rate from payments made to sub-contractors by a person who is not a builder but whose business involves the manufacture, treatment or extraction of construction materials. This is to clarify the definition of construction and associated activities for the purposes of the sub-contractor legislation. The section also counters an avoidance device.
In section 8 the scheme of residence-related relief is extended for a further year and in section 9 the time limits for claiming specified reliefs are extended from one to two years.
Chapter II of the Bill provides for changes in the taxation of farming profits announced in the budget. During the course of my budget speech I said that technical discussions were taking place between farming organisations and the Revenue Commissioners on the question of income averaging for assessment purposes for farmers. Agreement on the details of such a system has since been reached and provision is now being made for its statutory implementation. In addition, I propose to provide for the tax exemption of the farming profits of charities.
Section 10 provides for an optional scheme of income averaging for full-time farmers. Under this scheme, tax liability in any year will be assessed on the average of profits for the previous three years. Once a farmer elects for averaging he will be assessed on that basis for a minimum of three years. After that period he may change at any stage but tax assessments for the two years preceding the final year of averaging will be subject to review.
Section 11 exempts from income tax the farming profits of charities with effect from the year 1974/75. Charities engaged in farming have generally been unable to show that they satisfy the existing conditions for exemption of trading profits of charities. I now propose that charities be exempted from tax on their farming profits where such profits are used solely for the purposes of the charity. This means that there will be no liability to tax in the normal course on farming profits of institutions such as schools and hospitals and religious communities.
The system for the payment of income tax by full-time farmers in two instalments which was introduced for 1980/81 is extended for a further year under section 12. The first instalment of tax for 1981/82 is payable on 1 October 1981, and the second on 1 January 1982.
Section 13 removes the restriction on stock relief for farmers under which relief is granted on the excess of stock over 10 per cent of farming profits. Increases in stock values will now be completely free of tax. Section 14, in Chapter III of this Bill, discontinues the resource tax with effect from 6 April 1981.
Chapter IV relates to corporation tax. In section 15 there are arrangements for bringing forward by three months the date for payment of the second instalment of corporation tax as proposed in the budget. I wish to emphasise again that there is no suggestion of any increase in tax. The change is designed simply to bring the timing of tax payments by companies more into line with the arrangements for other traders generally.
Section 16 is of a technical nature and it requires companies, when making returns of profits to the Revenue Commissioners, to include details of distributions received from other companies. This is necessary for the proper administration of the legislation on closely controlled companies and the 10 per cent rate of corporation tax for manufacturing industry,
Section 17 provides for an extension of the 10 per cent scheme to certain named activities. These are fish farming, cultivation of mushrooms, ship repairs, certain design and planning services and service operations at Shannon airport. In order to comply with EEC requirements, certain restrictions are provided for in the case of Shannon service companies.
The contents of Chapter V deal with a variety of different and mainly technical matters common to both income tax and corporation tax. Section 18 exempts from tax, payments out of the Employers' Temporary Subvention Fund which was set up last year under the terms of the national understanding. Section 19 closes a loophole in relation to tax-exemption of income from patented Irish inventions to ensure that, as was the intention of the original legislation, only inventions on which the underlying work is carried out in the state will qualify.
In section 20 provision is made for continuation of stock relief for a further year. Section 21 corrects an anomoly in relation to distributions out of income granted export sales relief, while section 22 ensures that as regards the tax charge on loans by closely-controlled companies to their participators, such companies do not obtain unduly favourable interest treatment where they default on payment.
Chapter VI introduces the measures, outlined in my budget statement, to encourage greater private sector investment in capital development. In order to have the immediate effect of stimulating new activity these allowances took effect as from the day after budget day. The allowances are framed so as to provide investment opportunities for the private sector and at the same time represent reasonable value for the State. They will run for a three-year period.
There is a Government commitment in the national understanding for arrangements to encourage rented housing and comprehensive re-development by private property funds in major urban areas. In line with this commitment I announced in my budget statement that a special new allowance of 100 per cent would be introduced in respect of expenditure of construction of moderate-cost rented residential accommodation.
This allowance, which is provided for under section 23, and which will be setoff against rental income, will be available in relation to houses and flats within the size limits specified in the Bill and for which a certificate of reasonable cost or a certificate of reasonable value has been granted by the Minister for the Environment. The maximum size limits are 125 square metres in respect of a house and 75 square metres in respect of a flat. The amount of expenditure allowable includes actual construction cost and site development, though not site acquisition costs.
Section 24 makes the allowance available in respect of expenditure on the conversion of certain existing property into two or more residential units. There is considerable interest in these tax incentives and I am confident that they will open the way for a big expansion of the rented accommodation sector and will make a most useful contribution to our housing programme.
Provision is also made for a positive incentive for the private sector in relation to the provision of multi-storey carparks, toll roads and bridges. Section 25 provides for a 50 per cent initial allowance and a 4 per cent annual allowance on expenditure on the construction of a multi-storey car-park. This allowance will be available under the normal rules, included in the Tax Acts, relating to industrial buildings allowances. For the purposes of the allowance a multi-storey car-park must be wholly in use for the provision of car parking facilities for the general public.
Section 26 provides for an allowance of 50 per cent in respect of capital expenditure incurred by a private sector interest as part of an agreement with a road authority for the provision of a toll-road or bridge. The allowance will be offset against the income accruing to the investor from such an agreement.
At present, the 50 per cent initial allowance in respect of industrial buildings is available only to persons leasing such buildings direct to industrialists. Section 27 extends this allowance to persons leasing such buildings to State-sponsored industrial promotion agencies for on-leasing by them to industrial occupants. The expansion of this allowance will, I believe, facilitate private sector investment in the provision of advance factories for industrial use.
On Report Stage of the Bill in Dáil Éireann two new sections — sections 28 and 29 — were introduced. These sections, which are incorporated in Chapter VII of the Bill, are designed to counter tax avoidance schemes in the land development area. As I explained in the Dáil, these schemes involve the operation of several artificial transactions between connected companies which are designed to deprive the Exchequer of the tax properly attributable to the profits derived from these developments.
The schemes are becoming more common and, if not stopped, they will result in a loss of many millions of pounds to the Exchequer. The Revenue Commissioners estimate that schemes either already in operation or in the course of preparation would, if successful, involve a tax loss of the order of £30 million. The measures now being introduced to curb this practice will apply in respect of accounting periods ending on or after 6 April 1981.
Part II of the Bill is concerned with customs and excise matters. Sections 30 to 36 confirm the budget increases in the excise duties on alcohol, tobacco products, hydrocarbon oils and television sets. Some further changes are also included in these sections.
I announced in the budget that I proposed to extend the excise duty on table waters to squashes and cordials, and this change is being made in section 37. The original intention was that the rate of duty would be linked to the dilution ratio. In the event this proved impracticable and, on Committee Stage of the Bill in Dáil Éireann, I introduced an amendment to provide that the ordinary rate of duty on table waters should apply to squashes and cordials generally irrespective of the dilution factor.
The present section also increases the rebate rate to manufacturers of table waters. The present rebate is 12.4 pence of the first 20,000 gallons and 6.2 pence on the next 80,000 gallons. It is proposed that, with effect from 1 March, a rate of 16 pence a gallon will apply to the first 40,000 gallons of production, and eight pence a gallon will apply to the next 80,000 gallons of production. This change will be of particular benefit to the smaller manufacturers.
Section 38 reduces the refreshment house licence from £50 to £10, with effect from 1 April. I am introducing this change in response to requests from small guesthouse owners who are anxious to have the opportunity to serve wine to their guests and who claim that the existing licensing requirements for this purpose are too expensive. Section 39 confirms an order whereby a small rebate of duty on beer was made in 1980 to brewers whose output for the home market did not exceed 175,000 standard barrels of beer in the preceeding year.
Section 40 and 41 are concerned with certain duties on motor vehicles. The budget day Financial Resolution increasing the annual registration charge on cars of 16 horse-power and under from £10 to £20 is confirmed. This increase is limited, however, to £16.50 in the case of taxis.
Part III of the Bill contains a number of value-added tax provisions. Section 43 applies the low building rate of 3 per cent backdated to the commencement of VAT to prefabricated structures such as garden sheds. In practice these structures have generally been charged at the 3 per cent rate rather than the standard 25 per cent rate, and the proposed new provision will confirm this.
Section 46 in Part IV of the Bill deals with the liability to capital acquisitions tax in the case of certain marriage settlements and provides that a grandchild will be deemed to be the child of the disponer in such instances, thereby obtaining a much higher tax threshold. I am introducing this concession in response to requests from the farming and legal bodies who submitted to me that the existing tax provisions impose an undue hardship in some marriage settlement cases.
Part V of the Bill is concerned with stamp duties and provides for the continuation of three stamp duty measures which were implemented by Government Orders in 1980. There is provision for changes in the legislation relating to conveyances made by way of sub-purchases in order to prevent the avoidance of duty by the abuse of certain reliefs.
The conditions for the granting of stamp duty exemption for new grant-type houses are amended in order to take account of changes in housing legislation, and the stamp duty increase on cheques from one penny to three pence is being confirmed.
The last part of the Bill, Part VI, contains a number of miscellaneous provisions.
This Bill encompasses a considerable number of changes which provide for a more equitable and more efficient system of taxation. I commend the Bill to the House.