I move: "That the Bill be now read a Second Time."
This Bill gives effect to the taxation changes announced in the budget as well as making some other provisions which I will explain as I go along.
The budget which I introduced on 1 February was framed in the context of the Government's medium-term plans to reduce inflation and tackle the serious problem of unemployment by pursuing a policy of rapid and sustainable economic growth. It was designed to give a stimulus to activity in 1978 and to set the economy on course for achieving our medium-term targets. The cornerstones of this budgetary strategy were increased income tax allowances and a higher level of public expenditure.
The generous increases in the personal income tax allowances were a vital element in securing an orderly and moderate development of incomes. As Deputies are aware, agreement has been reached since the budget on a national pay agreement to cover a period of 15 months. The Government welcomes the ratification of this agreement by the employers' side and the ICTU. Combined with the income tax concessions provided for in this Bill, the agreement guarantees significant increases in real incomes.
In addition to the increases in personal income tax allowances, the budget also included a package of business incentives designed to encourage the spirit of enterprise and expansion in the private sector. These include corporation tax reliefs for small companies, simplification of the arrangements governing a special reduced rate of corporation tax for manufacturing companies which achieve expansion, indefinite extension of the period of operation of free depreciation in respect of capital expenditure on new plant and machinery, free depreciation for industrial buildings and continuation of stock relief for a further year. Certain restrictions on interest relief are being modified. This package of measures should provide a positive climate for the expansion which we require in the coming years.
I will now comment on the various measures contained in the Bill. Chapter I of Part I contains a number of income tax provisions. The proposed increases in personal allowances set out in the budget are provided for in section 5. These increases are of unprecedented amounts and in themselves will result in a significant increase in post-tax income for all taxpayers. The increases for married persons are proportionately greater than the increases for other persons. This derives from the decision to set the married person's allowance at double the single person's allowance.
Section 2 changes the basis of division of their personal allowances and reliefs between spouses in cases of separate assessment. The section provides that where separate assessment has been claimed or is claimed in future, the allowances and reliefs of the married couple will in general be divided equally between them instead of in proportion to their incomes as has been the case up to now. Where reliefs relate to particular outlays, for example mortgage interest, the relief will of course be divided by reference to the amounts borne by each spouse.
The right of each married person to choose to be assessed to tax separately from his or her spouse—without, of course, affecting the total liability of the couple—has long been a feature of our income tax code but this right has not been widely availed of.
I am anxious to ensure that every married woman who has income of her own will become aware of her rights under existing tax laws, including in particular her entitlement to be separately assessed to tax and to make a separate return of income. I have, therefore, arranged that the Revenue Commissioners will issue to married women with incomes of their own a leaflet explaining entitlements under tax law and a simple form by which a married woman may, if she wishes, exercise her right to claim separate assessment.
Section 7, like several other measures in the Bill, is designed specifically to encourage business enterprise and investment. It effects some modification to existing restrictions on income tax relief for interest payments, so as to remove disincentives to investment in business. As announced in the budget, unrestricted relief is to be available for interest on borrowings for investment in private trading companies. Section 7 provides accordingly and, as an additional measure, allows special relief for interest up to a maximum of £2,000 a year to a full-time employee or full-time director of a public trading company in respect of borrowings to acquire shares in the company. The reliefs thus provided by the section are in addition to the amount of relief available to anyone for interest generally.
Sections 8 and 9 provide a remission of income tax to certain workers and employees along the lines of that granted in the case of public service employees who became liable for PAYE in 1976. Section 8 provides for a tax remission of one-half of the tax for 1976-77 to cross-border workers who became liable for income tax on the PAYE basis in the United Kingdom in April 1977, following the introduction of the new double taxation convention between the two countries. This remission was announced on 12 August 1977.
Section 9 grants a remission of a half-year's tax to certain employees who were transferred from a public service to a PAYE employment prior to 1976-77. Section 10 effects a technical amendment to take account of the repeal of estate duty and the introduction of capital acquisitions tax.
I should now like to refer briefly to a number of other income tax provisions to implement measures announced in my budget statement. Section 1 provides for income tax relief on a uniform basis for premiums on all new life assurance policies. Section 3 removes the cash limitation on the amount of premiums paid by self-employed persons on retirement annuity policies which qualify for income tax relief. The percentage limitation of 15 per cent of net relevant earnings will remain applicable to these premiums—it corresponds with a similar provision for superannuation payments by employees.
Section 4 repeals the provisions introduced in 1976 for the assessment of employees' motoring benefits-inkind in minimum amounts. Those 1976 provisions imposed a minimum charge of £300 or 15 per cent of the cost of the car, irrespective of the amount of the employee's private use of the car. The effect of the repeal will be to restore fully the former long-standing basis of the assessment of these benefits by reference to the relevant facts of each particular case. These arrangements in future will therefore take full account of each employee's circumstances, including the amount of his private use of his employer's car and the relationship such private use bears to the working usage. The effect of section 6 is to exempt from income tax the income derived by thalidomide children from the investment of the tax-free compensation moneys received by them.
Chapter II deals with farmer taxation. In my budget speech I said that I would be implementing the manifesto commitments on farmer taxation in the Finance Bill. These concern the retention of the notional basis as an alternative to the accounts basis, a single payment date at the end of the financial year, a deduction for contractors' fees on the notional basis and the granting of a credit against a farmer's tax bill for the preceding year's rates. These concessions are designed to encourage agricultural developments as well as ensuring that farmers are taxed fairly.
In drawing up the budget measures the Government also recognised the need for a more equitable tax contribution from the farming sector. To this end, an additional 7,000 farmers have been made liable for income tax by lowering the threshold from £75 RV to £60 RV. However, the majority of these newly liable farmers will not have to pay their full tax as marginal relief is being made available for those between £60 RV and £69 RV. Another measure designed to achieve a more equitable contribution from farmers is the raising of the multiplier from 65 to 90. The need for these measures is clear from the low yield from farmer taxation in 1977-78. which is expected to be about £14 million. The new measures are estimated to yield about £24 million from farmers in the tax year 1978-79. Given current levels of farm income such a contribution from farmers cannot be regarded as onerous.
Sections 11 to 16 of the Bill give effect to the changes I have mentioned as well as to some other provisions. These are described in detail in the Explanatory Memorandum and I need only make a brief reference to a few particular points.
Section 13 provides, among other matters, for a new section 21 to be substituted in the Finance Act, 1974. This involves the granting of a deduction on the notional basis for contractors' fees in addition to the existing deduction for wages paid to employees who are registered for PAYE and social welfare purposes. This basis for the allowance of wages has attracted the criticism that it represents discrimination against a farmer who employs a son or daughter on the farm, since employment by a father is generally not insurable employment and therefore not eligible for the deduction. There are two points I would like to make about this. Firstly, this change was made necessary by the widespread practice among farmers of claiming to have paid wages up to the amount of the single person's allowance to members of their families. It is virtually impossible for an inspector to check the validity of such claims. The second point is that any farmer who pays wages to a son or daughter who cannot be registered for social welfare purposes may obtain an appropriate deduction by opting for the accounts basis. He would then be in precisely the same situation as any other trader or businessman who employs his children.
The new section 21 also provides that, where all the partners in a partnership are already separately liable for income tax, the antifragmentation provisions of section 17 of the Finance Act, 1974 will not apply. This means that in such cases only a farmer's proportionate share of the land occupied by the partners will be taken into account for the purposes of a notional assessment. The new section 21A provides for the granting of the preceding year's rates as a credit against the tax bills of full-time farmers.
Section 16 provides for the situation which would arise under the Finance Act, 1977 whereby certain farmers are liable for interest on overdue tax in 1977-78, which interest would be calculated by reference to a notional assessment later found on appeal to be an over-assessment. The section provides for the calculation of such interest by reference to the actual tax due. As announced on 21 October last, it also provides for the extension of the period before which interest is charged on tax overdue from farmers in 1977-78 from two months to four months, thus giving farmers up to 31 December 1977 to pay the instalment due on 1 September 1977.
I now turn next to the sections of the Bill which provide for the corporation tax incentives announced in the budget. The restoration of tax exemption for agricultural and fishery co-operatives is proposed by section 17 and the provisions are intended to operate from 1 April 1978. These provisions have been formulated with a view to securing optimum growth in agriculture and fisheries through the best efforts of the co-operatives, while at the same time taking due account of the legitimate interests of other traders. The implementing arrangements are set out in the explanatory memorandum.
Section 19 provides that in 1978 and 1979 manufacturing companies will have to meet only one expansion target—that is an employment target of, basically, a 3 per cent increase each year—in order to qualify for the special 25 per cent rate of corporation tax. The section also provides an option for such companies to have the 1977 test of increase in output gauged, if desired, by reference to the value of their 1976 sales increased by 19 per cent—rather than by the formula which was specified in last year's Finance Act. The section also opens participation in the incentive to manufacturing companies which commenced trading in 1977 or 1978 in order that they too may bring forward new employment-creation in manufacturing.
Small companies, because of their employment potential, merit a special incentive to spur them along the growth path and, so, section 20 provides a significant and retrospective increase in the threshold at which the 35 per cent rate of corporation tax ceases to apply and in the threshold at which the normal 45 per cent rate of corporation tax begins to apply. I trust that this valuable measure will help small companies to grow and thus lead to early new employment in such companies. Small companies which are manufacturers can, of course, qualify for the special 25 per cent rate of corporation tax for manufacturing companies to which I have just referred.
The purpose of section 27 is to maintain closely the relationship between the rate of corporation tax and the tax credit which attaches to distributions out of company profits, so as to match the position which obtained prior to the cut of 5 percentage points in the rates of corporation tax from 1 January 1977.
By maintaining the old tax credit, thirty-five/sixty-fifths of actual distributions made by the companies, the Exchequer would be retaining a smaller percentage of the normal corporation tax rate than was the case before. I have no grounds on which to justify that.
It should be noted that the Exchequer is obliged in many cases to give to recipients of distributions the benefit of the tax credit attaching to those distributions even where the underlying profits bear little or no corporation tax because of stock relief or accelerated capital allowances, for example. The standard tax credit also attaches to distributions out of manufacturing profits which qualify for the special 25 per cent rate of corporation tax.
The reduction in the rate of tax credit follows on the reduction of corporation tax rates, and the overall effect should not reduce shareholders' incomes.
A further series of proposals also designed to promote investment and encourage business enterprise is contained in Chapter IV of Part I of the Bill. These proposals—namely sections 21, 22, 24 and 25—deal with capital allowances, which are given for both income tax and corporation tax. As announced in the budget, free depreciation for new plant and machinery is now being extended indefinitely. This step should facilitate advance planning by businesses. As a corollary, the shipping investment allowance, which has been suspended for several years past because of the existence of free depreciation, is being withdrawn; this allowance was introduced when free depreciation was not available and its retention would be superfluous.
The introduction of free depreciation for expenditure by industrialists on their buildings was announced in the budget. Section 24 makes provision accordingly and also extends free depreciation to hoteliers for expenditure incurred by them on their hotel buildings. Section 25 removes a technical bar to the giving of capital allowances to taxpayers in respect of their contributions to capital expenditure incurred wholly or partly on behalf of traders by local authorities. Section 26 gives effect to the continuation of stock relief for a further year as announced in the Budget.
Part II of the Bill contains one section, section 28, which confirms four orders relating to excise duty matters which were made by the Government under the Imposition of Duties Act, 1957. Details of these orders are set out in the explanatory memorandum.
Part III of the Bill is concerned with stamp duty. Sections 29, 30 and 32 are aimed at counteracting the avoidance or the possibility of avoidance of stamp duty in the case of various transactions. The transactions in question are the transfers of leasehold interests in property, transfers on marriage, conveyances or transfers in contemplation of a sale and the making of gifts subject to the retention of a power of revocation in the donor.
Section 31 revokes an order made last year which covered the matters now dealt with in sections 29 and 30.
Section 33 abolishes the stamp duty on contracts for the construction of office buildings. The purpose of this measure is to promote output and employment in the construction industry, which is one of the country's largest employers, and is thus a continuation of the Government's policy of boosting activity in this sector of the economy which I referred to in my budget statement. Part, at least, of the stamp duty revenue forgone will be recouped by way of increased stamp duty arising from conveyances of sites and increased income tax receipts as a result of the new development projects which can be expected to materialise as a consequence of this measure.
Parts IV to VI of the Bill contain provisions on capital taxes. As Deputies will be aware, I announced on 5 April that a separate Bill will be introduced later this month to implement the changes in capital gains tax proposed in the budget. Section 34 reduces by half the period of time in which a charge to death duties remains on real and leasehold property in the hands of purchasers or mortgagees. This provision, which relates to taxes which ceased to apply after 31 March 1975, should be of considerable assistance to purchasers of such property and to practitioners.
Section 35 is a relieving measure which provides for an adjustment of estate duty in certain cases. It applies in the case of certain deaths occurring between 1 April 1972 and 1 April 1975 where there was a loss due to the decline in the value of securities between the date of death and the date when the securities were sold to pay the estate duty liability.
Section 36 gives effect to the decision I announced in my budget statement to abolish the wealth tax. As a consequence of the abolition, the section provides in addition that purchasers of property after 4 April last shall not be affected by any latent charge to wealth tax. The section also reduces the rate of interest on outstanding wealth tax and on repayments of that tax from 18 per cent to 15 per cent per annum as from the date of the passing of the Finance Act. I might refer at this stage to sections 41 and 44 which make similar provision in respect of other taxes. The reduced rate of interest is considered reasonable in current circumstances.
Part VI of the Bill deals with changes in capital acquisitions tax. Section 37 gives effect to the proposal in my budget statement to grant relief from capital acquisitions tax to gifts and inheritances of heritage houses and gardens subject to certain conditions being met. One of these conditions is the provision of reasonable facilities for viewing to members of the public. Section 38 amends the conditions for the granting of an exemption from capital acquisitions tax in the case of certain Government securities which are taken by persons who are neither domiciled nor ordinarily resident in the State.
Sections 39, 40 and 42 relate to the changes in capital acquisitions tax which I announced in my budget statement. The thresholds of liability for three categories of beneficiaries are doubled and the ranges relating to the rates of tax to be applied in the case of such beneficiaries are correspondingly adjusted upwards. The relevant thresholds for obligatory delivery of returns are also doubled as is the annual exemption for small gifts.
Finally, I turn to Part VII which deals with a number of miscellaneous matters. Section 45 deals with two matters relating to the disclosure of information by the Revenue Commissioners. In relation to the scheme of £1,000 grants introduced by the Government last year to help first-time owner occupiers of new houses, Revenue staff will be empowered to disclose certain information to staff of the Department of the Environment. I might mention that a similar authority in relation to pay-related social welfare benefits is provided by section 12 of the Social Welfare (Pay-Related Benefit) Act, 1973. The section also empowers the Revenue Commissioners to disclose information to rating authorities in relation to the occupation of agricultural land for the purpose of establishing the entitlement of persons with valuations at or above the valuation threshold for income tax liability when the system of national aggregation of valuations provided for in the Rates on Agricultural Land (Relief) Bill, 1978 is brought into operation. Because of the administrative difficulties in applying national aggregation in 1978, aggregation this year will be on a rating area basis rather than on a national basis.
Sections 46 and 47 have been introduced in order to overcome certain technical difficulties in relation to Government guaranteed debt and to the management of the national debt. Section 48 deals with the winding up of the Road Fund with effect from 1 January 1978. The fund was originally based on the assigned revenue principle, that is to say that all revenue collected from motor taxation would be assigned to roads. This principle came to be diluted from 1966 onwards when increases in motor tax were for general Exchequer purposes. The assigned revenue principle as applied to roads was further diluted last year with the abolition of motor tax on cars up to and including 16 h.p. The fund has thus become something of an anachronism in our public finances. Instead of the Road Fund the finances for roads from this year on comes directly from the Exchequer through the Environment Vote. This does not mean any reduction in finance for roads. In fact there is a greater investment in roads this year than for some years past.
Section 49 is intended to give the Minister for Finance certain powers in relation to our official development assistance programme. As Deputies will be aware, Ireland now makes a significant contribution to developing countries both directly by way of our bilateral programme and, indirectly, through the aegis of certain international organisations, for example, the European Communities or the United Nations. The provision of loans by developed countries and their guaranteeing of loans given by a third party to developing countries are important instruments of development co-operation. Section 49 will allow the use of such instruments as and when it is considered appropriate.
Section 50 provides for the repeal of certain enactments. The effect of one of these repeals is to abolish the remaining part of the rebate payable to brewers using home-roasted, homeflaked or home-malted cereals. This is being done in response to a formal complaint by the Commission of the European Communities that the rebate is incompatible with the EEC Treaty.
I commend the Bill to the House.
