I move: "That the Bill be now read a Second Time."
The primary purpose of this Bill is to give statutory effect to certain taxation changes announced in the budget including income splitting for married couples, changes in farming taxation and in excise duties and the introduction of a 10 per cent rate of corporation tax for manufacturing companies. The Bill also incorporates a number of concessions which were not announced in the budget and which arise mainly as a consequence of income splitting. In addition it contains provisions in relation to the administration of the taxation system.
The principal aims of my 1980 budget were to make progress towards greater equity in the tax system and to make a start on reducing the level of Government borrowing, particularly for current purposes. I sought to achieve these aims while at the same time protecting the sources of economic growth and improving the position of those on lower incomes.
In the budget the most significant development from the taxation viewpoint was the introduction of income splitting. This is a radical improvement which goes way beyond the requirements of the Supreme Court decision. The Government took a very positive approach to the situation and decided to give immediate effect to their longer term intention of introducing income splitting as expressed in the national understanding. They were determined that the benefits of income splitting should not be restricted to couples with two incomes but should be shared by all couples. The net effect of the budget decisions on personal taxation is an unprecedented degree of tax relief. This in turn has increased very substantially the purchasing power of households. Special attention in this respect was given to the position of those on low incomes by removing large numbers of them from the tax net completely. I will return to this topic later when dealing with the appropriate sections in the Bill.
Reference to purchasing power leads me to the question of incomes. We are now moving towards the next phase of wage negotiations and I sincerely hope that discussions can get under way without delay and be concluded successfully. I must emphasise again the absolute need for moderate increases in pay. All progress is undermined if we pay ourselves inordinate wage increases. We must take example from our partners in the European Monetary System where wage rises generally are far below what we have become accustomed to. If I may go further afield, Deputies will have noted the major upheaval in Sweden in the past week which led to a final settlement of less than 7 per cent, a figure deemed to be exceptionally high by their standards.
It must be a matter of most serious concern to us that demands continue for very high increases, particularly in the public sector. These demands frankly, are well beyond what the Government would have regarded as appropriate when the budget was being framed. The consequence, unfortunately, if these are conceded must be more taxation and undermining of the benefits introduced in this year's package of tax reliefs or else a reduction in public expenditure.
Is it not reasonable to expect that in pursuing special or general claims, negotiators would take fully into account the real and significant increases in income as a result of the unprecedented income tax allowances being introduced in this Bill? Is it not reasonable to suggest that every inordinate increase for any special group—and every group tends to think of itself as special—can only be at the expense of taxpayers generally, or even at the expense of the really special group in our society, the old, the sick and the handicapped? The Government's concern for this group was particularly reflected in the budget and I believe this concern is fully shared by the community at large.
The community cannot be called on indefinitely to fund higher and higher income increases. The higher these increases, the less effectively we will be able to respond to the needs of the weaker sections of society and, indeed, the less we will also be able to provide for the creation of more employment.
I am making an appeal therefore to wage negotiators to take the unparalleled tax concessions of the 1980 budget into account when they sit down at the negotiating table. There has been much reference to the impact of the indirect tax increases in the budget on the consumer price index. Yes, it has had an impact, less than 4 per cent. This must be balanced against the increase in purchasing power granted by the income tax concessions. It is the increase in disposable incomes as a consequence of the budget measures rather than the consumer price index change that should be the decisive factor in influencing the size of wage demands.
The external situation makes it more necessary than ever for us to be very careful in our domestic conduct so as not to exacerbate the problems which face us. In this year's budget, I avoided taking more stringent action to close the gap in Government finances and in the balance of payments, which would have been desirable in more favourable economic circumstances, but which might in present circumstances have sent the economy into recession. The high degree of Government borrowing, particularly borrowing to finance current expenditure, and the large deficit in our balance of payments must be corrected. The budget changes will not solve our problems all at once; the progress which they have set in motion will have to be built on in future years.
I now turn to the individual sections of the Bill. I do not propose to comment on all the sections but I would like to identify the main provisions.
Section 1 exempts from income tax those with low incomes. The exemption limits, as announced in the Budget Statement, are £1,700 for single and widowed persons, and £3,400 for married couples who opt for assessment on their combined income.
Provision is made in the following section for increased exemption limits for the elderly. For those who are 65 years or over but under 75 years the exemption limits are £2,000 for single and widowed persons and £4,000 for married couples. Limits of £2,500 for single and widowed persons, and £5,000 for married couples, are available to those aged 75 or upwards.
Sections 3, 4 and 5 deal with the personal reliefs. They contain provisions to (a) adjust the personal allowances to take account of the new scheme of taxation announced in the budget for married couples, (b) increase the one-parent family allowance from £250 to £500, (c) allow widows, in the year of bereavement, the married allowance of £2,230 instead of the widowed person's allowance of £1,185, (d) provide the special PAYE allowance of £400 as announced in the budget, and (e) decrease the ordinary child allowance by £23. As indicated in my Budget Statement, this reduction is taking place in conjunction with improved social welfare children's allowances and will ensure that resources, necessarily limited, are directed to those most in need. There are also other personal reliefs relating to incapacitated persons.
Section 6 provides that where a married couple opt for assessment on their aggregate incomes, the limit on life assurance premiums which qualify for relief will be increased from £1,000 to £2,000. Section 7 relates to income tax relief in respect of loan interest. Where a married couple elect to be taxed on their combined incomes the maximum amount of interest which may be allowed for income tax purposes is increased to £4,800. The limit for single, widowed and married persons assessed as single persons remains at £2,400.
Section 8 contains the income tax rates and rate bands announced in the budget. Where a married couple elect to be assessed on their combined incomes they will be entitled to the rate bands set out in Part II of the Table. These bands are twice those applicable to single persons and give effect to the scheme of income splitting.
Sections 9 to 16 are concerned with a variety of changes including tax exemption for military service pensions and an improvement in relief for loss of employment compensation. The limit on relief for married couples in respect of residence related expenditure is being doubled and provision is being made to enable a trade union to increase provident benefits for its members without losing its exemption from tax on dividends and other income applicable for such benefits.
Section 13 provides for the due dates on which the self-employed, including farmers, will pay their tax.
Chapter II deals with the taxation of married couples. Sections 192 to 198 of the Income Tax Act, 1967 have been rewritten to take account of the Supreme Court's decision on the taxation of married persons and as a consequences of the Government's decision to introduce income splitting for all married couples.
The new provisions will give married couples the choice of three options (a) assessment of each spouse as a single person, (b) assessment of the aggregated incomes of both partners, and (c) where aggregation is exercised, the couple will have the further right of separate assessment. In effect they will be able to apportion between them the total allowances and reliefs to which they are entitled so that each spouse may be separately responsible for his or her share of their total tax liability.
Section 17 contains the revised special provisions for married persons. Each spouse, unless both otherwise elect, will be charged to tax as a single person. Where a husband and wife so elect, the husband will be chargeable to tax in respect of his own and his wife's income. This election may be made at any time in the year of assessment and will apply for subsequent years unless it is withdrawn by either spouse.
For the vast majority of married couples, whether or not both spouses have income, it will be more beneficial to be assessed on their combined incomes. To facilitate these couples it is provided that, unless notice to the contrary is given by either spouse, married couples will be deemed to have elected for aggregation.
Where the couple are assessed on their combined incomes, they will be entitled to make application for separate assessment. The effect of such an application is that although they will still retain the benefits of income splitting, in that their total tax liability will not be increased, their allowances and reliefs will be apportioned between them and each spouse will be answerable for the tax in respect of his or her income.
Chapter III makes provision for the changes in the taxation of farming profits which I announced in my Budget Statement. Since the budget, we have had very useful and satisfactory discussions with the farming organisations. As I indicated in my reply to the budget debate, these discussions have resulted in agreement on a number of technical adjustments to the arrangements announced in the budget.
Section 19 provides for the lowering of the threshold for liability from £50 RV to £40 RV. It also provides for marginal relief between £40 RV and £49 RV. Section 20 allows farmers between £40 RV and £50 RV, who are becoming liable for the first time, to opt to be assessed on the basis of current year's accounts rather than the normal previous year's accounts. Section 21 ends the notional basis of assessment. As from 1980/81 all farmers who are liable for income tax will be assessed on the basis of their actual profits as shown in accounts.
Section 22 amends section 28 of the Finance Act, 1974, which provides for the restriction of the personal allowances which can be set against the non-farming income of a farmer between £20 RV and £40 RV. It provides that, where the non-farming income in question is the income of the wife, she will be assessed on that income as a single person but she will, of course, qualify for child allowances. As the husband's farming profits are exempt in such cases there will be no option to aggregate.
Section 23 restricts to 30 per cent of net profit the total amount of capital allowances which can be claimed in any one year where a farmer claims accelerated depreciation for plant and machinery. The restriction will not apply where only the basic rates of wear and tear are claimed. Neither will it apply in the case of the farm buildings allowance or free depreciation for farm works such as fencing, drainage and so on.
Section 24 amends section 17 of the Finance Act, 1974, to take account of the Supreme Court decision on the taxation of married couples. Section 17 was designed to prevent division of holdings for the purpose of avoiding liability. The present section provides that land which is both owned and occupied by a wife in her own right will not be aggregated with that of her husband for the purposes of the threshold. Where land is jointly owned each of the joint owners will be deemed to occupy all of the land for the purposes of the threshold for liability to income tax on farming profits. The actual tax charge will, of course, be determined by reference to the appropriate share of the profits.
One particular issue which I know is of concern to farmers is income averaging. Technical discussions between the farming organisations and the Revenue Commissioners are proceeding with a view to the inclusion of the necessary provisions in next year's Finance Bill.
Chapter IV containing sections 25 to 31, provides for the resource tax. It will apply at a rate of £3.50 per £ RV to all holdings of £70 RV and over, with marginal relief applying between £70 RV and £79 RV, and will be payable on 1 October. The resource tax will not be a deductible expense for tax purposes. I would like to repeat that it is not the Government's intention that the resource tax should be a permanent feature of the farm tax system. It will be reviewed at the end of the year in the light of the operation of the farm tax system generally and the overall amount of the yield.
There is one section in chapter V, section 32, and this provides for the continuation of the special 25 per cent corporation tax rate for manufacturing companies achieving certain employment targets. As announced in the budget, the scheme is being continued to end-December 1980 after which the new 10 per cent corporation tax rate will take effect for manufacturing generally.
Chapter VI provides for a new rate of corporation tax of about 10 per cent in respect of income arising to companies from sales of goods manufactured by them in the state. The scheme is broadly intended to replace our major industrial incentive of export sales relief and also Shannon relief. The new scheme will be applicable to goods sold on both export markets and the home market. It will operate from 1 January 1981 to the end of the century and will provide not only a very attractive incentive to foreign industrialists but will also give Irish entrepreneurs a most favourable climate for investing in our future growth and prosperity.
Distributions from profits which have borne the new rate of tax will be liable to tax in the normal manner but will carry a reduced tax credit of one-eighteenth which represents about one half of the tax on the underlying profits.
Section 34 defines goods for the purposes of this chapter and also brings manufacturing activities not involving the actual sale of goods within the ambit of the relief. As is the case in regard to export sales relief, sales into intervention are excluded.
The main relieving section is section 36. This provides for a reduction of seven-ninths—that is, from a rate of 45 per cent to a rate of 10 per cent or, in the case of the "small companies' rate", from 35 per cent to about 7.78 per cent—in the corporation tax applicable to income from the sale of goods. The relief will be available subject to a claim being made within a prescribed time limit. The section specifies the method to be used in the computation of relief, the principal feature of which is that tax falling to be reduced is to be quantified as the same proportion of the corporation tax payable by a claimant company on its total profits exclusive of capital gains as its income from the sale of goods, arrived at by reference to its sales, bears to its total chargeable income.
Section 37 and 38 terminate export sales relief and Shannon relief as from 1 January 1981. A company entitled at that time, however, to export sales relief or Shannon relief may continue to claim that relief until its present span of relief expires or until it opts irrevocably to avail of the new relief. I am also making provision for the granting of assurances in relation to export sales relief and Shannon relief in certain cases where the conditions relating to such relief are not fulfilled by 31 December 1980. Section 37 also contains a number of technical amendments to the Corporation Tax Act, 1976.
Section 39 is an anti-avoidance measure designed to counter certain avoidance arrangements between associated persons.
Section 40 provides that distributions out of income which has borne tax at the new rate will carry a reduced tax credit. It also provides the means by which such distributions are to be identified. Where distributions by a company exceed the aggregate of the company's income which has borne tax at the new reduced rate, less the tax thereon and of the relevant distributions received by it, the excess will be treated as a separate distribution carrying the higher tax credit applicable under existing law. That aggregate will constitute what is described as the primary fund. Provision is also made in this section for a reduction in relief granted to a company if the amount of a tax credit is overstated by the company in any statement accompanying a dividend warrant or cheque.
Section 41-46 are mainly of a technical nature and relate to deductions which may be made when calculating the primary fund, to reductions in tax relief and to other matters.
Chapter VII contains a number of miscellaneous income and corporation tax measures. In section 47 provision is made enabling the Revenue Commissioners to continue for a further two years the present taxation arrangements with building societies under which the societies pay income tax at a special composite rate on certain interest paid to investors. The following sections provide for a continuation of stock relief and for ammendments of some provisions relating to appeals. Section 51 implements the decision announced in the budget to limit for tax purposes the deduction allowed in respect of business entertainment expenses to 50 per cent of the amount otherwise allowable. There is a similar restriction on the capital allowances which can be claimed on assets used for business entertainment.
In relation to anti-evasion there is a provision in section 52 to ensure that the penalties for assisting another person to make false returns will apply to a person who knowingly and wilfully aids or induces another to evade tax.
The power of inspection of business records is being extended to professions. Provision is being made to limit the Revenue Commissioners' examination to the financial records only and to ensure that the person carrying on the profession will not be obliged to disclose information, or professional advice, of a confidential nature given to a client or patient. He will be obliged to produce only such documents as are material to his own tax liability.
A number of changes are being made in the capital gains tax code in line with the changes in the income tax treatment of married couples. Up to now a married couple living together obtained exemption only for the first £500 of their joint net gains, the same amount as a single person. This married couple exemption is now being doubled to £1,000. Also, the exemption of gains arising on the disposal of a dwelling-house occupied by a dependent relative of the owner is now being given to each spouse, where each spouse so qualifies.
Part II of the Bill deals with customs and excise matters.
The individual sections 58 to 64 confirm the budget increases in excise duties on beer, spirits, tobacco products, wine and made wine, cider and perry, table waters and hydrocarbon oils.
Section 65 increases by 5 per cent the rate of excise duty chargeable on motor cars and motor cycles. As I indicated in my Budget Statement, this represents an increase of the order of 3½ per cent in the retail price. Sections 66 and 67 provide for increases in the excise duties on televisions and gramophone records.
Section 68 confirms the increases in the rate of excise duty on gaming machines licences. The main rate has been doubled to £100 a year for each machine from £50. The reduced rate licence has been increased to £66 a year, but it now also allows the machines to be operated on Saturdays as well as Sundays and public holidays. Section 69 imposes a new excise duty of 20p on mechanical lighters and provides the legal and administrative framework, including penalties, which are required to implement the duty.
Sections 70 and 71 increase the rate of duty on various licences. I referred to these in my Budget Statement when I said that I was having them examined with a view to increasing the duty, where appropriate, in order to bring them up to a realistic level in present-day terms or, at least, to cover the present-day costs of administering them.
Parts III, IV and V of the Bill relate to value-added tax, capital acquisitions tax and stamp duties.
Provision is made in section 73 for an increase to 25 per cent as and from 1 May 1980 in the 20 per cent VAT rate previously applying to certain goods and services. Section 74 provides for the increase in the relief for agricultural property for capital acquisitions tax which I announced in the budget.
Section 75 is aimed at preventing the abuse of a stamp duty relief available in the case of conveyances or transfers of property between certain associated companies, and an order made last July which covered the matters now dealt with in this section is revoked in section 77. The budget proposal for a stamp duty of 1½ per cent on on-course bets entered into at horse races and greyhound races, which will come into effect from 1 July 1980 is implemented in section 76.
The last part of the Bill, Part VI, contains a number of miscellaneous provisions including increases in motor vehicle duties which I announced in the budget and increase in trade plate licences.
Finally, there are a number of additional measures which it has not been possible to finalise in the time available for the preparation of this Bill and I propose to introduce these by way of amendments on Committee Stage.
I envisaged some marginal adjustments in relation to the taxation arrangements for farmers. These will relate to the calculation of stock relief in respect of stock increases, the restriction of capital allowances for plant and machinery and the provisions for the write-off of expenditure on farm buildings. As I have already announced, I propose also to provide for an increase in the exemption limit on interest paid on deposit accounts with the Post Office Savings Bank and the Trustee Savings Banks from £70 to £150. These institutions have traditionally catered for the small saver and their position has been weakened as a consequence of the high increases in interest rates in particular. In order to enable them to sustain their business I consider it appropriate that they should be given some marginal advantage in regard to tax exemptions.
There will be a number of technical amendments relating to the administration of the tax system and I do not envisage that any of these will have significant consequences. There may also be some further proposals of a minor nature relating to excise duties.
The Bill before you is long and complex. The translation into legislation of the Supreme Court decisions on the taxation of married persons has raised difficulties which, I trust, are resolved in a fair and equitable manner for all taxpayers. I am still examining the implications of the Supreme Court judgment of 25 April on the operation of this decision and it may be necessary to introduce amendments to this Bill as a consequence of the judgment. The statutory arrangements for the introduction of the 10 per cent rate of corporation tax on manufacturing profits also gave rise to complications which required very careful analysis. In all, the new concessions envisaged in this Bill, which were not incorporated in the budget, will result in a reduction in tax revenue of almost £5 million in a full year.
I commend the Bill to the House.