This is a very substantial Bill and one about which we could talk at great length, but given the time available I will just deal with a few issues.
The Government's economic strategy set out in the 1987Programme for National Recovery laid the groundwork for the exceptional performance of the Irish economy in the period since then. The new measures agreed with the social partners in the Programme for Economic and Social Progress will further consolidate and build on the progress made to date. The pace and extent of our economic recovery is a tribute to the workers of Ireland. Through pay restraint they have lowered inflation and paved the way for the general upturn in the economy and for the increase in employment. Living standards have improved as a result and successive income tax reductions have significantly increased real take-home pay. High nominal pay increases mean nothing when they are outpaced by inflation. The spiral of rising prices which so harassed people trying to manage family budgets is now ended.
On the business front, our performance in fostering further investment and employment growth has outstripped that of our nearest neighbour. Inflation now stands at 2.6 per cent, and is continuing to decline. This compares with over 8 per cent in the UK. Wage inflation is less than 5 per cent against 9.25 per cent in the UK. Interest rates here have fallen to 10.75 per cent so that costs to business here of raising finance are considerably less than that of their British counterparts, where the interest rate is in excess of 12 per cent.
We have now had four years of growth, averaging 4 per cent. Our objective is to continue that growth. Low rates of interest and inflation, and a stable exchange rate will maintain a high rate of investment and these must be our priorities. Even in this most difficult year we will maintain a growth rate of 2.25 per cent while most economies are in recession. Ireland is now seen internationally as an attractive investment location. The US Department of Commerce has recently identified Ireland as the most profitable location in Europe. Their experience is that the average rate of return of US companies in Ireland is four times the EC average. The measures in this Finance Bill will enhance our position. Foreign industry can invest here in the knowledge that they are gaining access to an economic market of 340 million people, which will provide a high rate of return on capital. The 10 per cent rate of corporation tax for manufacturing industry which has been extended to the year 2010 compares with an average rate of 39 per cent in the EC.
We are well placed because of our greatly improved economic standing to receive a major inflow of new investment. The Programme for Economic and Social Progress will attract this investment by creating a stable environment in which industry can prosper. Industry needs to prosper and we need the extra jobs. Apart from the international dimension, this Bill contains a number of measures to support community based job creation projects. Section 34 of the Bill relaxes the conditions under which dividends received by companies in the State from their foreign subsidiaries are relieved from corporation tax. This measure is specifically designed to enhance job creation.
Section 33 of the Finance Bill extends to 31 March 1992, the period during which a donation to the Trust for Community Initiatives made by a company may be treated for tax purposes as a trading expense. The trust provides startup capital for projects which will create jobs in areas of high unemployment. It is of great benefit to those who may have a good idea for job creation but who do not have the equity or track record which a bank or lending institution would require before providing funding.
I would like to refer to the area-based strategy for the long term unemployed. Our response to the problem of long term unemployment outlined in the Programme for Economic and Social Progress may well come to be recognised as one of the most fundamental changes brought about by the programme. We are establishing a new integrated partnership between the local community and public agencies to remedy the social deprivation that exists in many black spot areas of high unemployment. This strategy will ensure that the long term unemployed have the opportunity of training, work experience and second chance education leading to qualifications and, therefore, a greater real possibility of a job. Arrangements are now well in hand to give effect to the proposals. Twelve pilot locations have been selected: Dublin inner city, Tallaght, Coolock-Darndale, Finglas, Ballymun, Cork north city, Limerick city, Dundalk, north Mayo, south Kerry, west Waterford and south-west Wexford. Local companies limited by guarantee, will be established to co-ordinate the response in the pilot areas. The companies will be representative of local community interests, public agencies and social partners. It is intended that the local companies will be operational at the beginning of May. In many ways the strategy mirrors that of the nationwide Community Development Programme which we introduced in 1990. Under that programme grants are being made to locally based projects to equip and staff resource centres. These are a focal point for community development in disadvantaged urban and rural areas. The expertise gained by local interests in community development will ensure the successful implementation of the new strategy.
This Bill contains important new measures to improve the financial position of pensioners and to help the bereaved. A special allowance is being introduced to help families financially at a time of bereavement. This will apply to widowed parents and qualifying children who are bereaved on or after 6 April 1991. The allowance, which will apply for three years, will be: £1,500 in the first year; £1,000 in the second year; and £500 in the third year. In addition, I introduced a new measure this year to give families on social welfare financial help at a time of bereavement. Under the new Social Welfare Act, we will pay the full social welfare payment for six weeks after the death of a spouse or child. These are two important measures, one in relation to tax and the other to social welfare.
The extension of the adult dependant payments will apply to all those in receipt of disability benefit, unemployment benefit, short and long term unemployment assistance, injury benefit and supplementary welfare allowance. The six weeks extension of the child dependant allowance will apply to all short and long term social welfare payments.
The Bill also provides that a person aged 55 years or more who inherits a house or part of a house from a brother or sister will be entitled to a special relief from inheritance tax if they have lived in the house for five years prior to the owner's death. The effect of this relief will be to reduce the survivor's liability for capital acquisitions tax. For taxation purposes only, the value of the house will be reduced by 50 per cent or £50,000, whichever is less. This provision does not affect the real market value of the house.
Dwellings with a market value up to £43,000 will be completely exempted from capital acquisitions tax. There will be tax savings where the value is above the figure. Where a half share of the house inherited, no capital acquisitions tax will arise where its market value does not exceed £86,000. These are very important measures for pensioners and those aged 55 years or more.
Suitable housing for elderly people and the provision of options for people who, because of their age are no longer comfortable at home, are issues which I have taken up in my capacity as Minister for Social Welfare. Many elderly persons are living in houses which have been their homes for many years, but which are no longer suited to their needs and which they are no longer in a position to maintain. Although they may be able to find alternative accommodation which is more suited to their needs or have the opportunity to avail of sheltered housing, they face the dilemma that, if they sell their homes, they may lose all or part of their old age pensions. This arises because the capital realised on the sale of the house will fall to be assessed as means under the rules for assessing capital for non-contributory pension purposes. Faced with this situation many elderly persons may hold on to their homes, perhaps eventually ending up in hospital or in institutionalised care instead of living out their lives in comfortable circumstances in the community.
Next month I will make regulations exempting the proceeds from the sale of a pensioner's home in such circumstances from the means test. The necessary discussions with the Department of Health and Environment are now completed.
In recent years the range of benefits for pensioners has grown enormously. There are a myriad of schemes and fringe benefits now available to retired people. Deputies will be familiar with the free travel, free electricity scheme and free TV licence, but there are also a range of tax benefits and health board and local authority schemes for pensioners. We are recognised as a people for the extent of our commitment to providing for the elderly. This is a reflection of the priorities set by the Irish people. As we move into the new society of the nineties we plan to ensure that retired workers will continue to be a priority.
We must ensure that pensioners are fully taking up all that they are entitled to and indeed they should also be encouraged to arrange their affairs to ensure that they maximise their entitlements. I am now making arrangements to introduce a specialist information and advice service for pensioners. We make payments to over 310,000 pensioners each week. Our expenditure on pensions is running at £950 million a year or 33 per cent of the total social welfare budget. The new service will help pensioners to improve their standard of living in retirement by assisting them to maximise the benefits to them under State and other services.
Pensioners are known to be the most assiduous of savers but many people do not make the most of their savings because they do not fully understand how the means tests or the tax system work. In some cases pensioners have been known to put themselves at risk of robbery because they are afraid to lodge their money in a financial institution. The new service is intended to dispel such fears. The emphasis will be on encouraging people to apply for all their entitlements and to arrange their affairs to suit their own situation.
The pensioners' advice service will in particular: explain basic entitlements and how they are affected by savings/ investments and assets such as property; explain pro-rata pensions and pensions for people who worked outside Ireland; provide basic tax information affecting pensioners; explain what type of expert financial information is available from outside agencies; and provide information and referral for advice, if required, on household budgeting and money management. It will not recommend particular investments or institutions or make investment for pensioners. Neither will it recommend particular courses of action to pensioners but will provide the information on which decisions can be made.
We have already extended the range of information on social welfare topics of particular interest to pensioners. An information leaflet about savings introduced a few years ago was very well received. Our most recent guide, which deals with occupational pensions, is being reprinted because of high demand. It was a total sell out.
The new service will co-ordinate all the existing information available for pensioners. It will identify particular financial issues of importance to pensioners. For example, the effects of disposing of assets such as a smallholding or savings or a private house are topics of concern to many people as they get older and cannot manage.
This service will give pensioners the confidence to make the best use of their savings for their own benefit by reassuring them about their entitlements, dispelling any misunderstandings about the effects of savings on entitlements and providing practical information about where they can go for advice about their savings.
New technology has made possible major improvements in the way in which information can be disseminated but older people can benefit greatly from a highly personalised face-to-face service. Developments such as pensions for former emigrants under reciprocal agreements with countries outside the EC or changes in the means test which allow the sale of a private house to be disregarded in certain circumstances can best be explained at personal interviews.
The new service will be locally based within my Department's information service but with a headquarters-based coordinator who will specialise in financial issues affecting pensioners. The new service will be piloted in a number of centres around the country.
Deputies will be aware that we are localising our services to the greatest extent possible while at the same time introducing the most modern technology. As part of this development we hope to give a better service locally and one of the groups that will particularly benefit from this is the pensioners.
Occupational pensions have an increasingly important role in supplementing the incomes of retired people. Last December I formally set up the Pensions Board to supervise the implementation of the Pensions Act, 1990. Deputies will be glad to know that it is making rapid progress with its work and with the recruitment of staff. The Act provides that the administrative expenses of the board are to be financed in full by fees payable by occupational pension schemes. It is my intention and that of the Government that the fees should be used only for the purpose of meeting necessary administrative expenses. I have made it clear to the board that we want to keep the expenses to what is necessary so that the charges are minimal.
The fees will be collected by the Board itself and the whole procedure will be entirely separated from my own Department's financial arrangements. I have asked the board, as a priority, to advise me on the level of fee and the basis for levying it. I expect to receive their recommendations within the next two weeks. I will then be in a position to make an announcement on the matter so that schemes will have adequate notice to enable them to make the necessary financial provision. The board intends to have arrangements for the registration of schemes and the collection of fees in place by September at the latest.
As the Board has been established as a body corporate it would in the normal course be subject to corporation tax. However, this would in effect give rise to a form of double taxation. Schemes would be required under the Pensions Act to pay fees to finance the board's activities. There could then be a liability on the board to pay corporation tax on any surplus of fee income at year end. This surplus could instead be used to reduce the fees payable the following year. I am pleased to say that specific provision has been made in section 35 of this Finance Bill to exempt the Pensions Board from corporation tax. This is a clear indication to employers and employees, who finance occupational pension schemes, that the Government have no intention of imposing any additional burdens on schemes over and above what is required to finance the essential administrative expenses of the Pensions Board.
This Government's policy of decentralising Civil Service functions has been a major success. It provides a welcome boost for local economies and increases the demand for housing, goods and services in the areas concerned. This in turn leads to the creation of jobs. My own Department have played a major part in that process through the relocation of the Pensions Services Office to Sligo in 1989 and the recent transfer of Child Benefit and Treatment Benefits Sections to Letterkenny. There are now over three hundred and fifty Social Welfare staff in the Pensions Services Office in Sligo. Salaries alone will inject over £2.7 million per annum into the local economy of Sligo town and surrounding regions of south Donegal, Mayo and Leitrim. The relocation of 172 staff of my Department to Letterkenny has increased the income of the town and its environs by £1.8 million annually. Almost half the junior staff involved in both moves were recruited locally. I would like to take this opportunity to thank and congratulate management, staff and unions on the smooth and professional transfer of these major functions to Sligo and Letterkenny.
While continuing our strategy of sound economic management we are also making substantial progress, despite international uncertainties, in key areas like the reduction of taxes, greater social equity and welfare improvements. The improvement in the public finances achieved under the Programme for National Recovery made possible substantial income tax reductions and increases in social welfare payments. These increases were ahead of the rate of inflation each year.
In my travels in other countries, seeing their economic depression, even if it is only mild depression at this stage, they are very envious of what has been achieved by the Programme for National Recovery here and of the prospects for the Programme for Economic and Social Progress. As a result those at work and those who depend on social welfare and their families gained in real terms over the last three years. This contrasted sharply with the period prior to 1987 when most people lost out. We recognise that those on social welfare benefits, particularly those with large families, deserve as our economy grows to share in the rising living standards of the community as a whole. The social welfare commitments in the Programme for Economic and Social Progress will ensure that that objective is met.
I believe that the Minister for Finance has got the balance right in this Finance Bill. In addition to keeping the economy on the sound path which the partners in the Programme for Economic and Social Progress have set out, the Bill takes some of the first steps to implement improvements. This Bill begins that and will deliver what we all want to see, that is, employment for the many returning emigrants — because there are thousands of emigrants returning to Ireland at this time and depending on Ireland for their future. There are thousands of people unemployed who likewise depend on us. I have pleasure in commending this Bill to the House as a very important instrument in the overall strategy.