Deputy McDowell is in possession.
Finance Bill, 2001: Second Stage (Resumed).
I move amendment No. 1:
To delete all words after "That" and substitute the following:
(1) that the Bill continues the pattern of previous Finance Bills introduced by this Government in that tax changes disproportionately favour the better of;
(2) that the proposed tax concessions on share options will greatly favour some highly paid individuals, while large sections of the workforce will be totally excluded from the benefits of the scheme;
(3) that the Minister for Finance has reneged on a commitment to introduce a 60% rate of capital gains tax to penalise those who fail to make zoned land available for residential development; and
(4) that the Bill, as published, fails to give any details of the Government's proposed savings incentive scheme,
Dáil Éireann declines to give a Second Reading to the Finance Bill, 2001.".
I want to deal with some specific provisions in the Bill, in particular, those most recently announced by the Minister. He announced an interesting and elaborate savings scheme as part of an amendment to the Bill, which we have not yet seen. That is worthy of a good deal of study and comment. My first response to it is that it runs counter to much of what the Minister said about savings in recent months. In response to a parliamentary question tabled a few months ago, he cast great doubt on the reliability of savings ratio data. He seemed to suggest that in so far as the data suggest anything they seem to suggest the savings ratio has been increasing in recent years. He did not give any indication up to the period immediately prior to the budget that he was interested in increasing the savings ratio. My conclusion from that is he is doing this in response to the European Commission or the inspiration for this measure came from elsewhere in Government. The measure is before us and we must consider it.
On a micro level in terms of the customer, citizen or adult beneficiary, that savings scheme is superficially at least a pretty attractive one. It amounts year on year to a benefit of about 8%, perhaps 9%, although it is difficult to gainsay that. If I had a few bob or a few euros, I would not hesitate to put it aside.
On a macro level, the message is entirely different and much more mixed. The Minister pumped a great deal of additional money into the economy last December and a few weeks later he is seeking to find some means of taking it out again. Whether he is successful in doing that, only time will tell, but it casts some doubt at least on the wisdom of the original strategy.
On the level of detail, I have concerns about the operation of the scheme, which perhaps the Minister could address when responding on Second Stage or during Committee Stage. The obvious concern is that we do not know from where the money is coming. We do not know whether any moneys that will be invested in products that are part of this scheme will be new moneys that will represent new savings or whether they will be simply displacing savings already in existence. The likelihood must be that people who get 2% or 3% from money on deposit in banks will surely invest in these new products and get a greater benefit from the State. I doubt whether that will be of any long-term benefit in terms of taking money out of the economy, although it will be of some benefit to the individuals concerned.
There will be a difficulty if many people were to avail of this scheme. On the face of it, there is a good chance many people will take advantage of it. If 500,000 people were to use it, I reckon the year-on-year cost would be about £250 million or 325 million. Most of that will come into play when money is taken out in five or six years. Therefore, the cost to the State will be considerable given the way in which the Minister has set up the scheme. It will effectively allow people to earn a considerable amount more tax free in any given year provided they set aside the money. What effort has been made in the Department to calculate the cost of the scheme? In response to questions last week, the Minister said it would cost £100 million. However, this is based on a rela tively low level of take up. I am interested to know how the Minister reached that estimate because it is relatively low. If the cost could be multiples of that amount, I question whether it is a good use of resources in terms of the Exchequer position. It can support such a scheme today, but we do not know if it will be able to do so in five or six years.
One must have money if one is to take advantage of the scheme. If one is to benefit significantly from it, one would need to invest close to the maximum amount of £200 a month. It is likely that people who have money will open more than one account, perhaps in the name of a relative or friend. At that level, it will, in effect, amount to little more than an additional tax break for people who already have money. Those who do not have money cannot save it in the first place. In recent years, many people have taken out mortgages and borrowed to the hilt. They know that few people in that category can afford to save an extra £100 or £200 a month.
There is also a concern that banks may abuse the scheme. They may either introduce charges that will claw back a significant amount of the benefit or engage in what is effectively back to back lending. They may lend up front on the strength of money that will be taken in later. This would be a significant abuse of the scheme, but I am not sure if the Minister can prevent it legislatively. It would be difficult to do so, but, undoubtedly, banks and credit institutions are considering whether they can manufacture schemes that will channel a major portion of the additional benefit to themselves rather than individual customers.
Why has An Post not been given a much more significant role in the operation of the scheme, which is analogous to the post office certificates scheme with which many Members of the House are familiar? Until relatively recently, these certificates provided a good return provided one left one's money with the post office for three to five years. This money was then available to the State for day to day services, although in recent years it has moved it around. An Post should have been given a much more significant role. There should have been an encouragement for people to lodge money by way of certificates or other products that An Post, through the NTMA, might wish to develop and I regret that is not the case. I ask the Minister to explicitly confirm that An Post will participate in the scheme and will offer products to the public. He should use his offices to ensure that is the case because concern has been expressed in recent days that this will not happen.
I support the principle of share options and financial participation. Employees in a place of work, such as an office, company or partnership, should be encouraged to financially participate in the running of the operation. They should be stakeholders. However, I do not support the scheme set out by the Minister. There is a need to consider the underlying principle of these schemes. I read with interest extracts from the PEPPER report, which was produced by the European Commission some years ago. The major impetus must be to infuse a certain loyalty in workers so that they view their interests as analogous to the interests of the company for which they work. It should motivate people to greater productivity and profitability. From the employers' point of view, it also allows certain flexibility in terms of remuneration. They can allow employees to earn more when times are good or take less by way of bonuses when times are bad.
The essential principle is that it should be a perk, a bonus and an incentive and not a replacement for a huge chunk of income. If employers want to pay workers more, they should do so. Income tax should be paid on foot of that and employers' PRSI should be paid on the full salary. Many corporations and companies in Ireland are much more profitable than they were up to eight years ago. The return on capital in the economy has improved considerably in recent years. In addition, the rate of corporation tax has been dramatically reduced so many employers are in a much better position to pay key workers more than in the past.
Any scheme should have been available on more or less equal terms to all employees. If the Minister's scheme is a genuine move to give people a genuine stakeholding in a company, 30% should not have been set aside for key employees. However, the scheme is intended to replace the salaries of already well paid workers with an additional chunk that will attract tax at a much lower rate. It is fine if employers wish to do this, but they should not seek a tax break to allow it to happen. Undoubtedly, the scheme will be used by some employers as a means of circumventing the Minister's decision to lift the ceiling on employers' PRSI, a move I deplore.
All the shares should have been available, although perhaps not on equal terms, to all the employees or at least those who have been in the company for a certain time. There should have been a limit, probably one related to salary or one expressed in simple monetary amounts. I understand this is the practice in many other countries, including the UK. If the maximum amount of share options one could attract was limited to a quarter or a third of salary, it would have been reasonable and generous in the circumstances.
It would have been wise and sensible for the Minister to introduce the scheme at the same time as he dealt with the issue of gain and profit sharing generally. When push comes to shove, share options will only be available in a relatively limited number of companies. They will only be of meaning in publicly quoted companies or in private companies where there is some expectation or hope that they might be floated in the near future. Shares in private limited companies are of relatively little use. They are not valueless, but they are much less valuable than if they were tradable on the open market. Only a relatively small number of workers in a relatively small number of companies will benefit from this measure and this is a pity. We should use this opportunity to extend stakeholding to the maximum possible number of companies and places of employment.
This is also the case with regard to gain sharing, which is of particular relevance in the public service. A performance management system is just about up and running in the public service and some means must be found of linking that to performance related pay and sharing in gains that are made in terms of performance within the public service and other employments where it is not easy to devise profit sharing schemes. I support the principle of share options and stakeholding within companies, but the measure introduced by the Minister is wrong. It is intended to facilitate legal tax avoidance on high salaries for a relatively small number of people and that is something I cannot support.
I dealt earlier with the Minister's changes in stamp duty and the anti-speculative tax that was due to come into play in April this year.
I do not wish to labour the point or repeat what I said other than to say that I am still at a loss to understand, and deeply suspicious of, the motivation behind the Minister's move. I wish to refer to the capital gains tax change he proposes to make in the Bill. It is worth asking the following question. Why did he exempt development land when he reduced CGT in his first budget from 40% to 20%? The reason must be that even he, with his strong antipathy to just about every form of capital tax, accepted that it would not look great if he was seen to give a clear, significant and valuable reward to those who were benefiting at the community's expense. There were and are people hoarding development land in the expectation of making considerable gains, many, if not all, of which would arise from the fact that the land in question had been rezoned. Even the Minister, with his particular and obvious prejudices, accepted that it would be unacceptable for him to reduce CGT on development land from 40% to 20% in his 1997 budget, if memory serves me correctly.
The first Bacon report recommended as a carrot-and-stick measure that the Minister reduce the rate of CGT on development land to 20%, but with the important proviso that it be raised again to 60% next year. The thinking was clear, it would provide for a three year period within which planning permission could be obtained and the land placed on to the market in order that it would be available for building. At the time I, among others, expressed doubt as to whether the Minister was serious.
The Minister has a well known antipathy to every form of capital tax and I found it incredible that he would even suggest that he would follow through on the "stick" element of the proposal and increase CGT to 60%. It does not surprise me in the slightest that he has not done so. I would have been amazed if he had. What did sur prise me a little was that he did not wait until next year. That he chose to do it this year surprised me because if the stick was to be effective in having land placed on the market, it was more likely to be so in the latter stages of the interim period provided for in the Bacon report. There was about 15 months to go before the 60% rate was due to take effect. Why the Minister did not leave it until the budget later this year to make the change is beyond me. Perhaps it has to do with factors unrelated to the Finance Bill. Perhaps there is a clearing of the decks and the Minister does not expect to be in a position to deliver another budget. If that is the case, perhaps he is of the view that a Minister of another hue, or from his own party, would not share his particular prejudices, but I find it surprising that he has chosen to remove this incentive either to sell or develop now.
The Bill confirms the reduction in VAT, about which I am still sceptical largely because it affects a small range of goods – beer, motor cars, cigarettes. I am not sure it would have been a priority of mine to reduce VAT on such goods, not least because they are inelastic when it comes to prices. Has the Minister dealt with the Director of Consumer Affairs and is he satisfied that that reduction has been passed on to the consumer, either in whole or in part? That is the most important question at this stage.
I welcome the tax relief being provided for on trade union contributions, something for which my colleagues in the trade union movement have been looking for some time through the partnership process. I am pleased that the Minister has seen fit to agree to this and that in future trade union contributions will be made tax free.
Under a provision introduced a couple of years ago bus passes may be provided for employees without being subject to benefit-in-kind. I am informed by Dublin Bus, however, that in practice the provision has proved difficult to operate. For example, those on fixed salaries such as civil servants find it almost impossible to avail of the scheme and employers have been unable to devise a way in which they can participate. This is a matter with which I will deal in greater detail on Committee Stage.
The PRSI system is in a mess. There is a £100 allowance, an exemption of £226 and a health levy which kicks in at the slightly higher rate of about £280. There is also a ceiling for employees. There is no longer a ceiling for employers. There is a need for a radical look at the scheme and to simplify it dramatically. The Minister would have my support in doing so. He also has my support in removing the ceiling for employers as there is a need to claw back the reduction in corporation tax in a fair and reasonable way. In most places of employment there are employees on salaries above and below the ceiling. There would be relatively few places of employment, therefore, where the employer would be at a significant disadvantage. It is an equitable and reasonable move which I am happy to support.
I am envious of the Minister who seems to be of the view that this is his last budget. He has been in a position in the past four years to take many of the steps which undoubtedly he was looking forward to taking for some time. I compliment him on that score. On a political level, I deplore almost everything he has done and hope he will not have the opportunity to repeat the exercise. Nonetheless, he must take pride in managing the economy in good times and achieving much of what he set out to achieve.
I welcome the opportunity to contribute to the debate. I am sure many Deputies will have read the remarks in a recent newspaper article about the size of the Bill in which various possibilities for shortening it were mentioned. Two of the contributory factors are the switch to a calendar tax year and the introduction of the euro, both of which are necessary and rational and require a considerable volume of legal text given that they are integral parts of the tax system.
The tax year commencing 6 April is an anachronism, a leftover from the 18th century. It seems to be much more rational to organise our tax affairs on a calendar year basis to align us with the rest of the world. It will inevitably cause extra work, not least for those who have drafted the Bill and the Legislature which must debate the measures in detail, but once the system is operational on a calendar year basis I am sure the benefits will be obvious to all and lead us to wonder why we persisted with the old system for so long.
Because of the move to a calendar year system, various figures for tax reliefs, thresholds and so forth have had to be adjusted – roughly by three quarters – to take account of the fact that the 2001 tax year will end on 31 December. Where rounding of figures is necessary, this is done to the benefit of taxpayers. In a small number of cases as the reduction may prove unfair to the taxpayers concerned, the figures remain unchanged. I cite as an example the additional five year post-bereavement tax allowance for widowed parents.
Regarding the euro, the Bill contains the necessary facilitative provisions. It follows the generally applied principle in regard to conversion to the euro, that is, of fairness to the taxpayer with no advantage being sought in the changeover. The Government is committed to that principle. The Bill provides that changes to a convenient amount in euro are rounded in favour of the citizen. This also applies in the case of penalties.
The Bill also deals with more substantive measures. It provides for putting on a statutory footing the income tax changes announced in the budget. The income tax provisions are fully in line with what the Government promised in its programme and they implement the promises made in the Programme for Prosperity and Fairness.
The increase in the personal allowances, when combined with the doubling of the PAYE allowance, will remove a further 133,000 persons from the tax net. This brings the total number of earners who have been taken out of the tax net to 668,000 or 38% approximately of all income earners. Since 1998, Government policies have almost doubled the number of people taken out of the tax net. This statistic is a measure of the success of our taxation policies in raising the living standards of the lower paid in particular.
The House will agree that encouraging people into work by ensuring that they are not penalised through the tax system for taking up employment, is by far the best anti-poverty strategy over the longer term. The increase in the personal allowances and the PAYE allowance go some considerable way to the objective of exempting the minimum wage from taxation, as Deputy Mitchell has already acknowledged. For a single person the first £144 of weekly earnings will be free of tax. For a single income married couple in receipt of the home carer's allowance, the first £308 per week will be tax exempt. That is a very substantial figure.
For the 62% of income earners who remain paying tax, the Finance Bill confirms the reduction in the rates of taxation which were announced in the budget. From 6 April this year, the standard rate of income tax will be 20%, which means the target that the Government set in its programme has been reached. Since this Government assumed office, a full six percentage points has been taken off the standard rate of tax. We have also reduced the top rate by six per centage points, in line with the commitment given in the programme for Government.
Deputies will be aware that another of the Government's key objectives in the taxation area is to have 80% of taxpayers not paying tax at the higher rate. To meet that objective, we have once again substantially widened the standard rate tax band. This will mean that from 6 April, a single person will pay tax at the new standard rate of 20% on the first £20,000 of annual income. Single earners make up more than 55% of income tax payers. For too many years, our tax system required persons on relatively modest incomes at around the average industrial wage, to pay the top rate of tax on marginal income. Increasing the standard rate band to £20,000 gives comfortable head room over the current average industrial wage. The latest phase of band widening means that the numbers paying tax at the top rate will fall to just 23% of all income earners.
The Bill also completes the transition to the tax credit system. I am sure Deputies will agree that tax credits are a fairer method than tax allowances for delivering tax reliefs to taxpayers. This is because tax credits equalise the value of tax reliefs for all taxpayers, regardless of their income. A personal credit is worth the same to a person on £250 per week as to someone who enjoys a salary of £100,000 per year.
As part of the changeover to a tax credit system, the Bill provides for the delivery of tax relief for mortgage interest and for medical insurance at source. We have increased the tasks of our system of tax administration substantially in recent years, for good policy reasons. We have to keep in mind that the PAYE system was originally designed in the 1960s for a less complex era where the range of available tax reliefs was more limited, where the number of people at work was significantly lower and where employees tended to stay with one employer for many years.
Tax relief at source will work in the following way. A person who has a medical insurance policy or makes a monthly mortgage repayment, will make his or her payment net of the tax relief. The medical insurance company, or bank, or building society will invoice the Revenue Commissioners for the tax relief. An important effect of this new approach will be that those persons who previously had insufficient income to qualify for all of the relief, will henceforth get the full tax relief as if they had the requisite income. Relief at source will remove an administrative overhead for taxpayers and for the Revenue Commissioners. For example, the new system will ensure that taxpayers will get the correct amount of relief even if the interest rate changes during the year. In such circumstances, there will no longer be any need for taxpayers to contact their local tax office.
Taxation policies, combined with the prolonged success of the Irish economy over recent years, have enhanced the personal financial circumstances of a great many people. However, in times less fortunate than those we have been experiencing lately, the Irish people were noted for their generosity to good causes, particularly for the practical expression of their solidarity with those who were less well off, wherever they were to be found. For example, our generosity to the people of the Third World in Africa, Asia and South America, is well known, as are our activities relating to certain areas of central and eastern Europe.
The Government recognises the selflessness that is characteristic of so many Irish people and which motivates them to give of their time and resources to charitable undertakings. We are anxious to support those companies and individuals who contribute so much to good causes and to encourage others to do likewise. That is why we have provided, in this Finance Bill, for a complete overhaul of the system of tax reliefs for charitable donations. Before this, there were a number of different reliefs for donations to charities and other good causes, including corporate donations to charities and donations for the benefit of heritage homes, universities and disadvantaged schools.
Section 41 simplifies and extends the reliefs. Principally, the various restrictions on the nature of the activity to be assisted and the ceilings on maximum donations which would attract relief, are being removed. For the first time, tax relief will be available for personal donations to charitably exempt bodies. There will be ade minimis relief of £250 per annum, but no upper limit.
Relief will be granted at the taxpayer's marginal rate. In the interests of administrative convenience, the tax relief will generally be paid to the beneficiary of the donation. However, those on the self-assessment system will claim the relief and a similar arrangement will apply in the case of companies, who will claim a deduction for the donation as if it were a trading expense.
I now turn to the matter of tax relief in respect of share options, to which Deputy McDowell referred earlier. The House may be used to hearing that Ireland is a small, open economy but this fact bears repetition. We cannot afford to ignore the wider global trends. We have no option but to join the first movers in many of the emerging trends. The information technology sector has been one of the major contributors to our economic success in recent years. It is well known that, in that sector in particular but not exclusively so, share option arrangements are frequently a key component in employee remuneration packages. They allow employers to reward staff in ways that are linked to the performance of the company, having regard to pre-set targets. They are crucial to the motivation and retention of staff in circumstances where talented people can trade their skills in the global market.
The Finance Bill makes the necessary adjustments to the tax system so that companies located here can hold their own in the market for scarce skills. Under the relevant provisions in the Bill, share option schemes will have to be approved by the Revenue Commissioners in much the same way as other employee share schemes gain approval at present. Provided a scheme is approved, employees benefiting under it will not be chargeable to income tax on the exercise of their share option. Instead, the employee will be liable to capital gains tax on the full amount of the gain when he or she disposes of the shares.
In order for the Revenue Commissioners to approve a share option scheme, a number of requirements will have to be satisfied. First, the shares must be held for at least three years, that is from the date the option is granted to the date the shares are sold. Second, the scheme must be open to all employees, in accordance with the "similar terms" rules. However, schemes may incorporate a "key employee" element which does not meet the "similar terms" conditions, provided at least 70% of the total amount of share options is being made available to all employees. There will not be any limit on the amount of shares that can avail of the tax treatment. There is not a requirement that the scheme must have a "key employee" element; it is simply an optional feature.
The effective commencement date of the scheme is 15 February 2001, the date on which the scheme was announced. However, to qualify for the new relief, the scheme must be approved by the Revenue Commissioners before 31 December 2001.
We are confident the new share option scheme will provide employers with the necessary flexibility to structure remuneration packages to attract and retain quality people. We have striven hard in this country in terms of the resources devoted to education and training so that the quality of our human capital is as attractive as that found anywhere in the world. The share option scheme will be a factor in ensuring the best people will be retained here to contribute their talents to the continued development of the economy. It is to be hoped we will not lose the best in the way we lost so many talented people of previous generations.
The overarching objective of the new savings scheme is to encourage regular savings by individuals. The main features of the scheme are as follows. It will commence on 1 May 2001 and accounts must be opened before 30 April 2002 to benefit. It will be open to financial institutions generally to participate. The Exchequer contribution will apply for a five year period only. Where a saver puts an amount of money into one of the new special accounts for the purposes of the scheme, the Exchequer will contribute an additional 25% of that amount. This is equivalent to giving tax relief on savings at the standard rate of income tax. Any income or gains from the savings investment will be taxed at 23%, and this will be deducted by the participating financial institutions at the end of the five years.
The scheme will be open to every individual resident in the State who is 18 years of age or over. The scheme will make no distinction as to the status of the saver, so it will apply whether an individual is married or unmarried, employed or unemployed, or working outside the home or working in the home. However, an individual will be allowed to open only one account and, on doing so, will be required to supply his or her personal public service number to the financial institution concerned.
There will be an overall limit of £200 on the amount an individual can lodge to an account in any one month. If that amount is lodged, the Exchequer's contribution to the account will be £50. The minimum amount which an individual must save per month to qualify for the scheme is a modest £10. However, the scheme provides for flexible arrangements so that an individual may save any amount in a month up to £200 over the remaining four year period.
There will also be flexibility for the saver in the choice of institution with which he or she can open the new special accounts. I expect a range of bodies, such as banks, building societies, credit unions, life assurance companies and fund managers, will be anxious to get involved. The new scheme should greatly enhance competition among financial institutions in savings products which will be of considerable benefit to the average consumer.
A further feature of flexibility that should promote competition is that the saver will be able to transfer a special saving incentive account from one investment manager to another at any time during the five years. Such a change will not lead to a loss of the tax benefits accrued to the point of change. The saver will also enjoy choice in terms of the type of savings products in which he or she wishes to invest. An account can comprise investments in deposits, quoted shares, Government securities, collective funds or life assurance products, as determined by the account manager.
The Exchequer's contributions to each account will be sent directly to the account manager and added to the savings in the account. I stress that the Government will not operate or guarantee the accounts or the return under them. This will be a matter between an individual and an account manager. Individuals who plan to open one of these accounts should assess any level of risk they wish to undertake.
For the saver to gain maximum benefit from the savings in the scheme, the savings must be left for the full term which is five years. However, if there is an earlier withdrawal from an account other than on death, the full amount withdrawn, both savings and investment return, will suffer tax at 23%. The House should also be aware that there will be a prohibition on using an account as security for a loan.
It has to be acknowledged that the very rapid economic growth of recent years has brought with it considerable pressures to parts of the economy where supply cannot react to demand factors over the shorter term. In that respect, one sector that is familiar to us all is housing. In the recent past, the Government has not hesitated from the use of fiscal measures to address aspects of housing demand and supply to prioritise certain needs. An example of this approach in the Bill is the rent a room scheme. This will give an incentive to people who have rooms to spare, because their children have grown up and moved on, for example, to make the extra accommodation available. Under the scheme a person who rents out a room or rooms in his or her principal private residence, will not pay tax on the rent up to a limit of £6,000. I emphasise that availing of the scheme will not affect a person's entitlement to mortgage interest relief on the property or the capital gains tax exemption available on the disposal of a principal private residence, nor will it trigger a clawback of stamp duty relief.
The Bill also contains part of the Government's response to the recommendations of the recent report of the commission on the private rented residential sector. Deputies will observe that tax relief in respect of interest on borrowings for the purchase of residential properties is being restored in certain restricted circumstances. To qualify, the property concerned must consist of at least three units and the total number of units must not be reduced below 50% of the number of units at the time of acquisition. At least 50% of the units must be available for letting to ten ants who are in receipt of supplementary welfare allowance or any revised rent assistance arrangements that are put in place. The landlord must also comply with the relevant regulatory controls and must register tenancies with the proposed private residential tenancies board.
There are two less conspicuous measures relating to housing which I would like to draw to the attention of the House. The exemption limit for stamp duty on mortgages is being raised tenfold from £20,000 to £200,000. Deputies will be aware that, as the market has surged, house purchasers, especially those doing so for the first time, are taking out larger mortgages. The substantial increase in the threshold will be of particular benefit to first time buyers. The Bill also changes the stamp duty arrangements where a parent transfers a house site to a child. In future there will be a complete exemption from stamp duty provided the house built on the site is the principal private residence of the child and it has a market value of less than £200,000. I am sure Deputies, especially those who represent rural constituencies, appreciate the importance of once-off houses built on land provided by parents. Not only do they help to ease pressures on the wider housing market, they also perform a valuable function in helping to maintain population levels and, with it, the fabric of social institutions in rural areas.
Deputy McDowell raised a point which was also raised on the Order of Business regarding the abolition of the 60% rate of capital gains tax. The purpose of the application of that rate from 6 April 2002 on zoned residential land disposals was to encourage the supply of such land prior to that date. This supply has greatly increased in the past two years and there has been a significant increase in full planning permissions granted in 2000 compared with 1999. If the 60% rate were to apply from 6 April 2002, it would mean the rate of capital gains tax on zoned residential land would be three times that on zoned commercial land, which would clearly result in land being diverted from residential to commercial development. That makes sense and clarifies the matter.
Why reduce the rate now? Why not in a year's time?
The Minister took the view that now is the time to do it and he is right in that regard.
A matter not unrelated to housing is the issue of the application of capital acquisitions tax to transfers of assets to foster children. The largest asset most of us bequeath is our residence. Given the stresses of contemporary family life, inevitably some parents are unable to cope and, therefore, children are placed by the authorities with foster parents. A regulatory regime has been in place for most fosterings since 1983 which means that the arrangements in individual cases from then on are a matter of public record. However, fostering is a venerable custom in Ireland, and a great many cases predate the initiation of the regulatory system in 1983. Such fosterings may have been unconnected with instances of family breakdown. The child fostered was often a close relative of the foster parent. In fact, the regulatory system was not extended to the fostering of relatives until 1995.
In those unregulated fostering cases many of the foster parents may be anxious to bequeath their property, in all probability their dwelling house, to their foster child. In many of those situations the disponer may have no children. For the purposes of capital acquisition tax rules a foster child was not treated as a blood child of the disponer and, therefore, entitled to the group one threshold, which is £316,800. If the foster child were a nephew or niece of the disponer the threshold would be £31,680; otherwise, the threshold would be that which applies for non-relatives or strangers which is £15,840. The Finance Bill will remedy these anomalies in respect of transfers to foster children by applying the group one threshold. To qualify, the beneficiary must have been cared for and maintained from a young age for at least five successive years up to the age of 18 by the foster parent and the child must have lived with the foster parent during this period. This is a fair and practical solution to a problem about which a number of Deputies expressed concern to the Minister.
I spoke earlier about the importance of the proposal for tax relief in respect of share options. This relief may be availed of by small start-up companies in the high tech sector. A number of the high profile recently successful Irish companies with which we are all familiar had very small beginnings. Small and medium sized enterprises, no matter what sector they operate in, are a key component of business life.
A favourable corporation tax regime already exists for companies with income from trading of less than £50,000 per annum. For such companies the 12.5% rate regime has already been put in place ahead of its general application in 2003. The Bill provides for the announcement made in the budget of an increase in the threshold to £200,000 with a system of marginal relief for trading income up to £250,000. It also confirms the changes announced in the budget regarding to capital allowances for plant and equipment. The seven year write-off is being reduced to five years. These changes will ensure that companies can better predict the financial environment in which they will operate. They will allow companies to plan investments in the full knowledge of how the investments and, hopefully, the resulting profits, will be dealt with by the tax system.
I appreciate the considerable difficulties facing the Irish agriculture sector at present, largely due to market factors arising from BSE and because of the foot and mouth disease outbreak on our neighbouring island. I am sure these sentiments are shared by Deputies on all sides of the House. While farmers will benefit from the general changes to the income tax regime in the same way as other self-employed persons, specifically, the Bill provides for the further extension to the stock relief provisions up to the end of 2002.
The upgrading of our roads infrastructure has become an issue for farmers because more often than not the land needed for a new road must be acquired from farmers by way of a compulsory purchase order. I know the taxation provisions arising from such acquisitions have become a point of concern for the farming organisations. Under the capital gains tax heading, the Bill provides for an amendment of the arrangements for roll-over relief in terms of the time available for reinvesting the proceeds of the compulsory acquisition. The new time frame will be two years before and four years after the disposal of the farmland. Similarly, agricultural relief under the capital acquisitions tax code is being amended so that the period for reinvestment of proceeds is being extended from one year to four years.
The Government's taxation polices have been a considerable factor in helping to cultivate the enterprise dynamic that is now so notable in the Irish economy and more widely in Irish society. The virtues of hard work, creativity, risk-taking and thrift are being rewarded, as they should. The Government's budgetary and tax policies must be seen within the context of a rapidly growing economy.
The performance of the economy in recent years has been outstanding. Growth in GNP has averaged 7.5% per annum since 1993. Last year growth is estimated to have been more than 8% while prospects for this year remain favourable despite the slowing of the US economy. The turnaround in the Irish economy is reflected in our changed labour market circumstances.
Unemployment is currently at its lowest level of any time in our history. Today, it stands at 3.6% – less that half the EU average. When this Government came into office it stood at over 10%. This is a remarkable achievement. Substantial job creation lies behind these statistics. More than 200,000 net additional jobs have been created during this Government's period in office. Whereas employment was only a little over one million in 1986, it stood at over 1.7 million last year.
The better economic situation has also led to a large rise in Irish living standards which are now close to the EU average. This compares favourably with 1990 when our living standards were 74% of the EU average. Much of our economic prosperity has been used to improve the public finances. For the first time in over a generation substantial budget surpluses have replaced deficits. Last year Ireland had the highest budget surplus of any member state in the European Union, at 4.6% of GDP. It is worth noting that nine of the 14 other EU states are running fiscal deficits.
Government debt has fallen dramatically. The debt to GDP ratio was 65% in 1997 and was under 40% in 2000. Ireland now has the second lowest debt in the European Union, after Luxem bourg. Moreover, as the House is aware we are setting aside moneys for future pension liabilities. At present we are benefiting from very favourable demographic circumstances with large increases in the working age population. Over time these trends will become less favourable with the number of persons aged 65 and over projected to increase.
To prepare for the impact of these demographic changes, the binding commitment to pay 1% of GNP each year into a national pension fund is an innovative and imaginative step. Already this fund amounts to more than 7% of GNP. There are a number of longer-term factors that help explain our economic success. The budget sought to achieve economic stability and reduce economic pressures by securing wage moderation by preserving our social partnership, by countering inflationary expectations by proactive indirect tax cuts, by promoting increased savings in the economy, and by encouraging more labour supply and productivity by targeted direct tax reductions.
The Government is also investing heavily in our future. A sum of £41 billion earmarked under the national development plan is aimed at addressing our infrastructural bottlenecks while putting in place the infrastructure necessary to support a growing economy. Our budgetary policies are also providing for the less-well off. The successful management of the economy has allowed us to almost double health spending in our term in office, increase State pensions substantially and direct greater resources to education. We are not only increasing national wealth but we are also distributing it more fairly.
The Finance Bill 2001 contains a practical set of measures that take account of the needs of the economy and of society as a whole. It is the production of a Government that understands the rapid change that is taking place and is proactive in its approach to the role of fiscal measures in overall economic management. On Committee Stage the Bill will be enhanced by further innovative measures which the Minister signalled in his Second Stage speech yesterday.
I confidently urge the House, therefore, to support the Bill.
I wish to share my time with Deputies Crawford and Naughten.
Is that agreed? Agreed.
I am delighted to have the opportunity to speak on the Finance Bill which is the most important legislation to come before the House this year.
I compliment the Government on a number of issues. I have a grudging respect for the Minister for Finance, Deputy McCreevy, as I too am a free marketeer. He is pursuing some of his economic policies in the right way. He has had the courage of his convictions on a number of issues and has made mistakes in others. However, if one does not try to do things differently, one will never be had for making mistakes. I would not discredit the Minister for making mistakes.
A number of schemes introduced by the Minister for Finance in the past couple of years, such as the rural renewal scheme in Longford-Leitrim-Roscommon and parts of Sligo, have been helpful. That scheme has been very beneficial to the area. The Minister also made a number of mistakes regarding the third Bacon report but I will deal with them later.
I also welcome the new approach of co-ordinating the tax and calendar years. That is logical and should have been done years ago. I listened to the comments of the Minister of State, Deputy Cullen, regarding taxation. I welcome the conversion of the Minister, Fianna Fáil and the Progressive Democrats to the tax credit system. That was the main plank of the rainbow coalition's tax policy during the last election. The Government strongly opposed it, but now it has come on board and introduced it. I welcome that. However, I suppose Fianna Fáil finds it difficult to change and will take credit for a system it opposed. Old habits die hard, however—
We implemented it for you.
—we accept those things.
I have the honour of being spokesman on western and rural development for Fine Gael and have listened to the Minister of State summing up in his speech. He said:
The Government is also investing heavily in our future. A sum of £41 billion earmarked under the national development plan is aimed at addressing our infrastructural bottlenecks while putting in place the infrastructure necessary to support a growing economy.
I agree with that aspiration, but I will point to some facts about the situation in the west.
While the western region accounts for 37% of the country's land mass and 18% of the national population it accounted for a mere 9.5% of national net industrial output in 1996. Latest research shows that this share is falling. That is a damning indictment of the Government's economic policy in the west.
There is abysmal access to the area. The majority of visitors, 85%, enter the countryvia the east coast. However, the main access routes to the north and west by road, rail and air are in a very poor state and the consequence is lost revenue to the region from business and tourism. Maps showing where development will take place under the national development plan of railways, roadways, air infrastructure and energy indicate that there is no development or financial expenditure in the northwest and western regions. We have a difficulty with the N4 and N5 roads. Money is not provided to bring them to dual-car riageway or motorway status in the northwest and western regions.
How in God's name can we bring economic development and industry into the area if the Government is not willing to provide the necessary funding for that type of infrastructural development? No money is to be provided in the next six years for that sort of infrastructural development in the west until 2006. They are facts.
The most damning indictment of all is that latest research shows that the national net industrial output continues to fall. What will this Government do for us? What has this Bill done for us? Nothing. Not one single thing.
I welcomed, this morning, the Government's U-turn with regard to the third Bacon report which introduced the 9% rate of stamp duty on investment property. It has now reduced that to 3% which is welcome, but that should not have happened. What was the logic in providing a rural renewal tax incentive for the areas of Sligo, Leitrim, Longford and parts of Roscommon and Cavan, introducing investment which was necessary to sustain the area and then as part of Government policy, introducing the third Bacon report, and a 9% increase in the rate of stamp duty on investment property? It stopped a great deal of investment taking place.
I am involved in the business of providing to the building industry and saw, once that 9% was put in place, house building in that area stopped. I am not sure if it can be resurrected with the rate of 3%. Fine Gael policy is not to have any sort of tax on investment property. We stated that when the third Bacon report was introduced and still believe it. The 3% rate is not adequate. When the Government realised it had made a mistake it should have been willing to get rid of the entire 9% stamp duty. The 3% rate is a fig leaf and I do not know whether it will solve the problems already there. The Minister of State in his speech welcomed the drop in the rate of unemployment from 10% under the last Government to around 6%.
The entire western region outside Galway attracted just 5% of new IDA jobs last year and 3% the year before. That is horrendous. What needs to be put in place to solve the imbalance is a co-ordinated policy, led by the Taoiseach and the Minister for Finance. Some 5% of all jobs created were put into nine counties in the western and north-western regions. That is abysmal. It is another issue which shows that the Government is not looking at the development of the entire country but at the development of the east coast, the south-east coast and the south. It does not look at the economic development of the whole country. These figures and facts show that.
I do not know what the Government will do or proposes to do about that. There is certainly nothing in the Bill or in the budget. We have much work to do and the Government should concentrate on doing that rather than trying to take credit for one of the strongest economies and financially viable situations in which we have ever found ourselves. The money is not being spent properly or in a structured way so that everyone involved in the economy will be helped by the financial structures we have.
With regard to energy in the west, the western region has no major indigenous source of power and the national grid into the region is 30 years out of date and inadequate. Industries in the region increasingly suffer from "outages" and no major industry could invest northwest of a line from Galway to Dundalk. No money has been provided for in the national development plan to provide natural gas to the western region from the natural gas find off the west coast.
I am disappointed the Government has not taken the opportunity to provide funding for economic and infrastructural development in the west. The issues I raised do not fall under the heading of parochial concerns or any "moan" mentality. They represent deep structural and strategic differences in economic planning which undermine national economic performance, especially at a time when the east coast cannot cope with much more development. That is an indictment of the Government's policy on western development.
I welcome the opportunity to speak on the Bill, though speaking time is limited. There are a number of points I wish to address which not only affect certain regions of the country but the country as a whole. For example, the decision by the Government to remove the cap on PSRI will have major implications throughout the country but will have a detrimental impact in the regions most affected by employment, in the midland, the BMW region and the west.
The companies involved will be the manufacturing industries, especially those in the electronic sector. The removal of the PSRI ceiling will make high-tech employers, considering research and development investment in Ireland, think twice following the passing of the Bill. The measures in the Bill counteract both Government and IDA stated objectives of encouraging high tech employers to locate research and development facilities here. The Government has added costs to employers in the high tech sector which will restrict recruitment of much needed highly skilled personnel.
Many of the key personnel required for such facilities earn more than £36,000 and under the PRSI changes they will be taxed an additional £120 per £1,000 of salary. The changes in the budget are a tax on encouraging the development of world class private research facilities. Given that the work force is so mobile, similar companies in other economies will have a competitive advantage. This will inhibit the Government's aim to increase the value chain in employment and to attract new jobs and investment to the regions.
We need to attract high-tech investment, yet we are failing to do this. It is stated IDA policy that 50% of all new green field developments must go to the BMW region. However, the IDA admits privately that this will not happen. The problem is that the vast proportion of employment growth from now on will be in expansion rather than in new green field investment. The potential for expansion still remains in developed areas and the greater Dublin region. Until this expansion is extended to areas outside Dublin the BMW region will be on the hind tit in terms of development.
The Minister in his Budget Statement said the reduction of 1% in the top rate of VAT from 21% to 20% would help e-commerce. However, there is no vision in the budget or Finance Bill in relation to e-commerce. We need a special VAT rate for e-commerce sales abroad. An imaginative proposal to stimulate sales on the web could have been brought forward but it was ignored. The VAT rate of 20% is a long way short of the Luxembourg rate of 15%. Under EU legislation, VAT is charged in the country where the product is manufactured rather than in the country where it is bought.
We are at a competitive disadvantage in terms of the United States and selling into that country. It is a huge disappointment that the Government has not addressed this issue in terms of e-commerce, which has the potential to ensure balanced regional development. This morning I came across an article inMagill which highlights the Government's focus on technology and e-commerce. An e-mail was sent to all Members of the House, yet only one of the 15 members of Cabinet responded to this request for information. The Government talks about the need to develop e-commerce and high technology industry, yet it has not responded to an e-mail which asked three simple questions. This is a true test of the objectives of the Government.
Deputy Reynolds referred to the infrastructural deficit. Even though it has limited objectives in relation to the BMW, west and north west regions, the NDP will not be delivered on time. It already takes up to six years from the initiation of a major water scheme to its delivery. This is due to bureaucratic delays, which the Government has continued to ignore and failed to address. The chronic labour shortages within the construction industry have also not been addressed. Employers have to hire people from other countries to take up vacant positions, yet there is not adequate low cost housing or rented accommodation available because of the decision made by the Government last July to crucify the private rented sector. While the Minister announced changes last night, they are still a long way short of what is needed.
I will address one aspect of infrastructure which is of extreme importance, that is, compulsory purchase orders. The only decision taken was to extend the period for reinvestment of the funding from CPOs. There were no changes in the level of taxation. Additional allocations could have been provided for in the budget to ensure that agreements with landowners and householders were settled at an earlier date and that they got a fair and reasonable price for their property and to ensure that developments, including fibre optic cable, gas and motorways, were delivered within the time schedule. The token response by the Minister and Government to this issue will not have any impact in ensuring that roads are delivered on time and that farmers and house owners get a decent price for their land. I know this only too well as the M6 will run through my family's farm. If some imagination was used, there would have been agreement and work on these roads could have commenced much quicker. These roads are fundamentally important to the development of the regions.
This morning the Taoiseach said that 50,000 extra housing units would have to be constructed every year. Yet local authorities are still short-changed in terms of planning staff and engineers. My local authority is short three or four planning staff and has a chronic shortage of engineers. How can we expect these objectives to be delivered if local authorities do not have the necessary staff?
The issue of child care, which is fundamental to bringing more people into employment, has not been properly addressed by the Government. Deputy Mitchell highlighted the Government's incompetence in relation to child care. It has ignored the issue and has not put in place the necessary structures which would tackle some of the fundamental problems and support young couples who wish to participate in the work force but who cannot do so because of the astronomical cost of child care.
I welcome many of the changes proposed in the Bill, not least the guarantee that the social welfare payments will be brought forward to 1 January in line with the change in the tax year. There is little point in announcing measures which are not introduced for six or 12 months. This is a step forward.
I welcome the tax relief on donations to charities. I encourage the Government to increase funding for Third World countries. At a time when the Government has a massive amount of finance, which is due to the hard work of employees, it should play a role in trying to save lives and help to alleviate desperate situations throughout the world.
I welcome the savings scheme announced by the Minister. It is good to encourage young people to save. Many of them have to borrow money from their parents or somebody else for the deposit for a house which is almost unaffordable. This scheme may appease the European Commission which the Minister for Finance totally ignored. In light of the foot and mouth disease and BSE problems and given the benefits we have enjoyed from membership of the EU and that much of our economic success is due to EU support, we cannot afford to ignore measures we agreed at EU Commission level. We will gain some brownie points as a result of this savings initiative.
Child care and child benefit have been mentioned. I welcome the increase in child benefit as something the Fine Gael Party proposed in recent years as a direct means for the mother or father in the home to cover their needs. The child care issue requires urgent attention. The Government has not provided the necessary child care facilities to give people the option to work if they so wish.
In the area of taxation, while there is no doubt that there have been major improvements, the low-paid still suffer. In my constituency of Cavan-Monaghan the food industry and furniture production are not the areas in which there were high earnings. From 1 April a person earning £200 per week will gain £10 or less while a person earning £1,000 per week will gain £50. Is this natural justice? There is still a long way to go. The Tánaiste, Deputy Harney, has promised that every person earning less than £200 will be removed from the tax net next year – live horse and you will get grass. There should be greater fairness.
I wish to deal with farming. I was thrilled when I read the contribution of the Minister of State, Deputy Cullen, the highlight of which was farmer taxation. He had some pleasant words to say such as that he appreciates the difficulties of farmers. It was clear after the first few lines, however, that his solace for farming was extremely limited. In the budget the level of VAT returned to farmers was increased from 4.2% to 4.3%, a miserly increase of 0.1%. The Minister of State dealt with other taxes in respect of infrastructure. He declared that for tax purposes they will go back two years and forward three years as far as disposals are concerned. How will long-term leases be dealt with? Many farmers who had no indication that their land would be used for infrastructure entered into ten year leases for EU purposes and five and six year leases for decision purposes. This time period must be taken into account when the infrastructure issue is being discussed. We must be realistic and ensure no individual farmer is made to bear unnecessary costs.
Although Cavan-Monaghan accounts for two thirds of the poultry produced on the island, there have been no benefits for the industry which is on its knees. For four years the IFA has been asking in its submission to the Minister that the level of excise duty on non-automated LPG, 1.43p per litre or 6.5p per gallon, be either zero rated or removed by whatever means. EEC Council Directive 92/82 allows LPG, methane and kerosene used for heating purposes from 1 January 1993 to be zero rated. Currently there is no excise duty on natural gas, supplies of which are not available in north Monaghan, a rebate of excise duty on non-automated LPG for mushroom production and glasshouse production and on kerosene in mushroom production. Why can the Minister not provide for this in the case of the poultry industry? All that is being sought is a rebate of excise duty on non-automated fuels used in the industry for heating purposes. That is the least for which we can ask for a major industry that is on its knees and subject to meat imports. There is a need to look again at that area. We are aware of how foot and mouth disease was imported in the United Kingdom. There is a need to look at the areas from which we import poultry products and how we can place our own industry and the agriculture sector as a whole at risk. The economy is at risk from these imports.
I wish to refer to biomass and the use of agricultural and other wastes, an issue on which I have been working for the past seven or eight years. There is agreement from Brussels that there can be movement. We are in possession of the licence and so on. If the Government is serious about this matter, it must provide for tax benefits and grants to ensure waste is used as a means of generating power and heat to cater for the needs of the north east and west, as outlined by Deputy Gerry Reynolds, where there is an electricity shortage. It is interesting to note that Denmark produces 2,500 megawatts of electricity using wind. By 2010 it expects to meet half its requirements for electricity using wind power and other natural sources. Our record for the same period is a magical 55 megawatts. There is a golden opportunity to utilise a natural product – the wind that comes from the Almighty. Those interested in going down that road must have the same opportunities as those in Denmark. The wherewithal must be created to ensure this happens. In view of the funds available to the Government, I ask for tax breaks and grants. The European Union would strongly support such a move, if we have not already broken our bridges.
I wish to share time with Deputies Brendan Smith and Michael Moynihan.
I welcome the opportunity to make a contribution to this excellent Finance Bill which is a declaration of the way in which our resources are to be directed as never before towards meeting the needs of the poor, the underprivileged and the aged. It is about spreading the wealth and supporting the weak.
In this the Government's fourth budget there is tremendous progress in the area of personal tax reform. Rates have been cut, bands widened and allowances raised. More than 77% of earners have been removed from the top rate tax net, while 38 per cent have been removed from the tax net altogether. This is real tax reform. The introduction of tax credits was the most significant and far-reaching reform of our personal tax system in a generation. With this year's budget, the transition, first indicated two years ago, is complete.
The Government introduced the minimum wage which I hope it will make tax free. The Government has an excellent record on tax reform in the past three-and-a-half years. Compare this with what happened under the previous Administration and consider what the position was in 1997 when a single person entered the tax net at £77 per week. That figure has now been raised to £144 per week. In 1997 a single person hit the top rate of tax on an annual income of just £13,600, little more than £260 per week. The Fianna Fáil-Progressive Democrats Government has been able to increase that figure to £20,000 per year and indicated that there will be further band widening in the next budget in October to ensure that the vast majority of people on middle incomes no longer pay tax at the top rate. In 1997 the basic rate of income tax was 26%. That rate is now down to a much more reasonable level of 20% in line with the commitments set out in the joint programme for Government. While the top rate of tax has been reduced from 48% to 42%, it is now accepted that low marginal rates are an important economic incentive and in the long-term low marginal rates generate more revenue for the Exchequer.
One of the major contributors to Irish economic success has been our low rate of corporation tax. The idea has been to use the 10% rate and now the 12.5% rate as a magnet to attract more investment into the country. We have used low tax rates to attract companies to this country. If we wish Ireland to develop as a high skill, high income economy, we will have to focus more on modern high technology industries such as information technology, telecommunications, international financial services and bio-technology. If we want to keep Irish people with the requisite skills at home, attract former emigrants to return here and new people to come and work in this country, it is vital that we offer them an attractive personal tax package.
The Government is very conscious of the need to keep inflation under control. Inflation which devalues the savings of pensioners and the incomes of people on welfare also damages our competitive position as an exporting nation and, if left unchecked, would threaten the foundation on which our economic boom is built. The rise in inflation in the course of the past year was principally due to external practice beyond the control of any Government. The sharp rise in the price of oil and the sharp fall in the value of our currency pushed prices up right across the economy in recent months. The international backdrop is becoming more favourable now and the euro has rallied strongly against sterling and the dollar in recent weeks. The Government has demonstrated in the budget its commitment to combat inflation.
On the substantial increases in the old age pension, over four years the basic rate has been increased by £28, an increase of 36% in four years, well above the rate of inflation over the same period. This supports families. The family is the key element in our community and in society. The provision of a decent and comfortable quality of life into old age is a fundamental entitlement. A person's worth does not end with retirement. This Finance Bill focuses on support for people with disabilities and for carers. The budget provides in total for additional social welfare expenditure of £850 million. This is four times the level the rainbow Government provided in its last year in office.
The Finance Bill contains the most substantial increases in child benefit since the payment was introduced in the form of children's allowance. This is just the first of three years of increases which will see investment in the payment rise by £1 billion by 2003, almost a threefold increase. The Finance Bill is increasing child benefit by £25 per month for the first two children and £30 for the third and subsequent children, payable from June 2001. In this the first of a three year commitment, a family with four children will receive in excess of £300 per month or £70 per week in child benefit. These increases will be payable to all families including those who choose to go out to work, those who use paid child care, those with informal child care arrangements and those who choose to work in the home and care for their children in that way.
From June of this year, a full three months earlier than normal, some 532,000 families with a total of more than one million children will benefit from the support this Government will provide through the enhanced child benefit scheme. Expenditure on the school meals community programme is being increased from £100,000 to £300,000 per year. This programme which was launched by the Minister for Social, Community and Family Affairs, Deputy Dermot Ahern, in September, provides 100% funding of food costs for established community schools meals. Some 16 projects providing breakfast clubs, lunches and after school meals are currently funded, with more than 2,000 children having the benefit of this excellent programme.
I welcome the announcement that maternity leave will be extended to a total of 26 weeks, with an increase to 18 weeks paid leave. Provision is made for payment of four weeks additional maternity benefit which will be available also to adoptive parents. The minimum amount of maternity and adoptive benefits is to be increased by £8, bringing the maximum rate of these benefits to £183 per week, an increase of more than £10 per week. Some 10,000 people on disability payments are receiving an additional allowance as are 15,000 carers.
In last year's budget, we welcomed the extension of the free schemes to everyone aged 75 years or over, regardless of income. However, this year the free schemes have been extended to everyone over 70 years of age, which is welcome. This recognises the major contribution of older people in our community and society.
The fuel allowance scheme has been extended by two weeks. It will now be paid for the first week in October to late April. Here I appeal for a further extension of the scheme, as it is a tremendous benefit. I also welcome the easing of the means test for receipt of the fuel allowance. Up to now, people with contribution pensions, such as retirement pensions or widows' contributory pension, qualified for fuel allowances if their income from other sources was not more than £30 per week. This is being increased to £40 per week from the beginning of the next fuel season. This will be very much appreciated.
I congratulate the Minister for Social, Community and Family Affairs, Deputy Ahern, on his new carer's benefit scheme which will be extremely beneficial to those carers who experience the tremendous difficulties involved in caring and working full time. The scheme, which was introduced last October, allows carers to leave the work force for up to 15 months and receive a non-means tested payment. In addition, a unique feature of this new scheme will be the retention of the carer's employment rights for that period.
Carer's allowance is subject to a means test in which the income of both the applicant and his or her partner is assessable. The present figures are £75 per week for a single carer and a disregard of £150 per week is applied to the joint means of a couple. These figures have now been increased. A single person can have an income disregard of £125 and a couple can have a joint income disregard of £250. This measure will increase the payment of almost 3,000 recipients of carer's allowance. It will also ensure that an additional 5,000 carers will qualify for a payment. The measure will come into effect in April 2001 at a cost of £80 million, representing a huge increase in expenditure on carers.
I welcome the special savings scheme, the objective of which is to encourage regular savings by individuals. The scheme, which will commence in May 2001, must be welcomed.
I am pleased to have an opportunity to speak on this important legislation, the Finance Bill 2001, which will bring major benefits to the people. When introducing the Bill, the Minister for Finance, Deputy McCreevy, and the Minister of State, Deputy Cullen, referred to the proposed changes in the finance year to bring it into line with the calendar year. That is a welcome development which removes one of the vestiges of a bygone era.
The Minister of State, Deputy Cullen, said this morning that the taxation measures will ensure that a further 133,000 people are removed from the tax net, which is a very impressive figure.
The commitments made by Fianna Fáil and the Progressive Democrats before the 1997 general election have been honoured. The taxation programme we put before the people has been fully implemented. Approximately 668,000 people or 38% of all income earners have been removed from the tax net. That is a welcome development. As public representatives we would have heard people in the 1980s and 1990s clamour for changes to the tax code and for improvements in the levels of personal taxation.
Thankfully there has been substantial job creation over the years. New job opportunities have been created in rural areas.