I am pleased to have the opportunity to speak here today on the Finance Bill. I strongly believe the measures announced will increase national productivity and competitiveness. This Bill seeks to restore order and stability in the public finances. It also seeks to protect those who are most vulnerable. As everyone knows, we are in difficult financial conditions, the "perfect storm" as some commentators have termed it. This Bill has been guided by the principles of fairness, sustainability and affordability, and by the need to put in place measures to improve our economic performance.
In difficult times, difficult choices have to be made, but we must not forget how far we have come as a country and how much potential we still have to grow. Ireland is well equipped to get through this economic situation. I am a positive man by nature, and believe that the glass is always half full. Considerable improvements have been achieved in recent times for the majority of our people. We are in the middle of an international economic and financial storm, a storm that is affecting most of the world.
We must be realistic about what has to be done so that we protect the gains made and ensure we are in a good position to benefit from the global economic improvement when it emerges. Nobody would question the assertion that Ireland has enjoyed unparalleled economic success over the past decade and a half. Our economy has been transformed beyond recognition. This transformation was achieved by hard work and enterprise from our citizens, and was supported by sound economic policies from the Government. Our economy is in a position to cope with the financial situation. We have a highly-skilled labour force, full of people with enterprising ideas and the determination to succeed in life. We can face the current situation from a position of strength.
The economic environment has clearly become more challenging. The openness of Ireland's economy makes us more exposed to global economic developments. While we have benefited substantially from positive developments in the global economy in the past, at present we are clearly being adversely affected by what is happening worldwide, particularly in the United States, and the difficult conditions in the house building sector. This is a time for decisiveness, and a Bill such as this is what we require.
The Bill emphasises the need to support the enterprise sector by enhancing the knowledge economy as the best means of meeting our economic challenges. New companies will see full relief where total corporation tax liability in any of the first three accounting periods does not exceed €40,000. There will also be an increase in the rate of tax credit for incremental expenditure undertaken by a company on qualifying research and development from 20% to 25%.
While people may disagree with aspects of this Bill, it is necessary for such measures to be taken at this time. This Bill has been framed in the context of the most difficult economic and financial climate in a generation. This is a worldwide situation that is having an influence on most of our trading partners. We are a small open economy subject to the winds of change. It is up to us as a country to determine how we will respond to the conditions we experience.
On the domestic front, the contraction in the new house building sector, which will continue into next year, has been added to by the international credit difficulties. The downturn in construction has resulted in a rise in unemployment and deterioration in consumer sentiment. The forecast for next year is not great and the scale of the downturn has surprised many experts, but we must not lose heart. The Irish economy retains a sound structure. In ten years we have increased the number of people at work by 600,000.
We must ensure we are in a position to take advantage of any economic upturn. The Minister said last night that he is guided by the need to introduce measures that would strengthen economic performance and encourage recovery. I echo those sentiments.
The Bill tackles areas that are crucial to our economic recovery and development. It contains measures that will attempt to make our research and development tax credit regime more attractive. Support is being provided to assist start-up companies and a new tax incentive scheme to facilitate the removal and relocation of Seveso listed industrial facilities is also being introduced.
I was pleased that farm pollution control relief will be extended to 31 December 2010. This relief will continue to encourage farmers to make the necessary costly investments in pollution control measures. Another provision renews the 25% general farming stock relief and the special 100% stock relief for the same period. This is a progressive Bill, which encourages innovation and development. While we are experiencing an economic slowdown, we do not have to stand still.
I refer to one of the main talking points of the current financial crisis, namely, our banks. The Minister for Finance said the Government has not ruled out making a State investment in our banks. However, the institutions must show a capacity to attract investment. The main concern is that the banks provide money to the economy through legitimate lending to sustainable businesses, as they must be an engine for our economy.
Our country has always been open for investment that supports domestic jobs. I was disappointed to hear the recent criticism from some quarters concerning our reliance on foreign investment. These critics should remember that much of our economic success has been thanks to overseas investment. The Government said that it would welcome private investment in banks on terms that serve the public interest. This means private investors would have to demonstrate a medium to long-term commitment to the economy. The Government will keep the public interest to the fore in this regard. Thus far, the Government's guarantee scheme has been successful in safeguarding the stability of the banking sector and in restoring its liquidity position. However, international market expectations about capital levels in the banking sector have altered and the Minister and the Government are acutely aware of meeting new challenges.
VAT is another issue that has been raised in these times of economic difficulty. While our VAT rate will increase from 21% to 21.5%, the UK Government will reduce its standard VAT rate from 17.5% to 15%. However, this does not compare like with like. Our starting point is very different from the UK's. We have a low taxation economy and, therefore, it is not possible to reduce taxes further. The Government is providing a long-term fiscal stimulus through capital investment of approximately 5% of GNP, which is twice the EU average. This will not only support jobs in the short term but will also add to our long-term productive capacity. The majority of foodstuffs, oral medicines, books and children's clothes and shoes are taxed at the zero rate of VAT, which is important. Our taxation policy has given us a significant competitive advantage over the past 15 years. We have ensured we have had the lowest levels of direct taxation on income and, therefore we have marginally higher indirect taxation. Following the budget changes, Ireland will still be one of the lowest taxation economies in the EU.
We must all be committed to protecting the economy from the worst effects of the current international downturn and to ensuring our international competitiveness is maintained and enhanced. The Bill assists our country in doing so. Maintaining support for enterprise is crucial and we must build for the future in concentrating on research and development. Improving our competitive position is essential to facilitate a rebalancing of the economy towards more sustainable, export-led growth and to maintain our attractiveness as a location for inward investment. While external factors such as commodity prices and exchange rates have an impact on domestic costs, these are beyond our control. We must seek to control costs over which we have influence and steps must be taken to improve productivity.
In further support of our competitiveness objectives, the Government is committed to maintaining a low burden of taxation on capital and labour and has implemented a range of policies aimed at improving competition in product markets and flexibility in the labour market. Improving our competitiveness position also means ensuring externally-driven price increases are not allowed to be worsened by internally-generated effects. We must all pull together at this time.
The mix of measures in the Bill is balanced. They protect those on low incomes and also seek to support enterprise and development. There is no quick fix for the current climate in which we find ourselves. I believe fervently, however, that if we maintain a steady ship and plot our course carefully, we can get through the financial downturn. I have great faith in our country. We dragged ourselves up from the rubble of our fight for independence and had to endure a civil war. We stood alone on the edge of Europe as World War Two raged and survived to tell the tale. We moved from mass emigration to the Celtic tiger, becoming a country that welcomed its former emigrants back. We have always been a resourceful people and we have, on countless occasions, proved ourselves adept at making the most of a difficult situation. We will get through the current downturn. We are a proud nation and people and if we work together there is much that we can achieve. I welcome the cycle to work scheme, which is a great idea. Healthy in mind is healthy in body. We look forward to seeing people on their bicycles all over the country.