The Finance Bill, which is the subject of this debate, is concerned mainly with implementing the taxation measures which I proposed in my budget in February last. It would be useful therefore for me to outline the aims and objectives of the budget and the economic background against which it was framed.
In the White Paper on National Development laid before this House last January the Government spelled out their economic targets for 1979. These are for growth in national output of 6½ per cent, a reduction of 25,000 in the numbers out of work, a reduction in the rate of inflation so that by the end of the year it will be no more than 5 per cent, and a continued reduction of the borrowing requirement to bring it to 10½ per cent of GNP.
These of course are targets and not forecasts of what would happen if events this year were left to run their course. Their achievement obviously depends upon there being a real effort from everybody in the community, particularly in the matter of income demands, and it is this effort which the Government are trying to generate by pursuing a coherent economic strategy with precise aims and a well defined plan of action. The Government's policy stance, especially on the budgetary front, must be considered against this background.
Last year, we set about tackling the immediate problems of unemployment and inflation and, I am glad to report, achieved substantial progress on both fronts. The rise in employment was one of the highest ever, if not the highest, and the inflation rate was cut by almost a half. We also achieved, in large part as a result of the stimulatory impulse injected into the economy by the 1978 budget, the highest growth rate in the OECD area, even surpassing Japan. In 1978 our people experienced a sizeable increase in their standard of living, and many obtained jobs of which they had been deprived.
In order to consolidate and improve upon the gains of 1978 and as part of our planned approach to economic and social development, the Government set ambitious targets for 1979. These targets are attainable. It is my firm conviction that the Irish people possess the ability to achieve them.
The main thrust of the Government's budgetary policy in 1979 is, therefore, once again towards growth in employment and output. This year we are, however, calling upon the private sector to shoulder a greater share of the responsibility for achieving these targets. With the increased dynamism and capacity which it now possesses, thanks to the encouragement given to it last year and this year by the Government, I am confident that the private sector will play its part. Indeed, the growth which is expected this year in the countries which provide the bulk of our markets should go a long way towards enabling the private sector to make the kind of contribution we are expecting from it.
Against this background, it becomes possible to scale down the contribution made by the public sector. This is what I have done in my budget by reducing the borrowing requirement to 10½ per cent of GNP. In doing this, however, I have been careful not to slacken the growth momentum of the economy. In keeping with the Government's policy of reducing the disincentive effects of personal taxation, I have provided substantial income tax reliefs in my budget. Moreover, by reorienting public expenditure, I have acted to maximise the growth impact of public sector resources. I will return to these matters later.
When I was drawing up my budget, one of the factors I had to bear in mind was the changing situation in the oil market, and its impact on economic prospects, domestically and internationally. It was already apparent, at that stage, that in the wake of the OPEC decision of December last, the dollar price of oil would rise by 10 per cent on average this year, in contrast to the stability enjoyed in 1978 and, moreover, that the delicate balance on the global oil market was threatened by events in Iran.
In the interim, the position has been clarified somewhat with the resumption of Iranian oil exports and the revision of official OPEC prices from 1 April. However, a great deal of uncertainty persists—not just as regards the policies of the oil-exporters but also in relation to the outcome of the industrial countries' renewed efforts to curb their demand for imported oil. It is, however, clear that oil prices will rise more than seemed likely a few months ago.
This development could have adverse implications for economic trends internationally, especially in terms of its potentially dampening impact on growth. Much will depend on the policy response of Governments both in the energy and economic policy areas. We have impressed on our partners in the international community the need to monitor developments closely and to stand prepared to act should the situation require it.
There is a danger that, because the oil supply difficulties have had a rather dramatic and annoying impact on the daily life of the community, Senators, like others, may have an exaggerated idea of the scale of the problem and its economic impact. We are not witnessing a repetition of the quadrupling of oil prices a few years back. We, and all other net oil importers, face a serious, but not an insurmountable, problem.
Most important for the course of the Irish economy will be the domestic response to the situation. In the first place, the extent to which we conserve energy will determine the net addition to our import bill. Secondly, and most critically, will be the response to the unavoidable, but modest, increment to inflation from higher oil prices. Since we must use oil, an increase in its price makes Ireland slightly poorer. Yet this need not have adverse implications for the output and employment targets, providing that expectations for improved living standards are toned down correspondingly. In fact, if by improving our competitiveness, exports could be stepped up and import penetration curbed, the effect of the oil crisis could be minimised on all fronts.
Of late, we have all been subject to a virtual barrage of economic forecasts. Since views on the future always differ, there are inevitably differences between some of these forecasts and the Governments objectives, and media comment has tended to focus on these differences. As a result, it has gone largely unnoticed that other forecasting bodies see a number of the key economic aggregates, notably industrial exports and investment, developing in a way consistent with out aims.
I should like to draw the Seanad's attention to some of the recent indicators of economic performance which serve to refute those who continue to denigrate our continuing economic achievements and, by doing so, damage the international standing of our economy in this critical early phase of the EMS. These should also set in perspective the difficulties in relation to industrial disputes which have been so prominent recently.
Clear evidence of the continued buoyancy of investment, so important to the development of our economy, is provided by the indicators of expenditure on capital goods and of activity in the building industry. Imports of producers' capital goods, apart from ships and aircraft, in the first quarter rose by over 40 per cent on the 1978 level, suggesting a volume increase in excess of 30 per cent. Domestic sales of cement advanced by over 14 per cent year-on-year during the first four months, despite the inclement weather, and new house completions reached a remarkable 8,000 in the first quarter. A more general indicator of buoyancy in domestic activity on a broad front is the much increased level of imports in the early part of 1979, which has attracted unfavourable comment. The important question to ask about an import bill is: what is it for? Imports of investment goods, and essential inputs to industry grew much faster in the first quarter of 1979 than did imports of consumer goods, a fact which puts our import growth in its proper perspective. A particularly encouraging feature of economic performance in the first quarter of 1979 is the strong growth of industrial exports, whose volume rise over the 12 months continues well into double figures. Indeed, the rather modest increase in total exports reflects the low level of cattle disposals so far this year. This is clearly related to the farmers' desire to build up their breeding stocks.
A vital factor in our future progress will be the trend of incomes. In this connection, the rejection of the national understanding must be a keen disappointment to all of us concerned with our country's economic and social progress. The purpose of the national understanding was to achieve the goals desired by all of us, namely, industrial harmony and the fastest sustainable increase in living standards by reconciling conflicting pressures in society and directing them to achievement of these goals.
Serious modification of the terms of the national understanding is not feasible unless the ambitious targets for job creation and control of inflation are also to be reviewed. General pay increases at a higher level than those in the understanding would cripple the economy and dangerously undermine the achievement of the job creation and inflation targets. Individual groups might be able to exert pressure to do better for themselves than the terms of the understanding but if they succeed others will definitely lose either through job losses or higher prices.
In any event the only clear signal from the trade union movement is that the understanding is being rejected. Neither the trade union movement nor any other group has so far come forward with a viable and acceptable alternative. I say viable and acceptable because it would be relatively easy to make concessions in order to produce an acceptable alternative. However, this would be irresponsible because acceptance would have been purchased by undermining the viability of our economy.
The Government are prepared to discuss matters further with employer and union interests but they are not prepared to rewrite the understanding nor to tolerate a situation where the goals and objectives of the understanding which are universally acceptable to the community are seriously endangered by the irresponsible and divisive actions of individual groups in society.
The Government will listen with great interest to the views of the employers and unions on the situation which now exists but they do not contemplate allowing measures to be taken by any groups which would lead to economic chaos. The Government are strengthened in this viewpoint by the realisation that very many people accept the justice and reasonableness of the terms of the understanding and would support Government measures to ensure that these terms are not seriously violated.
The Government's main concern is not with growth itself but rather the accompanying improvement in employment prospects. It is on our achievements in this regard that we would hope to be judged. Last year the Government exceeded their job creation targets. Well over 25,000 jobs were created under Exchequer-supported schemes and programmes in the period to end 1978. The momentum of job creation activity has been maintained this year notwithstanding an overall restraint on the growth of public expenditure consistent with getting the Exchequer borrowing requirement down to 10½ per cent of GNP. This has been achieved by a re-orientation of public expenditure programmes in support of employment creation.
While only limited indications as to the recent trend in the live register are available, they confirm that we are making steady progress towards our primary objective. Provided that the necessary communal support for the Government's efforts is forthcoming, I am hopeful that the target reduction of 25,000 in the numbers out of work will be attained in 1979.
I announced in my budget statement that the capital and non-capital estimates approved for this year were expected to result in about 5,250 extra jobs in the public sector and some 4,400 jobs on various building and construction projects.
These measures were supplemented in the budget by a special £20 million job creation package, with a heavy emphasis on youth employment schemes. Four and a half million pounds will be spent this year in order to provide about 1,000 man-years employment on the environment improvement schemes programme. Three million pounds is available for the work experience programme which will, it is hoped, involve the participation of 6,000 young people by the end of this year. Additional funds have been allocated to the Department of Education temporary youth employment schemes. The total available—£2 million—is expected to support 750 man-years employment. Also, a sum of £1.75 million has been provided for proposals for increasing the output of skilled manpower in key sectors where occupational shortages have been identified. These involve new and expanded third level courses and a recruitment campaign abroad.
The Government are, therefore, both by means of direct job creation schemes and measures designed to stimulate economic activity generally, pointing the way towards the attainment of full employment which is the priority national task of our times. Yet there can be no room for complacency. If the aspiration of a job for every person seeking work is to be realised, the total resources of the community must be mobilised to this end. Nothing can be more damaging to our employment prospects than the self-centred exploitation of positions of strength by people already in employment at the expense of those seeking jobs.
Combined Government expenditure —on the public capital programme and on non-capital services—in 1979, is estimated at £3,750 million, an increase of £532 million, or over 16 per cent, on expenditure in 1978. Both current and capital expenditure was framed in accordance with the Government's targets for economic and social development. The stimulatory design of the budget is clearly evident from the re-orientation of expenditure, with the main emphasis being placed on investment.
The public capital programme was settled at £974 million, an increase of £176 million or 22 per cent on expenditure in 1978. Over 40 per cent of the programme is devoted to productive purposes either directly or indirectly through loans and grants for industrial and agricultural enterprises and about 30 per cent of the programme will be spent on infrastructural projects. Building and construction investment was also given a substantial boost, an increase of 27 per cent on expenditure in 1978.
The non-capital supply services were settled at a relatively modest increase of 12 per cent over 1978. The total for these services is £2,196 million, of which over £1,100 million, or more than half, is required to meet the pay and pension costs of the public service. The allocation for Health has been increased by some £45 million. An additional £35 million is being spent on Education. Defence and Justice between them have been allocated an extra £27 million.
The 1979 budget gave a further indication of the Government's desire to continue their policy of reducing the disincentive effect of personal taxation. Provision was made for increases in the personal allowances of £250 for a single person and £500 for a married person. Together with the modifications of the lower tax bands, these reliefs will cost an estimated £30 million in 1979 and £47 million in a full year and remove some 40,000 taxpayers from the tax net.
Combined with the large increases given in the 1978 budget, the effect of these measures is that, in two years, we have increased the value of the single person's allowance by 68 per cent and the married person's allowance by 103 per cent, more than doubling it. This is well ahead of the rate of inflation. It is useful to relate these personal allowances to the level of industrial earnings. The 1978 and 1979 increases have brought the single person's allowance from 16.5 per cent of the average male industrial wage in 1977-78 to about 24 per cent at present and have brought the married person's allowance from 27 per cent to about 48 per cent in the same period. These are very significant improvements.
Tax evasion is an area with which I am particularly concerned and I intend to make every effort to deal with it. I have made provision in the budget for a substantial strengthening of Revenue staff to intensify the campaign against tax evasion. The campaign will include such measures as examination in depth of particular accounts and where there are indications of evasion, reconciling them with the general state of the business and the taxpayer's life-style. More emphasis will be placed on legal proceedings, rather than compromise action, where the making of false returns is discovered. Chapter VI of Part I of the Bill now before you contains certain specific provisions related to tax evasion.
I now turn to the individual provisions of the Bill. Section I provides that the income limit for the purposes of the dependent relative income tax allowance will automatically be equal, for 1979-80 and subsequent years of assessment, to the personal rate of the social welfare contributory old age pension payable to a person living alone and aged 80 or over. The section thus removes the need to amend section 142 of the Income Tax Act, 1967 annually to take account of budget increases in this pension.
Section 2 amends the rate bands in line with the budget proposals. The revised bands are set out in the Table in the section. Section 3 adjusts the personal allowances and income tax child allowance. The married allowance is increased by £500 and the allowances for single and widowed persons by £250. The child allowance has been reduced by £22. This reduction is related to the increase in the social welfare children's allowance which, in the vast majority of cases, more than offsets the increase in tax suffered.
Section 4 gives an additional personal allowance of £250 for a parent who is widowed, deserted, separated or unmarried and who is entitled to the income tax child allowance in respect of a dependent child resident with the claimant. Where the parents are separated or divorced and the required conditions are fulfilled the allowance will be available in full to each parent.
The purpose of section 5 is to provide for the special income tax allowance of £175 for PAYE taxpayers which was outlined in the "National Understanding for Economic and Social Development". Where a married couple are both PAYE earners the special allowance would be available to each spouse. The provisions of this section will come into effect only if the appropriate order is made and I have already referred to the rejection of the draft understanding by a special conference of the Irish Congress of Trade Unions on 23 May 1979.
Section 6 is a direct consequence of the change to a fully pay-related social insurance contribution—it was not administratively feasible to continue relief in the manner previously allowed. Relief now comes to the employee, not as hitherto through the income tax code, but by way of a net social insurance contribution.
Section 7 provides relief, for 1979-80, in respect of the labour element of expenditure by householders on the improvement and maintenance of their private residences, including gardens. This relief is confined to the excess over £50 and is subject to a maximum allowable expenditure of £450. It is envisaged that the scheme will contribute towards job creation and energy conservation.
Section 8 is effective for 1980-81 and subsequent years. At present benefits payable under permanent health benefit schemes are taxable only if they have been received for a full year prior to the year of assessment. The section proposes that from 6 April 1980 premiums and other contributions payable in respect of approved schemes will be allowable for income tax purposes and the corresponding benefits assessable under PAYE from that date.
Sections 9 and 10 relate to income tax relief in respect of interest on money borrowed. Section 9 increases the present limit of £2,000 to £2,400. The Table sets out the sections of the Income Tax Acts where the revised limit will apply. Section 10 concerns loans at preferential rates of interest made by employers to employees and directors. It is aimed at restoring an element of balance, in the income tax sense, as between those who enjoy such loans and those who do not. The section will not restrict relief where a person enjoys only preferential loans and the borrowings do not exceed £20,000.
In the White Paper "Programme for National Development" it was announced that short-term social welfare benefits would be subject to income tax. Section 11 provides for this with effect from 6 April 1980.
Section 12 is a technical provision to facilitate proceedings in the High Court for the recovery of income tax which is due for payment. Chapter II provides for the changes in the taxation of farming profits which were contained in the budget and which will apply for 1979-80. The revised system of farmer taxation which the Government announced recently will apply as from 1980-81, subject to enactment of the necessary legislation.
Section 13 provides for the lowering of the valuation threshold for liability from £60 RV to £50 RV. Marginal relief will apply to farmers in this range, so that a farmer with a land valuation of £50 will pay only one-tenth of his full liability, at £51 RV two-tenths and so on until the full tax becomes payable at £59 R V.
Section 14 makes the usual provision for farmers becoming liable for the first time who may not have been keeping accounts. They may opt to be taxed on the basis of their current year's accounts rather than on the normal preceding year basis.
Section 15 enables a farmer to opt out of the notional basis of assessment before the end of the three-year mandatory period. It also provides that, in such cases, the Revenue Commissioners will have the right to require the production of accounts for the preceding one or two years of notional assessment and to reassess the taxpayer's liability for those years if the accounts warrant it. Section 16 increases the multiplier for assessment on the notional basis from 90 to 125.
Chapter III is concerned with losses. It has three objectives. The first is to eliminate the anomaly under which the same loss could be set off against tax more than once. The second is to terminate the situation, which exists at present, in which losses made in the carrying on of certain activities, which are themselves tax-exempt, can be set off against other income for tax purposes. The third objective is to provide for relief being given at an earlier stage than under present legislation in respect of losses incurred in the carrying on of a trade. The second and third of these objectives are achieved by section 17, and the first is achieved by section 18. Sections 19 and 20 are consequential technical provisions.
Chapter IV contains two corporation tax provisions. Section 21 amends the existing provisions in relation to the restriction to £2,000 a year on the deduction of certain interest which is treated as a charge on income for corporation tax purposes and is in line with the increase from £2,000 to £2,400 a year provided in section 9 in the amount of personal interest qualifying for income tax relief.
Section 22 is a technical amendment of Chapter IV of Part I of the Finance Act, 1977, which is concerned with the 25 per cent corporation tax rate scheme for manufacturing companies which achieve a specified increase in employment. The amendment takes account of the new system of fully pay-related social insurance contributions introduced as from 6 April 1979. In determining whether a company has achieved the required annual percentage increase in employment for the purposes of qualifying for the 25 per cent rate of corporation tax, the section enables a true comparison to be made between the number of the company's employees in a period falling wholly or partly after 5 April 1979 and in an earlier period.
Chapter V contains various income tax and corporation tax provisions. Section 23 provides that stock relief will be given for a further year, on the basis of three-quarters of the relief which would be given if the present provisions were simply extended for another year without modification. This change takes account of the fact that the inflationary pressures which gave rise to the introduction of stock relief have diminished considerably.
Section 24 provides for the continuation to the end of 1980 of the operation of the investment allowance applicable to plant and machinery in the designated areas. Section 25 corrects a drafting flaw in section 25 of the Finance Act, 1978, which introduced "free depreciation" for industrial buildings and hotels. Section 26 is the third and final section dealing with capital allowances. It extends to 31 March 1984 the operation of the increased initial allowance which applies to capital expenditure on new machinery and plant and secondhand ships, as well as the initial allowance in respect of capital expenditure incurred on industrial buildings.
Section 27 provides that all payments made by the Minister for Labour under the employment incentive scheme or the employment maintenance scheme will be disregarded for income tax and corporation tax purposes. This exemption is broadly in line with that given in the Finance Act, 1976 for similar type payments made under the Employment Premium Act, 1975. Payments under the 1975 Act ceased in January 1977.
Section 28 allows the Revenue Commissioners to approve, for the purposes of income tax relief, retirement annuity contracts which have an "open market option", that is, one where the policy holder may transfer his rights under the contract from one assurance company to another. This alteration of the conditions of approval should be of considerable benefit to the individuals concerned.
Chapter VI is concerned with antievasion. The measures proposed are part of the Government's continuing attack on tax evasion and, taken in conjunction with the substantial strengthening of the staff of the Revenue Commissioners announced in my budget, should have a significant impact in this area.
Section 29 provides for the extension, from three to ten years, of the time limit for the taking of summary proceedings under certain sections of the Taxes Acts, for example, for the lodgment of false or incorrect returns or the submission of fraudulent statements and accounts. This new limit will apply only to offences committed after the passing of the Finance Bill. Section 30 extends to partnerships the existing provisions relating to the production of accounts, books and records. Section 31 will authorise the Revenue in a case where they are dissatisfied with the accounts produced and the taxpayer gives no satisfactory explanation of the deficiencies in the accounts, to ask the taxpayer's business suppliers and business customers for particulars of, and documents relating to, the business transactions between them. Banking business is excluded from the scope of the section and a special provision is made for professions to preclude the disclosure of information of a confidential nature.
Chapter VII contains a number of anti-avoidance measures. Section 32 is designed to prevent wealthy taxpayers from reclaiming a portion of the tax they paid in the years 1974-5 to 1976-77 under a measure introduced in 1954 to help people with low incomes. Notice of my intention to legislate for this abuse was given in a press release which issued on 18 September last.
The intention in section 33 is to counteract a practice which has been growing in recent times. Taxpayers in the higher income brackets have been executing deeds of covenant in favour of their sons and daughters over 21, the effect of which has been to attribute income liable at higher rates to persons in whose hands the income may not be liable to tax at all, or if liable, is liable at a lower rate. These covenants have also been used in other ways to avoid tax. In order to cater for cases of hardship I am providing that the restrictions which the section imposes will not apply where the deed of covenant is executed in favour of a child or grandchild who is permanently incapacitated by reason of mental or physical disability. Section 34 is the final anti-avoidance measure and is concerned with the device of dividend-stripping.
The last chapter of Part I is concerned with capital gains tax. Section 35 introduces a new capital gains tax relief which will apply in the case of a disposal by an individual of a house occupied rent-free by a dependent relative. Section 36 amends section 27 of the Capital Gains Tax Act, 1975, under which relief from capital gains tax may be given on certain disposals of business or farming assets by a person aged 55 years or over to his child. The effect of this amendment is to extend the application of section 27 to any such disposal made by a mother to her illegitimate child. Section 37 aims to prevent an unintended exemption from capital gains tax being availed of by certain unit trusts and also corrects a minor drafting flaw in section 31 (5) of the Capital Gains Tax Act, 1975.
Part II of the Bill deals with customs and excise matters. Sections 38 to 43 confirm the budget increases in excise duties on beer, spirits, tobacco products, wine, cider and perry. Section 43 also has provision for relief from the new maximum rate of duty on cider and perry for stocks held by manufacturers on 7 February 1979 where these did not exceed 20,000 gallons. The rate of duty on these stocks will be the new intermediate rate. A flat-rate duty of 5p per gallon on cider and perry had remained unchanged since 1940 until this year, and this concession takes account of the hardship which the immediate imposition of the new maximum rate could impose on these manufacturers.
Section 44 provides for an increase in the penalty for unlicensed bookmaking, which has remained unchanged since 1963, from £100 to £500. Section 45 repeals an old customs provision contained in section 15 of the Finance Act, 1934, the effect of which was to exempt importations of antiques by unregistered persons from VAT. The repeal will end the discrimination which existed against VAT-registered traders in antiques within the State, who are required to charge VAT at the 10 per cent rate on sales.
Section 46 contains provisions in relation to some operational aspects of the temporary excise duty on agricultural produce, for which the basic statutory instruments are the Imposition of Duties Orders 1979 (Nos. 239 and 240). Section 47 confirms a 1978 order which provides for the metrication of excise duty on hydrocarbon oils and replacement of the bushel in the law relating to excise duty on beer. The order was made by the Government under the Imposition of Duties Act, 1957. Details are set out in the explanatory memorandum.
Part III of the Bill contains two VAT provisions. Section 48 amends subsection 18 (1) of the Value-Added Tax Act, 1972, regarding the inspection of business records of persons liable for VAT, so as to confirm that Revenue inquiries can be made regarding VAT repayment claims as well as liability to tax. Section 49 confirms the application of the standard 20 per cent VAT rate to radios and record players as announced in the budget.
Part IV is concerned with various stamp duty matters. Section 50 exempts from stamp duty transfers of land and houses for charitable purposes in Ireland to bodies of persons or trusts established for charitable purposes. This is the first time that a general exemption is provided in stamp duties for charities as such. By this section the position in stamp duties is brought into line with that in other forms of taxation which provide relief in one form or another for charities. Sections 51 to 53 deal with companies capital duty, which is a stamp duty chargeable on the formation of a company or on an increase in its capital. Certain amendments of a technical nature are provided for and an interest charge of 1.25 per cent per month is imposed where such duty has not been paid within one month after the date of the transaction.
Sections 54 to 56 are concerned with the arrangements for collecting stamp duty on transfers of stock and shares through the stock exchange. As a result of the introduction of a new computerised stock exchange transfer system, it has become necessary to change the stamp duty arrangements that have applied hitherto and the enabling legislation is contained in these sections.
Part V of the Bill contains a few miscellaneous provisions which are on the usual lines and do not call for comment.
I commend the Bill to the House.
