I am glad that Seanad Éireann has set aside this day to debate the Finance Bill and I look forward to hearing the views of Senators. The Bill before us has been framed in the context of the most difficult economic and fiscal climate in a generation.
The speed and depth of the economic downturn has surprised even the most pessimistic of the commentators. It is important to remember that despite the gloomy short-term outlook, our economy retains the structural achievements of the past decade. We still have in excess of 500,000 more people at work than ten years ago. Our export levels are much higher than in 1998 and the living standards of ordinary workers have risen substantially. We also have one of the lowest public debt levels in the EU and a low tax regime for both business and individual income earners. In public debate, we are inclined to focus on the contraction in the housing cycle as the source of our difficulties. It is true that it has contributed to our economic difficulties, but these difficulties now have been compounded by an international factor, namely, the lack of confidence and distrust in world financial markets. Concerning the Irish banking system, I am determined to ensure the financial stability of all our institutions. The Government stands behind these institutions and all capitalisation arrangements will be completed in the shortest possible time.
Our main economic focus must be the restoration of cost competitiveness so that we will be able to take advantage quickly of any emerging global recovery. The first prerequisite for this is the restoration of credibility and sustainability to the public finances. Accordingly, the budget set out a medium-term strategy to ensure this by,inter alia, reducing and prioritising public expenditure and adjusting taxation levels to take account of the reversals in economic growth. This responsible approach underscores and maintains Ireland’s well-earned international reputation as a good place to do business. This approach is also taken in the framework for sustainable economic renewal, Building Ireland’s Smart Economy, published yesterday. The Finance Bill makes a significant start in implementing this strategy by providing targeted support to enterprise and economic activity.
One key measure in the Bill to bring the public finances back into order is the income levy. As Members will be aware, this will now apply at a rate of 1% to gross income up to €100,100, at a rate of 2% to the next €150,020, and 3% on the remainder. The tiered rates ensure that the levy, as currently structured, is highly progressive and bears least, if at all, on the most vulnerable sectors. For example, the Bill provides an exemption threshold of €18,304 per annum to exclude those on low incomes, all social welfare and similar type payments are excluded from the levy, and those with an entitlement to the medical card will also be exempt from the income levy. The Bill protects the vulnerable and the elderly while those best able to pay, pay the most. Those paying at the top rate of 3% will contribute 20% of the total take from the levy.
In the case of income tax, the standard rate bands will increase by €1,000 from €35,400 to €36,400 for single individuals, from €44,400 to €45,400 for a married one-earner couple and an increase of €2,000 from €70,800 to €72,800 for a married two-earner couple. This measure will help to cushion the effect of the income levy on middle-income earners.
There is also provision for an increase in the rate of mortgage interest relief for first-time buyers from 20% to 25% in years one and two and from 20% to 22.5% in years three, four and five. While the measure also provides for a reduction in the rate of mortgage interest relief for non-first-time buyers from 20% to 15%, it is broadly revenue neutral. This rebalancing makes for a fairer system and helps those buyers with the biggest financial exposure and those facing falling property values.
The Bill confirms the budget increases in excise duties and it provides for an increase in betting duty from 1% to 2% from 1 May 2009. It allows deducibility for betting duty in computing the amount of profits or losses of a bookmaking business for income tax or corporation tax purposes.
New arrangements for the VAT treatment of tour operators and travel agents are also contained in the Bill. A margin scheme for tour operators and a measure making travel agents liable to VAT on their commission is being introduced with effect from 1 January 2010. Most EU member states operate a margin scheme for tour operators whereby they are taxed on the profit margin realised on the supply of a domestic or EU travel package.
To support the sale of CO2 efficient cars a partial removal of the block on VAT deductibility in respect of business cars is being introduced. This will allow a business to deduct 20% of the VAT incurred in respect of a car, purchased or leased for business purposes, which is first registered for VRT on or after 1 January 2009 and has CO2 emissions of less than 156g/km, that is a car that falls within CO2 emission bands A, B and C.
Owing to the worsening budgetary position, we faced difficult choices but in making those choices and in subsequent constructive debate, we made every effort to protect the truly vulnerable. To take one example, despite the economic circumstances, we increased the State pension by €7 per week and all working age payments by €6.50 per week.
The Government is also committed to maintaining a pro-business and pro-employment environment and this is reflected in the framework for economic renewal. The Bill delivers a number of significant pro-enterprise measures. These include improvements to the research and development tax credit regime that make it one of the most attractive in the world and provisions to support small start-up companies, along with the reintroduction of the remittance basis of tax so that we can attract in scarce skills to our economy. It will incentivise to help provide venture capital for start-up companies involved in innovation.
The Government has long supported research and development as the fundamental key to a successful knowledge-based economy. The Bill increases research and development tax credit by 5% and provides other measures of benefit to business, in particular small companies and those in the start-up and expansion phase. These include an option to carry back unused tax credits for set-off against the previous year's corporate tax liability, thus generating a tax repayment. There is also a further option, where there is insufficient or no corporation tax liability in the previous year, to claim payment of the remaining unused credit which will be paid in instalments over a three-year period. The base year, 2003, will be permanently set as the base year for calculating incremental research and development expenditure under the scheme. Over time, this will have the effect of turning the scheme into a volume-based scheme. The Bill also provides that a tax credit will be available in respect of a proportion of the expenditure incurred on a new or refurbished building used in part for research and development activities. This change reflects the reality that research and development takes place in manufacturing or production environments and not only in laboratory conditions. These combined changes make our research and development regime one of the most attractive in the world.
The Bill also provides for a three-year exemption from corporation tax on trading profits and chargeable gains for new companies commencing trade in 2009. Full relief applies where corporation tax liability in any of the first three accounting periods does not exceed €40,000. Marginal relief will apply where the corporation tax liability is between €40,000 and €60,000. Furthermore, the Bill legislates for the tax treatment of restricted share awards. Such share awards have traditionally been dealt with on an administrative basis by the Revenue Commissioners. Restricted shares are often awarded by companies that are in start-up and expansion stages, as part of an overall remuneration package when access to capital may be limited. They are particularly important for small businesses in the current economic climate as a performance incentive and employee retention mechanism. Restricted share awards are also beneficial to the employee as the income tax charge due on the value of the shares awarded is reduced progressively, depending on the period of the restrictions.
At international level, double taxation agreements have been concluded with Turkey, Malta, Vietnam, Macedonia and Georgia. These agreements significantly improve our bilateral trading and investment opportunities in the countries concerned. Ratification of these agreements can take time because of lengthy parliamentary procedures in the other countries so I am providing for the recognition of payments to and from these countries for preferential tax treatment as soon as the agreements are signed. This will accelerate reliefs to relevant businesses in the area of dividends, interest and capital gains tax.
The Bill amends Revenue's civil penalties regime across all taxes and duties except customs so as to ensure its compatibility with the provisions of Article 6 of the European Convention on Human Rights. It provides that tax and duty penalties will not be imposed against the wishes of a taxpayer unless a court has determined that the penalty is due. The Bill also places on a statutory basis the current practice of the Revenue Commissioners in respect of the level of tax-geared penalties sought in settlements arising out of Revenue audits and investigations. In addition, a number of fixed penalties are updated and standardised and the amounts of such penalties are accordingly increased.
The Bill runs to 102 sections and six Schedules and is structured by tax headings. In the time available to me, I will recall some of the main provisions in sequence. Section 2 describes the income levy. I have described the percentages that apply to the relevant limits. All social welfare payments will be excluded from the levy, as will similar type payments made by Departments and agencies other than the Department of Social and Family Affairs, in addition to similar payments from other states. Those with an entitlement to the medical card will also be exempt from the income levy and an exemption threshold of €18,304 per annum excludes those on low incomes from the levy. An age-related exemption threshold of €20,000 per annum applies for persons aged 65 years and over. Where the age-related or general thresholds are exceeded the levy will be payable on all income.
Section 3 provides for a parking levy, which is to apply where an employer provides car parking facilities for employees. The levy will apply where an employee has an entitlement to use a parking space and such space is provided directly or indirectly by his or her employer. It will not apply to disabled drivers or to employees of the emergency services in the context of responding to an emergency position. The charge for a full year will be €200 where an employee has an ongoing entitlement to use a parking space. Where parking spaces are shared by employees, the levy is reduced to €100 where the ratio of the number of employees to the number of parking spaces is two to one or more. Section 4 provides for an increase in the standard rate bands.
Continuing the work commenced earlier this year, section 6 will provide for a new CO2 based system of calculation of benefit-in-kind in respect of company cars provided for employees. The new system is structured on the seven bands adopted for vehicle registration tax. Cars in the three lowest bands of CO2 emissions remain at the current level of benefit-in-kind charge and higher charges apply for vehicles with higher emission levels. Existing vehicles retain the current method of calculation of benefit-in-kind.
As regards health expenses relief, section 8 provides that the relief will be granted at the standard rate only from 1 January 2009, with the exception of nursing home expenses which will continue to be allowed at a the marginal rate. In providing tax relief, we must ensure as far as possible that it is targeted on those who need it most. Section 14 provides for an increase in the rate of mortgage interest relief for first-time buyers, refocusing the relief on those buyers with the biggest financial exposure and facing falling property values.
The so-called Cinderella rule is changed by section 15. Hitherto, presence in the State during a day did not count in determining residence for tax purposes where the individual leaves before midnight. In future, a presence in the State at any time during a day will be counted for determining residency, so the midnight flit will no longer facilitate tax avoidance.
As regards pensions, section 16 provides that the annual earnings limit for determining maximum tax-relievable contributions for pension purposes is being set at €150,000 for 2009 as compared with the 2008 limit of €275,239. It also amends the formula for determining this limit and the standard and personal fund thresholds to provide the Minister for Finance with discretion as to whether those thresholds should be indexed.
In the area of farming, section 17 extends the farm pollution control relief to 31 December 2010. This relief will continue to encourage farmers to make the necessary and sometimes costly investments in pollution control measures while section 18 renews the 25% general farming stock relief and the special 100% stock relief for the same period.
A scheme to facilitate the removal and relocation of certain facilities where potentially dangerous activities are undertaken is introduced by section 21. Such industrial facilities can hinder the residential and commercial regeneration of docklands in urban brownfield areas. The scheme arises from the EU Seveso Directive, which seeks to protect public safety near locations where potentially dangerous activities are undertaken. The relief, given by way of accelerated capital allowances and additional relocation allowances, covers the removal costs of the industrial facilities and the cost of building the relocated facilities, including land purchase costs. Costs are limited to the net costs of the removal and relocation.
The rates of tax that apply for DIRT and other investment products are increased by sections 26 and 27. Section 28 increases the amounts eligible for tax relief for investment in films and makes our fiscal incentive for film making one of the most attractive around for prospective investors.
To support new companies, section 31 introduces the three-year tax exemption for new start-up companies that commence trading next year. In support of business, section 33 provides for the recognition of payments to and from countries where double taxation agreements have been signed, for preferential treatment, rather than awaiting the completion of the ratification process. Sections 34, 35 and 36 deal with various amendments to the provisions relating to the research and development tax credit, the main elements of which I have outlined.
Building on the initiatives in the Finance Act 2008, section 37 extends from three to seven the categories of energy-efficient equipment included in the scheme of accelerated capital allowances for energy-efficient equipment. The scheme provides for 100% capital allowances in the year of purchase on expenditure incurred by companies on qualifying equipment bought for the purposes of the trade. The new categories included in this scheme are information and communications technology; heating and electricity provision, process and heating, ventilation and air-conditioning, HVAC, control systems and electric and alternative fuel vehicles.
All sectors must make a contribution to stabilising our public finances. Accordingly, section 38 provides for revised arrangements for the payment of preliminary tax by large companies with a tax liability of more than €200,000 in their previous accounting period. It also revises the dates for payment of capital gains tax on asset disposals by individuals, thereby giving effect to the two measures announced in the Budget Statement. The section provides for payment of preliminary tax by large companies in two instalments, the details of which are set out in the explanatory memorandum to the Bill. Regarding capital gains tax, the payment date for disposals made in the period 1 January to 30 November of a year of assessment will be 15 December, while the payment date for disposals made in December will be the following 31 January. The revised payment dates apply to disposals made in 2009 and subsequent years.
To ensure consistency with the EC treaty, section 42 amends the existing provision that provides that any gain arising from the disposal of assets situated outside the State and the United Kingdom to a person who is resident or ordinarily resident but not domiciled in the State is based on the actual amount received in the State, that is, in accordance with the remittance basis of taxation.
Section 44 increases the capital gains tax rate from 20% to 22%, in respect of disposals made on or after 15 October 2008. Excise duties are dealt with in sections 46 to 66, inclusive. These sections set out a range of changes in regard to excise duties, including confirming the budget day increases in excise on tobacco, wine and petrol; the introduction of a lower rate of excise duty for low alcohol beer and cider; and increases in excise duty payable in respect of licences, other than pub licences, permitting the sale of alcohol.
The provision to increase betting duty from 1 % to 2% from 1 May 2009 is set out in section 53, as is the provision to allow deductibility for betting duty in computing the amount of profits or losses of a bookmaking business for income tax or corporation tax purposes. The introduction of an air travel tax from 30 March 2009 is provided for in section 55. The general rate applying will be €10 per passenger, with a lower rate of €2 for shorter air journeys. I have taken account of concerns raised by the regional airports, particularly those on the western seaboard. The lower rate of €2 will apply to departures from any Irish airport where the destination is 300 km or less from Dublin Airport. This means that all Irish departures to locations such as Manchester, Liverpool and Glasgow will be subject to the €2 rate.
To address ongoing concerns about both road safety and VRT evasion, section 61 provides for the introduction in respect of VRT of a pre-registration test for vehicles, including used imported vehicles, being brought into the State while section 64 provides for the setting up of a temporary registration system for non-Irish registered vehicles being brought into the State for a period of more than 42 days.
In addition, provision is being made for the introduction of estimated excise assessments in cases where excise duty, including VRT, has not been paid, extending more specifically the principle of unjust enrichment to VRT, and for changes to the VRT relief scheme for short-term car-hire including phasing out the scheme over a period of two years by October 2011.
VAT is dealt with in sections 67 to 77, inclusive. These sections set out a range of changes in regard to VAT including, as announced in the budget, the increase in the standard VAT rate by 0.5% to 21.5% with effect from 1 December 2008. This increase applies to all goods and services which were subject to VAT at 21%. The other VAT rates are unaffected.
Section 79 amends several sections of the Stamp Duties Consolidation Act 1999 to allow for the introduction of the e-stamping of instruments for stamp duty purposes. To facilitate the introduction of e-stamping, section 81 provides an incentive to encourage the presentation to Revenue of instruments executed before the enactment of the Bill and in respect of which the stamp duty chargeable has not been paid within the prescribed period of 30 days. Provided such instruments are presented to Revenue for stamping within eight weeks of the passing of the Act together with the full stamp duty and appropriate interest, a penalty will not be applied to such instruments. This measure is intended to facilitate a smooth transition to e-stamping.
Section 82 repeals section 110 of the Finance Act 2007 from the enactment of the Bill and reinstates it again with the same charging provisions but subject to certain exemptions being made to those charging provisions. These exemptions relate to certain transactions involving public private partnership arrangements and certain incentive schemes for capital allowances purposes. The section is subject to a commencement order being made and it is my intention to commence the provisions early next year.
Section 86 amends Part 9 of the Stamp Duties Consolidation Act 1999 to confirm the new reduced charges, already announced in the budget, for ATM, debit and combined ATM debit cards. The new rate on ATM cards will be €2.50, on debit cards €2.50 also and on combined cards €5.00. The reduced charges for ATM, debit and combined cards take effect for the year ending 31 December 2008.
Among other things, the reduction in the top rate of stamp duty for non-residential property from 9% to 6% is dealt with in section 87. The purpose here is to stimulate business and commercial activity and hence employment. Section 90 increases the rate of tax on gifts and inheritances from 20% to 22%.
The tax reliefs in respect of the donation of heritage items to approved State institutions and the donation of heritage property to the Irish Heritage Trust are amended by section 94 to 80% of the market value of the items and property donated, respectively. The ceiling on the aggregate value of donations qualifying for each of these schemes in any one year will remain at €6 million. This measure will ensure that the State achieves value for money and that there is a greater philanthropic element in the schemes.
To further facilitate business, section 96 and Schedule 3 give effect to the budget day announcement of an extension to return filing and payment deadlines where returns and payments are made electronically via the Revenue Online Service. A number of amendments are being made to the Taxes Consolidation Act 1997 and to the Value-Added Tax Act 1972 to extend and align the existing deadlines for corporation tax, relevant contracts tax and value-added tax.
With effect from 1 January 2009, where returns and payments are made electronically the return filing and payment deadlines for these taxes will be the 23rd of a month. This has the effect of extending the existing filing and payment deadlines by two days for corporation tax, four days for VAT and nine days for relevant contracts tax. A similar extension to the 23rd of a month is also being made for PAYE and PRSI by way of an amendment to the PAYE regulations.
Likewise, section 97 and Schedule 4 streamline and simplify the provisions in various Acts relating to the collection and recovery of taxes and duties, except customs, and replaces them with an integrated collection and recovery regime across the various tax heads.
I hope Seanad Éireann has benefited from this explanation of some of the measures in the Bill. The measures it contains strike a balance between the need to protect those on low incomes, the need to restore order to our public finances and providing targeted incentives to facilitate economic recovery. In this latter regard, the Bill also contains a number of measures to promote enterprise and business in this country so that we can return as early as possible to the path of growth.
A finance Bill is necessarily of a highly technical character and contains a diverse range of provisions in regard to the rates of tax, the collection of taxes and the administration of the tax system. The Finance Bill is part of a wider philosophy and direction which the Government is taking on our national economy. It is essential that we recognise the fact that our public finances are out of order and that the fall in tax receipts means our anticipated revenue is back to 2005 levels. Expenditure adjustments are and will be required to deal with this position.
Last July, I brought forward a package of measures which has been implemented in full since. The savings secured on that occasion have benefited the Exchequer position. We brought forward the budget to October, and I have been much criticised for doing so. However, it served the need to bring to public attention the difficulties which exist in the public finances. Naturally, the public expressed their views on this and that is legitimate and correct in a democratic society. However, we as a Government have to give leadership and make the necessary adjustments that are required to protect our economy.
Likewise, with the further deterioration that has occurred since budget day we will take the necessary measures in January after consultation with the social partners. We are determined to lead but we want to lead with the social partners working with us so that we can put this country in a position to benefit from an upswing in the world economy.
The budget contains an increase in taxation and I have heard calls for further additional increases in taxation rather than an adjustment of expenditure to tackle our problems. The amount of the tax increase in the budget is the most the economy can sustain in the year ahead. We must protect jobs. The decline in the tax receipts has been most marked in those areas where there is a discretionary element on the part of the purchaser of an item, be it a house, motor car, goods, services, cigarettes, tobacco or alcohol.
The declines in all of these areas are caused by the fact that consumer sentiment is weak and purchasers are not buying goods, services or houses or disposing of them. Given this circumstance the only effective way of increasing taxation is through the method of income taxation and this is why the levy is contained in the budget. However, I believe the levy is as far as we can go next year because further increased taxation on labour would result in further joblessness and we must recognise this.
With regard to the general philosophy of the budget, it is important that we send a clear message in the Finance Bill that we continue to incentivise business to come here and invest and create jobs. This is why the Bill contains a range of measures such as the research and development credit, the restoration of the remittance basis for certain restricted categories of employees in international companies, interest in venture capital being invested in research and development and other associated provisions. All of these measures are contained in the Bill to ensure Ireland remains as one of the most attractive places in the world in which to invest and create jobs. It is noticeable in the midst of this recession that those enterprises we have attracted here are proving durable. Many of them contribute an enormous amount to our economy and it is important that as well as addressing our cost competitiveness and ensuring we are competitive ourselves in selling goods and services to other countries that we sustain confidence in the inward investment sector in Ireland.
I thank Senators for arranging to debate this Bill today. I appreciate the fact that a day has been set aside and I will attempt to hear as many Senators as I can and conclude the debate. I commend the Bill to the Seanad.