Brian Lenihan Jnr (Dublin West, Fianna Fail)

I welcome the comments of the Minister of State, Deputy Kelleher, and Deputy Fahey that the income levy is a progressive measure. It is never easy to raise taxes but when it is necessary to do so, it is important that those who can pay pay the most, while the vulnerable in society are protected as far as possible.

Deputies Burton and O'Donnell referred to the changes to mortgage interest relief. As the Deputies may remember, I indicated in my Budget Statement in October last year that mortgage interest relief was not set in stone and was very much tailored to market conditions. The European Central Bank has since reduced its lending rates significantly. This reduction by 2.75 percentage points has resulted in considerable savings for the majority of mortgage holders. The reality is that with mortgage interest relief being available for non-first time buyers at 15% of the qualifying interest payable, the interest rate reduction is worth far more to mortgage holders than mortgage interest relief. For example, monthly repayments on a typical tracker mortgage with a margin of 1.75% over the ECB rate to the value of €300,000 taken out in 2002 over 30 years have fallen by approximately €390 since October 2008. The limiting of mortgage interest relief will, at most, reduce the value of mortgage interest relief to the affected mortgage holders by €38 per month, if single, or €75 per month, if married or widowed. I appreciate that fixed rate mortgage holders do not benefit from the reduction in interest rates, an issue raised by a number of Deputies. However, I understand that over 60% of fixed rate mortgages are fixed for between one and three years and this cohort should be able to avail of the current low interest rates once the fixed period has expired.

I want to clarify for Deputy Burton the Government's position on child benefit. As the Minister of State, Deputy Kelleher, explained, it is not right that better-off individuals can avail of the same child benefit payments as the less well-off. In times of scarce resources we need to target the resources available at those most in need. The Commission on Taxation is examining options in relation to the tax treatment of child benefit. I will be informed by its proposals on the matter. My Department, together with the Department of Social and Family Affairs and the Revenue Commissioners, is also examining the issues surrounding means-testing or taxing child benefit.

Deputy Bruton queried the end-2013 termination date for capital expenditure on qualifying private hospitals to qualify for capital allowances. The extended date will only apply where certain criteria relating to a valid application for full planning permission have been met. The Deputy will understand that I must make reasonable transitional arrangements for hospital projects which are in the pipeline and which, due to the complexity of the various strands of work involved in such projects, from design through planning, construction and fit-out, will take a considerable period of time to complete. The end-2013 deadline for hospital projects is not unreasonable in the circumstances.

Deputy Burton asked whether I proposed to introduce a restriction in the Finance Bill on the ability of property developers to claim loss relief. Sections 6 and 11 of the Bill, apart from abolishing the concessionary 20% tax rate on income and trading profits from dealing in residential development land, also introduce restrictions on the use of losses incurred in this activity. I have no proposals for further restrictions on loss relief in this general area at this time but will be keeping the matter under active review.

Deputy Burton also raised the issue of restricting the ability of the institutions covered by the bank guarantee scheme to avail of loss relief arrangements under the tax code, given the level of State support for the banking sector. I am conscious of the Deputy's concerns in this matter and while I do not propose to include a provision in this legislation, I will be examining the issues raised by the Deputy in this regard.

I appreciate the support expressed by Deputies Chris Andrews and Bannon for the reduction in interest charged by the Revenue Commissioners for late payments and underpayments of tax. Likewise, I welcome the comments of Deputies Michael Kitt and Breen on the provision for intellectual property relief and our efforts to develop the smart economy.

Turning to some of the other points raised by Deputies, Deputy Burton stated that no action had been taken against what were known as tax exiles. In my previous Finance Bill I made it more difficult for people who are effectively based in Ireland to become non-resident for tax purposes by abolishing the Cinderella rule which provided that an individual would not be treated as being present in the State on a day unless he or she was present at midnight on that day. As Members are aware, the report from the Commission on Taxation is due to be completed in July. Given the imminence of that report and because the changes I introduced have only been in place since 1 January, I do not intend to make further changes in this area at this time.

Deputies Bruton, Burton and O'Donnell questioned the increase in the standard VAT rate in budget 2009. As I have previously stated, it appears that the timing of Ireland's VAT increase in budget 2009, given the subsequent temporary reduction in the UK rate, may have sent the wrong signal to consumers. However, given the current Exchequer deficit position, the decision to increase the standard VAT rate continues to be necessary to support the public finances. We are borrowing to fund day-to-day public services, which is unsustainable as future generations will be required to pay higher taxes unless we correct the public finances. It is an inevitable feature that where there are two jurisdictions, with two currencies and two tax regimes, there will be distortions at different times in the marketplace. The balance in trade has switched at various times to different sides of the Border, giving rise to swings and roundabouts for both sides in terms of who benefits or loses in the local economies. The increase in cross-Border trade in recent months was to be expected, given the size of recent exchange rate movements. Although the United Kingdom cut its standard rate of VAT to 15% on a temporary basis from 1 December 2008 to the end of 2009, at the same time it increased excise duty on alcohol, cigarettes, petrol and diesel in order to offset the 2.5% reduction in VAT on these items. For Ireland to reduce the standard VAT rate to the UK level of 15% would mean a reduction in the standard VAT rate of 6.5 percentage points and cost in the order of €2.5 billion in one year.

The VAT rate is only one factor in the price differential between North and South. The report on the implications of cross-Border shopping for the Exchequer prepared by Revenue and the CSO at my request and published on my Department's website noted that the main causes of price differentials between goods in Northern Ireland and the Republic were operating costs, profit mark-up, taxes and the rapid depreciation of sterling against the euro of about 30% between January and December 2008.

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