Brian Hayes (Dublin South West, Fine Gael)

Economic life in this country is slowly beginning to return to normal. It will take time and there is a long way to go but the process has begun. Many members of the Cabinet have just returned from representing us at St. Patrick's Day celebrations in various parts of the world. They all brought with them the important message that Ireland is open for business. It is expected that the Central Statistics Office, CSO, figures to be released later this week will show that the economy has returned to full year growth. The figures currently available show that GDP increased by an average of 0.7% in the first three quarters of 2011. This is despite the considerable uncertainty that existed in the global economy, particularly in the euro area, last year. In this regard, the Minister is confident the concerted policy action agreed at European level will help stabilise and restore confidence in the euro area as we go through this year.

It has been well documented that our economic recovery is being export-led. Exports of goods and services are well in excess of pre-crisis levels. This shows that the improvement in competitiveness, which has been evident in recent years, is standing to us. This demonstrates the inherent flexibility of the economy. Prices and costs in Ireland have fallen dramatically and further improvements are in the pipeline. The strong export performance also means that our balance of payments with the rest of the world moved into surplus in 2010 for the first time in more than a decade and is expected to remain in surplus over the coming years. This is encouraging and means that the nation as a whole is paying its way. Obviously, as a small open economy whose recovery is being driven by exports, we will be affected by any weakness in the global economy. However, the composition of our exports and competitiveness improvements will provide support. Figures released by the CSO last week showed that the trade surplus in 2011, at €44.7 billion, was at a record high. Moreover, I emphasise that the general consensus amongst forecasters, both institutional and private, is that Ireland will record positive GDP growth again in 2012.

The labour market has borne the brunt of the adjustment in the economy with unemployment at more than 14%. Even though it is expected to reduce a little this year, it is clear that structural unemployment, a legacy of the construction boom, will remain a problem for some time to come. To combat this, the Government has prioritised job creation and retention, introducing a number of measures, which include the jobs initiative, the action plan on jobs and the pathways to work scheme. We have also successfully negotiated with the troika that some of the receipts from the sale of State assets will be directed towards job creation. While unemployment remains unacceptably high, signs of stabilisation are becoming evident. Employment figures showed the first quarterly increase in four years in Q4 2011.

There are many uncertainties and considerable risks. Obviously, the weakness of the euro area is a major factor. However, recent economic data – domestically and internationally – have not been as poor as was first assumed. For example, high frequency survey data have shown strong levels of global economic activity in both January and February, while in Germany, the ZEW indicator of economic sentiment has increased for the fourth consecutive month and is at its highest level since June 2010. At home, goods exports rose by 10% year-on-year in January, while consumer confidence levels have also shown improvement.

As the Minister said on Second Stage in the Lower House, the Bill contains a number of measures designed to support investment, stimulate research and, ultimately, create jobs. It must be viewed as one element of a wider strategy to support economic activity. We have limited resources and we must take these and apply them to areas with the best employment potential and returns.

I draw the attention of the House to a number of the key measures to which the Bill will give legal effect, most of which were announced in the budget. We have introduced the special assignee relief programme or SARP. This incentive is about reducing the costs to businesses of attracting key individuals from abroad to work in the Irish-based operations of their employer. The foreign earnings deduction for employees temporarily assigned from Ireland as part of their employment to Brazil, Russia, India, China and South Africa is designed to incentivise employees to undertake marketing trips to the countries involved, with a view to increasing Irish exports to the large populations of those countries.

The Bill includes a number of significant enhancements to the research and development tax credit scheme, as we need to encourage the productive, high value-added sectors of our economy to work our way out of the current downturn. It introduces a package of measures to support the financial services industry. This welcome industry employs more than 30,000 people and contributes more than €1 billion in tax to the Exchequer. The industry represents a bright spot in terms of recent employment growth in the economy with the funds industry alone creating more than 1,200 net new jobs in 2011.

Turning to property reliefs, the legislation imposes limits on the use of legacy property reliefs. These are in line with the programme for Government commitment to restrict property tax reliefs and other tax shelters that benefit high income earners. As regards mortgage interest relief, the Bill gives effect to the commitment in the programme for Government to increase the rate of mortgage interest relief to 30% for first-time buyers who took out their first mortgage in the period 2004 to 2008.

All these measures were explained in detail in the Minister's Second Stage speech in the Dáil. I would like to refer to other important measures not previously highlighted. Perhaps of particular interest to Senators, during the debate of Finance (No. 3) Act 2011 in this House, on foot of recommendations by Senator Zappone, the Minister undertook to have his officials re-examine the position on tax relief for maintenance payment arrangements where civil partners live separately. As a result of that examination, he decided to make two changes to the taxing provisions in this area. The Bill provides that in cases where differences arise between civil partners and a legally binding agreement between the parties is drawn up, for example, a trust or covenant agreement or any other act giving rise to a legally enforceable obligation, this agreement will be recognised under new tax law. The Bill also places civil partnerships on the same footing as married relationships where it is accepted that following the break-up of a relationship, often for economic reasons, persons may continue to live under the same roof.

The Bill gives effect to the Minister's budget announcement to increase the exemption threshold for the universal social charge from €4,004 to €10,036 for the tax year 2012 and subsequent years. It also introduces an enhanced scheme of stock relief for registered farm partnerships, which is part of a range of measures relating to farming, which reflect the Government's commitment to supporting and facilitating growth and expansion in the key agri-food economic sector.

I will now go through the Bill but will not cover each individual measure or section. This is one of the largest Finance Bills in recent years, running to 141 sections, six Schedules and 324 pages. It is the output of a major exercise, an effort not confined solely to officials or legislators. Measures are not simply devised in Merrion Street but represent the product of much discussion and dialogue across all Departments and with industries, including a broad spectrum of representative organisations, including the Institute of Chartered Accountants and individual citizens.

Part 1 deals with the income levy, universal social charge and income, corporation and capital gains taxes. Section 2 deals with the universal social charge, about which I have already spoken. The section also includes technical amendments on the application of the universal social charge. It should be noted that as a result of this measure more than 300,000 people will be removed from the USC net. These are, broadly speaking, people engaged in temporary and seasonal employment and people in receipt of low wages. A key group of people, in terms of the workforce and the amounts of money they are earning, will directly benefit of this change, as per the commitment of both parties in the programme for Government.

Section 2 introduces an additional amount of USC to be paid by investors in Section 23 and accelerated capital allowance schemes who have gross incomes of more than €100,000. This property relief surcharge, which is effective from 1 January 2012, will apply at a rate of 5% on the amount of income sheltered by such relief in a given year. In addition, section 17 provides that investors in accelerated capital allowance schemes will no longer be able to use any capital allowance beyond the tax life of the particular scheme, where that tax life ends on 1 January 2015.

Section 4 provides for a number of changes to income tax and USC as they apply to shared based remuneration. Section 6, with section 105, provides for changes to the interim tax based health insurance scheme. Section 6 makes changes to the age related income tax credit for 2012. The credit will be in five year bands for individuals aged between 60 and 84 years with a final band for individuals aged over 85 years. Section 7 gives effect to the budget day announcement that the tax exemption for the first 36 days of illness benefit and occupational injury benefit will be removed. For example, in some circumstances an employee who is absent from work owing to illness and continues to be paid by his or her employer is often better off on sick leave than when working. This change seeks to avoid such a situation.

Sections 8 and 9, together with section 27, provide for the changes to the research and development, R&D, tax credit scheme and mortgage interest relief, both of which I have already referred to, and certain other changes. Section 10 provides that those signing for PRSI credits can now qualify for the Revenue job assist scheme. Section 11 increases the amount of fees disregarded in respect of claims for tax relief on third level fees. The disregard for claims in respect of students who are in full time education has been increased from €2,000 to €2,250. Where all of the fees paid relate to part time education, the disregard is increased from €1,000 to €1,125.

Sections 12, 13 and 14 relate to the introduction of the special assignee relief programme and the foreign earnings deductions, which I mentioned earlier. Section 15 was inserted on Committee Stage of the Bill in the Dáil. It introduces a number of changes to the provisions relating to the operation of the PAYE system. These changes are largely technical and regulatory in nature. Section 16 addresses anomalies created by undesired interactions between the high earners restriction and the claw-back provisions under the section 23-type reliefs, as well as the balancing charge-allowance provisions under the property based accelerated capital allowance schemes. Provision is also made to remove the proposals relating to Section 23-type reliefs provided for in section 24 of the Finance Act 2011, which were subject to a commencement order.

Section 18 gives effect to a number of changes in the broad pension tax area as announced in the budget. The Bill provides for the increase from 5% to 6% in the annual imputed distribution which applies to the value of assets in the approved retirement funds, ARFs where such funds have assets valued in excess of €2 million. The imputed distribution arrangements are also being extended to vested PRSAs on the same basis. Section 18 also includes provisions to mitigate the harsher impacts at retirement for certain individuals resulting from the significant reduction to €2.3 million in the annual allowable pension fund at retirement for tax purposes.

Section 20 makes a number of amendments to the tax treatment of farmers. These relate to carbon tax computation, young trained farmers courses and enhanced stock relief in certain circumstances. Section 24 gives effect to amendments to the relief for investment in films. These changes are aimed at encouraging compliance by qualifying companies with the reporting requirements of the scheme. Section 28 increases the tax rates for life assurance policies and investment funds by 3%. The increased rates apply to payments and deemed payments on or after 1 January 2012. The section also deals with anomalies in the taxation of such income in the hands of companies.

Section 29 exempts pension funds from life assurance exit tax. This is in keeping with the current exemption from investment fund exit tax and overall exemption for pension funds from income tax and capital gains tax. Section 30 aligns the rate of exit tax on collective investment undertakings with the rate applying to entities which are subject to gross roll-up regime at 30%. Section 31 amends the equivalent measures regime in relation to the exit tax for investment funds.

Sections 33, 34 and 35 will accommodate cross-Border mergers of investment funds and new master feeder structures envisaged under the recently implemented UCITS directive. Section 36 gives effect to the increase in the standard deposit interest retention tax, DIRT, rate by 3% to 30%. The rate for certain longer-term saving products will also be increased by 3% to 33%.

Section 41 amends section 113 of the Taxes Consolidation Act in three ways. First, it extends the range of carbon offsets which a section 110 company can acquire to include forest carbon credits. Second, it amends the definition of a qualifying company to acquire notification to Revenue within a specific timeframe. Third, it ensures that the Finance Act 2011 amendments do not apply to a company operating in a State through a branch or agency.

Section 47 introduces a new section 452A of Taxes Consolidation Act to amend the interest deductibility rules to facilitate cash pooling businesses in the corporate treasury sector. Section 45 extends the scheme which provides relief from corporation tax on the trading income and certain gains of new start-up companies in the first 3 years of trading so as to include start-up companies which commence a new trading year in 2012, 2013 or 2014.

Section 47 extends the current group relief rules in section 411 of the Taxes Consolidation Act so that losses can be transferred between two Irish resident companies where those companies are part of a 75% group involving companies which are either resident in a jurisdiction with which Ireland has a treaty or quoted on a recognised stock exchange.

Section 51 amends Irish tax legislation to reflect recent changes in company law. Section 52 extends the existing unilateral credit relief, which currently applies to royalty payments, to include equipment lease rental payments. This measure will be of particular benefit to the aircraft leasing industry.

Section 53 provides for the taxation at 12.5% instead of 25% in the hands of an Irish resident company of foreign-sourced dividends paid out of the trading profits of privately held companies in countries with which Ireland does not have a tax treaty but which have joined the OECD Convention on Mutual Administrative Assistance in Tax Matters.

Section 55 provides for the capital gains tax, CGT, rate increase from 25% to 30% as announced on budget day. Sections 56 to 58, inclusive, and 66 contain various anti-avoidance and Revenue protection measures. Sections 59 and 60 modify CGT retirement relief to encourage timely transfers of farms and businesses.

Sections 61 and 63 of the Bill provide for CGT exemptions for State bodies, namely, Teagasc, local government corporate service bodies, the Grangegorman Development Agency, and disposals by the Dublin Institute of Technology to the Grangegorman Development Agency. Section 62 provides that compensation for giving up the right to cut turf in special areas of conservation will be exempt from CGT.

Section 64 gives effect to the property incentive announced in the budget, under which property purchased up to the end of 2013 and retained for at least seven years will be relieved from capital gains tax on the part of the gain attributable to the initial seven year holding period.

Section 65 was inserted on Committee Stage in the Dáil and is intended to facilitate the development of Ireland's holding company regime by providing that gains on foreign currency by holding companies will not be treated as capital gains but as investment income. Section 67 was also inserted on Committee Stage in the Dáil and provides that where a sporting body makes a gain on a disposal any portion of the gain donated to a charity will be exempt from CGT.

Part 2 of the Bill deals with excise. Sections 68, 78, 81 and 82 give effect to the increases from €15 to €20 per tonne in the carbon tax announced in the budget.

Section 69 gives effect to the increases in tobacco products tax announced in the budget. In addition, the opportunity is being taken to make changes to the structure of the excise on tobacco by increasing the specific element of the excise in line with the greater scope offered by the relevant EU directive. A minimum level of excise on tobacco is also being introduced, which will protect the Exchequer in the event of any downward pressure on prices. This is the approach that has been adopted by the vast majority of member states.

Sections 70 to 77 were inserted on Committee Stage in the Dáil and deal mainly with changes required to existing excise law, many of which are editing and re-structuring changes in preparation for an excise consolidation Bill. Section 78 introduces measures to support enforcement work by facilitating monitoring and supervision of the oils supply chain.

Section 83 contains provisions for the introduction of an export refund scheme, whereby vehicles exported from the State will be able to claim a refund of the residual VRT in a vehicle. The section also includes a number of definitional and other changes consequent on the introduction of the scheme, as well as a revised definition of "new".

Part 3 of the Bill deals with VAT. Section 85 provides for the strengthening of VAT ministerial orders following advice from the Office of the Attorney General. In conjunction with sections 91 to 93, inclusive, it also provides a mechanism to recover VAT and impose interest and penalties where VAT has been improperly claimed and refunded under any VAT refund order. This is an anti-avoidance measure.

Section 87 gives effect to the budget increase in the standard rate of VAT from 21% to 23% from 1 January 2012. Section 94 revises the definition of bread for the purposes of the application of the zero rate of VAT, to reflect the breads currently available on the market, taking account of the development of bread for health, ethnic and other reasons.

Section 95 reduces the VAT rate applicable to district heating to 13.5% with effect from 1 March 2012. It also reduces the rate of VAT on admissions to open farms and built and natural heritage, such as waterfalls, to the 9% reduced rate consistent with the application of this rate to the tourist industry last year.

Part 4 of the Bill deals with stamp duties. Section 97 provides for the introduction of a single stamp duty rate of 2% on transfers of non-residential property, including commercial and industrial property and farm land. The section also provides for the abolition of consanguinity relief with effect from 1 January 2015.

Sections 98 to 104 relate to exemptions and reliefs from stamp duty. The provisions include an exemption for the Grangegorman Development Agency; relief from stamp duty for mergers of Irish public limited companies and for cross-Border company mergers; relief from stamp duty on ATM and debit cards to provide for a pilot scheme of basic payment accounts to encourage and facilitate participation in the mainstream financial sector among members of the public who are, or consider themselves to be, excluded from it; and a number of other technical changes. In particular,,, section 100 contains nine separate technical stamp duty amendments which extend the range and scope of stamp duty exemptions applying to certain financial transactions and confirm the stamp duty treatment of options over shares.

Section 105 gives effect to the new rates of the health insurance levy for 2012 of €285 for individuals aged 18 years or over and €95 for individuals aged under 18 years.

Part 5 of the Bill deals with capital acquisitions tax, CAT. Section 109 provides for the CAT changes announced in the budget, namely, the increase in the rate from 25% to 30% and the reduction in the Group A tax-free threshold for gifts and inheritances between parents and children to €250,000. The section also provides for the breaking of the link between the tax-free thresholds and the consumer price index.

Sections 111, 112 and 114 contain various anti-avoidance provisions. Section 116 moves the pay and file date for CAT from 30 September to 31 October, in response to concerns about the payment of CAT for individuals receiving an inheritance close to the filing date.

Part 6 deals with miscellaneous provisions. Section 119 was inserted on Committee Stage in the Dáil and addresses some issues pertaining to Ireland's international obligations on the exchange of information with tax authorities in other countries. Section 122 will require merchant acquirers and third party payment processors to make regular automatic returns to Revenue of all amounts credited to traders. This is in response to emerging evidence that some businesses may be under-reporting card payment transactions.

Section 126 will enable Revenue to require a taxpayer who has had a significant previous tax default to provide Revenue with a bond covering fiduciary taxes. This measure is specifically aimed at delinquent businesses that have a track record of non-compliance and of walking away from tax debts. Section 127 will provide Revenue with powers similar to those contained in the Criminal Justice Act 2011 regarding the provision of documents or information and in relation to privileged legal material. These powers will only be available when Revenue is investigating serious tax offences.

Sections 128 and 130 were introduced on Committee Stage in the Dáil. Section 128 changes the legislation governing the time limits that apply to the repayment of taxes and the related question of when a repayment of tax may be set off against other tax liabilities. Section 130 updates the part of the Taxes Consolidation Act 1997 that deals with abusive tax avoidance schemes. The amendment removes an element of doubt over Revenue's entitlement to make or amend the necessary assessment beyond the usual four-year period in order to collect the tax after a transaction has been judged to be abusive.

Section 136 provides that the Irish citizenship condition for the payment of the domicile levy will be abolished for tax years from 2012 onwards. This means it will not be possible for an individual who would otherwise be subject to the levy to avoid it by renouncing Irish citizenship.

Section 137 sets out additions to the list of double taxation agreements and tax information exchange agreements between Ireland and other jurisdictions. Following the enactment of this Bill, Ireland will have concluded double taxation agreements with 65 countries and tax information exchange agreements with 19 countries. Negotiations to conclude a number of other agreements are ongoing.

I hope the Seanad has found this explanation of the measures in the Finance Bill useful. I reiterate that we all aware that our country is slowly emerging from the most severe downturn in the history of the State. The Finance Bill 2012 is another important step on the road to economic and fiscal recovery. I commend the Bill to the House.