Michael Noonan (Limerick City, Fine Gael)

There has been an interesting and informative debate here. I thank Senators for their comments. Before trying to address these, I reiterate that while the Government is taking every step to support economic recovery there is no quick fix solution.

Looking towards the medium term, the external environment is expected to strengthen from 2013 onward as is export growth. We expect to see economic activity beginning to gradually firm and broaden out from being externally driven to domestic demand also making a modest contribution. The continuing levels of inward foreign direct investment points to the fact that many of the underlying strengths of the economy remain. We are on track to bring the deficit below 3% of GDP by 2015.

The banking system has been recapitalised and the economy returned to growth last year following three successive years of annual decline. In short, the Government is delivering a return to sustainable growth which capitalises upon the underlying strengths of the economy.

I turn to points raised by Senators. Senators Darragh O'Brien, Zappone and Byrne raised the issue of the recent ESRI publication Distributional Impact of Tax, Welfare and Public Sector Pay Policies: 2009-2012. I remind Senator O'Brien that the publication concluded that since the economic crisis, losses imposed by policy changes in tax and welfare have been greatest for those on highest incomes and smaller for those on low incomes. Senator O'Brien said also that first-time buyers measures for mortgage interest relief is not targeted. The targeting is inherent in this measure and in mortgage interest relief itself. First, the measure is limited to the four-year period when house prices were at their peak. Second, the measure is limited to first-time buyers who purchased their first property in that particular period. Third, the relief is applied to the interest on the loan and is most effective in the early years of a mortgage when the interest portion of the repayment is at its highest. I thank Senator Gilroy for his support for this measure.

The issue of mortgage arrears is of the utmost importance to the Government. The fact that the Government has now established a committee, chaired by An Taoiseach, to co-ordinate and oversee the implementation of a whole-of-Government response to the problem is evidence of this.

There is no single or quick solution to the mortgage arrears problem. The Keane report outlined a number of recommendations to address the problem and work is progressing on the implementation of these as approved by Government.

Senator O'Brien asked about the capital gains tax property incentive scheme in section 64 of the Bill. Senator Barrett suggested it would overheat the property market again. I do not accept this is a speculator's charter. Anyone who wishes to avail of the incentive must hold the property for at least seven years.

Senator O'Brien mentioned the health insurance scheme. The purpose of the scheme, which was introduced by the previous Government, is to ensure health insurance remains affordable for older people by providing for an age-related tax credit to reduce the cost of premiums for older persons.

Senators Darragh O'Brien and Zappone asked about growth rates. The budget day forecast is for real GDP growth of 1.3% in 2012. The budget forecast was prepared on the basis of economic information - domestic and international - available up to the end of November 2011, and was mid-range at that time. Given the very uncertain environment, the budget documentation also pointed to a number of risks to this forecast, some to the downside and some to the upside. These risks are still valid.

While there are some differences between the outside agencies' forecasts and those of the Department of Finance, the broad picture - that is, of an externally driven recovery, with domestic demand remaining weak - is much the same. Moreover, and notwithstanding differences in the precise numbers, the expectation among domestic and international forecasters is that GDP will continue to grow this year.

Senator Zappone has made some specific comments based on legal opinion she has received on the section amending aspects of the tax code to provide the same treatment for civil partners as for married couples. I assure the Senator that my officials and officials in the Revenue Commissioners made a very thorough examination of tax legislation to ensure equality of treatment and have provided for this in consultation with the Attorney General's office in so far as is constitutionally possible. The door remains open for the submission of information in regard to any remaining perceived anomalies or shortfalls in the legislation.

On some of the specific issues mentioned by the Senator, the principal private residence relief from capital gains tax has been extended to dependent relatives of civil partners, and consanguinity relief from stamp duty has been extended to cover transfers of non-residential property to civil partners and relatives of civil partners. Both these measures were in the Finance (No. 3) Act 2011.

I am glad to see that Senators Sheahan, Hayden and Gilroy welcome the changes to the universal social charge, USC. I reassure Senator Sheahan that, in regard to section 126 and the requirement for certain taxpayers to provide a bond, Revenue is aware that, in most cases, there are legitimate reasons businesses may fall into tax arrears. The Revenue Commissioners made considerable efforts to reach agreements with such companies where there is a possibility of continued liability.

I endorse Senator Hayden's and Senator Gilroy's supportive comments, particularly in regard to areas such as research and development, SARP and FED. I have also noted Senator Quinn's comments on these topics.

Senator Reilly referred to individuals qualifying for the special assignee relief programme not being required to make a contribution. For each single individual who avails of the maximum amount of relief under this programme, more than €227,000 will be paid to the Exchequer in income tax, USC and PRSI revenue that might not otherwise be received.

I note Senator Hayden's concerns about those who have found it necessary to rent out their principal residence. As the Senator observed, these individuals would no longer be in receipt of mortgage interest relief. However, as they are receiving rental income, they may be allowed a deduction in computing the taxable rents from that letting of 75% of the interest accruing on money borrowed to purchase, improve or repair that property.

Senator Barrett referred to the high earner's restriction and unfortunately quoted some figures that would seem to be in error. This restriction applies at an adjusted income level of €125,000 and where an individual claims €80,000 or more in specified reliefs. Those subject to the full restriction pay a minimum effective income tax rate of 30%. This is in addition to PRSI and the USC, with the latter at rates of up to 10%. The actual effective rate of income tax for an average individual taxpayer on €40,000 is 15.53%. When PRSI and USC are added, the effective rate of tax for this individual is 24.17%. Single individuals in the PAYE system would need income of almost €100,000 to have an effective income tax rate of 30%. A married couple including a single earner, also subject to PAYE, with children would need income of around €150,000 before reaching an effective rate of income tax of around 31%.

I note Senator Barrett's remarks in regard to the section 481 film tax relief scheme. The film relief scheme was subject to a major independent review in 2007 and, contrary to Senator Barrett's contention, the Commission on Taxation recommended in 2009 that the relief be continued, but it recommended that it be subject to regular review. We fully support the principle of ex ante and ex post economic impact assessments.

I advise Senator Barrett that section 52 is not a tax break or a tax expenditure. Rather, it provides for a reduction in double taxation which can arise where lease rental payments are received from countries with which Ireland does not have a tax treaty.

Section 52 extends unilateral credit relief to leasing income. The provision will remove barriers to Irish companies conducting business with persons resident in non-treaty countries where withholding taxes apply to leasing income. The Irish aircraft-leasing industry is one of the big success stories of the IFSC, which employs more than 30,000 people and contributes over €1 billion to the Exchequer in corporation and payroll taxes.

On the Senator's point on anti-abuse rules, section 811 of the Taxes Consolidation Act 1997 already sets out our approach on this issue.

I thank Senator Healy Eames for her support and, in particular, her endorsement of the measures in the farming and agribusiness sector.

Senator Quinn raised the adequacy of the provisions of the special assignee relief programme to allow Ireland to compete with other jurisdictions. This programme introduces a much more flexible regime to replace that phased out in section 13 of the Bill.

Senators Byrne and Reilly should be aware that the standard VAT rate was increased in the budget to focus revenue-raising on indirect taxation, which has a less adverse impact on economic activity and employment than income tax. It should be noted that while income tax changes are more progressive than indirect taxes, they also have greater negative impacts on labour supply and thus on economic growth. Economic research by the OECD supports a shift in policy from direct taxes to indirect tax.

A number of Senators questioned the rationale for business tax incentives, including the research and development tax credit. The research and development tax credit scheme was introduced in the Finance Act 2004 as an incentive to foreign-owned multinational companies to increase investment in research and development in Ireland and to encourage Irish indigenous companies to increase the level of spending thereon. The scheme was approved by the European Union as a general measure and is not a State aid. It is open to any company undertaking research and development activities, including our indigenous food and other companies, to claim the credit on a self-assessment basis.

Senator Bradford referred to the current high fuel prices and the possibility of a temporary reduction in excise rates. The increase in fuel prices is an international phenomenon. Excise rates, including the carbon charge, on motor fuels are 58.8 cent per litre of petrol and 47.9 cent per litre of auto-diesel. However, our rates remain lower than many of our main trading partners and significantly lower than our nearest neighbour, the UK. There are no plans for temporary taxation adjustments, as to do so could lead to significant costs to the Exchequer.

I thank Senators for the constructive debate we have had today and I hope I have addressed the points raised in the short time available to me. I recommend the Bill to the House.