Brian Cowen (Laois-Offaly, Fianna Fail)

I am happy to tell the House that the tax credits for widowed persons, blind persons, incapacitated children, dependent relatives and those aged 65 and over are being further increased this year, by amounts ranging from more than 20% to 50%.

The tax relief for persons living in private rented accommodation is being increased by 10% to assist those faced with increased rental costs.

The tax allowance for those paying trade union subscriptions, which was introduced by the Government, is being increased from €200 per year to €300 per year. This allowance is available at the standard rate of income tax.

The total cost of all these increases in income tax credits, bands and reliefs is approximately €900 million in a full year.

A fairer tax system

Last year I announced a major review of tax reliefs in order to achieve a greater degree of equity in our tax system. This involved both internal reviews and the employment of outside consultants. It also included an extensive public consultation in which approximately 90 submissions were received from a wide range of persons. These submissions were reviewed by the Oireachtas Joint Committee on Finance and the Public Service and I had the benefit of that committee's discussions. At the end of the day, the decision on what to do rests with the Government, for which we can be held accountable by this House.

What we are seeking to achieve

My basic aim is to see that everybody pays an appropriate amount of income tax relative to their ability to do so. This is a cornerstone of tax equity. We must balance this with the need for effective tax reliefs to incentivise work, effort and enterprise so as to stimulate economic and social development. To achieve this balance I am announcing a range of specific measures. These reflect the recommendations of the reviews, a synopsis of which is set out in the Summary of Budget Measures. I propose to publish all the relevant reports reviewing these various tax reliefs in time for the Finance Bill.

First, the following reliefs either have achieved the objectives set for them or are no longer considered to be cost effective in terms of the objectives set for them and are therefore being terminated subject to certain transitional provisions: the urban renewal, town renewal and rural renewal schemes; and the special reliefs for hotels, holiday cottages, student accommodation, multi-storey car parks, third level educational buildings, sports injuries clinics, developments associated with park and ride facilities and the general rental refurbishment scheme.

The transitional measures take cognisance of the fact that there are more than 250,000 jobs in the construction sector and the building industry accounts for approximately 20% of the economy. We should not do anything that disrupts unnecessarily an industry that is such an important driver of jobs.

For this reason, for projects that are already in the pipeline, I am extending the date for which 100% relief for expenditure will apply by five months from the end of July 2006 to 31 December 2006. Thereafter, where 15% of the relevant expenditure on the project has been incurred by that date, the relief will apply to only 75% of the expenditure incurred in 2007 and to 50% for expenditure incurred up to the end of July 2008. The relief will then reduce to zero, and thus end, after 31 July 2008. Full details of these transitional arrangements are set out in the Summary of Budget Measures.

Both sets of external consultants dealt with the transitional issue and both recommended an extension of relief for such pipeline cases. One recommended a simple extension of 100% relief for 17 months beyond 31 July 2006. The other recommended an extension of five years but at only 50% relief. I have chosen a middle course.

This winding down of property based tax reliefs is consistent with the greater capacity of particular economic sectors nowadays to fund such investment from their own resources, and the sizable capital investment which the Government itself is making through the major new investments I referred to earlier.

In line with the recommendations of the consultants, I propose to continue the tax reliefs for nursing homes, child care facilities and private hospitals. Special arrangements will apply for park and ride facilities and the living-over-the-shop scheme as indicated in the Summary of Budget Measures.

The reviews also proposed that any new reliefs should be time-limited and should, where relevant, be subject to an assessment of costs and benefits prior to their introduction. They also proposed that recipients of these kinds of tax reliefs be required to supply full data to Revenue to assist in the costing and assessment of reliefs. I will be following this advice as far as appropriate.

A minimum and fair tax

It is necessary not only to eliminate some incentive reliefs but also to regulate the use that can be made of those that remain. We cannot stand over a situation in which some high-earning tax residents, through the use of incentive reliefs, can reduce their taxable income to nil.

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