Brian Cowen (Laois-Offaly, Fianna Fail)

This annual cap system will also apply to artist's relief from the same date. There is no change in the tax treatment of income now exempt under the artist's relief scheme where that income is less than €250,000 per year. The vast majority of people are under that bracket.

Pensions

Tax equity applies not only to taxpayers' current income but also to how taxpayers provide for their income needs in retirement. Recent budgets and Finance Acts have made significant and innovative improvements in the nature and scope of tax reliefs for pension provision. This was done so as to encourage earlier and more substantive saving by the generality of individuals to meet the cost of providing themselves with a reasonable and affordable pension.

The Government is putting aside 1% of GNP each year to help fund future pensions. The National Pensions Reserve Fund is expected to amount to €15 billion or 11% of national output at the end of 2005. In addition, substantial tax costs in the order of €3 billion or more are incurred to incentivise pension saving through tax reliefs each year.

The cost of providing such reliefs is that high because the funds which a pension scheme must build up have to be a multiple of the annual pension to be provided. Thus, a fund of about €1 million is required to generate even a relatively moderate annual pension as a result.

We must continue to incentivise pension contributions if we are to meet the challenge of supporting an ageing population. To achieve this objective, I will be considering measures in the Finance Bill to assist those towards the lower end of the income scale and those who are not using their current full entitlements to provide themselves with reasonable retirement arrangements. The policy objective is to provide reasonable tax relief subject to limiting the amount the general taxpayer is required to finance. People will, of course, continue to be free to provide higher amounts for their retirement but without a subsidy from the general taxpayer.

To help contain this subsidy, the current maximum amount of an individual's pension contributions that can be tax-relieved each year is already limited to a specified percentage of income, subject to an earnings limit of €254,000. This earnings limit affects less than 1% of income earners. It broadly translates into an accumulated pension fund of the order of €5 million, depending on a number of factors. There is currently no overall maximum limit, however, on the amount of the pension fund that can be tax-relieved.

It is reasonable to set such a cap at €5 million, or the existing value of a person's pension fund as of today, if that is greater. Under current rules the maximum tax free lump sum that can be taken by a person is one quarter of the fund. Therefore, a fund cap at €5 million means a €1.25 million cap on all tax-free lump sums. This cap will apply on and from today.

I am also proposing that for those with funds in an approved retirement fund, these funds will be subject to income tax as if not less than 3% of the fund were distributed each year. This should ensure that such funds are used to provide a retirement income and not as a device for tax deferral. As a transitional arrangement one third of this rate will apply in 2007, two thirds in 2008 and the full 3% in 2009 and following years. Further details are set out in the summary of budget measures.

Other reliefs

I have examined a number of other tax reliefs such as the reliefs for expenditure on significant heritage houses and gardens, woodlands and donations and the tonnage tax and I have decided to make no significant changes in their operations for the present. In the case of horse and greyhound stud fee income this exemption will end on 31 July 2008.

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