Martin Mansergh (Tipperary South, Fianna Fail)

The amazing thing was that it lasted so long and enabled so much progress to be made, economically, socially and in infrastructural terms.

To deal specifically with the Finance Bill, the importance of the manufacturing base remains. Research and development will have a high spin off which underpins much of the service economy. One of the most significant developments introduced in this year's Bill has been the change to research and development, R&D. The central issues considered by Government have been how we optimise the benefit to companies in order to influence investment decisions; how we recognise that most research and development takes place in a production setting and how we address the volume issue without exposing the Exchequer to deadweight costs in the short term.

In order to achieve this, the Finance Bill provides for a number of measures. The tax credit is set against current profits in the first instance; unused credit is to be set against the previous year's corporation tax payment, creating a repayment; any remaining unused research and development tax credit would then be monetised by way of a payable credit, one third of the outstanding credit monetised per annum over the next three years. This means that a credit granted in any one year will be fully utilised by the company over three years, regardless of profits, giving certainty for planning purposes. To assist with the cost of buildings the scheme applies to buildings used substantially, 35%, for research and development purposes rather than wholly and exclusively as is the case at present. Finally, abolishing the ten-year look-back period for incremental research and development, that is, setting 2003 as the permanent base year, gives certainty about the scheme.

These measures represent a significant change to our research and development tax regime and would increase its attractiveness. When implemented the measures will target the tax incentive on the productive high value-added sectors of the economy and improve our offering to investors who derive full benefit over not more than three years. They would also help start-up companies to benefit from the credit in a period where they were unlikely to have profits against which to set the credit and recognise the fact that the vast majority of research and development does not take place in laboratories but in facilities involved in production.

Like many other Members of the House, I regularly visit such facilities in or on the edges of my constituency. In most cases, despite market difficulties and exchange rate difficulties, they have been in business for many years in many cases and they have every intention of staying rather than transferring somewhere else. They are a good advertisement for other industries from the same area. Yesterday I visited an Indian-managed plant in Ballymacarbry just inside County Waterford along with my Oireachtas colleagues. Much of the workforce comes from County Tipperary. Appreciation was expressed of the research and development supports in the Finance Bill. This measure would be a de facto volume-based scheme through the abolition of the ten-year look-back without short-run deadweight costs, similar to the evolution of the US scheme.

The Government is also supporting enterprise through an exemption from tax that is granted by reducing to nil the corporation tax relating to the profits of a new trade and the chargeable gains on the disposal of any assets used for the purposes of a new trade. The exemption period is three years from the commencement of the new trade. The exemption applies to companies incorporated on and from 14 October 2008, who commence to carry on a new trade in 2009. The scheme only applies to companies commencing to trade in 2009. There will be full relief where total corporation tax liability in any of the first three accounting periods does not exceed €40,000.

There will be marginal relief where corporation tax liability falls between €40,000 and €60,000. The marginal relief will be given by way of a standard marginal relief formula detailed in the legislation. In short, the closer its corporation tax liability is to €40,000, the greater the marginal relief a company will receive. For example, a company with a total corporation tax liability of €42,000 in its first year will pay corporation tax of €6,000 and benefit from marginal relief of €36,000, while a company with a corporation tax liability of €59,000 will pay €57,000 and its marginal relief will amount to €2,000. New start-up companies with a corporation tax liability of €60,000 or more in any of its first three years will not receive any relief for that year. Since the taxable profits of a company in this scenario would be close to €500,000 at €480,000, this is not justified.

The Government does not believe it is necessary to formally notify this tax relief measure to the EU Commission from a State-aid perspective as the amount of assistance involved falls below the de minimis level of aid allowed under the relevant regulation. We want to be sure, however, that all aspects of the measure meet EU requirements and we will seek to clarify this with the EU Commission. An order will then be made to commence this section of the Bill.

The current stamp duty system applicable to non-residential property is being changed. At present, stamp duty is charged at various rates up to 9% where the consideration exceeds €150,000. The new top rate is 6%. The existing regime, with its top rate of 9%, was introduced by the last Fine Gael-Labour-Democratic Left Government in 1997. This change in the top rate is a positive move to assist business and sends a clear message that the Government is doing its part in restoring confidence in the market.

In bringing stability to the public finances, the income levy is a progressive measure and is carefully constructed. It has several precedents in the past 20 years. Those on low incomes and the elderly who are below the exemption thresholds will not have to pay the income levy. Social welfare payments and medical card holders are also exempt. Middle income earners will pay 1%. Individuals with high earnings of more than €100,100 per annum will pay 2% on the amount in excess of €100,100 and very high earners of over €250,120 per annum will pay 3% on income above that amount.

To raise the same amount of revenue, approximately €1.2 billion in a full year, through increasing the standard and higher rates would have meant 1% on the standard rate, 2% on the higher rate or 4% if the increase were confined to the higher rate. Middle income earners would have faced an increase in income tax of 3%, or even 4%, instead of the 1% currently being applied on that range of income by the levy. The use of the levy mechanism also implies it is a temporary arrangement, as previous ones were.

The income levy has a broad base. Individuals who may be able to reduce their income tax liability through pension contributions, capital allowances or tax incentive schemes, such as film relief or the business expansion scheme, will not be able to do so under the income levy. Streams of income that currently have exemptions from income tax are not exempt from the income levy. These include earnings of writers, composers and artists, income from patent royalties, mining operations and profits from woodlands. Farmers will not be disproportionately affected.

The income levy is structured so that everyone who can afford to pay the income levy makes a contribution. The progressive nature of the levy is demonstrated by the fact the top 1% of earners, that is those earning more than €250,000 per annum, account for 20% of the yield from the levy.

The Government is always conscious of the need to target resources where they will have most effect. Changes to mortgage interest relief were specifically made to refocus the relief on those who need it the most. First-time buyers, who are under most pressure in the current economic climate, will benefit. This measure could be worth as much as an extra €3,500 over a five year period to a first-time buyer couple and worth as much as an extra €1,750 over the same period to a single first-time buyer. These changes constitute a genuine reform of the system on a revenue neutral basis.

The so-called "Cinderella rule" has been controversial for some years. The current rules for determining residency in the State are based on the number of days an individual spends here. However, to count a day, the individual must be here at midnight, hence the Cinderella rule. It is clear that it is excessively elastic and allows individuals to allude the residency rule by leaving the jurisdiction prior to midnight and ensuring their presence in the State could not be counted for tax purposes. I could allow myself some humorous reflections on a comparison between the superwealthy and Cinderella but I will refrain from doing so.

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