Richard Bruton (Dublin North Central, Fine Gael)

Deputy Jonathan O'Brien spoke about the cut in stamp duty and the provision whereby a person who buys a property now and keeps it for a certain period can get a holiday from capital gains tax.

The property sector has collapsed and with it activity in the construction sector has dropped by approximately 90%. There has been a huge lay-off of employees in this sector and it is operating far below what would be standard in an economy of our size and activity. In the present market conditions, there is no fear of property speculation, with people chasing rising prices and a false boom being created. Our difficulty is the opposite. There is no confidence to come into the market and no one is buying. That has knock-on effects.

Other Deputies raised the issue of NAMA. If NAMA, which is charged with the responsibility for recovering for the taxpayer as much as it can from the loans it holds, is faced with a dead property market the taxpayer loses out. However, I see no fear of what has been suggested in this regard. Subsequent budgets can always look at these aspects again.

In the past, people felt the boom would go on forever. Even when we went far above standard relationships between property values and incomes, people were still cheerleading the boom and saying property could not fail. We are in a different climate now. These are cautious measures which will restore confidence to a sector which is very important to many people's futures.

Deputy Boyd Barrett raised the issue of a progressive scale within the capital acquisitions tax. There has always been a steep rise in the basic rate of capital acquisitions tax and a progressive reduction in the thresholds people enjoyed. It has been a relatively simple structured capital tax and has, by and large, applied the same rate as the capital gains tax. In recent years the rate has gone from 20% to 30% and the exemption threshold has come down very dramatically from approximately €500,000 to about €250,000. This has made the tax more progressive. Where the inheritance or gift is significant a large part of the sum is taxed at 30% whereas previously there was a significant exemption threshold and a much lower rate. This will extract much more revenue from inheritances than has been the case in the past.

Capital acquisitions tax has been designed so that the progressivity is related to the relationship of the giver to the receiver. The threshold for an inheritance of a child from a parent is €250,000, for a inheritance of a nephew from an uncle it drops to €33,000 and for a gift from an unrelated person the threshold is €16,000. The more distant the relationship the lower the threshold. The structure has a fairness built into it, even though it is not a traditional progressive rate.

Deputy Crowe asked why the €250,000 threshold was arrived at and mentioned the family home. The threshold is pitched at a level where a modest inheritance from a parent to a child would not be hit. Each child enjoys the threshold. If a house that is worth €400,000 is divided between two children neither of the children will pay any tax on the transfer of the home.

The figure of €250,000 reinstates the relationship between group A - parents and children - and group B - uncles and nephews, for example - which applied in 1999. I do not know if that is why the figure was arrived at, but that is what it does. During the years when the tax was watered down, particularly when Deputy McCreevy was Minister for Finance, the thresholds and rates became much more favourable to inheritances by children from parents than to inheritances by nephews from uncles. This undermined the entire tax, because most inheritances pass from parent to child. By bringing this threshold back into the relationship it had some years ago we will generate more revenue. It is expected that 30% of the revenue will come from group A, even though they have massively higher thresholds. This measure is designed to get even more from estates.

In the case of the transfer of a business the tax code allows for relief to keep the business intact. The transfer of stocks and shares gets the full brunt of the tax whereas the transfer of a going concern from a parent to a child would pay a lower tax. There is a fairness built into the measure.

Deputy Boyd Barrett raised the issue of DIRT. One can argue about how interest should be taxed. Some people would argue that it should take account of inflation. The DIRT system was introduced because it was decided that the simplest administration was to have an across-the-board tax on all interest which was easily collected by the Revenue Commissioners. It was a full and final settlement. That resulted in the flat rate. It was a simple way for Revenue to collect tax from bank deposits. If people are generating other investment income they pay on a progressive scale in accordance with the normal income tax rate. The super wealthy are less likely to have money in bank deposits or in life insurance products than ordinary people. DIRT was seen as a fair way to get a full and final settlement in respect of the types of investment ordinary people choose. More sophisticated investors, who would be in stocks and shares, would pay tax at their normal marginal tax rate, which would be 41% plus PRSI and whatever else applied. That is my understanding of the origin of the DIRT. What this proposal does is impose a uniform rate of 30% across CAT, CGT and DIRT and settles the minimum tax people must pay. People can no longer, unlike under the regime introduced some years ago, use allowances to reduce their incomes to a level at which they will pay no tax. People above a certain income may reduce it only to a level at which they must pay 30% on the income. That same rate applies across the board. The tax applies uniformly and is seen as an efficient way to raise tax.

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