Michael Noonan (Limerick City, Fine Gael) | Oireachtas source

-----a family with three children with parents working in two public service jobs earning €55,000 and €50,000, respectively, will have an additional €196 per month in their pocket, which is in excess of €2,300 for the family; and a self-employed worker earning €40,000 will see a gain of €1,002 in his or her annual net income due to this budget, which is an increase of 3.5%.

The average increase is 1.8% of income. If people are wondering how much they will gain, it will be approximately a full extra week's wages at all points of income. It is an easy way of assessing what the income gain might be. It is an additional week's wages for all workers. These changes enhance the progressivity of our income tax system, with the top 1% of income earners estimated to pay 22% of all income tax and USC collected. In contrast, the bottom 75% of income earners will pay 19% of the total.

Keeping the benefits of minimum wage increases in workers pockets

The Minister for Public Expenditure and Reform, Deputy Howlin, will announce the Government’s decision relating to the recommendations of the Low Pay Commission. The PRSI system as currently structured resulted in a situation where an employee could receive a pay increase in the minimum wage but find themselves with less money. Following the publication of the report of the Low Pay Commission, the Government committed to taking action to address this step effect in the PRSI system.

I am introducing a tapered PRSI credit with a maximum level of €12 per week or €624 in annualised terms to alleviate the step effect across a range of incomes. This change will ensure that low income earners will see a significant improvement in net incomes, arising from the announcement which will be made shortly by my colleague, Deputy Howlin.

For employer PRSI, I am increasing the entry point to the top rate of 10.75% by €20 per week to €376 per week. All of the PRSI changes will be brought forward by the Minister for Social Protection in the social welfare Bill.

Capital acquisitions tax

Capital acquisitions tax thresholds were reduced considerably over the period of the financial crisis and at a time of falling asset prices to help maintain the yield from capital taxes.

In recognition of the recovery in asset prices, particularly property and the family home, I have decided to increase the group A tax-free threshold, which broadly applies to transfers between parents and their children, from €225,000 to €280,000.

Local property tax

I will be making a proposal to Government to postpone the revaluation date for the local property tax from 2016 to 2019. This is one of the recommendations in the review of the local property tax submitted to me by Dr. Don Thornhill, which is being published online today.

The postponement of the revaluation date means that home owners will not be faced with significant increases in their LPT in 2017 as a result of increased property values, and it gives sufficient time for the other recommendations in the Thornhill report to be considered in full. Legislation to implement the postponement will be brought forward in due course.

Exemptions for properties significantly affected by pyrite

Regarding exemptions for properties significantly affected by pyrite, I am accepting the recommendations made by Dr. Thornhill. Accordingly, I have asked the Revenue Commissioners to agree to a change in LPT procedures on an administrative basis, pending the implementation of necessary legislative amendments. Full details are included in the review.

Pension fund levy

Deputies may recall that the Government introduced a pension fund levy to finance the reduced rate of VAT and the other measures in the jobs initiative that I presented to the House in 2011, shortly after taking office. The pension fund levy has done its job and is no longer needed to fund the 9% VAT rate because it is more than made up by increased activity and employment, particularly in the hospitality sector.

Therefore, I can confirm that the remaining pension fund levy of 0.15%, introduced for 2014 and 2015, will end this year and not apply to 2016. The original 0.6% levy, as Deputies will recall, ended in 2014.

Extension of bank levy to 2021

I turn now to the bank levy. The current financial institutions levy which I originally introduced for the three-year period from 2014 to 2016 allows for a contribution from the banking sector to the economic recovery. The levy which brings in €150 million per annum is currently calculated on the basis of DIRT payments made in 2011. I propose to extend the bank levy to 2021, subject to a review taking place of the methodology used to calculate the levy. This measure will bring in an additional €750 million over the period, a very significant additional contribution to the Exchequer. The scale of the levy over the period is equivalent, for example, to the cost of the new national children’s hospital.

Encouraging entrepreneurs and supporting small business owners

Small and medium enterprises right across the country are critical to our economic well-being and, in the business community, account for 99.7% of all enterprises and 68% of all employment, some 730,000 jobs. All of these SMEs are being run by entrepreneurs. We will need to encourage new entrepreneurs and support existing entrepreneurs.

Earlier this year I launched a public consultation seeking the views of Irish entrepreneurs on additional tax measures we could take to sustain the progress we have made to date and keep the recovery going. Income tax, as currently structured, means that an employee will take home a greater proportion of their salary than a small business owner or entrepreneur on the same gross income. This disparity was raised frequently during the public consultation process. To start addressing this disparity, I am introducing today an earned income tax credit to the value of €550. It will be available to those with earned income who do not have access to the PAYE credit. This will be a significant benefit to small business owners right across the country, including small retailers, publicans, farmers and tradesmen. I see this measure as a first step and further steps will be taken in future budgets, as resources permit.

Capital gains tax was also highlighted as an issue during the consultation process. Successful entrepreneurs often look for new challenges. To assist them and reward their hard work, I am introducing a revised capital gains tax relief from 1 January 2016. Rather than the 33% rate which applies now, a reduced capital gains tax rate of 20% will apply to the disposal in whole or in part of a business, up to an overall limit of €1 million in chargeable gains. The relief will represent a simplified and up-front benefit for individuals who propose to sell their business.

Based on the findings of a review of the three-year tax relief for certain start-up companies, I propose to extend this relief in its current form for a further three years until the end of 2018. The relief has been identified by entrepreneurs as an important support. The review which is being published today found that, in 2013, the relief supported 1,038 companies, which employ 11,750 people at an estimated cost of €4.9 million.

Continuing to build strong sectors

In the past four years I introduced and extended a wide range of targeted tax measures to promote the growth of new enterprises and sustain existing ones. These supply side initiatives assisted the rebuilding of the economy, sector by sector. An economy built on a number of strong sectors is more stable, more resilient and less susceptible to shocks. One key lesson we have learned from the most recent crisis is the danger of an over-reliance on one sector for growth, jobs and taxation. I am continuing this approach this year.

Tourism sector

The reduction in VAT to 9% in the tourism sector and the abolition of the air travel tax improved Ireland competitiveness. The benefit of these policies can be seen in tourist numbers, new businesses, the survival of established businesses and, most of all, employment. The 9% VAT rate is a major benefit to the tourism sector and much sought after by other sectors of the economy.

While the case for retaining the measure for the hotel sector in Dublin is diminishing each year, with room rates rising, particularly during major events, the case for retention of the measure for the rest of the country remains. Therefore, I will not be making any change to the 9% VAT rate in this budget.

The agri-food sector

I have often stated how important the farming and agrifood sector is to the economy. It is not just the sheer economic importance of a sector that is responsible for over 12% of our exports and 169,000 jobs, it is the fact that this economic activity and these jobs are located the length and breadth of the country. Consequently, I am announcing the extension of the general stock relief, the stock relief for young trained farmers, the stock relief for registered farm partnerships and the stamp duty exemption for young trained farmers for a further three years to the end of 2018.

I am introducing a new succession transfer proposal to provide increased certainty about the timing of the transfer of a family farm to the next generation of farmers. This will greatly assist with long-term planning and farm productivity. The proposal which is subject to state aid approval will allow two people, for example, family members, to enter into a partnership with an appropriate profit sharing agreement which makes provision for the transfer of the farm to the younger farmer at the end of a specified period, not exceeding ten years. To support this transfer, an income tax credit worth up to €5,000 per annum for five years will be allocated to the partnership and split according to the profit sharing agreement.

Micro-breweries

The production of drinks is an increasingly important sub-sector of the agrifood sector. Last year I increased the amount of beer that micro-breweries could produce and still qualify for this excise relief. To further assist this development, the relief will now be available up front, thus reducing the cash flow burden of the current rebate scheme.

Supporting retailers by reducing costs and incentivising electronic payments

Retailers have had great difficulty during the recession and are probably the last group to pull out of it. I wish to support retailers and other merchants by reducing costs and incentivising electronic payments. Payments are the lifeblood of a modern economy and the national payments plan aims to modernise payment practices and help Ireland to take full advantage of modern payment methods. Many retailers and service providers have made significant investments in their electronic payment systems, with debit card and contactless payment facilities available in nearly all shops, restaurants and pubs. The improvements in mobile technology mean that the majority of service providers and sales people can also now offer their customers the option of paying by card. This has benefited retailers, consumers and the wider economy.

However, retailers in Ireland currently face excessive fees for accepting card payments. This needs to be addressed. A new EU regulation is halving the so-called interchange fees faced by retailers to 30 basis points for credit cards. I am today halving the corresponding fee for debit cards to ten basis points. These changes significantly reduce the costs of accepting card payments and, combined, these reductions will save retailers an estimated €36 million in fees per year. These changes will come into effect on 9 December this year. It is important that this saving be passed on to the consumer in lower prices and this new fee regime will be monitored closely to ensure this happens.

In parallel, the transaction limit on contactless payment cards is being raised from €15 to €30 on 31 October. Together with the reduction in bank fees, retailers should now be able to end practices such as requiring a minimum payment for card use. To further encourage and incentivise greater usage of card payment by consumers, I will recast the €5 stamp duty levy on debit and ATM cards. From 1 January 2016, this stamp duty will be removed and replaced with a 12c charge per ATM transaction. There will be no charge for debit card transactions. No consumer will lose out as a result of this change as the stamp duty will be capped at the existing levels of €2.50 or €5, depending on card type.

Supporting businesses in Ireland by reducing transportation costs

Almost every business in Ireland is reliant on transportation by road for its raw materials and to get its product to the market. As a result, transportation costs are a major issue for every business in Ireland, big and small. To keep Ireland competitive and help businesses, I have decided to significantly reduce the commercial motor tax rates.

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Road tax for large goods vehicles in Ireland is too high by comparison with the regime applying in Northern Ireland and the rest of the UK. This is causing distortions in the haulage industry and increasing costs across the economy. I am simplifying the rates of commercial motor tax by replacing the 20 existing rates with just five rates of commercial motor tax, ranging from €92 to €900 with effect from 1 January 2016. Over 28,500 commercial vehicles will benefit from these reductions. The most significant reductions are concentrated on the larger goods vehicles. The maximum rate of commercial motor tax will be €900 per annum whereas the maximum at present is €5,195.

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