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

In addition to the macroeconomic policies I have outlined, I now want to announce a series of measures to assist sectors of the economy which may be adversely effected by Brexit.

I am extending the special assignee relief programme and the foreign earnings deduction until the end of 2020, and in relation to the foreign earnings deduction, I am also reducing the minimum number of days required to be spent abroad from 40 to 30 to help smaller businesses to identify and trade in such markets.

The tourism and hospitality industry has recovered well and is now performing strongly, due in no small way to the reduced VAT rate I introduced during Fine Gael's last term in office. Although the economic rationale for maintaining this reduced rate may not be as strong today, I consider it would be prudent to retain the reduced rate in this year’s budget. This will act as a buffer for the sector against the weakness in sterling, which increases the cost of holidaying in Ireland for British tourists.

I am extending the start your own business scheme for a further two years. Its continuation will be of real benefit in providing support to long-term unemployed persons who wish to create new businesses. I am improving the revised entrepreneur relief I introduced in budget 2016 by reducing the 20% rate of capital gains tax to 10% on disposals of qualifying assets up to a limit of €1 million in chargeable gains. I will review the €1 million lifetime limit in future budgets. All other aspects of the relief remain unchanged.

We all know and appreciate that farming and the agrifood sector has been going through a tough time recently due to lower world prices and the adverse weather conditions experienced during the summer. Brexit and the subsequent weakness in sterling strongly impacts the agrifood sector. This poses a competitive challenge for farmers and agrifood companies that sell a great deal of their output into the UK market. Today, I am announcing a package of measures to assist the sector.

Over the course of past budgets I introduced a range of measures to assist the development of the sector and to help with the transfer of farms from one generation to the next. To assist in the current difficult circumstances I am allowing a farmer facing an exceptionally poor year to step out of income averaging and, instead, pay only the tax due on a current year basis, with any deferred tax liability becoming payable in subsequent years. This facility will be available immediately and should provide cash-flow assistance this year. The flat-rate addition for farmers not registered for VAT is being increased from 5.2% to 5.4% with effect from 1 January 2017. The scheme which is reviewed annually in accordance with the EU VAT directive compensates unregistered farmers for VAT incurred on their farming inputs. In budget 2013 I introduced farm restructuring relief to run to the end of 2015 and extended in budget 2015 the relevant period to the end of this year. Today I am extending it to the end of 2019. The terms of the relief are unchanged. To further support farmers, my colleague, the Minister for Agriculture, Food and the Marine, Deputy Michael Creed, will be utilising EU exceptional adjustment aid to develop, in conjunction with the Strategic Banking Corporation of Ireland, a loan fund that will be low cost, below 3% per annum and highly flexible. These loans will enable farmers to improve the management of their cash flow and reduce the cost of their short term borrowings. The Minister will announce the details later.

I am extending the scheme of accelerated capital allowances for investment in energy-efficient equipment to sole traders. This implements the final recommendation of the agri-tax review and will help businesses in the farming and marine sectors to invest in energy efficient equipment and receive the full allowances in the first year. This will help to contribute to the achievement of our climate change targets. Payments under the new raised bog restoration incentive scheme to relevant owners and rights holders will be exempt from capital gains tax. In recognition of the difficult nature of work in the fishing sector, I am introducing an income tax credit for fishermen. This follows on from a recommendation made in the marine tax review which was completed last year. This measure is aimed at assisting the viability of the sector and attracting and retaining staff. The €1,270 annual credit will shelter income of up to €6,350, the equivalent value of the seafarer's exemption.

I turn to the housing situation which many colleagues across the House have regarded as a priority for action by the Government. There is an acute shortage of new houses being built in Ireland and I am introducing a help-to-buy scheme to address this problem. In all markets supply increases to meet demand and the help-to-buy scheme will increase the demand for newly built houses by assisting first time buyers to put a deposit together. I expect the building industry to meet this additional demand by increasing the supply of new affordable homes. The help-to-buy scheme is designed as follows. The scheme will provide for first-time buyers of new houses a rebate of income tax paid in the previous four tax years up to a maximum of 5% of the purchase price of a new home up to a value of €400,000. Pro ratarates will apply to lower priced houses and a full rebate calculated on €400,000 will also apply to houses in excess of €400,000 and up to €600,000. No rebate will be paid on house purchases in excess of €600,000.

I have discussed the proposed scheme with the Governor of the Central Bank who has agreed that any rebate received under the scheme will be reckoned in full in the calculation of the deposit required to be eligible for a mortgage under the Central Bank's macro-prudential rules. The scheme will apply to the purchase of newly built primary residences by first-time buyers from 19 July this year when it was first announced in principle until the end of 2019. Second-hand properties are not included in the help-to-buy scheme because, as the supply of second-hand houses is fixed, covering them under the scheme would not serve to increase housing supply. However, I am extending the home renovation incentive scheme by two years to the end of 2018.

This measure provides tax relief to home owners who undertake renovations. This improves the quality and often expands the size of their dwelling. The lack of supply of new houses also impacts on the rental sector and I am announcing a number of new measures to help to increase the supply of rental accommodation.

The interest deductibility for residential property landlords was restricted to 75% in 2009 as part of the measures introduced to rescue the public finances. It is an appropriate time to revisit this measure in the context of the housing crisis. In light of the incentive I introduced last year to support landlords who let their property to social housing tenants for a minimum period of three years, I am going to restore full interest deductibility for other landlords on a phased basis and my first step is to increase the level from 75% to 80% in 2017. I will increase it by instalments of 5% each year until the full 100% deductibility is restored. This will be reflected in the provisions of the forthcoming Finance Bill.

In 2015, I increased the income ceiling that applies under the rent-a-room scheme by €2,000. I am increasing it by a further €2,000 this year to bring it to €14,000 per annum. This will allow homeowners to rent out additional rooms at current average rental prices while remaining within the scope of the scheme. Increased availability of rooms should be particularly helpful to third level students. In other words, a home owner who rents rooms to two students can have an income of €14,000 per annum to which income tax will not apply.

The living city initiative I introduced to encourage urban renewal and promote the renovation of city centre properties for residential and commercial use has been reviewed as promised in A Programme for a Partnership Government. In light of the review being published today, I am expanding the scope of the initiative by including landlords and removing the cap on maximum floor size.

I would like to turn now to personal taxes. High marginal tax rates act as a brake on employment. They discourage people from taking jobs and emigrants from returning home. As all Deputies know, I have limited resources to change the situation in this budget but it is important to continue the process I started in budget 2015 and to signal the policy path forward. Accordingly, I am allocating €335 million to improve the take home pay of low and middle income earners by reducing each of the lower three USC rates by half a per cent. Therefore, the 1% rate will go down to 0.5%, the 3% will go down to 2.5% and the 5.5% per cent rate will go down to 5%. I am also making a small but important increase to the ceiling of the band on which the reduced 2.5% rate of USC will be payable, from €18,668 to €18,772. This increase will ensure that the salary of full-time workers on the minimum wage will remain outside the top rates of USC. This is to take account of the small increase in the minimum wage.

Though relatively small, these changes will have a material impact on the disposable income of lower and middle income earners. More importantly, it signals the Government’s intent to phase out the USC over time as resources permit. The impact on different levels of income is reflected in the distributional tables published in the budget book.

Building on last year, I am increasing the home carer's credit by €100 to bring it to €1,100. This will further assist one income families who care for children or elderly persons at home.

In a measure that will benefit savers, I am reducing DIRT by 2% each year for the next four years. This will reduce DIRT from 41% to 33% by 2020. Deputies know the arguments for this. I would like to do more, but on this occasion this is what is affordable. It is not just a promise; we will put these provisions into the Finance Bill also. Further reductions will automatically occur.

Last year I narrowed the tax differential between the self-employed and those in the PAYE system by introducing the earned income tax credit.

I want to continue to make progress in this area again this year by increasing it by €400, bringing the total exemption to €950. This will benefit more than 147,000 self-employed individuals, generating business activity across the country.

Employee participation in companies' ownership and profits has been shown to increase competitiveness and support employment and growth. My Department carried out a public consultation and review of share-based remuneration earlier this year. In the light of the review, I am announcing today my intention to develop a new, SME-focused, share-based incentive scheme to be introduced in budget 2018. Such an incentive will require the approval of the European Commission and my officials will commence engagement with the Commission to ensure the incentive will comply with state aid rules in advance of the next budget.

During the crisis it proved necessary to reduce the thresholds at which capital acquisitions tax applied to preserve the level of revenue as far as possible. Our improving economy means that increasing asset prices have resulted in higher tax demands when family homes are being passed from one generation to the next. To help address this, the category A threshold that applies to inheritances and gifts from parents to their children is being increased by €30,000 to €310,000. I am also increasing the categories B and C thresholds by 8%. This is setting out on a policy I intend to pursue in the future and I will revisit these thresholds in the coming years with a view to increasing them further.

Lest there is any doubt, Ireland’s 12.5% corporation tax rate will not be changed and nobody in Europe or anywhere else is asking for it to be changed. It is an important part of the reason Ireland is an attractive destination for foreign direct investment. The United Kingdom’s exit from the European Union may present opportunities to attract businesses that may move out of the United Kingdom or that are considering locating there in the coming years. In addition, we have a highly educated workforce and a business-friendly environment. Other major advantages include being an English-speaking economy in the eurozone and the fact that there is already critical mass in the financial services and other key sectors.

Today I am publishing an update of our international tax strategy that shows the progress we have made in the past 12 months and highlights how our corporate tax regime meets the highest standards in tax transparency. It restates our commitment to meet our new international tax principles and demonstrates how we will ensure our corporate tax regime remains fair but also competitive in the future.

In 2014 my Department published a review of corporation tax policy. There have since been many developments in international taxation, including the OECD’s base erosion and profit-shifting initiatives and legislative proposals from the European Union. In this context, Ireland needs to ensure its corporation tax code continues to meet international standards, while also delivering tax certainty for business and maintaining our competitiveness.

In line with our established practice of carrying out periodic reviews of key areas of tax policy, the Government announced in September that a review of our corporation tax code would be carried out. I am appointing Mr. Seamus Coffey as an independent expert to undertake the review and its terms of reference will be published today.

A number of concerns have been raised about section 110 of the Taxes Consolidation Act 1997. When this section was introduced, the intention was that it would benefit the financial services industry and it has done so. It is now being used in relation to property in a way that was never intended. I have published draft amendments to section 110 to address these unintended uses. I am aware that further amendments are necessary to address other issues arising around funds and property. I will publish these in the Finance Bill after appropriate consultation has taken place.

Charities are exempt from VAT under the EU VAT directive and as a result cannot recover VAT incurred on goods and services that they purchase. My Department and the Irish Charities Tax Reform Group produced a report on the issue last year to examine how charities might be compensated in this regard.

I have asked my officials to engage again with the group with a view to reviewing the options.

Climate change is the global challenge of our generation. Work has been ongoing across Government Departments to create Ireland’s first national mitigation plan to transition Ireland to a low carbon economy by 2050. To assist the transition to a low carbon economy, I am extending the relief from vehicle registration tax on electric vehicles for a period of five years, giving the motor industry and motorists the confidence to invest in this cleaner technology. I am extending the VRT relief for hybrid vehicles for two years. I am commencing a measure to help reduce the dependence of larger vehicles on diesel, to provide that natural gas used as a vehicle fuel will be taxed at the EU minimum rate of excise for a period of eight years. I am commencing a relief from carbon tax for solid fuels that include a biomass element to incentivise the development of these greener fuels. I am also fully relieving fuel inputs to combined heat and power plants from carbon tax as these plants demonstrate by far the most efficient use of energy in electricity generation. It is expected that this relief will benefit a significant number of heat and power plants in different parts of the country that provided over 7% of the nation’s electricity in 2014.

The Revenue Commissioners have a difficult but necessary job in securing the resources needed to fund the public expenditure that underpins our public services. It is a role that they perform very well but from time to time, as tax evasion evolves and tax issues become evident, the Revenue Commissioners seek additional powers and resources. The release of the so-called Panama Papers earlier this year showed how defaulters use offshore structures and accounts to avoid paying tax. International developments and agreements are leading to the better sharing of information. In the Finance Bill, I will act to restrict the opportunity for offshore defaulters to use the voluntary disclosure regime with effect from May next year and I will introduce a new strict liability criminal offence to facilitate the prosecution of serious cases of offshore tax evasion.

I am pleased to announce the allocation of an additional €5 million to the Revenue Commissioners for the recruitment of 50 additional staff and additional investment in systems and equipment. The Revenue Commissioners are launching a consultation process today that is intended to lead to a fundamental redesign and modernisation of the PAYE system. The aim is to help employees manage their tax affairs better, reduce contact between employers and Revenue, reduce administration costs for both employers and Revenue, improve compliance and provide up-to-date information for policy makers.

I want to inform the House that I intend to introduce a tax on sugar-sweetened drinks. It is of utmost importance to me that such a tax is as effective and as fair as possible and minimises the administrative burden on business. Given the highly integrated production and supply chains which exist in the soft drinks industry between Ireland and the United Kingdom, I believe it would be prudent to align the Irish sugar-sweetened drinks tax with the UK’s tax proposal, in terms of timeframe and structure. Therefore, I intend to introduce this tax to coincide with the introduction of its UK counterpart in April 2018. However, much analysis needs to be undertaken between now and then. Therefore, I am announcing today a public consultation process, which will run until 3 January next year. The consultation paper will be published on my Department’s website today and I am inviting interested stakeholders to make submissions on the form and practical implementation issues of the tax.

In line with the recognition that pricing is a key means to reducing tobacco consumption, I am increasing excise duty on a pack of 20 cigarettes by 50 cents-----

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