Charlie McCreevy (Kildare North, Fianna Fail)

The Finance Bill 2003 implements the tax changes announced in the budget last December and includes a range of other measures, many of which are targeted at closing off tax loopholes and updating and modernising the tax system. This year's Bill has 171 sections and I propose to give an outline of the main provisions.

Part 1 of the Bill which covers sections 1 to 72 deals with income tax, corporation tax and capital gains tax. In my period in office the income tax burden has been reduced significantly. The average tax paid, including PRSI and levies, by a single person on the average industrial wage has fallen from 28% in 1997 to 17% today. In 1997 a single employed person on the equivalent of €98 per week was liable for tax. Following this year's budget the figure is €223 per week, an increase of 128%.

Some 380,000 persons or 25% of income earners were exempt from tax in 1997. Following this year's budget, the corresponding figures are 618,000 persons or 36% of income earners. This increase of over 40% in the numbers of exempt earners is even more impressive when one remembers that both the workforce and the numbers on the tax record have grown substantially over the last six years. Before the Government took office in 1997, a single person with an income above €17,270 became liable to tax at the top tax rate. Currently, the standard rate band for a single person stands at €28,000 per annum – higher than the average industrial wage.

This lowering of the income tax burden has rewarded both employees and employers alike and contributed to our strong employment growth. However, the circumstances we now face limit the scope for further major reductions in the direct tax burden. Instead we face a period of consolidation. The more limited resources available this year in respect of the budget income tax package are being targeted at those in the lower income brackets and the elderly. When the statutory minimum wage came into effect in April 2000, less than 64% of the minimum wage was exempt from tax in the case of a single person. On foot of the tax measures I took in budget 2002, 90% of the minimum wage became exempt from tax. I am pleased to confirm that section 3 provides for an increase in the employee tax credit which maintains the figure of 90%, even taking account of the increase in the minimum wage in October 2002 to €6.35 per hour. It also increases the entry point to the tax system for all employees from €209 to €223 per week.

My other priority this year in relation to the income tax package was to assist the elderly. This is in line with the goal I set myself when I took this job of removing large numbers of elderly taxpayers from the tax net. Section 2 increases the exemption limits from income tax for persons aged 65 years and over to €15,000 for a single person and €30,000 for a married couple – this represents an increase of over 15%. When combined with changes last year, the limits have increased in value by almost 40% over the last two years.

Section 6 provides for the direct application of PAYE to the currently taxable benefits-in-kind. This will facilitate the application of PRSI, including the training and health contribution levies, to such benefits. From next year, employers will deduct and pay over to the Revenue the appropriate PAYE income tax and PRSI and levies from wages paid to employees at the same time as the benefit is being provided. While income tax has always applied to these benefits, hitherto they have not been subject to PRSI and levies. Application of PRSI and levies to benefits-in-kind is the norm in most EU countries. Share options are not being included in this treatment because of practical issues that apply specifically in their case but revised procedures for their taxation are being introduced in section 8.

As part of this initiative, section 6 also provides for a major simplification of the calculation of the benefit-in-kind taxable charge in respect of cars and vans. Senators will be aware of my record of introducing simplification into the tax code wherever possible. From next January, a simple five rate structure will apply to cars, replacing the current system where up to 17 different percentages and categories can apply. Many thousands of those paying BIK on cars and vans will see their BIK income tax charge reduce as a result.