Brian Lenihan Jnr (Dublin West, Fianna Fail)

This Finance Bill gives effect to the supplementary budget measures and addresses the two important requirements of showing a credible way forward on our structural problems while assisting us in placing the economy on the road to renewal. We must demonstrate that we have the ability to make the right choices for everyone in this country, choices that will determine our long-term economic prosperity.

It is true that we recently saw some glimmers of hope that an end may be in sight to the deepest and most widespread recession that the world has experienced for over a half century. However, there is natural caution and reticence about forecasts of recovery and considerable uncertainty about both its sustainability and its strength. Maintaining our public finances on a sustainable path is a pre-requisite for economic growth. In this regard, the various expenditure-reducing and tax raising measures, introduced since last October, will have a beneficial impact by restoring confidence as well as improving our competitiveness. The supplementary budget alone delivered improvements to the Government finances of €3.3 billion in 2009. Approximately €1.5 billion of this improvement is due to expenditure adjustments, with €1.8 billion additional taxation being raised. Nonetheless, we are well aware that, as yet, global economic output is continuing to contract and is accompanied by falling world trade. According to the International Monetary Fund, the advanced global economies, which constitute Ireland's major trading partners, are predicted to contract by 3.75% this year, which will in turn weigh upon our export performance. The depreciation of sterling is also unhelpful for our indigenous exporters.

Policy makers around the world have responded to the financial crisis with marked determination and there are signs now that these efforts are beginning to bear fruit. The world's leading central bankers have noted improvements in business and consumer sentiment, while some important indicators in key economies have shown tentative signs of stabilisation. Such developments underscore the importance for this country of continuing to pursue the path we have embarked upon so that the economy will be well placed to benefit from a global recovery.

GNP is projected to contract by 8% this year. A more moderate decline is expected in 2010, but our economic growth rate is expected to become positive by 2011.

We need to remind ourselves that our economy has many strengths on which to build a recovery. Our labour force continues to be highly skilled and flexible. We are continuing to invest in education at all levels in order to ensure we have the skills demanded by our increasingly knowledge intensive economy. The Government remains committed to providing a pro-enterprise environment and to maintaining our low tax burden on business. We are also ensuring capital spending remains at a very high level by international standards. This will allow us to maintain our investment in productive infrastructure which will help enhance our competitiveness.

Our economy remains resilient. Labour costs are falling in both the public and private sectors. Our capacity to make these adjustments in labour costs and work practices is critical to our recovery and will help us to reap large economic gains in the future. I am very well aware that this process is painful and I do not underestimate the difficulties it is causing workers and their families.

Our ability to respond to this most difficult of economic crises has been acknowledged by our European colleagues. They understood very well that the purpose of the supplementary budget was to restore order and stability to the public finances. This is essential to enable us to protect existing jobs and generate the essential economic confidence that will lead both to further employment creation and to a return to prosperity.

One of the ways in which we can ensure this return to prosperity is through our support and development of enterprise. I made the point in my budget speech that, despite the recent increases, our tax system remains competitive and pro-enterprise in character. Accordingly, I renewed the Government's commitment to our 12..5% corporate tax regime.

I undertook also in the supplementary budget to introduce a scheme of tax relief for the acquisition of intangible assets as a means of supporting the smart economy. I believe this measure will help to maintain employment in our existing industrial base and will help to attract sustainable high quality jobs in the future into the economy.

To address the fiscal challenge we face there is no escaping the unpalatable fact that tax increases are required; we must broaden our tax base significantly. We are endeavouring to ensure that any tax increases are progressive and fair. In that regard, I would remind Senators of the comments of the ESRI in its recent quarterly review about the redistributive impact of the budgetary measures we have taken since my appointment as Minister for Finance.

I announced in the supplementary budget speech that I was terminating property-related accelerated capital allowance tax relief schemes in the health sector in order to help broaden the tax base. As Senators are aware, all such schemes are now being terminated with the exception of the specialist palliative care units and the child care facilities.

The Bill sets out the transitional arrangements for the pipeline projects affected by the termination of these schemes. The schemes being terminated cover private hospitals, nursing homes, including associated residential units, convalescent homes and mental health hospitals. The estimated annual saving from the termination of these schemes is €60 million in a full year.

The Bill also gives effect to the budget day announcement of the abolition of the special 20% tax rate applicable to trading profits from dealing in or developing residential land. The income will now be charged at the individual's marginal income tax rate or at the 25% rate of corporation tax. It also restricts the relief that may be available where trading losses are incurred from dealing in or developing residential development land.

I consider that the proposals contained in the Bill relating to dealing in or developing residential land represent another significant step by the Government in ensuring that everyone makes a contribution toward raising additional revenue and broadening the tax base in our efforts to address the current difficulties we are experiencing in the public finances.

The Bill runs to 32 sections and is structured by tax headings. I will outline some of the main provisions in the time available to me. Section 2 makes provision for the doubling of income levy rates and reducing the rate thresholds from 1 May 2009, as announced in the supplementary budget. A rate of 2% will apply on income up to €75,036, 4% on the balance up to €174,980 and 6% on any income above that amount. The exemption threshold is also reduced from €18,304 to €15,028. Those with an entitlement to the medical card remain exempt from the income levy. For those over 65 years of age, the exemption remains at €20,000 for single individuals and €40,000 for married couples. Social Welfare and similar type payments also remain exempt from the levy.

The income levy is a progressive measure, with those who are most able to pay paying the most. The most vulnerable are protected by exemptions. The composite rate provision applying to 2009 included in this section is intended as an anti-avoidance measure which prevents individuals who can control their income from front loading their yearly income to avoid the higher rates. This section also provides that redundancy payments made in the first four months of the year will only be subject to the income levy rates in force during this period.

Sections 3 and 4 make provision for my supplementary budget announcement that, from 1 May, mortgage interest relief will be limited to the first seven years for qualifying home loans. This measure focuses resources on those most in need and provides a saving to the Exchequer. The relief remains available to first-time buyers and those taking out a new qualifying loan for the purposes of trading up or improving their principal private residence.

Section 5 of the Bill gives effect to the budget announcement whereby the level of tax relief investors can claim on the interest for mortgages and loans on residential rental properties is reduced to 75% of the interest accrued from 7 April 2009. I am introducing this measure at a time when mortgage interest rates are at historical low levels and the repayment burden on investors has been reduced significantly. The interest component of repayments is now less than 50% of the levels that pertained as recently as two years ago. I am aware that rents are falling, after a number of years of strong growth. This fact was taken into consideration when I framed the supplementary budget and decided to reduce rather than abolish this relief. Ordinary workers on relatively modest incomes are being asked to make additional contributions to help with the recovery in public finances so I believe it is fair and equitable to ensure that residential investors contribute a proportionate share of the burden of adjustment needed in the economy.

Section 6 abolishes the 20% incentive rate of tax for income arising from dealing in residential development land with effect from the 2009 tax year. Such income will be taxed under normal income tax rules. The incentive rate is being abolished in recognition of the fact that the relief has served its stated purpose of releasing development land. The measure also introduces new arrangements for dealing with losses which ensure that where profits were taxed at 20%, losses cannot be relieved at 41%. Any such loss will now be converted into a tax credit valued at 20% of the loss and can be offset sideways against income tax which would otherwise be payable on the person's other income.

Section 7 of the Bill extends the period during which applications for certification can be made to the Mid-Shannon Tourism Infrastructure Board from one year to two years so that the latest date for the submission of applications is now 31 May 2010. To deal with any project that may avail of the new date for the submission of applications for approval, the period within which expenditure must be incurred for capital allowances is also being extended from 31 May 2011 and will now end on 31 May 2013. It is my understanding that there are a number of significant projects currently in the pipeline which have not yet been submitted formally to the board for approval. All are being promoted by experienced tourism operators and if the existing deadline for submission of projects to the board for certification were retained, none of these projects would be able to proceed.

Section 8 amends sections 268 and 316 of the Taxes Consolidation Act 1997 regarding expenditure incurred on the construction or refurbishment of certain health-related facilities in order to provide for the termination of these capital allowances schemes and for transitional measures for pipeline projects. The facilities covered by this section are registered nursing homes, convalescent homes, qualifying hospitals and mental health centres. The amendments to section 268 provide that certain schemes that were previously open-ended in relation to incurring qualifying expenditure for capital allowances purposes now have a termination date of 31 December 2009, unless certain qualifying criteria are met.

Section 9 increases the rate of tax that applies to interest on deposit accounts and to income from certain other savings products. The normal rate of tax is increased from 23% to 25% with effect from 8 April. For more long-term savings products, the rate of tax which applies is increased from 26% to 28%, also with effect from 8 April. While the rates are increased by 2%, it remains the case that this income is not subject to the income levy. Section 10 increases by two percentage points the rate of "exit tax" on life assurance policies and other investment funds, with effect from 8 April. Those products previously taxable at 23% are now taxed at 25%, and those products previously taxed at 26% are now taxed at 28%. As an anti-avoidance measure, where the investment is held in a personal portfolio investment undertaking or a personal portfolio life policy, the tax rate that applies with effect from 8 April is the standard rate plus an additional 28 percentage points.

Section 11, in tandem with arrangements made in section 6, abolishes the effective 20% rate applied to trading profits from dealing in residential development land with effect from 1 January 2009. An accounting period that straddles that date is treated for this purpose as two accounting periods. Profits or gains on dealing in residential development land will now be charged at the general rate of corporation tax that applies to dealing in land, which is 25%. Section 11 also introduces a new section 644C to the Taxes Consolidation Act 1997. This section restricts the allowance of losses on residential land incurred before 1 January 2009 and carried forward to accounting periods beginning on or after that date to allowance on a value basis. This is to ensure that the effect of the tax treatment of trading losses is commensurate with the effect of the increase in the tax rate on trading income from 20% to 25%.

Section 12 ensures that, where an Irish resident company makes a gain on the disposal of shares deriving their value from exploration or exploitation rights, the gain will not be exempt from tax under what is known as the "participation exemption". By closing off a potential loophole, this measure means that such shares are treated the same as shares deriving their value from land or minerals in the State.

Section 13 provides for a new scheme of tax relief for capital expenditure incurred by companies on intangible assets, as announced in the supplementary budget. A new section 291A is being included in Part 9, Chapter 2 of the Taxes Consolidation Act 1997 for this purpose. The scheme provides for capital allowances against taxable income on capital expenditure incurred by companies on the provision of intangible assets for the purposes of a trade. The scheme applies to intangible assets which are recognised as such under generally accepted accounting practice and which are included in the specified categories listed in the new section. The new scheme applies to expenditure incurred by a company after 7 May 2009.

Section 14 increases the rate of capital gains tax from 22% to 25%. This change applies with effect from 8 April 2009. Sections 15 and 16 respectively confirm the supplementary budget increases in mineral oil tax of 5 cent per litre, inclusive of VAT, on auto diesel, and in excise duty of 25 cent, inclusive of VAT, on a packet of 20 cigarettes, with a pro rata increase on other tobacco products. Section 17 defers the increase in the betting duty from 1% to 2%, in view of the likely adverse impact the increase would have, in current circumstances, on the betting industry. This will have the effect of continuing the existing betting duty rate of 1%, unless and until an order is made bringing the 2% rate into effect.

Section 18 provides the necessary legislative change for the decision, announced on 25 February last, to exempt small peripheral airports from the air travel tax. It amends the definition of "airport" used for the air travel tax to exclude from the scope of the tax airports from which fewer than 50,000 persons departed on aircraft in the previous calendar year. As regards section 19, the Finance (No. 2) Act 2008 introduced an unjust enrichment provision in respect of vehicle registration tax, VRT, to limit the repayment of VRT claims by dealers. This section corrects the formula that is used for the calculation of a repayment of VRT on a pro rata basis. It is a technical amendment.

Sections 20 to 22, inclusive, relate to VAT and introduce a VAT on property anti-avoidance provision. The sections form a package of measures which amend sections 7 and 7B of the VAT Act, to close off a loophole in the VAT on property legislation, which has been used to avoid paying VAT due on the sale of a property in certain circumstances. The avoidance mechanism relied on misinterpreting a particular provision in the VAT Act, which was designed to prevent double taxation. Section 23 is an interpretation section for the stamp duty provisions of the Bill.

Section 24 provides for a new "exchange of houses" scheme, under which a person selling a new residential property can take a second-hand residence in exchange or part exchange and will not have to pay the stamp duty on the second-hand property until he or she either sells the second-hand property or in any event by 31 December 2010, when the scheme ends. The purpose of the scheme is to give impetus to the residential property market by freeing up the overhang of completed but unsold new property, with consequential impact on employment.

Section 25 is a technical follow-up from section 13 which deals with intangible assets. The definition of intellectual property has been amended in the Stamp Duties Consolidation Act 1999 to align it broadly with a similar definition being inserted into the Taxes Consolidation Act 1997 by section 13 of this Finance Bill. It should be noted that this change applies to instruments executed after 7 May 2009.

Section 26 provides for an increase from 2% to 3% in the existing levy on non-life insurance products. The non-life insurance levy does not apply to voluntary health insurance, re-insurance, marine, aviation and transport insurance, export credit insurance and certain dental contracts. The section also provides for a new 1% levy on life insurance premiums.

Section 27 provides for an increase in the rate of capital acquisitions tax from 22% to 25%, and for a reduction by approximately 20% in the thresholds below which a gift or inheritance can be taken free of tax. Although this is the first time the CAT tax-free thresholds have been reduced, I feel this reduction is justified in light of recent economic conditions. The tax-free thresholds remain generous. They now stand at €424,000 for gifts and inheritances from parents to children, €42,400 for gifts and inheritances between siblings, from aunts and uncles to nieces and nephews, and from grandparents to grandchildren, and €21,700 for gifts and inheritances between individuals not covered by the first two categories. The changes to the rate of capital acquisitions tax and to the tax-free thresholds both apply from 8 April 2009.

Section 28 is an interpretation section. Section 29 reduces the statutory rate of interest applied by Revenue to delayed payments of taxation and to underpayments by taxpayers engaged in business activities. The current daily rates will be reduced by 20% giving respective annualised equivalents of 8% and 10%, approximately, from 1 July 2009. Section 30 covers miscellaneous technical amendments in respect of tax.

I hope the Seanad has found useful this explanation of the measures in the Finance Bill. As I have continued to emphasise, we must restore order and stability to the public finances so that we can protect existing jobs and generate the essential economic confidence that will lead to a return to prosperity. I commend this Bill to the Seanad.