Brian Lenihan Jnr (Dublin West, Fianna Fail)

I now have to deal with the detailed provisions of the Bill. Senators have always attended very well to legislation and do not need me to examine each section. They have studied them and we will have an opportunity on Committee Stage to discuss them. I regret that I will not be here for the entire Second Stage debate but I will be present for Committee Stage tomorrow. I will take the Bill through the House in its entirety and explain the individual provisions.

Section 3 provides for the new universal social charge which replaces the income and health levies and applies at a low rate on a broad base. The implications of the universal social charge on personal income has been the subject of much comment. I would like to put the universal social charge in a particular context. It is part of a programme of income tax reform which I enunciated in my Budget Statement. It is a comprehensive programme which will reform Irish income tax in the years ahead.

We made the essential first step by consolidating the health and income levies. The next step will be consolidation of PRSI and the final step will be the consolidation of the entire base with income tax in order that there is a unified income tax system. It is a worthy objective because the current system, with four separate heads of taxation on personal income and different levels of thresholds determining one's liability, is clearly a disincentive to work and simplicity. All the basic classical canons of taxation enunciated by Adam Smith more than 200 years ago, such as equity, simplicity or efficiency, are entirely violated by our current income tax arrangements.

It was important in the budget to make a real start on income tax reform. There were commissions in the 1980s and more recently, all of which proposed a unified income tax system. There are real political problems in moving in that direction but everyone recognises that if there is a single charge on a widely defined income base with the minimum of exemptions and reliefs such a system would be fair, equitable, highly progressive and incentivise work. The budget is a decisive first step in that direction.

The provisions in section 3 were set out in my Budget Statement and I will not discuss the details of the different amounts and where taxpayers are brought into particular amounts. The universal social charge does not apply to social welfare payments, including contributory and non-contributory State pensions. However, it is worth noting that if we were in a position to move to a unified income tax system it would then be possible to complete the integration of welfare and transfer payments in the tax system, which is another opportunity created by moving in this direction.

Certain amendments were tabled on the universal social charge in the Dáil. In particular, the medical card holders were exempted from the immediate application of the charge. The reason that was introduced was that it introduced a disproportionate liability for them. An amendment on Report Stage dealt with bank bonuses and provided for a special high rate of the universal social charge on bonuses paid to certain employees of certain financial institutions.

I note an article in The Irish Times today regarding correspondence from last July on the potential payment of bonuses to AIB staff. The details of all these matters were set out by me last December when I prevented the payment of the bonuses and there is nothing new in today's article. AIB sought guidance last June on whether it could pay the outstanding bonuses. My Department and I sought the advice of the Attorney General and he informed me that I, as Minister, had no role in making the decision given that the bonuses were stated to be pre-existing contractual entitlements. That point was stressed to AIB in the reply. In the context of the recapitalisation of AIB I was able to take action on bonuses, notwithstanding the fact that they were pre-existing entitlements.

Sections 4, 5 and 6 provide for the budget announcement to reduce the standard rate bands, the age exemption limits and the tax credits in line with the overall reduction in income. Section 9 amends section 470(b) of the Taxes Consolidation Act 1997, providing for an age-related tax credit in respect of health insurance premiums.

As announced in my Budget Statement, section 13 provides for a new tax incentive scheme to encourage taxpayers to invest in works which will improve the energy efficiency of their homes. The tax relief will be provided by way of repayment in the tax year following the year in which the work has been completed and in which the expenditure was incurred. Section 14 provides for the abolition of rent relief for new claimants from 8 December 2010 over eight years to 2018.

Changes are made in Section 15 to the tax relief available for third level fees and charges. This change takes account of the Government decision to replace the existing student services charge of €1,500 with a flat-rate student contribution of €2,000. This charge will be ineligible for tax relief, as was the student services charge. However, the contribution only in respect of the first student will not be allowed. The contribution for the second and subsequent students attending college simultaneously will be eligible for tax relief. In effect, because students attend different colleges it would be impossible to implement this on an administrator basis. Therefore, the tax system is being used to ensure that the increase in the student registration charge only applies to the first student and the amount of tax relief that applies ensures that the existing level of charge applies to the second and subsequent students..

Section 17 provides for the introduction of a €40,000 limit on earnings for the artists' exemption. Section 19 deals with the various changes in the tax treatment of private pension provision announced in the budget. These changes involve the extension of the flexible options on retirement and access to approved retirement funds, ARF, to all defined contribution pension arrangements. There will also be an increase from 3% to 5% in the annual imputed distribution applying to the value of assets in an ARF.

Section 23 provides for the progressive restriction and eventual abolition of the use of accelerated capital allowances under the various area-based and property-based tax incentive schemes, while Section 24 deals with restrictions to relief for lessors of rented residential accommodation, namely, section 23 relief. Both sections provide for changes to property-based reliefs as set out in the Budget Statement Financial Resolutions. However, the commencement of these provisions is now dependent on the carrying-out and publication of an economic impact assessment into the effects of the proposed changes.

The provisions restrict the use and carrying-forward of capital allowances and section 23 relief. The aim of the changes is to reduce ongoing legacy costs to the Exchequer and ensure that tax will be paid on some income previously sheltered by the various reliefs. Legislating for the restrictions in the Finance Bill as originally intended, combined with undertaking an impact assessment of their effect in advance of any commencement, strikes the right balance between seeking to restrict tax relief and taking note of real concerns that have been expressed about the proposed changes.

From the correspondence available to me in the Department it is clear that the effect of the immediate introduction of the various restrictions would cause personal insolvency, job losses and further exposure in the banking system. The risk of legal challenge cannot be ruled out given that the State made previous commitments in this area. For all of these reasons it is desirable that a detailed economic impact assessment be carried out to determine the impact of these measures before any commencement takes place.

It will also give any future Government the option of restricting the reliefs in a less drastic manner than was originally proposed. I did not believe that, in the short time frame which was available for the Finance Bill, it would has been possible to restrict the draconian effect of the original amendments because detailed teasing out of the implications of such restrictions would have taken time. In the circumstances the best course of action is to conduct a very detailed statutory assessment of the provisions in question and their impact on individuals. A future Minister can then be guided by the findings of such an assessment.

Following an amendment I tabled on Committee Stage the provisions could apply from the date of commencement but they cannot be applied retrospectively; the commencement can only be prospective.

Section 25 provides for the continuance of the relief to farmers for the increase in stock values for a further two years to 31 December 2012 from the current closing date of 31 December 2010, subject to the usual State aid clearance from the European Commission. Section 26 abolishes the tax exemption relating to qualifying patents. This measure was announced on budget day and was included in the list of tax expenditures set out in the national recovery plan for abolition or restriction.

Section 32 provides for the extension of the section 481 film relief scheme for a further three years to 31 December 2015, beyond its current expiry date of 31 December 2012. The extension of the scheme will create a medium term certainty for the film industry, which exists in a competitive international environment. The sector supports a significant number of jobs in the local economy and contributes to cultural tourism initiatives. In order to compete successfully with other countries and locations for productions, we need to offer a stable and supportive base. The extension will be introduced by ministerial order, subject to the usual State aid clearance from the European Commission.

As previously announced, the existing business expansion scheme, BES, is being reformed and renamed the employment and investment incentive. This is being done in section 33 and the new incentive will ensure the tax relief is more targeted at job retention and creation. It is subject to the approval of the European Commission and the existing scheme will continue until this has been secured. The three-year exemption from corporation tax, which was introduced in 2009 on the trading income and certain gains of new start-up companies, is being extended in section 34 to include start-up companies which commence a new trade in 2011.

Sections 36 and 37 of the Bill deal with provisions around tax relief on interest on borrowings. Legislation will now provide that relief will not generally be allowed in respect of interest on intra-group borrowings to finance the purchase of assets from another group company, nor will such interest be allowed as a deduction in computing profits or gains of a trade. The scheme of accelerated capital allowances for expenditure by companies on certain energy efficient equipment, introduced by budget 2008, is being extended in section 38 for a further three years to 31 December 2014.

Section 40 provides for the amendment of section 110 of the Taxes Consolidation Act 1997, which deals with the taxation of securitisation and structured finance transactions. The proposed amendments extend the type of assets that a section 110 company can acquire, while at the same time section 110 is being restricted to better reflect its original intention. The objective of this measure is to enhance the competitiveness of the international financial services industry. In particular, it will be of benefit to Ireland's international aircraft leasing industry and the development of a green financial services centre which was launched by the Taoiseach yesterday. The potential of the green economy is widely acknowledged. It is one of the five pillars set out in Building Ireland's Smart Economy - the Government's framework for sustainable economic renewal. This initiative shows that international financial services has a good future in this country. There are great opportunities in green financial services to build on the success of the IFSC and create new businesses and jobs here in Ireland.

Part 2 of the Bill deals with customs and excise, including the air travel tax reduction to €3, the changes on betting duty and the extension of betting duty arrangements to remote betting and related activities conducted by Internet. There are also a number of vehicle registration measures. Part 3 of the Bill deals with value-added tax and Part 4 deals with stamp duties. The changes relating to stamp duties are of fundamental importance for our home property market and I hope we will have an opportunity to discuss them in Committee. Part 5 of the Bill deals with capital acquisitions tax and Part 6 deals with various miscellaneous matters. I have been careful in looking at the work of my offices to ensure that the minimum of additional powers are conferred on the Revenue Commissioners in this measure.