Brian Hayes (Dublin South West, Fine Gael) | Oireachtas source

I thank the Leas-Chathaoirleach for giving me the opportunity to come to the Seanad once again to take Second Stage of the Finance Bill 2013. When he introduced the Bill to the Dáil, the Minister for Finance, Deputy Michael Noonan, noted that he was pleased to do so at a time when we could be more optimistic. That was just one month ago, but even since we have seen further signs of economic recovery, of which I am sure Senators are aware. We all know that the State has been through the most severe downturn in its history, but I believe, as does the Minister, that we can say with confidence that we have begun to turn things around, due in no small measure to the sacrifices of the people. As a Government, we have made many difficult and sometimes unpopular decisions, but we are beginning to see that these decisions have been worthwhile. We are on track to bring the budget deficit below the target of 3% of GDP by 2015. The banks have been recapitalised and regained access to borrowing markets. The economy is expected to record growth in 2013 for the third straight year. For last year as a whole, a GDP growth rate of 0.9% is projected, with the Department of Finance expecting the rate of growth to increase this year to 1.5% and further strengthen in the medium term. The strong performance of net exports also means that the current account for the balance of payments is back in surplus. In fact, a current account surplus of just over 3% of GDP is projected for 2012, rising to over 4% in 2013.

Our progress is reflected in investors' confidence in our ability to successfully tackle our economic and budgetary problems. The yield on the 2020 Irish Government bond has fallen from a level of 14.9% over 18 months ago to under 4% at the start of February and we are all aware that the National Treasury Management Agency, NTMA, was able to successfully re-enter borrowing markets last week and issue a benchmark ten year bond at very favourable rates of just over 4%.

On the fiscal side, the public finances have stabilised and the budget deficit has started to decline. This year the general Government deficit will be reduced further to 7.5% of GDP. In order to meet this target, budget 2013 introduced a package of adjustment measures, totalling ¤3.5 billion, and the Government is well aware that these measures will impact on citizens on both the tax and expenditure sides.

However, sustainable public finances are a prerequisite for sustainable growth and job creation. That is why, as Senators are aware, the Government has worked so hard at a European level to ensure that we achieved a deal in relation to the promissory notes and the progress announced recently in terms of lengthening the maturities of our European loans.

As we now turn to the Finance Bill itself, I will restate the point, already made by Minister, Deputy Michael Noonan, that despite the progress that we are making in relation to fiscal and banking matters, the Government still considers unemployment to be unacceptably high and the biggest and most important challenge that we must address. The Bill should be viewed as one element of a wider strategy to support economic activity that is complemented by the Action Plan for Jobs 2013 which the Minister for Jobs, Enterprise and Innovation published recently.

The Bill begins to implement the ten-point tax reform plan announced in the budget. This plan includes measures such as reforming the three-year corporation tax relief for start-up companies, increasing the cash receipts basis threshold for VAT, amending the close company surcharge to improve cash flow for SMEs and extending the foreign earnings deduction for work-related travel to certain additional countries.

Senators may be interested to note that the public consultation on taxation of micro enterprises which was also a part of this plan has closed. The submissions received are currently being assessed and analysed by officials of the Department of Finance and the Revenue Commissioners with a view to helping to cut compliance costs and make starting a business less daunting for ordinary people.

I would add that the introduction of the new JobsPlus scheme later this year will provide grants to employers to encourage them to employ individuals who have been on the live register for longer than 12 months. Two more pro-employment measures which I might highlight for the House are the amendment of the key employee provision of the research and development tax credit regime and the extension of the employment and investment incentive and the seed capital scheme.

I now turn to the Bill but of course I cannot cover every individual measure in the time available. The Bill comprises 108 sections, two Schedules and 177 pages. We will have an opportunity tomorrow to go through some of it, if Senators wish. It is a significant piece of work and not only by officials and legislators. Measures are not simply devised in Merrion Street. Rather, they represent the product of much discussion and dialogue across all Departments, with representative organisations and with individual citizens. I have chosen to highlight some measures which I think may be of particular interest to Senators.

Part 1 of the Bill deals with the income levy, universal social charge, income tax, corporation tax and capital gains tax. Section 3 provides for the changes to the universal social charge announced in budget 2013, which applies the standard rates of USC to those aged 70 years and over, as well as to medical card holders, both PAYE and self-employed income earners, who have income in excess of ¤60,000 per annum.

Section 5 relates to the key employee provision of the research and development tax credit, the amount of time an employee must spend on research and development in order to qualify is being reduced from 75% to 50%. Sections 6 and 45 amend sections 71 and 29, respectively, of the Taxes Consolidation Act 1997. These amendments counter potential avoidance mechanisms in relation to non-domiciled individuals.

Section 8 gives effect to the budget day announcement that maternity benefit payments will be treated as taxable income with effect from 1 July 2013. As is the case with all social welfare payments, maternity benefit payments will continue to be exempt from the USC and PRSI. Section 9, which was inserted on Committee Stage in the Dáil, extends mortgage interest relief for additional tranches of loans that are drawn down in 2013 for building or improving a principal private residence, where the first part of such a loan was drawn down in 2012.

Section 10 provides for an extension of the foreign earnings deduction for work related travel to a number of African countries. We introduced this last year and it has been a novel commonsense proposal in terms of encouraging the export industry but specifically agrifood exports into parts of the world where we had not previously gone.

Section 13 makes a number of changes to provisions on benefits in kind while section 14 deals with various issues related to ex gratiapayments including the abolition of top slicing relief which the Minister also announced on budget day. Section 16 makes changes to the basis of assessment for rental income or profits sourced from outside the State.

Section 17 provides for pre-retirement access to funded additional voluntary contributions. Section 17 relates to a concern that was raised in the House last year to which the Minister has responded to allow the withdrawal on a once-off basis of 30% of the value of additional voluntary contributions. Section 18 includes two new provisions which apply to individuals dealing in or developing land. Section 19 provides for changes to the scheme of tax relief for donations to approved bodies as announced by the Minister in the budget. Section 12 relates to stock relief and extends the general 25% rate and the 100% young trained farmer rate of stock relief to 31 December 2015. The Bill also extends the definition of registered farm partnerships.

Section 21 relates to film relief. Following a review by the Department of Finance, film relief will no longer be available to investors in qualifying firms. Instead, a payable tax credit will be paid directly to a producer company which will benefit significantly and support the industry. The Minister is setting the rate for the credit at 32%. The extension of and changes to the employment and investment incentive seed capital schemes are set out in section 22 of the Bill. Section 23 increases deposit interest retention tax, or DIRT, by 3% as announced in the budget. Section 24 reduces the tax credit available for donations of heritage property to the State from 80% of the market value to 50%. Section 28 increases the amount of group expenditure and research and development activity excluded from the incremental basis of calculation from ¤100,000 to ¤200,000.

Section 30 relates to the living-city initiative. This is a pilot scheme and it will be confined to certain designated areas for the moment. On foot of the requirement to obtain EU state-aid approval, the provision will be subject to a commencement order. Amendments to the Taxes Consolidation Act 1997 are made in section 31 to establish an accelerated capital allowances scheme pertaining to the aviation sector. Section 33 amends the close company surcharge rules and increases the de minimisamount of undistributed investment and rental income which may be retained by a close company without giving rise to a surcharge from ¤635 to ¤2,000. The same increase will apply in respect of the surcharge on the undistributed trading or professional income of certain service companies. Section 34 extends the three-year corporation tax exemption for start-up companies which has been a key feature of what we have attempted to do in this and previous budgets. Section 39, introduced on Committee Stage in the Dáil, contains a technical amendment to provisions on the exit tax rate for payments to companies from life insurance products and investment funds.

Section 40 increases the rates of tax applying to life assurance policies and investment funds by three percentage points with effect from 1 January 2013. Section 41 provides for the introduction of a tax regime for real estate investment trusts, or REITs. The Minister for Finance, Deputy Michael Noonan, took into account concerns expressed by Deputies on Second Stage and introduced on Committee Stage two new investor protection measures to the REITs regime. These measures will provide additional safeguards for REIT investors without adding cost or complexity to the regime. They provide for a debt-equity ratio which restricts the level of borrowings within REITs and for a good-asset test which requires that a minimum of 75% of the assets of a REIT are assets of a property rental business.

Section 43 provides for a capital gains tax, or CGT, rate increase from 30% to 33% as announced on budget day. All capital taxes went up in the budget from 30% to 33%. Section 47 relates to changes in CGT relief introduced in last year's Finance Act for individuals who dispose of agricultural assets to their children and certain other individuals. Section 48 provides for the relief from CGT for farm restructuring which measure was announced in the budget.

Section 49 gives effect to the increase in the rates of tobacco products tax which, when VAT is included, amount to 10% on a pack of 20 cigarettes, with pro rataincreases on other tobacco products. The section also provides for a further increase of 50 cent per packet of roll-your-own tobacco.

Section 51 introduces a new section in mineral oil tax law to provide for partial relief by way of requirement for auto diesel used in the course of business by qualifying road haulage and bus operators. This was an important issue on which road hauliers campaigned had hard for the past 12 months and which the Minister conceded in the budget. He extended it to bus operators, which was an important additional relief for that sector of tourism and transport.

Section 52 amends the general provisions of excise law, including provisions to ensure repayment of overpaid excise duty does not result in unjust enrichment. Section 56 provides for the indictable offence of the illicit production of tobacco products, as well as the offence of selling or the delivery of unstamped tobacco products. Section 58 gives effect to the increase in the excise rate of alcohol products tax, inclusive of VAT, which amounts to approximately 10% on a pint of beer or cider and a standard measure of spirits and a ¤1 increase on the standard bottle of wine.

Section 61 provides for a number of amendments in preparation for the commencement of the solid fuel carbon tax with effect from 1 May this year as the Minister announced in the budget. Section 63 gives effect to the revised system of VRT which was also announced and is effective from 1 January this year.

Part 3 of the Bill deals with VAT. I will not go through the individual sections because they are straightforward. Part 4 of the Bill deals with stamp duties in sections 79, 80, 82 and 83 which Senators can read. Part 5 of the Bill deals with capital acquisition taxes, in line with the measures the Minister announced in the budget, whereby all of the capital taxes have moved up three points from 30% to 33%. That is dealt with in sections 85 and 90. Part 6 of the Bill deals with miscellaneous provisions in sections 94, 96, 100, 102, 103 and 105. We can deal with these provisions in greater detail tomorrow.

The Bill forms an important part of the parliamentary and legislative year. It will bring us closer to achieving our deficit targets by the end of 2013. The Government is adamant that we must be below a budget deficit target of under 3% by 2015 and the adjustment required in the context of the budget is a key requirement for Ireland's come-back. We are doing very well in what is required, but that is a difficult story to tell the people because while at the macro level things are improving significantly, at a micro level people do not see it in their daily lives, as we know from the lives of our constituents.

The task we face in the Bill and other measures the Government will announce is how to provoke the domestic economy. How do we have growth-friendly fiscal consolidation as the Europeans call it? Some might describe that as a contradiction in terms. On the contrary, we have shown that since 2008 the previous Government and this Administration have effectively taken out ¤28.5 billion in that period, yet we have seen growth in the past three years at twice the rate across the European zone. If one looks at the matrices of the 27 member states and even of the 17 eurozone countries, growth is flat-lining in Spain, France and Italy. Some shocking examples of the tragedy of the recession are unemployment rates of between 24% and 26% in some member states. There are quite a few crumbs of comfort and one is in the data for unemployment in the State. Having been stubbornly high for so long, at 15%, it has been on the way down in recent months and now stands at 14.2%, which is far too high for this economy.

It is far too high for this economy. The No. 1 task of this Government for the rest of this year and beyond is to give an opportunity to people, at the micro level, to get back to work, get the economy working and provoke domestic demand. By doing that, we can return to the kind of growth rates we all want to see. Budget 2013 is an essential part of that and we present it in confidence to the House.