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Finance Bill 2014: Second Stage (Continued)

Tuesday, 4 November 2014

Dáil Éireann Debate
Vol. 856 No. 1

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(Speaker Continuing)

[Deputy Michael Noonan: Information on Michael Noonan Zoom on Michael Noonan] For example, a working family with three children where both parents earn €50,000 each per year will have approximately €100 extra per month in their pockets.

  A fair, efficient and competitive income tax system is essential for economic growth and job creation. I have long said the burden of the income tax system in Ireland is too high and acting as a disincentive for work and investment in Ireland. The income tax measures in the Bill are the first stage of a three year plan to reduce progressively the marginal tax rate on low and middle income earners in a manner that maintains the highly progressive nature of the tax system. As I outlined in the budget, my Department estimates a three year reform plan along these lines could boost employment levels by as much as 15,000 jobs when the full impact of the changes has taken effect in the economy.

  The Bill provides for a reduction in the top rate of income tax from 41% to 40%. It also extends the standard rate band in which income tax is chargeable at the lower 20% rate by €1,000. Together with the accompanying reductions in the two lower rates of universal social charge, USC, and the extension of the threshold at which USC becomes payable, the budget announcements provided for in the Bill will ensure all those who currently pay income tax and-or USC will see a reduction in their tax bill next year. In addition, as a result of the reduction in the higher rate of income tax from 41% to 40%, the marginal tax rate has been reduced for all income earners who currently earn under €70,000 per year and pay income tax at the higher rate and remains unchanged for PAYE and self-employed workers earning over €70,000 per year. For example, a self-employed person earning €100,000 per year faced a marginal tax rate of 55% in 2014 and will continue to face a marginal tax rate of 55% in 2015.

  Ireland already has one of the most progressive income tax systems in the developed world. To enhance its progressivity, the Bill also contains USC measures which have the effect of limiting the maximum benefit from this package of tax measures. Those on very high incomes will only benefit to the same extent as those with more modest income levels. As a result, in 2015 the top 1% of income earners will pay 21% of all income tax and USC collected. In contrast, the bottom 76% of income earners will pay 20% of the total.

  The Bill also provides for the retention of the exemption from the top rates of USC for medical card holders with incomes that do not exceed €60,000 per year. These individuals will now only be liable to pay a USC rate of 3.5%, down from 4%. This reduced rate will also apply to the over 70s with incomes that do not exceed €60,000 per year, again down from 4%. These changes are designed to ensure work pays, help the transition from unemployment and remove potential barriers that may be deterring part-time workers from taking on additional hours of employment. The resulting increases in take home pay will have follow-on benefits for businesses and jobs in the domestic economy.

  In the budget I announced a number of corporation tax changes as part of a strategy to "play fair and play to win." These changes have given certainty to companies and investors and been broadly welcome by companies, representative groups and international organisations such as the Organisation for Economic Co-operation and Development, OECD. I reaffirmed the Government's commitment to the 12.5% rate of corporation tax and published independent research commissioned by my Department from the Economic and Social Research Institute, ESRI, confirming the importance of the 12.5% rate to the economy. I have also published a "Road Map for Ireland's Tax Competitiveness" which contains a comprehensive package of competitive tax measures to provide the foundations for Ireland to maintain and expand as a thriving hub for foreign direct investment.

  I will now outline the provisions of the Finance Bill. Deputies will appreciate that in the limited time available I cannot describe every section in detail.

  Part 1 of the Bill deals with the universal social charge, income tax, corporation tax and capital gains tax. Sections 2 and 3 provide for the income tax and USC changes I have outlined.

  To stimulate the supply of affordable rental accommodation, the threshold for exempt income under the rent-a-room scheme is being increased in section 8 from €10,000 to €12,000 per annum for 2015 and subsequent years.

  Recognising the success of the home renovation incentive in stimulating activity in the legitimate construction sector and the need to increase and improve the housing stock, section 11 extends the incentive to include rental properties the owners of which are liable to income tax to encourage them to carry out renovations, repairs or improvements to their rental properties. It will apply to works carried out from 15 October 2014 until 31 December 2015. As is the case with principal private residences, the qualifying work must cost a minimum of €5,000, including VAT. While there is no upper limit on the cost of works, the tax credit will only be given in respect of a maximum expenditure of €30,000, excluding VAT.

  As part of a range of measures forming the roadmap to secure Ireland's place as the destination for the best and most successful companies in the world, section 13 extends the special assignee relief programme for a further three years, until 31 December 2017. In addition, the upper salary threshold of €500,000 per annum that currently applies is being removed. The residency requirement is being amended to only require Irish tax residency. The exclusion of work carried out abroad is also being removed and the period of time for which an employee is required to be employed abroad by the relevant employer prior to his or her arrival is being reduced from 12 months to six.

  To further support small and medium enterprises, SMEs, and other companies to grow their businesses and diversify into new and emerging markets, the foreign earnings deduction is being extended and enhanced for a further three years until 31 December 2017 in section 14. The list of qualifying countries is also being extended.

  Section 17 provides for tax relief to be given for certain pension contributions of current and former fixed-term contract employees of National University of Ireland Galway, NUIG, to which they would have been entitled had there been no delay in the implementation of some aspects of the Protection of Employees (Fixed Term Work) Act 2003. The section will also close off a number of tax avoidance schemes which use approved retirement funds, ARFs, and other post-retirement funds. The section reduces from 5% to 4% the imputed distribution rate for ARFs and vested personal retirement savings accounts, PRSAs, beneficially owned by individuals aged between 60 and 70 years, where the value of assets in these products is €2 million or less. The section also introduces an annual draw-down option of a maximum of 4% for approved minimum retirement funds. The section provides for a more equitable sharing of any chargeable excess tax in cases involving pension adjustment orders, where the maximum allowable pension fund at retirement for tax purposes is exceeded.

  Section 18 makes a number of amendments to the tax treatment of farmers to give effect to some of the changes announced in the budget following recommendations in the agri-taxation review. It increases the period of income averaging from three to five years for the years of assessment from 2015 onwards; it provides for the averaging of farming profits where a farmer or his or her spouse carries on another trade, provided that the trade relates to on-farm diversification; it provides for a 50% increase in the amounts of income that can be exempted for the purposes of qualifying long-term leases taken out on or after 1 January 2015; it introduces a fourth threshold for lease periods of 15 years or more, with income of up to €40,000 being exempted; it provides for the removal of the lower age threshold of 40 years for eligibility for the long-term leasing tax relief; it provides that a company can be an eligible lessee, provided it is not connected to the lessor; it adds a new third level course to the list of approved courses for eligibility by young trained farmers to claim 100% stock relief. Following the increase in the EU limits for de minimis state aid, it provides for an increase in the maximum amount of stock relief allowable for registered farm partnerships to €15,000 over three years. A number of other measures arising from the agri-taxation review are dealt with in later sections of the Bill.

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