Speech on the Finance Bill 2018

23rd October, 2018

A Cheann Comhairle, I move that this Bill be read a second time.   

Two weeks ago I made my Budget statement in this House.

I noted that a decade had now passed since the financial crisis.

In a dynamic and ever-changing global environment, the Irish economy continues to strengthen and grow.

A record number of our citizens now have jobs.

Our public finances are balanced for the first time in a decade.

We have made remarkable progress and the dark days of crisis have passed.

But many risks remain, in particular, the political, economic and diplomatic challenge of our generation that is represented by Brexit.

That is why it is critical that we continue to enhance the underlying strength and resilience of our economy.

In order to build resilience we must continue to manage out public finances responsibly and keep our tax base broad, stable and sustainable.

When I made my Budget statement in this House two weeks ago I said that Budget 2019 was designed to secure our future.

It is a progressive budget with an emphasis on strengthening our national finances.

It is a responsible Budget for a modern and caring Ireland that aims to position us at the centre of a changing world.

Many of the changes required by the Budget are contained in Finance Bill 2018. 

I will shortly set out the Bill in more detail but firstly I would like to look at some of the key themes running through it.




Income Tax and USC

This Finance Bill delivers on our commitment to continue to make targeted changes to the income tax system within available resources and make steady and sustainable progress in reducing the income tax burden, focusing on low and middle income earners.


To ease this burden, the Bill will increase the entry point to the higher rate of income tax for all earners by €750, raising it from €34,550 to €35,300 in the case of a single worker.


The third rate of the Universal Social Charge will be reduced from 4.75 per cent to 4.5 per cent to give a further targeted benefit to low and middle level incomes.


As I said on Budget day, this Government believes that workers enter the higher rate of income tax at too low a level of income. The impact of these changes means that the top marginal rate on incomes up to €70,000 will be reduced to 48.5 per cent and fewer people on incomes around the national average will have any income subject to the 40 per cent rate of income tax.


The Bill will also provide for a modest increase in the ceiling of the second USC rate band from €19,372 to €19,874. This is to ensure that the salary of a full-time worker on the minimum wage will remain outside the top rates of USC, following the increase in the hourly minimum wage to €9.80, which will take effect from 1 January 2019.


Also, for families where one spouse works primarily in the home to care for children or other dependants, I am happy to announce an increase to the Home Carer Credit of €300. This brings the value of the credit to €1,500 per year and is expected to benefit around 85,000 working families.


For self-employed workers who make up an important part of our economy, the Earned Income Credit will be increased by a further €200 to €1,350.


To support the single affordable childcare scheme, I propose to amend section 194A of the Taxes Consolidation Act 1997 to ensure that payments to childcare providers under the scheme do not give rise to tax liabilities for the parents.  It is not my intention that payments under the scheme should give rise to tax liabilities for parents or guardians.


In the absence of any legislative relieving provisions, the payments made under the scheme would fall to be taxable, as they are made on behalf of the parent/guardian as a contribution towards the crèche fees. The effect of the proposal will also be retrospective to ensure that payments already made under similar administrative schemes are also exempt.


Encouraging enterprise

Moving now to the areas of employment and enterprise, it is timely to recall the commitment set out in the Programme for Government to support a leap forward in the capacity and performance of our enterprise sector. The Bill contains a number of measures relating to the Key Employee Engagement Programme (KEEP), the Employment and Investment Incentive (EII) and the Start-up Refunds for Entrepreneurs (SURE), which seek to advance the agenda.


The take-up of KEEP has been limited so far so I intend to double the ratio of share options to salary and increases the total value of options from €250,000 to €300,000. Currently the company can grant options to the particular employee/director up to a maximum of €250,000 in any three year period. I now propose that the company can grant options to the particular employee up to a maximum of €300,000 in any period, i.e. a lifetime limit from that company for that particular person. The €3,000,000 overall KEEP limit remains for companies, and employees are not restricted from entering into future KEEP arrangements with future employers.


As deputies may be aware, following significant changes to the EII and SURE in last year’s Finance Act, I asked my department to arrange a comprehensive review of these incentives with a focus on their efficiency and effectiveness.


Having considered the recommendations contained in the recent report by Indecon Economic Consultants, I am proposing a package of measures.


Firstly, I am proposing changes to the application procedure for the incentives to a largely self-certification model. This will address the most significant problem with the current design of the scheme relating to delays in the application process. While primarily self-assessment, it is important to note that under the proposed new arrangements, companies may ask Revenue to confirm that they have met the requirements for General Block Exemption Regulation (GBER) compliance. I think that this is a fair support for many companies and investors given that they may not be familiar with EU State aid rules.


Secondly, the new text also provides for a specific investor eligibility regime for investment in very small enterprises – the Start-up Capital Incentive. In particular and in accordance with EU State aid rules, connected persons are permitted greater freedom to invest, in limited amounts, in very small start-ups. 


Thirdly, the section includes a very substantial consolidation and updating of the current text of Part 16 (EII and SURE) of the Taxes Consolidation Act 1997. The aim is to make the scheme more intelligible for stakeholders. In addition, the draft brings forward a number of technical adjustments to the incentives, which seek to simplify and clarify the legislative provisions.


It also includes an anti-avoidance measure where, in the case that a holding company sells a subsidiary and the money is returned to the holding company, the holding company must now return the capital to the investors immediately rather than, as at present, where it can retain the proceeds for the remainder of the four years without triggering a clawback of relief.


Finally, in light of the substantial review just undertaken, I also propose extending EII and SURE by an additional year to the end of 2021; this is consistent with the procedures set out in my Department’s Tax Expenditure Guidelines.


This is a priority package to address the main shortcomings identified with the scheme. I intend that other issues raised in the Indecon report will be addressed in a subsequent Finance Bill.


Looking now to the film industry, the film tax credit acts as a stimulus to the development of an indigenous audio-visual industry, to support the expression of Irish culture and the creation of quality employment opportunities in the State. The relief is currently scheduled to end in 2020.  In view of the long lead-time for film productions, I am providing now for a four-year extension of the credit, until December 2024, to provide the certainty the industry needs in order to continue to grow.


To support the development of the sector beyond the current established hubs, I am also introducing, subject to State aid approval, a new, short-term regional uplift for certain productions made in areas designated under the State aid regional guidelines. The regional uplift will commence at five per cent and will be phased out over four years on a tiered basis.



Turning now to the farming sector, I acknowledge that income volatility is a very significant difficulty for farming families and that 2018 is turning out to be a particularly difficult year. I propose to make the income averaging scheme available to a greater range of farms.


Income averaging allows eligible farmers to calculate their taxable income as the average of their income in the current year and the previous four years, on a rolling basis, thus smoothing their tax liability over a five year cycle. I propose extending the Income Averaging Scheme to farmers with self-employed, off-farm income/farmers whose spouses have off-farm, self-employed income (with averaging only applying in respect of farm profits), so as to ensure its availability to the entire sector.


In addition, the Bill renews for a further three years:


  • the 25 per cent General Stock Relief on Income Tax;
  • the 50 per cent Stock Relief on Income Tax for Registered Farm Partnerships; and
  • the 100 per cent Stock Relief on Income Tax for Certain Young Trained Farmers.



International taxation

Before I move on to look at the Bill in detail, I wish to address our commitment to the ongoing process of international tax reform. I announced in Budget 2019 the introduction of two new measures from the Anti-Tax Avoidance Directive (ARAD), an ATAD-compliant Exit Tax regime and new Controlled Foreign Company (CFC) rules. CFC rules are designed to prevent the artificial diversion of profits to offshore entities in low-tax or no-tax jurisdictions.


The new ATAD-compliant Exit Tax regime will impose a charge to tax at 12.5 per cent on unrealised gains where companies migrate or transfer assets offshore, such that they leave the scope of Irish tax. It replaces a pre-existing, focussed anti-avoidance exit charge with a new broad-based Exit Tax.


The introduction of both these measures, in addition to the commitments to further action set out in the Corporation Tax Roadmap published in September, clearly demonstrates Ireland’s commitment to ensuring that our tax regime is stable, legitimate and transparent, to support continuing investment and job creation in the State.




I will now take you through the Finance Bill from the beginning. However Deputies will appreciate that in the limited time available to me it is not possible to cover every single section in detail.


Part 1 of the Bill deals with the Universal Social Charge, Income Tax, Corporation Tax and Capital Gains Tax.


Sections 2 to 5 deal with the income tax measures I have already outlined.


Section 9 extends the benefit-in-kind exemption for electric vehicles until 31st December 2021 to support policies to reduce carbon emissions in the transport sector. Having regard to value for money and tax equity considerations, it also applies a cap of €50,000 on this exemption such that an electric vehicle with an original market value exceeding €50,000 will be subject to BIK on the amount in excess of €50,000.


In section 14, I propose amending section 205A of the Taxes Consolidation Act 1997 to extend the same tax treatment for awards under the restorative justice process to women who were resident in institutions associated with the Magdalen laundries.


Section 15 is a technical amendment and Section 16 introduces a new Accelerated Capital Allowances scheme for gas-propelled vehicles and refuelling equipment, which I signalled in my Budget speech.


Section 17 amends and commences a relief, introduced last year in Finance Bill 2017 subject to a commencement order, which allows a benefit to employers who incur capital costs on equipment and/or buildings used for the purposes of providing childcare services or fitness facilities to employees.


Section 20 relates to the relief available to certain start-up companies in their first three years of trading. Following a review performed by my Department, I am extending the relief for a further three years, to 31st December 2021. This relief is designed to support employment creation and broaden the corporation tax base.


Section 21 proposes that the amount of interest paid in respect of loans used to purchase, improve or repair a residential property that may be deducted by landlords will be increased to 100 per cent from 1st January 2019.  This change is an acceleration of the rate of the restoration of the full value of this relief.


Section 23 relates to EII and SURE, Section 24 deals with film relief and Section 25 deals with controlled foreign companies (CFCs), I have described these measures already.


Section 28 amends section 603A of the Taxes Consolidation Act 1997 TCA 1997.  In broad terms, section 603A provides relief from Capital Gains Tax on the transfer of a site by a parent or civil partner to a child of the parent or a child of the civil partner, where the transfer is to enable the child to construct his/her principal private residence on the site. The section is being amended to allow both a child and his/her spouse/civil partner to benefit from the relief available under the section.


Part 2 of the Bill deals with Excise.


Section 31 amends the definition of a ‘sugar sweetened drink’ to ensure that certain categories of beverages will be subject to sugar sweetened drinks tax where they do not meet a minimum calcium content of 119 milligrams per 100 millilitres. The amendment fulfils the commitment made to the European Commission as part of the formal EU State aid notification process for sugar sweetened drinks tax. 


Section 32 confirms the Budget increases in the rates of Tobacco Products Tax and Minimum Excise Duty for cigarettes in support of public health policy. 


Section 33 provides for an increase in the rate of betting duty and betting intermediary duty with effect from 1 January 2019. The rate of betting duty is increased from 1 per cent to 2 per cent for bookmakers and remote bookmakers while betting intermediary duty is increased from 15 per cent to 25 per cent.


Section 35 provides for a Vehicle Registration Tax or VRT surcharge of 1 per cent on diesel cars in recognition of growing air pollution concerns from pollutants emitted in high amounts by diesel vehicles.   


Section 37 extends the VRT relief for Hybrid Electric vehicles until 31st December 2019 in support of climate change policy. 


Part 3 of the Bill deals with Value-Added Tax, or VAT.


Section 41 gives effect to the Budget increase in the VAT rate applying to tourism activities, with services and goods currently applying at 9 per cent increasing to 13.5 per cent from 1st January 2019, with the exception of newspapers and sports facilities. This section also provides for a reduction in VAT on digital publications from 23 per cent to 9 per cent.


Part 4 of the Bill deals with Stamp Duties.


Section 46 provides for, as I announced in Budget 2019, the extension for a further three years to 31st December 2021 of the young trained farmers’ stamp duty relief. This extension must be notified to the EU authorities and is therefore being made subject to a Commencement Order. This section also contains a number of amendments to ensure a number of stamp duty related provisions in the legislation comply with EU State aid regulations and reflect current practice.



Section 47 provides for taxpayers having a right of appeal to the Appeal Commissioners against a decision made by Revenue in relation to a claim for a repayment of stamp duty which is not currently provided for in the legislation.



Part 5 of the Bill deals with Capital Acquisitions Tax, or CAT and includes Section 50 which amends the dwelling house exemption to ensure that properties which have been placed in a discretionary trust are brought within the assessment criteria for determining if the beneficiary meets the conditions to qualify for the exemption.


Section 51 addresses my Budget announcement to increase the Group A tax-free threshold which applies to gifts and inheritances from parents to their children from €310,000 to €320,000. This will apply to gifts or inheritances received on or after 10th October.



Finally, Part 6 of the Bill deals with miscellaneous matters and here I just want to mention that Section 53 makes a number of technical amendments to facilitate the operation of the tax appeals process.





As is customary with the Finance Bill there are still a small number of matters under consideration that I may bring forward at Committee Stage and of course I will also consider any suggestions put forward during our debate here over the next couple of days.


Thank you.