THIS is a Budget about the concerns of today, the priorities for tomorrow and our plans for the future. It is a Budget about change, compassion and confidence.
The full annual value of the additional amount which I am investing today in our society is, at over £650 million, the biggest in the history of this country.
As a result, for those on PAYE and full PRSI:
-a married worker with four children earning £210 per week gains over £14 per week
-a single worker earning £270 per week gains £8 per week; and
-a married couple with four children earning £28,000 per annum gains £888 per annum or £74 per month.
People receiving social welfare payments will get an increase of twice the rate of inflation. This year we will make real progress towards achieving the targets set by the Commission on Social Welfare.
Small firms and family businesses will get reductions in tax to help them continue the increase in economic growth and in jobs.
I intend to do this, and more, white at the same time, provide for a significant current Budget surplus, for the first time in our history. Moreover, the General Government Debt ratio will be the lowest since we began calculating this measure back in 1989.
Over the past two years, this Coalition Government, in which I am proud to serve as Finance Minister, has made spectacular progress in developing our economy and combatting social inequality while at the same time successfully managing the nation's finances.
In doing so, we have confounded those commentators who said that you cannot achieve social progress and fiscal responsibility at the same time. In fact, we have and the record is there for all to see.
Since the end of 1994:
-employment has grown by over 100,000 or 8 1/2 per cent to about 1,300,000
-the highest number of people at work in the history of our State;
-unemployment has fallen by 31,000 or over 14 per cent;
-GNP has expanded in real terms by over 14 per cent;
-the level of investment has risen by about 20 per cent;
-child benefit has increased by £9 from £20 and £25 to £29 and £34, an increase of between 35 and 40 per cent;
-capitation grants for children in primary school have risen from £38 to £45 - an increase of 18 per cent;
-tuition at universities and other State-funded third-level colleges is now free, with the abolition of tees;
the number of households assisted under the Social Housing
Scheme has risen from 8,540 in 1994 to 10,020 in 1996;
-total spending on arts and culture has risen from £23 million to £46 million or by 100 per cent;
-over 3,000 extra people are employed in delivering improved services in health and education
-real consumer spending has grown by almost 10 per cent;
-exports have risen by over 25 per cent;
- inflation has averaged about 2 per cent each year;
- the General Government Deficit (GGD) has been reduced from 1.7 per cent to 1 per cent of GDP; and
- the General Government Debt to GDP ratio has fallen from 88 per cent to 73 per cent.
These economic and social statistics tell the facts. Taken together they represent the most dramatic economic and social development of our society since this State was established just 75 years ago. Ireland is now a national and international success story.
I want, therefore, at the outset of this Budget to pay a special tribute to workers, employers, farmers and businesses in this country for the record breaking performance which they have achieved. The policies of this Coalition Government have contributed to our collective success. The lessons of recent years, and indeed of previous governments, have been confirmed by our immediate experience. Social Partnership works.
It is clear that the consensus approach to developing and managing our economy is successful. It ensures continued economic growth, real improvements in take home pay, increased numbers at work and better social services for all of our people. It has produced real results at home and it has caught the admiration of commentators abroad.
However, we still have major problems of unemployment and poverty in our society. Long term unemployment remains unacceptably high. The poverty that it brings limits the hopes and aspirations of too many of our people. We must improve and deepen our measures to deal with this problem and this Budget begins to do that.
PARTNERSHIP 2000
The Social Partners and the Government have recently completed negotiations for a new agreement to succeed the Programme for Competitiveness and Work or PCW.
The new Programme, Partnership 2000, aims to build on the success which we have achieved together - in particular the creation of a dynamic low inflation economy. The primary objective of economic policy under the new programme will be to secure and strengthen the economy's capacity for sustainable employment and economic growth. This will make it possible to continue to reduce taxes, to raise living standards generally, and to generate the resources for improved social inclusion measures while maintaining competitiveness.
The new partnership is based on acceptance by all its participants of:
-a commitment to a reduction in the tax burden;
-a commitment to improved social measures to tackle long term unemployment and social exclusion;
-moderate wage increases in the context of low inflation, with a strong focus on competitiveness;
-agreement on the management of the public finances, including a slowdown in the rate of increase in current public spending; and
-agreement on a firm exchange rate strategy.
Adherence to these principles will ensure that we can continue to develop our economy upon sound foundations. Underpinning moderate wage increases and social development through Partnership 2000 is the best way to maintain low inflation over the medium term. Low inflation and minimising both public sector deficits and the debt burden are essential components of a sound economy. Their achievement will also ensure that we continue to qualify to participate in the Single Currency under European Economic and Monetary Union.
I look forward to the ratification of the new programme by all of the Social Partners. It will ensure this nation's continued economic and social progress up to the beginning of the next century. Based upon our experience to date, and the real progress that our people, working together, have made during the course of the previous programmes, Partnership 2000 is the best way forward for all of us.
The Budget which I am presenting today is clear evidence of this Government's intention to deliver on their commitments under the new Programme.
Public Service Pay and
Public Service Change
The pay agreement which forms part of Partnership 2000 provides for increases in the public service in line with those in the private sector, totalling 91/4 per cent over 39 months. The method of application of the first phase of the pay agreement in the public service will limit costs in 1997 by restricting the increase payable in July next to the first £200 per week. In addition, payment of the local level negotiations provision of 2 per cent is linked to the achievement of real verifiable progress in the public service programme "Delivering Better Government".
In 1997, pay increases will add an estimated 5 1/2 per cent or £265 million to the Exchequer pay and pensions bill. This is largely due to the public service pay increases under the PCW pay agreement and the need to fund outstanding commitments under the PCW local bargaining arrangements, which the Government intend to honour. These increases and the cost of service improvements, including those I am announcing today, will bring the total pay and pensions bill to approximately £5,150 million.
This country and all of its people - particularly public service workers need a modern, efficient and effective public administration. The impact of change must be reflected in the development of our public services at both national and local level. The programme Delivering Better Government" sets out a complete range of changes which are designed to improve the performance of the public service, increase value for money and deliver a better service to the citizen as customer. The commitment in Partnership 2000 to specific action to improve the public service, and the link with the local level negotiations provision, are important steps toward achieving these objectives.
Review of 1996
1996 was another very good year for the Irish economy. The main features were:
- GNP growth was over 6 per cent;
- employment grew by 50,000;
- consumer spending increased by 6 per cent;
- inflation was 1.6 per cent;
- the GGD was 1 per cent;
- the current budget had a surplus of £292 million; and
- the fall of almost £300 million in the national debt in absolute terms, reflecting the relative strength of the Irish pound, was the first time it has been reduced in almost forty years.
Budget Targets for 1997
Let me now turn to the Budget targets for 1997. Taking account of Departmental balances of £26 million and increased capital receipts of £20 million, the opening EBR for 1997 is £334 million. Having made provision for the measures contained in today's Budget, my targets for 1997 are:
- a current budget surplus of £193 million (0.5 per cent of GNP);
- an Exchequer Borrowing Requirement of £637 million (1.6 per cent of GNP); and
- a General Government Deficit of 1.5 per cent of GDP.
As I pointed out earlier, this is the first time ever that a Minister for Finance has planned for a significant current budget surplus. And I am projecting a surplus, not just for one year, 1997, but for 1998 and 1999 as well.
1997 Budget Measures
This Budget reaffirms and builds on the main principles of my first two Budgets. As in 1995 and 1996, the measures in this Budget will:
- reward work;
- promote enterprise; and
- strengthen social solidarity.
Work continues to be the key to our success as a people and as a society. It is one of the ways that we fulfil ourselves as individuals and it is the way that we create wealth as a community.
We need to foster and promote enterprise throughout our society in both the public and private sectors. We need to encourage the growth of new companies, consolidate existing firms and ensure that family run businesses can pass safely from one generation to another.
In rewarding work and creating wealth through enterprise, we generate the resources to strengthen our country, to provide the services which we all require and so ensure that every individual in our society becomes and remains a valued participant in our community.
REWARDING WORK
The first of those principles is rewarding work.
Income Tax, PRSI
and Levies
I propose to reduce the Standard Rate of Income Tax from 27 per cent to 26 per cent with effect from April 6th next.
The Employee PRSI rate for Class A and Class H contributors is being reduced by 1 per cent. This reduction in social insurance contributions will assist over 70 per cent of PRSI contributors, including those outside the income tax net.
In addition, the Standard Rate Income Tax Band is being widened by £500 for single persons to £9,900 and by £1,000 for married couples to £19,800.
The Personal Allowance is being increased by £250 to £2,900 per annum for single persons and by £500 to £5,800 per annum for married couples. An increase of £250 per annum will also apply to widowed, single parent and widowed parent allowances.
The General Income Tax Exemption Limits, below which no income tax is payable, are being increased by £100 to £4,000 per annum for single persons and by £200 to £8,000 per annum for those who are married. It is estimated that these changes will remove around 10,000 persons who would otherwise be in the tax net.
The Withholding Tax on professional services and the Standard Rate for Deposit Income Retention Tax will also be reduced from 27 per cent to 26 per cent.
The thresholds for the payment of the Employment and Training Levy and the Health Contribution are being raised by £500 to £10,250 per annum, or from £188 to £197 per week.
Finally, the PRSI ceiling applicable to all employees and the self employed will be increased from £22,300 to £23,200 per annum.
The reduction in the employee PRSI contribution rate which I have announced today will add significantly to the improvement in take home pay for most workers. However, I do not envisage a process of regular reductions in this regard as the Government remain committed to protecting the financial position of the Social Insurance Fund in view of its central role in ensuring that agreed social insurance entitlements are provided into the future. In that context also, the Department of Social Welfare is commissioning an actuarial review of the projected long term costs of social welfare pensions.
The effect of the substantial cuts in personal taxation and employee PRSI which I have announced will be to leave a family with two children and one spouse working who is earning £15,000 per annum and paying full PRSI and PAYE better off by £327 per annum or £6.30 per week. This is before the effect of the child benefit measures which I will announce later.
To assist the elderly, the special allowance for those aged 65 and over is being increased by £200 to £400 per annum for single or widowed taxpayers and by £400 to £800 per annum for married couples. This age allowance, which benefits some 65,000 taxpayers, was last increased in 1986. Some 30,000 other pensioners will also pay less tax as a result of the increase in the income tax exemption limits which I announced earlier. In line with the commitment in Partnership 2000, the Government will be introducing a provision in the 1997 Finance Bill whereby the first six weeks of Disability Benefit in any tax year will be disregarded for tax purposes. However, for the 1997/98 tax year the exemption will be for three weeks while the administrative arrangements are being put in place, with the six week exemption applying from the 1998/99 tax year.
The special tax relief on unemployment Benefit payments to systematic short time workers introduced in the 1994 Finance Act is being extended for a further year. The exemption of the first £10 per week of Unemployment Benefit from tax, introduced in the 1995 Finance Act, will also continue at its current level.
The cost of these Income Tax and PRSI measures is £232 million in 1997 or £393 million in a full year.
PROMOTING ENTERPRISE
I turn now to my second principle, namely that of promoting enterprise.
Corporation Tax
In my last two Budgets, I have made significant changes to corporation tax both by lowering the standard rate to 38 per cent and by introducing a new rate of 30 per cent on the first £50,000 of taxable income. There is a clear longer term strategic need to reduce the standard rate of corporation tax over time so as to bring it closer to the 10 per cent rate which applies to manufacturing industry generally.
Accordingly, I propose to reduce the 38 per cent rate of corporation tax to 36 per cent and to reduce the 30 per cent rate to 28 per cent. The taxable income band to which the 28 per cent rate applies will remain at £50,000.
It is estimated that there were nearly 20,000 companies with taxable profits of £50,000 or less, paying tax at the standard rate in 1994. As a result of this year's Budget, and the reductions in my previous two Budgets, such companies will now be paying tax at 28 per cent, as compared with 40 per cent in 1994. This is a real reduction of nearly one third in the tax rate for the small and medium sized Irish companies concerned. I recognise the important role that they have to play in our growing economy and I am also aware that this is where most of the new jobs have been created within our society.
The Government is studying the appropriate corporation tax structure for the longer term, bearing in mind the central importance of the 10 per cent rate for inward investment including the IFSC. I am conscious of the need to clarify this issue at an early date and I would hope to be in a position to make an announcement before too long.
Employer PRSI
In the case of Employer PRSI, the threshold below which the 8 1/2 per cent rate applies is being increased from £13,000 to £13,500 per annum or from £250 to £260 per week. The overall ceiling on Employer PRSI will rise from £26,800 to £27,900 per annum.
Mariners' PRSI
In order to foster sea faring employment and to develop a pool of maritime expertise in Ireland, the Government will bring forward in the Social Welfare Bill a special concessionary regime, involving substantial reductions in the rate of employer PRSI applicable to certain seafarers. An ongoing review of the income tax regime for seafarers is taking place but this review is not yet completed.
New and Expanding
Businesses
As a further measure to assist small business formation, I will be introducing a provision in the Finance Bill to enable firms to claim certain pre trading expenses in setting up business. Assistance to firms in such start up situations can be crucial to their survival.
So too is access to capital when firms have reached a certain stage of development. The Government welcome, therefore, the proposed establishment by the Irish Stock Exchange of the Developing Companies Market, or DCM. To help promote its establishment, a number of tax measures will be introduced in the Finance Bill, including the extension of BES relief to qualifying firms who obtain a listing on the DCM. I also propose to increase the in vestment limit for 10 per cent Special Portfolio Investment Accounts by £10,000 which will be targeted specifically at investment in DCM shares for the first 3 years of its existence. Full details are set out in the Principal Features.
These concessions are made in the expectation that the Stock Exchange and its members will set out, and seek to achieve, specific targets for the number and type of firms to be brought to the DCM and will restrict listing fees in the generality of cases to reasonable levels.
Rented Residential
Accommodation
I have been reviewing the tax rules applying to the providers of rented residential accommodation in order to improve the supply and quality of such accommodation. As part of this review process, which is not yet fully completed, I have decided to make improvements in the tax rules applying to this sector. In particular, I will be making legislative provision to apply the standard capital allowances in respect of wear and tear on fixtures and fittings to this area. Full details are contained in the Principal Features.
Capital Gains Tax
In line with the reduction in the standard rate of income tax to 26 per cent, it has also been decided to reduce the 27 per cent rate of capital gains tax which applies to certain shareholdings in small and medium sized companies to 26 per cent with effect from April 6th, 1997. This reduction will also apply to the taxation of life assurance and unit linked investments.
Capital Acquisitions Tax
In the last two years I increased the business relief under capital acquisitions tax from a minimum rate of 25 per cent on certain transfers to a flat 75 per cent for property retained in the business for at least 10 years after transfer. I have decided to increase this 75 per cent rate to 90 per cent in order to reduce the tax impact on the transfer of a family business. This new rate will also apply to the transfer of agricultural property. The effect of this measure will be to strengthen further small and medium sized companies and ensure their successful development from one generation to the next. Early profit taking and other forms of redistribution will continue to be taxed in the normal way.
The new rate, therefore, will be subject to the existing clawback arrangements to ensure that the 10 year requirement applies to the full 90 per cent.
Car Value Threshold
I propose to increase from £14,000 to £15,000 the car value threshold used for calculating capital allowances in respect of new cars and allowable expenses for all cars which are used for business purposes.
Farmer Taxation
The level of the farmers' flat rate addition, which compensates unregistered farmers for the VAT borne on their inputs, is being increased from 2.8 per cent to 3.3 per cent with effect from March 1st, 1997. This is based on the latest information on the level of VAT paid by unregistered farmers. There will be a similar increase in the associated VAT rate for livestock which will also increase to 3.3 per cent from the same date. The cost of this measure in 1997 is £9.3 million and £14.1 million in a full year.
It is also proposed to introduce for a three year period an improved capital allowance for farm pollution control, and to continue for a further period the existing farming stock reliefs and the special stamp duty relief for transfers of assets to young trained farmers. The details of these reliefs are contained in the Principal Features. The cost of these measures is estimated at £6.2 million in 1997 and £8.5 million in a full year of all the business measures I have announced today is £27 million in 1997 and £100 million in a full year.
The total impact of the tax changes I have introduced today will be substantial. The value obviously will vary for different categories of individuals, depending upon their circumstances.
But taken together, this is the biggest tax reduction package in the history of the State. It will benefit the majority of the 1,300,000 people currently at work and it has an annual full year value of over £490 million.
I turn now to the third principle, namely that of strengthening social solidarity.
Social Welfare and
Social Inclusion
One of the major challenges identified in the new programme, Partnership 2000, is the reduction of social inequalities and exclusion, especially by cutting long term unemployment. In order to meet this challenge, this Government agreed to commit additional expenditure of up to £525 million over the next three years on an action programme for social inclusion and equality.
The measures I am announcing today will not only reflect this commitment in regard to social inclusion but will also improve the position of all social welfare beneficiaries and other categories and enhance the work friendly features of the social welfare system.
Weekly Welfare
Payments
I am providing for increases of £3 a week in all personal social welfare payments and of £1.50 a week in adult dependant allowances from mid June next. These increases are about 4 per cent or twice the rate of inflation and reflect substantial progress towards meeting the commitment in Partnership 2000 to implement, before the end of the partnership, the minimum rates recommended by the Commission on Social Welfare. By next June, almost all rates will be at 98 per cent of the Commission on Social Welfare target rate or above it.
Child Benefit
I am continuing the policy pursued in recent years of increasing Child Benefit rates significantly. In this Budget, I am providing for an increase of £1 per month for first and second children and an increase of £5 for third and subsequent children with effect from next September. The new rates will be £30 per month for each of the first two children and £39 for the third and other children.
A mother with three children will therefore get £99 a month or £23 per week, while a mother with four children will get £138 a month or £32 per week tax free for her children compared with £90 per month or just under £21 per week three years ago. This amounts to a 50 per cent increase which is of direct and real value to mothers and children throughout this country, particularly large families.
Family Income
Supplement
Family Income Supplement which is a support paid to families in low paid employment, has been identified in Partnership 2000 as a priority measure to enhance the reward from work by increasing the net return to families with children. Partnership 2000 contains a commitment to adjust the way it is calculated from a gross income to a net income basis during the lifetime of the partnership. As a first step towards fulfilling this commitment, I am proposing that, from June this year, Family Income Supplement will be calculated on a basis net of PRSI contributions and the Health and Employment levies. In addition, I propose to increase the current income thresholds by £10 per week. These changes will increase the payments to those currently in receipt of Family Income Supplement by a minimum of £6 per week for most people and will increase the take up of this scheme.
Back to Work
Allowance Scheme
As stated in Partnership 2000, the most effective strategy for achieving greater social inclusion is one which focuses on increasing employment. As part of the measures in this Budget to fulfil the commitments to combat unemployment under this programme, the Government have decided to increase the numbers on the Back to Work Allowance Scheme. This scheme allows the long term unemployed to take up employment or self employment while retaining a substantial portion of their social welfare payments and associated secondary benefits for up to three years. Because of the success of this scheme, the Government has decided to provide for an increase in the number of participants from 17,000 to 22,000 during 1997. Of this increase, 1,000 places will be allocated to people on Disability Allowance, thereby facilitating their integration into mainstream employment. The support structures associated with the scheme are also being enhanced.
Adult Dependant
Allowance
I now turn to a measure designed to alleviate a particularly severe poverty and unemployment trap. At present, if the dependent spouse of someone in receipt of a social welfare payment earns more than £60 per week, no Adult Dependant Allowance is payable. Many such spouses are deterred from seeking employment of a substantial nature or from working additional hours because this would result in a substantial fall in net family income.
In order to address the severity of this trap, the Government has decided to introduce, with effect from next October, a tapering arrangement in regard to the retention of the Adult Dependant Allowance element under certain schemes. The Adult Dependant Allowance will be retained on a phased basis as the spouse's weekly income increases from £60 to £90.
Miscellaneous
Improvements
In addition to the measures which I have just announced, I am providing for other improvements in the social welfare system which are targeted at particular groups. The main changes are as follows:
In relation to the Carer's Allowance, an additional 50 per cent is being paid to persons caring for more than one incapacitated person, while the full time care requirement is being relaxed to allow attendance at rehabilitation, training and day care centres on a limited basis.
- £2 million is being provided for renewing the scheme of grants aimed at improving the security of elderly people;
-An additional £2 million is being given in grants for community and voluntary service, including increased resources for the National Social Service Board and the Combat Poverty Agency;
- Those in residential care on a part time basis will be entitled to half rate Disability Allowance;
- In relation to Maternity Benefit and Adoptive Benefit, the minimum rate is being increased to £82.30 and both these benefits are being extended to the self employed;
- In relation to Treatment Benefit, the income limit is being abolished and dependent spouses who take up employment are being allowed to retain entitlement until qualified in their own right;
- In completing the process of Equal Treatment for social welfare recipients, a widower's noncontributory pension is being introduced and Equal Treatment in Occupational Injuries Benefit for widowers is being applied;
- More generous capital assessment provisions in regard to some non contributory schemes, including old age pension, are being applied;
- The minimum yearly average Social Insurance contributions needed to qualify for a pro rata old age pension is being reduced from 20 to 10, provided that the claimant has 260 paid contributions;
- The qualifying conditions for Free Electricity and Free Telephone Rental Allowance are being streamlined;
- The rules for payment of arrears on foot of late claims are being eased; and
- Finally, in order to improve the arrangements applying to casual workers, Social Insurance contributions paid after 6 months of unemployment onwards will be reckonable for requalification of Unemployment Benefit.
Health
An additional £25 million for health services development is being provided in this Budget.
This includes £10 million, in addition to the extra £2 million already provided in the published estimates, towards enhancing further our services to people with mental handicap. A sum of £6 million will be allocated towards the implementation of the Minister for Health's recently announced cancer treatment strategy. An additional £5 million will be provided to develop further our childcare services. And finally, the hospital waiting lists initiative will be continued this
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