Budget 2005

1. BUDGETARY OBJECTIVES

This Budget has the following basic objectives:

•  To protect and increase jobs in a more competitive business environment;

•  To build up and modernise our economy through major capital programmes;

•  To distribute the fruits of growth to all our people through better services and a fairer
    sharing of resources;

•  To redouble our efforts to help those most in need particularly those with disabilities.

The framing of budgetary policy in accordance with the requirements of the EU's Stability and Growth Pact facilitates confidence, investment and growth. It supports the Government objectives for jobs, prosperity and balanced economic development . Growth of public expenditure must continue to be correlated with revenue growth, consolidating the achievements of recent years, and ensuring budgetary sustainability going forward.

2. ECONOMIC OUTLOOK

Ireland is now moving back towards a sustainable level of annual growth and this is reflected in forecasts for average growth rates of 5.3% and 4.8% in GDP and GNP terms over 2005-2007. In 2004, GDP growth of 5.3% and GNP growth of 4.9% is forecast for the year compared with GDP growth of 3.7% and GNP growth of 2.8% in 2003. The European Commission expects euro area growth to average 2.1% this year.

The outlook for employment in 2005-2007 is positive and is expected to grow by an average of 1.6%. The unemployment rate is expected to average 4.5% over the period. Consumer Price Inflation is expected to remain much closer to the euro area average over the 2005-2007 period than was the case in the last three years. Consumer Price Inflation is expected to average 2.4% over the period.

3. BUDGETARY STANCE

The Government's budgetary stance is based on the objective of continued budgetary sustainability into the medium term.

The projected budgetary position over the period 2005-07 is for a General Government budget deficit of 0.8% of GDP in 2005 followed by deficits of 0.6% in 2006 and 0.6% in 2007. The cyclically-adjusted (structural) budget balance, moving from a position of balance in 2005 to a surplus of 0.3% of GDP in 2007, respects the terms of the Stability and Growth Pact. The debt-to-GDP ratio will be maintained at the second lowest in the euro area – 30% for the forecast period – in line with the Government's long-term priorities outlined above. The assets of the National Pension Reserve Fund are estimated to be 7.6% of GDP at the end of 2004.

4. TAXATION *Footnote

Tax Strategy

Tax policy in Ireland is geared towards the promotion of a job-friendly environment in order to facilitate robust employment growth, the development of a favourable environment for business and a better quality of life for all citizens.

In Budget 2003 and 2004, only limited funds were available for tax reductions. The priority was to consolidate the pro-employment environment established through the approach taken in previous years. This was done by maintaining the low tax burden on all and focusing the resources available at the lower end of the income scale. This approach is continued in Budget 2005. In 2005, the Government will achieve, ahead of schedule, its target of taking those on the minimum wage out of the income tax net entirely. The Government will also ensure that all workers obtain a significant reduction in their tax burden.

Personal Taxation Measures

The main elements of the personal tax package, which take effect from 1 January 2005, are as follows:

•  Full year €682 million personal tax package.

•  Personal credits increased by €60 single/€120 married to €1,580 single/€3,160 married.

•  Employee (PAYE) tax credit increased by €230 to €1,270 per annum.

•  Standard Rate Bands increased by up to 5% to:

        *  €29,400 Single

        *  €38,400 Married One Income

        *  €58,800 Married Two Incomes, and

        *  €33,400 Lone Parent/Widowed Parent

•  Age exemption limits (single/married) increased from €15,500/€31,000 to €16,500/
    €33,000.

•  Health Levy Threshold increased from €356 per week to €400 per week.

Other Income Tax

All items take effect from 1 January 2005 unless otherwise stated.

•  Comprehensive review of all tax reliefs and exemptions.

•  Extension of special tax exemption for unemployment benefit for systematic short-term
    workers for a further two years to 31 December 2006.

•  For those aged under 55, the maximum level of rent paid for private rented
    accommodation, on which tax relief at the standard rate can be claimed, increased by
    €230 single/€460 married and widowed to €1,500/€3,000 per annum. For those aged 55
    and over the respective amounts are being increased to €3,000/€6,000.

•  Increase in maximum amount of qualifying fees allowable under tax relief scheme for 3 rd
    level fees from €3,175 per annum to €5,000 starting with the academic year 2005/2006.

•  Increase in small Benefits-in-Kind (BIK) exemption threshold from €100 to €250.

Stamp Duty

•  Major relieving measures in the stamp duty charge for first-time buyers who are owner-
   occupiers of second-hand residential property.

•  Stamp Duty relief from the double charge arising from switching financial cards such as
    credit, charge, ATM and laser cards.

•  Halving of rate of companies capital duty – a duty charged on the issuing of share capital
    – from 1.0% to 0.5%.

Indirect Taxation

•  No increase in Excise Duties on alcohol, petrol diesel or tobacco.

•  Extension of scheme providing purchasers of “hybrid” vehicles with a 50% refund on VRT
    for a further two years until December 31 2006.

•  Reduction of 50% of the standard rate of Alcohol Products Tax applying to beers produced
    in microbreweries from 1 January 2005.

•  As an environmental measure, an excise differential for sulphur free petrol along the lines
    of that introduced for sulphur free diesel in Budget 2002 will be introduced during 2005.

Farmer Taxation

•  Writing down period of the special tax relief scheme for expenditure on farm pollution
    control measures reduced from 7 to 3 years to assist farmers in complying with EU
    Nitrates Action Programme.

•  Farmers/Flat Rate VAT Addition raised from 4.4% to 4.8%.

•  Stock Relief for farmers (including young trained farmers) extended for a further two years
    from January 1 2005.

•  The Finance Bill 2005 will provide a stamp duty relief for exchanges of farmland between
    farmers for farm consolidation purposes by applying the duty only in respect of an amount
    equal to the difference in value of the lands concerned.

•  The Finance Bill 2005 will also include a provision enabling farmers to average in 3 equal
    instalments over the years 2005-2007 for income tax purposes certain FEOGA direct
    payments for 2004 paid in 2005.

5. SOCIAL WELFARE

The Government's overall strategy is to secure economic growth on a sustainable basis so as to generate the resources to address the needs of society. The needs of the most disadvantaged have a particular claim on the collective resources. One of the principal means of meeting these responsibilities is through the social welfare system. The improvements in social welfare payments announced in this Budget amount to an additional €874m in a full year.

(From January 2005, except where stated)

•  Maximum personal rates for old age and related pensions increased by €12 per week.

•  Other maximum personal rates increased by €14 per week.

•  Increase of €14 per week in minimum rate of Maternity Benefit, and for those above the
    minimum rate, an increase in the rate payable from 70% to 75% of reckonable earnings.

•  Family Income Supplement income thresholds increased by €39 per week.

•  Child Benefit to increase by €10 (1 st and 2 nd children) to €141.60 per month and by €12
    per month (3 rd and subsequent children) to €177.30 from April 2005.

•  Increase in amount of capital disregarded for means test purposes for all schemes
    (except Supplementary Welfare Allowance) to €20,000 from June 2005.

•  Increase in Respite Care Grant to €1,000 from June 2005 and the grant to be payable to
    an estimated 9,000 new claimants.

6. SERVICES FOR PEOPLE WITH A DISABILITY

For 2005, the Abridged Estimates Volume published on November 18 provided for increased resources of €290m for disability specific services. €75m is being allocated to these services from within the revised capital envelope for 2005 announced in the Budget. In addition, a multi-annual investment programme is being introduced to support the development of high-priority disability support services over the period 2006-2009. In cumulative terms, this will involve almost €600m current spending and €300m capital spending over these four years. This funding will provide:

•  An extra 255 residential , 85 respite and 535 day places each year for persons
    with an l disability and those with autism, on top of the extra 270 residential, 90 respite
    and 400 day places in 2005, giving a total of 1,290 new residential, 430 new respite and
    2,540 day places.

•  An additional 80 resdidential places each year for persons with physical or sensory
   disabilities, on top of 60 new places in 2005, giving a total of 380 new residential places.

•  250,000 extra hours of home support and personal assistance each year to support
    independent living for persons with a disability, on top of an extra 200,000 hours in 2005,
    giving a total of 1.2m extra hours.

•  100 new places each year in community-based mental health facilities, giving a total of
    400 extra places.

•  Enhanced adult and pre-school facilities.

•  Improved accessibility to public buildings and amenities.

7. CAPITAL EXPENDITURE

Rolling 5 year multi-annual capital envelopes were introduced in Budget 2004. The 2004 Budget covered the period 2004-2008. A key element of the capital envelope arrangements is that they permit the carry-over into the following year of unspent capital up to a maximum of 10% of voted capital. The envelope in this Budget covers the period 2005-2009. It allocates the unallocated reserve for 2005 included in the 2004-2008 Capital envelope and includes capital provision to 2009 to reflect Government investment priorities for the next five years.

Almost €6.3 billion in Exchequer capital will be available for investment in 2005, including a carryover of €237m from 2004.

Total investment in the multi-annual capital envelope for the period 2005-2009 will amount to €36.3 billion, almost €3 billion higher than the 2004-2008 envelope.

  *Footnote   Status of Taxation Measures

It is important to note that, in general, taxation measures outlined in the Financial Statement and associated documents and not included in the Financial Resolutions under the Provisional Collection of Taxes Act 1927 are given legislative effect through enactment by the Oireachtas of the Finance Bill 2005. Changes may arise during this legislative process. They may also arise if EU State aid issues are involved and the European Commission requires these changes before it gives its approval.