FINANCIAL STATEMENT OF THE MINISTER FOR FINANCE MR. CHARLIE McCREEVY, T.D.

6 DECEMBER 2000

 

CONTENTS                                         

RECORD OF ACHIEVEMENT - BUDGET OBJECTIVES 

ECONOMIC MANAGEMENT TO SECURE CONTINUED PROSPERITY     

Economic and Budgetary Targets

Public Service Pay        

Anti-Inflation Package    

Indirect Taxation           

Road Hauliers   

Unleaded Petrol            

Hybrid Engine Technology         

CPI Impact       

Savings Measures         

Credit Unions    

Other Deposit Taking Institutions

Life Assurance  

IMPROVING QUALITY OF LIFE

IMPROVING THE PHYSICAL INFRASTRUCTURE   

Roads  

Public Transport            

Housing                       

Harbour Infrastructure  

  

IMPROVING THE STANDARD OF SERVICES        

Education         

School Transport           

Health Services             

Medical Cards for Older People  

Intellectual Disability     

Other Services for the Disabled  

Screening for Breast and Cervical Cancer

 

CHILDREN                       

Childcare          

Child Support    

Maternity Protection & Parental Leave    

Employers and Childcare           

Childcare Support Structures     

Foster Care      

Sport   

Drugs  

     

A FAIRER SOCIETY     

Opportunity to Work through Training      

Social Welfare  

Payment Date  

Older People – Old Age Pensions          

Social Welfare Weekly Payments and Qualified Adult Allowances

Incentives and Employment Supports     

Widows            

Disability          

Free Schemes  

Fuel Allowance 

Carers  

Other Social Welfare Improvements        

Homelessness  

TAX REFORM              

Income Tax      

Increases in Tax Allowances      

Widening the Standard Band      

Income Tax Rates         

Distribution of Income Earners    

Reform of PRSI and Levies

Total Cost        

Increases in Disposable Earnings           

Tax Relief for the Elderly

Planning for Future Care Needs  

Medical Expenses Relief           

Corporation Ta

Stock Valuation at Discontinuance of Trading      

Capital Allowances        

Employer PRSI 

Social Insurance Fund   

BES and Seed Capital Scheme  

Farmer Taxation

Probate Tax      

Rented Sector Reliefs    

Rent a Room    

Rent Relief       

Trade Unions    

Gainsharing, Profit Sharing and Share Options    

Major Changes in Tax Administration      

Other Taxation Measures           

CONCLUSION 

STATEMENT OF THE MINISTER FOR FINANCE

MR CHARLIE McCREEVY, TD

6 DECEMBER 2000

I am pleased to present my fourth Budget to the House.  In doing so I will outline my proposals for the coming year.  I will also set out the goals and targets which we will achieve next year in the fifth Budget of this administration – the last before the General Election. 

RECORD OF ACHIEVEMENT

When this Government took office in June 1997 we set out clearly what we intended to do.  Our record since then is one of significant achievement.   Because of our policies and performance:

  • 250,000 jobs have been created in the economy and over 100,000 people have been taken off the Live Register.  This has brought our unemployment rate from 10 per cent in 1997 to below 4 per cent – a record low,
  • we have improved our public services with significant investment.  Overall spending on the health service has increased by 86 per cent or £2.3 billion and funding for education has increased by 67 per cent or £1.4 billion,
  • the weekly take home pay of the average single industrial worker has increased by £60, when tax reductions and wage increases are taken into account.

There are many more that I could mention, but by any yardstick this Government's achievements have been impressive.

This Budget will build on that success.  It will set the scene for continued progress in achieving a prosperous and fair society. 

BUDGET OBJECTIVES

This Budget has four basic objectives:

  • to manage our economy to secure our continued prosperity;
  • to improve our quality of life;
  • to promote a fairer society; and
  • to reward work and enterprise through on-going tax reform.

In meeting these key objectives the Government recognises the role of the Programme for Prosperity and Fairness.  This Budget focuses very much on the appropriate response to inflation.  In framing my Budget, I have taken the views of the social partners into consideration, particularly their views on inflation, living standards and childcare. 

The budgetary targets and goals are based on the over-riding need to keep our economy competitive and on the need to ensure that this is reflected in our approach to how we reward ourselves.  In particular, the budgetary targets are dependent on the delivery of the commitments, including the industrial peace commitments which were underlined and strengthened in the recent agreement negotiated with the social partners.  If this scenario is departed from, our ability to achieve these goals will be jeopardised.  The competitiveness upon which our growth is based will disappear and we will be in danger of heading back to the days of significant unemployment and emigration.  The Budget depends for its success on respect for, and adherence to, the terms of the PPF.


ECONOMIC MANAGEMENT TO SECURE CONTINUED PROSPERITY

Economic and Budgetary Targets

The first major objective of this Budget is to secure the basis for continued prosperity in the years ahead.  We have already seen Irish living standards raised to the EU average.  We can make further progress on this through the sensible management of our economy.

The Budget is framed against the prospect of strong, but moderating, economic growth.  I expect growth to slow from an estimated 8.6 per cent in GNP terms this year to an average of 6 per cent in 2001 to 2003.  Employment should grow by about 2.5 per cent annually, with unemployment declining a little further.  Full details of the economic projections underlying the Budget are included in the Stability Programme Update, which I am publishing today.

If these economic prospects are realised, Irish living standards will be towards the top in the EU.  Achieving this, however, is conditional on implementing the disciplined approach to wage developments provided for in the PPF, which has just recently been confirmed by the Social Partners.

This strong economic performance means an expected Exchequer Surplus in 2000 of £2,478 million.  This is after taking account of an increase of £178 million in the assets of the Capital Services Redemption Account.  This surplus will be used to reduce our national debt, thereby cutting the burden of future interest payments and allowing room for lower taxes and better services in years to come.   The General Government balance for 2000 as defined for EU purposes will show a surplus of about 4.7 per cent of GDP.

Taking account of the measures I am announcing today, the Budget targets for 2001 are as follows:-

  • a General Government surplus of £3,900 million or 4.3 per cent of GDP;
  • an Exchequer surplus of £2,538 million, including a release of £400 million from the Capital Services Redemption Account to meet interest costs on the national debt;
  • a current budget surplus of £6,145 million;
  • a capital budget deficit of £3,607 million; and
  • a debt to GDP ratio of 33 per cent.

The increase in 2001, post-Budget, in net current spending as defined in the context of the Government Parties' Action Programme for the Millennium, will be 6.6 per cent.  This is the annual average increase in 2001 over the 1997 outturn.  This figure includes provision for the agreement between employers and the Irish Congress of Trade Unions on an adjustment to the terms of the Programme for Prosperity and Fairness, and takes account of the £400 million I have referred to earlier.  The Government decided that an increase beyond the target 4 per cent limit was justified in order to make more rapid progress in key social spending areas, and to help secure industrial peace. 

The Government also intends to run significant budgetary surpluses beyond 2001, reflecting economic good sense and our obligations under the Stability and Growth Pact.  A General Government surplus of 3.8 per cent of GDP is foreseen in 2002, and 4.6 per cent in 2003 – with the debt ratio falling from about 39 per cent in 2000 to 24 per cent by 2003 and falling also in absolute terms this year and next.

The EU Council of Agriculture Ministers agreed on 4 December a package of measures to deal with BSE, and its impact on the beef market.  There is no reliable estimate of what the cost to the Exchequer might be, and I am therefore making no provision for it in my Budget.

We will continue to allocate at least 1 per cent of GNP annually to build up the National Pension Reserve Fund which will be formally established early in the New Year.  The decision to establish the Fund represents a sound and far-seeing approach to budgetary planning.  The amount in the Fund already stands at over £5 billion. 

Today's Budget reinforces the basis for economic growth and social progress over the period ahead - by continuing the responsible management of the public finances which has characterised this Government's term of office to date.

Today's Budget also reinforces the basis for progress.  It does so by improving the attractiveness of work and enterprise through further reform of the tax system; and by ensuring, through a high priority for investment, that infrastructural pressures do not inhibit growth.  

However, future prosperity depends to a large extent on the recent commitments entered into by the social partners being honoured.  We should not fool ourselves into thinking we can continue on the path of economic and social progress if we lose our disciplined approach.

Public Service Pay

The agreement reached on Monday night between employers, the Government and ICTU provides for a pay adjustment of 2 per cent with effect from 1 April 2001 and a non-pensionable lump sum equal to 1 per cent of annual pay on 1 April 2002.  As a result, public service employees will receive on-going pay increases under the PPF amounting to 18 per cent over 33 months, and nearly 22 per cent in the case of those benefitting from the 3 per cent early settlers' agreement, in addition to the once-off lump sum of 1 per cent.

It has also been agreed that one-quarter of whatever increases may be recommended by the Public Service Benchmarking Body, which is to report by 30 June 2002, will be implemented with retrospective effect from 1 December 2001.  The balance will be implemented on a phased basis to be agreed between the parties in discussions which are to commence immediately following receipt of the Benchmarking Body's report.  This represents a very significant improvement in the arrangements for implementing the outcome of the benchmarking process.

These improvements highlight the benefits which can be achieved by working within the PPF framework.  The Government has made it clear that it cannot countenance claims by any single group outside the PPF framework and the benchmarking process for which it provides.

Anti-Inflation Package

This Government is in no doubt that the recent increase in inflation is a key challenge, though largely not of our making.  Last summer we announced measures to address domestically-generated inflation.   We, like others, expect that the inflation rate will fall next year.  This should happen as the effects of recent oil price and exchange rate developments and other once-off factors unwind. 

However, as indicated to the social partners at that time, I am determined to take some additional specific measures to reduce our inflation rate.  That is why today I am announcing a further anti-inflation package.  This package consists of:

  • firstly, direct tax measures to increase participation in the economy,
  • secondly, cuts in indirect taxes to bring down the CPI the and ease transport costs, and
  • thirdly, measures to encourage consumers to save rather than to spend.

The estimated inflation rate for 2001 will average 4.5 per cent. 

Indirect Taxation

To reinforce our commitment to counter inflation, I am announcing a cut in the standard rate of VAT of 1 percentage point, reducing it to 20 per cent from 1 January 2001.  This cut in VAT also reflects the valid concerns expressed about this country's competitive position in an age of E-Commerce, where differences in VAT rates between different trading partners will influence how successful we are in exploiting this new means of commerce.

The Government expects to see the VAT reductions passed on to the consumer and not absorbed in higher retail margins.  If this does not occur, the wisdom of further VAT cuts will be placed in doubt.  We will be monitoring the situation and I hope that consumers will be vigilant in seeing that the VAT reduction is passed on to them.

I am conscious that a cut in VAT would reduce the retail price of cigarettes.  I will therefore be adjusting the excise duty on tobacco to offset the VAT reduction and leave retail prices of tobacco unchanged.  A number of calls have been made for tobacco to be excluded in calculating our inflation rate.  I see merit in this proposition and I have asked my Department to examine the issue further with the Central Statistics Office.

Road Hauliers

I propose to cut the excise duty on auto-diesel by 6 pence per litre to just above the EU minimum rate, giving a VAT inclusive reduction of 7.3 pence per litre from midnight tonight.  With the 1 per cent VAT reduction in January this will mean a cumulative tax reduction of 7.8 pence per litre in the New Year on average auto-diesel prices.  This will be of significant benefit to the haulage sector and to diesel users generally.  The cut will ultimately feed through to the retail prices of all goods and services.

I am anxious to encourage the use of low-sulphur diesel for environmental reasons.  While the current excise reduction of 6 pence will apply to all diesel for the present, I propose that in the future this lower rate will apply to low-sulphur diesel only.  Such a differentiation in excise rates requires EU approval which my Department will be seeking in the near future.

A number of non-tax measures to help the haulage sector are being undertaken.  These include a significant increase of the Department of Public Enterprise's capacity to regulate and develop the road haulage industry.  I am also providing additional funding for the Irish Road Haulage Association to enhance its professional service to its members. 

Unleaded Petrol

I propose also to cut the excise duty on unleaded petrol by 2 pence per litre from midnight tonight giving an immediate VAT inclusive reduction of 2.4 pence per litre in the price at the pump.  With the VAT reduction of 1 per cent in January this will mean an ultimate tax reduction of 3 pence per litre. 

Hybrid Engine Technology

I am concerned also to encourage the use of the new hybrid engine technology in motor vehicles so as to help reduce emissions and conserve energy.  I intend to provide in the Finance Bill that, for a period of two years, purchasers of any new vehicles fitted with hybrid engines would have 50 per cent of the VRT which was paid refunded to them, on application to the Revenue Commissioners.

CPI Impact

The full year cost of all VAT and excise measures is £349 million and, if passed on in full, will reduce the Consumer Price Index by 0.5 per cent. 

Savings Measures

Reducing inflation also means influencing the inflationary psychology.  We need, therefore, a further weapon in our hands and this involves using the tax system to encourage consumers to save rather than spend, to create real wealth rather than to consume.

I have already acted, to the discomfort of some, by cutting taxes on capital accumulation, by incentivising pension saving both through tax changes and by giving savers a greater choice and control over their nest eggs.  Some of these measures were criticised at the time.  The rationale behind them is now apparent.  In the case of capital gains tax, the rate cut has brought the yield to about £600 million in this year alone – in 1997 the yield was £132 million.

Credit Unions

I was approached by the Irish League of Credit Unions recently regarding the taxation of credit union interest and dividends.  The League suggested a basis for a solution which meant that:

  • all credit union shareholders would have the option of maintaining the current tax status of their shareholdings,
  • interest on credit union deposits would be subject to DIRT at 20 per cent,
  • a new option would be provided for credit union shareholders to place shares in special credit union savings accounts which would be subject to DIRT at 20 per cent, and
  • for members who placed their shares in new medium-term accounts for a minimum period of either three years or five years, a tax exemption would apply to the first £375 or £500 of dividend income per annum, respectively.

The League has written to me stating that it has consulted widely within the movement and it is satisfied that there is a general acceptance of the proposals by the credit union movement.  It has asked me to proceed with them in the Budget.  Accordingly, I propose to legislate for this arrangement in the Finance Bill.  The full details of the credit union scheme are set out in the Summary of Budget Measures.

Other Deposit-Taking Institutions

I believe that the proposal to encourage medium-term savings by allowing a measure of tax free income is a useful one in the current economic climate and I would propose that it be extended to all other relevant deposit-taking institutions.  This will be discussed with the institutions concerned before the Finance Bill.

I will also consider suggestions for further savings innovations before the Bill is enacted.

Life Assurance

I am also making two changes in the taxation arrangements for life assurance products.  Firstly, I am abolishing from 1 January next, the stamp duty of 0.1 per cent on the value of life assurance policies.  The annual cost to the Exchequer will be £20 million.

Secondly, I am applying the same rate of tax to both Irish and certain foreign life assurance savings products.  Further details are contained in the Summary of Budget Measures.

I will be outlining further general tax changes later in this Statement.


IMPROVING QUALITY OF LIFE

In order to improve the quality of life of all Irish people, the Government is taking action on three fronts:

  • by developing the physical infrastructure;
  • by improving the standard of, and access to, public services and;
  • by taking a major initiative in relation to child support.

IMPROVING THE PHYSICAL INFRASTRUCTURE

This Government is improving our quality of life by enhancing our physical infrastructure.  That is why almost £22 billion of the £40 billion National Development Plan is targeted at infrastructure needs.  Exchequer capital spending will be increased next year by 23 per cent over the 2000 Estimate to more than £4 billion.  Overall by next year, Exchequer capital spending will have increased by 150 per cent since 1997.

It is vital that the infrastructure programme of £22 billion in the Plan is delivered in a cost-effective and timely fashion. The Cabinet Sub-Committee on Infrastructure and Public Private Partnerships is actively engaged in this area and has already overseen the introduction of a number of initiatives to better assist efficient and effective delivery of key infrastructure projects. 

Roads

We have set aside £6.3 billion for roads in the NDP.  A total of £620 million is being provided for national road improvements in 2001, an increase of 26 per cent on this year.  This increase will facilitate further substantial upgrading of the network in line with Plan commitments.  We are also providing funding in the NDP for a special programme to facilitate non-national roads schemes supporting residential and other developments.

Public Transport 

The NDP includes a provision of just over £2¼ billion for public transport infrastructure.  This reflects a substantial increase on previous levels and will significantly enhance our public transport services.  Total Public Capital Programme spending in this area next year will be £420 million. This investment will ensure that projects in the NDP are progressed, including the LUAS in Dublin and the Railway Safety Programme nationwide.

Housing

This Government has put in place a broad range of measures to increase the supply of housing. Next year we will spend just over £1 billion in total on local authority social and affordable housing.  We have seen clear positive results from the measures introduced. Housing output increased by 20 per cent since 1997 to 46,500 housing starts last year.   Average house price increases for the third quarter of 2000 are well down. Average prices for new houses in Dublin decreased in the third quarter by 2.3 per cent on the previous quarter.

A total of £346 million is being provided in 2001 for investment in Water and Sewerage Services.

I can also announce today that I am providing an additional £1.5 million for the Housing Management Initiative which will improve the estate management of local authority housing. 

Harbour Infrastructure

I am announcing today a significant programme of capital works, with an additional allocation of £11.5 million in 2001, to address infrastructural deficiencies around the coast which will promote socio-economic well-being in peripheral coastal regions.  This additional funding will assist the fishing industry by upgrading harbour infrastructure and allow for the exploitation of important marine tourism and leisure opportunities.

I am also allocating an additional £4 million expenditure in 2001 to an Bord Iascaigh Mhara for the development of the Sea Fisheries Sector.

IMPROVING THE STANDARD OF SERVICES

This Government has increased substantially the amounts spent on public services to improve standards.  Taking account of the additional expenditure I am announcing today, by next year we will have increased net voted current spending by over 55 per cent since 1997.  This significant injection of funds goes a long way to ensuring that we have the resources needed to provide public services which are effective, efficient and of a high standard.

Education

We are committed to maintaining and improving all levels of our educational system.

Our actions have put this commitment into practice. 

This Government has invested heavily in our education system at all levels.  The total spend provided in the Estimates for Education in 1997 was £2,111 million.  The Estimates published last month will provide £3,524 million, up 67 per cent in four years. 

School Transport

I am today providing for a number of improvements to the school transport system, the main element of which is the introduction of a standard two mile qualifying distance for all primary children.  This replaces the three mile eligibility threshold for primary children over ten years of age, which has stood since the inception of the scheme.  The other improvements to the scheme are listed in the Summary of Budget Measures, as are a number of other improvements which I am funding in the Education sector.

Health Services

I have drawn attention on a number of occasions to the extraordinary rate of increase in health spending.

I regularly hear claims despite this increase that the health services suffer from under-funding.  Let me give some of the plain facts which refute this.  Current numbers employed in the health services stand at some 80,000 compared to less than 59,000 in 1990.  There are now some 540,000 admissions to inpatient care every year, and day cases have doubled since 1992 to some 300,000  annually.   There are also about 2 million outpatient attendances and 1.25 million Accident and Emergency visits.  

In the expenditure Estimates last month I provided for gross expenditure of £5,015 million in 2001 on the Health and Children Vote.  A Supplementary Estimate for 2000, which I have approved, will require that figure to be increased by a further £89 million.  I am today announcing a further increase of £195 million, which will bring the total for 2001 to £5,299 million.  The contrast with the 1997 Estimate, of £2,754 million, speaks for itself.

This development funding covers a wide range of health programmes, including services for Older People, Physical and Intellectual Disability, Child Welfare and Mental Health.  Acute Hospital Services will receive extra funding for a number of priority measures, including Waiting Lists, Bed Capacity and the Cancer Strategy.  Full details are set out in the Summary of Budget Measures.

Addressing health problems, and indeed all aspects of public expenditure, is not simply a matter of additional resources.  We must assure ourselves that we are getting the best value from existing expenditure.  Consultants were appointed last May to carry out a comprehensive value for money audit of the health services.  I look forward to their recommendations in the Spring on the development of a management information system for the health services.  For the same reason, the management reforms in the civil service will place a greater emphasis on the outputs achieved by public spending programmes than has been the practice to date.

Medical Cards for Older People

In my 1999 Budget, I announced that the income limits for Medical Cards for people aged 70 years or over would be doubled over three years, commencing in 1999.  That process will be completed next March, and it is now proposed to take the next step. I am pleased to announce that from 1 July 2001, entitlement to the Medical Card is being extended to all those aged 70 years or over.

Other services for older people are also being improved.  I am providing an additional £23 million to develop a range of services in community support and to increase the provision for Nursing Home Subventions.

Intellectual Disability

The Government gave a commitment in 1999 to meet the identified needs of those with intellectual disability within a three-year time frame. A great deal of progress had already been made, with substantial additional service funding up to the end of 1999, but the level of unmet need remained unacceptably high and we were determined to address the issue.  In last year's Budget, I commenced the process by allocating significant extra funds to enhance the overall level of residential, day and respite services throughout the country.   This year, I am providing an extra £28 million for the coming year, and £35 million in a full year to help meet our targets.  This will bring the overall level of spending on these services to about £450 million in 2001.

Other Services for the Disabled

I will refer later to improvements in social welfare services for the disabled.

Last June, the Government completed the mainstreaming of the disability services of the National Rehabilitation Board into the relevant Departments and Agencies and additional resources have been allocated to bodies such as FAS, Comhairle and the National Educational Psychological Service for next year to enable them to carry out their added responsibilities.

In addition, the Government is making very considerable progress in upgrading transport services for the benefit of this group; a further 140 wheelchair-accessible buses are due for delivery to Dublin Bus in the coming months; new wheelchair-accessible DART and Arrow rail cars are being commissioned; and by the end of next year, it is expected that Cork, Limerick, Galway and Waterford will have fully wheelchair-accessible bus fleets.  I am also increasing the maximum grant under the Disabled Persons' housing grant scheme.

Screening for Breast and Cervical Cancer

Pilot programmes for breast screening and cervical screening have already begun.  Because of the complexity of the screening process and the crucial need to meet quality assurance requirements, it is necessary to proceed on a phased basis.  We must also, of course, ensure that treatment capacity is in place to address the new cases that will inevitably be identified.  To secure these objectives, I am providing an additional £1.5 million to the Breast Screening/Treatment programme in 2001.  Our aim is to ensure that women at risk will have an entitlement to free screening throughout the State.

Hospital cancer services are also being given priority, with an extra £13.5 million in 2001, rising to £24.5 million in a full year.

CHILDREN

In the PPF, we recognised the importance of policies to support children and family-friendly life.  The Government and society values the role of those working in the home who are looking after others.

Today I am announcing a major initiative in relation to children which goes well beyond what the PPF would have involved. 

The measures which I will now outline amount to the largest ever package of supports for children and their parents.  Last month, we published Ireland's first ever National Children's Strategy.  This Strategy has been welcomed both here and abroad as marking a major move forward in public policy. 

Childcare

The Government has already put in place a wide range of measures to increase the supply of childcare places in all parts of the country.  The National Development Plan includes £250 million for childcare and the Government subsequently allocated a further £40 million for this purpose.  To facilitate early action, this spending is being front-loaded through the allocation of £104 million in the Estimates for next year. 

There is a very substantial increase in the allocation to the lead Department - Justice, Equality and Law Reform - from £20 million this year to £74 million next year for the expansion of the programmes already in place:

  • capital grants for commercial crèches and for community-based childcare facilities;
  • a national childminders' initiative.

The balance of the £104 million allocation is for a number of Departments to fund:

  • the use of spare classrooms for childcare;
  • a national after-school initiative;
  • childcare employment grants; and
  • the provision of childcare in local authority developments.

Child Support

The House will be well aware of the great diversity of views that are held in relation to addressing the childcare issue.  The Government's core objective is to provide support which will offer real choice to parents and will benefit all our children.  This we can do through Child Benefit. 

I am pleased to announce therefore that the Child Benefit rates for first and second children are being increased by £25 to £67.50 per month and by £30 to £86 per month for third and subsequent children.  The new rates will be payable from next June, which is three months earlier than usual.  This increase of over 50 per cent in current payment rates marks the first step in a three year programme. 

At the end of this process, an additional one billion pounds will have been invested directly in our childrens' well-being.  Child Benefit monthly payments will stand at £117.50 and £146, well beyond the PPF commitments.  This will mean up to £90 per month extra for each child at the end of three years. By then, a family with four children will be receiving the equivalent of over £120 per week in Child Benefit support.

This unprecedented increase will help all parents with the costs of caring for their children and will represent a major move towards achieving the goal of ending child poverty in this country.

Maternity Protection & Parental Leave

This Government's Action Programme for the Millennium committed us to improve maternity protection legislation as a key component in the development of equality for women.  In that regard, I am today announcing a 4 week extension of the period of paid maternity and adoptive leave to 18 weeks at an estimated cost of about £20 million in a full year.  In addition, the period of unpaid leave will be doubled from its current level to 8 weeks.  This means that, from early April next, a mother can take up to six months leave in the period around the birth or adoption of her child.

During the coming year, it is proposed to advance the promised review of the parental leave legislation with a view to the improvement of the arrangements in this area.

Employers and Childcare

In previous Budgets I introduced a number of changes to tax law aimed at encouraging the increased supply of childcare facilities and these are having an effect.  The exemption from benefit-in-kind tax for employer-provided childcare should also help supply.  I will, however, be discussing with employer bodies how the rules for this scheme might be modified to secure further increased provision of childcare facilities at a reasonable tax cost to the Exchequer. 

In addition, the Government is conscious of its responsibilities as the largest employer in the country.  I am therefore providing for the introduction of a major Civil Service Childcare Initiative.  This entails establishing crèches for the children of those working in Government Departments.  It is also the intention to pursue this approach in the context of the decentralisation policy.

I am allocating £10 million capital over two years to allow for the provision of fifteen civil service crèches over the next two years.  Finally, I would intend that other public service employers would also adopt a similar approach in this area.

Childcare Support Structures

In order to increase the level of practical supports for childcare providers and to underpin a greater emphasis on the quality of provision, I am providing for the recruitment of additional childcare support staff throughout the Health Board system at a full year cost of £1.2 million to operate a voluntary notification system for childminders.  Additional funding is being allocated to FAS for the training of extra childcare workers. 

Foster Care

The Government recognises the immense contribution to society made by families which offer a home and support to vulnerable children through fostering.  I am, therefore, providing an additional £9 million in the context of restructuring the existing payments and support systems.  I am also amending the capital acquisitions tax rules to give foster children similar rights to other children.

Sport

Sport can play an important role in combatting social exclusion and in personal and community development.  To meet the plans of the Irish Sports Council, the Government intends to double the Council's annual budget over the next four years to £20 million.  As a first step, I am now allocating an extra £2.5 million in 2001 to the Football Association of Ireland and the other relevant sports governing bodies.  The details are set out in the Summary of Budget Measures.  In addition, I am providing a further £2.5 million to encourage greater under-age participation in the major field sports and £0.5 million for the promotion of a healthy and active lifestyle among older people.


Drugs

The Government is committed to combatting drug addiction.  On this occasion, I am providing an additional £2 million for the National Drugs Strategy, over and above the £15 million already allocated in the Estimates.  This funding will ensure that the new action plans emanating from those areas worst affected by the drug problem can be put in place as soon as they are ready.  I am adding £5 million to the Health and Children Vote for the expansion of the Drug Treatment and Rehabilitation services.  In addition, I am allocating £10 million over the next three years for the accommodation requirements of community based projects, starting with £3 million in 2001.  The additional funding confirms the Government's continued commitment to the National Drugs Strategy and will provide an important impetus for the new strategy which will be launched in the New Year.

A FAIRER SOCIETY

The third aim for this Budget is to promote a fairer society.  This is one of the Government's core objectives and one of the aims of the PPF.  The social inclusion agenda of the Programme for Prosperity and Fairness sets out the key objectives and necessary actions to achieve a fairer and more inclusive Ireland, through expending an additional £1.5 billion over 3 years on social inclusion.

Opportunity to Work through Training

In a fair society everyone should have the opportunity to work and to acquire work skills through training.  The National Development Plan includes £10 billion, or one quarter of its funds, for employment and human resources programmes.  By next year the Government will have increased spending on training to £220 million – almost 65 per cent higher than in 1997.  We will have also increased the numbers of apprentices being trained by almost five times to 25,000.  The National Training Fund which I announced in the Budget last year will play its part in this.  This innovative measure allows the State and employers to work together in this area.

Social Welfare

Today's social welfare improvements will cost an estimated £850 million in a full year.  The 1997 Budget equivalent was £215 million.  Last year's figure was £400 million. 

Payment Date

I am keeping the promise made in my first Budget to bring forward the payment date for weekly social welfare increases to coincide with the beginning of the tax year.  In 1997 the weekly social welfare increases were paid in June.  The 2001 increases will be paid in April, the beginning of the income tax year, which is four weeks earlier than in 2000.  Moreover, I have already decided that, from 2002, the increases will apply from January when the tax and calendar years are being aligned.

Older People – Old Age Pensions

This Government has made income support for pensioners a priority.  Pension rates were increased by a total of £18 per week in my first three Budgets.  Today, I am increasing the full personal rate of old age and related pensions by a further £10 per week or by up to 11½ per cent.   This will bring the rate of Old Age Contributory Pension to £106 per week.   In addition, in an initiative which will be of major benefit to pensioner couples, I am beginning a phased increase in the qualified adult allowance for those aged 66 years and over to bring them up to the Old Age Non-contributory Pension rate.  As a result of these changes, a full rate old age contributory pensioner couple, both aged 66 or over, will receive an increase of £25 per week in 2001 bringing their combined weekly payment to £185.60, or £52.20 per week more than in 1997.  No one can say that this Government does not recognise and appreciate the part played by the workers of yesterday in laying the foundation for so much of our current economic success.


Social Welfare Weekly Payments and Qualified Adult Allowances

Social welfare recipients will have their living standards protected and improved by the increase of  £8 per week, which I am announcing.  This is double the increase paid in 2000 and is equivalent to 10½ per cent on the lowest rates.  Last year, I signalled that the qualified adult allowance would, in general, be increased over a 3 year period to 70 per cent of the personal rate.  In the second stage of this move, these allowances will be increased by a minimum of £7 per week.  Thus, from next April, couples on full rate social welfare payments will receive an increase of at least £15 per week.   Families with children will, of course, also benefit from the very considerable Child Benefit improvements which I have already announced.

Incentives and Employment Supports

In order to maintain the incentive to work, the income thresholds for the Family Income Supplement are being increased by £25 per week from next April.  This will result in average payments of £56 per week for existing recipients.  A range of extensions and improvements are also being made to various employment support schemes designed to facilitate the ending of welfare dependency among disadvantaged groups.

Widows

Up to this, the Contributory Pension for widows aged 66 years and over has been lower than the Old Age Contributory Pension rate.  I have decided to eliminate this gap over a two year period commencing in 2001.  As a result, the widows in question will receive a special weekly increase bringing the Widows Contributory Pension to £102 - a total increase next year of £12.90.

Disability

Persons with disability deserve particular consideration.  Accordingly, I am extending eligibility for the Living Alone Allowance to all qualifying recipients of Invalidity Pension, Disability Allowance, Unemployability Supplement and Blind Persons' Pension.   As a special measure, I am also removing the limitation whereby only a reduced rate Disability Allowance is paid where the person's partner is in receipt of any other social welfare payment. 

Free Schemes

Last year, the social welfare free schemes were made available to all those aged 75 years and over irrespective of income or household composition.  I am now extending such availability to all those aged 70 years and over – from next May.  Over 40,000 households are expected to benefit from this change.  Those over 70 will also benefit from the Medical Card changes already announced.

Fuel Allowance

I am extending by three weeks the period during which the fuel allowance is payable.  From now on, the allowance will be payable from the first week in October until late April.  Payments for the current winter will continue for an extra two weeks.

Carers

In recognition of the important role they perform, recent Budgets have contained many improvements in the supports available to carers.  On this occasion, I propose to grant a very significant relaxation in the income disregards which apply in relation to the means test for Carers Allowance.  Details of this change are outlined in the Summary of Budget Measures.  This will increase the numbers who will qualify for the allowance by some 5,000 as well as benefitting many current recipients.  In addition, the annual respite care payment will be increased to £400, with a double payment applying where a recipient is caring for more than one person.


Other Social Welfare Improvements

The Summary also contains a range of other social welfare improvements, full details of which will be announced by my colleague, Mr Dermot Ahern, TD, Minister for Social, Community and Family Affairs.

Homelessness

The Government is determined to tackle the problem of homelessness in a concerted and coherent manner.  Capital funding is being doubled from £20 million to £40 million over the next five years to provide additional accommodation for homeless persons, particularly transitional accommodation to facilitate moving out of emergency accommodation.  An additional £6 million current funding a year is being made available to local authorities to fund increased subventions for hostel accommodation. 

TAX REFORM

The fourth and final objective of this Budget is to reward work and enterprise by continuing our programme of tax reform.

Income Tax 

Tax Reform is also a matter of fairness.  I have in my first three Budgets made radical reforms to the whole tax system.  I have made the income tax system inherently fairer by introducing tax credits.  I have cut tax rates to improve the incentive to work and to contribute to the development of the economy.  I have removed substantial numbers from the top tax rate and, for the first time in many years, ensured that single earners on the average industrial wage and others on modest incomes, no longer face the top rate of income tax.

I have also radically improved the position of the lower paid in the tax system.  To listen to some commentators, one would believe that all the gains from tax reform have accrued to those they like to call high earners.

Let me set the record straight.  This Government's achievements in assisting the low paid in the tax system are second to none.  In the last three years I have

  • removed 176,000 low earners from the tax net,
  • cut the burden on the lower paid in half,
  • reduced the tax rate on the low paid in many cases by up to 10 percentage points or more,
  • done far more than in many other advanced economies in cutting taxes on single and married earners on low and middle earnings.

These facts are recognised by international commentators.   A recent European Commission report praised our progress in this regard which is ahead of most other countries.

I have pursued a consistent and balanced course and I delivered on what the electorate was promised.

In this Budget I will be following the path I laid out and marked clearly in advance.  The personal tax reductions I am about to announce will benefit taxpayers by £1,231 million - that is nearly three times the amount we promised under the PPF for this year.  I am happy to be able to do this and to acknowledge the policy input of the Social Partners in this regard.

Before announcing the details, I should remind the House that the next tax year will be a short year running from 6 April to 31 December 2001 to accommodate the introduction of the calendar-based tax year from 1 January 2002.  In addition, we will complete the move to tax credits.  The changes, which I will give in terms of full year amounts for sake of comparison with this tax year, must be converted into nine month equivalents.  The relevant details are set out in the tables in the Summary of 2001 Budget Measures.  The tables also give amounts in euro.  As the House will be aware, euro notes and coins will come into circulation from 1 January 2002.

Increases in Tax Allowances

Since this Government came into office we have increased the entry point to the income tax system from £77 per week to £110 per week.  I am proposing today to increase this entry point to £144 per week by increasing the basic personal allowances by £800 single and £1,600 married to £5,500 and £11,000 per annum respectively and by increasing the PAYE allowance from £1,000 to £2,000 per annum.  These measures and those for the aged which I will come to shortly will remove 133,000 taxpayers from the tax net.  This is over three-quarters of the total that were exempted in the last three years.

The Government intends in the next Budget to increase the entry point towards the level of the minimum wage, thereby removing up to a further 150,000 taxpayers from the net. 

Widening the Standard Band

This Government set out to reduce the number of taxpayers on the higher rate of income tax.  Many of these taxpayers are earning incomes that are just above the average industrial wage.  These are hardly the wealthier part of our community, for whom high marginal tax rates are usually reserved. 

I have decided, accordingly, to widen the single person standard rate income tax band by £3,000 from £17,000 per annum to £20,000 per annum, with consequential increases for double earners.  The married one-earner band will increase by £1,000 from £28,000 per annum to £29,000 per annum, with transferability of bands between spouses thereby increased also to £29,000.  This process of widening the standard rate band will be pursued in future Budgets.

As a result of this band-widening, the proportion of income earners on the higher rate will fall to 23 per cent.

Income Tax Rates

The marginal rate at which tax is paid has an effect on the incentive to work.  Clearly we should seek to reduce the disincentive effect of tax rates in a manner that includes all taxpayers, over 500,000 of whom now pay tax at the higher rate.

The Government has decided, therefore, to reduce the standard rate and the higher rate of income tax by 2 percentage points in each case, that is, from 22 per cent to 20 per cent and from 44 per cent to 42 per cent. 

Distribution of Income Earners

As a result of these changes, the percentage of income earners in the tax exempt category will be 38 per cent, those on marginal relief will represent less than one per cent and those on the standard rate and top rate 39 per cent and 23 per cent respectively.  There will therefore be 668,000 persons in the tax system who will be exempt from paying tax altogether.

Reform of PRSI and Levies

In my last Budget I announced that it was my intention to address the whole area of PRSI and Levies in my next Budget to see if I could rationalise the current complex structure of different allowances, thresholds, rates and ceilings.  As a first step in this reform I propose to make a number of changes this year.  Apart from employer PRSI which I will be coming to later, the changes relate to the self-employed and full-rate employee categories.

The Government has decided that the PRSI income ceiling for the self-employed and proprietary directors should be removed and that the contribution rate for this category should be reduced from 5 per cent to 3 per cent.  We are also abolishing the PRSI free allowance of £1,040 per annum for the self-employed and reducing the minimum payment to £200 per annum.  Most of the additional revenue from removing the ceiling comes from those earning £100,000 per annum or more.  Allowing for the reduction in the rate on existing contributions and other adjustments, the net yield from the changes is £21 million in a full year.

The ceiling for employee PRSI contributions is being increased from £26,500 to £28,250 per annum, which reflects the normal earnings-related increase as was assumed in the Estimates.  In addition, I have decided to reduce the Class A contribution rate paid by most employees from 4.5 per cent to 4 per cent.  This will cost some £63 million in a full year.

Total Cost

The full year cost of these personal tax and PRSI changes in this Budget is £1,231 million of which £540 million represents changes to allowances, £278 million changes to bands, £371 million changes to rates, and £42 million changes to PRSI. 

Increases in Disposable Earnings

This Government has ensured that through social partnership, workers' living standards have been raised substantially.  Compared with last year, a single worker on the estimated average industrial wage has £1,602 more in his or her pocket in a full year due to wage increases and tax reductions in my last Budget.  This overall increase represents a 13 per cent increase for that worker's disposable earnings on last year.  This is more than double the average inflation rate this year of 5.5 per cent.

After today's Budget, this worker next year will not only receive a further 5.5 per cent from the second phase of the PPF, and an additional 2 per cent as a result of the adjustments agreed on 4 December, but will also benefit from tax reductions in this Budget to give a total increase in disposable income next year of 13.5 per cent.

Tax Relief for the Elderly

The Government is committed to reducing the tax burden on the elderly.  I am therefore increasing the income tax exemption limits by £1,000 for a single person and £2,000 for a married couple.  This means that since I took office the exemption limits for the aged have been increased by up to 85 per cent.

Planning for Future Care Needs

In line with what I have done on pension reform, I also favour providing tax relief at the standard rate for premia on insurance products geared at providing for future care needs, with any stream of income in the future being taxable.  Discussions will take place with the Insurance industry before the Finance Bill to see if we can develop an appropriate scheme to provide for such specific and ring-fenced products.  This will also contribute to the overall strategy of encouraging savings and providing for real future needs.

Medical Expenses Relief

Medical expenses relief currently can only be claimed in respect of a relative where the claimant qualifies for a dependent relative allowance.  I will be changing the rules to allow people to claim medical expenses relief where they are paying on behalf of a dependent relative whether or not they qualify for the dependent relative allowance.  I am also removing the existing restriction on relief for routine maternity care.  Where a person is employed to care for a family member who is incapacitated, a carer's allowance is claimable.  The amount allowable was last increased in Budget 1998 to £8,500.  I propose to increase it to £10,000 per annum. 

Corporation Tax

As part of the move to a single standard corporation tax rate of 12½ per cent, the rate of corporation tax which will apply from 1 January 2001 will be 20 per cent on trading income as provided for in the 1999 Finance Act.  Last year in order to assist small and medium-sized firms, I decided that the prospective 12½ per cent rate of tax should apply from 1 January 2000 to the trading income of a company where that trading income does not exceed £50,000 per annum.  I propose to increase this ceiling from 1 January 2001 to £200,000 trading income per annum.  This means that only just over 13 per cent of companies liable for tax will now pay at the standard rate. The total cost of both changes is £214 million in a full year.

Stock Valuation at Discontinuance of Trading

I have recently been informed of a tax avoidance scheme based on a loophole in relation to valuation of stock at discontinuance of trading.  The 2001 Finance Bill will contain provisions aimed at closing off this loophole with effect on and from today.  The details of these provisions are contained in the Summary of Budget Measures.

Capital Allowances

Capital allowances for plant and machinery apply on a straight line basis over a seven year time period.  I now propose to reduce this to five years from 1 January next.  Motor vehicles have historically been excluded from the seven year straight line system.  They will now be included in the five year straight line system.  The car value threshold for both new and second-hand cars will also be increased to £17,000.  This move will benefit the business sector as a whole including the self-employed sector.  It will result in a substantial cash flow loss to the Exchequer of up to £140 million in the next few years.

Employer PRSI

The employer PRSI contribution ceiling now stands at £36,600 and was assumed to increase to £39,000 in the Estimates.  In line with the reform of the self-employed ceiling which has already been mentioned, the Government has decided that this ceiling should be abolished.  Over and above the Estimates decision, this measure will bring in £159 million in PRSI in a full year as well as an additional £10 million for the National Training Fund.  This initiative must be seen in the context of the substantial reduction in business taxation in this and earlier Budgets.

Social Insurance Fund

Thanks to the strong economic performance of recent years and the reforms proposed, the Social Insurance Fund is in a healthy financial situation; moreover, on the basis of current forecasts, this position is projected to strengthen further in the immediate years ahead. It is important, of course, that the Fund's surplus should be used to best advantage, having regard to emerging demands and the overall interests of its contributors. Accordingly, I propose, in consultation with the Minister for Social, Community and Family Affairs, to have an early examination of possible strategies in this regard.

BES and Seed Capital Scheme

The Business Expansion and Seed Capital Schemes are due to lapse on 5 April 2001.  I propose to renew these schemes to the end of 2001 while a review is carried out by the Department of Enterprise, Trade and Employment on their continued effectiveness.  I also propose to recognise County Enterprise Boards for the purpose of certifying suitable projects under the schemes.

Farmer Taxation

Turning to farmer taxation, I am proposing a number of tax incentives in this area which are aimed at promoting increased farm investment.  Firstly, farmers like other business sectors will gain from the general increase in the annual capital allowances for investment in plant and machinery from 15 per cent to 20 per cent.  Secondly, I am proposing to renew both the general 25 per cent stock relief and the special 100 per cent stock relief for certain young trained farmers for a further 2 years from 6 April 2001, subject to conformity with EU State Aid rules.  Thirdly, I am extending the time-period for reinvestment for roll-over relief for capital gains tax purposes, where farmland is the subject of a compulsory purchase order for road-building.  The details are contained in the Summary of Budget Measures.  Finally, the flat rate of VAT charged by unregistered farmers to registered traders and the associated VAT rate for livestock will be increased to 4.3 per cent from 1 January.

Probate Tax

Probate tax was introduced in 1993 as a limited revenue raising measure to compensate for the low yield from taxes on capital generally.  I have always held it to be an invidious tax, penalising small legacies unduly.  Over the years its scope was narrowed because of its wide and sometimes harsh effect.  I increased the exemption threshold last year from £10,000 to £40,000 but this year I have decided to abolish the tax fully at a cost of almost £30 million in a full year to the Exchequer.

Rented Sector Reliefs

A Commission was established last year to examine the rented housing sector and to make recommendations to improve its operation.  The Government is considering the Report of the Commission and its recommendations will be examined for the Finance Bill. 

Rent a Room

There are many homes where the possibility exists of spare accommodation being rented out.  A barrier is often the fact that such income is taxable.  I am providing that gross rental income of up to £6,000 per annum from the provision of residential accommodation in a person's principal private residence will be exempt from tax.  Where an individual claims this relief, mortgage interest relief, the capital gains tax relief on one's principal private residence and the stamp duty relief on owner-occupied residences will continue to apply.

Rent Relief

I am conscious of the impact on some tenants of the increasing cost of rent.  Currently, rent relief allowed for under 55s is significantly less than for the over 55s.  I am therefore increasing the rent allowable for under 55s from £750 per annum to £1,000 per annum for a single person and from £1,500 to £2,000 in the case of a married couple.  In the case of widowed persons I will be increasing the rate of relief for widowed persons to the married rate in all cases.

Trade Unions

I have received strong representations from ICTU and individual trade unions for tax relief on trade union subscriptions.  Having considered the case and in recognition of the role of trade unions I propose to provide a flat rate allowance of £100 at the standard rate of tax in respect of trade union subscriptions.  £100 is roughly the amount most members pay each year.

Gainsharing, Profit Sharing and Share Options

Giving employees a stake in their company or organisation's future is an important way of recognising and rewarding work and effort.  There are a number of schemes already applying in this area.  A consultative committee established under the PPF has been examining the potential for encouraging gainsharing, profit sharing and share option schemes by the provision of favourable tax treatment and I will give careful consideration to the outcome of these discussions in that context.  I will be considering these matters further for the Finance Bill.


Major Changes in Tax Administration

This is a time of major change in tax administration.  By April next, the changeover to the more equitable system of tax credits will be completed and the process of moving the income tax year into line with the calendar year will begin.  And, of course, from January 2002, all taxes will be paid in euro.

I would like at this point to pay my own personal compliment to the management and staff of the Revenue Commissioners at all levels who managed under great pressure and with little advance notice to implement the major reforms of the income tax system which I have made over the past two years.  The dedication and expertise of the Revenue Commissioners in coping with this challenge is highly commendable.

Other Taxation Measures

I have further measures in mind to rationalise the tax system.  Tax reliefs on the payment of fees for education courses are somewhat complex, all with their own rules.  I propose to amalgamate and expand the four reliefs that relate to third level education.  Full details will be in the Finance Bill.

In the context of rationalising existing tax reliefs, I will also be examining before the Finance Bill the myriad of tax reliefs for donations of various types to different causes to see if we can come up with a more sensible and coherent system to encourage more gifts for genuinely good causes.

A number of further tax measures not specifically mentioned in my Statement are set out in the Summary of Budget Measures.

 

CONCLUSION

In the popular TV series, “Yes Minister”, the loyal civil servant, Sir Humphrey often advised his political master as follows:

“To be precise, many things may be done, but nothing must ever be done for the first time.”

It will scarcely surprise that I do not subscribe to this political maxim.

This Government is delivering on what it promised the electorate in 1997.  We are also delivering on our commitments in the PPF. 

The measures I have announced today:

  • will improve the quality of life of all our people,
  • will lead to a fairer society, with opportunity for all,
  • will raise living standards for all, and
  • encourage and reward effort and enterprise.

This Budget supports social partnership. 

It takes significant action to combat inflation. 

It continues this Government's programme of tax reform. 

It contains the largest ever package of supports for children and their parents.

This is Budget number four in a series of five for this Fianna Fail/Progressive Democrat Government.

It is another stage in the implementation of this Government's programme.  My next Budget will complete our programme so that Ireland continues into the twenty-first century as a prosperous, fair and caring nation. 

I commend this Budget to the House.

Ends