Full text of Minister for Finance’s budget speech to the Dáil
Michael Noonan delivers Budget 2014
Minister for Finance Michael Noonan.
A Cheann Comhairle,
The story of insolvent Ireland is familiar to all our people and the sacrifices people have had to make in recent years are well known. Reckless policies were pursued by the Fianna Fáil led Government. This continued until Ireland was no longer able to borrow on the international markets and the Government had to turn to the lenders of last resort. The help from the IMF and the European authorities came at a high price. Hundreds of onerous conditions were attached to the loans. Ireland lost its sovereignty and the Troika came to Ireland. The Fianna Fáil led Government collapsed in a shambles and a Fine Gael/Labour Government took office with a mandate to sort out the disaster, to stabilise the economy, to get people back to work and to restore the sovereignty of this Republic.
The new Government immediately set about this task and renegotiated the bail-out programme. Among the more notable achievements were the extension of the maturities and the reduction in interest on the European loans, the Promissory Note changes, the liquidation of Anglo Irish Bank, the restoration of the minimum wage, and agreement that half of the proceeds from the sale of State assets will be used for capital investment.
This Government has reduced the deficit and controlled the national debt. We have reduced interest rates to levels below those that pertained during the so called boom, the economy is in its third successive year of growth and 3,000 net new jobs are being created each month.
The purpose of this Budget is to continue the progress we have made; to reinforce policies that grow the economy; to establish the conditions which will create jobs; and to prepare for exiting the bail-out programme.
To this end the Government has designed this Budget. We will bring in a deficit of 4.8% in 2014, we will bring in a small primary surplus, demonstrating that our national debt, which has been rising for so many years, is under control. We will achieve these targets by an adjustment of €3.1 billion, €2.5 billion of which will consist of expenditure cuts and tax increases.
As W.B. Yeats said in Easter 1916 “too long a sacrifice can make a stone of the heart”. I know that there is a view that the consolidation should go further, but people have already made many sacrifices.
One of the primary tasks of this Budget is to lay down the conditions for a successful exit from the bail-out programme at the end of this year or to put it another way to fund ourselves fully through the international markets in a sustainable way at competitive interest rates. We are well on course to do this and as the economy continues to grow and jobs continue to be created, we have a fair wind on our backs to achieve our objectives and restore our sovereignty.
Focus on Employment
While the Government was, over the last two and a half years, focused on implementing and ultimately exiting the EU/IMF programme, we have also been following another parallel programme. This parallel programme took the economy sector by sector and the Government built on the strong sectors of the economy and repaired those sectors which were damaged. The objective of this parallel programme is to support businesses to create jobs and get people back to work.
In the tourism sector, I reduced VAT to 9% from 13.5% within the first 100 days of this Government; an initiative that boosted the tourist industry.
I introduced a number of measures to support Irish farmers and to help those farmers who are preparing for the ending of milk quotas in 2015.
Last year I introduced a 10 Point tax plan to support the SME sector
I introduced over 20 measures in Finance Act 2012 to support the financial services industry.
A range of initiatives were introduced over the past 2 years to support the recovery in the property and housing market.
I have also introduced measures to enhance the attractiveness of Ireland as a destination for Foreign Direct Investment and we have continually defended our 12.5% tax rate.
While many of these initiatives on their own may be small, taken together they have played a significant part in the recovery in the jobs market.
In this Budget I will follow the same approach. Creating jobs is the primary objective and today I am introducing 25 pro-business and pro-jobs measures. The total cost of the tax elements is in excess of €500 million in a full year. This very significant investment is designed to help businesses in key sectors achieve their full growth potential and create jobs.
Pro-Jobs Tax Measures
This Government is continuing to focus its policies on creating and maintaining jobs in all sectors of the economy. I will now set out the tax measures that will support job creation and then Minister Howlin will set out the public expenditure measures that will support job creation.
In recognition of the importance of the tourism sector to the overall economy and as a major source of jobs, I reduced VAT in this sector to 9% in the Jobs Initiative in May 2011. As I outlined earlier, this initiative has proved to be a major success, helping create over 15,000 new jobs as well as protecting existing jobs. As Deputies will be aware, the rate of VAT for the tourism and hospitality sector and the other sectors to which it applies is due to revert to 13.5% at the end of this year. However, it is important that we reinforce success when possible, so I have decided to continue the 9% rate of VAT for these vital sectors. This will support the increased number of jobs already in place and accelerate the creation of new jobs.
To further support the tourism sector, I have also decided to reduce the Air Travel Tax to zero with effect from the 1st of April 2014. I expect the airlines to utilise this initiative to develop new routes and build traffic volumes thereby helping tourism and I have reason to believe they will do so.
Agri-food and fisheries
The agri-food and fisheries sector is Ireland’s largest indigenous industry employing some 150,000 people, producing an annual output of €24 billion and exporting €9 billion worth of goods to over 160 countries. It is entirely appropriate that the sector has been the recipient of significant tax relief and incentives over the years, but these have grown over time and there is now a significant information gap about their cost and effectiveness. Therefore, I am announcing, in conjunction with my colleague, the Minister for Agriculture, Food and the Marine, that an independent cost benefit analysis will be undertaken in this area. The objective of the review is to identify what works and what doesn’t, and redirect the existing level of tax expenditure towards activities of maximum benefit to this sector of the economy. This review follows recent reviews of property, film and R&D tax expenditures. Any recommendations will be considered in the context of Budget 2015.
However, I do wish to announce that the farmers’ flat rate addition is being increased to 5% from 4.8% with effect from the 1st of January 2014. This scheme compensates farmers for VAT incurred on their farming inputs.
In addition, I am also extending Capital Gains Tax retirement relief to disposals of long-term leased farmland in certain circumstances. The purpose of the change I am introducing in this area is to encourage older farmers to lease out their farmland on long term leases to younger farmers, in circumstances where the older farmers have no children who are willing to take up farming.
The eligibility for Young Trained Farmers relief is also being extended by adding three more qualifying courses to the list of relevant qualifications required for the 100% rate of stock relief and for the Stamp Duty relief for the purchase of agricultural properties, which I am maintaining.
In my previous budgets, I have included important measures that have begun to return growth to the construction sector. I introduced these, as I have continually stated, with the objective of helping the construction and development sector return to sustainable levels in line with most economies. No sector has been hit harder since 2008 and a return to a normalised construction and development sector is needed to provide jobs for the thousands of unemployed construction workers. Furthermore, in light of increases in property prices due to the supply limitations in some areas, it is important that we increase the supply of suitable residential housing stock to prevent a new property bubble emerging. This includes the building of new homes and the renovation of the existing housing stock in Dublin and our main urban centres.
Home Renovation Incentive (HRI)
I am introducing a home renovation tax incentive scheme. The Home Renovation Incentive will provide an income tax credit to homeowners who carry out renovation and improvement works on their principal private residences in 2014 and 2015. The incentive is payable over the two years following the year in which the work is carried out. The credit will be calculated at a rate of 13.5% on all qualifying expenditure over €5,000 up to a maximum of €30,000. Qualifying works include extensions and renovations to the home, window-fitting, plumbing, tiling and plastering. This incentive will support fully tax compliant builders and will move activity out of the shadow economy into the legitimate economy as all expenditure and relief claims will have to be registered electronically with the Revenue Commissioners.
Living City Initiative
Last year I announced the Living City Initiative for Limerick and Waterford. Following further consideration including a cost benefit analysis that I am publishing today, I have decided to extend the initiative to Cork, Galway, Kilkenny and Dublin and broaden the eligibility criteria to include all buildings built prior to 1915. The initiative should assist the regeneration of retail and commercial districts and encourage families to live in the historic buildings in our city centres. It will be commenced after EU state-aid approval is secured.
Capital Gains Tax Relief
In Budget 2012, I announced an incentive that exempted property purchased by the end of 2013 from Capital Gains Tax if held for at least seven years. I am extending the purchase period to the end of 2014.
Real Estate Investment Trusts
Following the successful launch of the Real Estate Investment Trusts in Ireland, as provided for in the Finance Act 2013, I have agreed with my cabinet colleague, Minister Shatter, to propose the addition of REIT investments to the 5 investment options already in place under the Immigrant Investor Programme launched last year by the Department of Justice. This would be subject to conditions placed on the minimum level of the investment and withdrawal of funds, to ensure alignment with the overall purpose of the programme.