Changes in Allowances
The changes which I am making can best be looked at in two parts:
firstly, standard-rating the existing basic single and married personal allowances and the PAYE allowance and widening the standard band to offset the effect of this; and
secondly, providing for a substantial increase in the standard rated personal allowances and an increase in the standard rated PAYE allowance.
The present single personal allowance is £3,150 per annum, with £6,300 for a married couple, and the PAYE allowance is £800. I am proposing to standard rate and increase these allowances as follows:
increase the Single Personal Allowance by £1,050 per annum (i.e. from £3,150 to £4,200);
increase the Married Personal Allowance by £2,100 per annum (i.e. from £6,300 to £8,400);
increase the PAYE Allowance by £200 per annum (i.e. from £800 to £1,000).
The present tax bands are £10,000 for a Single Person and £20,000 for a married couple.
I am proposing to increase the bands as follows:
for a single person from £10,000 to £14,000; and
for a married couple from £20,000 to £28,000.
In the history of Irish Budget tax changes, these are pretty major innovations.
The changes in allowances will result in standard-rated personal allowances for single persons on PAYE of £5,200 per annum.
The effect of this, among other things, will be to ensure that a single person on PAYE will not pay tax on any income below £100 per week. It also means that over 80,000 taxpayers will be removed from the tax net and that the numbers of taxpayers on the marginal relief system, who face a marginal income tax rate of 40 per cent, will fall from the current level of 82,000 to just over 24,000. For a married couple with one earner and two children on PAYE on the average industrial wage, income tax will reduce by £10 per week.
Under the present system a single person begins to pay tax at £79 per week.
Under the changes I am announcing today, such an individual will pay no tax on any income below £100 per week.
As a result of these changes the basic single and married personal allowances will exceed the basic income tax exemption limits for those under 65. Consequently it is not proposed to increase the under 65 exemption limits.
Widows and single parents have a special personal allowance structure and the difficulty of fitting them into a tax credit system has been recognised by the P2000 Working Group. Their basic personal allowances will be standard rated and increased in line with everybody else. A more complicated arrangement is needed for their special additional allowances in order to ensure that nobody loses out, particularly in the case of widows with children and lone parents. The changes proposed are set out in the Summary of 1999 Budget Measures.
As will be recognised, I am making a major fundamental change in personal taxation in this year's Budget. It is the major - and yes costly - step towards a full Tax Credits System.
It is my intention that my future Budgets will complete the changeover to Tax Credits. But, I believe that this year's Budget change will mark a fundamental departure in personal taxation. It is also my view that it will herald a major sea change in attitudes to welfare and work for many and will unquestionably improve the incentive to work.
Due to the cost of this major move I have announced today to focus resources on the lower paid, it is not possible this year to reduce the rates of income tax, but this will be addressed in future Budgets.
Health and Employment and Training Levies
I also propose to make adjustments to the Health and the Employment and Training levies. The levies apply at a combined rate of 2.25 per cent on income over £10,750 per annum. The Employment and Training levy of 1 per cent will be abolished from April 6th, 1999.
The Health levy will be increased from 1.25 per cent to 2 per cent from the same date. The result is an overall reduction of 0.25 per cent in the amount which taxpayers will pay by way of income levies. The threshold for the payment of the 2 per cent levy will be increased by £500 from £10,750 to £11,250 per annum, or from £207 per week to £217 per week. As referred to earlier, healthcare spending has been growing faster than any other area of public expenditure. I believe it is important for taxpayers to realise the increasing magnitude of Exchequer health spending, projected to cost £3.6 billion for 1999, and that it is their taxes and levies that are paying for this.
Tax Relief for the Elderly
I made a promise in last year's Budget to unify the exemption limits for all those aged 65 and over and to increase the limits. I have decided accordingly to increase substantially the income tax exemption limits below which those aged 65 and over will not have to pay income tax. The present limits are £5,000 single and £10,000 married in the case of those aged 65 to 74, and £5,500 single and £11,000 married in the case of those aged 75 and over. In the case of all those aged 65 and over, the new income tax exemption limits will be £6,500 per annum for single and widowed persons and £13,000 per annum for married couples. The new exemption limits represent an increase of up to 30 per cent in the current exemption limits. The change will remove 15,000 elderly persons from the income tax net. In addition to these income tax changes I have increased the Old Age Pension by £6 a week to £89 for contributory old age pensions and £78.50 for non-contributory old age pensions and improved the qualifying conditions for medical cards for the elderly.
Blind Allowance
Last year, I significantly increased the additional tax allowances to Blind Persons. This is the centenary year of the National League for the Blind. I propose accordingly to increase again the personal tax allowance for a blind person from £1,000 to £1,500 per annum and from £2,000 to £3,000 per annum for married couples where both spouses are blind. This allowance applies in addition to the standard-rated ordinary personal allowances referred to earlier but will continue to be available at the blind person's full marginal tax rate.
Total Cost of Personal Tax Changes
The total cost of these changes to the personal income tax rate structure is £581 million and a breakdown of the cost of the individual components is set out in the Summary of 1999 Budget Measures.
Childcare
The Government is conscious of the growing wish for a recognition of childcare needs in the tax system. The question of childcare tax relief raises important and complex issues. There is the question of equity between parents who stay at home to care for children and those who have to meet additional childcare expenses when they go out to work. There is also the need for a balanced treatment of those who are in the tax system and those who rely on social welfare benefits and for finding the right balance between measures to help towards the cost of childcare and measures to improve the supply and quality of childcare facilities to meet the growing demand.
The Government has discussed this area in some detail and proposes to examine the matter further. In doing so we will take into consideration the recommendations of the P2000 working group on childcare which has not yet finalised its report. As a means of facilitating and encouraging the supply of childcare facilities, the Government has decided that the provision of certain creche facilities by employers will not be subject to a charge to income tax in the hands of employees as a benefit-in-kind. Furthermore, the Finance Bill will provide for capital allowances to allow for the write off of capital expenditure incurred in connection with buildings or premises constructed or used by employers to provide childcare facilities for their staff. This capital allowances regime will also extend to providers of childcare services generally in the community.
Those with children will also be helped by the increases in child benefit which I announced earlier.
Carers
The Government has also decided that the position of those families providing care in the home for a member of the family should be addressed by extending the terms of the current tax allowance which applies where a person is employed to care for a taxpayer or his/her spouse in the home. This tax relief, which applies at the taxpayer's marginal tax rate for expenses up to £8,500 per annum, will now be claimable from April 6th next by other family members who employ a carer to look after a totally incapacitated family member. This extension will widen significantly the scope of the relief which is currently claimed by around 500 taxpayers each year.
Job Assist for the Disabled
The new tax initiative that I introduced earlier this year to help the long-term unemployed back into employment is generally referred to as the Revenue Job Assist scheme. To date nearly one thousand claimants have used the scheme to return to work. I feel that this scheme has met a clear need. The scheme allows for other categories to be assisted over time. Following consultation with the Minister for Social, Community and Family Affairs, I have now decided that persons with disabilities will be able to avail of the Revenue Job Assist scheme. The details are in the Summary of 1999 Budget Measures.
Income Tax Year
Earlier this year I set up a special Inter-Departmental Group to propose a plan for the alignment of the income tax year and the calendar year. The group consulted the Social Partners and other interested bodies on the proposed change of tax year. It would be more rational to have the income tax year, like other tax years such as VAT, commence on January 1st.
I will be bringing my proposals on this to Government shortly. If it were decided that as from 2001 the income tax year would commence on January 1st instead of April 6th, the year 2000 income tax year in that case would be a transitional year running from April 6th to December 31st, 2000. Consideration would have to be given to the necessary arrangements to ensure a smooth transition.
Film Relief
The existing tax incentives for investment in film making in the State will run out on April 5th next. The Minister for Arts, Culture, Heritage and the Islands has recently received a detailed study carried out by an independent consultant. This looks at the operation of the tax incentives from the point of view of the appropriate Government strategy for the development of the film sector and the economic benefits deriving from this. That report is now being examined and in this context a decision will be taken on the future structure of film relief for the Finance Bill, 1999.
Profit Sharing
A number of organisations have called for expanded profit sharing schemes to assist in the promotion of profit sharing and, in this way, more flexible pay structures. This is going to be a growing issue in the post-EMU situation. I am not opposed to reasonable proposals in this area. Indeed, if profit-related pay makes economic sense to employers and employees from a profit and pay point of view, it should need no tax relief from the State to encourage it to be put into practice. It should also be recognised by all that there are tax planning opportunities in schemes of tax-relieved profit-related pay. I have received a proposal to allow the introduction here of a tax-relieved Save-As-You-Earn scheme for employees to acquire shares in their companies. The new scheme involves employees saving for a fixed period to buy shares in their firm on favourable share option terms. Any gain from the exercise of the share option is free of income tax. I intend to provide for a scheme along these lines in the Finance Bill.
Special Investment Accounts
Last year, I increased the rate of DIRT on Special Savings Accounts from 15 per cent to 20 per cent but I left the tax rate unchanged on Special Investment Accounts at 10 per cent. I now propose increasing the 10 per cent rate on these savings products to 20 per cent from April 6th, 1999. In addition, I also propose increasing the £50,000 maximum investment limit for Special Savings Accounts to £75,000, which is the limit that already applies to Special Investment Accounts. These changes will bring in £3 million net in a full year. The full details of these changes and of an anti-avoidance measure in relation to certain accounts are given in the Summary of 1999 Budget Measures.