Environmental Tax Issues
The issue of green taxes has been the subject of much recent comment. I propose to take a number of positive steps in that direction in this Budget.
VRT on Cars
I propose to restructure the VRT rates on cars. The new structure will favour smaller cars by raising the VRT rate on larger cars. The current VRT rates on cars are 22.5 per cent for vehicles up to and including 2,500 ccs and 28 per cent on vehicles over 2,500 ccs. I propose that a new three-tier structure should be introduced. The current VRT rate of 22.5 per cent will apply on cars up to and including 1,400 ccs, a 25 per cent rate will apply on cars up to 2,000 ccs, and a 30 per cent rate will apply on all cars over 2,000 ccs. These changes will bring in £43 million in extra revenue and will apply from January 1st, 1999. I believe that it is appropriate to seek to recoup revenue in this way from a sector experiencing record sales, which are being underpinned by the rapid economic growth we are experiencing. The increases in VRT will also yield a contribution from the motoring sector to meet the additional road-use and environmental damage arising from the unprecedented growth in private car usage in the State.
Traffic Related Measures
In addition to the changes in VRT, I propose to take a number of initiatives which have been recommended by various parties to address the growing traffic problem in urban areas. The House will appreciate that the tax system cannot solve the traffic problem on its own but it can play its part in altering the relative prices of different modes of transport in favour of those that create less pressure on road-use and the environment.
Park and Ride Facilities
The Government has decided, therefore, that a new tax incentive will be provided for the construction of park and ride facilities in urban areas to encourage motorists to leave their cars outside the congested city centre areas and to complete their journey by public transport. The full details of this relief will be in the Finance Bill.
Monthly Travel Passes
The Government has also decided that the provision of bus and rail passes by employers to their employees which are valid for one month or more will not be subject to tax as a benefit-in-kind. This will take effect from the new income tax year commencing on April 6th, 1999.
Benefit-in-Kind Tax on Car Parking Spaces
The issue of benefit-in-kind tax on car parking spaces has attracted some attention recently. There are many practical difficulties in applying BIK to the use by an employed person of a car parking space provided by their employer. Nonetheless, and notwithstanding the very obvious delight of civil servants in all Departments, including my own, to really explore this new revenue-raising measure for the State, I have asked my Department and Revenue to undertake such a review and to come up with a fair and workable system of applying BIK. I believe that the measures and proposals I have just announced, together with the measures to promote greater use of public transport, will be seen as important initiatives in facing up to the wide-ranging issues in this area.
Green Tax Policy
Tax increases on energy and fuels can reduce emissions and bring about more efficient use of these products. The revenue raised might also be used to reduce taxation in other areas such as labour. However, increases in the price of energy and fuel adds to inflation and affects those on low incomes. We need however to put in place an agreed indirect tax policy which will assist us in meeting our international obligations on CO2 emissions. Such a policy needs the support of all sections of the community as represented by the social partners. I am proposing, therefore, that the formulation of such agreed policy measures would be part of the discussions on the successor to Partnership 2000. In my view, this is the best way to proceed in this matter.
Excises on Tobacco and LPG
I propose to raise some extra revenue by increasing the VAT inclusive excise duty on cigarettes from midnight tonight by 5p per packet of 20 with pro rata increases in the price of other tobacco products. On the other hand, I propose that the VAT inclusive excise on auto LPG should be reduced by 1.8p per litre with effect from tonight. This will encourage the greater use of this cleaner product as a road fuel. These measures will bring in £13 million net in extra revenue in 1999.
Betting Tax
I have received strong representations that the current level of betting tax in the State at 10 per cent is an incentive to the betting public to use offshore tax-free telephone betting. This could place tax revenue and jobs at risk in the betting industry. While the level of such telephone betting has not impacted so far on excise revenue, the problem is a growing one.
The current excise tax of 10 per cent brings in £45 million per annum so that it is necessary to take measures to secure that source of revenue. In my view the best way to do so is to reduce the rate of tax to internationally competitive levels. However, any reduction in the off-course betting tax of 10 per cent has implications for the current on-course levy of 5 per cent which goes directly to the Irish Horseracing Authority and Bord na gCon. The latter bodies have in recent years, with the help of substantial Exchequer funding, invested in improved facilities. Those investments are best protected by larger attendances at meetings.
I have discussed this matter in some detail with my colleague, Joe Walsh TD, Minister for Agriculture and Food, who is responsible for the latter bodies.
Arising from these consultations, I propose to cut the 10 per cent off-course Betting Tax to 5 per cent with effect from July 1st, 1999, and the Minister for Agriculture and Food will arrange with the Irish Horseracing Authority and Bord na gCon to eliminate the present on-course levy of 5 per cent to zero with effect from the same date.
However, both proposals are absolutely conditional on satisfactory alternative arrangements being found to secure independent sources of funding for the Irish Horseracing Authority and Bord na gCon from the various elements of both industries, namely, bookmakers, racecourse owners, the Turf Club and others.
Although I am of the view that the proposed off-course reduction will increase betting activity, I have made a prudent provision for the cost of this reduction. I have provided for reductions of £12 million in 1999 and £24 million in a full year.
The net effect of the VRT, LPG, betting tax and tobacco changes will be to raise £32 million in additional revenue in a full year and to add 0.17 per cent to the Consumer Price Index.
Revenue Powers
As the House is aware, both Revenue and my Department have been actively reviewing the existing powers which Revenue have in relation to combating tax evasion. This review involves looking at extra powers in relation to access to bank accounts and the examination of the affairs of banking institutions. Revenue powers were last added to significantly in 1992, with further additions in 1993 and in 1995. I have made it clear that all reasonable or necessary measures will be pursued to counter tax evasion.
The Revenue Commissions have recently made proposals to me in this regard and I will be examining these in the context of the Finance Bill, 1999. I want to state again the Government's resolve to take such measures as are needed and appropriate to ensure that tax liabilities can be reasonably and effectively pursued.
Medium-Term Budget Projections
Following the practice of the last two years, I am including a contingency against all budgetary uncertainties of £300 million in 2000 and £600 million in 2001 as a reserve against unforeseen factors which could impact adversely on the Budget.
Taking account of this contingency provision and the measures I have announced today, the General Government surplus is projected at 1.4 per cent of GDP in 2000 and 1.6 per cent of GDP in 2001.
I intend to continue to achieve a general Government surplus for as long as economic conditions are favourable. In the event of significantly less favourable conditions the necessary action will be taken to comply with the requirements of the EU Stability and Growth Pact.
Future Budgetary Process
Multi-annual Budgeting
Last year I indicated that I would be considering the implementation of the final phase of the move to multi-annual budgeting as envisaged in Delivering Better Government. This involves the Government allocating resources over a three-year period covering the main budgetary aggregates of taxation, expenditure and borrowing.
As regards expenditure, I am publishing projections showing expenditure by individual Ministerial Vote Group for 2000 and 2001 on a "no-policy-change" basis. I have also included an amount for allocation above these levels within the overall expenditure envelope specified in the budgetary tables. I will address the final phase of the move to multi-annual expenditure budgeting which will involve the Government making decisions on the allocation of resources across Vote Groups. Decisions on this issue by the end of the first quarter of 1999 will allow Departments ample time to plan their spending in 2000 and 2001.
Conclusion
The penchant of Irish politicians and media persons to regularly use the terms "radical", "reforming" and "major" to describe even the most mundane event has led, in my view, to the debasing of such political language.
I suggest that the phrases "radical", "reforming" and "major" might be applied to this Budget - especially on the income tax side.
This is the final Budget before Ireland enters EMU. While EMU will present us with numerous challenges, none of these are insurmountable as long as we continue the prudent policies of recent years.
I believe my Budget today delivers what our country needs in terms of economic and social priorities.
I have committed £11.2 billion to social services in 1999 - about £900 million more than 1998 to look after the underprivileged and improve public services generally.
I have allocated £2.3 billion for capital investment to boost our productive capacity.
I have reduced personal taxation. It is now a fairer system. It increases the incentive to work. It will avoid excessive wage increases.
I have also provided for a significant further improvement in the public finances to prepare for the challenges that lie ahead.
During anyone's lifetime, there are sometimes going to be good days, days in which you put your hand in your pocket and realise that all the money that you usually have spent by this day of the week isn't gone.
There is some left over.
Maybe you earned a few extra pounds.
Maybe someone paid you money that they owed you. Whatever.
There you are with extra money in your pocket, a smile on your face and you are walking down the street, past all the shops, full of things calling out to be bought.
What do you do?
It depends.
If you haven't a care in the world you will shop and shop and shop.
But if you had cares and worries and owed money, things would be different, very different.
Maybe you would be wise to hold on to that extra few pounds and put it towards reducing the size of your debt.
Sure - you don't see any tangible physical results in terms of the presents you might have bought but you would feel better in the long run.
Days, months and years from now you will reap the rewards.
Days, months and years from now, we will see that on the day when we had the extra few pounds in our pockets, we made the right decisions, the long term decisions, and the decisions which in time will be seen to have been our only real sensible option. The option to look at Ireland in the longer term.
I commend the Budget to the House.