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Progress Report on Programme for Government 2007 – 2012 Department of Finance Response The Economy “We will aim to achieve further significant, sustainable growth with our programme based on an average growth rate of 4.5 per cent” The economy has now entered more challenging times due a combination of external and domestic factors. GDP expanded by 6 per cent in 2007, but is expected to plateau this year, albeit at a very high level. Some slight pick-up in overall growth is expected for next year, but it is now expected to be 2011 before economic growth is close to its potential of about 4% - assuming a resumption of favourable external factors. “We will operate a responsible fiscal policy characterised by broad budget balance and a declining debt burden.” “Keep the budget in broad balance and fully within our commitments under the Stability & Growth Pact.” . Sound public finances have been critical to Ireland’s success over the last decade and the Government, despite the emerging scale of the economic and fiscal and environmental challenges now facing the country, remains committed to taking the necessary decisions to ensure stability in the public finances, in order to maintain the right economic and fiscal conditions for sustainable growth over the medium term The Government has and will continue to take the necessary actions: On 8 July 2008 Government announced a range of measures designed to create the right fiscal conditions for economic growth while protecting the most vulnerable members of society. On 3 September 2008 Government announced that it was bringing forward the date for the presentation of Budget 2009 to 14 October 2008. This would allow it to give clarity and confidence to investors and taxpayers alike, and provide a sound basis for economic recovery. 1 Budgetary Policy Set aside a minimum of 1% of GNP per annum to provide for the future pensions of today’s workers. Partial pre-funding of future social welfare and public service pension costs has continued with the annual payment of a statutory 1% of GNP into the National Pensions Reserve Fund (NPRF). In 2007 €1.62bn was invested in the NPRF, while it is planned to invest a further €1.69bn in 2008 (of which €845m has already been invested). The value of the fund at the end-June 2008 was €19,462 million or approximately 12% of GNP. Implement a series of significant and sustainable increases in key public services such as pensions, health and schools. Spending on public services increased by 14% in nominal terms in 2007 compared to 2006. The Revised Estimates Volume 2008 allows for further increases of 9% this year. Expenditure on education and healthcare rose by 10% and 15% respectively in 2007, while the Social Welfare Old Age Contributory Pension (OACP) and Old Age Non-Contributory Pension (OANCP) rates rose by 8% and 10% over the same period. The Revised Estimates Volume 2008 allows for further rises in education and healthcare expenditure of 7% and 8% in 2008. This funding has allowed for our real social welfare rates to increase to among the highest levels in the EU. The outputs from capital spending have seen real improvements in citizens’ daily lives. An example being the National Roads Programme which has made significant improvements in journey times between our cities and thus reduced costs to businesses. Keep the overall tax burden low and implement further changes to enhance the rewards of work while increasing the fairness of the tax system. In Budget 2008: The home carer tax credit was increased from €770 to €900. The age exemption limits for those aged 65 and over were increased from €19,000 per annum for a single person and €38,000 per annum for a married couple, where one or both are aged 65 and over, to €20,000 per annum and €40,000 per annum respectively. The incapacitated child credit was increased to €3,660 per annum. The blind person’s credit was increased from €1,760 single and €3,520 married per annum to €1,830 and €3,660 per annum, respectively. The widowed person’s credit was increased from €550 to €600 per annum. 2 The widowed parent credit was also increased from €3,750 (Year 1), €3,250 (Year 2) , €2,750(Year 3), €2,250 (Year 4), €1,750 (Year 5) to €4,000, €3,500, €3,000, €2,500 and €2,000 per annum, respectively. Building The Public Wealth National Development Plan 2007-2013 Financial Overview In 2007, expenditure and investment under the NDP came to over €22bn which is almost exactly what was envisaged. 85% of funding came directly from the Exchequer with 9.5% accounted for by state bodies, particularly important in the Economic Infrastructure priority, especially in the Energy, Airports and Ports SubProgrammes. Regional Development The NDP set out a strong framework for the continued rollout and implementation of the National Spatial Strategy, of which a key component is the development of the nine NSS gateways which will help economic and social development of their surrounding regions. All-Island Co-Operation Substantial progress was made during 2007 and provides a firm basis for mutually beneficial co-operation in future. Environmental Sustainability The NDP encompasses substantial allocations to invest in programmes which will have a direct impact on promoting environmental sustainability. Considerable progress has been made in 2007 with €640m invested in public transport to promote a move away from car dependency to more environmentally sustainable modes of transport. €49m was invested in initiatives to promote sustainable energy with €637m invested in enhancing our water services infrastructure. €36m was also invested in waste management. Rural Economy The rural economy has undergone rapid change and ongoing demographic and economic changes have also had a significant impact. Progress under the NDP during 2007 has been made in the regional and local road network, the commencement of the Western Rail Corridor, water services and a range of measures to support the physical, economic and social infrastructure in rural areas including the CLAR, Community Development, Local Development Social Inclusion, Rural Social Programmes and various Gaeltacht and Island schemes. Economic Infrastructure Improving our economic infrastructure is critical to Ireland’s economic future and improving the quality of life in this country. Investment in this area during 2007 amounted to €6.27bn and included strong progress in roads, visible public transport improvements with new trains, Luas tram and line extensions and replacement buses for Dublin Bus as well as improved Quality Bus Corridors. 3 Pier D opened at Dublin Airport and the commencement of Terminal 2 will significantly improve the capacity of the Airport. Significant progress has been made on the rollout of the Major Inter-Urban Routes (MIUs) and at end 2007, 313 kilometres of the Major Inter-Urban Routes (out of a total of 738 kilometres) were open to traffic, 324 kilometres were under construction and 101 kilometres were at tender stage. This investment will achieve significant time savings for people and businesses. Enterprise, Science and Innovation The NDP has funded investment in indigenous and foreign direct enterprise in Ireland, Science Technology and Innovation, the tourism sector, the development of the agriculture and food sector, the marine sector, the development of the rural economy and the viability of the island and Gaeltacht communities. The Science, Technology and Innovation Programme (SSTI) covers all research areas from basic research in the World Class Research Sub-Programme to specialised research in areas like enterprise, agri-food, marine, the environment, health and geoscience. This investment will improve our international competitiveness and is particularly important as we move towards increased export led growth. Human Capital Education and Training is vital to Ireland’s objective of ensuring its workforce are among the best in the world and investment under this Priority supported the ongoing National Skills Strategy and on-going assistance for the up-schilling of the workforce and supported the participation of those currently outside the workforce as well as enhancing the quality of education provided in our schools. Social Infrastructure This priority funded a wide range of infrastructure to improve the quality of life, enhance vital social services, promote social inclusion and enhance the administration of justice. This included investment under the Housing Programme where over 9,000 social housing units and over 3,500 affordable housing units were delivered. Over €500m was invested in a wide range of health infrastructure including 18 new admission lounges and the new amalgamated Cork Maternity Hospital. Prison accommodation was also improved with the refurbishment of 4 child detention schools, the completion of 9 key court projects and 4 new Garda stations. Social Inclusion The NDP funded a massive programme of investment in promoting social inclusion including Programmes for Children, Older People, People with Disabilities and Local and Community Development. 4 Competitiveness and Innovation Competitiveness Overview Our competitiveness determines our ability to trade on international markets. In order to improve our competitiveness it is necessary to ensure that increases in costs do not outstrip increases in productivity. In support of this, Government has implemented policies which are aimed at rewarding both work and enterprise through maintaining a relatively low tax burden on capital and labour, and improving competition in product markets and flexibility in the labour market. Furthermore, the continued sustainable rollout of the National Development Plan remains a key priority for the Government as a whole, including substantial investment in physical and human capital. These measures will equip the Irish economy with the skills, infrastructure and operating environment needed so that we can compete effectively on the world stage. Continue to enhance the Business Expansion Scheme (BES) and the Seed Capital Scheme (SCS) following on from changes introduced in Budget 2007. The Government's commitment to the Business Expansion Scheme and the Seed Capital Scheme (SCS) continues. Since 1 January 2008, a recycling company can qualify under the BES and SCS schemes where it has received approval for a grant or financial assistance from an industrial development agency or County Enterprise Board, or where it has obtained confirmation from such an agency or board verifying that it has submitted a business proposal to it and that the activities carried on by the company are qualifying activities. We recognise the vital role played by low taxes in our economic success. We guarantee that the 12.5% rate of corporation tax will remain The Government's position on our corporate tax regime is unambiguous. It is clearly stated in the Programme for Government that the 12.5% rate of corporation tax will remain. Corporate taxation matters are and will remain within the competence of Member States. Our corporation tax system is protected, in an EU context, by the principle of unanimity in taxation matters. We will resolutely oppose any attempt to introduce tax harmonisation within the European Union, either directly or through technical measures. We will continue to strongly oppose any attempts to introduce tax harmonisation within the European Union. We do not see how tax harmonisation could advance European competitiveness or the Lisbon agenda. However, this stance should not be misconstrued as one of opposition to European economic policy cooperation. The Government will continue to engage with the European Commission in a constructive and positive manner in relation to tax matters. A Fair Tax System 5 Our first priority remains low and middle income earners – therefore our first task will be to use tax credits and bands to keep low income earners out of the standard rate band and average earners out of the higher band. Keep Low Income Earners out of the Standard Rate Band In Budget 2008 the employee tax credit was increased from €1,760 to €1,830 and the personal credit was also increased from €1,760 to €1,830. Due to these changes in Budget 2008, a single PAYE person under 65 will pay no income tax on the first €18,300 per annum. These changes ensured that the minimum wage (€17,542) remained well outside the tax net in 2008. Keep the Average Earners out of the Higher Rate Band In Budget 2008 the single band was increased by €1,400 to €35,400. The married one earner band was increased by €1,400 to €44,400 and the married two-earner band was increased to €70,800 with transferability restricted to €44,400. The changes have ensured that the average industrial wage for 2008 (estimated at about €34,000) is placed well outside liability to the higher rate of tax for 2008. We will introduce measures to further weight VRT and Motor Tax in favour of cars with lower emissions. During 2007, a public consultation process on revising the VRT system was carried out by the Department of Finance. This evidenced broad support for a reorientation and rebalancing of VRT; and the Minister for Finance announced, in the Budget Statement on 5 December 2007, his plans to introduce a revised VRT system, based on CO2 emissions. The revised system took effect from 1 July 2008. The CO2 emissions of a car have now replaced engine size as the criterion to determine the VRT rate payable on a car at point of registration. VRT rates continue to be applied to the Open Market Selling Price (OMSP) of the car. There are seven CO2 emission bands, with VRT rates ranging from 14% to 36%, as set out in the table below. CO2 Emissions Bands A B C D E F G gCO2/km 0 - 120g 121 - 140g 141 - 155g 156 - 170g 171 - 190 g 191 - 225g over 225g VRT Rates 14% 16% 20% 24% 28% 32% 36% The revised VRT system also includes specific reliefs for series production hybrid, flexible fuel and electric cars. From 1 July 2008, pre-existing reliefs for hybrids and flexible fuel cars were replaced by a relief of up to €2,500 on the VRT payable. 6 This should mean that flexible fuel, and especially hybrid, cars with low CO2 emissions will continue to pay around the same, or indeed lower, VRT than they did under the previous system. In addition, series production electric cars and motorcycles were completely exempted from liability for VRT from 1 January 2008. Appropriate fiscal instruments, including a carbon tax levy, will be phased in on a revenue-neutral basis over the lifetime of this Government. The carbon tax issue is being examined by the Commission on Taxation which is due to report by September 2009, at the latest. Commission on Taxation In order to review the efficiency and appropriateness of the Irish taxation system, the Government will establish a new Commission on Taxation. While the Commission will have a wide remit to consider the structure of the taxation system, it will be specifically charged with considering and making recommendations on the following: Examine the balance achieved between taxes collected on income, capital and spending and report on it. Review all tax expenditures with a view to recommending the discontinuation of those that are unjustifiable on cost/benefit grounds; Consider options for the future financing of local government; In the context of maintaining a strong economy, investigate fiscal measures to protect and enhance the environment including the introduction of a carbon tax. On Thursday 14 February 2008 the then Tánaiste and Minister for Finance announced the establishment of a Commission on Taxation, fulfilling the commitment in the Programme for Government to review the structure, efficiency and appropriateness of the Irish taxation system. Terms of Reference and Membership The terms of reference and the membership of the Commission were also announced on 14 February 2008. The former Minister for Finance has said that terms of reference of the Commission were broadly defined, far reaching and allow for consideration of all aspects of the Irish taxation system and that the work of the Commission will help establish the framework within which tax policy will be set for the next decade. The inaugural meeting of the Commission on Taxation took place on Wednesday 5 March 2008. The Membership of the Commission is drawn from the Social Partners, the accounting and tax advisory sectors and also includes accomplished people with environmental and economic expertise and people who have wide experience in central and local government. 7 Report date and Consultation The Commission is to report to the Minister for Finance not later than 30 September 2009. In order to help the Commission in its deliberations, an advertisement was placed in the national press inviting submissions by 23 May 2008 from interested parties. In addition to that general invitation, they have written to a wide range of public bodies and private sector organisations that they consider might have a particular interest in the work of the Commission and may have a valuable contribution to make. Value Added Tax The current VAT classifications will be examined with a view to reducing the rate of VAT applied to certain environmental goods and services from 21% to 13.5%.” The current VAT classifications have been examined taking into account the growing range of environmental and renewable energy systems. Limited scope was identified under the EU VAT Directive in the context of agricultural inputs used in the production of biofuels. In this regard, Budget 2008 provided, with effect from 1 March 2008, for the application of the reduced VAT rate to the supply of miscanthus (elephant grass) rhizomes, seeds, bulbs and similar inputs in the bio-energy sector. The application of reduced rates on a wider scale will require changes at EU level and, in this regard, Ireland has supported calls from France and the UK for the preferential treatment of environmentally friendly products and services. The European Council has invited the Commission, in cooperation with the Member States, to examine the areas in which economic instruments, including reduced VAT rates, could help to increase the use of environmentally-friendly goods and energysaving materials. The results of the analysis by the Commission are expected later this year along with specific proposals and recommendations to be considered by Council. Supporting Home Ownership While Protecting House Values and Jobs We will legislate immediately to abolish stamp duty for all first-time buyers and make this change retrospective for all deeds presented for stamping to the Revenue Commissioners on or after 30th April 2007. The Finance (No 2) Act 2007, which was enacted in July 2007, dealt fully with this commitment. We will also implement major changes in mortgage interest relief for first-time buyers and those who bought a house in the past seven years. We will increase in Budget 2008 the ceiling on mortgage interest relief for first-time buyers and those who bought a house in the past seven years, from €8,000 to €10,000 for single people and from €16,000 to €20,000 for couples or widowed persons. As income tax rates are reduced, we will keep the rate of mortgage interest relief at 20% for all home owners. 8 This commitment was met in Budget 2008 with the ceiling for first-time buyers and first-time buyers who bought a house in the past seven years, increasing from €8,000 to €10,000 for single people and from €16,000 to €20,000 for married couples or widowed persons. Keeping Ireland Working Keeping taxes on employment low. A low tax wedge is very important to our economic success as it makes it easier for employers to take on new employees. In international terms, the latest OECD data relating to the year 2007 indicate that for a single worker, married one-earner couple with two children or a married two earner couple with two children on average earnings, Ireland has the lowest tax wedge in the EU in all categories and the lowest in the OECD for the married categories. These figures do not take account of the improvements introduced in Budget 2008. Small & Medium Enterprises Continue to enhance the Business Expansion Scheme (BES) and the Seed Capital Scheme (SCS) following on from changes introduced in Budget 2007. The Government's commitment to the Business Expansion Scheme and the Seed Capital Scheme (SCS) continues. Since 1 January 2008, a recycling company can qualify under the BES and SCS schemes where it has received approval for a grant or financial assistance from an industrial development agency or County Enterprise Board, or where it has obtained confirmation from such an agency or board verifying that it has submitted a business proposal to it and that the activities carried on by the company are qualifying activities. Competition and Consumer Protection Make consumers more aware of their rights through information campaigns and through the education system The Financial Regulator seeks to make consumers aware of their rights through its various publications on the costs, risks and benefits of financial services and through its personal finance website for consumers www.itsyourmoney.ie.1 It also runs a helpline for consumers, operates a drop-in centre where one can get personal finance information and guidance and its runs various public awareness media campaigns. It visits colleges, work places and attends various events throughout the country. 1 This website, which was re-developed and re-launched by the Financial Regulator in September 2007, provides extensive information on all aspects of personal finance including cost comparisons. 9 The National Steering Group on Financial Education2, which plans to report on its deliberations later this year, has already developed financial education programmes for second-level schools. Keeping Ireland Ahead at the Cutting Edge Enhance the R&D Tax Credit Scheme The R&D Tax Credit Scheme was enhanced in both Finance Act 2007 and Finance Act 2008 as follows: Budget and Finance Act 2007 Following an examination of the R&D tax credit scheme prior to Budget 2007, the base year used to measure the increase in expenditure on R&D qualifying under the tax credit scheme was fixed at 2003 for a further 3 years to 2009. The aim of this was to provide an additional incentive for increased expenditure on R&D in 2007, 2008 and 2009. The 2003 base year had originally been fixed for the first three years of the scheme (2004 to 2006) and was due to roll forward to 2004 for the purpose of calculating the 20% tax credit for 2007. Also, from 1 January 2007, expenditure by companies on sub-contracting research and development work to unconnected parties qualifies under the tax credit scheme up to a limit of 10% of qualifying research and development expenditure incurred by the company in any one year. This is in addition to an existing provision under which sums paid by a company carrying out R&D to a university to carry out R&D for that company will qualify for the tax credit, provided the amounts paid do not exceed 5% of the expenditure incurred by the company on R&D. Budget and Finance Act 2008 Changes were made in Budget 2008 and the Finance Act 2008 in relation to the use of the base year for expenditure which is used to calculate the qualifying incremental expenditure on R&D under the tax credit scheme. This base year being fixed at 2003 for a further 4 years to 2013. The change will provide an additional incentive for increased expenditure on R&D in future years and it will offer more certainty to industry in relation to the tax credit scheme. 2 This Group is chaired by the Financial Regulator and includes representatives of consumers, education, financial services industry, in addition to representatives of the Department of Finance and the Department of Education & Science. 10 Social Partnership Ensuring Value for Money All capital projects over €30 million will require a full cost benefit analysis in line with the Department of Finance guidelines of February 2005 The Capital Appraisal Guidelines of February 2005,as amended by the Value for Money circular of 25th Janaury 2006, require that all capital projects over €30 million must undergo a full cost benefit analysis. All expenditure under the NDP 2007-2013 will be subject, as appropriate, to a robust Value for Money framework. Key elements of this framework include: NDP Programme Evaluations and Value for Money and Policy Reviews will be published and submitted to the relevant Select Committees of the Oireachtas. The Value for Money and Policy Review initiative was introduced in June 2006, building on the Expenditure Review Initiative introduced in 1997. The first round of reviews under the revamped initiative covers the period 2006 - 2008. Some 90 reviews are being carried out by Departments over this period, focussing on evaluations of significant areas of expenditure and major policy issues. The arrangements applying to this initiative require that the completed reviews are published and submitted to the relevant Oireachtas Select Committee for consideration. A number of NDP Programme Evaluations are also underway and these will be published and submitted to the relevant Select Committees of the Oireachtas on completion. All Ministers will submit an Annual Output Statement with their Annual Estimates to the relevant Oireachtas Committee. This will detail target outputs for the Estimates and the following years’ Statement will set out achievements against targets. This process will encompass Exchequer funded NDP spending. All Ministers have submitted an Annual Output Statement with their Annual Estimates to the relevant Oireachtas Committee. The 2008 round of the Annual Output Statements now include a report on progress in achieving last year’s output targets, as well as setting out targets to be achieved with the resources provided in the year ahead. The Statements are now explicitly taken into account by the Dáil Select Committees when considering the Estimates for their area. 11 Public Sector Procurement Reform Public sector procurement reform for capital projects will ensure greater price certainty, more efficient delivery of projects and better value for money. In order to achieve this objective the following documents have been produced as outputs and are available on the Department’s website www.constructionprocurement.gov.ie Five standard Public Works Contracts Conditions of Engagement for Consultants (Technical) Nineteen Model Forms associated with the Contracts Procurement and Contract Guidance Material Training Material on the Contracts and the Conditions of Engagement Arbitration Rules An additional Short Contract for Building and Civil Engineering Works for use on low value projects was introduced on the 3 March 2008 to complement the existing suite of five Contracts and other documents. The 12 month phasing in arrangements for the suite of five Public Works Contracts in section 9 of Department of Finance Circular 33/06 was brought to an end on 13 February 2008 by the Department’s Circular 4/08. A Model Form of Performance Bond for use on publicly funded projects was agreed with the Surety Companies supplying the Irish market and it was introduced on 13 February 2008 by Department Circular 04/08. Also the Department’s Circular 04/08 widened the scope of application of the Conditions of Engagement to include any technical consultancy service associated with public sector construction projects. Public Sector Management Support the further opening up of management roles to the best qualified candidates In accordance with the commitments in Towards 2016, open competitions were conducted by the Public Appointments Service (PAS) in 2007 for Principal, Assistant Principal and Higher Executive positions. Twelve people have been appointed to date from the Principal competition, ten people from the Assistant Principal competition and eleven from the Higher Executive competition. Since the commencement of the current programme for Government there have been a total of 15 top level appointments in the civil service as a result of open competitions including the senior management grades of Assistant Secretary (13), Deputy Secretary (1) and Chief Inspector (1). Open competitions for a further five senior management posts are currently being advertised – four Assistant Secretary posts and the Chief Medical Officer post in the Department of Health and Children. 12 Roll out the new Performance Management and Development System (PMDS) The Performance Management & Development System (PMDS) provides a framework for aligning individual and team performance with the goals of the organisation, through greater clarity in setting objectives and related performance targets, and for monitoring progress of their achievement. It also provides a context in which the development needs of jobholders can be addressed. An integrated PMDS was introduced on a pilot basis in 2006 and went live in 2007. PMDS ratings are now used in decisions relating to the awarding of increments, assignments to higher scales, and eligibility for promotion, as well as in addressing underperformance. Implement improvements in human resource management which will ensure that all public servants are helped to develop to the best of their ability The OECD Review of the Irish Public Service, Towards an Integrated Public Service, and the report of the Task Force on the Public Service will provide a basis for carrying forward the improvements in human resource management already put in place in the context of the Towards 2016 partnership agreement. Support succession and career planning to ensure a talent pipeline for the future leadership of the public sector Following on from the recommendations in the OECD Review of the Irish Public Service, the Task Force on the Public Service is examining, inter alia, the contribution which a Senior Public Service could make to an integrated and cohesive Public Service. Decentralisation This Government will: Continue to move ahead with decentralisation taking account of the National Spatial Strategy. Ensure that no public servant is obliged to accept decentralisation against their wishes and that promotion opportunities remain available. The Decentralisation Implementation Group (DIG) last reported to Government on the implementation of the entire Programme in September 2007. The Group has consistently reported to Government that steady progress is being achieved in the Civil Service elements of the programme. Progress is evidenced by the following indicators: Property position – The property programme has been advanced. Property acquisition negotiations have been completed or significantly advanced in 38 locations. In addition, the OPW have been very efficient in securing suitable advance or temporary accommodation in over 20 locations to facilitate early phasing of business units. Posts relocated outside of Dublin – At end July 2008 decentralising organisations had established a presence in 38 new locations. Over 2,400 civil and public service posts have relocated from Dublin. 13 Assignments to decentralising posts – In addition to the 2,400 posts that have already moved a further approximately 1,500 civil servants have been assigned to decentralising posts. These officials are in the process of transferring to their new posts or are in their new post being trained in advance of decentralisation to a new location, as soon as accommodation becomes available. Taking account of both moves and assignments, almost 50% of the civil service posts are filled by staff with a commitment to decentralise. Professional & Technical Staff - The DIG has acknowledged the remaining challenges in implementing the professional and technical element of the Programme. The initial focus of negotiations with IMPACT resulted in agreements in relation to the relocation of specialist posts in the Irish Prison Service and the Department of Foreign Affairs. During the remainder of 2008, discussions at individual organisational level will commence in relation to other organisations. Headquarter moves - The Implementation Group of Secretaries General is currently finalising a report for Government dealing with the governmental and crossDepartmental issues arising from the need to provide facilities for Minister, Ministers of State and officials while in Dublin on business. Decentralisation Implementation Group - The main task undertaken by the DIG over the last 12 months has been an examination of the feasibility of phased moves by the State Agencies due to relocate under the Programme. The Group recently submitted a report outlining the results of their examination to the Government. Both of these reports will be considered in detail by Government in the autumn. Further expenditure on the acquisition of accommodation for decentralisation will await consideration by Government of the two reports mentioned above. In light of the current Exchequer position, the Government identified some potential capital savings in the Office of Public Works in respect of decentralisation projects this year. August 2008 - Decentralisation Energy Environmental Sustainability Maximise energy efficiency and energy savings across the economy with a target of 20% energy savings by 2020 and 33% in the public sector. Finance Act 2008 introduced a new tax initiative to encourage the use of energy efficient equipment by companies for their business. This accelerated capital allowance incentive will allow companies to claim the full cost of specified energy efficient equipment against their profits in the year of purchase. Expenditure must be above a certain minimum amount for each of the three classes of technology covered by the scheme. 14 The incentive will be confined to new energy efficient equipment purchased by companies and it will not apply to equipment that is leased, let or hired. The incentive, which is subject to EU clearance from a State-aid perspective, will assist in improving companies’ cost competitiveness and should also lead to a reduction in overall energy demand and help reduce carbon emissions. Environment Climate Change: A Challenge for the Whole World Continue to use the taxation system to encourage good environmental behaviour and discourage poor practice: for example, through rebalancing the VRT and Motor Tax system to reward the purchase of greener cars. A revised VRT system which rewards the purchase of greener cars through the incentive of reduced VRT was introduced on 1 July 2008, following a public consultation which took place during 2007. Under the new system, the CO2 emissions rating of a car now forms the basis for calculating VRT liability. Under a new, seven emission-banded system, greener cars will attract lower rates of VRT (as low as 14% of Open Market Selling Price (OMSP), compared to the lowest rate of 22.5% of OMSP under the previous VRT system); and higher polluting cars will attract rates of up to 36% of OMSP (compared to the previous maximum VRT rate of 30% of OMSP). The system also retains separate additional reliefs in relation to the purchase of hybrid, flexible fuel and electric cars. From 1 July, the purchase of a series production Hybrid or flexible fuel car can attract a relief of up to €2,500 (in addition to benefits automatically accrued under the new system where the car has a low CO2 emissions rating); while series production electric cars and motorcycles have been completely exempted from liability for VRT since 1 January 2008. Agriculture, Food and Forestry Supporting our Young Farmers Continue to offer a range of supports to young farmers entering agriculture including education, taxation measures and direct start-up aid. Retain stamp duty relief that continues to play an important role in the early handover of farms to the younger generation. Transfers of farm land to Young Trained Farmers benefit from a Stamp Duty exemption where the transfer takes place on or before 31 December 2008. 15 Marine & Natural Resources Marine Complete the work of fleet restructuring, to create a world-class fleet ideally suited to the stocks, species and sustainable practices of the modern fisheries sector. Seafood Development will benefit from an investment of €216 million under the new National Development Plan (NDP). A further €118 million may be made available over the life of the plan under the Cawley proposals, which will be available to the sector on the basis of verified progressive change as set out in the Cawley Report. Provisions to assist the take-up of the scheme for the decommissioning of fishing vessels were included in the Finance Act 2008. This was done by granting relief under the “Retirement Relief” for Capital Gains Tax in respect of compensation payments made under the decommissioning scheme for fishing. To qualify, the person who received the compensation payment must have owned and used the fishing vessel for the period of 6 years and be aged at least 45. Natural Resources Encourage investment in oil and gas exploration off the Irish coast and optimise the value of any oil and gas finds for Ireland. Section 41 Finance Act 2008 introduced a new Profit Resource Rent Tax (PRRT) for profits arising from a petroleum lease which follows an exploration licence awarded by the Minister for Communications, Energy & Natural Resources after 1 January 2007. PRRT of 5%, 10% or 15% will apply depending on the profitability of petroleum fields. These taxes will be in addition to the 25% corporation tax rate which currently applies to trading profits from such activities. The new arrangements strike a balance between encouraging investment in exploration on the one hand and getting an appropriate return for the exploitation of the State’s resources on the other. Health Promoting Good Health Use the taxation system to promote low alcohol or alcohol-free products. The 2008 Budget Statement indicated that the Minister for Finance intends to bring forward measures in relation to lower alcohol beverages in the 2009 Budget. The matter is being considered in the context of the annual Budgetary cycle. 16 Palliative Care We will ensure that the needs of all people who require palliative care are met whether this is needed at home, in the community or in a specialised hospice. Section 26 of Finance Act 2008 provides for a scheme of capital allowances for capital expenditure incurred on the construction and refurbishment of qualifying specialist palliative care units. Relief for eligible capital expenditure incurred will be available at the rate of 15 per cent per annum in the first six years with 10 per cent in year seven. Eligible expenditure is net of any grants or other financial assistance received towards development costs. Approval from a State-aid perspective is required from the EU Commission. Therefore, the scheme is subject to a commencement order which will be made when that approval has been obtained Better Supports for Older People Pensions Seek to develop imaginative proposals in the context of the Green Paper (the publication of which is a commitment under Towards 2016) and in consultation with the social partners, to provide an SSIA type scheme in an effort to make supplementary pension provision more attractive to those on low incomes Following the publication of the Green Paper on Pensions in October 2007 and a period of consultation which concluded at the end of May 2008, work is underway in relation to developing a policy framework for responding to the issues raised. The issue of an SSIA-type pension scheme for those on lower incomes will be addressed in that context. 17