Dáil Éireann debate -
Wednesday, 23 Feb 1966

Vol. 221 No. 2

Private Members' Business. - Income Tax Allowances (Resumed).

Debate resumed on the following motion:

That Dáil Éireann calls on the Government to make provision in the forthcoming Budget for a substantial increase in personal and dependants income tax allowances as they bear no relation to the purposes for which they were originally intended.

Mr. Corish

Last night I was demonstrating the inadequacy of these allowances in present circumstances. These allowances were last fixed in 1960. Originally, I believe income tax was intended to ensure that those who had a surplus after providing adequately for their own needs and those of their families would contribute portion of that surplus towards the upkeep of Stage services. We seem to have gone a long way from that idea. The Minister and the Government must recognise that it is a bit unfair, to put it mildly, that the single man should be taxed on anything he earns over and above £6 per week. It would be valid for me to argue, I think, that rather than putting that person under an obligation to contribute to the running of State services, the State and the community should be under an obligation to give that man a better income and a better standard of living.

I do not think £312 free of tax is any longer real, particularly when one remembers that this amount was fixed in 1960. If we have regard to the increase in the cost of living since 1960, this exemption level should be raised to something like £400. These allowances have certainly not been adjusted side by side with the increase in the cost of living. The average growth rate in the economy since 1960 has been four per cent. This means an increase of 25 per cent over the period; in relation to that increase, the exemption level should be something in the region of £390. It must be abundantly clear that £312 as an exemption level for a single man is a ludicrous figure. The allowances for a married couple were fixed approximately six years ago.

I want to give an example now of a single worker who is required to pay income tax. Deputy Tully will correct me if I am wrong. The average wage of a farm worker is £7 10s per week. He gets £390 per year. When one takes the personal allowance, the earned income allowance, and makes a deduction of £20, say, for other allowances, such as working clothes and social welfare contributions, one finds that that worker is taxed on £38 per year. If you make that figure £39, it means he is paying approximately £13 per year income tax. Under PAYE, he pays every week out of his £7 10s five shillings income tax. It is generally accepted in the House, certainly it is protested from the ranks of the Labour Party, that this average wage is too small, not perhaps so much for a single man as for a married man with family responsibilities.

I do not think I need pursue the argument in respect of these allowances because all these arguments have been dealt with pretty fully in the report to which I referred last night. That report, published in 1962, made very positive recommendations with regard to these allowances. I do not know whether the Government have accepted these recommendations in principle or accepted them in the hope that they may be implemented at some future date. I think the time is past when these recommendations should be both accepted and implemented by the Minister for Finance and I hope that he will take steps to implement them in his forthcoming Budget. Recommendation 36, which says that the personal allowance for a married man should be at least twice that for the unmarried, does not need any argument. It seems ludicrous that a man and his wife should have less by way of allowance than two single people living together.

Our motion is in accord with the recommendations of the Commission. That Commission recognised that these allowances were unreal and unfair, particularly the allowances for the family man with children. They recommended that these allowances be adjusted.

I believe they should be adjusted in such manner that greater emphasis would be laid on those in the higher income groups and on the wealthier classes. It has often been protested here by the Taoiseach that we have no people of real wealth in this country. A former Minister for Finance in the Fianna Fáil Government brought in regulations to allow the Revenue Commissioners to introduce tighter controls to prevent evasion and, above all, the avoidance of tax. There are so many loopholes in the income tax code that there are some people who avoid rather than evade the payment of income tax, and do that within the law. There are many examples of this, the expense account and so forth. On the other hand, we have the agricultural worker with £7. 10s. per week who cannot avoid the demand made on him and the payment of tax at the rate of 5/-per week. We want to make sure now that the weight of taxation will not be as heavy on those with reduced incomes. That was the viewpoint of those who made the recommendations in this report and I trust that not alone will the Minister accept the principle enshrined in our motion but that he will have due regard to the recommendations to which I have referred.

Mr. Norton

I second the motion. I should like to support it for reasons of simple justice. I am not, unfortunately, a very eloquent speaker but this is a motion which speaks for itself. As the previous speaker has said, since the personal and dependants' allowances were last adjusted, the cost of living has risen by approximately one-third, and it is only simple justice that the income tax allowance be adjusted and brought up to date. These allowances were, at any time, small enough but they have now become even more inadequate, due to the falling value of money over the past six years. In order to give some effect to the purpose for which the allowances were intended, this motion should be accepted by the Minister. We have here a new Minister for Finance. This will be his first Budget. I am ignoring last year's Finance Bill for which the present Minister cannot be blamed.

Mr. Corish

He was the Minister then.

Mr. Norton

He was here last year but he did not prepare the Bill. I am trying to be reasonable. I do not believe in blaming somebody for what is not properly his responsibility. The Minister was very skilful in defence of it but I am quite sure that in his heart he was not particularly anxious to claim credit for many of the provisions in it. Now that we have a new Minister, I hope he will bring new thinking into the Department of Finance, that new ideas will be examined carefully, that old methods will not be preserved merely because they are there, that where a particular tax fails to give satisfaction, it will be reviewed and, if necessary, changed or abolished as the case might be.

To given an example, I would refer to the question I put down to the Minister the other day in relation to the PAYE system and State employees. As I said to the Minister, the system of tax collection in respect of State employees does not operate satisfactorily from anybody's point of view. I receive a constant flow of letters complaining about this and asking can anything be done about it. There does not seem to be any reason why State employees should be treated differently from anybody else in the State. The answer the Minister gave was that that was the rule and he did not see any reason to change it. That is not a reason; it is not even a good excuse, and the people who are being taxed in this manner are dissatisfied. The Revenue section are not even collecting the money as quickly as they would if these people were taxed under the normal PAYE method which applies in private industry. That is one example of a system that should be changed. However, the Department of Finance, in the rather stodgy fashion in which they are inclined to move, are holding on to this system merely because they are unwilling to make a change or because they are indifferent to the position. I am hopeful that the new Minister will approach these problems with a fresh mind and with a greater willingness to make changes where changes are necessary.

Increasing income tax allowances is not what one would describe as a new idea, but it is a step in the right direction. What I should really like to see is an examination of the whole income tax position on the basis of cost effectiveness. There are many thousands of people who are paying relatively unimportant amounts in income tax, and the administrative cost of collecting these amounts of money must far outweigh whatever benefit they bring into the Department. In my view, it is a waste of effort and of money. I should like to see a more realistic examination of the income tax position, preferably by an outside authority not cluttered up with official thinking, a body who would arrive at a realistic figure at which it pays to collect income tax. I would say the figure would be in the region of £500 or £600, and that the people who are paying tax below that are not worth bothering about. What we would save in administration would more than offset what is lost in tax. There would be a benefit to the economy; this extra money would be in circulation, and there would be other methods by which the Minister could collect it. There is far too much effort being put into collecting small sums of money by the income tax people, and this is purely tax for the sake of tax. Taxing a man purely for the sake of collecting the money is not only bad economics but bad politics as well. I hope the Minister will bear this in mind in the forthcoming Budget.

I am not sure if the figure is correct, but I understand that 75 per cent of the income tax is paid by about 25 per cent of the people contributing, and that the balance of 25 per cent is collected from the vast bulk of 75 per cent of the people. We could improve that position without a great deal of effort, simply by raising the allowances and permitting the smaller fish to escape through the net.

There is one other idea I should like to put to the Minister. Since the family is the unit on which this State is founded, the family must necessarily be the prime consideration. I am not trying to suggest that single people are of no consequence or unimportant but, generally speaking, the most important part of a person's life is the time when he is or ought to be married. It is to assist people towards marriage that I make this suggestion. The cost of getting married today, with the price of houses, the price of furniture and the cost of living generally, is so expensive that people saving to get married, taking the past two years into account, are lucky if the sum of money they have is worth as much today as it was two years ago. If they are to increase their savings, they must be given some assistance.

What I suggest is that when a person gets married he should be given an income tax rebate for the two years previous to his marriage, not at the single rate but at the married rate; in other words, when he gets married, he sends in his marriage certificate to the Department and claims for the previous two years. The amount involved in this would be only £160. This is not a fortune but to a person trying to set up a home, it would be a considerable help. This would have a beneficial effect on the whole economy. It would encourage more marriages and earlier marriages.

Most people getting married think of the major items; they do not take into consideration the smaller items, but these small items which they overlook are the things which give the headaches in the first few years of marriage. This tax rebate would help where it is most needed; it would help people to start off married life and make some provision for the starting of a home. This is one aspect of what I mean by fresh thinking by the Department and I should like to see the Minister make a move in this direction and not merely follow the routine tax code which we have had and make no effort to change it.

The income tax allowances themselves are, as have been demonstrated, inadequate. There is an overwhelming case for increasing them; indeed I should be interested to see if the Minister even attempted to defend the present allowances. I should like to mention particularly the dependant's allowance which is merely £60 per year. If a child's allowance is £120, it seems utterly inadequate that a dependant's allowance should be £60 a year. The cost of keeping an adult is in many cases, particularly an elderly adult getting medical attention or help, far greater than the cost of keeping a child and to give £60, in that case is utterly inadequate. No case can possibly be made for it.

I know that other members wish to speak and as we are anxious to conclude this debate tonight, I do not intend to pursue the argument any further. I do not think it is necessary. If the Minister is in any way reasonable and fair, he has ample opportunity to demonstrate the fact on this motion. I feel he must accept the motion and make the recommendations we suggest in the forthcoming Budget.

Mr. Cosgrave

I want to support the motion and also to advert to Motion No. 16 on the Order Paper, the terms of which I understand are being considered in conjunction with it, although separate decisions may be necessary.

The purpose of both motions is to secure a review of the position concerning income tax allowances in advance of the Budget. This matter has been discussed on many occasions and normally it is discussed each year either during the Budget debate or in the subsequent Finance Bill debate. On this occasion the motions have been put down prior to the Budget rather than by way of amendment to the Finance Bill or for discussion in the Budget debate, in order to get the matter considered in advance. I believe there is general acceptance of the view that the drop in the value of money and the general increase in prices have very seriously affected the benefits which should be available in respect of the personal allowance, the married allowance and the children's allowance and also the dependant relative allowances. It is some time since any worthwhile changes were made in these allowances and there has been a very substantial increase in the cost of living.

In particular, I want to direct attention not only to the position of married persons and those who are employed and in receipt of wages and salaries —in their case they probably have received whatever wage and salary adjustments were made and although there has been no consequent adjustment in the allowances for income tax, to the extent that wages and salaries have been adjusted, they have benefited —but to the position of retired persons on fixed incomes. The position regarding pensions is in the main unsatisfactory in that the pensions have always been based on pay at retirement, and while that was reasonably satisfactory when prices were static and the value of money remained constant, with the continuous drop in the value of money, that method of calculating pensions operates unfairly and inequitably to such an extent that over a number of years now, there have been a number of pension increase Acts and these pension increases are varied in amount and have always applied to a period which failed to compensate in time for the changes that occurred and did not apply so as to give those who retired at an earlier date the same rate of pension as persons similarly employed who retired more recently.

Persons on pensions or dependent on fixed incomes, say, from investments accumulated from past savings or some other fixed income have been very severely affected by the drop in the value of money and the fact that allowances in respect of income tax have not been increased. I want to urge the Minister in framing the Budget to consider sympathetically the position of these categories. In addition, I believe there is a very strong case for increasing both the personal allowance and the dependant relative allowance and the children's allowances. These allowances were all framed at a time when the cost of living was lower and when the amount of money considered adequate or reasonable to cover the particular category concerned was much less than is needed today.

In recent years in Britain an increase was granted and in general the amount allowed in respect of exemptions from tax was brought up in order to compensate for the drop in the value of money. With very few exceptions, there has been no comparable change here and there is a very strong case in equity to increase these allowances, particularly in respect of those living on fixed incomes either from investment or pensions, or in the case of persons retired whether they are living on pensions or have some other income of a small amount from investments, or perhaps from the letting of a house or property of some sort.

The question of children's allowances is also important. The actual children's allowance under the social welfare code was increased but that allowance is payable to certain categories, some of whom benefit because they are not liable to tax in respect of it, while others who receive the children's allowances are liable to income tax and in many cases the actual increases are of virtually no benefit to them because of the fact that the relief in respect of income tax was not altered.

The two motions on the Order Paper were put down specifically for the purpose of drawing the attention of the Minister and the Government to this problem. No category in the community has been so severely affected by the rise in the cost of living, in the widest sense of that term, and the drop in the value of money, as retired persons and persons living on fixed incomes. Over and above that, a number of people who are self-employed, people on the lower scale, who are within the income tax code, with responsibility for educating children or for providing the ordinary needs of their families, find that rising costs and rising charges which they have to meet, either in respect of education or in respect of ordinary house-hold outgoings, are all pressing more severely on them now, with the drop in the value of money and the rise in charges, than they did previously. Faced with that situation, they find that there has been no worthwhile change in income tax reliefs in recent Budgets. The changes last year in respect of certain pensions and allowances were strictly confined to those coming within the social welfare category. There is a very strong case for granting relief in respect of income tax.

Another problem adverted to, not directly contained in these motions although contained by implication, is the question of allowing medical expenses, properly incurred, as an appropriate deduction in respect of income tax. This matter has been the subject of consideration here and there is no doubt that there is a very strong case for it. Both the Minister and his predecessors expressed sympathy with that point of view in the course of recent Budget and Finance Bill debates. The fact that Ministers recognise the strong case that has been made, the justice of the case, and the reasonableness of the proposal, indicates that there is a general recognition both in the Government as well as in the Opposition that some action should be taken. This discussion now focuses attention on the gravity of the problem in advance of the Budget.

I suppose the Minister for Finance at Budget time has always to balance one item of expenditure, or one measure of relief, against another, but, as I said, no section of the community has been so severely affected by the rise in prices as retired personnel and those living on fixed incomes, in addition to those who, because their income is known and is capable of careful assessment, either under PAYE or generally under the income tax code, pay a full and adequate share of the tax burden. Similarly, self-employed people on small incomes who are unable, because of the nature of their business, to compensate themselves for a rise in prices, who for one reason or another are not able to pass on the full increase which would be warranted to compensate for the drop in the value of money, deserve consideration. Their claim for a reasonable share of whatever reliefs are possible in the Budget is overwhelmingly strong. Many years ago when the Commission on Income Taxation considered this problem, this matter was considered as one which required action and certain recommendations were made in regard to it. So far I think it is correct to say very few of those recommendations have been implemented, and certainly not implemented to the extent necessary.

I understand that there is agreement to finish this debate this evening at 7.30 and consequently those who wish to contribute have to be reasonably brief, but I want to urge the Government and the Minister to consider this matter sympathetically. I want to express the view that there would be support for any relief measures designed to alleviate the difficult problem created for income tax payers particularly in respect of the personal and dependant's income allowances, as well as the married allowance and the children's allowance. I would ask that practical proposals be introduced to ease some of the problems and to lighten, in so far as we can, the burdens which so many people have to bear because no adequate recognition has been shown in recent budgetary reliefs of the change in the value of money and the fact that these changes have not been allowed for in revising the rate of allowances for income tax purposes.

Mr. T.J. Fitzpatrick

(Cavan): I wish very briefly to support the motion in the name of the Labour Party and to advocate support for Motion No. 16 in the name of Deputies T.F. O'Higgins, Ryan and Byrne. I do not intend to take up the time of the House for very long——

Minister for Finance (Mr. J. Lynch)

Could I interrupt the Deputy? I did not realise that Motion No. 16 was being formally taken. I take it that the spirit of the motion is being taken in conjunction with the Labour Party motion?

Mr. T.J. Fitzpatrick

(Cavan): My understanding is that it is being discussed with the Labour Party motion but that a separate decision may be taken, if necessary.

Mr. J. Lynch

But it was not formally moved?

Mr. Cosgrave

No; you cannot move two motions at the same time. I understood that if we wished, we could have a separate vote.

Mr. J. Lynch

I have not got any instructions to that effect.

Mr. James Tully

I think the matter should be left until the Ceann Comhairle is in the Chair. It was mentioned and it can be discussed.

Mr. Corish

I mentioned it last night and I did not get a "geek" from the Fine Gael Party as to what they wanted.

Mr. Cosgrave

I thought there was an arrangement between the Whips.

Mr. J. Lynch

If there was, I was not informed of it.

Mr. James Tully

There was, but——

Mr. T.J. Fitzpatrick

(Cavan): The principle seems to be the same. I do not think a discussion on both will embarrass the Minister.

Mr. J. Lynch

I am not suggesting that; I only want to get the position clear.

Mr. T.J. Fitzpatrick

(Cavan): It has been said that the standard rate of income tax has not been increased for some years. That may be strictly correct in so far as the rate has not been increased, but the impact of income tax on taxpayers has been increased because there has been no increase whatever in personal allowances either for married people or single people, or in the children's allowance, since 1960 at least. Since then, the cost of living has been increasing rapidly. The value of the children's allowance at £120 is not worth nearly what it was and neither is the married allowance of £394. Presumably when these figures were fixed, they were meant to be sufficient to permit married couples to have a frugal standard of living and the children's allowance was intended to be sufficient to support a child. However, all that has changed. The value of money has drastically changed and I suggest to the Minister that an allowance of £394 for a married couple is entirely inadequate.

I make the same case in regard to the £120 for the children's allowance and the same case for the single person's allowance. Has the Minister considered, for example, by how much the school fees for secondary schools have increased since the children's allowance was fixed at £120? I would venture to suggest to the Minister that school fees have gone up on at least two, and probably three, occasions since the allowance was fixed at £120. I can also tell the Minister that most secondary schools are threatening a further increase this year. Therefore, I say there is an unanswerable case to be made in respect of the children's allowances, the married allowance as well as the single person's allowance.

Deputy Cosgrave also made a plea on behalf of retired people. Here, again, the Government are attacking the income and assets of retired people in two ways. I have a case of a person who retired a short time ago. He invested £1,100 in six per cent Exchequer stock, 1985 to 1990. That was in November, 1964. The £1,100 worth of stock cost him £1,083 10s. Since then the value of that stock has fallen to £1,024, through Government action, because, in order to get money, the Government have had to introduce loans at a higher rate thereby depressing and devaluing this man's capital which he invested to keep him for the rest of his life.

At the same time, the personal allowance for income tax in respect of this man is permitted to remain at the same rate. Therefore, the Government are attacking this retired person in two ways. They are devaluing his capital. Although he invested it in Government loans the value of it has gone down. On the other hand, he has not, in recent years, been given any increase in his tax free allowance. That is not fair; it is unjust. If the Minister gives any thought to the problems confronting both married people, who are trying to educate children and give them secondary education and retired people, who are trying to keep body and soul together on a small fixed income, he will agree that there is an unanswerable case to be made for giving relief to those people at once. I know there are other Deputies, who have put their names to the Fine Gael motion, who wish to speak and I do not wish to take up the time of the House any longer. In fact, I do not think it is necessary. The case is there and the Minister cannot really refuse the case that can be made.

Minister for Finance (Mr. J. Lynch)

It is appropriate that I intervene at this stage. At the outset, it is unusual, if not unique, that what are normally described as budgetary matters are discussed at a time so near the introduction of the Budget, within a fortnight, in fact.

Mr. Corish

We are no worse than deputations.

Mr. J. Lynch

As Deputy Corish has suggested, there are scores of deputations at this stage of the year who are traditionally seen by the Minister for Finance. Each of them puts forward points of view that certain taxation should get relief. They make those pleas, strictly from their own point of view, of course and do not care what other taxation is imposed in order to secure that relief. With such deputations as I have had in this debate, I find myself inhibited in that I cannot indicate to the House, to any extent, what my intentions are in relation to the Budget. To do so would indicate some degree of disclosure for which I would be strongly criticised. Perhaps the criticism might lead to something in the nature of what happened to other people in my position in other countries.

Mr. James Tully

The Minister did say he could afford to tax spirits.

Mr. J. Lynch

I did not. What I propose to say, as a result of the position I find myself in, will be purely factual and in no way will I be arguing for or against either motion or the spirit of either motion. I hope, for that reason, that it will be understood that whatever figures I use will only be factual and they will not indicate my mind in any way. It is unfortunate that the procedure has now developed which puts the Minister for Finance in this position because, as the House is aware, if a question were asked at this stage, or early in the year, as to whether the Minister would give any of the reliefs proposed in those motions the answer to such Parliamentary questions would be that it was not my intention to disclose my budgetary proposals at that stage.

However, as I said, I can only be factual and I can, in no way, indicate what my mind is. Naturally, every Minister for Finance is impressed by arguments in favour of taxation relief and every Minister for Finance, I am sure, will say that the form of relief proposed is something he would dearly like to concede but that he has to have regard to budgetary considerations. In other words, where else would he get the money? This is the stock reply to such an argument during the course of the Budget Resolutions or the debate on the Finance Bill that follows.

Let me come to what I said will be the purely factual part of my speech. I realise that there are many others who wish to speak and, therefore, I will be as brief as I can. The existing scheme of personal allowances achieves two purposes mainly. In the first place, the personal allowance, augmented by the earned income relief, determines the effective exemption limits for the various broad categories of taxpayers with wholly earned income. The effective exemptions in force at the present time are £312 for a single person, as Deputy Corish pointed out. For a married couple the allowance is £525; for a married couple with one child, it is £685, and for a married couple with three children, it is £1,005. In other words, any person in those categories who earns those amounts or less is not liable at all for income tax. This system provides an automatic form of tax graduation which rises more steeply when the taxpayer passes into the surcharge stage, which, in our country, is £2,500. That is when his income, after deducting allowances and reliefs, exceeds £2,500.

A person's effective rate of tax, by virtue of this graduation, that is, the rate which is got by dividing the total amount of tax for which he is liable by his total income, rises gradually from a fraction of a penny in the pound to a rate, which in the case of the highest incomes, approaches the maximum combined rate of income tax and surtax, which is 13/10d, in the pound. The personal allowances and reliefs secure that, in this graduation, account is taken of the different personal circumstances of various categories of taxpayers. Therefore, in a given case the appropriate aggregate allowances determine the effective point at which liability to tax commences. They also achieve the result that the effective rate of tax varies upwards as income rises above the point of commencement of tax liability. It should be emphasised that the exemption limits for the various categories of taxpayers do not represent amounts above which income is confiscated. The amounts from there on are taxed at, as I said, graduated rates or points. They are, in effect, tax-free margins, in excess of which income is taxed at such a rate as gives varying effective rates of tax on the total incomes of different individuals.

It is suggested that the rates in operation, to which I have referred, may be regarded as subsistence rates below which tax ought not to be collected from an individual. I do not think it was ever consciously decided that these rates of relief were to be regarded as subsistence levels. But, nevertheless-as Deputy Corish pointed out—there was in the Seventh Report of the Commission on Income Taxation a recommendation to the effect that the principle should be recognised that income tax should not be payable on the income needed for minimum subsistence. Deputy Corish said the Government ought to indicate their views on that. Of course, the Government have done so—in the second White Paper on Direct Taxation, paragraph 28 of which says:

It has always been recognised that income tax should not be payable on the income needed for minimum subsistence.

Mr. Corish

It is a good base to start from.

Mr. J. Lynch

Yes, it is. Again, I want to say I am not arguing; I am trying to be factual. It should be emphasised that, while these rates may remain static, nevertheless there has been a gradual increase in the incomes of people generally.

The suggestion has been made that income tax allowances have not risen in line with the cost of living over a number of years. Let us take 1938 as a year for which we can give rates of tax in relation to certain income, at the same time giving a reasonable spread of time, to indicate whether, in effect, people are better or worse off as a result of income taxation. It must be emphasised that in the meantime, too, for many categories of taxpayers there are certain social benefits which were not in existence in the pre-1938 days which are, in income tax jargon, described as social transfer payments; for example, children's allowances as such. These must be taken into account as well when one is assessing the actuarial effect of income tax in relation to tax-free allowances.

I think it can be demonstrated that the increases in over-all income of the average industrial worker in relation to the amount of tax he pays leave him much better off as of now than he was, say, in 1938. If I take the index of average weekly workers in industries producing transportable goods as a guide, I can demonstrate here that there is this definite increase. The increase in remuneration for industrial workers, if I take October 1938 to equal 100, was about 379 per cent, as compared with a rise in the cost of living—again as measured by the cost-of-living index—of about 228 per cent, that is, over about the same period.

On the basis of this increase in income of about 379 per cent, I can indicate here how workers in certain average categories are better off. In 1938-39, a single person earning £150 paid no tax. The equivalent net income, at 1965 prices, would be £492. A married man earning, say, £200 in 1938-39 would pay no tax and his equivalent net income, at 1965 prices, would be £656.

Mr. James Tully

That figure is not correct—£608 is the correct figure.

Mr. J. Lynch

£656 is the one I have.

Mr. James Tully

Well, it is wrong.

Mr. J. Lynch

In 1938-39 a married man with two children earning £450 would pay £3 tax and, at 1965 prices, the equivalent net income, after tax, would be £1,467. Take a single person at the present time earning £718: his tax would be £96, leaving him a net income, after tax, of £622. A married man earning £957 would pay £102, leaving him a net income of £855. A married man with two children earning £2,154 now would pay £323 tax, leaving him a net income, after payment of tax, of £1,831. It will be seen from these figures that, by and large, even if the allowances have not altered over a period, the ordinary workers—and I am sure these figures will be within the categories of what Deputies would regard as ordinary workers—are better off taxwise than they were over 25 years ago.

Another useful comparison would be, of course, the rates in Ireland for the average person compared with the rates in England. I think we can say that, up to a certain point somewhere between an income of £3,000 and £4,000 a year, the Irish person in every category, the single person, the married person and the married person with children, is better off up to that stage. For instance, the single person earning up to £312 pays nothing. In Britain he pays £2 13s. 4d. I do not wish to go through a litany, but a single person earning £500 pays £44 in Ireland against £40 in Britain. A single man earning £1,000 pays £163 in Ireland as against £186 in Britain, and so on until we reach the level of £3,000 to £4,000. At £4,000, the rate in Britain is lower by reason of earned income applying to surtax rates. They give roughly similar figures for a married man with two children. At £1,000, he pays £36 here and in Britain, he pays £52.

Mr. P. Byrne

Of course the Minister will agree the standard rate is much lower here than in Britain.

Mr. J. Lynch

One must take the total obligation of the tax not only in relation to the standard rate but to the allowances as well. It is only fair to indicate that taking the standard rate with the allowances, the average Irish single person and the average man with a wife is better off in the ordinary categories—the vast majority of people are better off taxwise here than in Britain.

Deputy Cosgrave mentioned retired persons on fixed incomes. Of course they have a problem in that the salaries on which they retired were lower than the salaries at which a man in the same position would retire in later years. There has been an attempt to bring these rates up, but nevertheless it remains difficult to bring them up to rates equivalent to those enjoyed by men retiring now. Even in these cases, pensions paid to retired persons are regarded as deferred income and they enjoy earned income allowances as well as personal allowances.

Deputy Cosgrave mentioned medical expenses. That is outside the motion. It is a matter that crops up during the debate on the Finance Bill. It is not something to which I should refer now, the time being limited. Deputy Corish mentioned two areas in which the Income Tax Commission made some recommendation—one, that the personal allowance for married persons should be at least twice that for unmarried persons. The Government have in the White Paper on Direct Taxation set out at paragraph 30 of Part III that the personal allowance for married persons is £394 and for un-married persons £234: £84 of the allowance is attributable to compensatory adjustment made on the introduction of PAYE. It will be seen that married and single allowances revert to what they were in 1959-60, which represented a ratio of approximately two to one.

Mr. James Tully

So if they can prove they are not married, they can get a much better allowance.

Mr. J. Lynch

That is the position at the moment but the £84 adjustment made the ratio two to one in favour of a married person.

Mr. Corish

It is a wonder the Commission did not advert to that. Let us take two brothers or a brother and a sister living in the one house. They have relief to the extent of £468 but a man with a wife has relief amounting to only £394.

Mr. J. Lynch

Two may live as cheaply as one.

Mr. James Tully

The Minister has not tried it.

Mr. J. Lynch

There is a slight difference between sister and brother, who have their separate expenses, and married couples.

Mr. Norton

It is hard to believe the Minister is married.

Mr. J. Lynch

I do not wish to enter into arguments——

Mr. P. Byrne

Of that kind.

Mr. J. Lynch

——of any kind. I have tried to meet the situation on general grounds rather than make arguments for or against or to counter the arguments made on the other side. I oppose the motion because of the proximity of the Budget, because it is unprecedented that a Minister should give his views on budgetary matters in advance of the Budget.

Mr. Ryan

I did not realise we would get into deep social, philosophical and personal problems, on all of which the Minister seems to have embarked in his closing remarks. Perhaps he did this as an avenue of escape from obvious objections to the present scale of allowances and to the fact that a person is paying tax on a larger proportion of his earnings than in 1939. That is a development which has converted income tax from being a tax paid by people who could afford to pay it into a regressive tax which now lies on an increased proportion of our people irrespective of their capacity to pay it. If this trend is not reversed by multiplying—I use the word in its strict mathematical sense —personal allowances, then we will have increasing regressive taxation in this country, which is contrary to what all progressive democracies are seeking to achieve.

The Minister's figures are interesting and stimulating and we are grateful to him for producing them, but they cannot cloak the fact—indeed they disclose it to people who did not already know it—that a larger proportion of the people's income is now being taxed than heretofore. Apart from that, standards have risen since 1939 and what are now regarded as the necessaries of a proper, full and adequate life, were considered luxuries in 1939. If our standards are to improve, if the money which people spend on worthwhile things is to increase, if we are to provide the necessary stimulus for initiative, then we must multiply the personal allowances and that is what we in Fine Gael and our colleagues in the Labour Party are seeking in our respective motions.

We appreciate the Minister's administrative difficulties in speaking about the matter a fortnight before the Budget but there does not lie upon us the same obligation of silence as that imposed on the Minister and we say that the Minister cannot expect people to restrain themselves in wage demands and salary and income demands if he fails to make their present pay packets capable of meeting their requirements. At present there is no doubt that people's pay packets are unable to meet their necessary family and medical requirements and the obligation which lies on them to look after elderly people. It would go a long way to encouraging restraint in our community if the Minister were to take positive action at Governmental level and provide increases in personal allowances, marriage allowances and child allowances to compensate for the decline in the value of money and also to provide some means for people to obtain for themselves and their dependants some of the things which have now become very necessary if they are to achieve a full and adequate life in their time.

I have no wish to go into details. The Minister has given some figures which speak for themselves. I am sure there are other Deputies anxious to speak, and I will give way on that basis. We will not thank the Minister if he increases these allowances in the Budget. We think it is the very least he must do. While we do not expect him today to say he is going to do the right thing, we are quite certain he will, or else he will have to face, personally, politically and nationally, very severe criticism.

Mr. P. Byrne

I want to make briefly this point in relation to what Deputy Cosgrave said earlier on and the Minister's remarks on it. A widow who is dependent on an investment income or a widow in receipt of an annuity does not receive an earned income allowance as distinct from a widow in receipt of a pension. I formed the impression listening to the Minister he was under the impression that perhaps she did.

Mr. J. Lynch

No. I specifically mentioned people in receipt of a pension which was regarded as a deferred income.

Mr. P. Byrne

The Minister will appreciate there are widows, particularly of self-employed persons, usually professional persons, who may not receive a pension but who may have been provided with a source of income or annuity through insurance by her late husband. Such a person, particularly if she has a large family, is harshly treated by the tax code at present. I want the Minister to be quite clear what our mind is in this matter.

There is one further point. Any discussion of taxation of wage earners must advert to the vicious and restricted code of rules under which salary and wage earners are taxed. It is an old maxim that equity is a stranger to income tax. The Minister's predecessor was prepared to live with that. I earnestly trust Deputy Lynch will be more open-minded and less conservative than his predecessor. Wage and salary earners are viciously taxed in this country, but they constitute over 80 per cent of the total taxpayers. In no part of our tax code is the British law we have taken over less suited to our conditions and our economy than the code of rules under which wage and salary earners are taxed. As Deputy Ryan said, we are grateful to the Minister for the figures he produced. They established conclusively that, proportionately speaking and allowing for the decline in the value of money, the State is calling upon a certain type of person through PAYE to pay taxation, a type of person who would not have been called on in 1939.

In 1939 the personal allowance was £120. It is now, in effect, £150, because I am leaving out of the reckoning the rule bringing in other personal allowances to adjust for the reduced rate of relief which was done away with when PAYE was brought in. The personal allowance for the single person increased by only 25 per cent since 1939. But the £ of 1939 is worth in today's terms approximately 6/8d. That cannot be got away from. In 1939 the child allowance was £60. It is the one allowance increased more generously than any other since 1939. It is now £120. In terms of 1939 values, however, it should be £180.

An Leas-Cheann Comhairle

Deputy James Tully has now 15 minutes to conclude.

Mr. James Tully

The Minister said he was rather embarrassed because of the proximity of the Budget and for that reason he was not free to say what he otherwise might have said about this motion. I should like the Minister to explain what effect a statement from him at this stage on the increase of income tax allowances would mean so far as the Budget speech is concerned. If he were going to put 6d on spirits, or 3d on petrol or 3d on cigarettes——

Mr. J. Lynch

The Deputy is giving me bad ideas.

Mr. James Tully

——most certainly the Minister would be giving away Budget secrets. But it beats me how this, which bears no relation to the matter, can affect his Budget speech. However, I suppose the Minister is entitled to use that argument.

Mr. J. Lynch

These allowances can be assessed in money values; people can add and subtract and realise where there might be a short-fall in income as against expenditure.

Mr. James Tully

Has there not always been?

Mr. Corish

We always had that on 1st April, even though the Budget would not be introduced for weeks afterwards.

Mr. James Tully

The biggest trouble under the existing arrangement is that a single farm worker with £8. 5. 0. is taxed on everything over £6. 5. 0. In effect, he pays tax on £2 of his earnings. Does the Minister think that £6 per week is a living wage for a single man, or is this an attempt by the Government to try to prove that anything in excess of £6 is spent on luxuries and should be taxable? If not, what is the justification for it? Would the Minister say why somebody living 30 or 40 miles from Dublin, who gets up at 6.30 a.m., drives to work in Dublin as a builder's labourer and drives home again in the evening, who with three of his pals must pay for the tax and insurance of a car and pay for his meals while out, is not allowed anything in the way of tax-free allowances? Yet if one of those people used the car to travel a much shorter distance from one job to another, to do supervision or something like that, he could claim and get a tax-free allowance. Maybe the Minister might try to explain that? If he cannot do it this evening, he may do it on Budget Day.

The Minister gave me some figures which I corrected. I have a very good authority for the figures I am giving: they were given by the Minister himself. The figures, which he gave me on 4th May, 1965, are to be found at columns 494, 495, 496, 497 and 498 of the Official Report of that day. If the Minister takes the trouble to read them, he will realise the strength of the argument made here tonight and last night. The figures show that a man who was earning £200 in 1938 would receive £608 today as its equivalent value. In 1938, he would pay £4. 13. 9d. tax and today he would pay £14. 5s. tax. The increase in his taxable income is 393 per cent and, at that time, he was paying 2.3 per cent of his income in income tax while he is now required to pay 11.6 per cent.

If we go down to the other end of the scale, we find that a man earning £1,000 in 1938 would receive as its equivalent now a sum of £3,040. In 1938-39 he would pay £156. 7. 6d. in income tax while today he would pay £475. 7. 7d. which is an increase of only 54 per cent. He was then paying 15.6 per cent of his salary in income tax and he is now paying 24 per cent. Will the Minister try to explain why it was considered equitable to increase by more than five times the amount of taxation collected on the income of the man at the bottom of the scale while the man at the top of the scale has an increase of about 80 per cent?

Take the position of the married man in the same situation. For an income of £300 in 1938-39, he would receive an equivalent income now of £912. He would then be paying £2 16 3d. and would now be paying £8 11s. which represents an increase of 974 per cent. He would then be paying 0.9 per cent of his income and he is now required to pay 10.1 per cent.

Let us go to the other end of the scale. Take the man with £1,000 in 1938-39 who would now receive as its equivalent a sum of £3,040. He would pay 13.4 per cent then and only 22.4 per cent now. Therefore, it appears as if the man at the bottom of the scale, right along, is having more of his income taken away in income tax, for some extraordinary reason. It carries on.

Take a married man with two children who had an income of £500 in 1938-39 and who would receive now as its equivalent, an income of £1,520. He would be paying 1.7 per cent then, while he is now required to pay 10.5 per cent. On the other hand, a man who had £1,000 in 1938-39 and who would now receive as its equivalent £3,040 was then paying 10.7 per cent and is now paying 19.9 per cent. This pattern runs right through the whole thing.

I do not know whether the Minister has taken the trouble to look at these figures or whether he believes it does not matter a whole lot that these people are not paying so much. If he put himself in the position of some of these people who are trying to live, he might change his mind. Take the case of a single man who has his sister or his mother housekeeping for him—quite a common thing in the country—who is not suffering from any disease, who is being treated as a single person and is asked to pay income tax on £6 5s. 0d. per week. I think the Minister will then realise that the whole situation is absolutely ridiculous and that no matter what else he does in the forthcoming Budget, the one thing he must do is to increase the allowance.

From 1956-57 until 1959-60, the personal allowance for married people was £310. In 1960-61 it was £394. Does the Minister consider that that was a fair increase?

A single person received a personal allowance of £150 then while it is now £234. Let me comment on the statement of Deputy Corish last night and again this afternoon that two brothers living together would have much more by way of personal allowance than a married person, even though what they are getting is ridiculously low. However, if a man and a woman living together could prove they were not married they could draw much more than they would if they proved they were married. That, also, is rather a stupid situation to have in a country such as this.

Mr. Corish

It is quite wrong.

Mr. James Tully

The widow who had £175 in 1956-57 has £259 now. For children, a person received £100 then and £120 now. Deputy Byrne made the comment that it was the only reasonable increase given. I do not know whether Deputy Byrne is married. I do not know whether he has schoolgoing children. I do not know whether he has children going to secondary school or college. If he has, I wonder what use an allowance of £120 would be. He would soon realise that it was absolutely useless as an incentive to people to keep their children at school or to apprentice them to a trade.

For the dependent relative, the allowance is now £60. The £60 is of very great use to the Department of Social Welfare because when that Department give any kind of a pension which goes over £80, then no claim can be made. The Minister puts the two together and asks what the person will do if he has an income of £80. What can the person buy with it? Of what use is it to somebody who is trying to keep a dependent relative?

It seems that the whole situation, from start to finish, was thought up, dreamed up, by people who have no idea whatever of what the people with a low income have to cope with. I think that what is wrong with most of the things in this country is that those making the rules, in cases such as this, are people who never knew what it was to have to try to live on a very small income.

Reference was made by Fine Gael Deputies to people on a fixed income and people on a small pension. Is the Minister living in the clouds? Does he not know that a person with a small income from an investment or even a pension finds it is not nearly enough on which to live at present and that to take income tax out of it is nothing short of criminal?

Take the person who has an old age pension and who was drawing unemployment benefit for three or four years. Such a person retires from his job and has a small pension. He was drawing unemployment benefit between 65 and 70 years of age and that is free of tax. When he reaches 70, he gets his old age pension and immediately becomes liable for income tax if he is single and has over £6 5s. a week. Surely the State is not so badly stuck for money, no matter how bad things may be at present, to have to take pennies from the pockets of those who can so ill afford it?

The Minister says he must oppose the motion before the House. He would do both the Government and himself a much better service if he would say here that he accepts the principles of the motion, that he agrees that the present situation is unjust and unfair and that, if he possibly can, he will take the necessary steps to bring about an improvement in the situation when he introduces his Budget in a fortnight's time.

The whole situation in regard to income tax seems to me to be a throw-back to the days when the people at the bottom had very little say as to the way the country was being run. In one way, it is a reflection on themselves; it is a reflection on the working people who have not yet realised that, so long as they continue to elect to high office here people who do not appreciate their difficulties, so long will the situation continue that the shillings which they so badly need are taken out of their pockets for the purpose of holding two elections in one year or for the purpose of giving money away for things for which we believe it is not really needed.

Mr. J. Lynch

I want to say that the figures Deputy Tully was quoting a while ago were May, 1965 figures and my figures were a year later, in effect.

Mr. James Tully

May, 1966 figures.

Mr. J. Lynch

No.

Mr. James Tully

I can only take the Minister's word for it. It is in the Official Report—May, 1966.

Mr. J. Lynch

May, 1966 has not come yet—1965.

Mr. James Tully

They are the most recent figures given by the Minister on 4th May, 1965.

Question put.

The Dáil divided: Tá, 52; Níl, 65.

Tá

• Barry, Richard.
• Belton, Luke.
• Burton, Philip.
• Byrne, Patrick.
• Clinton, Mark A.
• Cluskey, Frank.
• Connor, Patrick.
• Crotty, Patrick J.
• Desmond, Eileen.
• Dockrell, Henry P.
• Donegan, Patrick S.
• Donnellan, John.
• Dunne, Seán.
• Dunne, Thomas.
• Esmonde, Sir Anthony C.
• Farrelly, Denis.
• Fitzpatrick, Thomas J. (Cavan).
• Gilhawley, Eugene.
• Governey, Desmond.
• Harte, Patrick D.
• Hogan, Patrick (South Tipperary).
• Hogan O'Higgins, Brigid.
• Jones, Denis F.
• Kyne, Thomas A.
• Larkin, Denis.
• L'Estrange, Gerald.
• Coogan, Fintan.
• Corish, Brendan.
• Cosgrave, Liam.
• Costello, Declan.
• Costello, John A.
• Coughlan, Stephen.
• Creed, Donal.
• Lindsay, Patrick J.
• Lyons, Michael D.
• McAuliffe, Patrick.
• McLaughlin, Joseph.
• Mullen, Michael.
• Murphy, William.
• Norton, Patrick.
• O'Connell, John F.
• O'Donnell, Patrick.
• O'Donnell, Tom.
• O'Hara, Thomas.
• O'Higgins, Michael J.
• O'Higgins, Thomas F. K.
• O'Leary, Michael.
• Reynolds, Patrick J.
• Ryan, Richie.
• Sweetman, Gerard.
• Treacy, Seán.
• Tully, James.

Níl

• Aiken, Frank.
• Allen, Lorcan.
• Andrews, David.
• Blaney, Neil T.
• Boland, Kevin.
• Booth, Lionel.
• Boylan, Terence.
• Brady, Philip.
• Brennan, Paudge.
• Breslin, Cormac.
• Briscoe, Ben.
• Burke, Patrick J.
• Calleary, Phelim A.
• Carter, Frank.
• Carty, Michael.
• Childers, Erskine.
• Clohessy, Patrick.
• Colley, George.
• Collins, James J.
• Corry, Martin J.
• Cotter, Edward.
• Crinion, Brendan.
• Cronin, Jerry.
• Crowley, Flor.
• Crowley, Honor M.
• Cunningham, Liam.
• Davern, Don.
• de Valera, Vivion.
• Dowling, Joe.
• Egan, Nicholas.
• Fahey, John.
• Fanning, John.
• Fitzpatrick, Thomas J.
• (Dublin South-Central).
• Flanagan, Seán.
• Foley, Desmond.
• Gallagher, James.
• Geoghegan, John.
• Gibbons, Hugh.
• Gibbons, James M.
• Gilbride, Eugene.
• Gogan, Richard P.
• Haughey, Charles.
• Healy, Augustine A.
• Hillery, Patrick J.
• Hilliard, Michael.
• Kenneally, William.
• Kennedy, James J.
• Kitt, Michael F.
• Lalor, Patrick J.
• Lemass, Noel T.
• Lemass, Seán.
• Lenihan, Brian.
• Lenihan, Patrick.
• Lynch, Celia.
• Lynch, Jack.
• MacEntee, Seán.
• Meaney, Tom.
• Millar, Anthony G.
• Mooney, Patrick.
• Moore, Seán.
• Nolan, Thomas.
• O'Connor, Timothy.
• O'Mallev, Donogh.
• Smith, Patrick.
• Wyse, Pearse.

Tellers: Tá, Deputies James Tully and Norton; Níl, Deputies Carty and Geoghegan.

Question declared lost.

Mr. T.F. O'Higgins

I wish now to move Motion No. 16. I understand it was discussed with the other motion, but on the understanding that it could be moved as a separate motion at the conclusion of the debate. I wish now to move it.

The Taoiseach

Does the Deputy want a vote on it?

Mr. Cosgrave

Yes, unless the Taoiseach agrees to it.

Mr. T.F. O'Higgins

I move:

That Dáil Éireann is of opinion that by reason of the fall in the value of money the personal allowance, married allowance and child's allowance for income tax purposes should be increased.

Question put.

The Dáil divided: Tá, 54; Níl, 65.

Tá

• Barry, Richard.
• Belton, Luke.
• Burton, Philip.
• Byrne, Patrick.
• Casey, Seán.
• Clinton, Mark A.
• Cluskey, Frank.
• Connor, Patrick.
• Coogan, Fintan.
• Corish, Brendan.
• Cosgrave, Liam.
• Costello, Declan.
• Costello, John A.
• Coughlan, Stephen.
• Creed, Donal.
• Crotty, Patrick J.
• Desmond, Eileen.
• Dockrell, Henry P.
• Donegan, Patrick S.
• Donnellan, John.
• Dunne, Seán.
• Dunne, Thomas.
• Esmonde, Sir Anthony C.
• Farrelly, Denis.
• Fitzpatrick, Thomas J. (Cavan).
• Gilhawley, Eugene.
• Governey, Desmond.
• Harte, Patrick D.
• Hogan, Patrick (South Tipperary).
• Hogan O'Higgins, Brigid.
• Jones, Denis F.
• Kyne, Thomas A.
• Larkin, Denis.
• L'Estrange, Gerald.
• Lindsay, Patrick J.
• Lyons, Michael D.
• McAuliffe, Patrick.
• McLaughlin, Joseph.
• Mullen, Michael.
• Murphy, William.
• Norton, Patrick.
• O'Connell, John F.
• O'Donnell, Patrick.
• O'Donnell, Tom.
• O'Hara, Thomas.
• O'Higgins, Michael J.
• O'Higgins, Thomas F.K.
• O'Leary, Michael.
• Pattison, Séamus.
• Reynolds, Patrick J.
• Ryan, Richie.
• Sweetman, Gerard.
• Treacy, Seán.
• Tully, James.

Níl

• Aiken, Frank.
• Allen, Lorcan.
• Andrews, David.
• Blaney, Neil T.
• Boland, Kevin.
• Booth, Lionel.
• Boylan, Terence.
• Brady, Philip.
• Brennan, Paudge.
• Breslin, Cormac.
• Briscoe, Ben.
• Burke, Patrick J.
• Calleary, Phelim A.
• Carter, Frank.
• Carty, Michael.
• Childers, Erskine.
• Clohessy, Patrick.
• Colley, George.
• Collins, James J.
• Corry, Martin J.
• Cotter, Edward.
• Crinion, Brendan.
• Cronin, Jerry.
• Crowley, Flor.
• Crowley, Honor M.
• Cunningham, Liam.
• Davern, Don.
• de Valera, Vivion.
• Dowling, Joe.
• Egan, Nicholas.
• Fahey, John.
• Fanning, John.
• Fitzpatrick, Thomas J.
• (Dublin South-Central).
• Flanagan, Seán.
• Foley, Desmond.
• Gallagher, James.
• Geoghegan, John.
• Gibbons, Hugh.
• Gibbons, James M.
• Gilbride, Eugene.
• Gogan, Richard P.
• Haughey, Charles.
• Healy, Augustine A.
• Hillery, Patrick J.
• Hilliard, Michael.
• Kenneally, William.
• Kennedy, James J.
• Kitt, Michael F.
• Lalor, Patrick J.
• Lemass, Noel T.
• Lemass, Seán.
• Lenihan, Brian.
• Lenihan, Patrick.
• Lynch, Celia.
• Lynch, Jack.
• MacEntee, Seán.
• Meaney, Tom.
• Millar, Anthony G.
• Mooney, Patrick.
• Moore, Seán.
• Nolan, Thomas.
• O'Connor, Timothy.
• O'Malley, Donogh.
• Smith, Patrick.
• Wyse, Pearse.

Tellers: Tá, Deputies L'Estrange and T. Dunne; Níl, Deputies Crotty and Geoghegan.

Question declared lost.