asked the Minister for Finance the estimated cost to the Exchequer arising from the reduction from 35p in the £ to 26p in the standard rate of income tax for the current transitional financial period.
19.
Ceisteanna—Questions. Oral Answers. - Income Tax Structure.
18.
asked the Minister for Finance the estimated revenue accruing to the Exchequer arising from the reduction of income tax allowances on mortgage loans, insurance premiums, bank overdraft interest, et cetera from 36p in the £ to 26p in the current transitional financial period.
I propose, with the permission of the Ceann Comhairle, to take Questions Nos. 18 and 19 together.
The new scheme for the reform of the personal income tax structure announced in the Budget is a comprehensive scheme involving
(a) the abolition of earned income relief and its replacement by increases in the personal allowances and by the introduction of a reduced rate of charge of 26 per cent on the first £1,550 of taxable income, and
(b) further substantial increases in the personal allowances.
The machinery for giving effect to the various income tax allowances under the new scheme does not result in any gain to the Exchequer. In fact, every taxpayer without exception gains appreciably and the cost to the Exchequer of the scheme is £17.65 million in the nine months to December, 1974 and £32.1 million in a full year.
I had people in touch with me expressing concern that if anyone is to suffer it is the people in the £30 to £35 a week bracket who can least afford it. Would this be correct? I should like to know this before the Finance Bill.
No, it would be quite incorrect. I will illustrate the problem in this way. If income tax were to be abolished altogether, it could be said that every mortgagor was suffering a disadvantage because they would no longer be able to set off mortgage interest against the non-existent income tax. When the rate of income tax is reduced, in a similar way it can be argued that, theoretically speaking, the advantage is not as great as previously but the truth is that every income tax payer, including those who have house mortgages, benefit as a consequence of the changes.
Not all of them.
A-l-l—all.
I had some of them with me last night who are benefiting under the new national wage agreement. I think they are getting £2 and there is a further increase later. The people in this £30-£35 category feel that they are being badly treated as compared with other brackets.
No, the greatest percentage reduction in income tax falls to people in the lower income group who are receiving up to ten times a higher percentage reduction in their previous tax load than people in the upper income group. It may be that some people, in fact most people, have not yet received amended income tax certificates. This is because we will have to await the passing of the Finance Bill before those certificates can issue. Once they are issued the benefits will apply from the commencement of the financial year to the end, which will mean that towards the end of this year the reductions will be quite significant and very apparent.
Has the Minister not got available to him the information requested in Question No. 19 and is it not true that the persons referred to in Question No. 19 are effectively getting a lesser benefit under the proposed arrangement than they heretofore had because of the reduction from 35 per cent to 26 per cent?
No. It is very difficult to explain an individual's tax position to the individual himself and more difficult to talk in generalities across the House, but two illustrations might help to indicate how people have misread the situation. There were two cases quoted in correspondence in the newspapers in April last. One purported to show a tax loss to a taxpayer of £16. In fact, there was a gain to that taxpayer of £38.60. In a second case it was suggested that there was a loss of £8.86 when, in fact, there was a gain of £31.39. I have said there was a gain for all taxpayers and I stand over that.
The Minister is not dealing with the point raised. Is it not true in the cases he has mentioned that the gain arises out of increased personal allowances and so on? My question was directed to the persons mentioned in Question No. 19. If you compare them with people who do not claim mortgage interest are these people not getting less benefit than they were before or less benefit than those who are not claiming mortgage interest relief?
All are getting greater benefit and as a consequence the tax is lower.
Question No. 20.
Does that apply to people claiming mortgage interest?
Everybody gets personal allowances including those paying mortgage interest.
The people are not satisfied.