Before we adjourned I had expressed the hope that during the adjournment the Minister might consider further the case we were putting forward and might find himself in a position to come back and tell us that either on section 11 or on the appropriate section of the Wealth Tax Bill he would be prepared to incorporate the provision of which the effect would be that a taxpayer liable for both income tax and wealth tax would not under any circumstances be liable for total tax in excess of his total income. I wonder whether the Minister has thought about this and, if so, if he would give us the benefit of his thoughts.
Private Members' Business. - Finance Bill, 1975: Committee Stage (Resumed).
Question again proposed: "That section 11 stand part of the Bill."
The benefit of the Government's thoughts are contained in that section of the Wealth Tax Bill which provides that wealth tax and income tax combined shall not exceed 80 per cent of income provided always that a consequential reduction shall not exceed more than 50 per cent of the wealth tax that would otherwise be payable. There are no adequate reasons for departing from that provision. The kind of situation we are being asked to relieve would make for very bad law because a person could have an asset worth £2 million but could contrive to have a very small income and, as a consequence, not have to pay a fair share of tax.
For instance, there are sites in a number of urban areas which are worth more than £2 million. It is desirable in the public interest that the owners of such sites would be encouraged to redevelop them rather than that society should be forced to borrow money in these very expensive days in order to develop virgin sites on the fringe of the city while assets to which the community has some right are frozen. All countries operating a wealth tax have accepted the value of the system whereby people are encouraged to put their assets to productive use. To have no limitation on the reduction which an owner of wealth could obtain in his income tax and wealth tax combined would mean the continuance of a system whereby assets would not be put to their best use.
One could visualise a situation also in which a person might sit on a source of mineral wealth. We would hope to have established in the not too distant future the existence of oil resources within our jurisdiction. It would be intolerable to have a situation in which people could withhold from the community the development of such a resource and at the same time not pay adequate tax. The qualification we have is such as will ensure that no avoidable hardship is caused and also that wealth is put to sensible use.
As I have emphasised, sensible people resort in sensible ways to tax codes. If tax codes are stupid and allow either the foolish use or the non-use of wealth, that situation will continue. But if the tax code has the consequence of encouraging people to put wealth to use, it is a good code even if it never yielded a penny in tax because it would encourage people to take steps to avoid tax by putting their wealth to more productive use. This would be good for them as well as for the economy as a whole.
We are dealing here with income tax, not wealth tax. We are providing significant reliefs. During the break I learned the news that our neighbours across the water are increasing the rate of income tax by 2p in the £ on all rates except the highest whereas we are reducing income tax. This is an indication that we are anxious to provide reliefs for taxpayers and this, in turn, will encourage initiative. It will cool inflationary demands for increased salaries in the higher paid sector and it is coupled with a provision in another Bill which will ensure that no person is put in an avoidable hardship situation. If hardship situations arise because of our not providing for a reduction without a limit, it is hardship which can very easily be avoided by any person who takes reasonable steps to use his wealth more productively. That is something which our economy, like any other, could do with. Economies that have wealth taxes have found it to be one of the beneficial end products that people put their resources to better use than merely leaving them to lie idle.
As the Minister says, we are dealing here with income tax, but in dealing with the section originally he acknowledged that one cannot view it without viewing also the impact of wealth tax. Apart from the wealth tax the reasons which the Minister advanced in favour of this section are ones which, as I indicated earlier, I would not quarrel with; but that does not mean we are to close our eyes to what is proposed in this section in conjunction with wealth tax.
First, the Minister says that people who find themselves in the position of paying more than 100 per cent of their income as a result of the combination of wealth and income tax will very quickly change their arrangements.
He must be aware that there are circumstances under various kinds of trusts and so on where it is quite impossible to change the nature of investments so as to bring about the situation he visualises. Secondly, the Minister picked an unfortunate example when he talked of people sitting on mineral wealth. It is hardly beyond the ingenuity of the Revenue Commissioners, as they have demonstrated frequently in the past, to devise a method whereby people who are deliberately and unjustifiably holding back in order to keep down their income can be got at. In the case of mineral wealth it is not only justifiable but very desirable in the national interest that exploitation should not proceed at a rate of the kind that would be done by somebody who was in for a quick profit and wanted to get out without developing the resources on a fully economic basis, simply trying to get the cream out of it. It would be extremely undesirable that we should, by our tax system, produce a situation in which people would be positively encouraged to use up resources such as minerals as fast as possible without regard at all to the economics or to the national interest.
The argument put forward by the Minister for the more effective use of assets has a number of flaws in it. The problems that arise can be easily dealt with but the Minister has not dealt with the basic principle involved: that to tax somebody at more than his annual income is confiscation. The Minister has spoken as though it would be wrong and unjust to the community, if not to the individual, to provide a kind of relief that says one does not pay more than one's income in tax. Logically, if he is right in what he says, there should be no provision in the Wealth Tax Bill that a person who is in the kind of position we are talking about pays only 50 per cent of wealth tax. If there is any basis for the argument the Minister is putting forward there should be no relief, it should be the same wealth tax for everybody. To that extent, if the Minister's argument is correct, people would be more encouraged to use their assets efficiently.
The Minister recognised the fallacy of this argument by providing that in the kind of circumstances we are talking about only 50 per cent would be paid. Nevertheless, even with that provision a situation can arise where the combination of tax under this section and wealth tax will exceed the annual income. That is the point on which I want to be clear. The Minister said that the attitude of this Government was set out in the White Paper on Capital Taxation. Does the Minister really mean that? Does he mean that the Government support the proposition that in certain circumstances there should be more taxation than annual income? If that is so are the Government not supporting confiscation of property?
Furthermore, to say that it applies only to a small number of people does not justify it, but is it not true that if it can apply to a small number of people today it can apply to a large number of people tomorrow? Is not this, apart from anything else, a very good reason why the principle involved should not be accepted? I do not want to have this debate going round in circles. The net point at issue is: is it right or wrong for this House to enact legislation which could result in annual taxation at a rate in excess of 100 per cent of income? I contend that taxation of that kind is confiscation. If the Minister says it is not I should like him to explain why it is not. To say that people can switch their investment so as to ensure that they have enough income to pay it is only part of the answer. There are circumstances in which this cannot be done. There may be good reasons why it cannot be done. In those circumstances is there any other answer to this than confiscation? Does it not mean that people have to dispose of assets each year in order to pay an annual tax? People have no choice in this. If that is not confiscation, would the Minister tell us what it is? If it is confiscation, is the Minister saying that he and the Government support that principle? We should be clear on where we stand on this matter.
I do not think I can add anything to what I have already said except that the Government want a system which will encourage people to put their wealth to good use. Any sane person will do that. We had a system in which a great deal of wealth was not being put into productive use. A tax system which encourages people to put their wealth to productive use is a good system. That involves no confiscation at all.
Can the Minister guarantee that?
Yes. If a person acts sensibly there are plenty of opportunities for making profit. If any person wants to get out of an asset which is not productive he can do so and put his money where it will yield a handsome return. That is all that is necessary. However, if a person decides not to do that because he is making a bigger capital gain on holding wealth than any element of tax which he may have to pay, it is his choice. I should like to emphasise that we are dealing with an income tax here. The wealth tax proposals will involve a refund of wealth tax in certain situations, if the wealth and income tax combined exceed more than 80 per cent of the person's income.
Deputy Colley said that I had never argued for a reduction of the tax rates on any grounds other than wealth tax, but that is not so. I argued it on several occasions and I should like to refer to a report in Business and Finance of 11th July, 1974, which records that I spoke about the matter to the third Irish National Management dinner on Monday 6th July. On that occasion I said that it was ludicrous that in a country as relatively poor as Ireland that companies had to pay their top executives nominally more than their counterparts in the United Kingdom so that the take home salary was equal in both cases. I said that this situation had existed in this country for far too long and that the Government were very conscious of the need to re-examine the marginal rates of income tax.
I went on to say that currently the top rate in Ireland was 80 per cent compared with 75 per cent in Britain and that the marginal rate in Britain applied only on incomes of over £20,000 whereas the 80 per cent rate here comes into play at less than half that amount. I said that an executive here earning £10,000 a year would have a take home pay of £5,600, while a British manager on the same salary would have £6,586 in his pocket. However, the Irish executive would need a nominal salary of almost £15,000 per annum to match the net income of his more fortunate UK colleague.
That is as good a reason for bringing in this amendment as any consideration affecting wealth tax. The one that affects the top executive would affect thousands of people here. The kind of case Fianna Fáil are arguing for would affect no more than a handful of people with wealth running into millions of pounds and who, because they have this substantial wealth, will be conveniently positioned to make adjustments in their wealth holdings so as to generate for themselves an income which will make it possible for them to pay income tax and wealth tax and still leave a net income.
If the Minister examines the record he will find that I said I was not aware of the Minister making the case he made today for the proposals in this section which were foreshadowed in the White Paper and then dealt with in this Bill. I think he probably made reference to it in the debate on the Wealth Tax Bill. But I was not aware of his making a case for these proposals, other than the wealth tax correlation. I certainly did not intend to convey that at no stage had the Minister made that case, because I was not aware with any certainty whether or not he had; I was speaking in relation to these proposals.
I should like to repeat that I do not quarrel with the case of the Minister at all, apart from the wealth tax position. Surely the Minister, if for no other reason than his experience as a lawyer, would not accept the argument that a proposal is good if it affects a small number of people only. There are certain basic rights which apply to every citizen, whether he is rich, poor or in between. One of them is the right not to have his property confiscated. It is not good enough for the Minister to say: "A person can get out of this and so arrange things that his property will not be confiscated." Some people can do that but not everybody. Some people for good reason will not be able to do so. In such cases does not taxation in excess of 100 per cent of income amount to confiscation? If that is so, how does the Minister justify it? Does he not realise that such a provision is more than likely to be challenged on constitutional grounds, and very likely to be challenged successfully? Is there any point in this House enacting legislation which is more than likely to turn out to be unconstitutional? I have no doubt at all that in circumstances where a person has no alternative but to pay tax in excess of his income on an annual basis that would amount to confiscation and would be in breach of the rights conferred on our citizens by the Constitution. I can see that there are circumstances in which when this arose something could be done about it. But surely the Minister would concede that there are circumstances also in which nothing could be done about it. That is the kind of situation to which I am asking him to direct his mind—in such circumstances can there be anything but confiscation? Surely the Minister does not support the principle of confiscation? Could we get that from the Minister anyway?
I am sure the Deputy will appreciate that the question of the charging of wealth tax to an extent equal to or greater than income is a matter for the Wealth Tax Bill. I have allowed a lot of latitude on this matter. The Chair would like to get back to the Bill with which we are dealing at present and try to get finality on it.
I appreciate the fact that a good deal of latitude has been allowed. But I would like to submit, Sir, that it is as reasonable to look for a reduction in income tax, when combined with wealth tax, as it is to look for a reduction in wealth tax when combined with income tax: either way, it does not matter on which there is a reduction in order to achieve the situation of not paying more than 100 per cent. As you know, the Wealth Tax Bill does provide for a reduction, in certain circumstances, of 50 per cent. In my submission, Sir, it does not really matter, within the rules of order, whether the reduction should be in income tax or wealth tax. That is the basis on which I have been arguing this case on this section.
I am sure the Deputy will agree also that, as far as the Chair is concerned— in regard to the rules of debate when a Bill is before the House on a specific matter—the Chair must try to keep the debate to the Bill before the House.
I appreciate the difficulty of the Chair, but I am sure the Chair will appreciate also the difficulty of Deputies dealing with this Bill, knowing that we have a Wealth Tax Bill before us which will operate in conjunction with this one. Does the Minister accept the proposition that there should not be confiscation of property?
Yes. That is why I abolished death duties, which was confiscation and which operated up to 65 per cent of a person's estate. If the Chair would bear with me while I answer this specific irregular question, death duties can confiscate 65 per cent of an estate of, say, £2 million in estate duty, legacy and succession duty. I make the proposition that that would confiscate more of that wealth owner's property than a lifetime's application of income tax and wealth tax as proposed by us under this and the Wealth Tax Bills. That is a mathematical calculation which can be made by anybody. One will find that the combined effects of the new proposal would be less confiscatory than the situation Deputy Colley is describing.
I would submit that the Minister is missing the point here. To be obliged to pay a lump sum which is a percentage of one's capital less than 100 per cent cannot be deemed to be confisatory. But to be obliged to pay tax on an annual basis which is greater than one's annual income is surely in a different category from the situation described by the Minister. However, he has said that he accepts the proposition that there should not be confiscation. If he accepts it, how does he see the kind of situation I have been describing working out in circumstances in which it is not possible for the taxpayer so to arrange his affairs as to enable an income to be available out of which to pay both taxes?
If one looks at wealth tax—if such a situation were ever to arise—retrospective relief could always be provided. As I have said, one would think we lived in a static world in which people of massive wealth could not arrange their affairs so as to produce adequate income with which to pay their taxes. If such a creature exists, it would probably be helpful to that person to be encouraged to——
If he had the freedom.
Yes. But I am quite certain that in our open market economy such a person would have that facility. There will be provision which will, if necessary, enable trusts to be adjusted in such a way as would enable suitable arrangements to be made. We have had an interesting debate on this topic. How much it relates to real life is another thing. We are dealing with income tax in this Bill. We are providing reliefs. The Deputy says that he accepts that these reliefs are desirable in themselves. I would suggest that we leave it at that and debate the other issue on another day.
I do not want to prolong this discussion because, obviously, we are not going to get any further. The furthest we have got is the statement by the Minister, on the record, that he accepts there should be no confiscation. I am hoping——
All tax is confiscatory. Might I just offer that view?
Of course, the Minister is free to offer that view.
All tax is.
But he knows, as I do, that confiscation in this context means something quite different. I am rather concerned at the fact that he thinks that confiscation cannot arise, that everybody who will be affected will be free to search around and avoid confiscation. I want to tell the Minister now that he is going to find that there are some people who will not be in that position. I do not see why the Minister would not be prepared to accept the proposition and build in either into this section of this Bill or the Wealth Tax Bill that not more than 100 per cent of income would be taken into taxation—under income tax and wealth tax combined— with safeguards to deal with a person who is deliberately keeping down his income.
Since apparently he is not prepared to accept that—I do not want to prolong the debate—I want to tell the Minister that we will be dealing with this again on the Wealth Tax Bill. I hope that between now and then he will look further into the matter and, having looked into it, that he will find it possible to build into the Wealth Tax Bill the kind of proposition I have been putting forward and which I sought to have built into this section. If he does not, I can assure him that sooner or later the operation of this section, combined with the section in the Wealth Tax Bill, will be found to be of very doubtful constitutional validity.
Is section 11 agreed?
Under protest.
Question put and agreed to.
SECTION 12.
I move amendment No. 1:
In the Table to delete column (3) and substitute the following:
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Amount to be deducted from total income for 1975-76 and subsequent years |
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(3) |
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£ |
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1,000 |
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625 |
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688 |
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250 |
or, if less, amount of wife's earned income |
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175 |
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250 |
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100 |
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175 |
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175 |
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350 |
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45 |
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145 |
Just as a matter of interest, might I ask why this is amendment No. 1 when it is second on the list. The first amendment was the Minister's. Is there any reason why that should not be No. 1?
It involved the deletion of a section.
And that does not count?
This amendment is designed to increase the personal allowances under the income tax code from those obtaining last year by 25 per cent. The Bill contains proposals to increase these allowances by 15 per cent. There were some references to this matter in the House on earlier dates in the course of which the Minister referred to increases in the cost of living over what appeared to be a nine-months' period. I hope we will have no further confusion on this matter and that it will be accepted as a fact, which it is—so that we need not waste time on this and can get down to the reality—that there never has been under our system so far, at least not in my recollection, a nine-months' income tax year. Some confusion has arisen because we had a nine-months' financial year but the income tax year did not change. It was, and still remains, from April to April. It is a 12-month income tax year so what we are talking about in this section, and in the proposals in this amendment to alter the figures in the section, are income tax allowances for a 12-month period, and the 12-month period involved is from April, 1975, to April, 1976.
As I said, the proposals in the Bill are to increase the allowances by 15 per cent. We know from the official statistics from the Central Statistics Office—the latest available for one year are from February, 1974, to February, 1975—that the cost of living over that 12-months' period increased by 23.8 per cent, almost 24 per cent. We also know that the latest figure available for the cost-of-living increase for a quarter is for the quarter ending in mid-February of this year and, for that period, the increase was 8 per cent, an annual rate, if it were to continue, of 32 per cent. There is no indication that inflation is likely to reduce certainly in the short term future. On the contrary, the indications from the last quarterly rate of increase and from all other indicators we have are that inflation will continue to increase. Therefore I decided to propose in this amendment increases of 25 per cent.
I must say with all candour that I think an increase of 25 per cent in the income tax allowances for the year April, 1975, to April, 1976, will almost certainly be less than the increase in the cost of living in that period but, since, naturally enough, I have not got any accurate figures for a period which has not yet occurred, I can only go on the basis of the figures we have. Since the latest figures for a year were almost 24 per cent and the latest figures for a quarter projected over a year would be 32 per cent, and since the indicators are that there will certainly be increases in the cost of living at a higher rate than we have experienced over the past year, it seems to me that a proposal to increase these figures by 25 per cent is the very minimum and the most modest increase one can propose if one is endeavouring to keep these allowances in line with the cost of living.
It is, of course, possible to talk about periods in the past when income tax allowances were not increased, but it must be recognised that not to increase income tax allowances with inflation running at 6 per cent or 7 per cent is of a different quality from not to increase income tax allowances when inflation is running in the region of 25 per cent to 30 per cent. There is an enormous difference between the two situations and it only confuses the issue to try to compare them. In the last Fianna Fáil budget in 1972 income tax allowances were increased. In the following year in the first Coalition budget income tax allowances were not increased.
Last year they were increased but the increases were such that the position with regard to the take-home pay of the great majority of the taxpayers was worse after the allowances were given than it had been under the Fianna Fáil budget in 1972. The position had deteriorated somewhat from 1972 and now added to that deterioration is the further erosion involved if we do not accept this amendment, an erosion which is involved where the income tax allowances for the coming year are proposed to be increased by 15 per cent, when the inflation for that period will certainly be a minimum of 25 per cent. There is no way in which one can deny that this involves an erosion of the position of taxpayers. Consequently, merely to try to hold the position where it is, it is necessary to increase these allowances by 25 per cent as a minimum. This does not improve the position of the taxpayers. It merely holds it and, as I indicated earlier, almost certainly will not hold it at its present position. There will be a drop back.
There is another aspect of this. Ministers for Finance successively have from time to time given reliefs under the income tax code and they have tended to talk fairly loudly—I did it myself—of the number of taxpayers released from the tax net. Last year the present Minister for Finance talked very loudly about this although he knew, as we did, that there was a new national pay agreement about to be implemented and that agreement would certainly bring those he was releasing, and maybe more, back into the tax net. One of the consequences of allowing the income tax allowances to drop substantially behind the inflation rate is that many people are brought into the tax net who would otherwise be outside it. We are talking now about people at the bottom of the income scale and I freely admit that the figures over the years show that what I have said has happened.
There are of course other factors involved, but one of the factors involved in increasing very substantially the number of taxpayers was the erosion in the value of the income tax allowances. That was serious enough in the past but it is mightily important with inflation running at the rate it is now; and, if we are not very substantially to reduce the take home pay of taxpayers, particularly at the lower end of the scale, the very least that can be done is to accept this amendment. It may be said that that is all very well but it will cost a great deal of money and where would the money come from.
That is a valid point and I want to put forward the proposition that, if all the sums are done, this sort of exercise does not cost the Exchequer as much as might appear, because in the great majority of cases the increase in take home pay involved in increasing income tax allowances is spent almost immediately. Much of it is taken in in another form of tax, such as value-added tax, and the money is used directly in the stimulation of the economy, an objective the Minister claimed he was trying to achieve by other methods. The net effect of the net cost to the Exchequer is not just the amount of the drop in income tax receipts.
Furthermore, since there is now another national pay agreement very likely to be implemented, although I know there are still hurdles to be overcome but, even if there is not a national pay agreement, there will certainly be some pay increases and the position will be rather similar to that of last year: pay increases will be implemented which will put people who are not in the tax net now into the tax net and, on the basis of the allowances proposed, the Minister's provisions will eat much deeper into the pay packet. Calculations as what the cost to the Exchequer would be must take account of that factor. I am urging that acceptance of the amendment involves nothing more than equity to taxpayers and is also capable of economic benefits to the community and of monetary benefit to the Exchequer.
I have said on previous occasions—I repeat it now— that it is difficult to accept a lecture from Fianna Fáil about giving income tax reliefs when, during their period in office, the number of income taxpayers increased from 195,000 to 700,000 and the number of sur-taxpayers was reduced from 10,000 to 6,650. That is a record of neglect of adjustment of income allowances which I would have thought common decency would have compelled them to remain silent about for evermore and a day.
Tut, tut.
What the Opposition are proposing here would cost £16 million per annum.
(Dublin Central): What significance is that in a budget of over £1,000 million?
The way in which the Exchequer would have to make up that loss would be by increasing all rates of tax by 4½p so that the 26p rate would become 30½p, the 35p rate would become 39½p and so on. It seems to me a futile exercise to engage in the kind of mathematical cosmetic arrangement that the Opposition are now suggesting, an arrangement which would force the Dáil to amend the rates of tax to make up for the loss consequential on the adoption of this amendment. In order that people may properly assess what has happend it is worthwhile pointing out that, when we came into office, every income tax payer paid more than his counterpart in Britain. Now that situation has changed so that a man with an income of £7,000 will pay less tax than he did previously. In addition to that, the British Chancellor of the Exchequer today imposed an extra 2p on income tax. We could have done the same thing and given bigger marginal reliefs but the net result would have been precisely the same.
When we were debating the budget Deputy de Valera acknowledged that it was a popular and easy thing to demand tax reductions and bigger personal allowances. He also acknowledged that it would be necessary to obtain the money from some other source. It is, of course, very easy to make this argument. It is popular to suggest that additional income tax relief ought to be given, but the crunch comes just as much for the Opposition as for the Government. Where is the alternative revenue to be found? As Deputy de Valera asked: "Where is the money to come from?" He posed a question that people do not want to answer. It is a question from which people run away. But one cannot run away from it if the proposition is that revenue be cut by £16 million. You must either say where the alternative £16 million will be found or withdraw your amendment. In all decency that is what Fianna Fáil should do. We have given considerable reliefs in personal allowances. These will cost the Exchequer £28 million. On the companies' front we are giving £12 million relief.
(Dublin Central): And taking it back in social welfare stamps.
If we did not provide that £12 million relief employment would have been put in jeopardy. The Opposition are not prepared to accept that the alternative is an increase of 4½p in all rates of tax. They would also argue that the £12 million relief given to industry is wrong and that £9 million of that £12 million should have been taken to provide the increased personal allowances which they now, in their irresponsible opposition, are suggesting.
It is obvious that the majority of taxpayers would prefer to have their allowances set as they were in the budget rather than in accordance with the additional measure of relief now suggested. The fact that there was not public protest about the reliefs in the budget is an indication that the ordinary taxpayer appreciated the reliefs we gave in personal income tax, which amounted to £60 million. This contrasts more than favourably with what our opponents gave in Government—one adjustment in 16 years and nothing at all for 11 years.
That is not correct.
To the surprise of the people, for two years running this Government gave adjustments the real effect of which, unlike what happened under Fianna Fáil when the adjustment once given was soon eroded and people who were released from the tax net were brought back again, was that the reliefs we gave in the last two years did not have the effect of bringing back everybody who was relieved. Between 1957, when the single allowance was £150 and the married allowance £310, and 1968 there was not any effective increase in those allowances, notwithstanding that the cost of living went up by 46 per cent. I am sorry, the Deputy is right: there were two allowances——
There were other adjustments as well.
The cost was £4 million, and in 1972, when the allowances were increased by £50 for a single person and £70 for a married person the adjustment cost £13 million, a total of £17 million. It is in that context that they are suggesting we have not done enough by giving £60 million in 1974-75. We are only too glad to allow people to offer criticism—we will take it whether it be just or unjust—but it is difficult to accept criticism by people who followed such a miserable pattern during their terms in office. The cost of living has not risen because of changes in taxation on beer and cigarettes for any person who does not drink or smoke. The national wage agreement is providing compensation for a non-existing rise in the cost of living for people who do not smoke or drink. That is a reality. I am not adopting or posing any moral attitude towards the situation. I am simply offering the thought and asking people whether it is justifiable to continue to compensate oneself for changes which the Government regard as necessary in the tax code.
The alernative to providing increases in necessary taxation through the indirect taxation system is to impose direct tax increases on income. That would be contrary to the Government's objective which is to adjust the direct taxes, taking one year with another, so that the value of the take-home pay will not be eroded. But if we continue to compensate ourselves, either through the direct taxation system or through pay demands, for transfers in income on non-essential items, all we do is to fuel the fires of inflation; and when we are already at a rate of inflation which is double that of our competitors, it is surely time to take stock of the folly of our own actions and try to arrest the situation.
We have provided in this year's budget substantial amelioration of the income tax position as it affects all taxpayers. We have done that without increasing the rate of direct taxation. Admittedly we have increased the rate of indirect taxes on non-essentials. If the Opposition through some ingenious suggestion can find the revenue which would be lost by their proposal, without hardship, without adding to the consumer price index, without adding to the burden of inflation, I would be prepared to consider it. But they cannot do it because they know there is no such alternative open to them. In that situation—they have made their points—they should withdraw their amendment.
(Dublin Central): I support Deputy Colley's amendment. I have listened to the Minister telling us about the tax reliefs given in the last budget. He said it could cost £16 million to accept Deputy Colley's amendment. If the Minister looks deeper into the situation he will find that most of this £16 million would automatically flow back into the economy. Half of it would be recouped through indirect taxation. We know that indirect taxation on cigarettes and liquor today accounts for 60 per cent of all taxation and a substantial part of the £16 million would be recouped in the next 12 months.
The Minister compared figures today with 1967 and 1968 when inflation was barely reaching 6 per cent or 7 per cent. There is no comparison between the allowances given at that time and the position today. I remember when we were discussing the Financial Resolution in the last budget.
The Minister indicated on that occasion that approximately 60,000 people would be exempt from tax liability. I would remind the Minister that workers had to seek increases of 25 per cent and 30 per cent in the last 12 months to try to compensate for the increased cost of living and inflation and I am quite convinced that 50,000 were back in the tax net when the increases were granted under the national wage agreement. It is obvious that the same situation will arise in this case. The new national wage agreement makes provision for an increase of 25 per cent. Surely the Minister will agree that an allowance of 15 per cent now is not sufficient.
We are facing a most unpredictable year when people do not know by how much prices will increase and what their wages will be. There are predictions of an inflation rate of 25 per cent to 30 per cent. Surely the Minister will agree that a 15 per cent adjustment in the income tax code will be an infinitesimal concession by the end of this year.
For a man earning £2,500 per year, his saving will be £19.50 for the coming year while a man earning £9,000 will have a saving of £48.75. That cannot be considered a proper adjustment of income tax. The Minister cannot seriously think that £75 per year will compensate for price increases in the coming year. I am particularly concerned about people living outside the city who have to travel 30 miles or more each morning; there are many people living in Navan, Drogheda or Naas who have to travel to Dublin each morning to their place of work Does the Minister think an income tax concession of £19.50 will compensate them for the astronomical increase in fuel and motoring costs?
With regard to people in the lower income bracket, we could be reaching a dangerous situation with regard to the employed and the unemployed. If a single man earning £1,250 a year is charged a high rate of income tax while a man on a three-day week is drawing unemployment benefit without paying tax, there will be a very delicate balance regarding the profitability and desirability of working. If we reach a situation where it is just as profitable to work a three-day week and draw social welfare benefits for three days as it is to work a full week, we will be moving into an economic situation out of which we will find it very difficult to get.
The Minister should seriously consider our amendment. It will cost the Exchequer only £16 million but I have already pointed out that much of this amount will be recouped through indirect taxation on beer, spirits, cigarettes and other commodities that carry a high revenue tax. The Minister said there was little protest with regard to the income tax allowance and he pointed out it was accepted by the people. I should like to tell the Minister that the people are so confused about taxes, rising prices and the stability of their employment that they have not considered an issue such as this. The Minister must agree that the infinitesimal concession given was more than off-set by the increase in the cost of the social welfare stamp. He gave approximately a £75 per year increase in the income tax allowance for the single person but the deduction for the social welfare stamp will cost the employee approximately 42p per week.
The wage earner has not been given any encouragement. If the rate of inflation was 6 per cent or 7 per cent and if the cost-of-living increase was a reasonable one, the adjustment made by the Minister would be appreciated and I would have said we were moving in the right direction but in present circumstances the figure allowed by the Minister is quite unrealistic. The Minister did not make any provision for people who must travel long distances to their places of employment. When Deputy Colley was Minister for Finance, I remember the present Minister for Local Government, Deputy Tully, seeking some concessions for these people. Now the Minister has an opportunity to help them. If the person in the lower income group is not encouraged to work, if he sees it is just as beneficial to remain unemployed, there is little hope for the economy.
The Minister should reconsider Deputy Colley's amendment which seeks to increase the rate from 15 per cent to 25 per cent. We know that last year wages increased by 25 per cent to 30 per cent and, since it is obvious that there will be provision for an increase of at least 25 per cent in the new agreement, there will be considerable buoyancy in revenue. Neither the Minister nor anyone else knows what increases there will be in prices for the coming year or what will be the rate of inflation.
Apart from the increased taxes which the Minister put on we must have regard to the indirect taxation which the Minister will agree affects the working man. The tax the Minister imposed on beer, spirits and cigarettes is a tax on what the working man expects out of life. For any man in the building trade or similar heavy work these things are not taken as a luxury any more. The Minister may say such items should not contribute to the price index. It is a matter for the Minister to remove them from the index if he wishes, but they do contribute to it. The average worker expects this little luxury at the end of the day. The fairly substantial increases on beer, spirits and cigarettes have eroded incomes and they certainly affect the tax free allowance the Minister is granting here.
When you take all these items into consideration—the petrol, the increased social welfare stamp and the indirect taxation—the Minister has given practically nothing to the average worker in regard to income tax. In the current budget of about £1,200 million I believe the £16 million which Deputy Colley is asking for here would be negligible and the Minister would recoup 50 per cent of it, at least, through indirect taxation. This would have a beneficial effect, especially in the lower income group, and they would feel that it was worthwhile going to work. I ask the Minister to consider seriously Deputy Colley's amendment.
Has the Minister any information as to the number of income tax payers in 1972-73 and the number in the present income tax year?
I have only round figures. In 1972-73 it was about 700,000 and today it is about 720,000.
How was the £16 million, which the Minister has referred to as the cost of this amendment, calculated? Was it merely a straight calculation on the basis of existing figures —if you increase the proposed allowance by a further 10 per cent, that will produce £16 million—without reference to likely increases in wages in the present year and other factors I mentioned earlier? Were they taken into account?
Taking it as a percentage of the income tax estimated for 1975, it was about £16 million. Incidentally, I was using a figure earlier of 4½p; I should have spoken about 4½ per cent, which works out about 2p.
I thought the figure was a bit high. We heard the Minister talk of the number of people brought into the tax net over the year. But even though he was only able to give a round figure now, it is very interesting, because it shows that despite the increase in income tax allowances last year and this year—I assume the figure the Minister gave us is for the present income tax year?
Yes, 1975-76.
And working through to the end of the year?
I am not taking the figure as of now but as I expect it to be under the national wage agreement.
And taking into account the allowances proposed in the Bill?
Yes.
We find that despite the increased allowances last year and those proposed this year, which the Minister told us were so generous compared with those given in the past, and despite the enormous increase in unemployment—which, of course, reduces the number of taxpayers substantially—nevertheless the number of people liable to income tax has increased to 720,000 from 700,000 in round figures, as the Minister said. That is a fairly revealing comment on the value of the income tax allowance of which the Minister spoke so glowingly a short time ago. It would also appear that the figure of £16 million which the Minister gave as the cost of acceptance of this amendment was, as I suspected, calculated without reference to the economic effect and consequent effect on the revenue of granting this increased allowance proposed. Consequently, the figure really means nothing. It is quite unrealistic to talk about it and ask where will you get it and to produce estimates of what it will mean in other taxes to produce the same sum. The figure is purely fictitious and has no relation to the reality of the situation.
I have no facilities to calculate the likely real effect of this increase on the revenue but I am certain it would be vastly less than £16 million. In talking of what has been done and what may have to be undone to implement this, the Minister spoke about £12 million given to industry in the budget. He ignored—wisely—an interjection from Deputy Fitzpatrick, but I would like to remind him of it. Shortly after the announcement in the budget of this relief for industry costing the Exchequer £12 million the Government introduced substantially increased social welfare contributions, the cost of which to industry and business generally is. I think, approximately twice the £12 million that the Minister spoke of as relief.
If industry needed this £12 million as the Minister said—indeed it did, and more—what is the point of making that argument and asking us if we want to take it away again when the Government themselves have already taken it away? Much more than that allowance has been taken away and this has made the position of industry generally even worse than it was before it was proposed to give this £12 million. It is quite unrealistic for the Minister to ask if we want to take it away when he has already taken it away himself.
Further, we heard the Minister, as I feared we would—I tried to anticipate it and urged that we have a more realistic debate than we had in the past but the Minister could not resist the temptation—going back over the years and he took the figures of the cost to the Exchequer years ago of increasing income tax allowances at that time.
This is an example of the tactics used regularly not only by this Minister but by other Ministers and Parliamentary Secretaries. When it suits them they will talk about the percentage increase in inflation and so on. Also when it suits them, instead of talking about that, they will talk in terms of absolute figures. The Minister talks of the cost of the income tax allowances last year and those proposed this year as £60 million and compares that with the cost of income tax allowances given some years ago. He knows as well as I do that that comparison is totally invalid because he is not comparing like with like. If he wants to compare like with like, he would have to adjust either the £60 million downwards or the earlier figure upwards, at least in relation to the movement in the cost of living or the inflation figure.
Another way of approaching it would be to ask what proportion of the budget was involved in the comparable figures. Then he would get a reasonable comparison. To quote the absolute figure this year, with money having fallen so much in value, and comparing that with the 1969 figure is nonsense. It is time we got away from this type of nonsense which, in my view, is pathetic and does not contribute to a reasonable and rational discussion of the questions with which we are concerned. I repeat, I am not levelling this accusation solely at this Minister, although he was guilty of it here tonight and in the past. Most of his colleagues are guilty of using this same ridiculous tactic.
The Minister referred to increases in the consumer price index brought about by the increased taxation imposed on such things as beer, tobacco and spirits. He correctly referred to the fact that the national pay agreement would compensate fully for these increased taxes, although some people benefiting from the national pay agreement did not either drink or smoke. That is a fact of life and he must take it into account. Before he imposed those taxes, did the Minister consider that this would happen? Did he also consider that the cost imposed on industry and business generally far exceeded the revenue obtained by the Exchequer as a result of these increases? If he would give some consideration to that aspect and apply it to this amendment, he would get a far more realistic assessment of the real cost to the Exchequer taking the economic factors into account.
We had an example of this failure by the Minister to approach the matter in this way some time ago in relation to the introduction of the green pound and the cost of that to the home market. If the Minister had dealt with that problem—there were only a few items of consumption involved and a small proportion on the home market—he could have counteracted its effects on the consumer price index. He did not and the consequence was that the cost was multiplied enormously and, carried into the whole economy, increased our cost of living and the cost of government. The same kind of approach is involved here in failing to allow for the real cost of the amendment proposed and, secondly, in the increases in indirect taxation to which the Minister referred and how they work themselves through the economy. The overall result is to distort the apparent cost involved and to carry a burden on to the whole economy, to industry, to business generally, to employees and to everybody else. If a little ingenuity were used by the Minister, he would have found that the revenue required could have been raised without imposing this multiplied effect on the economy.
I am afraid he is approaching these personal income tax allowances on the same basis. When he quotes the fictitious £60 million—I say "fictitious" in no way disputing how the calculation was done or imputing bad faith on the part of the Minister, but fictitious in the sense that it was calculated on the basis that it had no relevance to reality—he is adopting the same kind of approach. The result is that he is getting unreal results from his calculations, which means that he cannot view the proposal in this amendment in the light of what it would really mean to the Exchequer and to the taxpayer.
In the course of what the Minister said about compensation being awarded in the national pay agreement for these increases in taxation on beer, spirits and tobacco, he implied that taxpayers who were benefiting under the national agreement by being compensated fully for these increases should be penalised in some way under the income tax code. It was also implied that one of the justifications for not increasing the personal allowances fully in line with the cost of living was that people were being compensated fully for these increases which, he said, were accepted as being necessary.
I want to remind him of the increases involved, about 3 per cent in the consumer price index as against a 10 per cent gap between what is in the Bill and this amendment and what is required to keep pace at a minimum with the cost of living. What is the position in regard to those who do not drink or smoke? Does he feel that the same approach has been made in this regard to those who do not drink or smoke and those who do? Or has what he said any relevance to this matter? The most notable thing he said was that he did not attempt to dispute the figures which I put forward in relation to the cost of living increases which have been occurring and which are likely to occur.
He did not attempt to justify increasing personal allowances by only 15 per cent when, at best, one can say that the cost of living increase in the coming year, April to April, will be at least 25 per cent. He did not attempt to deal with that and it is the kernal of the amendment. I understand why he did not try to deal with it, except indirectly. The real case he made was the cost. He asked how we proposed this should be met. I have already dealt with the fictitious nature of the figure of £60 million. May I remind him that we suggested, before he introduced his budget, a broad outline of the kind of budget he might have introduced. That would have had a very different effect on the economy. It would have stimulated it and led to demands for a smaller increase in income tax allowances because there would have been a smaller increase in the cost of living. Therefore, if he is talking about remedies and how this might be done we told him how, but in a overall framework of how the budget might be approached and not on a patchwork basis in the budget he introduced and of which we disapprove. It is difficult for us to suggest ways in which this might be done, first, because, as I say, it is a patchwork on what he introduced and, secondly, because the first figure involved of what is required is not known.
Debate adjourned.