Dáil Éireann debate -
Wednesday, 16 Apr 1975

Vol. 279 No. 11

Finance Bill, 1975: Committee Stage (Resumed).

Debate resumed on amendment No. 1:

In the Table to delete column (3) and substitute the following:

	Amount to be deducted from total income for 1975-76 and subsequent years
	(3)
	£
	1,000
	625
	688
	250	or, if less, amount of wife's earned income
	175
	250
	100
	175
	175
	350
	45
	145

—(Deputy Colley.)

Mr. Colley

I had been speaking on this amendment which proposes to increase the personal allowances under the income tax code by 25 per cent compared with last year. I had indicated that this seemed to be the very minimum by which the allowances should be increased if one were to have any hope of keeping in line with the cost of living. Indeed, the indications are that such an increase will not be sufficient to keep pace with the cost of living. Because of the proposal in the Bill to increase the allowances by only 15 per cent and since they were not increased in 1973 the condition of taxpayers has been eroded. In real terms they are worse off than they had been under the last Fianna Fáil budget of 1972. Unless we adopt this amendment their position will be eroded further and more seriously at a time of increasing inflation, inflation which is reaching a frightening level.

I have tried also to indicate that the cost of this, calculated by way of increasing the percentage, does not give a true figure as to the cost to the Exchequer and that it would be far more advantageous if we could have a more accurate idea of the real cost.

In an effort to achieve any kind of safeguard for taxpayers, particularly the PAYE group, at this time of galloping inflation and from the point of view of the stimulation of the economy, it would be wise, prudent and just to adopt this amendment. This measure would not present the Minister with a problem of the dimensions he indicated. His figure is fictitious. I am sure that if the real calculations were undertaken the result as to the net cost to the Exchequer would be very different from the Minister's figure of £16 million, allowing for the different factors involved, such as increases arising from the proposed national pay agreement, the spending of money foregone in income tax, and the collection of other indirect taxes such as VAT. Taking into account the stimulation of the economy and the consequential increase in income from other taxes, one would find that the net cost of this proposal would not be £16 million. I believe the cost would be much less although I am not in the position to give a figure because I have not available the facilities to enable me to make the calculation. The Minister has these facilities and it would be helpful if he would let us know what will be the approximate cost having regard to the factors I have mentioned. This would enable us, perhaps, to look at the matter more realistically.

From the point of view of equity and of benefits accruing to the economy it makes much sense to accept this amendment and to increase income tax allowances from last year by 25 per cent rather than by 15 per cent as proposed in the section.

Minister for Finance (Mr. R. Ryan)

As I pointed out last night, an increase of 25 per cent in the allowances would not be warranted by the facts of the situation. I warned too of the danger of believing that indexation is the cure for our troubles. Indexation relating to a high rate of inflation is like—to use an old Dublin phrase "scutting" on the back of a lorry—somebody holding on to a vehicle over which he has no control. This may be going faster than his capacity to move and if it changes its momentum at any stage, may cause dire consequences to the person connected to it. If it goes too fast and does not halt at the time the person hanging on to it may wish, he will be carried much further to his own inconvenience and disadvantage. If it halts too suddenly the follower is thrown off his course and may be seriously injured. In 1974 we had a rate of inflation extraordinarily and damagingly high attributable more than 60 per cent to circumstances which were beyond our control. We would be ill-advised to consider total indexation to such temporary and uncontrollable phenomena. The overwhelming majority of our imports are for necessities or for materials for further production which in many cases we re-export. The fact that we have to pay more for imports makes it harder, not easier, to increase domestic incomes.

For 1975 the overall situation will be different. The national wage agreement will increase the consumer price index by 8.4 per cent. The increases in domestic profits this year will be 5.5 but the import increases will be only 4.6. This is a radical change from last year but it means that we have to take a careful look at our own income situation. Even though it is not pleasant to contemplate, we will have to moderate our expectations and not assume that they can continue to grow at the rate which they grew in the past or, indeed, in the short-term, that they can keep up with our domestic inflation while the rate of world inflation is now diminishing. What we are doing in 1975 is to compensate ourselves to a large extent for inflation that has already taken place. World inflation is now levelling off and in many countries it is now substantially in decline. We now find our competitive position being seriously eroded. If, for instance, we have a rate of inflation in excess of 20 per cent we are put at a serious disadvantage compared with a country like Germany, to which we have been increasing our exports, if the rate of inflation there is only 6 or 7 per cent.

We will have to realise that simple but urgent problem. It is something that touches us at all levels and will have to influence all our thinking, not merely in respect of wage negotiations but also about tax levels and levels of other benefits which we expect to get from the State. I again congratulate Deputy de Valera who stands out as a guiding light on the Opposition benches. He is the only member on the Opposition benches who, while expressing a desire for reduced taxation and for increases in the personal levels of income tax allowances said it was not sufficient to demand tax cuts without also suggesting where alternative revenue could be found. Deputy de Valera acknowledged he was at a loss to say where alternative revenue could be found.

In my view Deputy de Valera, and his colleagues in Opposition, would really be at a loss to say where the £16 million that is suggested in the amendment could be found. The process of calculation of £16 million as the cost of the Opposition amendment is the same as was used to calculate the cost of budgetary concessions of £28 million. It involves a mixture of calculations, the number of people at work, the rate of wage increases, the adjustments made in the levels, the thresholds, the bands and the rates of taxation. The figure is calculated objectively in the same way as the budgetary figures have been.

Last night I said that the Opposition, when in office, increased the number of income tax payers from 195,000 to 700,000. This works out at a rate of 34,000 people per annum added by them to the income tax bracket. Since we came to office there has been a significant change. While Fianna Fáil were in office the number of sur-tax payers went down from 10,000 to 6,600. The figure I give for income tax also includes sur-tax payers. In our term of office the number of income tax payers including 26,000 "sur-tax" payers has increased from 700,000 to 730,000. We have arrested the decline of sur-tax payers. The number of sur-tax payers has increased from 6,600 to 26,000. This is attributable to a number of causes. We have brought within the tax net farmers in the larger income bracket several of whom would be within the sur-tax bracket. We have stopped a number of tax avoidance measures, including the borrowing of enormous sums so that 80 per cent of the cost of borrowing could be set off against other taxpayers. We have brought within the tax net people who have been setting off non-farming profits against farming profits so as to avoid tax.

If we take the 20,000 people at the higher rates of tax, who have been added since 1973, from the total number of income tax payers, the marginal increase in income tax payers is something around the 9,000 mark over a period of three years. There is a big difference between adding 34,000 people to the income tax net every year and adding something in the region of 3,000 to 4,000 per year as we have added. The 3,000/4,000 annual increases when one considers the increases in remuneration in recent years, represents an insignificant increase. Also when one bears in mind that notwithstanding the rate of unemployment the number of people at work increased, certainly up to the end of 1974, even at present figures, the number at work has not significantly diminished. The number of unemployed to a large extent signifies the inability of our economy in a time of world depression to expand employment opportunities, to increase the number of opportunities to provide new jobs. It is not, fortunately, a significant reflection of a reduction in the number of people at work. Substantially the number at work is the same or above what it was in 1973-74.

It is clear that we have reversed the process of dragging into the taxation net a vast number of small income earners annually. The fact that any increase has taken place is mainly attributable to the removal of avoidance measures which were available to people in the top income brackets and to bringing within the tax bracket the more fortunate members of the farming community who had comparably substantial incomes. This justifies our objective; it proves that we have gone some way towards broadening the tax base and relating tax payable to capacity to pay. The fact that we have done this in a time of great financial difficulty and great economic pressure indicates that whatever the problems of the day may be the Government are keenly anxious to relieve the pressure which direct tax causes people and have been endeavouring to remedy that problem.

In approaching any budget one must make a decision if new taxation is necessary, as to where the tax is to be collected. In a time of fast rising costs and of a slowing down of economic performance it is necessary, unfortunately, for the State to increase taxation.

We were in that position in our January budget this year when we had to choose between increasing taxes on incomes or on expenditure. We did not come to this decision on our own. Before the budget I had the privilege and benefit of meeting with representatives of the trade union movement, of industry and of employers to hear their wishes in respect of the budget. I took the opportunity of meeting them to pose to them some problems which might have to be faced. I wanted to get their view as to what would be the correct thing to do if additional taxation was necessary or if reliefs could be given. Both groups were unanimously of the view that direct taxation should not be increased but if new taxes were necessary they should be applied in the indirect sphere on the "old reliables".

We adopted that line and the "old reliables", the items which are not essential, tobacco, spirits and beer, were chosen as the items upon which to levy the additional tax. Since then the same parties who said that the State should tax non-essential items have negotiated an agreement under which they propose to compensate themselves entirely for the taxes on the non-essentials which they agreed the State should correctly tax. I have seen where one of these organisations has issued a statement criticising the Government for increasing the consumer price index by taxing items which previously they said should be taxed instead of incomes. We live in a rather unreal world if organisations who seek to influence State thinking, make decisions which conflict with the advice which they have given and then chastise those who have accepted their advice.

I have argued and the Government have argued—we set it out in our White Paper last autumn—in favour of complete consultations with the social partners. But the traditional pattern in this country has been to exclude Government as the guardian of the common good from negotiations on incomes. As I said in the budget debate, we are now in a situation where a national wage agreement has far more influence over the economy, over our society, over our future development than anything which the most brilliant Minister for Finance or the most effective Dáil or Seanad can ever do.

It is not inappropriate that at this stage when we are considering what the levels of tax are on incomes we should offer these thoughts for serious consideration, not apportioning blame, not saying what was right or wrong in the past, but with a view to having society consider whether we could order our affairs better so as to make more suitable adjustments of incomes and tax liabilities.

Yesterday a certain amount of time of the House was turned to matters other than the Finance Bill and those other issues all involved additional State expenditure. One was education, another the fishing industry, another the telephone service. We had a firm demand this morning for further State cash instead of land bonds. Of course, every Minister for Finance would like to be Santa Claus and to be able to answer the prayers of all the children of the nation and to make every day Christmas Day. But gifts cannot be handed out until the money is in the Exchequer bag to hand them out. Money will not go into the bag if people are not prepared to put the money in it. The State's capacity to put the money in there is limited by the reaction which people have to the steps taken by the State. I have told the House, and the country is aware without my telling it, what the reaction has been to the additional tax imposed this year for necessary purposes, to pay improved social welfare levels, to increase State benefits of one kind or another and to pay people in the public service.

I have yet to hear anybody suggest that people in the public service should be paid less than anybody else or that they should have withheld from them the benefits of the national wage agreement. The new national wage agreement applicable to the public service adds £27 million more to the budget deficit. This is something that has to be met by revenue, revenue generated by taxation.

Deputy Fitzpatrick last night said that the State cleans up in time of inflation and that there would be no need to impose new taxes to meet all the additional demands which are being made upon the Exchequer. The year 1974 disproves that convenient theory. If inflation runs in single figures and there is tremendous growth in the economy you may get significant buoyancy which may diminish the need to impose new taxes. Ireland's growth rate is at present in excess of most other European countries and most countries in the world other than OPEC countries. Our growth rate this year of 1½ contrasts more than favourably with the growth rate of that great economic giant, the United States of America where there is no growth rate but a decline of 4½ in a year.

We are in a situation now of comparatively very, very slow growth compared with what we were used to while the demands made for public expenditure are immense because of the high rate of inflation. In 1974 revenue did not come up to expectations. That was in a year in which we had also a very small growth rate but a terrible rate of inflation and quite a considerable rate of income increase. The year 1975 at this stage shows a somewhat similar pattern, due in part to factors beyond our control but some of the factors are within our control. As a society we must get together to acknowledge honestly what is going wrong and to agree on the steps to correct it.

In the light of the present situation —to come back specifically to this amendment—we must accept that with these constraints on the Exchequer regarding expenditure and income the Government have reached a reasonable compromise. They have provided a 15 per cent improvement in the personal tax allowances across the board. They have also provided a £12 million tax reduction to industry and by so doing have helped to keep people in employment. At a time of great difficulty the most important goal to achieve is to maintain employment.

A person who is in employment, even with an income which is partially reduced, say to a very small extent only because of a little less than full adjustment of tax allowances, is in a much better position than a person who is put out of employment because costs have risen beyond the capacity of employers to pay. The budget produced in a neighbouring island yesterday, which many people find unpleasant, was the consequence of the shortcomings in that society which caused them to fail to come to grips with the economic problem in sufficient time. We need to come to grips with the inflationary problem here. The Government have been urging people along the right path. In a democracy it is part of the function of government to give that leadership. Our leadership unfortunately has not been followed fully. Some of the exhortations which we offered have been taken into account, others have not. To the extent that people accepted them they will benefit from them. But we have to go a little further along the road before we start acting sensibly as a community. A little more give and a little less personal inclination to take would get this country over its present difficulties. That is something we sincerely hope will be achieved.

Mr. Colley

Has the Minister any information as to the number of taxpayers in the higher brackets who will be taken out of those brackets as a result of the enactment of section 11?

Mr. R. Ryan

The numbers will be the same. The amount they actually pay may be reduced but the numbers will remain the same.

Mr. Colley

Yes, that is correct. The answer the Minister has just given rather complicates the issue he was talking about, the number of taxpayers brought in and out of the net and the number of payers of surtax— now the higher rates of tax—brought in and out of the net under this Government, or previous Governments, because, as he says, the effect of section 11 which reduces the higher rates of tax will not be to take people out of that net but will reduce the amount of tax they pay. That is true but it clearly indicates that there is more to the argument than the Minister is giving.

However, on the overall question of the number of taxpayers with which the Minister was dealing earlier, I would suggest that the position is, as indicated by the Minister's own figures, in two years the number of income taxpayers is increased by 30,000. If one allows for the fact that the increase in the number of unemployed is certainly in excess of 30,000, between now and this time last year, one gets a figure of approximately 30,000, or something in excess of that, new taxpayers coming into the net in each of the last two years. I do not think the Minister should talk very loudly about the numbers of taxpayers in and out of the net, particularly when one considers that this happened at a time when income tax allowances were increased last year by figures which, as the Minister said, compared with earlier years, were substantial. Of course, the answer is that in real terms they were not very substantial because of the level of inflation from which we now suffer.

The Minister spoke about indexation. I was very interested in what he had to say. The picture emerges even more clearly today. It was suggested last evening by the Minister and, when talking about it, I said that while the Minister had not said this he implied something which he has spelled out much more clearly today. I do not think the Minister would quarrel with me if I paraphrase what he was saying on this issue by saying that he was conveying the idea that certain taxes, such as those on the old reliables, had been imposed in the budget for the benefit of the weaker sections of the community, with the advice of various vocational groups, such as trade unions, employers and industry, and that it was wrong to try to recompense or compensate for the increase in the cost of living brought about by those taxes. The Minister can correct me if I am wrong but that is my understanding of what he was conveying.

If one accepts the validity of that argument for the moment, the fact is that the increases involved amount to, I think, 3 per cent. But the gap between the income tax allowances and the very minimum rate of increase in inflation in this coming year is 10 per cent. Therefore, there would be a good deal more validity in the Minister's argument if the section provided for an increase of, say, 22 per cent rather than 15 per cent. I think it takes away considerably from the force of the Minister's argument when in fact the gap is 10 per cent.

What was clearly uppermost in the Minister's mind in deciding on these increases of income tax allowances by 15 per cent only was the estimated cost, not the arguments he has been making in regard to people seeking recompense for tax increases which were imposed, in his view, for the benefit of the community and particularly of the poorer sections of it. Whatever the validity of that argument, I think it has been thrown in as a make-rate. It is not the real situation as regards the level of income tax allowances proposed in the Bill.

The Minister spoke about indexation. He likened it, as he said, in the Dublin vernacular, to "scutting on the back of a lorry". I want to disagree with the Minister on his interpretation of indexation. I would agree with his interpretation, that it can create a vicious circle, fuelling inflation, when inflation is at a considerably lower level than at present. But, when it reaches the kind of frightening level now obtaining, then, although in theory the Minister is right, in practice I believe he is wrong, for the reason that when people try to negotiate wage claims in circumstances of galloping inflation—apart from any question of trying to get a real increase in pay— what they are trying to do mainly is to keep in line with inflation and not end up worse off. To do that they have to calculate how much the cost of living will increase in the period covered by the agreement. They can get estimates of that which frequently turn out to be wrong. With any reasonable amount of precaution they will add to that because of the fear that inflation —because it is at an increasing rate— is going to outstrip their best efforts. As a result of that, the net effect has been that wage settlements have gone beyond what would have been required merely to meet the cost of living if the matter had been left as it was. But, because they went beyond that, they themselves fuelled inflation and that is where you get the vicious spiral. That has happened in the past.

When you reach the kind of inflation we have now, in fact, in practice, despite the theory, you will get a lower level of inflation with indexation than without it. With the kind of inflation we have now, the primary thing in any wage earner's mind, apart from being able to hold on to his job, is to try to ensure that his position does not disimprove. Full indexation will at least keep him in line with the cost of living, particularly indexation which produces frequent changes, not on an annual basis but on a much more frequent basis.

When you get the high level of inflation we have now that is the primary objective of most people who are concerned with pay claims and it is best achieved by indexation at this level of inflation.

When you get the high level of inflation we have now that is the primary objective of most people who are concerned with pay claims and it is best achieved by indexation at this level of inflation.

Indexation is an important topic. Indeed, it has some relevance to this amendment. As I understood it in the context of what the Minister was saying, the relevance was that what we were seeking to do in this amendment was to produce indexation in relation to income tax allowances. That is true and it is primarily for the reason I mentioned, because of the level of inflation now. The Minister spoke of this as a temporary phenomenon. That is a nice optimistic note. I hope he is right but inflation of some level or another has been with us for a very long time, and inflation at a frighteningly high level has been with us for too long. I personally cannot see any indications of a reduction in the rate of inflation to anything like tolerable levels in the short term. On the contrary, in the really short term I think the pressures will continue upwards.

Therefore, what happens in the next 12 months to people's pay-packets is of vital importance, and what will happen to people's pay packets in the next 12 months if this amendment is not accepted is that they will be eroded to the extent of at least 10 per cent, and probably more, in relation to the amount of tax being taken in this year as compared with last year.

The Minister blows somewhat hot and cold on this topic. He has been telling us for some time the reasons why we should not try to achieve indexation or complete adjustment of income tax allowances in line with inflation. He has advanced a number of arguments in favour of this but, when it suits him and he wants to talk about the allowances given in the past, by taking absolute figures instead of the real value of money he speaks as though what he has done and what the Government of which he is a member have done is a very good thing in regard to income tax allowances. In other words, in so far as he sees that he can find the money to increase income tax allowances that is a very good thing and, in so far as he cannot find it, it is against the national interest that there should be any bigger increase in income tax allowances. He cannot have it both ways.

As far as I can see he did not attempt to deal with the question I raised about the method by which the £16 million which he says this amendment would cost was calculated. He indicated certain things about how it was calculated, but he did not indicate how it was calculated and I assume from that, that it is true no account was taken in calculating the £16 million of the economic effect and the effect on the yield from other taxes such as value-added tax of reducing the amount of revenue taken by the Exchequer from income tax by increasing the allowances from 15 per cent to 25 per cent.

It may be that the results of such calculations are not available to the Minister I except that but, if they are not, at least it should be clear that the calculations which would give the real cost of this amendment are not available and that the figure of £16 million which the Minister has tossed about has no more realism than if I were to say the cost would be £1 million, because neither of us really knows what the cost would be in the absence of those calculations. It is quite possible that the net cost to the Exchequer—and I freely admit that I am merely speculating—would be under £5 million. However, we just have not got that figure.

We get back then to the question of whether it is right or wrong in present circumstances of enormous inflation to try to ensure that people's pay packets are not eroded by, in effect, reducing income tax allowances because that is the effect. By increasing income tax allowances by 15 per cent, as is being done in the Bill, when inflation is at least 25 per cent, you are reducing the income tax allowances by 10 per cent and thereby, of course, reducing the take home pay of the income taxpayer.

Although he has not said so in so many words, the Minister implicitly acknowledges that is the effect of it and attempts to justify it on two grounds so far as I can see: one, that there should not be any compensation anyway in pay agreements for the taxes on the old reliables and, two, if there is compensation in pay agreements for that he should redress the balance by reducing income tax allowances, which is what he is doing here. Over and above that, he is arguing that the maintaining of the pay packet value for taxpayers is inflationary and would make our position worse. All of these propositions are at best questionable assumptions. I have indicated some of the questions which arise, but by no means all of them.

I doubt if the total approach to the economic management of our affairs, as indicated by the Minister, is the correct one. I freely acknowledge that the management of the economy is no easy task, that there are no golden rules, and that one has to operate on a very delicate balance. Nevertheless, to approach this problem in a simplistic way by calculating in the manner indicated —the cost of this is £16 million: where do we find it? —is a ham-fisted approach particularly at present because of the delicate nature of all the problems involved in managing the economy.

It does not inspire too much confidence as to the overall effect of the management of the economy in the Minister's hands. Indeed, the results which have emerged in the economy as a whole in the Minister's term of office would bear out the suspicion that there is a ham-fished approach which is, perhaps, doing more harm than good, but which certainly is not improving the situation in the way in which it could have been improved and can still be improved.

The Minister talks about the effects of inflation on the one hand and growth or absence of growth on the other hand on the proposition which Deputy Fitzpatrick mentioned, apparently, which was, that in times of inflation there is a big yield to the Exchequer. Whatever about the effect of inflation, and the Minister laid most stress on inflation, the key to the whole problem clearly lies in growth, whether there is or is not growth, and that is why 1974 showed and probably this year will show that the Exchequer is not benefiting to the same extent from inflation in balancing income and expenditure. It is the absence of growth that is causing the problem. It is the absence of growth that is increasing our difficulties in regard to inflation. All our efforts should be directed to increasing growth. That is one of the arguments in favour of this amendment.

One difficulty I have—it is the reason why I have referred to the Minister's approach in somewhat derogatory terms—is the fact that the Minister has not adverted at all to the effect of stimulation of the economy, the effect on growth in real terms of holding income tax allowances as they were as against what the Minister is proposing to do which, in real terms, is to reduce income tax allowances. The consequences of what he is doing on growth is what I should like to direct his attention to; the money received as a consequence into the Exchequer and how it is spent are important from the point of view of the effect on the Government. Some portion of the money may stimulate growth when it comes out from the Exchequer, depending on the areas to which it goes, but it is reasonably certain that in the case of the vast bulk of taxpayers an additional amount of money in their pay packets will stimulate growth and our primary objective in the management of the economy today should be to increase growth.

That has been our major criticism of the Government's handling of the economy; they have failed to grasp the opportunities to increase growth in areas totally, or almost totally, within the Government's control. In passing, may I give an example of the construction industry which the Government could, quite apart from anything happening outside the country, have stimulated? It is this failure to stimulate our economy effectively that is responsible for the position in which we now find ourselves. The Minister has talked on numerous occasions about stimulating the economy and about the effect of budgets he has brought in, but they did not stimulate the economy and results show that. Would anybody contest the view that to leave the pay packets of taxpayers bigger than they will be if the Minister's section is passed would tend to stimulate the economy? I think it must be conceded that it would tend to stimulate. Will it stimulate inflation as well?

This is where the overall management of the economy comes in and this is where we have on many occasions tried to tell the Minister the way in which this problem should be approached so that we would reduce the inflationary effect to a minimum and increase growth to a maximum. That has not been done in the approach of the Minister and his colleagues to the management of our economy. It is not being done here and, as I said earlier, it is a ham-fisted approach to think solely in terms of £16 million and how it is calculated; we need this for the Exchequer; we must get it and it does not matter if we do not get it, but what will be the effect of that on the economy, forgetting that whole area of the calculation?

That is the Minister's approach. It is a simplistic approach and it is not effective in the management of the economy. As well as that it is leaving taxpayers worse off. That is the kernel of it and the Minister should not lose sight of that. Effectively what he is proposing to do is reduce personal allowances by 10 per cent. In real terms inflation will be at least 25 per cent and the Minister is increasing the allowance by only 15 per cent. Again, in real terms, that is a reduction in income tax allowances. It is unjust. It will be ineffective in the management of the economy. The approach outlined in this amendment would be far more effective and I would urge the Minister very strongly to think again about the effect on both the Exchequer and the economy in general.

Ruairí Brugha

The purpose of Deputy Colley's amendment is to highlight the fact that taxpayers are not being kept in line with the increase in the cost of living. It is refreshing to hear the Minister talk about moderating expenditure, if he is really serious about that. In his introductory statement on the budget he said that priority was being given to the present economic problems of maintaining employment and preserving living standards. It is to his credit that in the social welfare area there are increases running from around 21 per cent and 22½ per cent upwards. Deputy Colley proposes increasing the tax relief by 25 per cent as against the Minister's 15 per cent and the Minister's 15 per cent demonstrates quite clearly that the Minister is certainly not living up to the priority of preserving living standards. Deputy Colley has stressed that one of the hoped for results of his proposal would be a stimulation of the economy, apart altogether from the just claim involved on behalf of the taxpayer. The Minister also indicated —he mentioned it a moment ago too —in his budget statement the probable agreement as a result of the employer labour conference and said he was making provision for that at something around 23 per cent.

The Minister has indicated that he is trying to balance expenditure with revenue. "Trying to" is the accurate way of putting it because in his budget statement he indicated a probable deficit of £150 million, which many of us believe will exceed that considerably. If the Minister is prepared to overspend to that extent in an endeavour to stimulate the economy and to maintain growth, it would seem that Deputy Colley is right in pressing this amendment because after all the Minister's main hope in even approaching the problem of balancing expenditure lies in the productive energy which he wants in the economy from those who are working in it and paying tax.

I said earlier I did not think the £12 million which the Minister is not collecting for the time being from industry could be regarded as a very serious effort not to stimulate the economy but to maintain it. I believe the investment which the Minister could have got from making substantial provision for industry by way of rebate of taxation would not alone maintain the level of the economy, of productivity, but there would be a productive advantage through a lower level of unemployment assistance payments which the Minister is called on to pay to those who have been put out of employment because of inflation and liquidity problems.

It is interesting to note the increase announced in VAT rates on luxury goods, 8 per cent, in Britain. It brings the rate to the highest yet in that country, whereas as was pointed out on this side of the House, the rate here on luxury goods has been brought up to the level of 37 per cent.

Mr. R. Ryan

The rate on luxury items is mainly 19.5 per cent, not a top rate.

Ruairí Brugha

I referred to luxury goods.

Mr. R. Ryan

"Luxury" is a much-abused word today.

Mr. T.J. Fitzpatrick

(Dublin Central): Very few people can afford it.

Mr. R. Ryan

It might be a new home. I have even seen lounge bars described as that that hardly merited it.

Ruairí Brugha

One of the causes of our rate of inflation is the policy implemented by the Minister in that regard. Deputy Colley is right in pushing his amendment not alone from the point of view of justice to the taxpayer but in the hope that it would help to stimulate the economy. The Minister has not yet given any idea of the effect he thinks would result from insisting on his own proposal of 15 per cent as against the Opposition's 25 per cent. I would argue it is something similar to the Minister's proposal at the beginning of the year of a £12 million rebate to keep industry on its feet. If that figure had been more realistic, the probability is that the Minister's current problem in relation to unemployment payments would not be so great.

It can be argued reasonably—I am not one of those in favour of over-expenditure, if it is avoidable—that if the Minister had set aside a significant sum six months ago to try to retain in employment the very significant number of people not now in employment he would be getting back quite a lot of money or would not have to pay out the money he is now paying in unemployment relief. The same argument applies to doing justice to the taxpayer. Of course, the problem of how the Minister does it and of what it costs is his. If he can see his way, to quote his own words, to "preserving living standards for the taxpayer" the benefit may return into the economy during the coming 12 months.

Mr. T.J. Fitzpatrick

(Dublin Central): I have very little to add to what has been said on the amendment by Deputies Colley and Brugha. Their argument is that the rate be increased from 15 per cent to 25 per cent. We believe this to be justifiable in today's conditions. Somebody must take some step in regard to inflation. The Central Bank and other authorities have told us that within the country we are responsible for 50 per cent of our present inflation. Who will take the lead? Do we expect the workers to take it by reduced wages? Do we expect employers to cut back on profits and go out of business? The Government are the people who must take the lead as regards inflation.

Taxation has a bearing on inflation. The wage earner is more concerned about his weekly take home packet. He is not fooled when there is talk about a 25 per cent or a 30 per cent increase because he realises there will be many deductions from his wages. There will be an income tax deduction and he is liable for the increased cost of the social welfare stamp. The pattern adopted by the Government of transferring the entire contribution to the employer and the employees has put an extra burden on the wage earner. The social welfare contribution will cost practically £5 per week and there will also be deductions in respect of retirement pension and the pay-related benefit scheme. All of us know that next year the wage earners will seek an extra wage increase.

Last year the national wage agreement allowed for an increase of 18 per cent but we know that because of inflation the final figure was approximately 28 per cent. In the new national wage agreement there is a provision for a figure of 25 per cent but, on the basis of what happened last year, the possibility is the figure will be in excess of 30 per cent. This will happen unless the Minister takes a positive step to curb inflation. He should accept the amendment put down by Deputy Colley.

The Minister has said that accepting the amendment of Deputy Colley would cost the Exchequer £16 million and he asked us where this money could be found. It is obvious that before this year is out there will be an increase in wages of 25 per cent for the majority of people. Quite a number of people are earning in the region of £40 per week and a 25 per cent increase will mean an extra £10 per week for them, approximately £500 per year. All the Minister is giving back is £75 per year—at least that was the figure he mentioned in the budget. It is obvious he could easily afford £16 million, especially when we consider that the national wage agreement envisages at least a 25 per cent increase.

It is practically impossible for a wage earner to live on £2,000 per year, especially if he is purchasing a house. The additional income will be approximately £500 a year and, taking into account the £75 given back by the Minister in the budget, this will leave £425 to be taxed at the rate of 26 per cent. When the Minister considers these figures he will realise that he can afford the £16 million.

We are in a period of high inflation and workers will receive an increase this year. The new national wage agreement provisions will barely cover the increase in prices; we all know there will not be any increase in the real standard of living. If the Minister accepts the amendment put forward by Deputy Colley, he will be taking a step in the right direction in the effort to control inflation. He will also help industry throughout the country.

The system operated by the Government means taxation right along the line and it means industries will contract. When we consider the British budget yesterday we can see there is little consolation for our industrialists in it; it is obvious that purchasing power within the United Kingdom will diminish in the next 12 months. We will have to look to the EEC countries and to other parts of Europe and America to sell our exports and we should direct our attention now to the question of how we will do this. We will have to consider how we may reduce our unit costs. Five or six years ago we had an advantage over other European manufacturers because our unit costs were lower but this advantage has been eroded and now we are operating on a par with other advanced European countries. We should make an effort to keep our unit costs as low as possible and try to diversify our exports.

The Minister and the Government must take the lead in the matter of curbing inflation. The provisions made in the new national wage agreement are necessary if our workers are to maintain their standard of living, but I should not like to imagine what the agreement will be like next year. Unless the vicious spiral of inflation is checked industries will close and all of us will be affected. There are a number of finance measures now before the House. The Minister has an obligation to encourage workers and to help them cope with increased costs in the coming year. He should take a lead. It will cost the Exchequer only £16 million to accept the amendment put down by Deputy Colley.

We know that some of the legislation at present going through the House will have a detrimental effect on the economy. I am speaking in particular of the horrible Wealth Tax Bill which will have a disastrous effect on the economy in the next few years. The Minister should see the light with regard to capital taxation. He should increase the tax allowance. It is obvious that wages will rise by 25 per cent, that inflation will be at the rate of 25-30 per cent and nobody knows what will be the increase in prices.

This is the situation we find ourselves in now. A step must be taken by somebody if we are to bring the economy back on the rails. The Minister for Finance is charged with the duty of trying to allocate money and devise a proper taxation system. I do not believe we can avoid taxation. I believe it is necessary if we are to have increased social welfare benefits. However, they are not high enough to keep up with this taxation. There is no hope of continuing with a good social welfare policy if we do not expand our economic arm and create more jobs in the community. There is no good in the Government saying that inflation was 25 per cent last year, that wages will increase by 25 per cent this year and that they will take it back in taxation. This attitude is not working in England.

I prefer to encourage people to work. I do not believe in taking half the wages of workers back from them in taxation. You cannot hope for a strong economic arm if you have excessive taxation. The Minister should accept Deputy Colley's amendment which would give the workers some compensation.

Mr. G. Fitzgerald

I also wish to support Deputy Colley's amendment. The Minister should realise the plight of the people generally. The earning capacity of the middle income group and the worker on the factory floor has been reduced in recent times. Those people were accustomed to overtime earnings as part of their ordinary earnings but this is no longer available. I have long advocated having another look at the taxation of overtime. There is no need for me to do that now because this overtime money is no longer available to those people. While this has been happening, the increase in the cost of living has been advancing. We have been told that up to mid-February it increased by approximately 24 per cent in the year. We believe it is rising because the last quarter of the year was the highest quarter. It will probably be more in the coming year than 25 per cent.

The Minister should tell the workers that they have been carrying the taxation burden for too long and that he will give them a break. He should give the people who are lucky enough to be still in employment the added benefit of the increase suggested by Deputy Colley. Many claims have been made by the Minister about the redistribution of wealth and its allocation in certain ways. The workers do not understand what he is talking about because they have not received any material benefit. Their colleagues are losing their jobs so they should be given some incentive. The Minister should show those people some of the concern which some of his colleagues claim to show for people. He should show them the concern which some of his Labour colleagues in Government are not showing for the working people. The Minister should set a lead by accepting this amendment which would offer some compensation to those people.

I am sure we have all been critical of the taxation system from time to time. It has always been too easy to collect the PAYE contributions. Those workers in the good days of Fianna Fáil Government became accustomed to overtime earnings but now that is denied them. It was an accepted part of employment in the building industry that no man took a job unless overtime was available. This is no longer there so their earnings are cut. The State should be seen to lead in a situation like this. Industry cannot take the further impositions the Minister is imposing on them. The working-class and middle-class workers are bearing a greater burden than they ever had to bear.

Mr. R. Ryan

They are not.

Mr. G. Fitzgerald

The Minister is removed from those people but I am one of them.

Mr. R. Ryan

Emotion is no substitute for facts.

Mr. G. Fitzgerald

These are the facts of the situation and I will talk about them for hours if the Minister wishes.

Mr. R. Ryan

The Deputy may talk bull.

Mr. G. Fitzgerald

I will not talk bull. I have never been known to do that. I will leave that to the publicity hungry Ministers of the Government. We have become accustomed to propaganda from them. We have listened to the Minister talking for a long time about what he intended to do for the ordinary people but I can tell him it is not having its effect because it is not true.

An Leas-Cheann Comhairle

Will the Deputy come to the amendment?

Mr. G. Fitzgerald

It is all related. I am speaking about the working people on the factory floor who in my opinion are entitled to what is requested by Deputy Colley. These people have lost confidence in the democratic system which operates in the country because of the lack of concern by the Minister for Finance and his colleagues. The colleagues of many of those workers are already unemployed and they fear they will follow the same pattern.

An Leas-Cheann Comhairle

The Deputy must follow the amendment now.

Mr. G. Fitzgerald

The amendment requires that the income tax personal allowance be increased. This would help to cope with the cost-of-living increase which has been the pattern because of the inflationary policy of the Government over the past year and will continue to be during the next year.

Mr. Colley

Does the Minister want to say any more on this topic?

Mr. R. Ryan

I do not think so. As the Deputy knows, I replied at length last night and again today. I cannot add any more to what I have already said.

Mr. Colley

This amendment is designed merely to keep personal allowances in line with the cost of living. In fact, it may fail to do so. If it is not accepted, section 12 proposed by the Minister will, in fact, reduce personal allowances for all income taxpayers. That is the reality of the situation. In real terms it will reduce them because it is proposing to increase income tax allowances only by 15 per cent but we know that for the year involved the cost of living increase will be a minimum of 25 per cent. In net terms failure to accept the amendment will reduce the pay packets of all those paying income tax. On grounds of equity that is a situation which the Minister should not create and we endeavoured to remedy it.

On the grounds of the economics of the situation and the stimulation of the economy we believe our amendment would assist considerably in trying to get our economy going again. Since the Minister does not appear to be willing to accept our amendment the responsibility for the consequences of failing to do that lie clearly on his shoulders and on the shoulders of his colleagues. The responsibility involved may be substantial. It is as well to make it clear that as far as we are concerned within reason and on a conservative approach, we have proposed the increase to 25 per cent. I say "conservative" because it is almost certain that the cost of living increase in the year will be more than that. We have played our part in trying to remedy the situation and if the Minister will not agree there is nothing we can do to force it through. However we want it clearly set out on the record what we tried to do and what the Minister failed to agree to.

Question put: "That the words and figures proposed to be deleted stand."

The Committee divided: Tá, 58; Níl, 52.

Tá

• Barry, Peter.
• Barry, Richard.
• Belton, Paddy.
• Bermingham, Joseph.
• Bruton, John.
• Burke, Dick.
• Burke, Joan T.
• Burke, Liam.
• Byrne, Hugh.
• Clinton, Mark A.
• Collins, Edward.
• Conlon, John F.
• Coogan, Fintan.
• Cooney, Patrick M.
• Corish, Brendan.
• Cosgrave, Liam.
• Coughlan, Stephen.
• Crotty, Kieran.
• Cruise-O'Brien, Conor.
• Desmond, Barry.
• Desmond, Eileen.
• Dockrell, Henry P.
• Dockrell, Maurice.
• Donegan, Patrick S.
• Donnellan, John.
• Dunne, Thomas.
• Esmonde, John G.
• Finn, Martin.
• FitzGerald, Garret.
• Flanagan, Oliver J.
• Gilhawley, Eugene.
• Harte, Patrick D.
• Hegarty, Patrick.
• Hogan O'Higgins, Brigid.
• Jones, Denis F.
• Keating, Justin.
• Kenny, Henry.
• Kyne, Thomas A.
• L'Estrange, Gerald.
• Lynch, Gerard.
• McLaughlin, Joseph.
• McMahon, Larry.
• Malone, Patrick.
• Murphy, Michael P.
• O'Brien, Fergus.
• O'Donnell, Tom.
• O'Leary, Michael.
• O'Sullivan, John L.
• Pattison, Seamus.
• Reynolds, Patrick J.
• Ryan, Richie.
• Ryan, John J.
• Spring, Dan.
• Taylor, Frank.
• Timmins, Godfrey.
• Toal, Brendan.
• Tully, James.
• White, James.

Níl

• Barrett, Sylvester.
• Brady, Philip A.
• Brennan, Joseph.
• Breslin, Cormac.
• Briscoe, Ben.
• Brosnan, Seán.
• Browne, Seán.
• Brugha, Ruairí.
• Burke, Raphael P.
• Callanan, John.
• Calleary, Seán.
• Carter, Frank.
• Colley, George.
• Collins, Gerard.
• Connolly, Gerard.
• Crinion, Brendan.
• Cronin, Jerry.
• Cunningham, Liam.
• Daly, Brendan.
• Davern, Noel.
• Dowling, Joe.
• Fahey, Jackie.
• Farrell, Joseph.
• Fitzgerald, Gene.
• Fitzpatrick, Tom. (Dublin Central).
• Gallagher, Denis.
• Geoghegan-Quinn, Máire.
• Gibbons, James.
• Gogan, Richard P.
• Healy, Augustine A.
• Hussey, Thomas.
• Kenneally, William.
• Kitt, Michael P.
• Lalor, Patrick J.
• Lemass, Noel T.
• Leonard, James.
• Lynch, Celia.
• Lynch, Jack.
• McEllistrim, Thomas.
• Meaney, Tom.
• Moore, Seán.
• Murphy, Ciarán.
• Noonan, Michael.
• O'Kennedy, Michael.
• O'Leary, John.
• O'Malley, Desmond.
• Power, Patrick.
• Smith, Patrick.
• Timmons, Eugene.
• Walsh, Seán.
• Wilson, John P.
• Wyse, Pearse.

Tellers: Tá, Deputies E. Collins and B. Desmond; Níl, Deputies Lalor and Browne.

Question declared carried.

Mr. R. Ryan

Perhaps the section could be agreed now and be done with it?

Mr. Colley

I think we will leave it until afterwards.

Debate adjourned.