We have had, perhaps, the most dispirited budget debate ever in the history of the Dáil. I suppose it is not surprising, because the truth is that the Opposition could not oppose the Government's fundamentally sound approach to the serious economic problems facing the State. The most grievous problems are agreed. They are inflation and unemployment. These are also the most serious problems facing the whole world at present. Even today in Brussels, while I am speaking, my colleagues, the Finance Minister of Europe are meeting to consider the present economic position in Europe, where the twin problems of unemployment and inflation are recognised as being at the most serious levels since the 1930s. There is agreement that the situation on the unemployment front is unlikely to improve for some time to come, and may get worse.
There is also agreement, there and elsewhere among informed people, that the problem of unemployment will be easier to solve if the rate of inflation is brought down. If any society, including our own, deludes itself into believing it can carry on with a high rate of inflation, it will have to suffer a high rate of unemployment. As we in Government said more than a year ago, there is no point in people in Ireland getting cross with each other because the world situation is now so abominable. No group in our society, whether they are in insecure or secure employment, can obtain any special improvement in their position except at the expense of their fellow workers and their own neighbours in this community.
In my budget statement on behalf of the Government, we indicated a number of proposals which, if implemented by the Government, would have the effect of reducing the rate of inflation by about four points. The Government wish to proceed with that programme. It is clear from the public reaction to the Government's budget that there is a national desire that the Government would succeed in that programme. There is a national will to accept whatever sacrifices have to be made to bring about that reduction in inflation. The Government are determined that no sector of our community will be permitted to frustrate the overwhelming national desire to bring about a reduction in the rate of inflation and, consequently, a reduction in the number unemployed which will result if we increase our competitiveness by reducing inflation.
There is also a public understanding that the cost of Government and the cost of meeting the pay of every person employed in the public interest by Government are rising to levels which our society is not in a position to pay for.
In that situation, the Government will have to meet this problem head on. It is pointless for any group in our community to demand—and many people do demand—that the Government should pay special increases to people in secure employment at the expense of the general body of tax-payers who are the providers of the money for paying them. Many of the people who provide these pay packets are in insecure employment themselves or have been disemployed or have suffered drops in their incomes because of the economic difficulties facing the country. If there is not an acceptance by our people of the very obvious facts of economic life then our present difficulties will be multiplied.
The principal problem we have is to translate the inherent common sense of the individual Irishman into collective wisdom. It is a challenge for a democratic Government to do this, and this Government have taken up that challenge. We have been faulted because the Government failed forcibly to administer unpleasant medicine in the budget. There seems among some people to be a conviction that medicine can be no good unless it tastes unpleasant. In fact most effective medicines today are quite pleasant to taste.
There is nothing in the Government's proposals which involves any unfair sacrifice, any long-term disadvantage for our people. The Government are asking for moderation, for reasonableness; they are asking people in protected employment to have regard to the plight of many of their neighbours who are not in such secure employment and who have suffered severely as a result of the world economic recession. I believe that our community expects that there will be a positive response to the Government's proposals, and we are therefore looking forward to having worth-while meaningful discussions with the social partners so that we may achieve by agreement, what many other countries have achieved by agreement. We do not want Ireland to be labelled as the one unreasonable country in Europe because of our failure to reach agreement as to how to achieve our own salvation.
It is interesting to note that in the neighbouring island, subsequent to the introduction of our Government's budgetary measures, the Government there proposed measures, which on the face of it might appear to be even more restrictive than the proposals of this Government. Let us study the position there. The position in Britain is that already increases in incomes of 30 and 40 per cent and more have been demanded and given to certain sectors. The Government there are now proposing that any further increases above 10 per cent will not be granted. Increases of that magnitude have not been a feature in Ireland in 1975. So Government measures here do not need to be as restrictive as those that are being imposed in Britain. Their situation has got more out of hand than the Irish situation did before we introduced supplementary budget proposals. That does not say that there is any room whatsoever for increases beyond what the Government have already suggested and what are suggested in the national wage agreement. When this agreement was under negotiation, it was not anticipated that the Government would take measures of their own to bring about a reduction in the consumer price index. The Government are now taking those steps to bring about that reduction and are asking very reasonably in return that there should be an adjustment, and reductions, in income expectations to reflect the reduction in the consumer price index.
On three occasions in my budget statement I referred to the desirability of excluding as a basis for seeking wage increases that element in the consumer price index which reflected necessary taxation on luxuries. That was first put to the people in the Government's White Paper last November in "A National Partnership" and it has been enunciated by me on several occasions since then. On three occasions in my budget statement I made reference to it.
It is very interesting to note that nobody in the course of the budget debate in this House challenged that proposition. Surely we must stop pussyfooting on this point? Nobody wants to say in public or private that the Government are wrong to say that in times of economic difficulty taxes on luxuries should be excluded from calculation of the consumer price index for wage indexation purposes. The truth is that no reasonable person could so suggest. Before the previous budget in January, I received deputations from all the social partners and various organisations of one kind or another and I put to them the simple question: "If taxation had to be increased to meet necessary Government outlay, should the Government increase income tax or should the Government increase tax on non-essentials?" Every deputation said: "Increase the tax on non-essentials." Since then many of the organisations which gave that advice to me and pleaded with the Government to do that, many of the media commentators who said the Government were right to do that, have insisted that total compensation be given in income increases for those taxation increases on luxuries which they regarded as justifiable and necessary in the public interest. Other countries have excluded such items from their cost-of-living index for wage purposes. We are still pussyfooting on this. It is time it stopped.
Some people want to run away from the unpopularity which they think would be associated with an endorsement of that viewpoint. It is high time that we as a community had the honesty and the decency to accept taxation on non-essentials without compensatory income increases to pay for the support necessary for the less privileged in our community. If people are unwilling to meet the tax bill, to meet the taxation on income, if they are unwilling, as some people are, to pay taxation through charges on their capital accumulations, if they are unwilling to pay any other form of tax, how on earth can they expect Government to provide for the less privileged in our community? It cannot be done. The sooner that simple fact of life is honestly and decently faced the sooner can we exclude from the consumer price index for wage increase purposes that element of taxation on luxuries. I am stressing this once again with complete personal conviction, and also on behalf of the Government, because we are convinced that it is wrong for our society to be seeking total compensation for taxation which is intended to transfer some money from the better-off to the less well-off. If society seeks total compensation for that, there is no good, from the social or moral point of view, in imposing taxation on luxuries. People ought to be prepared to accept that it is the decent thing to do and I think most people regard it as the decent thing to do. Until effect is given to that readiness to pay tax on luxuries without compensation, we will continue at budget time to give hypocritical approval to taxation on luxuries and within a matter of weeks will seek total compensation for the alleged sacrifices. We must accept taxes on non-essentials without compensation in the national interest and have regard to the necessitous circumstances in which the less well-off members of our community are forced to exist.
The Government's measures to reduce living costs by four per cent will not prevent living costs rising, certainly will not prevent the consumer price index rising, for other reasons. The principal ingredient in price rises in Ireland in 1975 is income. There is no use in anybody blowing off indignantly about that truth. It happens to be the truth. Whether people are blameworthy or otherwise, you can leave aside for the moment. Our inflation this year is attributable to the extent of 80 per cent to income increases. Therefore, if the curbing of inflation is an agreed national goal we must choose the weapon which can most effectively bring about that reduction. That method is curtailment of our own income demands. It is as simple as that. Other countries are not going to reduce our rate of inflation for us. There may be some fall off in the rate of increase of inflation arising out of imported inflation because the prices of imported commodities are not increasing in 1975 at the atrocious rate at which they increased in 1974, but we have no control over that element in the future any more than we had in the past. All we can say is that as of 1975 it is not going to be as significant as it was in the past.
A number of Deputies have made the point that reductions in the prices of electricity and town gas, due to the zero rating for VAT purposes on electricity and town gas from 1st July, in other words since the introduction of a 12½ per cent subsidy, have been offset by further increases. The only recent increases in these prices was an increase of 14 per cent on the total of ESB bills. That 14 per cent increase in ESB bills was due primarily to increased labour costs. I want to repeat that, because if people are waxing indignant about increased prices they should look to the cause of the increased prices. If they want to be indignant they must be equally indignant about the cause, because if the result is an inevitable consequence of the cause then it is time we as a community and we individually attacked the cause. The primary reason for the increase in the price of electricity by 14 per cent was labour costs. That increase was applied to the May-June billing period, that is, for electricity which was consumed in the May-June period, before the Government's budget measures took effect. Bills which are being issued at present cover that period, May and June, but any increases that flow as a consequence are pre-budget and not post-budget. The budget concessions will be reflected in future accounts.
I want to refute the charge that the surcharge of 10 per cent of the standard and higher rates of income tax for 1975-76 is a retrospective charge. This is not so. The tax liability for 1975-76 is a current liability, and any adjustment of the taxation during the current year is not retrospection. As the country and the House are well aware, the annual budget, until this year, was introduced in May and taxation proposals which affected income tax were operative from the commencement of the tax year, 6th April.
Consequently, even though the budget tended to be introduced in May, it was invariably the following July before the Finance Bill was passed. The July Finance Bill will be on all fours with the experience and practice of previous years. Until 1975, with the introduction of a January budget, the legislation fixing tax liability for a year was not passed until three months of a tax year had expired. It was never previously argued that any increase in liability in such circumstances amounted to a retrospective charge.
The present surcharge will be collected from July onwards. But for the structure of the income tax system, it might have been expressed as a special surcharge on income arising from 1st July onwards. Since, however, the surcharge is part and parcel of the income tax code it must be fitted into the existing scheme of income taxation under which tax is charged for the year of assessment in respect of a year's income. Consequently the addition to the 1975-76 tax liability must be super-imposed on the income tax charge for the year as a whole, which means it is measured by reference to the income for the year. The tax is expressed as a surcharge for the year but it will be collected from the period of July onwards.
The point has been made very wrongly that the imposition of the 10 per cent surcharge is inequitable because it has been alleged that it does not take into account the personal circumstances of the taxpayer. Some Deputy asserted that it took no account of whether or not the taxpayer was married or had children or other dependants. I want to give some figures which will clearly refute that stupid allegation. If we take any particular level of income and the following families' situations you will find that there is a very distinct difference in the amount of tax that will have to be paid. I will give, first of all, the income figures, then the tax payable by a single person, then the tax payable by a married person with no children, and then the tax payable by a married person with three children, and finally a married person with five children. If we take the total income at £2,500, the additional taxation payable as a result of the 10 per cent surcharge would be: for a single person £13.12; for a married person £1.05; for a married person with three children, nothing, for the married person with five children, nothing. If we take an income of £3,000, the 10 per cent additional charge will mean additional taxation for the single person of £30.62, a married person £18.55, a married person with three children, nothing, and a married person with five children nothing. Taking a total income of £5,000 the additional tax payable as a result of the 10 per cent surcharge by a single person would be £101.37, a married person with no children, £88.55, a married person with three children, £64.40, and a married person with five children, £48.30. These figures entirely refute the allegation that the surcharge does not take into account the different number of dependants of different taxpayers. May I also point out that these figures assume that a taxpayer has no other allowances or is not entitled to any other tax free deductions? If a taxpayer has, for instance, mortgage obligations, is paying interest on borrowed money or has insurance policies, other allowances would be made and accordingly the tax liability would be less.
Deputy O'Malley referred to the fact that the 35 per cent rate of income tax will continue to apply to companies. He suggested that an individual receiving dividends would pay tax in respect of them at the increased rates of tax whereas if he set up an investment company to receive the dividends the company would be charged the 35 per cent rate only. Companies were deliberately excluded from the surcharge as a further contribution by the Government to arresting the downward trends in production and employment. In the January budget this year, notwithstanding very severe financial constraints, the Government gave very generous reliefs to companies to assist them in their liquidity problems, and in order to enable them to maintain employment. These tax concessions to companies are costing about £16 million this year. It would clearly have been contrary to the Government's policy as enunciated in January, having given tax concessions to companies, then to increase taxes on companies in June. That is the reason why the Government very sensibly excluded companies from the surcharge. We are satisfied that this will not encourage people to set up investment companies to avoid the surcharge on their dividend income, since the taking of such a step could attract liability under the wealth tax. This is a very quick benefit to flow from the Government's wealth tax proposals. It shows the necessity in modern society of having a number of taxes —particularly of taxing capital as well as income. Many of the tax avoidance practices in this country in the past were able to operate because we left so many loopholes. But the loopholes are being closed by the Government and that is one of the principal reasons underlying much of the opposition to the Government's capital taxation proposals.
Under the wealth tax provisions, those investment companies will be liable at a rate of 1 per cent on their total assets. Assuming a yield of 10 per cent, this would be equivalent to 10 per cent of income. Such companies would not receive the benefit of the exemption threshold of £100,000 which applies in the case of a married couple under the wealth tax. The indications are that rather than such investment companies being formed they are now being liquidated, no doubt in anticipation of the application of these provisions. It is extremely unlikely that they would be set up now so as to avoid an additional income charge of 3.5 per cent on dividends and incur wealth tax at an effective rate of 10 per cent. It must also be remembered that where an investment company distributes dividends to its shareholders the surtax would, in any event, be payable on such dividends. Deputy O'Malley's remarks are in his own tradition of making mischievous and groundless suggestions.
It is estimated that the surcharge will be paid by about a third of the total number of individual taxpayers. We have no particular pleasure in having to impose this surcharge. It does not mean that the Government feel that income tax levels are not high enough. On the contrary, since we entered into Government two-anda-half years' ago we have substantially reduced the burden of income tax. It is interesting to note that notwithstanding this surcharge in the year 1975-76 many taxpayers will pay on their particular incomes less income tax than they would have had to pay on the same income in 1974-75. That is as a consequence of the substantial increases in the personal income tax allowances which the Government have given for two years in succession.
For a single person, assuming that single person has no deductions available to him other than the personal allowance, he will not be liable to the surcharge unless his total income exceeds £2,125. A married person, without dependants, will not be liable to the surcharge unless his total income exceeds £2,470. A married person with three children will not be liable to the surcharge unless his total income exceeds £3,160.
In connection with the reduction in the higher rate of income tax provided by section 11 of the Finance Act, 1975, I remarked in the course of my statement on the Finance Bill that it was necessary, in order to keep the tax charge on people in the top bracket of a level not significantly worse than that operating in Britain.
I pointed out that it was necessary for two reasons, the first being to avoid the brain drain from Ireland and to encourage the return of many Irish nationals who had gone to work elsewhere. I also pointed out that the imposition of too heavy a charge on the upper levels of income would have the effect of forcing employers to increase such incomes by very substantial gross amounts in order to provide even a modest net increase.
I should like to draw people's attention to this very significant fact that notwithstanding that we have been obliged, because of temporary difficulties, to increase the upper tax rates by the 10 per cent temporary surcharge, the position of most income tax earners in 1975-76 will be dramatically more favourable than it was for them in the year 1973-74. Indeed, more than in all the years before we came to power, when so little was done for them or anybody else because the personal income tax allowances were left untouched for 11 years and when increased were only increased by derisive amounts.
