Finance (No. 2) Bill, 1975: Committee and Final Stages.

Question proposed: "That section 1 stand part of the Bill."

Mr. Colley

There are a few comments I want to make on section 1. The first one is a technical one. In subsection (2) there is a reference to section 153 (1) (d) of the Income Tax Act, 1967. I have been unable to find a reference to standard rate of tax in that. It may be that there is an amendment to it of which I am not aware and I would appreciate it if the Minister would indicate if there is an amendment to it.

The other point I want to make is that in April last, just two months before the Minister made his announcement of what is contained in section 1, a surcharge of 10 per cent was placed on income tax payers in the 35 per cent and upwards bracket. Just two months before that the Minister spoke in this House about the fact that, in his view, our rates of tax were too high and that was having a deleterious effect on managers and their salaries. The reduction of the top rate from 80 per cent to 70 per cent would be very advantageous and helpful not only in regard to the salaries of managers but right down the line. Whatever one may think of that view, it does seem strange that two months later the Minister is imposing a 10 per cent surcharge.

Minister for Finance (Mr. R. Ryan)

It is unfortunate that when the country is facing an economic crisis the Opposition endeavours in that situation to take the opportunity of scoring partisan political points. I do not think it helps the Opposition's own image to behave in that way when it could bring more credit upon them and more advantage to the country if Members opposite were to endeavour to rally public opinion behind the Government in an effort to attain a reduction in the rate of inflation.

One of the encouraging signs has been that there has been little objection to the 10 per cent surcharge on income tax. The people who will be most affected by the 10 per cent surcharge have protested least. This is an indication of the appreciation people have of the gravity of the present situation and their understanding that some sacrifices have to be made so that the country may pull through at a very difficult time. The public in general appreciate that the principle cause of the problems affecting this country are international and are not due to mismanagement by the Government or by anybody else. The forces which are affecting us at present are, in the main, beyond our control. The Opposition might bear that in mind. The public expect leadership not merely from the Government but from the Opposition. Deputy Colley asked a question about section 1.

Mr. Colley

The question was in relation to section 153 (1) (d) of the 1967 Act.

Mr. R. Ryan

That was inserted by the First Schedule to the Finance Act of 1974. It was consequential to the introduction of the new rate structure, and provided that a nonresident was to be chargeable to Irish tax on income arising in this country at the standard rate on income up to £4,350.

Mr. Colley

If I could interrupt the Minister for a moment, I have a copy of the 1974 Act in front of me and the reference appears to be as follows:

...the following paragraph shall be substituted for paragraph (dd) of subsection (1)—

"(dd) he shall not be entitled to the benefit of the provisions contained in section 3 (2) of the Finance Act, 1974, (whereby the first £1,550 of taxable income is chargeable at the reduced rate of tax in certain circumstances) and accordingly, he shall be charged to tax in respect of so much of his income as does not exceed £4,350 at the standard rate of tax".

I found the references to all the others but I could not find that one. I do not know if the Minister is finished. I interrupted him on that.

Mr. R. Ryan

Is there any specific point the Deputy wants to make?

Mr. Colley

The only specific point I wanted to mention was that I made another point on this. The Minister is entitled, of course, to express the view that the Opposition are being unhelpful, and so on, but the real point he was asked to answer, and did not, was that whatever may have been the international circumstances, and so on, how come that there was a complete reversal in a matter of two months?

Mr. R. Ryan

There was not a complete reversal. The top rate of tax was 80 per cent and the top rate of tax now including the temporary 10 per cent surcharge will be 77 per cent. So there is, in fact, an effective reduction of 3 per cent. The international economic situation is deteriorating more rapidly——

Mr. T.J. Fitzpatrick

(Dublin Central): In two months.

Mr. R. Ryan

Yes, and the Minister for Finance of Ireland has been asserting for the last nine months in OECD, in the EEC, the IMF and the World Bank that the global economic recession was deeper and more prolonged than any of those organisations were or are prepared to admit, or that the surplus countries were or are prepared to admit. Indeed, the surplus countries were asserting—I am thinking in particular of the European surplus countries like Germany and the Netherlands—that there was no need for any further reflationary action by them.

That situation persisted until this month when, for the first time, Germany, holding the key to the economic revival of Europe, acknowledged that the steps which she had taken were not sufficient, and that the German economy instead of having, as Germany anticipated this year, a growth rate, albeit a small one of 2 per cent, or thereabouts, would, in fact, suffer a decline.

The consequence of this is that Europe is now in a deeper recession than the United States of America, although it is only a matter of some months since the Council of Ministers for Finance of Europe asked me as their President to go to the United States to persuade that country to take action to reflate their economy because Europe depended so much on the United States. Even then, I asserted in the Council of Ministers that there was a need for the surplus countries in Europe to take action as well as the U.S. They did not take action, and the result is that the situation has deteriorated considerably since last January and the upturn will not come about as early as even the greatest pessimists were prepared to forecast last January. As a consequence of that, we have to take further action. I forecast last January that it was possible that, throughout 1975, circumstances might so change as to require an adjustment in budgetary policy. Those circumstances have, unfortunately, changed for the worse.

Mr. Colley

They were there in January.

Mr. R. Ryan

No. This Government produced a balanced January budget to deal with circumstances as they then were. The Opposition ought to go back and read their own speeches of last January when again and again they chastised the Government for failure to spend more public money, for failure to spend more money on grants, to spend more money on subsidies. They said we were not reflating enough but if we had reflated more the deficit today would be even greater than it is. Yet they say the deficit is too great.

Indeed throughout this debate the Deputies opposite were very liberal in their suggestions for further and further public expenditure, for further subsidies for State bodies. How they expected any of those things to be done without an increase in taxation I do not know. Nobody knows. They do not know themselves. We endeavoured to take a balanced view of the new situation by providing subsidies to bring down the consumer price index. Those subsidies come to the relief of everybody including people who are being asked to contribute towards this 10 per cent temporary surcharge on their income tax. All get relief and a very large number of the people who will pay the 10 per cent addition on their income tax will receive a net benefit when the subsidies and the VAT removals are taken into account.

Even the person on the top income tax rate of 77 per cent will receive the benefit of the subsidies and the VAT removals. When these are put in the balance it will be seen that the position will be better for the majority of taxpayers compared with last year or earlier years. So far as sacrifice is involved it is worth while if it means a commencement to the end of the inflationary spiral in this country. The goal is worth while. It is certainly worth striving to achieve. Because it is a worthy one and will confer benefit on all, it is surely not inappropriate that those who are best in a position to pay should bear some of the burden.

Mr. Colley

Late have I loved thee.

Question put and agreed to.

NEW SECTION.

Mr. Colley

I move amendment No. 1:

Before section 2 to insert the following new section:

2—(1) Section 1 shall be repealed immediately upon the happening of any of the following events during the income tax year 1975-76:

(a) the amendment or repeal of section 2 in such manner as to impose a change to value-added tax at any rate other than zero rate on all or any of the commodities specified in subsection (1) of section 2, or

(b) the reduction or removal of all or any of the subsidies announced in the Financial Statement of the Minister for Finance made in Dáil Éireann on the 26th day of June, 1975.

(2) If section 1 should be repealed in accordance with the provisions of subsection (1) of this section, all income tax then paid on foot thereof shall be repaid by the Revenue Commissioners with all convenient speed.

As you are aware, Sir, under the rules of the House, it is not permitted to circulate an amendment on Committee Stage until we commence the Committee Stage, and because of the guillotine motion it was not possible to circulate it until now. Therefore, I do not know to what extent it has been circulated and, with your permission, Sir, I will read it out:

Before section 2 to insert the following new section:

2—(1) Section 1 shall be repealed immediately upon the happening of any of the following events during the income tax year 1975-76:

(b) the reduction or removal of all or any of the subsidies announced in the Financial Statement of the Minister for Finance made in Dáil Éireann on the 26th day of June, 1975.

I had originally proposed to include in subsection (2) provision for repayment of the tax with interest but, for technical reasons, that would not be in order and therefore the amendment does not require that. It will be clear that what is sought here is this. The Minister announced a package on the last budget day and this Bill is implementing part of the package. One part of the package is the imposition of an additional 10 per cent this year on income tax at the 35 per cent and upwards levels. The other part in section 2 is the removal of value-added tax from a number of commodities mentioned in section 2.

The Minister said both in his budget speech and on a number of occasions since that, in certain circumstances, the Government would have to consider the taking back—if I might put it that way—or the removal of VAT and the subsidies on the various items which are being or are to be subsidised. The Minister has explained his reasons for that. I want to ensure with this amendment that if the Minister's threat is carried out we will not be left with the situation where the imposition of the 10 per cent surcharge is what we are left with of the package proposed by the Minister. I want to ensure that if part of the package goes then all of it goes. This amendment is designed to ensure that if there should be a repeal of the zero rate of value-added tax on any of the items mentioned in section 2 or if there should be a reduction or removal of any of the subsidies announced by the Minister in his budget statement, then in those circumstances the 10 per cent surcharge on income tax should be repealed and any tax already collected at that stage should be refunded by the Revenue Commissioners with all convenient speed to the taxpayers concerned. I do not think there can be any reasonable objection to such a proposition.

I hope, therefore, that the Minister will not find difficulty in accepting this amendment which may well be providing something that he intends. If he does intend it, I suggest it should be written into the Bill. If, however, he does not intend it, it would raise questions in many people's minds. I hope that is not the situation and that the amendment represents the Minister's intention.

Mr. R. Ryan

This is a clever amendment if one considers that being clever but unhelpful is what the country needs at present. The Opposition deserve credit for smartness but I honestly think the situation is too serious for engaging in clever little debating points. The Government are asking the people, in their own interest to accept a little less for a while in order to gain more in the long run. The Government's budget proposals were designed to obtain a response from the people which would measure up to the gravity of the situation which the common people understand. We are expecting to get that positive response on 31st July which will make it possible for the Government to continue the measures in this Bill and in the budget to reduce the cost of living.

There is another aspect of the Government's budget proposals and that is its effort to stimulate the economy, to maintain employment and to provide job opportunities which would not be there unless the Government provided additional capital and money for current expenditure also. Such expenditures need to be financed. The Opposition argued in the course of this debate that the size of the deficit is already too high. If the Opposition consider that the deficit is too high they should not be putting down amendments which, if carried, could lead to a higher deficit.

If there is not an adequate response to the Government's proposals, the inflation rate would be higher than it need be. If that situation were to occur, clearly our second state would be worse than the first. The Government have no intention of allowing that situation to develop because it would not be in the best interests of anybody if such a situation were to materialise. Therefore, there will be a realistic appraisal of the situation if by any mischance it were to develop in a wrong way. However, that is an extreme situation towards which we do not expect the country to drift because, as I said, there is immense common sense here. Whenever the people have been consulted about major issues, notwithstanding the usual parade of daft ideas, common sense has come through. The Government are at present exercising themselves in a massive campaign to mobilise the fundamental common sense of our people. That common sense would quickly see through the suggestion of the Opposition, that the 10 per cent income tax surcharge should be abolished if all the ingredients of the Government's package were not fulfilled in their entirety. It is a wee bit too clever by half. It is, I respectfully suggest, not worthy of serious consideration.

Mr. Colley

We have a limited time available and I do not propose to use a great deal of it in replying to the Minister. Stripped of all the verbiage we have heard what has now emerged is that what the Minister called a package is not a package, and that he contemplates a situation in which he might restore the value-added tax to the various items proposed to be zero rated in section 2 and 3 or reduce or abolish the subsidies on the various items he announced on budget day and still maintain the 10 per cent surcharge on income tax which we had been led to believe was part of the package. It now appears that it is not part of the package and the 10 per cent surcharge on income tax stays anyway. That is what the Minister has told us. No matter what happens to subsidies or value-added tax zero rates, the 10 per cent surcharge will stay for this year anyway. That is the reasonable interpretation of what the Minister said. If nothing else has emerged from the putting down of this amendment but the clarification of the attitude of the Government in this regard, it will have been worth while.

Mr. R. Ryan

Again, the Deputy has endeavoured to use the occasion to get political party advantage. I would ask him once again whether Fianna Fáil would make some effort to put the national good before partisan advantage?

Mr. T.J. Fitzpatrick

(Dublin Central): What about the wealth tax?

Mr. Colley

It is a pity the Minister did not do the same and listen to what we said. If he did we would not be in the mess we are in today.

Mr. R. Ryan

I suggest that the Deputies opposite read the report prepared for the Commission of the European Communities and published today.

Mr. Colley

Read what we told the Minister in September last.

Mr. R. Ryan

It is a study on the Irish economy and it is pointed out how the Government's capital taxation proposals will make a positive contribution towards the economic and social welfare of this country. That is a report of an international organisation that is concerned to arrive at the truth.

Mr. Colley

That is surely a report prepared in an institution here which gets public money.

Mr. R. Ryan

It is a report which involves no Government consultation or contribution.

Mr. Haughey

That institution was never right about anything.

Mr. R. Ryan

It is a report for the European Economic Community. Perhaps, the Deputies have not read the previous recommendations of the European Economic Community which were to the effect that Ireland should introduce a broad-based taxation system.

Major de Valera

The time has gone beyond reading reports; let us do something for the economy. Things are very bad.

Mr. R. Ryan

We are doing what was recommended years ago. We are not going to play games with the Opposition in their little legislative tricks designed to give themselves some passing pyrrhic victory. The Government spelt out, through the statement I made on 26th June, that the budget was a two-fold exercise. First, is contained the Government's direct proposals to reduce inflation and to promote employment. Secondly it was a move that required an adequate response from others. We have not concealed from anybody the fact that it requires a response. In fact the criticism of the Government has been that the Government have proceeded by a method which involves decision-making by others. What is that decision-making? It is inviting our people to vote for common sense, inviting our people to give their consent to a policy which is necessary for the economic salvation of this country.

But apparently the Tory Fianna Fáil Party would prefer a policy in which the Government would impose certain measures on people without waiting for their co-operation, that the Government should try to settle the short-and the long-term problems of this country through compulsory procedures which history has shown, not only in this country but elsewhere, provoke a negative response. If compulsory procedures have to be resorted to experience has shown that at best they are of short duration because they stimulate antagonism which means that the compulsory measures have to be multiplied.

Mr. Colley

Which part of the amendment is the Minister referring to now?

Mr. R. Ryan

On the other hand, if good results can be achieved by co-operation there is a far better prospect of the wisdom which brought about the co-operation remaining. A positive response through consultation will be available not merly in the short term but in the long term as well. That is the Government's attitude. We will not apologise to anybody for endeavouring to bring about this correct policy through co-operation of the social partners. It is surely better to work with people than by compulsory methods to mobilise them against you.

The amendment suggests that the budget of 26th June could be written off if circumstances occurred which made it necessary to consider the removal of subsidies and the restoration of value-added tax. I have already written to the Irish Congress of Trade Unions informing them that the Government considers the response of the executive council in relation to the third phase of the national wage agreement to be such as would enable the Government to continue the subsidies and the value-added tax reductions; so the hypothetical situation which arises or which is visualised in the amendment is an unreal one.

We are dealing with the fact of the budget and with the response from the Congress of Trade Unions to that fact. We have indicated that the response is such as to enable the subsidies to be maintained.

We have also indicated that if factors outside our control are such as to shove up the cost of living towards the end of the year, the situation will then be so serious that it would be necessary to have further consultations in the Employer/Labour Conference with the social partners in order to produce an appropriate adjustment to the national wage agreement. These are the realities that we must deal with, not with hypothetical or mischievous postulations made by the Opposition.

The Opposition in this amendment are putting forward a mischievous hypothesis. They are seeking to suggest that the positive response the Government have sought is not forthcoming when all the indications are that it is forthcoming. Then they say that if doomsday should arrive and if common sense should not prevail the Government should, by accepting this amendment, divest themselves of the very responsibility which the Opposition in the course of this debate have said that the Government should exercise. We discharged our responsibilities on 26th June and we are discharging our responsibilities again in this Bill. We would not be discharging our obligations as a Government if we were to insert into this Bill this mischievous manoeuvre which would endeavour to limit the action which the Government might take if the economic difficulties of this country were to worsen still more. That would be a reckless thing for us to do and it is irresponsible for the Opposition to suggest that the Government ought to do it.

What is particularly deplorable is that this suggestion comes from an Opposition that has spent the last few weeks in this House saying that the Government did not know their own minds and were running away from doing unpleasant things. They are suggesting that there was disagreement in the Government as to how the situation should be dealt with. There is no such disagreement and we are not at this stage going to accept an amendment which would run quite contrary to everything that the Government have done.

Our package has several elements in it. The non-completion of any one particular element would be no justification for the cancellation of the lot. If there had to be a cancellation it would have to be more than is provided for in this particular adjustment because the immense additional public expenditure which the Government have incurred in this budget of 26th June still remains. Is the Opposition suggesting that this amendment should be accepted so that the deficit would be even greater if job promotion expenses were to remain? Or do they suggest—if they want to complete the logic of their mischief—that the expenditure should not be indulged in at all? If they want to suggest that now it is a pity they did not suggest it in the course of the debate. Most of the contributions from the Opposition during the debate were to the effect that the Government were not expending enough money to maintain employment or generate new employment. If the taxation element of the package is to go such as Deputy Colley is suggesting, then he ought to complete his mischievous suggestion by making it clear that the whole package is to go according to Fianna Fáil and then unemployment would get worse.

Question put.

The Committee divided: Tá, 66; Níl, 72.

Tá

Allen, Lorcan.
Andrews, David.
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.
Crowley, Flor.
Cunningham, Liam.
Daly, Brendan.
Davern, Noel.
de Valera, Vivion.
McEllistrim, Thomas.
MacSharry, Ray.
Meaney, Tom.
Molloy, Robert.
Moore, Seán.
Murphy, Ciarán.
Nolan, Thomas.
Noonan, Michael.
O'Kennedy, Michael.
Dowling, Joe.
Fahey, Jackie.
Farrell, Joseph.
Faulkner, Pádraig.
Fitzgerald, Gene.
Fitzpatrick, Tom (Dublin Central).
French, Seán.
Gallagher, Denis.
Geoghegan-Quinn, Máire.
Gibbons, Hugh.
Gibbons, James.
Gogan, Richard P.
Haughey, Charles.
Healy, Augustine A.
Herbert, Michael.
Hussey, Thomas.
Kenneally, William.
Kitt, Michael P.
Lalor, Patrick J.
Lemass, Noel T.
Leonard, James.
Loughnane, William.
Lynch, Celia.
Lynch, Jack.
O'Leary, John.
O'Malley, Desmond.
Power, Patrick.
Smith, Patrick.
Timmons, Eugene.
Tunney, Jim.
Walsh, Seán.
Wilson, John P.
Wyse, Pearse.

Níl

Barry, Peter.
Barry, Richard.
Begley, Michael.
Belton, Luke.
Belton, Paddy.
Bermingham, Joseph.
Bruton, John.
Burke, Dick.
Burke, Joan T.
Burke, Liam.
Byrne, Hugh.
Clinton, Mark A.
Cluskey, Frank.
Collins, Edward.
Conlan, John F.
Coogan, Fintan.
Cooney, Patrick M.
Corish, Brendan.
Cosgrave, Liam.
Costello, Declan.
Coughlan, Stephen.
Creed, Donal.
Crotty, Kieran.
Cruise-O'Brien, Conor.
Desmond, Barry.
Desmond, Eileen.
Dockrell, Henry P.
Dockrell, Maurice.
Donegan, Patrick S.
Donnellan, John.
Dunne, Thomas.
Enright, Thomas.
Esmonde, John G.
Finn, Martin.
FitzGerald, Garret.
Fitzpatrick, Tom. (Cavan).
Flanagan, Oliver J.
Gilhawley, Eugene.
Governey, Desmond.
Griffin, Brendan.
Harte, Patrick D.
Hegarty, Patrick.
Hogan O'Higgins, Brigid.
Jones, Denis F.
Kavanagh, Liam.
Keating, Justin.
Kelly, John.
Kenny, Henry.
Kyne, Thomas A.
L'Estrange, Gerald.
Lynch, Gerard.
McDonald, Charles B.
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, John J.
Ryan, Richie.
Spring, Dan.
Staunton, Myles.
Taylor, Frank.
Thornley, David.
Timmins, Godfrey.
Toal, Brendan.
Tully, James.
White, James.

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

Question declared lost.

Mr. Connolly

On a point of information, as far as I know the Bill has to be put now. I would like to refer to an item, namely, bed clothes. As far as I know they are not included but fur coats are included. I am very concerned about this, in view of the fact that fur coats are included and they can cost anything up to £1,000. I would be grateful if the Minister could include bed clothes as well.

It being 10.15 p.m. the following questions were put by the Chair in accordance with the Order of 9th July, 1975:

"That Bill is agreed to and reported to the House."

Agreed.

"That Fourth Stage is hereby completed and Bill is hereby passed."

Agreed.

An Ceann Comhairle

This Bill is certified a Money Bill in accordance with Article 22 of the Constitution.

Dáil Éireann debate - Wednesday, 23 Jul 1975

Finance (No. 2) Bill, 1975: Committee and Final Stages.

Tá

Níl

Dáil Éireann debate -
Wednesday, 23 Jul 1975