Deputy Colley raised a number of specific points. He referred to a provision in section 3, which is a technical amendment necessitated by the passing on 31st March, 1976 of the Corporation Tax Act, and asked three questions in relation to it. The first was: why was the amendment not included in the Corporation Tax Act? Secondly, why is the amendment to take effect from 31st March, 1976 and thirdly, has some case arisen in which the existing provision has been found to be defective?
I understand from the Minister that the answers to these questions—and I am somewhat interested in this Act because I was chairman of the Special Committee on it—are, to the first that an appropriate amendment was overlooked in the drafting of the Corporation Tax Act which repealed section 530 of the Income Tax Act, 1967. That section was concerned with a tax charge on undistributed income of certain private companies but was replaced by the new provisions in the Corporation Tax Act dealing with closed companies. Consequently, section 530 was repealed without adverting to the fact that in section 59 of the 1974 Act there was a reference to bodies corporate "within the meaning of section 530, subsection (6) of the Income Tax Act, 1967". This reference is meaningless since the passing of the Corporation Tax Act and is being replaced by a reference to closed companies. I hope that disposes of the first of Deputy Colley's questions.
The second question he asked was why is the amendment to take effect on 31st March, 1976. The answer is that the amendment is expressed to take effect on 31st March, 1976, that is, from the date on which the reference became inappropriate. His third question was: has some case arisen in which the existing provision has been found defective. The answer to that is that no case has come to light in which this reference has been of consequence.
Deputy Briscoe dealt with section 7 of the Bill and asked the number of people who would be removed from the tax net as a result of its provisions. I thought the Minister had dealt with that in his introductory speech on Second Stage. However, it is as well to clarify the position because many people are interested in it and there should not be any confusion. In his introductory remarks on Second Stage the Minister referred to the fact that 10,000 pensioners will benefit from the provision and that, of those, some 5,000 would be taken out of the tax net altogether. Deputy Briscoe made the additional point that a school warden who is also in receipt of a contributory old age pension could be chargeable to tax. As I understand the position, school wardens are paid at a daily rate of £3.72, that is £18.60 for a five-day week. The amount a warden can earn in a year depends on the number of days worked by him. However, if his earnings, together with his contributory old age pension, exceed the limits set out in section 7— that is, £1,000 for a single person and £1,800 for a married person—he will be chargeable to tax, subject to marginal relief where that is appropriate. That is a normal provision in tax laws where there is a figure mentioned for a higher level.
I understand there has been some criticism by the Opposition of income tax reliefs mentioned in the budget. One of the points grabbed in desperation from the sky by the Opposition was that they unduly favoured the higher paid and did not give sufficient relief to middle management. As I read it, the personal tax concessions include the removal of the temporary 10 per cent sur-charge imposed on the standard and higher rates in 1975. We all know that was a very difficult year. When account is taken of this factor, the balance of the reliefs do not unduly favour the better-off. Of course, the personal tax concessions must be considered in the context of the national pay agreement. What is important to employees in this context is not the reduction in tax payable but the combined increase in take-home pay arising from pay increases and tax concessions. In the case of a middle manager earning, say, £120 per week, the increase in take-home pay is 10.6 per cent if he is married. That is not significantly different from the 10.8 per cent increase applicable at the £200 a week level.
This amounts to the fundamental fact that this Government reduced the lower income tax rate from 35 per cent to 20 per cent. That is a drop of 15 per cent. The top income tax rate was reduced from 80 per cent to 60 per cent, a drop of 20 per cent. The most imaginative incentive ever given to people to work is to work and invest. People who are in the higher tax bracket have spent many years getting to that stage. Most of those people are people who are on in life, who have made sacrifices and have got themselves there by ability, hard work and application. Ability must be recognised if we want the proper brains in management in this country. No Minister for Finance and no Government need apologise for that principle. It is recognised the world over. Anybody who has looked at certain television programmes concerning the English labour and executive market had it driven forcibly home to him the other day when people changed their standing in society from being employees to setting themselves up in specially made mini-companies. That means that pay structure is going wrong somewhere. Therefore one must give fair reward for fair work and ability. That has been the principle stated by the Minister for Finance and by the Taoiseach on numerous occasions in this House and elsewhere.
Deputy Colley referred to the desirability for special treatment of loans for house purchases, particularly for young married couples. The Deputy probably had in mind that the limit of £2,000 allowed for interest payments on borrowings for the purpose of tax relief was not sufficient. The limit of £2,000 was imposed by the Finance Act, 1974, with effect from 10th January, 1974. In adopting that limit, the position of people buying their own houses was kept specially in mind. At the time the imposition of the limit was announced, 9th January, 1974, the building society rate was 11¼ per cent and £2,000 interest represented borrowings of almost £18,000 from building societies. In other words the £2,000 limit of interest would have covered borrowings up to £18,000 on a house purchase. Assuming a loan equivalent going up to over 80 per cent of the purchase price, a house costing over £22,000 could be bought with the aid of a loan the total interest on which would qualify for tax relief. One must bear in mind the fact that a fall in interest rates has occurred. It goes very close to restoring the position which existed in January, 1974. It would be unrealistic to regard the limit of £2,000 as any brake on the efforts of newly-weds to buy even a moderate priced house.
This new provision in the Finance Bill, the 25 per cent corporation tax incentive scheme, is completely new to the western world. It was a principle hard to conceive of and hard to execute and put on paper in legal language. Some Deputies have inquired about the general philosophy of the thinking behind the requirement of the two target increases, that is, the employment 3 per cent increase and the output 5 per cent increase. The incentive is designed to encourage manufacturing industry in creating employment. It is, therefore, logical to have the two tests for the incentive. This arrangement should encourage firms which can do so to undertake quickly genuine expansions. The incentive is necessary for results achieved. The existence of two tests both at quite reasonable levels should also have the incidental effects of making difficult any artificial manipulations not related to genuine enterprise or growth merely for the sake of qualifying for the 25 per cent rate of corporation tax concession. One of the difficulties that Ministers for Finance always have when they want to do good is that people do not think Ministers for Finance have the intention of doing good. There will always be wily merchants, lawyers and other experts ready to help those who are not within the spirit of the policy of the Minister. While increased output may automatically produce extra employment, this is a short-term measure designed to give an early and significant stimulus to the manufacturing sector in order to accelerate the economy's upward progress. It is reasonable to require minimum employment increases for firms seeking to qualify for the incentive in 1977, 1978 and 1979. The Bill confines the incentive to manufacturing industry because it is quite reasonable to look to that sector to play a basic and prime role in stimulating economic activity. The effects should be felt outside that sector. We all realise that there is always a wash-off from any progressive or productive activity. The services industry and others benefit from the main productive centre.
Some Deputies referred to cases where increases in output and employment were not maintained. The Minister's speech fairly adequately covered the basis of the incentive. This Bill sets a standard in judging where the baseline is. The year 1976 will be the standard year throughout the three years for established industry. The qualifying target levels will be announced year by year and qualification will be determined accordingly. Each year will be separately considered. The position of new manufacturing firms setting up in 1977 or subsequently is hardly likely to arise in connection with this incentive because of the large package of industrial tax incentives in some cases. If necessary, the Minister will probably propose to give further consideration to the matter in 1978 when the conditions for that period are being framed and likewise for 1979. It is the sort of proposal where there cannot be fixed rigidity. There are bound to be changes in markets and other conditions and in particular sectors of industry and perhaps also in relation to values or specific currencies where firms are trading which would have an effect on a particular company's wellbeing or growth prospects.
As regards tax credit, the proportion of company tax to be imputed to shareholders, the rate of 35 per cent which has obtained hitherto will obviously have to be looked at by reference to the new rates of corporation tax provided for in this Bill including, of course, the special temporary 25 per cent incentive rate. The Minister said this matter will be dealt with appropriately next year. As I said in my opening remarks dealing with this corporation tax incentive, it might be of some interest to Members of the House to know that, while we have initiated this new type of incentive, the American Administration at this moment are trying to copy or set up something on the same lines as the Minister has set up in this Bill. It must be a matter of pride to this House that an Irish Administration have broken new ground and that, with the advice of our public servants, we have done something completely new. This is rather flattering. Imitation is the best form of flattery.
