Dáil Éireann debate -
Wednesday, 28 Mar 1979

Vol. 313 No. 4

Private Members' Business. - Taxation Policy: Motion (Resumed).

The following motion was moved by Deputy Cluskey on Tuesday, 27 March 1979:

That Dáil Éireann—

Aware that the Government's income taxation policies have resulted in wage and salary earners contributing 87% of income taxation;

Aware that the returns from income tax will increase by one third in this year;

Aware that the abolition of the Wealth Tax by the Government, together with the virtual abolition of the Capital Gains Tax and the Capital Acquisitions Tax by the Government have caused further inequality in the system;

Aware that the process of abolishing the food subsidies has increased inflation and added to the injustices of the taxation system; and

Noting that these regressive policies have resulted in massive demonstrations and work stoppages throughout the country by tens of thousands of wage and salary earners in recent weeks;

Calls on the Government to—

(i) provide substantial relief in the Finance Bill 1979 to the PAYE sector,

(ii) radically reform the present system of income taxation,

(iii) ensure that all sections of the community pay their fair and just share of taxation,

(iv) introduce an economically efficient and socially just system of capital and wealth taxation.

Debate resumed on amendment No. 1:

To delete all words after "Dáil Éireann" and substitute the following:

"—takes note of the Government's active and continuing concern for equity in the tax system as evidenced in the Government's actions to date including action to increase substantially the personal tax allowances, raise significantly the farming sector's contribution to the cost of public services and strengthen considerably the campaign against tax evasion,

—appreciates that long-standing features of the tax code can be changed only over a reasonable period of time, given that the Government's programme of economic and social advance has to continue to be financed, and

—welcomes the Government's intention to continue to pursue actively their policy of promoting the maximum degree of equity in the tax system".

—(Minister for Finance).

Mr. P. Barry

I was saying last night that the Government's amendment does not commend itself to the House because of the many fallacies in its wording. For instance, it states:

takes note of the Government's active and continuing concern for equity in the tax system as evidenced in the Government's actions to date including action to increase substantially the personal tax allowances, raise significantly the farming sector's contribution to the cost of public services and strengthen considerably the campaign against tax evasion,

During the concluding debate on the budget I asked the Minister for Finance to tell us if the acceptable farmers' tax system to be introduced on 1 May would yield the equivalent of the 2 per cent levy. I did not get an answer to that, and that is significant. Perhaps the Minister's speech last night was badly worded. I am beginning to wonder, therefore, if the farmers should not sit up and take notice because it seems that the 2 per cent levy proposed in the budget is what they will have to pay.

Of course the people do not believe in Fianna Fáil's professed concern about the taxpayers, and they have demonstrated this by their activities in the streets. The fact is that Fianna Fáil's tax gathering leopard has not changed its spots during the years. In the 16 years before the National Coalition took office only once did Fianna Fáil change the level of taxation, but during those years the number of taxpayers they sucked into the tax net increased from 175,000 to almost 250,000, the number we now have. Fianna Fáil's attitude to the taxpayer always has been to get more and more people into the net, even those on low incomes.

It is significant that the number of surtax payers dropped during the years when Fianna Fáil were in office. There were far fewer surtax payers in 1973 than there were 15 or 16 years before. Fianna Fáil introduced turnover tax and they applied it to food and clothing. When we assumed office we realised immediately that taxpayers in the lower levels of income would benefit directly by the removal of VAT from food and clothing—we removed food for the specific purpose of ensuring a national wage agreement at a time when inflation was running high. This Government removed the subsidies at a time when euphoria was running high during the new year holiday weekend, when they thought its effect would remain hidden. Immediately the Dáil resumed after Christmas, the Labour Party sought a debate on the subsidies but it was not allowed until 13 March. I do not know if the debate was deliberately arranged to take place 48 hours before the figures were available to the general public or whether that was pure coincidence, but it is suspicious that the figures that would shatter the Government's defence of the removal of foods subsidies came out 48 hours after the debate on food subsidies was held.

The Government's contribution to the debate on the food subsidies was to the effect that subsidies were only desirable when inflation was in double figures but that when it began to move towards single figures the subsidy should be removed. The Minister made this point, giving the impression that inflation was moving towards single figures. In the three months between mid-November of last year and mid-February of this year the price of food increased by 7.2 per cent and for the 12 months it increased by 17.9 per cent. Last week the Minister for Economic Planning and Development admitted that the inflation figure of 10.8 per cent for the 12 months ending mid-February would probably be higher in mid-May.

I gathered from reading last week's debates that the Minister for Economic Planning and Development appeared to say that the 5 per cent end of the year inflation figure produced by the Government was arrived at by reckoning; it was no more precise than that. By taking the 1.25 per cent inflation figure from mid-August to mid-November and quadrupling it they arrived at a figure of 5 per cent. Using the same basis of calculation between mid-November 1978 and mid-February 1979 the figure would be 28.8 per cent. If that is so, how is the removal of the food subsidies justified? We have the removal of the food subsidies combined with the very obvious dissatisfaction of the PAYE worker with the relief he is alleged to have got in the budget. Is it any wonder that the Government are faced with a tax revolt which is extremely dangerous for the country?

There is no point in economic Ministers talking about the disciplines under EMS. Whether there is EMS or not, disciplines are necessary. The Government have not the moral authority to get that discipline when they appear to allow themselves to be pushed off any taxation problem they have. The obvious example of that is the levy on farmers which was dismantled and rethought, evidently as a result, of pressures from a section of the farming community. The Minister did not say one way or the other when I asked him about it. Another apparent example is the proposal that those who were getting a favourable rate of tax because of the positions they held would now be taxed. I asked the Minister earlier if this was being rethought as was the levy, but the Minister did not answer. He said something to the effect that he had received a number of representations and that proposals in this regard will be contained in the Finance Bill. The precise position is that the farmers were not told that they could write their own tax, but the impression was deliberately allowed by the Government to be created, to reduce the level of irritation of the farmers throughout the country. The impression was created that they would be able to write their own tax and that, if it was acceptable, it would be implemented. That appeared to be the clever thing to do at the end of February, even if the document made it plain that the Government would introduce the tax. However, it provoked a backlash. The very night that the Government allowed this impression to get about it was pointed out that the PAYE people would not wear that—that any one section would be given the right to determine their type of tax and what amount they could pay. It is against this background that the Government are in a very weak position to talk to unions and employers about the type of wage agreement we need.

An Ceann Comhairle

The Deputy's time is up.

Mr. P. Barry

It is against this background that the Government have, I am sure not deliberately, through their own fault unleashed a sense of dissatisfaction among all the taxpaying people. They have a chance to rectify that position in the Finance Bill and they should take it.

Minister for Economic Planning and Development (Professor O'Donoghue)

Since Deputy Barry has touched on a number of important points not directly related to the motion before us, I will deal with them while they are fresh in my mind. The Deputy referred to trends in inflation and to food subsidies. It is rather typical of the contributions to this debate so far. Apparently the Opposition parties are so conscious of their awful record in this area of tax reform that they are quite happy to drag in any topic under the sun except taxation.

In relation to inflation we made our statements about the removal of the subsidies. There was a debate a fortnight ago on that topic, so there is no need to go over all that again. The essential point made was that it is wrong to seek to pass any judgment on the merits or demerits of one action taken in isolation. If one wants to argue about what has happened to the position of various groups, people on various income levels or in various family sizes and so on, one would need to look not alone at the change in the food subsidies but at the other changes that were part of the package associated with this year's development, namely, the improvement in social welfare, in children's allowances and so forth. The overall set of changes was designed to bring about a more effective use of the moneys available to the Government.

On the question of inflation, the reason for emphasising that the 5 per cent inflation target is attainable in the later months of this year is that we do not want people to assume that, just because we have suffered a temporary increase in inflation for one or two quarters, it must necessarily continue to be the pattern. That was the type of defeatist mentality we associated with the Coalition days. They seemed to assume massive inflation was some external event over which they had no control, and that the only thing they could do, the only course open to the Irish people, was to spend their time in lamentation and weeping and gnashing of teeth. As the eloquent words of the former Minister for Finance has it, Ireland was like a cork being tossed about on the international sea of inflation.

We have consistently rejected that defeatist mentality and approach. We have argued that, while undoubtedly there are external events over which we have no direct control, nevertheless a very substantial portion of what happens by way of price increases and other cost trends is within our own shpere of discreation, and can be influenced by what action we take ourselves, and what action is taken on our behalf by various groups in the community. The purpose of the inflation target is to demonstrate that, by the pursuit of the appropriate policies, we can put an end very quickly to the high inflation which is experienced at present, get back down into single figure increases, not simply by the last quarter of this year but by the third quarter, and maintain that downward trend of inflation right through into 1980 and subsequent years.

It is important to invite people to discuss the manner in which cost and income trends might emerge later this year in a positive way, with the deliberate purpose or aim of achieving that reduction in inflation at the earliest possible date, instead of lapsing back into the helpless dispair which was so characteristic of the Coalition's attitude in that area. This evening we are not debating inflation as such. We are here to talk about the question of reform in the taxation system, with particular emphasis on the PAYE aspects of it.

Since I have taken up the point already in the reference to food subsidies, perhaps I may as well begin by saying that, just as with food subsidies, it would be wrong to pass any judgment in isolation from the other changes made in the budget. When we are looking at taxation, it is important to look not just at one tax but at the effect of the whole taxation system. Before we can pass any final judgment on the equity, or fairness, or justice of a particular imposition, we need to ask how the money is being used so that we can establish whether the combined effect of levying taxation on the one hand, and spending that money for various desirable social and economic programmes on the other hand, produces a fair and satisfactory balance for the people as a whole.

I want to emphasise how important it is to look at both sides of the account and not to enter into any hasty judgment based on looking at one tax or even one portion of one tax. It may be that in some instances the easiest way in which to achieve a sufficient degree of fairness in the operation of the total budgetary system is to balance some imposition of taxation against some offsetting adjustment on the spending or benefit side to make what might appear to be a crude or ineffective tax more equitable.

I make the general point about the attitude which is appropriate in my view in looking at this whole question. Coming to the area of taxation, I want to repeat what the Minister for Finance said last night. We are proud of the progress we have already made in this area of easing the burden of taxation. The record shows quite clearly that, during the period of Coalition Government, the burden of taxation rose quite sharply from the 40 per cent level of national income which was operating in the last year of Fianna Fáil Government, 1972-73, to the very oppressive figure of 46 per cent of national income in 1977, the last year happily, the Coalition were in office.

We fought an election and took office committed to a very positive programme for reducing the burden of taxation. The results of that programme are already quite clear and visible to all. The effect of those reductions is that, for the current year, the burden of taxation is estimated to fall from 46 per cent to 41 per cent. In effect, we have already wiped out virtually all of the additional burden imposed during the wasted Coalition years. That is an important fact to emphasise and to bear in mind when we approach the question of taxation. Then we can see quite clearly who is serious about the business of reform and who can point to any positive action in this area, and contrast that with the new but in my view hypocritical tears which are being shed for the taxpayers by Deputies on the Opposition benches. During their period of office it was the taxpayers who were weeping with just cause because of the incredible series of tax impositions levied upon them.

I have not got time to go into the priorities we set ourselves in this tax area in detail. It is important to recall that there was a rationale for them and that they were justified. The major tax reduction we brought about was the abolition of rates on houses. Over the years, the tax had come to operate quite unfairly and had given rise to quite a number of harsh anomalies. We had all become aware of circumstances, perhaps through sickness, in which the income in the household was reduced. Perhaps the husband died and the widow was left with a family, or there were similar harassing circumstances in which rates were still operating as a very difficult additional burden on families whose incomes had been reduced drastically.

For that reason we felt the priority was to abolish a tax rate which took no account of ability to pay. In that sense, we are quite happy to endorse the notion that one of the requirements for an acceptable taxation system is that it should take account of people's ability to pay. That is what we are seeking to achieve. The abolition of rates was a major step forward towards the achievement of that result in the operation of the taxation system.

Another tax reduction which is frequently referred to in derogatory terms by the Opposition, but which it is important to stress because of its other characteristics, was the removal of car taxation on smaller horse-powered vehicles. The cost of transport had risen very rapidly in Ireland during the Coalition's years in office. This had been associated with very substantial increases not only in the annual taxation on the vehicle itself but also in petrol duty.

Mr. M. O'Leary

Presumably that has nothing to do with the Government.

Professor O'Donoghue

We reduced the burden of taxation on vehicles so presumably it has something to do with the Government.

Mr. M. O'Leary

The Minister is talking about petrol.

Professor O'Donoghue

I am talking about the increase in taxation. If the Deputy wants to fall back on the threadbare alibi that it was all the fault of the Arabs and that they shoved up the price of petrol, the record shows quite clearly that the Coalition Government increased the price of petrol far more by their taxation increases than the combined efforts of Sheik Yamani and all his colleagues.

Mr. M. O'Leary

We hope it will not be the Minister's sad fate to be blamed for the same thing this year.

Professor O'Donoghue

We fully recognise and know we are in a period when there are likely to be increases in the price of oil and petroleum products. They will be price increases over which we will have no control, in contrast with the price increases which the parties opposite deliberately, as a matter of policy, inflicted on the Irish people. It gave rise to that farcical piece of economic analysis from Deputy R. Ryan when he tried to inform us on one brilliant occasion that the reason he had upped the tax on petrol so much was that people from Northern Ireland were coming over the Border and buying our cheaper. petrol and this was bad for the economy. If ever there was a classical example of a man demonstrating his incompetence and inability to operate successfully in the office he held, that was it.

I make the point to emphasise that there was a rationale for reducing that burden of taxation. Outside the major cities and towns many people must rely on their own transport for essential uses such as getting to and from work. For many years the irony was that one of Deputy O'Leary's colleagues was consistently emphasising the need to take account of transport costs for rural workers. All they did during their period in office was to take account of them all right, and to worsen them. We then were making the point that if essential mileage was necessary for getting to and from work and so forth, it was better on balance to lower the basic cost of this essential mileage by lowering the cost of having and operating a vehicle and to leave the taxation on the petrol itself. The better of the two approaches was the option of reducing the overall burden of taxation on private transport. There was a very important rationale and it is associated with trying to hold down the costs of industry, especially in rural areas.

Those were two of the tax changes that were made. Opposition Deputies are also unusually at great pains to emphasise concessions made to wealthy groups by the abolition of the wealth tax. Another very important change is the switch-over to pay-related social insurance contributions. Up to this year a system of flat rate contributions operated which meant that a typical worker paid something like £3 a week in social welfare contributions. As a first step after the election, we reduced that by £1 a week for workers with pay levels of £50 a week or less in an attempt to adjust this contribution so that it reflected somewhat people's ability to pay. Within the next few days we will be switching over to a full pay-related system so that workers with smaller pay packets will find that their contribution is reduced, and the contribution expected from all workers will be geared to the income which they enjoy. This is a very positive benefit and represents another very important step on the road towards gearing the taxation system towards ability to pay.

Two major tax changes which meet this requirement and take account of ability to pay are the abolition of rates and this switch-over to a pay-related social insurance scheme. I mention those because there is a tendency on the other side of the House to behave as though these have not happened. I mention them also to demonstrate that there has been a distinct lack of any statement at any time from either Opposition party as to their priorities in this area of taxation change. If they think that our priorites are wrong or misguided and that they have a programme which would be superior in bringing about desirable tax changes, let us see their programme. I have heard all their waffle, claptrap and humbug but I have never heard a succinct, clear statement from either party on the opposite side of the House as to the tax changes they would wish to see brought about. From the word "go" we have had the courage of our convictions and have not been afraid to say exactly what we wanted to do and we have gone ahead and done it, which is more to the point.

I turn now to the area of income tax itself and the PAYE system. Yes, we recognised that there was need for change in that area also, and again we were not afraid to state our own priorities clearly. Our two priorities were, firstly, to seek to improve the basic tax-free allowance as rapidly as possible, because quite clearly this would provide the maximum benefit to the lower paid worker; secondly, to improve the relative position of married taxpayers to take account of the greater needs of married as against single persons.

Deputy Cluskey's contribution last night was interesting. He told the House about the sad plight of two pensioners who had called to see him last week and he explained how out of their small incomes they were required to pay income tax. He quoted the figures and he gave their incomes, which was £21.45 a week. I did a quick calculation and assumed that they must have had some allowances other than their basic tax-free allowance. On the figures that Deputy Cluskey gave they would have paid £70 tax in the last year of the Coalition Government. They are paying £30 in the year just ending—that was the figure he quoted—and from next year they will pay no tax, because the improvement in the basic allowances which we have introduced will ensure that people with small incomes such as that are not required to pay income tax. Therefore, in two budgets we have succeeded in wiping out a tax liability of £70 for these pensioners and in making sure they are not required to hand over even a small fraction of their very limited incomes. Ironically, it was typical of the lack of clarity in Opposition thinking that they should seek to make the point of such a case such as that. We were the ones who objected to the fact that in 1977 a married man was expected to pay income tax if he had the misfortune to earn something over £23 a week. In two years we have succeeded in altering the situation so that, whereas two years ago a married man started to pay income tax on something just over a quarter of average industrial earnings, this year he can earn £44 before he has any potential liability to income tax. We are not satisfied with even that progress. We want to make further improvements as rapidly as possible.

Those are our priorities in this area. We have stated them clearly and we are not ashamed of them. We think they are the right priorities. I invite anybody who disagrees to state the alternative taxation policy. All we have had from the Opposition were the usual pious sentiments of hypocrisy rather than any firm commitment.

I see Deputy M. O'Leary in the House. I thought it fascinating that he should have the nerve to accompany the marchers last week. Given his record as part of a Government who have inflicted such burdens on the taxpayers, I would have thought he should count himself lucky that he was not running away from the marchers and out of the country rather than being allowed to walk. It is a tribute to the tolerance and civilised behaviour of our people that they are able to accommodate such behaviour and to forgive it in such a generous spirit.

I want to emphasise again the importance of relating taxation changes to ability to pay. This brings me to another point overlooked very frequently but which it is vital to stress in these circumstances, that is, that relating taxation to ability to pay does not mean that two people with the same income should necessarily pay the same tax. If we are to have a genuine regard to ability to pay then we must take account not only of different incomes but also of people's different circumstances. For instance, we know that we make attempts already in our taxation system to have some regard to the special needs of particular groups. People like widows are given some additional tax-free allowances to try to take account of the greater demands and burdens placed on them. Similarly, there are special allowances for elderly people because, from the same income, they may have to meet greater outgoings because they are no longer in the position to undertake the same number of services for themselves as might be the case with the younger household. I could lengthen the list of examples but the basic point is clear: if we genuinely want to achieve a just tax system then it is not only necessary to identify different incomes, it is also necessary to adequately take account of the different circumstances in which people find themselves.

That is where the really hard work needs to be done. We are not going to resolve those sort of complex and difficult issues by slogans, by flag waving or rushing off and pretending to have instant solutions to problems which have taxed, in the best sense of the word, the ingenuity and talents of administrators not only in this country but in countries throughout the whole civilised world. I do not think any country would claim that it had yet devised the perfect tax system. All of us are modest enough to know that there is continuous scope for improvement and reform. If we are to bring about improvement we need, first of all, to gear up our economy to produce the fastest possible growth in output because that will give us the financial ability to afford change, then to have a clearly thought-out, sensibly-based series of practical reforms which we can identify and from which we can see positive results over a consistent period of time.

That is the sort of programme the Government have set themselves. I have indicated the very substantial start made already in areas such as rates and pay-related social welfare contributions as well as the substantial improvements in the income tax allowances themselves. The actual pace at which further change can be brought about must be geared to the overall growth and development of our economy. I would suggest that the way in which change and reform can come about is by talking rather than by warping. In that context it is important to remind the House that the Taoiseach some months ago said that he wanted the various parties, trade unions, employers, farmers and other groups, to come together and discuss the basis on which an understanding could be reached on the kind of action programme to deal with the practical, economic, financial questions at present confronting us. Such an understanding, of course, would take into account tax arrangements as part, and only as part, of that programme. We would need to have regard also to the question of arrangements for employment, the way in which incomes and other costs would develop, the manner in which people dependent on social welfare benefits would share in any overall progress.

It is important also to remind the House that while taxation reform is legitimate and an important area for action in its own right, it is by no means the only area in which we want to see very substantial progress made in the months and years ahead. We have committed ourselves to a programme designed to ensuring that other less fortunate groups can benefit. I have referred already to the need for those who must live on social welfare benefits to be given adequate improvements and to have programmes designed catering for their special needs. In particular we place great emphasis on the importance of a drive to achieve full employment because we know that there are thou sands of our people, especially the young, who would give quite a lot for the good fortune of earning a steady income and being liable to income tax.

While taxation reform is important in its own right, it has to be related to other equally desirable areas of social progress, forged as part of a programme for national development, setting that programme for taxation reform in this context of an overall programme for national development which can bring positive and lasting benefits to all our people, enabling not just those who are subject to any one form of taxation but those who, through their circumstances, may never be called upon to pay income tax feel also they are part of a society designed to cater for the weak as well as the privileged which has, as its purpose, not just material advancement but also the development of a society in which all of us would be proud to live and work.

Mr. M. O'Leary

By now it should be clear that the storm of criticism which has arisen amongst PAYE wage and salary earners—directed against the unfairness of our present taxation system—will not abate until there is evidence of Government action to remedy the discontent. That should be evident at this point.

The purpose of this motion in the name of the Labour Party is to enable the Government to make that constructive response in the forthcoming Finance Bill by way of affording increased reliefs to PAYE wage and salary earners. The purpose of this motion is to enable the Government to respond constructively to the criticism, to the demonstrations, the discontent which has spilled over into the streets. No taxation system can be upheld in a democratic state if a general opinion that its provisions are unjust gains majority acceptance. Recent events show that the general verdict that our tax system as it applies to the PAYE wage and salary earner is unjust and needs reform has been reached.

The regressive nature of our taxation system as a result of government policy has been reinforced over the past 18 months. The cumulative effect of the actions taken in the last two budgets means that the full weight of the entire Exchequer bill now falls almost exclusively on the shoulders of the average PAYE wage and salary earner. We now have a very narrow tax base. The wealth tax has gone, the capital gains tax has been virtually eliminated and any pretence that the very wealthy should pay their way has been abandoned.

This administration are creating a tax system which requires an ever-increasing contribution from the PAYE wage and salary sector. It is true that the immediate flashpoint which led to the present unparalleled discontent with the tax system was the partiality of the Government in their treatment of the farmers as this was perceived by the tax paying majority, the PAYE wage and salary earners. It was that perception of theirs which was the immediate cause of the recent demonstrations. The general message of the taxation policy of the Government is that the wealthiest, the owners of capital, should go free of tax while wage and salary earners and middle management should pay over the odds. That is the general tenure of their taxation policy.

Dr. Woods

Ridiculous rubbish.

Mr. M. O'Leary

The Deputy will have his opportunity to add his quota of rubbish to the debate. The overwhelming dissatisfaction with the present taxation system, especially as it bears on the PAYE wage and salary earners, is a fact which will not be waved away by any attacks on the previous administration and the period of economic recession over which it presided. That is a fact which the Government are called upon to deal with at present. It is a fact which the Government, or the Dáil, cannot ignore. The general opinion of PAYE earners that they suffer the major rip-off in our tax system is the more firmly held because of what is seen as the relatively fortunate tax circumstances of other sections of the community. This administration, in the way they have deliberately narrowed the tax base and dismantled other forms of taxation, have wilfully and deliberately deepened divisions in our society and deepened that sense of their disproportionate contribution to the national Exchequer which is so potent a cause of the discontent of PAYE wage and salary earners.

It is against that background and the failure of the Government to make any serious concessions to the PAYE sector in the last budget that the present groundswell of discontent has arisen. For example, this year a married man without children on a gross income of £70 per week will have £13.42 deducted weekly from his income between tax and social welfare contributions, or 19.2 per cent of his nominal low income. That is too much. A married man without children earning £80 per week, which is about the average, will have his gross incomed reduced by 21.2 per cent in the same way. The position has been reached that the proportion of income tax paid by PAYE wage and salary earners has increased out of all proportion to the rise in wages and salaries. It is now a fact that the PAYE sector account for nine-tenths of income tax receipts while wages and salaries amount to only two-thirds of the national income.

In 1978 PAYE receipts increased by about £80 million and this year the increase in PAYE, even after the budget reliefs are taken into account, will amount to more than £150 million. This staggering increase of 30 per cent in a single year will further worsen the already present inequity. All the elements of a serious urban-rural split are there in the present situation. Leaders of the PAYE marches, the trade union leaders and others, did their utmost by way of public statements to avoid such an interpretation of recent events. If, however, this division between urban and rural Ireland has entered the taxation debate, the Government are authors of that division; it is at their door that the blame must rest. They bypassed Parliament and ignored the Dáil in their deal with the farmer leaders on a new taxation system. Of that deal the Dáil has no details. Yesterday I put some questions to the Tánaiste on the likely yield of the discussions and the kind of agreement that was being discussed between the farm leaders and the Government, but there was no information available to me. I asked the likely date of operation but I did not get any information, nor did I receive any information on the exact amount. The Tánaiste has earned for himself that wonderful reputation for logic, but he could tell us nothing because there was no agreement.

The Government are the main authors of any possible rural-urban split. The demonstrations were provoked by the Government. Certain members of the administration acted as unofficial cheer leaders and even distanced from this country, in Brussels, could not prevent them fulfilling that role. If I remember the record correctly, the Minister for Economic Planning and Development was along as a sorcerer's apprentice to the unofficial cheer leader, the Tánaiste.

Professor O'Donoghue

What did I say? The Deputy tried that attack last week and I said that I would stand over my words and I repeated them. I do not know how to negotiate with 250,000 people. What I said in Brussels, and here, was that we would reform the taxation by talking.

Mr. M. O'Leary

Members of this administration have greater facilities at their disposal to command the time of the media for their important pronouncements. They have every facility to explain the slightest misunderstanding that may arise from their statements in any part of the globe. Such facilities are not open to a member of the Opposition, but I am not complaining. If the Minister for Economic Planning and Development and his erstwhile master, the Tánaiste, are misunderstood, ever after all weighty explanations, that is their tough luck, and, I suggest, part of their inarticulateness. They are the guilty people when it comes to demonstrations and marches. If the discontent with our present taxation system has spilled over onto the streets, the blame for it lies at the door of this administration.

Last week the Tánaiste was good enough to say that by my participation in the marches I had encouraged them. He wildly exaggerated any influence I had on those demonstrations. He had constituted himself grand marshal of the demonstrations as a result of his remarks. I took part in those marches because I thought it necessary, as did others, to remind the Government of the political existence of the PAYE sector. The Government were in danger of forgetting that they existed. We should remember that the Government had bypassed the Dáil and were discussing a deal with another section of the community on which this Parliament did not have any information. The Government and the Ministers gave the example to anybody who wished to demonstrate elsewhere that Parliament should be bypassed if political expediency dictated that. I regret that the PAYE agitation spilled over into the streets, but the demonstrations were orderly and peaceful. It would be better for the democratic system that grievances find redress within our democratic State. Tax grievances should find a remedy and we suggest that the remedy is that the Government make a constructive response in the forthcoming Finance Bill to the undoubted widespread discontent, to the thumbs down sign from the majority of taxpayers. That Bill will be introduced soon and the Government should avail of that opportunity to grasp the nettle. Unless they do it, the storm of criticism will not abate and we will find the overtaxed men and women, wage and salary earners, taking the only remedy available to them: a continuation of large wage claims rocking the economy and consequent disputes throughout the rest of this year.

It is in the Government's interest and in the national interest that they should make a constructive response to the discontent existing at the moment. No hunting for culprits for the present situation into the years of recession when the National Coalition presided over the fortunes of the country will succeed in putting aside their responsibility now for dealing with this problem.

The purpose of putting down this motion was to encourage the Government to make that response in order to heal the growing danger of a real division between urban and rural Ireland. The Government can avoid that division by making the constructive response that this motion calls for. It is not the purpose of the motion to dine off the discomfiture of the Government, although to anybody who was in the House at a time when a previous administration presided over there in very difficult circumstances, the temptation is overwhelming.

It is the purpose of the motion to encourage the Government to exercise leadership and to make a response in the present situation. Never did a Government so richly deserve party political criticism as this Government do now because of the way they have handled this situation. I recall when they dined off the efforts of the previous administration to make our tax system fairer.

I have suggested that the immediate flashpoint of the unparalleled discontent which exists in the country was provided by the bad way the Government handled farmer taxation. I must not forget the budget and the potent contribution it made to this discontent. There were large claims made for the budget. It was said that the allowances gave very big increases to wage and salary earners. The main defence utilised by the Government speakers is to cite the way they dealt with the allowances question in the budget. In doing that they neglect to point out that the Minister for Finance in the budget indulged in what he referred to as a structural modification of the tax band when he abolished the 20 per cent. That is a very significant omission because that meant that he scrapped the lowest tax band and those on low incomes were brought into a higher tax band much earlier. This cancelled out the benefit of any increased allowances at particular wage bands.

The Minister for Economic Planning and Development says that he gets no detailed remedies from Opposition benches. I always thought that the place for detailed remedies was in Government. That may be an old-fashioned view. The Minister for Economic Planning and Development may be confusing Parliament with a university seminar. Government is the place for action and leadership and over here it is our job in Opposition to criticise as constructively as possible.

If the Government are to respond to the taxation problem that now faces the country as well as looking at allowances by way of relief to the PAYE earners, attention must also be paid to the question of the income bands within the income tax system. We have made too sharp an ascent in income bands. People on relatively modest incomes are being taxed at too high a rate much too rapidly in our system. It is not sufficient simply to deal with the allowance. If the Government deal with the allowance question, expected inflation will largely negative the benefits of allowances in the year ahead of us. The OPEC Ministers' decision yesterday must mean an inflation rate this year well in excess of 12 per cent.

We cannot deal with one without the other. We meet the Government, when calling for wage moderation, in the guise of Jekyll. When it comes to the revenue side, they have almost a vested interest in increasing inflation so that revenue buoyancy is maintained. If there is to be a constructive response, then as a general principle we have to look at this question that there is too sharp an ascent in income bands and too heavy taxation for those on relatively moderate incomes.

The Government have had a submission from at least one organisation who met them before the budget, the Irish Congress of Trade Unions. They looked for a relief of £100 million and received £27 million. On the day the budget was announced, the day many people thought it was a good piece of work, the Labour Party pointed out that it appeared to be an unsatisfactory response to the Irish Congress of Trade Unions. The significance I see in the present taxation system is that as long as there is this discontent, the feeling of grievance by PAYE wage and salary earners, they will take their remedy on the industrial front. That is the failure of the budget which neglected this important aspect of what should have been the main concern of the Government in a year in which we wanted, in the national interest, to ensure that wage and salary earners would be encouraged to settle for moderate wage claims.

Those people were not given any such encouragement by the Government. The taxation provisions in the budget were unsatisfactory. The Irish Congress of Trade Unions have given leadership through this period, but they received only £27 million. It is against the background of the failure of the Government to make any serious concessions to the PAYE sector in the budget that the present discontent has arisen. This year a married man with no children on a gross income of £70 per week will have £13.42 deducted from his income between tax and social welfare contributions, which amounts to 19.2 per cent of his income. PAYE wage and salary earners feel that they continue to pay a disproportionate amount in income tax and they see other sections of the community get off very lightly.

I suggest that the Government, in the Finance Bill, look again at the allowances and income bands and consider the question of indexation. If we incorporate the principle of indexing allowances this year in the Finance Bill we will at least ensure that their value is maintained next year. We will ensure that we will not have the Minister for Finance or someone else in his place next year wrongfully claiming the advantages of giving extra allowances when more people will be dragged into the tax net as a result of increasing inflation. I suggest that we consider incorporating the principle of indexation itself, indexation of the allowances and the bands. In our system a person on a moderate wage or salary has to pay at a relatively high rate in a very short time. I suspect there is less graduation in our tax bands as compared with other systems and this is part of the reason for the present discontent. We abolished the higher tax bands and this was probably a correct move but we also abolished the lower bands. It is at that end that we need to give considerable relief.

It is important that an intelligent response be made and that is why I have suggested various elements that should be involved in the Government's response. In any review of the situation I hope the Government will examine the tax base to see if it is too narrow and if it bears too heavily on one section. I believe it does. If the Government say, as many of their spokesmen have been saying lately, that changes will take time, one could say that it did not take very long to dismantle certain taxation provisions that had been in existence. It did not take very long to abolish the wealth tax. That was abolished without even a reference in the manifesto. Apparently no group had come officially to Fianna Fáil and sought removal of the wealth tax but mysteriously it was gone overnight. One does not know the power and influence of those who called on the Minister for Finance and got his so willing consent. Usually one hears of special interest groups coming to the Government before a budget and making submissions. Who went to Government Buildings seeking abolition of the wealth tax? Who phoned whom? I instance this as what can be done if the will is there.

Professor O'Donoghue

Does the Deputy not think that we abolished the wealth tax because we thought it a good thing to do?

Mr. B. Desmond

Tony O'Reilly did.

Mr. M. O'Leary

I do not know. I have just mentioned it as an illustration that if there is a will on the part of the Government to reform the present system it can be done. They do not need a great length of time to come to conclusions about what is wrong with the present tax situation. It would not require extraordinary research to remove some of the anomalies that exist. I would be the first to say that no section of the community like tax but they like it still less and their ordinary dislike of it boils over when they see a Government who narrow the tax base quite deliberately and then bypass Parliament when dealing with another group.

When the previous administration, so rich an area for the present Government in providing excuses for their inaction, attempted to tax the farmers Fianna Fáil attacked us. The word was passed down the line that no taxation would be put on farmers if Fianna Fáil were returned to office. Now Fianna Fáil are dealing with the farmers and I hope a good arrangement will be arrived at. However, the message is clear. The Government must also arrive at an agreement with the PAYE people. That is the logic of these events. The purpose of this motion is to get from the Government the kind of leadership warranted by their majority. They have 84 seats, the largest mandate in the history of the State. So far there is a great contrast between their promises before the election and their actions afterwards. Before the election they promised there would be no price increases but now there is nothing but news of price increases every day. Before the election there was a solution for every problem. Now the Government are in office with the largest mandate ever. Now they have a problem with regard to taxation and they are called to deal with it. There is no use in blaming the National Coalition. They are gone and Fianna Fáil are the sole victors because they won the election conclusively. Now they are being asked to rule the country. Unlike our Government they do not have to worry about whether they have sufficient votes to put measures through. They have a super abundance of votes but now they must deal with people outside Parliament as well who are looking to this Parliament and to the Government for a remedy. They will not go away.

In the next few weeks we invite the Government to answer the call that has come in unmistakable fashion throughout the country, from the hinterland of Fianna Fáil support. These people have marched. They have not done so as a result of trade union or Labour Party persuasion. They have come out spontaneously. Admittedly they had the assistance of the Minister for Finance. I do not know if he can be shut up the next time they march but certainly he was of assistance the last time. The purpose of the motion is to get a response from this administration in the forthcoming Finance Bill to the undoubted discontent that exists among the PAYE sector regarding the present tax system.

Mr. B. Desmond

In this motion we have asked the Government to do a number of things that are open to them to do. If they have the will they can introduce major anti-evasion and antiavoidance measures. If they have the will they can assure that all taxpayers pay tax on the basis of their assessment for the current year. If they have the will and the political commitment they can increase the yield from capital taxation measures, from farm accounts and can increase the yield from non-manufacturing corporate bodies. If they do these things they can collect between £150-£200 million in extra taxation per annum.

On this basis there would be no need to indulge in a cutback in public expenditure to finance relief for PAYE people. In the past ten years in question after question and in many contributions in this House I emphasised the inherent inequities and injustices in the tax system. I hope by now that some of the messages have got through to the Government. If Fianna Fáil introduce the taxation remedies mentioned and restore food subsidies they can still finance the claims of the Garda, the nurses and the post office sector. The Government can meet these extra costs without cutting back on other essential services.

Amendment put.

The Dáil divided: Tá, 68; Níl, 51.

Tá

• Ahern, Bertie.
• Ahern, Kit.
• Andrews, David.
• Andrews, Niall.
• Alyward, Liam.
• Barrett, Sylvester.
• Brady, Gerard.
• Brady, Vincent.
• Briscoe, Ben.
• Browne, Seán.
• Burke, Raphael P.
• Callanan, John.
• Calleary, Seán.
• Cogan, Barry.
• Collins, Gerard.
• Connolly, Gerard.
• Cowen, Bernard.
• Daly, Brendan.
• de Valera, Síle.
• de Valera, Vivion.
• Doherty, Seán.
• Fahey, Jackie.
• Farrell, Joe.
• Filgate, Eddie.
• Fitzgerald, Gene.
• Fitzpatrick, Tom. (Dublin South- Central).
• Fitzsimons, James N.
• Flynn, Pádraig.
• Fox, Christopher J.
• Gallagher, Dennis.
• Haughey, Charles J.
• Hussey, Thomas.
• Keegan, Seán.
• Kenneally, William.
• Killeen, Tim.
• Killilea, Mark.
• Lalor, Patrick J.
• Lawlor, Liam.
• Lemass, Eileen.
• Lenihan, Brian.
• Leonard, Jimmy.
• Leonard, Tom.
• Leyden, Terry.
• Loughnane, William.
• Lynch, Jack.
• McCreevy, Charlie.
• McEllistrim, Thomas.
• MacSharry, Ray.
• Meaney, Tom.
• Molloy, Robert.
• Moore, Seán.
• Morley, P. J.
• Murphy, Ciarán P.
• Noonan, Michael.
• O'Connor, Timothy C.
• O'Donoghue, Martin.
• O'Hanlon, Rory.
• O'Kennedy, Michael.
• O'Leary, John.
• O'Malley, Desmond.
• Power, Paddy.
• Reynolds, Albert.
• Smith, Michael.
• Tunney, Jim.
• Walsh, Joe.
• Walsh, Seán.
• Woods, Michael J.
• Wyse, Pearse.

Níl

• Barry, Peter.
• Barry, Richard.
• Begley, Michael.
• Belton, Luke.
• Bermingham, Joseph.
• Boland, John.
• Bruton, John.
• Burke, Joan.
• Clinton, Mark.
• Cluskey, Frank.
• Desmond, Eileen.
• Donegan, Patrick S.
• Donnellan, John F.
• Enright, Thomas W.
• FitzGerald, Garret.
• Fitzpatrick, Tom. (Cavan-Monaghan).
• Gilhawley, Eugene.
• Hegarty, Paddy.
• Horgan, John.
• Kavanagh, Liam.
• Kenny, Enda.
• Kerrigan, Pat.
• L'Estrange, Gerry.
• Lipper, Mick.
• Murphy, Michael P.
• O'Brien, Fergus.
• Collins, Edward.
• Conlan, John F.
• Corish, Brendan.
• Cosgrave, Liam.
• Cosgrave, Michael J.
• Creed, Donal.
• Crotty, Kieran.
• D'Arcy, Michael J.
• Deasy, Martin A.
• Desmond, Barry.
• O'Brien, William.
• O'Connell, John.
• O'Donnell, Tom.
• O'Keeffe, Jim.
• O'Leary, Michael.
• O'Toole, Paddy.
• Pattison, Séamus.
• Quinn, Ruairí.
• Ryan, John J.
• Ryan, Richie.
• Spring, Dan.
• Taylor, Frank.
• Timmins, Godfrey.
• Treacy, Seán.
• White, James.

Tellers: Tá, Deputies P. Lalor and Briscoe; Níl, Deputies Creed and B. Desmond.

Amendment declared carried.

Motion, as amended, agreed to.