Finance Bill, 1979: Second Stage (Resumed).

Question again proposed: "That the Bill be now read a Second Time."

Mr. Bruton

I wish to make a number of points about the Finance Bill. This Bill, in line with financial policy during the last two years, will not help those most in need. The best way to illustrate this is by referring to what has happened to a large family with, say, six children as compared with a married couple who have no children. Since 1974-1975 the tax-free allowance of the married couple with six children has increased by 76 per cent, whereas the tax-free allowance for the married couple without children has increased by 178 per cent. In other words, the married couple without children have received two-and-a-half times the increase in the tax-free allowance of the couple with six children. This is most unfair.

The argument is made that this is to facilitate the provision of money for increases in children's allowances for the really poor, but there is no reason that only people in the middle-income group with large families should have to bear the burden of increasing children's allowances for those who are really poor. Surely the entire community, whether or not they have large numbers of children, should be asked to pay for this. All taxpayers should be asked to pay for increases in children's allowance. In fact, increases in children's allowance under the social welfare code have not at all kept pace with the increases in the tax-free allowances for married couples.

Since 1974-75 the increases in the children's allowances in the social welfare code have been only 43 per cent whereas the tax-free allowance of a married couple with no children has gone up by 178 per cent, about four times as much. Families with children, both under the tax code and the social welfare code, are doing a great deal worse than families with no children. Not being married and not having children myself, I am not hostile to couples with no children but I believe everybody must agree that their needs are less than the needs of a family with six children. In our financial code over the past four or five years we have been progressively discriminating against people with large families. That is wrong. Also those who are helping to keep people out of institutions where they would be a complete burden on the State, and keeping them in the family, have been doing very badly. I have already said that the dependent relative allowance has gone up by a mere £15 since 1974-75 or 18 per cent—that is the allowance under the tax code. The tax-free allowance of a married couple with no children and no dependent relative has gone up by ten times that amount. It is entirely wrong to be giving ten times as much of an increase in tax-free allowances to a married couple with no children as you are giving to a married couple looking after a dependent relative. That is what has happened in our tax code over the last five years and it is entirely unjust.

Similarly, the blind persons's allowance has only gone up since 1974-75 by a mere £25 or 17 per cent while the married person's allowance has gone up by 178 per cent, ten times as much. The whole trend of our tax code has been to help people with few children, living on credit and who have a high income and not to help those with a large number of children, a large number of dependent relatives and a large number of responsibilities and people to look after. We are encouraging people with those responsibilities to pass them on to the State, put their people into institutions and in some way not to look after members of the family in the home. We are giving back the money we are taking from them to married couples who have little or no responsibility. We are also giving it to single people who have little or no responsibility because their increase has also been quite high, though not quite as high as in the case of married couples but a great deal higher than the increase given to a married couple with six children. That is the wrong sort of policy to pursue and it is something that should be condemned.

The fact that we are discussing a Finance Bill here today which does not represent the last word of the Government on financial policy is a sad reflection on the sovereignty of the Dáil. Since this Finance Bill was presented an entirely new financial package has been put to the people, an entirely new regime of farmer taxation has been presented. Entirely new proposals on general taxation have also been presented. These are not in the Finance Bill and were not in the budget. They were negotiated with people who are not in this Dáil in negotiations which did not take place in public and they will be sanctioned outside the Dáil. That indicates that the importance of the Dáil in the making of financial policy has greatly diminished as a result in part of the fact that we are prepared to give tax concessions in order to get national wage agreements. If in the long run the cost of obtaining wage agreements is to ensure that financial policy is no longer made in Dáil Éireann by the elected representatives of the people but negotiated outside Dáil Éireann with groups outside this House I believe we are paying a very high price for national wage agreements. This is something we as legislators should consider very carefully.

Mr. MacSharry

The Deputy is against negotiation?

Mr. Bruton

I say we should look very carefully at this because we represent in this House the people who are not in those negotiations. We represent the people who are not in trade unions, not party to the national understanding, the people on fixed incomes, retired people, children and others who are losing in these negotiations. We represent all the people as no pressure group does and if our say in the making of tax policy is diminished I believe democracy in this country is diminished. It is in large measure our fault that this has happened because we have not reformed our financial procedures so as to make sure that Deputies are in a position to contribute. As I have said elsewhere, I believe that very radical changes need to be made in our tax policy and in the way tax and expenditure matters are dealt with in this House so that the diminution of the authority of the Dáil in financial matters will not continue. Since this is not the occasion to discuss it I shall not proceed further on this matter.

We are told that if the national understanding goes ahead £39 million will be given back to the PAYE sector at the end of the year in increased tax free allowances. What is not mentioned is that as a result of a 15 per cent increase in incomes the Government will net £127 million in increased income tax receipts because more people will be in higher tax bands. So, in return for the national understanding wage increase bringing the Government £187 million in extra receipts they will give back a mere £39 million in tax reductions at the end of the year. It does not seem to me that the wage earner is doing particularly well on that deal, giving up £187 million to get £39 million back.

There is need to encourage industrial harmony through the tax code. One way it can be done is by giving a tax incentive to the introduction of profit sharing in industry. This has been an item in the policy of my party since 1965 and I believe it should be implemented in an early Finance Bill. If you give a tax incentive for profit-sharing schemes you can use them as a means not only of encouraging workers to identify with the interests of the firm in which they are working and so achieve greater industrial peace but also as a means to reward employees of firms which are particularly profitable. You can use a profit-sharing scheme to achieve that. One of the problems in national wage agreements has always been that they do not provide a means to reward the employees of firms that are particularly profitable and it tends to be those employees who are against national wage agreements and make their negotiation difficult. A profit-sharing scheme for such employees would supersede their objections by giving them the income in the form of a sharing in profits apart from their normal wage.

I believe there is need for the introduction of indexation of tax-free allowances. This is one of the policies of the Irish Congress of Trade Unions. I have made a study of this and I know it operates in Canada and Denmark. I have been in correspondence with the Minister for Finance in Canada on the matter and I should like to quote very briefly from a letter which he has sent me and which shows how indexation has worked in Canada since it was introduced there in 1974. He says:

Section 171 of the Income Tax Act is the legislative basis for adjusting personal exemptions and tax brackets automatically each year for inflation as measured by the Consumer Price Index. The exemptions to which the indexing applies are described in sections 109 and 110 of the Act while the tax brackets are described in section 170 of the Act.

Our Department should look very closely at those provisions of the Canadian legislation and introduce an automatic indexation of tax-free allowances. Over the years what has happened is that taxation has been increased here by the operation of inflation without an increase in tax rates and without the authority of the Dáil. If there is automatic indexation any increase in taxation would have to get the authority of the Dáil because indexation would ensure that inflation did not do the job of the Minister.

I should like to quote one further passage from the letter of the Minister for Finance in Canada. He said:

Contrary to initial fears indexing has not had any destabilising effect on the economy. Several economic studies have indicated that timely tax cuts from indexing played a significant role in moderating the impact in Canada of deep recession experienced by our trading partners during 1974-75.

This letter is signed by M. Jean Chrétien, the Minister for Finance in Canada. The matters contained in it should have the attention of our Department of Finance with a view to the introduction of automatic indexation in the next budget.

I should now like to refer to the taxation of farmers in particular which is dealt with in this Bill and in other pronouncements by the Government. The entire debate on taxation of farmers has been carried out on the assumption that a given share of the total income of the entire agriculture sector should be taken in taxation. No other sector of our economy is taxed on the basis of a share of the income of the entire sector. Other sectors of the economy are taxed on the basis of a share of the income of the individual members of the sector. I do not think it is fair that farmers alone should be taxed on their sectoral gross income and a share taken of that. They should be taxed as self-employed persons, the same as other self-employed. Agriculture should not be treated separately in the matter of determining what its share should be. We do not have any figures as to the total income of doctors and we do not look for a given share of all doctors' incomes. We do not have any figures for the total income of lawyers and do not look for a given share of all lawyers' incomes. Why should we look for a given share of the income of all farmers? In fact it is demonstrable that a huge number of farmers do not have incomes that would exceed their tax-free allowance yet their incomes were all included in the gross figure of agricultural income when the alleged fair share of agricultural income was being calculated by the Government. The taxation of farmers should not be on that basis. The 2 per cent levy and the resource tax are both unrelated to ability to pay. No other sector of the community is being taxed on a fixed rate basis, whether they make a profit or not.

The agricultural levy will ultimately be passed back by means of the operation of the market place to those farmers who must accept whatever price they get and cannot quickly switch to another line of production. Typically, the farmer in this position will be the small farmer with poor land suitable to only one line of production. The store cattle producer does not directly pay the levy because he is not selling cattle into slaughter or for export, but because of the operation of the market place and the elasticities of demand ultimately the farmer who will pay the levy will be the small store cattle producer in the west who is not in a position to switch to other lines to avoid the levy, whereas people with better land in better parts of the country can do so. This needs to be hammered home.

The resource tax, also, is unrelated to ability to pay. It starts at the moment at £3.50 per £ of poor law valuation, on farms above £70 poor law valuation. That, probably, in itself is not a very high figure. However, once this tax is introduced there is nothing to stop the Government from doubling, trebling or quadrupling the rate of resource tax next year and bringing in other farmers later on. It is worth reminding people that when income tax was introduced it only applied to farmers with over £100 valuation; it now applies to over £40 valuation. The resource tax applies now to farmers over £70 valuation. There is no assurance whatever that this resource tax will not be £10 per £ of poor law valuation next year and £20 the following year, bringing in more farmers. Indeed, this seems to be the way it is pointing and it is unfair because that tax is not related to any profit being made on the land. A profit may have been made this year but there is no guarantee that a similar profit will be made next year. Indeed, it is quite possible, as a result of a combination of a food surplus and an energy crisis which reduces people's ability to buy food and the community's ability to support agricultural surpluses, we could have a serious recession in agriculture in the next three or four years. If you have an income tax position where agricultural incomes go down and income tax payments go down, although the farmer may face a problem he is not being unfairly treated. However, if farmers are on a resource tax and agricultural incomes generally go down, no Government will reduce the resource tax; it will stay at the level fixed for this year and next, even in the face of an agricultural recession. Farmers could, under this resource tax system, find themselves paying out taxation from incomes they do not have. If they were on an income tax system that would not happen. The tax, being based on poor law valuation, does not reflect real incomes in agriculture.

In Donegal-Leitrim farmers earn between £20 and £40 per £ poor law valuation. On the other hand, farmers in Cork, Limerick and Clare earn four times as much. They earn between £80 and £100 per £ poor law valuation. Yet, all these farmers have to pay exactly the same resource tax, which is not fair because it is not related to what those farmers are earning. The resource tax is nothing more than a wealth tax on agricultural land. If a wealth tax for a 75-acre farm is justified, why did the Government abolish wealth tax for those who hold their wealth in the form of house property, shares, antiques, painting and so on? These latter people have been exempted from a wealth tax by Fianna Fáil. Farmers alone among people who own property will have to pay a wealth tax in the form of a resource tax. Why is this discrimination taking place? It is obvious that farmers with 75 acres or so have no influence with Fianna Fáil, while the people with house property, who were leaving the country because of the wealth tax, had influence with the Government and succeeded in getting the wealth tax abolished. Farmers could not leave the country. They alone among property owners are being asked to pay a wealth tax because of this resource tax being introduced.

Take the example of a 100-acre farm. Taking all taxes together the 100-acre farmers will earn about £10,000 a year. He will be paying about 25 per cent income tax, £2,500, rates £1,400 and resource tax £350—a total tax on an income of £10,000 of £4,250. A self-employed person, on the other hand, with the same income will pay 25 per cent, or only £2,500. In other words, a farmer with £10,000 annual income will be paying £2,000 more tax than a self-employed person on an equal income. The farmer would be paying almost half his income in tax under the combined tax system. Farmers should be put on the same basis as farmers in Northern Ireland. They pay income tax on accounts the same as everyone else; they have no resource tax, levy or rates. They are treated the same as other self-employed.

In conclusion, I refer to the situation in relation to inheritance tax. This is a particularly heavy burden on farmers. When it was introduced, farmers were told the threshold would be adjusted regularly in line with inflation, so that the level of the farmer paying inheritance tax on a transfer from father to son would be the same, at any given time, as it was when the tax was introduced in 1975. The fact is, if we take the example of a 100-acre farmer, that he would have been completely exempt in 1975. Indeed, anyone with an acreage up to 220 acres would have been exempt from capital acquisition tax when the tax was introduced. Now if you have 80 acres of land, you are into the inheritance tax net. Without any money changing hands a transfer from father to son, to take the example of a 100-acre farm being transferred on death, the son would have to pay £22,500 inheritance tax, or the equivalent of the income derived from two-and-a-half years' work. In the case of a 200-acre farmer, if he were transferring his land to his son he would have to pay £165,000 inheritance tax.

An Ceann Comhairle

The Deputy should conclude now.

Mr. Bruton

That figure represents the amount of income it would take him eight years to earn on that farm, so he would be forced to sell. This Finance Bill is not a fair one and I hope to be able to demonstrate this more fully on Committee Stage.

An Ceann Comhairle

Deputy Bermingham.

Mr. Bermingham

I intervene briefly in this debate to make a few points on certain aspects of the Finance Bill and to make some suggestions on things which were omitted from the Finance Bill, and which I think might be helpful in many areas, in regard to the economic and ordinary life of the people. In my experience budgets have always been kept secret, except from the Cabinet, prior to their introduction in the House and they were the final word on how the Government of the day proposed to run the affairs of the country during the year ahead. On this occasion a new departure was taken in that the budget seems to be negotiable. The programme was set out, and before the ink was dry, a lot of the provisions in the budget were being renegotiated. The Government backtracked in relation to the 2 per cent levy on farmers. They then negotiated as to how this money could be raised from the farming community through some other method. This was a complete departure from the procedure in previous budgets. Up to this year the ordinary people, and the people not involved in the framing of a budget, had to accept the criteria set out as to how the county would be run.

The Minister thought it right at the introduction of the budget to introduce a 2 per cent levy on certain agricultural commodities but changed his mind quickly and was prepared to negotiate as to how the money could be raised in other ways. I am not against farmers paying tax but the 2 per cent levy is the wrong way to do it. Apparently the 2 per cent levy was reintroduced and was due to operate from early May. It is hard to know now whether it is operating at all, but I understand that as far as the Minister is concerned, it is operating.

This 2 per cent levy is a mistake and has been shown to be so by subsequent events in my constituency. Since its introduction there was a complete drying up of the supply of fat cattle to the meat factories. In Leixlip there are 450 workers employed in the meat plant and they have been under notice since last Friday because no cattle have come into the factory. About 1,000 people are employed in three meat processing factories in Kildare and their jobs are in jeopardy because of the 2 per cent levy. A person who wishes to evade the tax cannot bring the cattle to the meat factory. If cattle are being exported agents can buy them anywhere. Apparently the port is the place where the levy is collected; but no one can say what was paid per head of cattle when they were bought.

The levy is a major obstacle to promoting the meat processing industry. I met the three managers of the three meat processing factories in my constituency and they unanimously agreed that the levy would have a detrimental effect on the full-time employment of the 1,000 workers in Kildare. Apart from that aspect, I oppose this levy because I oppose any tax that has no regard for a person's ability to pay. This levy takes no account of the person who sells one pig, bullock or calf; he is expected to pay the levy in the same manner as the man who sells hundreds of cattle.

It is well known that in the last few years the buying, fattening and selling of cattle to meat factories has not been very profitable. A man might buy 300 cattle at £300 or £400 each. The money to buy the cattle would have been borrowed and he would have to pay a high rate of interest on the money, so that when the cattle were finally resold, deducting the interest, the cost of feeding and so on, a man might make a profit of less than £50 per head. I do not have much sympathy for beef barons, the rich men who can change their methods of farming overnight, the men who can go into grain growing or beet growing, but I am worried about the situation because these men are the kind of people who keep our factories going through the winter months when cattle are not available off grass. These men are the principal suppliers who keep the workers in full-time employment in the factories. We have now reached a situation where one factory have given notice to their employees that they will close down for one month at least and possibly three. Responsibility for that rests squarely on the shoulders of the Minister for Finance for introducing this stupid levy.

I want to repeat that I am not saying farmers should not pay tax. I say they should pay tax, that anyone with a taxable income should pay tax. During the period of office of the previous Government and of this Government I met farmers in my constituency and I told them in no uncertain terms that I thought they should pay tax on their accounts the same as every businessman in the community. I make no bones about this. In fairness to the IFA and to many larger farmers in my constituency, they agreed it was the only fair way of taxing farmers. Why should a man with a small shop or a person engaged in a small way in the building industry have no option but to pay tax on his accounts? If such a person does not pay his taxes the Revenue Commissioners will send him an assessment and he will come forward with his accounts very quickly. The same method should be applied in the case of farmers.

There has been a tradition here of making a special case for farmers and making an exception of them. I do not think this should be done for any section. Farmers should be dealt with in the same way as shopkeepers, small builders or the unfortunate man on the milk round. If these people do not pay their taxes the Revenue Commissioners send them assessments that are three or four times what they know they would have to pay if they submitted their accounts. A period of 21 days is allowed to make an appeal to the Revenue Commissioners and the people concerned can submit accounts in that time. The farmers should be treated in this way.

The question of land structure is vital. The Chair may say this is not relevant——

An Leas-Cheann Comhairle

The Deputy will have to relate it to taxation.

Mr. Bermingham

I will relate it to the Bill in this way. One of the most serious problems facing agriculture is land structure. This Finance Bill can help by making provision for people to live and work on the land. A prohibitive stamp duty should be imposed in the case of the sale of land to people who have sufficient land already or who are not interested in agriculture. Such stamp duty should apply to farmers who have enough land already. These people are buying up land and are ensuring that small farmers cannot afford to buy much-needed acres. The person who has sufficient land should be prevented in every possible way from acquiring more land and an obvious way this can be done is by imposing a prohibitive stamp duty. If a person has more than a certain amount of land or has a valuation in excess of a certain figure, he should be charged at least 50 per cent tax duty. That would give a chance to the smaller man who needs the land if he is to survive in agriculture.

The same should apply to multinationals who are buying up agricultural land. They are making a laughing stock of the Land Commission because they are signing legal agreements with people and are not transferring the land. This is happening in my constituency and elsewhere. Recently I met a group of farmers from Kerry and they told me that 700 acres had been bought by a German company. The land had not been transferred because the Land Commission, in carrying out the provisions of the Land Act, would not transfer it. There was some kind of agreement between the foreign company and the owners of the smallholdings but many people who needed that land to survive were out of the market.

The Minister has an opportunity in this Finance Bill to do something about the matter. We were told that a Bill dealing with land structure would be brought before the House before the end of the year, that the heads of the Bill were before the Minister for Agriculture at the end of last year. If something is not done about the problem now we will be back to worse days than in the time of Michael Davitt, with ranchers, multinationals, foreigners and very large farmers owning all the land.

On Committee Stage I shall be proposing an amendment to impose large stamp duty on sales of the kind I have mentioned. So far as the Land Commission are concerned, the acquisition of large holdings has finished completely by direction of this Government. The Land Commission are refusing to take over holdings and are introducing regulations that have not been used for many years, such as limiting the miles when assessing applications. I ask the Minister to help in the situation by way of increasing stamp duty on the purchase of land by people who have sufficient land. In my area a multinational bought agricultural land several years ago and sold it back to a Government agency for industry a few months ago at ten times what they paid for it. If this is allowed to go on we will be back to a worse situation than anything experienced previously. We used to talk about absentee landlords. We are now talking about Germans and others owning our land. Small farmers have no option but to sell to them because they cannot hope to increase their holdings to make them viable.

I appeal to the Minister to try to do something about this in the Finance Bill and not to wait for the proposed land restructuring Bill of the Minister for Agriculture. This multinational cheque book buying of land by foreigners must be stopped. The land must be left available at competitive prices to private buyers or for acquisition and distribution by the Land Commission to small holders who want to stay on the land and who are willing and able to work it. A provision could be inserted in the Finance Bill in relation to stamp duty on land sales, and I will try as best I can, within the rules of order, to try to devise amendments to that effect.

Perhaps the amount of money being made available this year to local authorities is greater than a few years ago but councils have been told the areas to which it will be allocated. I will give a typical example. The Minister for Finance is the final arbiter——

An Leas-Cheann Comhairle

Unless it is taxation the Deputy may not discuss it. We cannot discuss local expenditure.

Mr. Bermingham

I presume all moneys come through the Finance Act.

An Leas-Cheann Comhairle

That is correct but we cannot discuss expenditure under this Bill. The Deputy will get an opportunity to do that on the Estimates.

Mr. Bermingham

I will give examples and the Chair can stop me if I am out of order. In Kildare, the county manager looked for £889,000 from the capital budget for schemes of new houses. He had the support of the council. He got £135,000. It was a complete waste of time because of the kind of bungling that has gone on in relation to the capital budget. I am not saying it is wrong to have abolished the car tax or the rates, but they were a pre-election gimmick and the revenue has not been replaced for local projects. As a result, local finances have been starved. In Kildare there has been an extra bill of £155,000 which they could not pay last year. It occurred because of the new VAT Act. That kind of juggling is nothing but a three-card-trick by the Government because local councils are without the money. Anybody travelling the roads, which are full of potholes, will know what I am talking about.

I should like to say a few words about the PAYE sector. The Government have told us about the great concessions that were given to them this year in the budget. In the last year of the Coalition Government and in Fianna Fáil's first year, reliefs amounting to £50 million annually were given to the PAYE sector. This year the amount is £27 million. We all know that in the previous two years the £50 million was swallowed up in inflation and that any wage increases given disappeared in that way. This year, despite all the crowing about the great benefits, a worse situation prevails because the amount has been only £27 million, and that is the main reason why the PAYE people took to the streets. Under successive Governments—I do not want to blame any Government unfairly—the public sector, who represent a big percentage of the workers, have been treated badly. They are the sector who are most frustrated.

The Minister talks about this great national understanding—I do not know what understanding there is—which he has ironed out with the ICTU. I am not too sure that it is the wonderful thing he said it is, but we are not discussing that here and I have my own views on it which I may express elsewhere. That kind of understanding has the faults of many more agreements and understandings in that it is percentage-bound. If you have percentages here, there and everywhere you have the fellow with the low wage getting the low percentage and the fellow with the high income, high ownership and high everything else getting the high percentage. That is not good. I am not saying that this is peculiar to the present Government; it has been going on for a long time on the same lines of 15 per cent over two years or over 15 months or whatever it is. That will never solve the problem.

The removal of food subsidies was a most retrograde step in the context of the budget and of the national wage agreements. People would prefer to know that there would be some price stabilisation and smaller income increases. After the performance of this Government over the last six months I do not blame people for fighting to have their wages doubled. Inflation as far as food prices are concerned has really gone mad. I am hearing this day in and day out from ordinary people, and I claim that I am as well acquainted with the ordinary, plain working people as any Member of this House. The worst and most disappointing thing for the ordinary public in regard to the Government is that at the last election the Fianna Fáil Party gave the impression that food prices would not rise. Everyone knows about their shopping basket and how it was displayed on television and at every street corner and brought around the supermarkets and how the prices were compared with previous prices and so on. Somehow people got the impression—and fair play to Fianna Fáil, I admire their machine which got that message across so well-that they were going to do something about it. Lo and behold, this has been the greatest disappointment for the ordinary people. Not alone did the Government do nothing about controlling prices, but they deliberately added to price increases by the removal of the food subsidies.

I do not want to delay the House. I will be here on Committee Stage.

I have put some very relevant points before the Minister. I ask him to consider them and particularly the one that more could probably be done for the improvement of the land structure in this country than by the Bill to be introduced at the end of the year by his colleague.

Mr. Mitchell

The Bill before the House is to give effect to a budget which will go down in history as one of the fiasco budgets of the century. Never before in the history of parliamentary budgets has there been so much confusion and confrontation and so little conviction and courage. The Government's composite memoirs, if they are ever written, could be entitled aptly "Profiles in Cowardice" or "Why Ireland Slept".

I wish to dwell a little on why a Government with such a majority are so cowardly and weak, and then I want to deal with the subject of why Ireland sleeps and endures the industrial and social nightmare that now haunts us. Cowardice in Dublin parlance is normally connected with or represented by the colour yellow. The Lynch Government is the yellow Government who published in quick succession white papers and green papers equally insipid, equally infirm and equally based on inequality, particularly as far as taxation is concerned. There lies the paradox. There lies the root of the Government's cowardice. They were elected as and remain the Government of privilege, of the stiff upper lip and the hard neck. Their pampering of the rich and the very rich leaves them exposed nakedly to the wrath of the organised masses so that when confronted by the organised farmers they cave in not, as many suppose, to diminish the tax taken from the farmers but simply because the Government's budgetary proposals, like their election manifesto promises, are based not on sure and defensible grounds of social justice but on the indefensible grounds of pandering to the rich.

It was of course the caving in to the farmers which ignited the smouldering indignation of people on PAYE and brought unprecedented thousands on to the streets. Indeed, given the provisions of the national understanding, it is very clear that those unprecedented marching thousands wasted their time and that the Government have learned nothing from those demonstrations. The fear that controlled the Government five or six weeks ago as the thousands marched by this House—fear not merely for the Government but also for the system—has been forgotten. A deep wedge, hitherto avoided by fair play, has been driven between town and country. I submit to this House that this is potentially the most divisive occurrence in Irish history since Partition. A new division in our society has, in the light of its eventual importance, gone relatively unheralded inside and outside the Dáil. A tax curtain has fallen right across Ireland to the extent that one section of our land is beginning to look at the other not so much as the beloved Mother Ireland but as the begrudging Step-Mother Ireland. We are a nation divided against itself. One of my constituents, describing it as a nation like Humpty-Dumpty, wrote to me as follows: "Humpty-Dumpty elected to the Dáil, Humpty-Dumpty had a great fall. All Jack's promises and all Jack's men Won't get poor Humpty moving together again."

Ireland is Humpty and Ireland is humped so long as it sleeps and tolerates this nightmare. This division in Irish society is due solely and totally to the financial policies of a mistaken, unjust and inept Government, a Government for whom it is to be regretted the bell does not yet toll. This division is based on the notion that the other side are not paying their fair share of tax or that their own side, for one reason or another are being asked to pay a disproportionate share of taxation.

My first reaction to the budget and the subsequent climb down to the farmers was that the Government would exploit the town and country divide, ending up extracting more taxation from both. I said as much in a speech I made at Thurles, County Tipperary, a few days after that infamous climbdown. The point I made then was described by one commentator as innocent and, by another, as precipitate. Three months after budget day what are the facts? The budget and this Finance Bill provide for a 37 per cent increase in PAYE receipts. That is the Minister's own figure and one that will have to be amended not downwards but upwards as a result of the proposed national understanding. Therefore, the House must agree that the thousands who marched around this House and the streets of this and other cities a few weeks ago wasted their time and taught nothing to a Government sold to the rich. The climbdown which precipitated these huge PAYE demonstrations and the consequent deep divisions in our society have ended up with no concession whatsoever, on the one hand, to the PAYE sector and, on the other, the clobbering of all farmers, big and small, regardless of their ability to pay.

It is no part of my brief as a Dublin Deputy to plead the case of farmers. But it is a fundamental commitment of mine and of my party to social justice that compels us to oppose the 2 per cent levy. It is unjust in its application, as is the imposition of income tax on the PAYE sector. I shall not continue at length about the 2 per cent levy. That has been dealt with by my colleague, Deputy Bruton.

However, I want to come to my central criticism of this Bill, of the national understanding and so on, which is the Government's treatment of those in the PAYE sector. If one considers merely the budget provisions in regard to changes in income tax, as if nothing else whatsoever had happened, perhaps I may be allowed cite my own case. As a married man with three children my personal allowance goes up by £500. That is immediately reduced in respect of three children, £22 each, by a total of £66. I lose £500 at 20p and pay now at 25p. That is £500×5p, totalling £25. Translated into a tax-free allowance, that is £75. Therefore, I lose £400 at 25p, and am now paying at 35p, a difference of 10p. The total extra in tax is £40, the equivalent of a tax-free allowance of £120, and I lose my social welfare tax allowance, a total of £68. Therefore, £66, £75, £120 and £68 total £329. If one deducts that figure from £500 increase in married allowance one is left with a net increase of £171 tax-free allowance or, when paid at standard rate, amounts to something like £55 a year or slightly over £1 a week. That is the so-called benefit of this budget to me as a married person with three children. And that is before one takes account of the first budget of this year, the one which removed the food subsidies. My wife when she goes to the shops now must pay more for her bread, butter, milk, cheese and so on and, as any mother with three children will tell you, the increased price of those commodities amounts to a great deal more than £1 a week.

Like the great majority of taxpayers, I am a net loser under the tax adjustments in this budget. That constitutes the most annoying factor for those people at work who read the headlines the day after the budget: "£500 increase in tax-free allowance." Again expectations were raised falsely because, when the 6 April came and went and likewise the first pay packet, there was not that extra cash to be found in the pay packet as the workforce were so erroneously led to expect; in many cases, there was less. Certainly there was less for the wives who had previously demanded an increase in the take-home pay to meet the increased food costs brought about directly by the financial policies of a Government who understand little and care nothing for the problems not merely of the poor but of the majority of our people living from week to week. Those false expectations are at the root of so many of our problems. As I have said so many times before both inside and outside this House, many of our industrial problems today are connected with the euphoric expectations engendered by the infamous manifesto of 1977: we could have everything for nothing, nothing would have to be paid for. The people took the Government at their word. Then came the 1979 Budget with a £500 increase by way of tax-free allowance for married couples. What most people immediately read from that was that they would pay £500×35p less in tax. That is what people were led to believe, that they would have 500 times 35p extra in their pay packets. That was deliberately misleading to the people. It may have been good for a week or two following the budget but was disastrous in the medium and long term.

I should now like to deal with the terms of the Finance Bill as they affect the proposed national understanding. At the outset I should like to state that Fine Gael fully support, and have always done, the concept of national centralised bargaining because we believe that such centralised bargaining offers the best hope of bringing about industrial peace. We must admit that last year's national pay agreement did not bring about industrial peace but rather its provisions fuelled the industrial chaos which now haunts us. Towards the end of last year, when the initial negotiations on the national understanding commenced, we expressed the hope that it would not be a repeat of the 1978 agreement. We stated that Fine Gael would consider canvassing against any agreement that was similar to the 1978 one. We made that statement not because we were opposed to centralised bargaining but because the 8 per cent pay agreement last year turned out to be an average of 16 per cent. It was highly inflationary and not in keeping with the objective of job creation. That was our concern then as it is our concern now.

What then will be the effect of the Finance Bill on this new national understanding and other matters for 1979? According to the ESRI the estimated total national pay bill at the end of the 1978 pay agreement was £3,775 million and a 15 per cent increase on that would raise the pay bill by £585 million. It must be remembered that one-third of that increase will go straight to the Exchequer under the PAYE system and a little more in social insurance. My calculation is that the Exchequer will benefit to the tune of £190 million. The so-called rebate of £35 million at the end of the year is, by comparison, an insulting response to those thousands of people who demonstrated in this and other cities a few weeks ago. It is not a response to the genuine grievances held by the people in the PAYE sector because the net result at the end of the current tax year will not be that the people will pay £39 million less but that they will be paying at least £150 million more.

The Government have not learned anything from the deep-felt sense of injustice of the PAYE sector. The worry is that the ignoring of the grievances not alone threatens the Government but, as was privately articulated around the House by Members of the Government party and Opposition, threatens the system. Like the £500 increase in the marriage allowance which turned out to be a mirage, taking into account the removal of the food subsidies, the tax provisions of the national pay understanding will mean little. That is the area to which I am opposed.

I do not wish to comment on the scale of the increase except to say that without any wage drift it will be three times what the Taoiseach and the Minister for Economic Planning and Development were talking about a few months ago and is a long way from the rigid discipline which the Taoiseach spoke about some months ago. It stinks more of an electoral tactic than economic strategy. Like the £500 tax allowance increase, the beneficiaries will not know the true extent of the fraud being perpetrated upon them until they receive the increase.

In case there is any misunderstanding I should like to state that Fine Gael are anxious to see the national understanding carried. We understand the reservations of certain unions but we want that agreement carried because, warts and all, we believe it is better than any alternative in the short term. However, we also have a duty to point out that the increase in the pay packet would be the same if there was a 10 per cent tax-free increase. The 15 per cent taxed increase will have the damaging result of increasing costs 15 per cent more than a tax-free 10 per cent increase. Therefore, it reduces Irish competitiveness and reduces also our hopes and aspirations for job creation. And one of the most important aspects of the national understanding is in the area of job creation.

Yesterday the General Secretary of the ICTU speaking in defence of the national understanding said that it related to more than pay. It is an understanding which not merely promises the creation of 25,000 jobs—and who could have any credence in a Fianna Fáil promise—but guarantees the creation of this number of jobs. A better way of creating the environment in which extra jobs could be provided would be to maintain and, where possible, improve Irish competitiveness so that we might sell our goods more easily abroad, a situation which in turn would ensure at home that there would be jobs in the area of the production of the goods concerned. Yet the tax provisions of this Bill mean that a 15 per cent increase in wages with the consequent increases in costs and prices is necessary where a 10 per cent increase would have been sufficient if the Government had accepted Deputy FitzGerald's proposal for the indexation of tax allowances and tax bands.

The environment for job creation is disimproved by reason of those tax provisions which, therefore, are in conflict with the guarantee of the provision of 25,000 new jobs. I call, too, for an acceptance of the national understanding but regardless of whether it is accepted, we all have the right to expect the Government to create the promised 25,000 jobs. The country needs those jobs. It is wrong that that man of high repute, the General Secretary of the ICTU, should seem to threaten those who would oppose the national understanding by saying that if it is not accepted there will not be jobs. That seems to imply that the Government would sulk in their corner in such circumstances and would not provide the jobs that are so necessary.

Regardless of the implications for the Exchequer and regardless of the consequences of having to increase perhaps the percentage of GNP which will be borrowed this year, it would be better for the Minister to reconsider the income tax provisions in this Bill. It would be helpful if he would tell the House how much it would cost, for instance, to index-link pay increases and how much it would cost if the Government were to agree not to take any tax as a result of the pay increases. He might tell us also what would be the benefits of such an approach or what would be the loss to the Exchequer. Obviously, there must be money in the Exchequer if we are to help create the jobs that we all agree are needed. Therefore, the Minister might tell us, too, how there could be made up any loss that might result from the policy I have outlined.

I plead with the Minister to consider the inflationary aspects of his taxation provisions in terms of the national understanding. I trust that he will tell us whether 5 per cent of the 15 per cent maximum increase proposed will go back to the Exchequer by way of taxation and also whether price increases could be reduced by the Government saying that they would not take extra tax from the pay increases that would result from acceptance of the national understanding. Such a policy, though resulting in a loss of revenue to the Exchequer, would help to bring about a situation of demands for price increases being less than would be the case otherwise and it would help also in the area of our competitiveness abroad and, consequently, our job creation prospects.

We have been told, not only by the economic mandarins of this House but also by the economic commentators in the media that we need to have a situation of a convergence of wage increase rates, of inflation rates and of growth rates with those of our partners in the EMS, that we need to break away from the British situation of high interest rates and high inflation. We are told that we need rigid discipline but this year there is a proposal for a basic wage increase of 15 per cent during a 15-month period while in Germany, which is our leading competitor on the continent, there will be pay increases of only 4 per cent.

An Leas-Cheann Comhairle

The Deputy has had a good innings on the national understanding, a subject that was referred to briefly by the Tánaiste and on which other Deputies were allowed to speak briefly. I would ask the Deputy now to confine his remarks to the Bill which is totally a taxation measure.

Mr. Mitchell

I thank the Chair for having been so tolerant and kind. Now is the time to introduce a system of index-linking income tax having regard to the benefits of such a move in terms of inflation and also in terms of the likely benefits in the area of social stability. The income tax provisions of the Bill purport to improve the income tax situation but that is not so. This is becoming evident now that we are into the new income tax year. Constituents have said to me that they understood they would be paying less income tax from 6 April but that they have found this not to be the case. Yesterday I spoke with a man who has six children and who told me that after the removal of food subsidies he decided to give his wife an extra £4 per week for housekeeping on the basis that he would be paying less tax this year whereas he is paying more. He said he has lost £22 for each of his six children, that he has lost his social welfare tax allowance, that he has lost the first £500 allowance at 20p. He said he is now paying taxation at 35p after the first £1,100. He is now paying 45p on some of his income, which he never did before in his life.

That is the fraud which has been perpetrated by this Finance Bill. People were led to believe they were getting improvements in income taxation. That is the fraud and it is being seen to be the fraud. That is the sort of dishonesty which infuriates people and generates social instability. It will be seen even more at the end of this year when more and more people go into the 45p bracket which they were never intended to be in. That is happening and the tax provisions in this Finance Bill are an insult to those aggrieved people like myself in the PAYE sector.

The question is: will this Finance Bill help to create the thousands of real jobs we need? Will it help in what must be the central economic problem and challenge to anyone who has any interest in this country—the creation of jobs? We have heard a great deal from the Taoiseach, the Minister for Finance, the Minister for Economic Planning and Development and other Ministers and other Fianna Fail personages about job creation. They have talked themselves into believing that so many thousands of jobs have been created. Will the tax provisions in this Bill improve the possibility of job creation? This Bill taxes PAYE people more and taxes farmers more. It is taking money out of the economy and, therefore, it does very little to create the environment necessary for real job creation.

This Bill does not meet the needs of our times. It does not meet those needs also because associated with this budget, like the food subsidies, were the changes in the social welfare code, if I may refer to them in passing.

An Leas-Cheann Comhairle

The Deputy may not discuss the social welfare code on this Bill. We are now dealing with a taxation measure.

Mr. Mitchell

I accept that the changes in the social welfare code are not contained in this Bill. That is one of my gripes. In his speech on the budget the Minister for Health and Social Welfare told us about changes in the social welfare area which nobody else knew about, changes in farmers' dole for instance.

An Leas-Cheann Comhairle

We cannot discuss social welfare on this Bill. This deals with taxation and nothing else. We had a special Bill dealing with social welfare.

Mr. Mitchell

I accept your ruling, Sir. What I am concerned about is the overall impact of this Bill and associated measures on the job creation effort. A Leas-Cheann Comhairle, it might surprise you, it might surprise some Members of this House, and it might surprise some of our people to know that, even though social insurance contributions here are a great deal less than they are in some other countries as a percentage of income, it still costs a good employer as much as £500 to employ one person. There is a pay roll tax of £500 when all the new arrangements have been taken into account which, of course, are associated with this Finance Bill. There is a tax on employment. I am talking about the effect of this Finance Bill on job creation prospects.

The associated measures which are not contained in this Bill, and which were not contained in the budget, but which were announced before and after it, combine in an aggregate and composite way to tax employment, to make it more difficult to create new jobs, and make it more likely that the State will have to create more fictitious ones, thereby requiring more taxation. That is the effect of this Finance Bill and the associated measures since 31 December last. That is a sad commentary when the need to create jobs is the central challenge of the economy. This Bill and associated measures since 31 December must be judged on whether they help to create the environment in which more real jobs will be created. I submit to the House that this Bill is a failure on that count. It is also a failure on the PAYE count.

It is not my wish to detain the House. When the Minister is replying I should like him to tell us what inflation figure he is now expecting at the end of this year and how that figure is compiled. We had the magic formula of the Minister of Economic Planning and Development which got the inflation rate for the month of December multiplied by twelve or for the last quarter multiplied by four. We want to know what inflation rate is now expected as a result of this Finance Bill and compare that with what the Minister told the House in his budget speech he expected. What is the difference? What happened in the three months since 7 February which changed that projection, when 5 per cent was the magic inflation rate? Why is an inflation rate of at least 11 per cent referred to in the national understanding? I want to know if we are expecting even higher price increases. I also want to know the rate of economic growth expected if the Finance Bill is passed. In this, the fifth month of the year, when we should be able to make more accurate projections than we did in January and February, what are the projections for economic growth? The Minister should tell us how much of the economic growth has been created by the fiscal policy of the Government. At the end of this year the people will want to know whether the figures presented in the budget were as valid then as they are invalid now and they will want to know why they are now invalid.

To return to what I said earlier about the divisions in our society, the budget's financial provisions and the subsequent climb-down of the Government have divided town and country as never before. A tax curtain has divided this country in a way never achieved since Partition. The PAYE sector has not been given a concession. The PAYE sector will pay 37 per cent more tax and the farmers will pay more tax. However wily or lucky the Government think they are, they will extract more taxation from the farmers and the workers who, when given the opportunity, will unite to tell the Government that they have had enough.

An Leas-Cheann Comhairle

The Minister to conclude.

Mr. Horgan

I was on my feet.

An Leas-Cheann Comhairle

Deputy Mitchell concluded for Fine Gael and Labour have already concluded.

Minister for Finance (Mr. Colley)

I propose to deal with a number of the major points raised during the debate. A few points were raised in the concluding speeches of Deputies Bermingham and Mitchell on which I should also like to comment.

I should like to start by dealing with a matter raised by Deputy P. Barry. He suggested that the conditions attaching to the tax concessions proposed in the national understanding should be removed. In particular he referred to the condition relating to the funds needed for employment creation. This condition is simply a reflection of the Government's over-riding commitment to job creation as their first priority. We feel that the first call on the funds available to the Government should be to finance job creation programmes—both the measures to which the Government have already committed themselves and the additional measures set out in the national understanding, which would apply only in the event of a shortfall in the employment targets. If the Exchequer situation were to reach the position where a choice had to be made between tax concessions and job creation, I think people would accept that priority should be given to job creation. However, I have no reason to believe that the budgetary position will not be in line with expectations provided that the terms of the national understanding are reasonably observed. If such a conflict should emerge it is only prudent that the Government should not make an unequivocal commitment which might harm the progress towards our economic and social objectives.

One of the problems about this matter is that so little attention is paid by so many to the need for job creation. In his concluding remarks Deputy Mitchell referred to job creation and the need for it. For what it is worth, I compliment him on being the first Opposition Deputy for a long time to talk about this matter. I am afraid that I cannot further compliment him in so far as a number of the things he was advocating would not do anything to help job creation, but at least he adverted to the need for it. I began to wonder if the Government were the only people worried about job creation. Before I conclude I will have more to say on job creation and how it fits into the pattern of what we are doing in this Bill.

Deputy Tully said that since existing loans form part of trade union agreement they could not be legally interfered with under the provision in section 9 of the Bill. I want to make it clear that the section does not interfere with any contractual agreement between employer and employee. It merely proposes to restrict the relief for interest on preferential loans as defined in the section. The intention is to restore an element of balance between taxpayers who enjoy such preferential loans and those who do not. As the position stands, a preferential loan taxpayer enjoying a loan at, say, 3 per cent can claim relief for interest, taking the proposed image of £2,400, on borrowings of £80,000, whereas those without such facilities borrowing at commercial rates of, say, 14 per cent, will only be allowed relief on borrowings of about £17,000.

Deputy Kelly referred to what he called the scaled down relief in the case of loans at preferential interest rates and said that it would mean a difference, depending on the level of income, of £3 to £4 a week and £7 to £8 a week in the net pay of individuals affected. As I indicated in my opening speech, people enjoying preferential rates of interest on all their borrowings will suffer no loss of relief except in the case of the part of the borrowing which exceeds £20,000. I suggest to the House that this represents a moderate restriction. Other borrowers paying commercial interest rates in excess of 12 per cent would not get full relief on borrowings of £20,000, as I have already indicated.

Deputy Barry also suggested that he would be seeking to amend section 5 to allow the tax deduction of £64 in respect of social welfare contributions. Deputy Mitchell referred to the fact that the tax allowance in respect of social welfare contributions has disappeared, as indeed it has. I suggest that it is quite misleading to refer to this allowance having disappeared and not to refer to the fact that the social welfare contribution has been reduced. As was pointed out in the debate on the Social Welfare (Amendment) Bill, with the introduction of fully pay-related social insurance contributions from April of this year it was not administratively feasible to continue the relief in respect of part of the contribution as was done previously. The administrative reasons were spelled out. In determining the level of contribution to be made under the new scheme operating from April, specific account was taken of the taxation factor and the rate of contribution was adjusted downwards to take account of that tax element. I hope it will be appreciated therefore that the present rate of contribution would have been higher had tax relief continued to be available.

Relief now comes to the employee not through the adjustment of his tax-free allowance, where the relief would have been lost if there were not liability to tax, but by way of net social insurance contribution. This adjustment, taken in conjunction with the progressive nature of the contributions, means that the vast bulk of employees now pay a smaller contribution than if the old flat rate contribution had remained. This differential is particularly significant for lower-paid workers. In many cases the decrease in the level of contribution outweighs the benefit lost by the withdrawal of the tax allowance, and this is so notwithstanding the significant increase in insurable benefits announced in the budget.

The increase in personal allowances and the restructuring of the tax bands give a tax saving to all but the single or widowed person with an income in excess of £6,865. There is no increase in tax for any taxpayer other than the single or the widowed person with an income in excess of £7,000 per annum. Where such a person qualifies, as would be normal, for other allowances and reliefs such as life insurance, medical insurance or loan interest, this figure could be substantially higher. Married couples will now benefit in the main by a figure in the region of £110; that is a minimum. The additional tax which the affluent single person or widow might be called upon to bear will where it arises be minimal, less than 30p a week. We ought to take these factors into account in assessing the changes which had to be made for administrative reasons in regard to the social welfare contribution allowance which, as I pointed out, benefit in particular the lower paid substantially more than they would have benefited if we had adhered to the old system.

Deputy Barry referred to the decrease in the child tax allowance from £240 to £218 and said the budget changes were of little benefit to large families. The opposite is true. By directing resources through the social welfare children's allowances rather than by income tax child allowances the Government are concentrating on the area of greatest relative need. Deputies do not need to be reminded that to obtain benefit from the income tax child allowance one must have a taxable income and that such measures tend to favour the wealthy in that the higher a couple's tax band the greater the benefit. Families not liable to income tax will enjoy the full benefit of the increase in social welfare children's allowances and the lower families are on the income tax scale the greater will be the net benefit derived from these changes. Most families should benefit from my proposals and even where the decrease in the income tax child allowance is not fully offset by the increase in social welfare children's allowance the loss is minimal. This will happen only at the higher levels of income.

The married couple with three eligible children and an income of £12,000 a year would suffer only a marginal net increase in tax of about 1p per week. Even for such a couple, taking the increase in the marriage allowance into account, the combined effect of the income tax adjustment and the increase in social welfare children's allowances will be a net tax saving in the region of £135 a year.

In talking about the budget changes as provided for in this Bill, Deputy Barry also said that everybody had moved into a higher tax band. This is not correct. For married couples the £500 increase in the personal allowance, together with the £100 increase in the 25 per cent tax band, means that all married taxpayers have benefited and any change in the marginal rate of tax could only be downwards. Before the changes announced in the budget a married couple without children would have commenced paying tax once their income exceeded £1,730, assuming only the personal and children's allowances apply. The budget changes mean that they will not now pay any tax at all until their income exceeds £2,230. This same couple would have entered the 35 per cent tax band where their income exceeded £3,220 but will not now enter this band until their income exceeds £3,330.

As I have already indicated, single taxpayers have had their tax liability eliminated or reduced up to an income level of at least £6,860, while the maximum loss above that level is not more than £15 per annum.

Deputy O'Leary stated that in some instances workers see up to two-thirds of their earnings going in taxation. I should point out that to become liable for income tax at 60 per cent a single man would have to be earning in excess of £7,715 per year, while a married man with two children would have to be earning in excess of £9,266 per year. Of course, if either were claiming allowances in respect of such things as mortgage relief and insurance, then the threshold at which they would become liable for tax at 60 per cent would be considerably higher. It is sometimes suggested that overtime earnings should receive more favourable treatment in respect of income tax liability. A similar argument has been put forward before in relation to payment for night duty, danger money and "dirty" money and the point has also been raised in relation to bonuses for increased productivity.

The view has always been taken that this claim cannot be admitted. The fundamental principle of the tax code is that income tax is a tax on income and a departure from this principle would be bound to lead to inequities between taxpayers. A possible result would be the adoption of schemes between employees and employers to alter conditions of working so that a greater part of wages or salaries could be claimed to be within the exempted category. Further inequity would be created between taxpayers who had the opportunity of overtime and those who had not—and there are many who do not have that opportunity. In all the circumstances, therefore, there are very great difficulties in accepting that overtime earnings should be treated more favourably in regard to income tax than basic earnings.

Deputy Barry said that on Committee Stage he would be proposing that indexation of the income tax rate bands should be introduced and he also referred to the fact that indexation was introduced in respect of capital gains tax. Deputy Mitchell also referred to the great advantages that would accrue from indexation in regard to income tax and I think he referred to it as a Fine Gael promise. From that and from the fact that Deputy FitzGerald at the Fine Gael Ard-Fheis put it forward as a panacea for all ills we may now take it that it is Fine Gael policy——

Mr. Mitchell

Is the Minister going to debunk it?

Dáil Éireann debate - Tuesday, 8 May 1979

Finance Bill, 1979: Second Stage (Resumed).

Tá

Níl

Dáil Éireann debate -
Tuesday, 8 May 1979