Financial Resolutions, 1980. - Financial Resolution No. 13: Income Tax. – Dáil Éireann (21st Dáil) – Wednesday, 27 Feb 1980

Minister for Finance (Mr. O'Kennedy)

I move:

(1) That, in relation to income tax for the year 1980-81 and any subsequent year of assessment—

(a) section 5 (1) of the Finance Act, 1977, shall be amended by the substitution of the Table to this subparagraph for the Table to that subsection:

TABLE

Part of taxable income (1)	Rate of tax (2)	Description of rate (3)
The first £1,000	25 per cent.	the reduced rate
The next £4,000	35 per cent.	the standard rate
The next £2,000	45 per cent.
The next £2,000	55 per cent.	the higher rates
The remainder	60 per cent.

, and

(b) (i) where a deduction falls to be made from the total income of an individual in respect of relief to which the individual is entitled under the provision mentioned in column (1) of the Table to this clause and the amount of the deduction would, but for this clause, be the amount specified in column (2) of the said Table, the amount of the deduction shall, in lieu of being the amount specified in the said column (2), be the amount specified in column (3) of the said Table:

TABLE

Statutory provision (1)	Amount to be deducted from total income for 1979-80 (2)	Amount to be deducted from total income for 1980-81 (3)
	£	£
Income Tax Act, 1967 (No. 6 of 1967):
section 141
(child)	218	195

, and

(ii) section 141 of the Income Tax Act, 1967, shall be amended by the substitution, in subsection (1A), of "£195" for "£218", and

(iii) section (3) of section 138 of the Income Tax Act, 1967, shall not apply or have effect.

(2) It is hereby declared that it is expedient in the public interest that this Resolution shall have statutory effect under the provisions of the Provisional Collection of Taxes Act, 1927 (No. 7 of 1927).

Mr. T.J. Fitzpatrick

(Cavan-Monaghan): Is it correct to say that this resolution does not impose a tax on the farming community or a resource tax?

Mr. O'Kennedy

It does not.

Mr. T.J. Fitzpatrick

(Cavan-Monaghan): In those circumstances we agree with this resolution but I should like to point out that the improvement in income tax is largely a case of the Minister making a virtue out of necessity. One of the provisions in this results from the case decided by the High Court and the Supreme Court. Those courts decided that each working spouse was entitled to be taxed separately. The Government fought their case and when the decision was given against them had no alternative but to tax each spouse separately and give all the allowances one spouse was entitled to. There has been a certain amount of trumpet and horn blowing—almost a repetition of the Fianna Fáil ArdFheis—about the Government extending this benefit to unearned income, whatever that is, as well as earned income. Unearned income was abolished and every student is aware that the only reason the Supreme Court did not include unearned income was because they were not asked to adjudicate on that. The teachers who brought the case to the Supreme Court were only concerned with earned income. We all know that if the Minister had not treated unearned income, as the Minister described it, in the same manner as he has to treat earned income the State would have been brought before the courts again. The most junior law student must be aware that the courts would have decided that earned and unearned income should be treated in the same way.

It is true to say that more than £100 million is being given by way of concession on the income tax front but that has already been taken back from certain people who are involved with motor cars. Many of those who must use cars to get to their place of employment would not have been liable for tax because of their personal allowances or their modest income but they will be paying a form of tax to the Government under the budget to help pay for this tax concession. This is an improvement on the situation but it is going too far for the Minister and the Government to take credit for implementing something which they would have had to do under a court order. They must also give a concession because they bungled last year's budget by putting on the 2 per cent tax and then took it off. In this way the PAYE people were provoked into taking to the streets in their hundreds of thousands. What is being given, therefore, is either at the direction of the Supreme Court or at the direction of the masses of PAYE people who were infuriated by the way in which last year's budget was bungled, especially by the way in which the Government dealt with the then proposed 2 per cent tax on farmers, a measure that should never have been proposed.

Mr. M.P. Murphy

I am not satisfied as is Deputy Fitzpatrick regarding the income tax question. If I am interpreting the Minister's statement correctly, husbands and wives who are self-employed are being discriminated against. The Minister has told us that a husband and wife, if they are in the PAYE category, are to be allowed an extra £400 each in respect of tax allowances. Are we to take it that the couple who are working together in their business or on their farm are not to be allowed this extra amount?

As I have indicated here many times, I believe in the concept of private enterprise but if I understand the Minister correctly, couples engaged in a private enterprise such as a shop or a farm are to be discriminated against in terms of the tax code, though in their own way they would be contributing just as much as anyone else to the common good.

In regard to Financial Resolution No. 13, it is proposed to reduce the child allowance for income tax purposes from £218 to £195, a decrease of £23. We are told that this change will offset the increase in children's allowances. A tax-free allowance of £195 in respect of a child is not realistic in today's terms as any parent who has a child at any level of education will confirm. It is estimated that to maintain a schoolgoing child costs in the region of £1,000 per year. Therefore, the tax-free allowance in this respect should be much higher. Last year the figure in this regard was reduced from £240 to £218. The new figure will mean that the tax-free allowance in respect of five schoolgoing children will amount to £975. This is an aspect of the matter that has been overlooked. Children's allowances, too, are totally inadequate.

Regarding the other point I raised, are the couple who are within the PAYE system to be allowed a total tax-free allowance of £3,030 while the self-employed man and his wife are to be allowed £800 less?

An Leas-Cheann Comhairle

The Chair would remind the Deputy that he is going into detail.

Mr. M.P. Murphy

I hope the Minister will be able to answer my question.

Mr. Boland

Regarding the child tax allowance as opposed to the increase in children's allowance what will be the net benefit in respect of each child as a result of this adjustment?

Mr. Griffin

Perhaps the Minister would clarify whether the additional £400 personal allowance can be claimed by a farmer in respect of his wife who is working with him on the farm.

Mr. E. Collins

My query is simple and direct and I expect that the Minister will not have any difficulty in answering it. On the basis of the budget presented today, what percentage of the current budget revenue will PAYE tax be responsible for? Will it be 87 per cent as it was last year or the year before or will it be more than that?

Mr. O'Kennedy

I shall deal generally with the points raised especially with the point made by Deputy Fitzpatrick who said that I was making a virtue out of a necessity and that what we are doing has been forced on us by the decision in the Murphy case. First, we should put the record right in that regard. The cost of implementing that decision as given by the court would be £30 million whereas the cost the of scheme I have announced today will be £130 million.

Mr. T.J. Fitzpatrick

(Cavan-Monaghan): What would be the cost of extending the scheme to unearned income?

Mr. O'Kennedy

The Deputy should know, as any law student would know, that if the Supreme Court were asked to decide on the same sort of case in respect of unearned income, their decision might be different. We can take the law only as it is laid down for us. The courts confined their judgment very clearly to earned income and in the case in question they ranged over the whole constitutional issue of marriage and the special place of the family. They referred precisely to earned income. On that basis it is flying in the face of reality to suggest that we are simply making a virtue of a necessity.

Mr. T.J. Fitzpatrick

(Cavan-Monaghan): That is the position.

Mr. O'Kennedy

That is the way in which the Deputy would like to present the case. The court confined their judgment to a limited area. Did they make any reference to exemption of up to £1,700 in respect of a single person?

Mr. T.J. Fitzpatrick

(Cavan-Monaghan): The PAYE taxpayers came out on the streets and stampeded the Minister.

Mr. O'Kennedy

I do not know to which argument I am replying at this point but I was told I was making a virtue out of a necessity of the Supreme Court decision. So far I have given one very precise figure to show that this is not the case.

I will now concentrate on other prospects of the scheme which were not referred to so far. Nobody presented a case for exemption either in the court hearing or in any submissions, but that is something this Government are doing. That is not making a virtue out of necessity or reacting to pressure. That exemption—£1,700 for single people and £3,400 for a married couple—will apply to a considerable number of taxpayers. That is not making a virtue of necessity, neither is the special PAYE employee allowance of £400. That is a major element in this new scheme which will be available to married couples, who are both working, as a double allow-ance—£800. That is a very important characteristic of this scheme.

It is important to note the broadening of the tax band. This has been causing concern among a wide section of the PAYE taxpayers for some time, because as I said today, they moved too quickly from one band into another. The tax bands have been broadened to ensure that this will not happen now. As a result a considerable number of taxpayers will move from the higher bands even into the lowest band. That is not making a virtue out of necessity and will have a very real impact on the actual take home pay of workers.

Under the existing arrangement, after £6,600 of taxable income, the balance was payable at 60 per cent. Under the new proposal one does not get to the 60 per cent tax rate until after £9,000—that figure is doubled for married couples. All along the line whatever is applied to single people has, by definition, to be doubled for a married couple who are both working. This is a major innovation. Before Deputies imply that this is discriminatory I advise them to study the details in the explanatory table and work out for themselves how real the increases are.

Deputy Murphy said that because the special Schedule E PAYE allowance is restricted to Schedule E taxpayers and not to Schedule D—the self-employed—that is discrimination against the self-employed. Deputy Murphy will be aware that for a considerable time the discrimination—if he wants to use that word—worked the other way. As I said earlier, I am trying to redress various imbalances that exist in this scheme, pending the overall introduction of new comprehensive schemes when the commission look at this. Self-employed persons are not chargeable for income tax in any year on the basis of the profits of the accounting period ending in that year but on profits made in the preceding year. Having regard to the increases in wages and, perhaps, because of inflation, obviously that is a very real advantage. The PAYE Schedule E taxpayer pays tax as he earns his money, one might even say before he gets it.

Dáil Éireann debate - Wednesday, 27 Feb 1980

Financial Resolutions, 1980. - Financial Resolution No. 13: Income Tax.

Dáil Éireann debate -
Wednesday, 27 Feb 1980