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Dáil Éireann debate -
Wednesday, 4 Jun 1980

Vol. 321 No. 10

Finance Bill, 1980: Committee Stage (Resumed).

Question again proposed: "That section 12 stand part of the Bill."

This section gives effect to the proposal announced in the budget to exempt from tax pensions payable to veterans of the War of Independence. It has also been decided to extend the exemptions to cover pensions payable to the widows of these veterans. The section provides for this. I hope the section will commend itself to the House. On many occasions, either as a Deputy or as a Minister, I have received representations in this area and I was very pleased, when I had the first opportunity of doing so, that I could propose this. It will benefit some 7,000 veterans of the War of Independence, and approximately 4,000 widows. It is a measure of our recognition of the special consideration to which they are entitled. I am pleased to introduce this provision in the section.

I join with the Minister in welcoming the inclusion of this section.

I also made representations on this matter and I, too, welcome the section. It is recognition of the service given to the country by a diminishing number of people and in many senses it is overdue.

Has there been any review of the qualifications or criteria in respect of this change? Do the criteria for admission to this category continue to be the same? The criteria for the definition of "veteran".

It is not within my function. We are talking about those who have military service pensions which are administered by the Department of Defence.

Question put and agreed to.
NEW SECTION.

Amendment No. 23. There is an amendment to the amendment and amendment No. 52 is related.

I want to clarify a matter raised on the Order of Business. It took me by surprise that it was raised on the Order of Business. As I indicated to Deputy Barry, no letter was issued to any Deputy. The fact that something may appear in a newspaper is something over which I have no control. It may have been due to some genuine misunderstanding. It may have been felt that letters were prepared to be issued to all Deputies but, in fact, no letter was issued to any Deputy. No legislation is being prepared which is what I understood Deputy FitzGerald to say this morning. The Deputy will appreciate that I cannot necessarily spend every morning reading over the newspapers to find out whether I should correct impressions in any of them, either by way of opinion or fact. I did not do so this morning.

It gives the Minister an opportunity to deny it.

I indicated to Deputy Barry yesterday that when we came to this issue I would deal with it on the Bill. I was taken aback when it was raised on the Order of Business. It is not for me to say what is or is not appropriate to the Order of Business but if it is to be a matter of correcting reports that appear in newspapers and arise later in the course of the debate, it seems that the Order of Business is open to any discussion, but that is a matter for the Chair.

The Order of Business deals with impending legislation.

Here we had it before us this very morning. If I may come to the amendment itself——

Would the Minister give way until I comment on what he has just said because when I raised——

May I add one other thing? The amendment itself has been circulated to Deputies and I think would have arrived yesterday—the amendment I am now about to move—but I will certainly give way to the Deputy.

There is an amendment to the amendment.

What are we dealing with?

I think we are at cross purposes. We are not dealing with that amendment at all. We are dealing with an amendment under section 13.

We are dealing with amendment No. 23 which proposes the insertion of a new section.

I am sorry. I have actually jumped——

We are a bit confused at the moment. The Minister says that the amendment was circulated yesterday, presumably relating to tax for married couples?

Sorry, we will deal with that when we come to it.

Where was it circulated? I did not get it.

At the moment we are dealing with the amendment for a new section to which Deputy Barry has put down an amendment.

I think there is some confusion about it. It would be helpful if we knew what it was.

I was referring to amendment No. 26 and it was circulated yesterday.

That deals with a rebate of tax for married couples.

That is under section 19 and we have not come to that yet.

It deals with a rebate of tax for married couples.

When we come to it we will deal with it.

It is all rather confusing and we would like to get it straight now before we proceed.

We will come to that at the appropriate time. Sorry, it does deal with the rebate and assessments. We will come to it later.

The Minister is to move amendment No. 23, proposing a new section.

I move amendment No. 23:

In page 16, before section 13, to insert the following section:

"As respects the year 1980-81 and subsequent years of assessment, section 344 of the Income Tax Act, 1967, is hereby amended by the substitution for subsections (1) and (2) of the following subsections:

‘(1) Where the total income of an individual for the year of assessment includes, or would but for this section include, any sums (in this section referred to as "‘the said sums'") paid or credited in respect of interest on—

(a) deposits with a trustee savings bank or with the Post Office Savings Bank, or

(b) deposits with any of the commercial banks,

the said sums shall be disregarded for all the purposes of the Income Tax Acts if or in so far as the said sums do not exceed—

(i) in the case of sums representing interest on deposits mentioned in paragraph (a), £150, or

(ii) in the case of sums representing interest on deposits mentioned in paragraph (b), £70:

Provided that the total sums to be so disregarded shall not exceed £150:

Provided also that the provisions of this Act as regards the making by the individual of a return of his total income shall apply as if this section had not been enacted.

(2) For the purposes of subsection (1) the question whether or how far the said sums exceed £150 or £70, as the case may be, shall, where by virtue of section 194, a woman's income is deemed to be her husband's, be determined separately as regards the part of his income which is his by virtue of that section and the part which is his apart from that section.' ".

It is suggested that this amendment and amendment No. 52 be discussed together. The purpose here is to give statutory effect to the announcement which I made on 5 May that I propose to increase the tax exemption limits from £70 to £150 in the case of interest arising from deposits in the Post Office Savings Bank and from ordinary deposits with a trustee savings bank. The limit of £70 which applies in relation to interest arising from deposits with the commercial banks, which is in section 344 (4) of the Income Tax Act, 1967—is not being altered. It should also be noted that interest which arises from deposits in investment accounts with trustee savings banks is taxable in full. This amendment makes a consequential alteration in Part III of the First Schedule to the Bill.

Would Deputy Barry move his amendment?

Amendment No. 52 is relevant also.

We are dealing with amendment No. 52 in connection with the insertion of the new section and Deputy Barry has an amendment down to amendment No. 23, to the new section. It is listed underneath it on page 4 of the amendments, amendment to amendment.

I move the following amendment to the amendment:

"In subsection (1) (i) to delete ‘paragraph (a)' and substitute ‘paragraphs (a) and (b)' and to delete subparagraph (ii)"

The purpose of the Minister's amendment is to increase the amount of tax-free allowances for depositors with trustee savings banks and the Post Office, from £70 to £150, but this increase in allowance does not apply to depositors with commercial banks who are excluded under subsection (1) (b). The purpose of my amendment is to ensure that small depositors, no matter where they deposit money, whether in the commercial banks, trustee savings banks, the Post Office or any other such institution will get the same benefit, one as against the other, and have this increased allowance available to people of relatively modest means who save a small amount of money and have it on deposit in the commercial banks. There may be an explanation but it is not obvious to me why the Minister should differentiate between one group and another and it is for that reason, to ensure that everybody should benefit no matter where he puts his money that I have put down this amendment.

This is of some importance in rural areas particularly. Trustee savings banks are normally concentrated in the cities and in rural areas you find that it is the commercial banks that very largely handle small savings. I have had correspondence from some of my constituents who possibly live 70 or 80 miles from a trustee savings bank the nearest of which would be in Cork city. These are people with small savings and it seems inappropriate that they should not get the same benefit from the income tax point of view as if they had invested in the trustee savings banks.

Looking at the whole picture, I ask the Minister to reconsider the situation not so much from the differentiation point of view between the trustee savings banks and the commercial banks but the overall picture of the amount because £70 tax-free interest in this day indicates savings of a very small amount. In my practice as a lawyer I know that everybody tries to put some money aside but things are becoming so expensive now that people have to put aside more and more. It seems highly inappropriate that they should be in a taxable situation as a result of such small savings. I strongly urge the Minister to accept the proposed amendment of Deputy Barry and to increase all tax-free interest to a minimum of £150. It should not cost very much to the Exchequer and surely we should be promoting small savings in a better manner than we have been doing. This would be one way of doing it.

It is important perhaps to inform the House of the actual position as it is at present and also state the reasons why the present position applies and the reason why I am proposing this increase limited to the Post Office Savings Bank and the trustee savings banks. It is important to recognise that even in respect of the £70—this touches on what Deputy O'Keeffe particularly said—this concession does not apply to all commercial banks. It applies only to those banks that were at that time covered, about eight of them, the Bank of Ireland, Allied Irish Banks, the Northern Bank, The Ulster Bank, Ansbacher and Co., the Commercial Banking Company, Guinness and Mahon and the National City Bank. All the other commercial banks are not included in that provision. That was possibly one of the reasons why Deputy Richie Ryan indicated in his 1975 budget statement that he proposed to abolish this provision altogether. In the event he did not do so in the Finance Bill. He proposed then to confine the interest relief to the Post Office and the trustee savings banks. That was not done and perhaps it is for that reason there is in a sense an anomaly. There is not even-handedness even between the commercial banks in that it applies only to some.

There are two ways of approaching the situation, either to get rid of it altogether in respect of those to whom it applies or to extend it to all others which would mean a very considerable cost and would also have very considerable consequences on the trustee savings banks and the Post Office Savings Bank. That is not being suggested by the Opposition. Nevertheles, I should mention it is one of the alternatives that one would abolish it altogether.

Now let me come to what the situation is and why it is so. First of all, in Britain for instance the position applies only to the Post Office Savings Bank and the trustee savings banks. It does not apply at all to the commercial banks. Historically and currently there is good reason why that should be the case. But let me say categorically that I do not propose to abolish the provision in respect of the commercial banks. There are arguments at least for considering it but I am not proposing to do that. But it is important to recognise the special position of the trustee savings banks and the Post Office Savings Bank. They were set up to cater for the small saver and they rely almost exclusively on the small saver. I am not saying that there are not small savers who have their deposits in the commercial banks as well but it is fairly clear that the Post Office Savings Bank and the trustee savings banks rely on small savers to a great extent more than do the commercial banks. Their rates of interest are directly controlled by the Government as distinct from the commercial banks and the bulk of their funds are lodged with the Exchequer so that, considering their nature, their purpose and the limitations and restrictions under which they operate, it is at least appropriate that the Post Office Savings Bank and the trustee savings banks should have some advantage in respect of tax on deposits, as has been the case.

As I said already, not all other institutions have the £70 exemption so that any general increase in respect of the existing banks would obviously give rise to the forceful argument that the exemption now in addition should be extended to those financial institutions not having the benefit at the moment and who have not had the benefit for some time. That in turn would put the Postal Office Savings Bank and the trustee savings banks in an even more difficult position and would also be costly to the Exchequer. So, even as it is Deputy Barry's proposal, which does not go that far, would cost about £2 million in a full year. But cost is not the only element here. I have given a range of reasons and I hope the Deputies opposite will accept that this exemption which I am proposing in respect of the Post Office Savings Bank and the trustee savings banks is appropriate to them and that perhaps the effectiveness of it should not be diminished by any other extensions in other areas which could have repercussions both on them and on the Exchequer.

The Minister has said that Deputy Ryan, as Minister for Finance, had indicated in his budget speech in 1975 that he was going to introduce a measure such as this to separate the two but that he did not go ahead with it in the Finance Bill. That is the point. The Minister indicated that he was going to do it and he went ahead. It is the job of civil servants in the Departments of Finance and any other Department to put up suggestions to the Minister as to how he can raise taxation or cut down on expenditure and matters of that nature and it is the Minister's job to weigh each one of these separately and decide on the merits, both political and social, of going ahead with the suggestions put forward by the civil servants of the day. Obviously, what has happened in this case is that the civil servants put forward to Minister Ryan the suggestion along the lines now included in the Finance Act and he resisted that, probably on social grounds. In addition, the fact that trustee savings banks are not very widely dispersed throughout the country and serve only a limited number of people mainly in the larger centres of population probably weighed heavily with him.

Without saying anything about people who run post offices around the country the Minister will understand the reasons why people in rural areas prefer to put their money into commercial banks rather than into the Post Office. The difference between 1975 and 1980 is that the Minister did not appreciate this point and has included in the Finance Bill for 1980 a measure which gives the advantage to the Post Office Savings Bank and trustee savings banks. I do not hold, and I am not suggesting in my amendment, that it be extended to all the other financial institutions. I do not hold that the result of this would be that the trustee savings banks and the Post Office Savings Bank would be at a disadvantage if it was extended to the commercial banks. The position at the moment is that both have the advantage of a £70 exemption from tax and if they both had an exemption of £150 from tax they would not be any worse off, one against the other.

I do not know if the Minister understands the embarrassment of a lot of people who are still unfortunately very fearful of bank managers. They do not go in to bank managers as they would go into a public house or a shop and talk back to them. Even though the banks have their money they are still shy about talking to a bank manager. The Minister may look surprised, but it is a fact that many people are nervous about going into banks and discussing things with bank managers even though they have their deposits in the bank. The idea of going in and asking for their money back so that they can put it in the Post Office, where it would be more advantageous to them, is difficult for many people and some of these people will be under psychological pressure to leave their money in the bank where it is of less advantage to them than if they transferred it to the Post Office. Small depositors of that nature who use commercial banks as institutions in which to save should not be disadvantaged as opposed to the Post Office Savings Bank and the trustee savings banks.

Perhaps it might help if I indicated that they would be at a disadvantage. First, the going deposit rate in the associated commercial banks at the moment is 11½ per cent in respect of what one might call the four main banks. In respect of some of the others I have mentioned interest rates go as high as 17½ per cent, in respect of one which I do not propose to name, and it is generally at 16½ per cent to 15½ per cent for the other four. That compares with the rate of 8½ per cent which applies in the Post Office Savings Bank and in the trustee savings banks. The Deputy will appreciate that certainly in terms of interest rates both of these latter would, if no other balance were applied, be at a severe disadvantage. That point should be noted. It has been a major factor, particularly in respect of small savers who have restored traditionally to this area.

I accept the other point about banks being a normal and readily available avenue for deposits as distinct from trustee savings banks, which are not to be found in every town. But we are not talking only about trustee savings banks. We are talking also of the Post Office Savings Bank, which is available in every town and village. This is a source that is available to the small saver in every community. Therefore the Deputy's argument in that regard does not hold.

In referring to what Deputy Ryan was proposing when he was Minister, it should be made clear that what he was proposing then was not similar to what I am proposing now. He was proposing to abolish the interest provision in respect of the commercial banks. In the event he did not go through with that. I am not proposing to abolish what Deputy Ryan was proposing to abolish. Therefore, there is not any point in Deputy Barry approaching the question on the basis that, since Deputy Ryan was prepared to listen, I should do the same. The position is very different. I am proposing to maintain the current provision in respect of the associated banks and of the other ones that are listed. They are a group that do not extend over the whole range of commercial banks. I would hope that Deputy Barry would not propose to extend the provision to commercial banks though I accept the reasoning behind this argument. However, one could argue the other way also, but I shall not go into that now.

They would not like to see it being done.

They would argue strongly that, if the provision is to apply to certain commercial banks, there is not any reason for it not applying to others. Then, there would be a real problem in respect of the Post Office Savings Bank and trustee savings banks which are in a disadvantageous position in respect of deposit rates. The special position of such banks has been recognised in the UK. They are the only ones who get such benefit. For the reasons I have outlined, I cannot accept the amendment.

Amendment to amendment, by leave, withdrawn.

Is amendment No. 23 agreed?

Yes.

Mr. O'Keeffe rose.

The amendment has been dealt with. We are moving on to section 13.

Section 13 relates to another matter but I want to ask a question on the amendment.

Once the debate has concluded on an amendment, we must move from it. The amendment was agreed.

I did not agree to it.

Deputy Barry agreed to the amendment on behalf of his party.

I was offering as you were asking whether the amendment was agreed. I wanted to ask a question on section 13.

We have not come to section 13 yet.

Are we talking about the provision in regard to the £150 for the trustee savings banks?

We have finished with that.

I wanted to ask a question on it.

The Deputy may ask one question.

Would the Minister clarify the situation in respect of this provision? Under the old provision anybody, regardless of whether he was married or single, was entitled to earn £70 interest before being eligible for taxation but where a deposit was in joint names, the practice was to permit the earning of twice that amount before liability to tax. In this instance will the £150 be doubled so that the figure will now be £300?

Amendment agreed to.
SECTION 13.
Question proposed: "That section 13 stand part of the Bill."

This section provides that somebody paying tax under Schedule D will now be paying one-and-a-half years' tax in 12 months. In other words, anyone who is self employed or who is not a PAYE taxpayer will be affected by this provision. The old argument was that such people had a year's advantage in terms of tax over PAYE people. In this year the Minister is proposing to eliminate that advantage to the extent of one-half. This is unfortunate having regard to the exceedingly high interest rates and the very different commercial conditions now prevailing. In effect someone who would have to pay, say, £100 this year in the normal way will now be paying £150, and this is at a time when these people are being hit very hard, perhaps harder than any other section of the community. Generally they are people who owe money to the bank and people who are doing a lot of work for the State by way of the collection of tax under the PAYE system from their employees and who are also collecting VAT, if they are proprietors of businesses, for the State. This means that they must spend an enormous amount of their time filling up forms on behalf of the State.

In these circumstances the Minister should consider postponing this provision until such time as business is better and the people concerned may be in a better position to bear this imposition. To implement the provision now would cause serious cash flow problems for many businesses.

I would endorse what Deputy Barry has said on this matter. It is worth recalling that, when civil servants were brought into the PAYE net some years ago and changed from a situation of paying on a previous year's basis to paying on an up-to-date basis, they were given special concessions over a number of years to help them in the change over. However, when the same type of situation is being brought about in respect of the self-employed, there are not any concessions to facilitate them. This would seem to be an invidious method of dealing with a problem of this nature.

I endorse fully what Deputy Barry has said about this being the worst possible year in which to bring about a change of this kind because the self-employed are now suffering far more from high interest rates than has been the case in recent memory. We must realise that, to a great extent, the self-employed are the motor of the Irish economy. Without their contribution, dynamism and enterprise and the risks they take, we would not be able to afford either our social services or our substantial public sector. These are the people on the margins, taking risks, moving forward with new ideas, making investments. At a time when they are at their lowest ebb as a result of external and internal economic circumstances, to introduce this system whereby they must pay one-and-a-half year's tax in one year, on top of very substantial interest payments and so forth is, to my mind, to be not only unjust but foolish. The Minister must realise the quite serious political implications for him and for the country of the collapse of certain self-employed businesses as a result of the combination of interest payments and one-and-a-half year's tax payments coming up in one year.

Is this system operable in any other country? How are the self-employed taxed elsewhere? To the best of my researches, in Britain the self-employed pay one half of their tax on 1 January in the tax year in question and the remaining one half on 1 July following the end of the tax year. That would seem to be a fair system. Britain is an economy where, obviously, the self-employed have considerable complaints and difficulties but that system has been satisfactory there. It is hard to see why it would not be satisfactory here as well. Has the Minister made any assessment of methods of taxing the self-employed in other countries before coming to this decision? Has he any information as regards the dates of payment of tax?

Does the Minister realise the seriousness of this change? The only defence of this proposal is that it is supposed to bring some measure of comparable equity as between the PAYE people and the self-employed. On all sides of the House, it is agreed that there has been considerable injustice in the PAYE system but it does not seem to be a move in the right direction to produce equity by adding an injustice to the position of the self-employed. If the Minister is serious about taxing the injustices in the PAYE system, he should do so by improving the lot of the PAYE taxpayer and not by disimproving the position of the self-employed. There are two ways of looking at every argument. That has to be said in the context of the defence which has been offered on behalf of this proposal.

Even more so, the Minister should think twice, and indeed three times, about the seriousness of the change which he is now making and the effect that it will have on our self-employed. They have their own problems in regard to tax, from the point of view of huge amounts of tax collected through VAT and PAYE. They are in many cases, unpaid tax collectors for the Government. In a time of worsening economic conditions, these people are expected, on 1 October, to pay a tax bill in one sum, having already started the year by paying another tax bill, clearing up the half year tax bill which was then due. They are now expected to pay, on 1 October, a bill for a full year, and this in the circumstances of daily reports of worsening conditions in firms, businesses and among employers. By pressing on with this proposal, the Minister is piling on the agony.

I am reminded of earlier discussions about interest rates payable on outstanding tax. It may have the effect of being the final straw which broke the camel's back, putting many of these small businesses into liquidation and many of the self-employed into bankruptcy. That is a major possibility following on this change. It needs to be justified in terms other than trying to establish comparability between the PAYE sector and the self-employed. If that is to be done, improve the position of the PAYE sector. It needs to be justified other than by the Government's even more voracious demands for more and more money to pay for their spendthrift policies. If, by so doing, they irreparably damage the fabric of the small industry of our self-employed sector, they will be doing this nation a grave disservice. If there are changes to be made, let them be on a more sensible basis. A change such as this may be very dangerous for the self-employed sector and I strongly urge the Minister not to press on with this proposal at this stage——

I cannot help thinking of the prayer of St. Augustine, "Lord, make me pure, but not yet". One can always counter every change by saying this is not the time to do it, irrespective of when it will be done and ignoring the fact hat it is not the final step, in any event. That argument can always be made, and, in a sense, never countered. The Deputies have adopted the theme of "Yes, perhaps, but not now".

I shall first answer some queries and then give some background which may enable us to see this proposal in its total and proper context. One Deputy, Deputy Barry or Deputy Bruton, made the point that when ordinary workers were transfereed from a previous year tax basis in 1960-61 to a current year basis under the PAYE system, a remission of tax was granted of a half a year's tax. Similary, he talked of the public sector on transfer to a current year basis in 1976-77 having a similar remission granted. That is correct. However, there is a difference between what was done then and what is proposed to be done now. As is evident, the schedule D taxpayer is still not on a current year but on a preceding year basis and the question of a remission of the kind which arose when people were being brought on to a current year basis, which is not being proposed here, does not arise. That is the first point which has to be made quite clear.

Deputy Bruton raised the question of procedure in the United Kingdom The information available to me is they are now seriously examining the possibility of the transfer of the self-employed to a current year basis. I cannot speak for them in respect of what they propose to do at this stage, but they are considering this as a matter of desirable principle.

Having clarified exactly the sharp difference between what is proposed here and what was proposed in respect of the PAYE taxpayers in 1960-61 and 1976-77, let me say that what we are talking about here started back in 1975-76. It proceeded with important principles of even-handedness throughout the system trying to align the payment dates as much as possible for each of the groups within the system. Everybody will recognise that as being desirable. In fact, the first move in this direction came from Deputy Richie Ryan, when Minister for Finance. He recognised the desirability of an even spread having regard to equity and, what he called, the equalising of the tax burden. I should like to quote from his Financial Statement of January 1976 in which he said:

I have repeatedly enunciated that those within the income tax net should be treated as equally as possible. My ultimate aim is that people with the equivalent incomes should pay equivalent tax. A major step in this direction was taken last June, when I announced that remuneration at present outside the scope of PAYE would be brought within the system. Those affected are public servants and some other groups.

The corollary of that is that every effort should be made to bring all other taxpayers on to the same basis of contemporary assessment. There are obvious obstacles to doing so as far as traders and the self-employed are concerned, but as a first step towards this aim the Government have decided to advance by three months, the due dates for payment of tax by individuals under Schedule D in the next two assessment years....

I trust that there will be general acceptance of the equity of this move. Even after this advancement, individuals liable to Schedule D tax will still be paying their tax later than many companies and, of course, very much later than employees whose tax is deducted from their pay as they earn it.

What was said by the Minister for Finance then still holds good in principle. It is the principle of trying to introduce equity through all aspects of the system, in terms of the date of payment and in terms of the incidence of payments. That is what is proposed here.

If ever there was an occasion where the public generally were conscious of the need for equity in taxation, as to incidence and date of payment, that occasion is now. If ever there was an occasion when one could argue that the PAYE sector would seem to have cause for the grievance they have expressed that occasion would have been up to the present. I am doing what I believe is right and proper. I am not bringing it up to a current year basis but as much as possible along that road. I am trying to line it up with those who pay on a current year basis.

When would the Minister have to bring it in to have it on a current year basis?

We would require to make provision for payment during the course of the year. In other countries this is done on a quarterly basis.

Does that mean the Minister would have to bring it back to 5 April to be on a current year basis?

We would have to have it at least to 5 April. We are not proposing that. I am bringing them forward to the date proposed in October and I would hope, in view of the arguments I advanced, which follow principles established since 1976 and in view of the need for equity to be seen to be done, that Deputies opposite will appreciate that this is the appropriate time to do that. Otherwise, it is never the appropriate time.

I take it the Minister is saying that this section will make provision for the self-employed on the income derived in 1978-79. Prior to this section would such people have paid in January 1981? Will they now have to pay that in October 1980?

The present position is that they will pay half on 1 October and half on 1 January but from now on they will have to pay all on 1 October.

Will it be the 1979-80 income they will be paying on?

I should like to draw the Minister's attention to a situation which will be serious for certain businesses, in particular farming businesses. There will be a tremendous bunching of tax liabilities in October this year for such people. They will have the second moiety of rates to pay—in many cases that has been substantially increased—and they will also have to pay their resources tax together with income tax on the 1979-80 tax year. The Minister is aware that incomes in agriculture are falling which means that out of a diminished income farmers will have to pay those three taxes on a notional amount they received the previous year. I can see serious liquidity problems for those people arising in October-November this year. I realise they will have two months grace, to 1 December, within which they can pay the tax that falls due on 1 October without any additional interest being charged. However, there will still be a big liquidity problem in that period. Apart from the justice of the case, which the Minister has not fully met, I should like to know if the Minister feels satisfied that the problems I have mentioned of liquidity will not be very serious at that time.

Farmers are being treated differently from other Schedule D taxpayers. They are being treated more favourably for obvious reasons. I was contemplating that some Members might ask why farmers should be treated differently from the other self-employed. Deputy Bruton takes the view that even though they are being treated so they should be treated more differently still.

I was asking about the liquidity problem.

That question could be asked in relation to any issue. I cannot give general guarantees in relation to liquidity in respect of any person or group of persons. If we applied a single date to full-time farmers as we do to others for 1980-81 it would mean that they would pay two years' tax in 1980. They would have to pay their full 1979-80 tax under the existing single payment date on 1 January 1980 and then would have to pay their full 1980-81 tax on the single payment date of 1 October 1980. It was for that reason that I decided to make special provision for farmers to have the two instalments provision for 1980 and 1981. This will apply to the profits of full-time farmers only. The fact that I am making special provision for farmers in this case is evidence of my recognition of their importance and the problems they might have in adjusting in line with others. I hope it will be seen as such.

The Minister should accept that there will be very serious liquidity problems for some of those people who have a combination of three taxes to pay not only in one year but in one month. That is something the Minister cannot ignore particularly in a situation of tight credit. Inevitably if people have to pay-one-and-a-half years' income tax in the space of one month they will have to borrow to pay it. If credit situations continue as at present they may not be able to borrow. What will they do? The only way they will manage is by destocking. In other words, farmers in this situation in October-November will have to sell more cattle than they would normally. That will aggravate the situation, which, I am sure Deputy Keegan will agree, occurs at that time of the year when there is a tendancy to unload cattle anyway. This tax provision could create a situation where there will be a collapse in cattle prices at the end of the year. The Minister cannot brush off liquidities as if they were someone else's problem.

He should not say everyone has liquidity problems and as long as the tax is fair on paper he is satisfied and it does not matter what implications it has in particular places. I am exaggerating what the Minister said for the sake of effect but there is an element of it in his approach to the problem.

What about the situation of a man who has a small business, perhaps a pub and a farm, not earning a significant amount of money? Some shops and pubs in rural Ireland can be more of a liability that an asset at times. According to the Minister that person will not avail of the concession he has mentioned for farmers. That man, on his farm income, if he has one, will have to pay two year's tax on his farm income plus one-and-a-half years' tax on his business income all in one month. That will create a lot of problems for small publicans and businessmen. I am sure the Minister is as familiar as I am with this type of case.

Most of his cumann secretaries.

They are not rich by any standard. They work long hours——

That is true of Fine Gael cumann secretaries.

If they employ anyone they spend a lot of time working for the State filling in PAYE forms and so on for the revenue. They will have two years' farm tax and one-and-a-half years' business tax to pay in one month. That does not seem very fair. If the Minister had drawn up this Finance Bill in consultation with his colleagues in North Tipperary instead of in consultation with the officials in the Department of Finance he might have come up with rather different provisions. It is not cognisant of the reality that exists in rural Ireland.

As far as consultations are concerned, I can assure the Deputy that I had consultations—if he wants to call them that although we do not approach it in that formal way in Tipperary any more than in Meath- —with farmers in North Tipperary both individually and collectively.

The Minister sat behind the table and took the flack.

The consultations or chats were very useful. We had the same at national level both collectively and individually. What has been done, and we will come to all levels of farm taxation later, takes into account the issues raised with us in the course of those consultations. We are not living in isolation from them but they would recognise that they are not in the business of advising on the provisions in a Bill in detail. They deal with general principals.

They will have to pay their tax in detail.

Of course they will like anyone else. I am very anxious to ensure that special recognition of such problems as there are would appear quite clearly in what I am proposing in this Bill. I am also anxious to ensure that, as far as one is lining up or getting rid of the anomalies between the self-employed and those on PAYE, one does not leave any glaring anomaly. I have indicated the exception I have made for farmers already. If one were to go further one would be open to the charge that because of the consultation I have had in my constituency and the close concern I have for them I was making a special case for them.

Deputy Bruton in expressing his case objectively, nonetheless made a special case which would not be reflected in reality. On the date in October they will pay half their income tax. The Deputy conveyed the impression of people paying all these crushing burdens, and that was the only term one should use, at one time and would be struggling for breadth. He asked what we would do about it. I am exaggerating for the purpose of effect as the Deputy did. They pay half in income tax as well as rates but one should not forget that what they pay in income tax is after credit for their rates. It is wrong to convey the impression that one lumps the whole lot together as if there was an accumulation involved. There is not. They are not paying the rates separately and the income tax separately. They get credit, as the Deputy knows, which is a special provision for farmers that does not apply elsewhere.

One comes to the other leg of the tripod, the resource tax. This is a new one at £3.50 per acre. It means in respect of a man with £100 valuation, which could be more than 100 acres in most cases——

There are some exceptions but in most cases——

I presume all this will arise later.

Deputy Bruton brought all this up and said people will have to face these bills at the same time. The extra element involved,the resource tax, on £100 valuation will be £350. I do not think that will put people into hock.

Would the Minister——

We cannot spend all day on this. We had a lot of repetition and we are now moving forward.

I move after Deputy Bruton.

Neither the Deputy nor the Minister should do that.

Why not follow the financial progress made by Deputy Ryan?

Inciting him with approval.

The Deputy on the section, please.

As regards a person who has a small business and a farm that was the case with which I was more concerned really. Will he have to pay two years' income tax—1979-80 and 1980-81—all on 1 October plus the additional one-and-a-half years' income tax effectively that he will be paying as a self-employed person on his business as distinct from his farm?

Since 1974, when the tax change on farming profits was introduced, the businessman farmer, if we may call him such for general purposes, has always been treated in the same way as other businessmen. Therefore these trader farmers have always paid their taxes, whether on business profits or farming profits, in two instalments. That has always been the way. Accordingly they will now be paying one-and-a-half years' tax in 1980 the same as all other businessmen.

What about a person who has a paid job as distinct from a business and a farm? How will he be affected?

If he is liable to income tax he pays tax the same as anybody else depending on whether he is employed or self-employed. There is no special——

Will he be paying two years' farm income tax all in one day?

Perhaps it would be better that we approach it in the way it will be paid. If he is employed full-time he will pay his tax in the ordinary course. If, in addition, he has liability to tax, which means that in addition to being employed full-time he is above the £40 valuation—not just above the £40 valuation but will be actually paying tax because a considerable number of those people over the £40 valuation will not be, and incidentally, I do not think he would be a very representative person if he is in full-time employment and still liable to tax—then he would nonetheless, if such people do exist and I would suggest they are——

So he would be paying tax?

He would be paying tax, yes.

The two incomes would be grossed up so that he would effectively be paying tax?

Yes, and he would be paying on the basis of what I have said. He would be paying in October, as I indicated, in respect of his farm profits.

The reason for my asking the question arises from something the Minister said earlier, that in the case of full-time farmers he was making a special concession, that they would not have to pay all on 1 October because that would have meant—if he did it in the case of full-time farmers—that they would have been paying two years' tax on that date. That is, I think, what the Minister said. What I am endeavouring to ascertain is, if the Minister has made a concession in relation to full-time farmers, then there must be some other category of farmer who will in fact be paying two years' farm income tax on one day. I am trying to find out exactly who they are because that is the way I interpreted the Minister's statement.

Nobody will be paying two years' income tax on one day. What I said at the time was that the special two instalments provision for farmers will apply (a) to farming profits only and (b) to farming profits of full-time farmers. We are talking in terms only of the farming profits of full-time farmers. That is what I said, so that the question of somebody paying two years' tax in one day will not arise.

Question put.
The Committee divided: Tá, 61, Níl, 43.

  • Ahern, Bertie.
  • Ahern, Kit.
  • Allen, Lorcan.
  • Andrews, Niall.
  • Aylward, Liam.
  • Barrett, Sylvester.
  • Brady, Gerard.
  • Briscoe, Ben.
  • Browne, Seán.
  • Burke, Raphael P.
  • Callanan, John.
  • Calleary, Seán.
  • Cogan, Barry.
  • Colley, George.
  • Collins, Gerard.
  • Conaghan, Hugh.
  • Connolly, Gerard.
  • Cowen, Bernard.
  • Crinion, Brendan.
  • Daly, Brendan.
  • de Valera, Síle.
  • Doherty, Seán.
  • Faulkner, Pádraig.
  • Fitzgerald, Gene.
  • Fitzpatrick, Tom (Dublin South
  • Central).
  • Fitzsimons, James N.
  • Flynn, Pádraig.
  • Fox, Christopher J.
  • French, Seán.
  • Gallagher, Dennis.
  • Geoghegan-Quinn, Máire.
  • Haughey, Charles J.
  • Herbert, Michael.
  • Keegan, Seán.
  • Kenneally, William.
  • Killeen, Tim.
  • Killilea, Mark.
  • Lemass, Eileen.
  • Leonard, Jimmy.
  • Leonard, Tom.
  • Leyden, Terry.
  • McEllistrim, Thomas.
  • Meaney, Tom.
  • Molloy, Robert.
  • Moore, Seán.
  • Murphy, Ciarán P.
  • Nolan, Tom.
  • Noonan, Michael.
  • O'Connor, Timothy C.
  • O'Hanlon, Rory.
  • O'Kennedy, Michael.
  • O'Leary, John.
  • Power, Paddy.
  • Reynolds, Albert.
  • Smith, Michael.
  • Tunney, Jim.
  • Walsh, Joe.
  • Walsh, Seán.
  • Wilson, John P.
  • Woods, Michael J.
  • Wyse, Pearse.

Níl

  • Barry, Peter.
  • Barry, Richard.
  • Begley, Michael.
  • Belton, Luke.
  • Bermingham, Joseph.
  • Boland, John.
  • Bruton, John.
  • Burke, Joan.
  • Burke, Liam.
  • Cluskey, Frank.
  • Conlan, John F.
  • Corish, Brendan.
  • Creed, Donal.
  • D'Arcy, Michael J.
  • Deasy, Martin A.
  • Desmond, Barry.
  • Enright, Thomas W.
  • FitzGerald, Garret.
  • Fitzpatrick, Tom (Cavan-Monaghan).
  • Gilhawley, Eugene.
  • Griffin, Brendan.
  • Harte, Patrick D.
  • Hegarty, Paddy.
  • Horgan, John.
  • Kavanagh, Liam.
  • Keating, Michael.
  • Kenny, Enda.
  • L'Estrange, Gerry.
  • Lipper, Mick.
  • Mannion, John M.
  • Murphy, Michael P.
  • O'Brien, Fergus.
  • O'Brien, William.
  • O'Donnell, Tom.
  • O'Keeffe, Jim.
  • O'Leary, Michael.
  • O'Toole, Paddy.
  • Ryan, John J.
  • Spring, Dan.
  • Taylor, Frank.
  • Timmins, Godfrey.
  • Treacy, Seán.
  • Tully, James.
Tellers: Tá, Deputies Moore and Briscoe; Níl, Deputies L'Estrange and Kenny.
Question declared carried.
SECTION 14.
Question proposed: "That section 14 stand part of the Bill."

This is the section which continues in the current year the relief given in respect of expenditure on residential premises last year by householders on the improvement and maintenance of their homes. It is fair to say that the scheme seemed to get off to a slow start in 1979 but interest in it quickened towards the end of the year. From March this year a number of contractors had registered under the scheme. In the circumstances I thought it would be appropriate to continue this provision in operation this year. This section provides, also in line with the general treatment of married couples, that in the case where couples opt for assessment on their combined income the limit of relief in this area will be £900 instead of £450.

The original section in the 1979 Act contains a provision that people who had work done in their houses could claim against tax the labour element of that work provided it did not exceed £450. It is a good idea to extend that provision for a further year. How many contractors actually registered? My understanding is that for the first number of months very few contractors registered.

Because of the depressed state of the construction industry the Minister should consider raising the figure of £400 to encourage contractors to do decorating, painting and reconstruction jobs which are necessary in their houses, and the figure, due to inflation, is out of date.

I am sympathetic to that principle. Because of income splitting, which has been extended here, we are talking about the majority of married couples. Where a couple opt for assessment on their combined income the limit under this provision will be doubled from £450 to £900, which is an added inducement. That may be part of the reason why the scheme is now beginning to pick up. While the scheme got off to a very slow start at the beginning of last year, there was an improvement later. There was a slow down in the winter months, but by the end of March 1980 1,239 contractors had registered under the scheme. Nine hundred and ten claims were received from householders. Of that 661 have already been settled and the other 249 cases have been dealt with.

Because of the interest being taken in this scheme and the desirability of continuing it for another year, this provision should be seen as an encouragement. The enhanced interest is underlined by the fact that in the Dublin area almost 4,600 inquiries were received up to the end of March. If there is an equivalent number of claims from the rest of the country, we would be thinking in terms of up to 9,000 interested persons. If that were so, the average tax relief would amount to £100 in each case. The rough cost this year of this extension would be of the order of £1 million. The doubling of the relief in respect of married people will be seen as an encouragement and that will have consequential effects on the area Deputy Barry mentioned.

I heard the scheme had not been a great success last year, but if only 1,000 people registered it has been a total failure. It must be remembered that the eligible people would include painters, carpenters, plumbers, small house builders, gardeners and so on. We are told only 1,000 people have registered, say 300 in Dublin——

By the end of the year there were 1,239.

People should be told about this scheme because it is possible they do not know about it. It is also possible that householders are not pushing the people who normally do this work to register so that they can make a claim under the tax system. As I said, this scheme is not successful.

There is scope for considerable improvement.

What is the administrative cost of operating this concession? If the Revenue Commissioners have to examine every account furnished to make sure it corresponds with the work actually done, it strikes me that the cost of administering this scheme could be quite high. Second, there seems to be a case for doing something about energy conservation in the home. Because of the energy crisis people should be encouraged to better insulate their houses. Would the Minister consider granting a special concession in this area? Third, can one go on claiming for house improvements or, if £900 is claimed in one year, can another £900 be claimed the following year? Fourth, how long does the Minister intend to continue this scheme?

The pilot scheme was introduced last year and has been extended this year because of its desirability and the fact that it has not really got off the ground. The Deputy asked if it can be repeated. As of now, that has not arisen and I cannot give a precise answer.

Is there a law on it?

There is not. The general purpose of this scheme, would be best achieved by individuals doing their jobs and claiming their relief once and for all. Otherwise, we could have people coming back year after year while others are not availing of the scheme at all.

It is not possible to give a precise answer on the administrative costs because this work is carried out by Revenue staff in the normal working day. There is no separate area one can identify which is devoted entirely to this scheme. If there had been they would have been under-employed for the last year. Therefore I cannot put a figure on the administrative cost.

I do not think there would be a great burden of work involved with people actually registering. Much more time is spent trying to ascertain the number who should be registering and are not. The burden of work involved with people registering under the scheme would be limited because when people make their returns they are dealt with in the normal working day.

The area where I thought there would be administrative expense was not in the case of registration but in regard to vouching for jobs done by individual householders. If a job involved three or four different contractors it could be very costly.

Question put and agreed to.
SECTION 15.
Question proposed: "That section 15 stand part of the Bill."

This section gives effect to the decision announced in the budget that the proposal to tax certain short-term social welfare benefits from 1980-81 onwards would not be implemented. The main reason for adopting the proposal in the first instance was that the exemption from tax of these benefits would seem to provide a disincentive to work, the remuneration for which would be chargeable for tax. Because of the introduction of the new scheme of tax this year and the widening of the bands to a very considerable extent, I sincerely hope that the disincentive has been removed. For that reason the Government do not propose to provide for the taxation of these benefits. This is an expression of confidence in the good faith of the working population which I hope will prove well founded.

The trade union movement expressed great concern and opposition when this proposal was first announced last year, but one must recognise that there have been problems in relation to absenteeism. I would feel I had done the nation a disservice if I felt that the change now proposed would be in any way an inducement to absenteeism at a time when the opposite is needed. Absenteeism was a major problem for industry, particularly towards the end of the year and it could not be mere coincidence that everybody becomes ill at that time. The new scheme will mean that the vast majority will move down into lower tax bands and this should remove the disincentive. Hopefully that will be the consequence. If the experience turns out to be otherwise I would feel totally unjustified in making the proposal contained in this section. We need maximum attendance at work and maximum productivity.

We are concerned about trying to equalise the burden on taxpayers generally and had the taxation of these benefits been proceeded with it would have yielded £13 million in a full year and £8.5 million for the rest of the current year. This revenue is now being made up from other taxpayers. Absenteeism has been as high as 20 per cent per day in some vulnerable areas and I hope we will not see a continuation of that pattern.

I had hoped that the Minister would say he was removing this provision because he had found out that it would not work and because of the opposition to it. He should not make veiled threats about what will be done if the removal of this section does not work. Absenteeism and taxation, although related, are separate problems.

No, they are not.

They are. The Minister said that in some instances absenteeism is as high as 20 per cent per day. If this were because of taxation, would this not be the case in all industries? Absenteeism is a separate problem which needs special study in the social and industrial relations fields. Neither the Minister nor I am qualified to say exactly what bearing taxation has on this problem, but the prime cause of absenteeism is not the fact that people have to pay tax on their earnings. The Minister should not have made the veiled threat that unless absenteeism stops he will introduce the taxation of short-term social welfare benefits next year. The elimination of absenteeism would require many studies and involve much legislation which has a bearing on unions and employers. It would include all sorts of other factors including labour relations, social welfare and health which have a bearing on absenteeism. At this stage we cannot say how important the taxation factor is in relation to absenteeism.

A married man with five children deriving from his job an income of £60 per week must pay tax. If he has precisely the same income derived from social welfare benefits he does not pay tax on it.

I am not saying that absenteeism is caused purely by the taxation factor and we could not as yet ascertain to what extent it is a factor. Deputy Barry may be correct in saying that many studies would be needed and a change of attitude in relation to the problem, but action is much better. I have taken an action which will be a contributory factor in encouraging people to work constantly. I mentioned in particular the problems which arise towards the end of a year and people can make their own judgment as to why the incidence is higher then. It is at least arguable that because people moved into higher tax bands they found it more profitable to claim rebates.

There is not one answer to this problem but I have made two major contributions. This latter one is an act of faith and I should not be attacked as making a veiled threat that I will take alternative action if my faith is misplaced. It is very difficult to answer that kind of argument because the other course would be to do nothing if this action is unsuccessful. It is important to note that a married man with an earned income of up to £3,400 will be exempt from tax. Whatever he might have in addition to this by way of social welfare benefits will not put him through the exemption threshold. Some might say that means that a man who works throughout the year and who earns a sum just exceeding £3,400 will be at a disadvantage in comparison with a man who works for nine months and who may be sick for the remainder of the year. I have to admit that is the case here but I should like to impress on the House that this is an act of faith all round and I hope that my faith will not be misplaced.

When working out an ideal tax system one must start with what is just and then one decides what tax would be wise at any given time. Do I take it from what the Minister has said that he believes it is inherently just that a man who earns £60 per week and who works full time should pay tax while a man with the same income who is not working should not pay tax? Putting aside all factors such as any pressure being put on the Minister and whether he wants a national wage agreement—all factors that must weigh on the mind of any Minister—does he believe it just that the situation I have described should exist?

I cannot speak for now and ever more on this. There are factors in relation to disability benefit where the wage earner is sick and where there are all the consequent problems that arise in such a case and these factors would argue for discriminating in favour of such a person, as I am doing here. Similarly, in relation to unemployment, where a person is genuinely un-employed—and this has a serious effect on the family and the person concerned—there are factors that should be taken into account. I do not want to say what should be done forever more; I am simply saying what is being done in recognition of several factors and in recognition of the case made by the ICTU who are representative of the working population.

What was the basis of their case?

It is some time since I read their submissions and I shall summarise what they said. Their case was that where people have the burden of unemployment and sickness they should not have to pay tax on what is in any event only a contribution towards their income as distinct from what would normally be their total income.

Surely the best way would be to improve unemployment and disability benefits? If there is a need for more compensation it should be given in the form of higher disability and unemployment benefits, not by intermixing the tax code and the benefits.

The increases in the benefits this year were higher than at any time previously and, in a sense, that meets what Deputy Bruton has said. I endeavoured in the budget and in the Finance Bill to point out that we were recognising the special problems of the unemployed and the sick and, equally, that we were recognising the problems of people who found themselves in the higher tax bands. I hope that my general line of approach will be seen as consistent.

If the Minister is convinced that there are problems for the recipients of social welfare benefits, which I conceded, I should have thought the better way to deal with them would be to give a 30 per cent increase in unemployment and disability benefit rather than exempt them from income tax which creates a situation where a person with a similar income who is working will pay tax. That is my personal view.

Question put and agreed to.
SECTION 16.
Question proposed: "That section 16 stand part of the Bill."

This section which extends the time limit for the claiming of certain reliefs, largely in the business area, has been brought in following representations by the consultative committee of accountancy bodies. The time limits have been extended from one year after the end of the relevant year of assessment or the chargeable period to two years after that date. I think this is a reasonable extension.

The purpose will be to ensure that the assessment over a period of two or three years from the commencement date will not exceed the actual amount of profit. In relation to personal relief, the current limit is ten years and I thought it appropriate to extend it to two years for the business area. The provision is rather technical and has a limited effect only for business but it is one that I considered I should introduce in response to the cases made to me.

Question put and agreed to.
SECTION 17.
Amendments Nos. 24 and 25 not moved.
Question proposed: "That section 17 stand part of the Bill."

This section applies to the taxation of married persons and I should like to give the House some further background to a very important innovation being introduced here. Chapter I, Part IX, of the Income Tax Act, 1967 deals with the taxation of married persons but following the recent decision of the Supreme Court to the effect that the provisions in Part IX were repugnant to the Constitution it became necessary to re-write the provisions. The new provisions embodied in Chapter I give a married couple three options for assessment. First, assessment of each spouse as a single person; secondly, assessment of the husband in respect of the combined incomes of husband and wife; and, thirdly, separate assessment, where the second option is taken but where the spouses wish to have the taxes apportioned between them and each spouse made responsible for the tax attributable to his or her income.

With income splitting now available to married couples, there would be no tax advantages in opting for assessment as single persons. It is considered that most married couples will wish to have the tax in respect of their combined incomes assessed on the husband so that the full benefit of the personal allowances and the double rate bands will accrue to the couple. In any event it is a matter for the spouses in each case to decide how they want to be assessed. If any one of them wishes to be assessed as a single person the assessment will be made on that basis on the receipt of a notification to that effect from either of them. These new arrangements secure that where the income of both spouses is assessed on the husband they will not pay more tax than they would pay if they were assessed as single persons. At the same time, it can be said that this scheme achieves equity between couples because one couple will pay the same tax as another couple with the same combined income regardless of whether or not both spouses have income and also of how the income is divided between them. This would not be the case under the assessment of the couple as single persons.

I want to clarify something which Deputy Fitzpatrick is not clear on. He seems to have the impression that the decision of the Supreme Court is different only from what I am proposing in that it applies to earned income and that I am just extending that to unearned income. He said yesterday that inevitably, if a case was brought in relation to unearned income, I would find the Supreme Court would take the same position. It is not just because of that that it is being done, because what the Supreme Court held was in relation to the right of married couples' earned income to be taxed as single people. That is not income splitting; it is a long way from that. Income splitting means in addition—this is what we are doing here—that you are not just taxing them as single people, which would mean that they could only have their own allowances against their own income and could not transfer what they do not need to anybody else, the husband and wife as the case may be. They are just single and separate. That is what the Supreme Court said in respect of earned income.

I am doing something here in relation to income splitting, which is a very different thing. I hope somebody will bring this to the attention of Deputy Fitzpatrick, because he apparently has not grasped it, so that I will not have to answer it again sometime. We are actually saying that, in addition to the assessment, as single people, of unearned income, which is already an advance on the Supreme Court, we are introducing the principle of income splitting, which will apply to all couples so that what the wife may not use up in her allowances she may transfer over to her husband so that he can use it fully. That is a very considerable advance and it is the reason why the differences I mentioned in terms of cost are so significant.

I mentioned a figure of £30 million in respect of what the Supreme Court want. £24 million of that is in respect of income tax for the 1979-80 period. The other £6 million is really only an estimate on our part of what might have been done and was suggested would be done by certain couples who were making arrangements to transfer part of the husband's income to the wife under a covenant. If that were to be the pattern, we estimated that that might mean a loss of about £6 million to Revenue. When we add the £24 million in relation to actual cost and that £6 million we get the figure of £30 million. The second matter will not be necessary now. The proposal I have just outlined costs considerably more. It is important that there is no doubt with regard to the significance of what is being done here, the extent of it and how much further it goes than anything that was required in any court decision. It is more costly because it goes so much further. I hope Deputies opposite recognise that.

Question put and agreed to.
SECTION 18.
Question proposed: "That section 18 stand part of the Bill."

This is supplementary to section 17 and makes appropriate amendments in various provisions of the Income Tax Acts. They are consequential on the new rules for the taxation of married persons which are contained in section 17.

Question put and agreed to.
NEW SECTIONS.

Amendment No. 26 in the name of the Minister proposes, as far as the Chair can see, the insertion of two new sections. We will debate the two together and if there are votes on them they will be dealt with separately.

I move amendment No. 26:

In page 25, before section 19, but in Chapter II, to insert the following sections:

.—(1) In this section ‘relevant year' means the year 1979-80 or any earlier year of assessment.

(2) notwithstanding anything contained in the Income Tax Acts, the regulations made thereunder or any assessment made (whether before or after the passing of this Act) in accordance with the said Acts or said regulations, no repayment of tax shall be made nor shall any credit be allowed to any person in respect of any over-payment of tax (whether paid by deduction or otherwise) suffered by him in respect of any relevant year, being an overpayment arising by virtue of the aggregation of the income of that person with the income of his spouse, unless, before the commencement of that relevant year, he had instituted legal proceedings to assert the unconstitutionality of the provisions of the Income Tax Acts purporting to authorise such aggregation.

.—(1) In this section—

‘assessment' includes an additional assessment;

‘an assessment to which this section applies' means an assessment to tax made, on or after the passing of this Act, on an individual for a relevant year;

‘relevant year' means the year 1979-80 or any earlier year of assessment;

‘the relevant rate' means, as respects any of the years 1974-75 to 1979-80, the highest of the higher rates which applied for that year of assesment and, as respects any other relevant year, the rate equal to the aggregate of the standard rate of income tax for that year and the highest rate at which sur-tax was chargeable for that year;

‘the relevant tax', in relation to an individual, means the amount of tax for a relevant year which—

(a) would have been payable by the individual for that year, or

(b) in a case where the individual is a wife who was treated as living with her husband for that year, would have been payable for that year by the husband of the individual,

if an assessment in respect of the total income of the individual and of his spouse for that year had been made on the 6th day of October in that year on the individual or on the husband of the individual, as the case may be, being an assessment made on the basis and in accordance with the practice prevailing at that time;

‘tax' means income tax or sur-tax or income tax and sur-tax as the context requires.

(2) Where, for a relevant year, an assessment to which this section applies is to be made on an individual (being a husband whose wife was treated as living with him for the relevant year or being a wife who was treated as living with her husband for that year) and, in consequence thereof, the aggregate of the tax, which would be payable for that relevant year by the individual and the spouse of the individual, is less than the amount of the relevant tax in relation to the individual for that relevant year, the provisions of subsection (3) shall apply in relation to the said assessment.

(3) Where the provisions of this subsection apply in relation to an assessment for a relevant year, then, notwithstanding anything in the Income Tax Acts but subject to the provisions of subsection (4)—

(a) the amount of income on which the individual is to be charged to tax shall be ascertained on the basis that section 138 of the Income tax Act, 1967, had not been in force and had no effect for that year.

(b) the assessment shall be made on the basis that the individual is to be charged to tax on his taxable income for the year at the relevant rate, and

(c) where the individual on whom the assessment is to be made is a married person, the assessment shall be made on the basis that he is not married and such assessments or adjustments of assessments shall be made as are necessary to secure that the individual and his spouse shall be charged to tax for the relevant year in all respects as if they were not married:

Provided that any income contained in an assessment made on a husband which, before the 12th day of October, 1979, in accordance with the practice prevailing at the time the assessment was made, was deemed to be his income shall not be regarded as income of any other person.

(4) Where the provisions of subsection (3) apply in relation to any assessment on an individual for a relevant year, such relief, if any, from tax shall be given as is necessary to secure that the aggregate amount of tax payable by the individual and his spouse for that year shall not exceed the relevant tax for that year, and, in a case where assessments to which this section applies are made on the husband and on his spouse, the relief to be given under this subsection shall be apportioned between them in such manner as is just and reasonable.".

This is the one to which reference was made this morning on the Order of Business. Perhaps I should repeat again that I am not aware of any letter having been sent out to anybody. I contemplated sending a letter to the spokesman for each of the Opposition parties—this amendment only went out over the weekend—however, I did not manage to do that. I wanted to make sure that the spokesmen of both parties would be fully aware of what is involved in the amendments. Beyond that I cannot comment on newspaper reports about the matter. I hope I have clarified the matter fully now. As I indicated yesterday, I was at all times ready to do that when we came to this part of the Bill.

In view of the interest which has been expressed in this amendment and also of the importance of it, it is important that I give the background in relation to it. The amendment inserts two new sections in Chapter II of the Bill, which deals with the taxation of married persons. The existing sections in that chapter deal with the tax position of married couples for 1980-81 onwards. The new sections now being inserted in the chapter relate to the position for 1979-80 and earlier years.

Deputies will recall that in their ruling given on 25 April last the Supreme Court held that the plaintiffs in that case were entitled to recover the additional tax paid by them by virtue of the aggregation of their incomes for the years 1978-79 and 1979-80 which the court in its earlier decision in January had held to be unconstitutional. The court also ruled that the plaintiffs were not entitled to recover any additional tax arising from aggregation of their incomes for any period prior to the tax year 1978-79 and, secondly, no taxpayers other than the plaintiffs or those who had instituted legal proceedings challenging the constitutionality of the proceedings had the standing necessary to maintain the claim that the State should reimburse them for any taxes collected under the sections which had been condemned. Some taxpayers have sought to get around the court ruling by lodging claims requiring inspectors to make assessments on them for the six years back to 1974. Where the tax has already been collected under PAYE it is not usual to make an assessment but it is provided nonetheless in section 133 of the 1967 Act that a taxpayer may require an assessment to be made against which is to be credited the tax deducted under PAYE.

If assessments are now made for these back years they must be made on the basis of non-aggregation and this of course will show a lower tax liability than the tax actually collected under PAYE in accordance with the practice prevailing at the time. The taxpayers concerned will obviously press their claims for a refund of the additional amounts collected during those earlier years but the Supreme Court has held that these amounts are not recoverable.

The new section 19 now being introduced provides that notwithstanding the making of any such assessment repayment is not to be made in any of the cases covered by the Supreme Court judgment. While the court ruling covered the position where tax had already been paid, it did not deal with the situation where the tax or some of it had not been paid in those earlier years. This situation will arise in PAYE cases where the tax deducted from the earnings of married couples was insufficient to meet their full liabilities for those years, or in PAYE cases where additional income or additional sources of income came to light subsequently, or in self-employed cases where assessments had not been made or where they were inadequate, or in back duty cases where the persons concerned due to fraud or neglect had not been fully assessed in respect of their incomes. Obviously in the normal course the correct liability for these persons for the relevant years would be determined by new or additional assessments and the tax due would be collected on foot of those assessments. In equity, it is clear that these persons who have not paid their tax in due time should not be in a more favourable position than the conscientious taxpayer who has paid tax at the proper time. Any assessment now made in respect of back years cannot be made on the basis of aggregated income. To make the assessment on a non-aggregated basis would mean that these taxpayers would pay less for the previous years than would have been the case had they been assessed and paid their tax in the normal way. Equity suggests that this position should not be allowed to arise and for that reason the new section 20 provides that where an assessment now falls to be made in respect of past years the tax due on foot of it would equal the tax which would have been due if the taxpayer had been assessed in the relevant year.

This is achieved by providing a new basis for this assessment. The tax will be charged, whether it is the income of the wife or the husband, without any deduction for personal allowances and will be charged at the highest tax rate appropriate for the relevant year. Accordingly provision is being included to ensure that where an assessment on this basis produced a higher tax bill than would have been the case if the taxpayer had been assessed at the proper time and in accordance with practice then prevailing that tax bill will be reduced to the lower amount. The introduction of these new sections means that all taxpayers whether PAYE taxpayers, self-employed or back duty cases will be treated in the same way as those already covered by the Supreme Court ruling. Justice alone requires that this should be done.

These amendments which the Minister has admitted were circulated over the weekend are extremely complicated, difficult to understand and technical and they relate to something that is almost of fundamental importance to every married taxpayer. The Minister said that he contemplated writing to both Deputy O'Leary and myself presumably with an explanation which I at least would have welcomed but that did not happen. Yesterday afternoon at least three times I read a portion of a report in yesterday's Irish Times relating to these amendments which said that:

The position in relation to married couples who have paid tax for any preceding tax year and whose returns and assessments have been completed, accepted and finalised, prima facie, appears to be that they cannot now seek a refund of the “unconstitutional” portion of tax paid by them. There is, however, still an ambiguity about the position.

The Minister said that he had not seen yesterday morning's paper and that he would be coming to this in a later section of the Bill. I am remiss in that I did not go through the list of amendments circulated, which I received in my post yesterday afternoon as I presumed that they would be ordinary ones circulated in another form last week. At no stage during the course of the three references I made to this did the Minister say that he had an amendment in dealing with this position.

I assumed at that stage that the Deputy had got the amendments.

I had. In this morning's newspapers there was a reference to the Minister writing to all Deputies which is extraordinary as the Minister has now said that he had contemplated writing to Deputy O'Leary and myself in this regard. The Minister did not do that and that is his right.

Progress reported; Committee to sit again.
Business suspended at 1.30 p.m. and resumed at 2.30 p.m.
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