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Dáil Éireann debate -
Wednesday, 11 Nov 1981

Vol. 330 No. 10

Finance (No. 2) Bill, 1981: Committee Stage (Resumed).

Question again proposed: "That section 6 stand part of the Bill."

I was referring to the statement by the present Minister for Finance. On 6 May 1981, on Committee Stage of the Finance Bill, 1981, in column 2318 of the Official Report, Deputy Bruton said:

As I have pointed out, people have to travel long distances to work owing to the historic nature of the settlement of Ireland with people spread out over very substantial areas. In some of the poorest parts of Ireland, such as County Leitrim, the number of families with cars is proportionately larger than in many richer parts in town centres.

For someone resident in the centre of New York, petrol is a luxury because he or she needs to use a car very infrequently. I have heard of someone living in New York who takes his car out once a month even though he is very well off because he can do everything he wants on public transport. That is not the case in Ireland. For Irish people petrol is essential in many cases, both to get to work and to live a normal life. The increased taxation imposed on petrol is a very severe burden on very many people.

What has changed the Minister's approach to the imposition of this taxation? He has done a complete turnabout and has imposed a higher taxation than under the previous Government.

That is not so.

Deputy Bruton stated here on 6 May that this imposition was wrong and unacceptable. Yet he is the very Minister who imposed taxation on petrol at the first opportunity. I accuse the Minister of sheer hypocrisy. He said one thing and did another. There is no justification for that and the Minister might as well admit it.

On 6 May 1981 the Tánaiste, then Deputy O'Leary, said in column 2317 of the Official Report:

However, the overall strategy of relying on increased indirect taxation has the unfortunate effect of increasing the consumer price index and therefore bringing greater pressure to bear, leading to increased demands and wage claims.

That is what the Tánaiste said when he was explaining why workers could not accept a 6½ per cent or 7 per cent wage increase as recommended by the three wise men. He explained their case very well. Yet he, as Tánaiste, with the Minister for Finance, imposed extra taxation on petrol which has made it practically impossible for the ordinary working man to live. His wage has been eroded by the imposition of duties on petrol and he finds it extremely difficult to get to work.

If the Minister had given a 25 per cent increase to social welfare recipients then perhaps it might have been justified, but he did not do this. The Minister gave very meagre increases in the budget. Furthermore, the proposals which were contained in the Fine Gael manifesto stated they would introduce a fair system of car insurance. I remember at the time they were telling young people that when Fine Gael were in government motor taxation would be provided and subsidised by the State. Part of the extra taxation on petrol should go towards a subsidisation of car tax for young people who are now being asked to pay about £1,000 to insure their cars. The Minister should subsidise insurance companies to allow them to give a preferential rate to young people who are burdened with massive charges for premiums to insure their cars. Many cannot get insurance and are forced into a position which is totally illegal and in many cases lands them in court, which is most unfortunate and regrettable.

This Government are establishing a commission to inquire into insurance, instead of grasping the nettle and allowing a subsidy of some sort for these young people who find it difficult — and in some cases impossible — to get car insurance from any of the major companies. That is not meant as a criticism of these companies, who are working under very difficult circumstances. Fine Gael Deputy Gay Mitchell is a good, strong spokesman for young people in this respect. I wish he would be more vocal in this House on this issue, which might bring pressure to bear on the Minister to put part of the increase on petrol towards a subsidy for car insurance for young people.

That does not arise on this section.

I will not speak for long. The Opposition, I am glad to see, have really turned to the support of our workers, people whom they did not know existed earlier this year.

That is a lie.

It is not a lie. Nothing much has changed.

There are many more workers on this side of the House than on the other.

(Interruptions.)

On this issue, the Minister said that the purchase of private motor vehicles reached a record level earlier this year. Obviously, he saw that an increase in the price of petrol was a way of bringing in a lot of revenue to the State. What the Minister forgot was that there are two sections in the community — the wealthy on whom an increase in the price of petrol has absolutely no effect and the other section of the community, the working people, some of whom have now to travel long distances to work. This increase has had a great impact on the working people and has resulted in their living standards being reduced. There is no doubt about that. They are spelling out, every other day, how much it has affected them and this point must be made with the greatest emphasis possible. As it is likely that this will be law, the Minister must bear in mind that an allowance must be granted to people against the cost of travelling to work. They must be given a reasonably good tax allowance to offset this.

Will the Deputy be voting against us?

We will see. Just two questions, if I may.

The Minister is not just replying, he is participating.

I would like to deal with a point made by Deputy Sherlock.

I said the same thing here and the Minister did not get a chance to reply.

Another Deputy spoke after Deputy Callanan. I was afforded the opportunity but——

Deputy Sherlock must be appeased.

——the Chair, quite rightly, said that as I had contributed already he would call another speaker. I was not trying to evade Deputy Callanan's question. I never would, and never have tried to, denigrate Deputy Callanan's contributions in this House. I recognise his objectivity.

In regard to Deputy Sherlock's point about the increase in the price of petrol effectively reducing the workers' living standards, particularly workers in rural Ireland, and referring back to the quotation by Deputy Leyden of my speech, I must admit quite clearly that it does. There is no avoiding that. I also admit, with equal frankness, that this poses a bigger problem in rural areas than in urban ones. Those points are correct.

I am surprised that the Opposition have obviously no contribution to make to the debate, but have had to rely in almost all their contributions on what I said in response to their Finance Bill. I am somewhat surprised to hear the Opposition referring to hypocrisy. I would have thought that this word might have been capable of being applied to them but I will not apply it as there is no point in trading that type of epithet across the House.

The position, of course, is that the total increase in petrol price in this budget is 13.4p, an increase of 4p in July 1981 and of 9.4p in September 1981, in situation of unprecedented economic seriousness, when the Government were forced to take quick action and could not turn to other means of taxation and, for reasons which I have explained, had to rely on indirect taxation. That is, effectively, the only kind of tax which one can enforce in the middle of the year. In contrast with that, the previous Government in the normal annual budget, in January 1981, when they had all the other choices of revenue raising possibilities available, not just indirect taxation, imposed an increase of 15p — significantly greater than our increase in July. In the previous year, in February 1980, they imposed an increase of 20p, even greater still. Their present concern seems to be, shall we say, less than a fair reflection on their record. Furthermore, the best way of measuring the impact of Government action in regard to the price of petrol is to look at the proportion of the total price of the product that the Government is proposing to take in tax.

The result of the budget of July 1981, after the full effect of all the increases taking effect in September 1981 when VAT had been increased, is to bring the total tax taken by the Government on a gallon of petrol to 49 per cent of the price, whereas the previous Government in February 1980 brought the tax taken to 50 per cent of the price and in January 1981 to 51.1 per cent of the price. In proportionate terms to the price of petrol, the imposition in this budget — which I recognise as very difficult and imposing a real diminution in the living standards of many — is, in fact, considerably less in real terms than that of either of the last two budgets of the previous Government. This needs to be put in context against the speeches which we are now hearing from the other side of the House.

In both of the Opposition's previous budgets, in February 1980 and January 1981, they had other choices available to them. They had the whole range of direct taxation from which to choose. They chose those substantial increases in the price of petrol at that time. Our July budget, on the other hand, gave us a much more limited range of choice because we were effectively confined to indirect taxation which very often has this redistributive effect which is detrimental for the reasons explained — mostly by quotation from my speeches by people on the other side.

Deputy Sherlock, Deputy Callanan and others may well make the point that surely it could not be right for a Government to introduce any taxation which has the effect of reducing people's real living standards. I am afraid that the situation is such that we are faced with little option. We are running the largest balance of payments deficit in Europe. What is a balance of payments deficit? It is, in plain man's language, spending more money abroad than you are taking in or, in the language of a household, living beyond your means. There is no way, if one is living beyond one's means, that one can start moving towards living within one's means without, somehow or other, reducing one's standard of living. Anyone who tries to pretend that you can by some magic solution, or fooling around with the tax rate, or economic wizardry, get into a situation where, having been living well beyond your means — 15 per cent beyond it in our case, because that is our balance of payments deficit — you can get back into balance without hardship, without diminishing your standard of living, is trying to fool people. I do not believe in fooling anybody, if I can avoid it. That is the context in which the whole thing has to be seen.

The point will be made with some force by speakers in this discussion that in regard to this increase on petrol and in regard to other increases, because it is relying on indirect taxation and not direct taxation, it has a disproportionate effect on one section of the community rather than the other, because it is rightly argued that the poorer you are the more of your income you have to spend to live. People on the breadline spend 100 per cent of anything they get on purchases, most of which are taxed. On the other hand, if you are well off you can afford to spend perhaps only 70 per cent of your income and not spend 30 per cent of it and that 30 per cent is not affected by any purchase tax. That is why it is said that indirect taxes are regressive.

Nobody can argue against that case. However, as I have demonstrated, because of the timing of the budget, because it had to be introduced in July, we could not, in view of the structure of the tax system, have recourse to anything but indirect taxes. It will be our aim over the period of our tenure in office between now and the next general election in four years' time, to adopt a tax programme——

The Minister is an optimist.

I am a realist. The Deputy knows that if at any time in the foreseeable future there is an election his party will not be successful.

Why will the Government not come to Cavan-Monaghan?

We have other more important business to transact in the House.

The reality of the moment is to stay with section 6 of the Finance Bill.

In the January 1982 budget and in subsequent budgets we will, within the broader and greater freedom allowed to Governments when devising tax plans at the beginning of a year, spread the burden more equitably. We recognise that any step in the economic management of the country which involves putting our balance of payments right, stopping us living beyond our means, not simply because that is an ideology of monetarism or any of the other isms that are thrown around here in the discussion, makes sense. People in households cannot live beyond their means indefinitely. Likewise, no Government or no country can live beyond its means indefinitely. In order that we will have the money in five, six or ten years' time to provide jobs for our young people we must husband our resources carefully now. It is simply about looking to the future, only spending as much now as puts us in a position next year, the year after and in subsequent years to do what needs to be done now as well as what will need to be done then.

Our economic policy is about that and is not, as Deputy Crowley referred to, monetarism. It has nothing to do with monetarism. Monetarism is a macro-economic theory which may have some relevance in a self-contained economy as large as the USA. A monetarist theory is of no relevance to a small open economy like ours. Living within one's means is of relevance to an economy like ours, and so is putting enough aside for the young people of the future the same as any family would do. That is what the Government's economic policy is concerned with. It is not monetarism, Keynesism, Thatcherism or any of the other isms which have been mentioned.

The Minister will appreciate that section 6 of this Bill is not concerned with any of those things. If the Minister thinks that a bad headline has been set, he should not follow it. We will stay with the provisions of section 6 of the Bill.

It is difficult for him because he is very embarrassed.

What about the car insurance?

The position, as I have indicated, is that the proportion of the price of petrol being taken in this budget at the increased rates of tax is significantly less than the proportion taken in either of the last two Fianna Fáil budgets. That is a conclusive answer to all of the points that have been made by the other side of the House.

What about the car insurance?

Is the Minister saying that, if the oil companies put another pound on the gallon of petrol, that will give an excuse to the Government to put a proportionately higher tax on petrol? If the price of petrol was much less, it would not be a great hardship on people if it was increased. It is poor logic to give the excuse that the percentage of the rise was only 49 per cent and that before the petrol went up the percentage was 50 per cent. I am delighted to hear the Minister acknowledging that indirect taxation is harder on the poor. This is contrary to what his party said during the election campaign. They said they would go on to indirect taxation and away from direct taxation. The Minister is now admitting that indirect taxation is harder. I hope that when the January budget is introduced he will implement direct taxation and not the Fine Gael policy which is to get away from this.

Deputy Callanan is right. The Minister's argument was so weak that he was defending his position by referring to the change in the proportionate charge of tax on the gallon of petrol. Deputy Callanan is also right when he says that the Minister said, obviously against his party's well publicised line, that he is not in favour of a change to indirect taxation. I am sure many people in the Labour Party and some of those in the Minister's party, including Deputy Richie Ryan and possibly also the Deputy from Limerick, Deputy Kemmy, will be well pleased if after all, the £9.60 will not be found by indirect taxation, which imposes such hardship. We have not heard anything yet about the advertisements that are to appear in the very near future about that £9.60.

The Deputy has a question down in relation to that for tomorrow.

Will the Minister be telling me about the advertisement?

I will answer any question asked.

I feared that with the publicity campaign the Government are at—

The Chair would ask Deputy Fitzgerald to direct himself to section 6 of the Bill.

My sincere apologies, but one is tempted at times because of what is said on the other side.

Would the Minister tell me the price of a gallon of grade one petrol on 30 June and the price today, the tax on that gallon on 30 June and the tax today, and the impact on the CPI today by way of the increase on the gallon plus the VAT increase?

The figures requested by the Deputy are 205.2p and 225.8p. The figure after 1 September is 218.8p. The tax content as a proportion of the retail price after the January 1981 budget is 51.1 per cent, after the July 1981 budget 46.7 per cent, after the VAT increase in September 1981 49 per cent, and at the moment 47.9 per cent.

And the CPI figures?

After the July budget the excise increase and the commensurate increase in VAT added 0.116 per cent to the CPI and after 1 September 0.273 per cent was added, a total of 0.389 per cent.

Has the Minister got the impact on the CPI of the additional increase between 30 June and today's date?

Other increases for other reasons?

I am asking the Minister if he has the CPI impact of those other increases?

No. It is not my function to have it. The position is as I have indicated.

(Dublin South-Central): I do not wish to go back on the section because it has been well researched. As the Minister is extracting considerable revenue from petrol, would he ask his colleague in the Department of the Environment to extract the lead content which is five times greater in this country than in any other country in the world?

I will take that point on board and convey it to the Minister for the Environment. Deputy Sherlock raised a point, which perhaps I should answer, in regard to the effect of this on the less well-off sections of the community. I recognise that the less well-off sections of the community tend to rely on second hand or older cars. If the budget contained an increase in the price of petrol only, and no increase in the purchase tax on new cars, it could be argued that we were so structuring the budget, given the constraints under which we are operating, as to be even more inequitable.

The fact of the matter is that we have tried to remove that by increasing the purchase tax substantially on cars. The more expensive the car, the more the purchase tax is as a share of the total cost. That is a progressive approach to taxation and it is an important part of the budget. It is in the next section. Any increase in the price of petrol must be seen against that background. In increasing the purchase tax we are doing something which has not been done for some time. It is valuable both for the revenue it yields and from the point of view that it redistributes the burden on motoring to avoid imposing an undue burden on people who have to travel to work. The two sections must be seen together.

That is a rather grandios argument. When can we expect a commitment from the Government on the Whitegate oil refinery?

The Minister did not answer the point I raised about the fairly high horse powered cars farmers have to use and the effect this tax will have on them.

What the Deputy said was factual. I accept that. Farmers need larger horse powered cars if they have to tow trailers behind them. I am not disputing that with the Deputy. I have recognised from the outset that there are problems in the imposition of indirect taxation and, in particular, there are special problems in rural areas with the imposition of tax on petrol.

I did not come in here to make disingenuous arguments about the balance of payments effects, and so on. Of course a tax which reduces petrol consumption makes savings for us in the balance of payments. I chose deliberately not to use those arguments because they tend to mask the reality. We might as well face the reality. We are living beyond our means and we will have to face some reduction in our living standards if we are to live within our means. If I were to try to pretend to the Deputy that this budget could be introduced without imposing real and substantial reductions in people's financial position, I would be attempting to deceive the Deputy. I do not think I should do that. The House must face realities. In this budget we are asking the House to face realities. We must cut our cloth to suit our measure, which we have not being doing for years.

Question put.
The Committee divided: Tá, 78; Níl, 70.

  • Allen, Bernard.
  • Barrett, Seán.
  • Barry, Myra.
  • Barry, Peter.
  • Begley, Michael.
  • Bermingham, Joseph.
  • Birmingham, George.
  • Boland, John.
  • Bruton, John.
  • Burke, Dick.
  • Burke, Liam.
  • Byrne, Hugh. (Dublin North-West).
  • Conlon, John F.
  • Connaughton, Paul.
  • Connor, John.
  • Cooney, Patrick M.
  • Corish, Brendan.
  • Cosgrave, Liam T.
  • Cosgrave, Michael J.
  • Coveney, Hugh.
  • Creed, Donal.
  • Crotty, Kieran.
  • Kelly, John.
  • Kemmy, Jim.
  • Kenny, Enda.
  • L'Estrange, Gerry.
  • McCartin, John J.
  • McMahon, Larry.
  • Markey, Bernard.
  • Mitchell, Gay.
  • Mitchell, Jim.
  • Molony, David.
  • Moynihan, Michael.
  • Nealon, Ted.
  • Noonan, Michael. (Limerick East).
  • O'Brien, Fergus.
  • O'Brien, William.
  • O'Donnell, Tom.
  • O'Keeffe, Jim.
  • Higgins, Michael D.
  • Kavanagh, Liam.
  • Crowley, Frank.
  • Deasy, Martin A.
  • Desmond, Barry.
  • Desmond, Eileen.
  • Donnellan, John F.
  • Dukes, Alan M.
  • Durkan, Bernard J.
  • Enright, Thomas W.
  • Farrelly, John V.
  • Fennell, Nuala.
  • FitzGerald, Garret.
  • Fitzpatrick, Tom. (Cavan-Monaghan).
  • Flaherty, Mary.
  • Flanagan, Oliver J.
  • Fleming, Brian.
  • Glenn, Alice.
  • Governey, Desmond.
  • Griffin, Brendan.
  • Harte, Patrick D.
  • Keating, Michael.
  • O'Leary, Michael.
  • O'Sullivan, Toddy.
  • O'Toole, Paddy.
  • Owen, Nora.
  • Pattison, Séamus.
  • Ryan, John J.
  • Ryan Richie.
  • Shatter, Alan.
  • Sheehan, Patrick J.
  • Spring, Dick.
  • Taylor, Madeleine.
  • Taylor, Mervyn.
  • Timmins, Godfrey.
  • Treacy, Seán.
  • Tully, James.
  • White, James.
  • Yates, Ivan.

Níl

  • Ahern, Bertie.
  • Alderman Dublin Bay-Rockall
  • Loftus, Seán D.
  • Allen, Lorcan.
  • Andrews, David.
  • Aylward, Liam.
  • Barrett, Michael.
  • Barrett, Sylvester.
  • Brady, Gerard.
  • Brady, Vincent.
  • Brennan, Paudge.
  • Brennan, Seamus.
  • Briscoe, Ben.
  • Burke, Raphael P.
  • Byrne, Hugh. (Wexford).
  • Callanan, John.
  • Clohessy, Peadar.
  • Colley, George.
  • Collins, Gerard.
  • Conaghan, Hugh.
  • Coughlan, Clement.
  • Cowen, Bernard.
  • Crowley, Flor.
  • Daly, Brendan.
  • Doherty, Seán.
  • Ellis, John.
  • Fahey, Jackie.
  • Filgate, Eddie.
  • Fitzgerald, Gene.
  • Fitzgerald, Liam.
  • Fitzpatrick, Tom (Dublin South-Central).
  • Fitzsimons, Jim.
  • Foley, Denis.
  • French, Seán.
  • Gallagher, Denis.
  • Gallagher, Pat Cope.
  • Geoghegan-Quinn, Máire.
  • Harney, Mary.
  • Haughey, Charles J.
  • Hyland, Liam.
  • Joyce, Carey.
  • Keegan, Seán.
  • Kenneally, William.
  • Killilea, Mark.
  • Kitt, Michael P.
  • Lemass, Eileen.
  • Lenihan, Brian.
  • Leyden, Terry.
  • Lyons, Denis.
  • McCarthy, Seán.
  • McCreevy, Charlie.
  • McEllistrim, Thomas.
  • MacSharry, Ray.
  • Meaney, Tom.
  • Moore, Seán.
  • Morley, P.J.
  • Murphy, Ciarán P.
  • Nolan, Tom.
  • Noonan, Michael J. (Limerick West).
  • O'Donoghue, Martin.
  • O'Hanlon, Rory.
  • O'Leary, John.
  • O'Malley, Desmond.
  • Power, Paddy.
  • Reynolds, Albert.
  • Smith, Michael.
  • Tunney, Jim.
  • Walsh, Seán.
  • Wilson, John P.
  • Woods, Michael J.
  • Wyse, Pearse.
Tellers: Tá, Deputies F. O'Brien and Mervyn Taylor; Níl, Deputies Moore and Briscoe.
Question declared carried.
SECTION 7.
Question proposed: "That section 7 stand part of the Bill."

The effect of this section is to increase the rate of excise duty on category A motor vehicles from 40 per cent to 50 per cent of the chargeable value with effect from 26 July 1981. The excise duty in the list price of a motor car is now 24.5 per cent and the VAT content, at the 15 per cent rate in operation since 1 September, is 13.04 per cent. The resulting increase in revenue, including VAT, will amount to £8.5 million in the current financial year or, in a full year, to £32.3 million. As I indicated in the discussion on the last section, I regard this increase in the retail price as important from an equity point of view in regard to the general thrust of taxation on motoring. It is of course regretable that taxation on motoring has to be imposed at all, but if it has to be done the burden should not all fall on petrol because very often this has a greater effect on less well off people who have to drive significant distances to work than it has on people who have a lot of money and buy a big car but does not use it that much.

This tax on the purchase price of cars will affect new cars and will be more socially equitable. This is a very desirable change in taxation. It is worth noting that new motor cars are a significant deficit item on the balance of payments and it is important not to encourage excessive purchase of them because of the balance of payments effect that has. As I have indicated during the debate, the fundamental reason for the budget and the approaches of the Government is the serious situation we face with the balance of payments. This measure will directly assist that as well as raising significant revenue amounting to £33.3 million next year.

Any argument put forward by the Minister has been extremely weak. He says he is trying to share the burden by not putting more on petrol but by putting some on new cars. One would get the impression from the Minister that this only applies to big cars. Is the Minister aware that in our second city we have the Ford motor company which is one of the biggest employers.

Belfast?

Their range of cars is not all confined to big cars. The Fiesta is the smallest one. In the case of that car several hundred pounds will be added to the purchase price because of the impositions in this section and the section dealing with VAT.

This is a deflationary measure because it will affect the new car market. I am aware that there is a limit on the time for this Bill and that there is a lot of it to go through yet. Perhaps the Minister would tell me what the CPI impact is of this section?

The overall effect of the July budget so far as this section is concerned and including the consequential VAT is 0.35 per cent. It is worth mentioning in this regard the trend in private motor vehicle registrations. In 1980 the number of new private cars registered was 90,939 compared with 62,603 in 1972. That was a significant increase in that period. The figures for 1981 remain very buoyant even taking account of seasonal factors.

Question put and declared carried.
SECTION 8.
Question proposed: "That section 8 stand part of the Bill".

This section re-imposes road tax on cars not exceeding 16 hp and on motor cycles at the rates which applied up to 1 August 1977. It provides also for an increase in the rate of road tax on cars exceeding 16 hp from £6 to £8 per hp and for the abolition of the annual registration charges of £20 and £5 respectively on cars not exceeding 16 hp and on motor cycles. In addition, it provides for the reduction in the initial registration charges in respect of cars exceeding 16 hp and of motor cycles to £5 and £1 respectively. The present rate of £20 stands to be payable in respect of first registrations of all other new vehicles.

Basically this is the re-introduction of motor tax. I do not know whether it is necessary to embark on a long dissertation as to why the Government decided to make this change. Perhaps the best context to put the matter in would be by way of reference to a comment which was made quite legitimately by Deputy Fitzgerald earlier when he referred to the narrowness of the tax base. He adverted to the fact that some of the excise duties are as high as they are because of other sources of revenue not being available. The Deputy went on to say that we run the risk of diminishing returns. I do not dispute that in substance.

May we take it, then, that there will be no increase in the duty on petrol or on drink in the next budget?

I think that both Deputy Fitzgerald and myself had whiskey in mind in this context. This over-reliance on some of the old reliables resulted from the fact that the previous Government had voluntarily deprived themselves of other sources of revenue for short-term political purposes. It was for this reason that motor tax was abolished on foot of a promise made during the 1977 election campaign. The measure adopted by this Government by way of the reintroduction of car tax is not designed to give us an advantage in any sense over the Opposition — that would not be a legitimate way to proceed — but in order to demonstrate, apart from the revenue that would be needed, that the situation has changed and that it is no longer possible because of our financial situation to make promises that have to be paid for by way of borrowing. It was not our intention in any way to adopt the attitude of reversing anything done by our predecessors. As I have indicated elsewhere in the debate, there are many initiatives such as the establishment of the Commission on Taxation which we are prepared to work with and get the best from.

In many ways the abolition of car tax, apart from its revenue losing capacity, symbolised the mentality that lay behind the public mood in the lead up to the 1977 election and almost up to the 1981 election, that was, an atmosphere of total unreality so far as our true financial situation was concerned and also our ability as a country to provide for our young people in the future. This atmosphere of unreality had to be brought to an end and one way of doing this was to reintroduce car tax and to show that as a country we cannot afford to lose revenue in this way any more, that we must not throw away uselessly revenue sources that are there in order to spread the burden evenly but rather to endeavour to get the best we can for our country in terms of improved revenue so that the money will be available to provide jobs and education and a secure future for young people not only next month or next year but in five, ten and 15 years time.

What about the young teachers?

The longer I sit here and listen to the Minister the more convinced I become that he, a decent man who should know the situation, is beginning to believe what he is saying. If I am right I fear for the young people he talks about. One has witnessed his cold, firm hand in some of the decisions taken by the Government, decisions that are not of any help to our young people. But who is the Minister fooling when he talks about the youth of ten or 15 years from now? We are faced with the problems now. We have had the problem of a population explosion which was not provided for because of a decision taken by the Coalition in the mid-seventies not to go ahead with a census. That has contributed to one of the major problems facing us now. Is the Minister saying that all the decisions being taken now are in the interest of young people away into the future? Does he realise that 130,000 of our people are unemployed? When both he and the Tánaiste were on these benches they had a lot to say about an unemployment figure of 120,000 but because of the increases in cost between July and October there are now 130,000 people out of work. I suggest that there are more important aspects facing us than the problems of the far-off future. If these problems are not tackled now the repercussions will be very serious especially in regard to young people.

If the budget can be said to have singled out one group of people that the Government were determined to penalise, that group were the motorists. Be it the farmer in Meath or the worker in Limerick or Cork, whoever it may be, for some reason the motorist has been regarded as a target whom this Government could afford to attack without losing any support. It started with a huge increase in the price of petrol. Already since the change of Government we have heard the Minister talking about more than 20p in all the increases. We have the increase in excise duty in the section to this Bill we have just seen go through the House. We have the increase in VAT and its huge impact on the cost of the car, petrol, spare parts and repairs. But the Government still were not satisfied that the motorist should get away with something which the previous Government gave him. Their attitude is that the people of the country got away with two things from the previous Government: road tax and rates were removed. Some members of this Coalition Government are still hinting that rates in some shape or form will have to be imposed again, but they are just too timid to take that final step. Instead, they decided to tackle the motorist and say to him that he had already received concessions from a previous Government in regard to tax on cars up to 16 h.p. but that they would take it back because it was something the motorist had got from a former regime and that this regime would hit him hard. I believe that is why road tax was reimposed. I will not bore the House with quotations on the approach of the present Minister when the registration fee was increased in the Finance Act last spring. I could talk about the sympathy the present Minister appeared to be showing from these benches because there had been an increase in the registration fee. Now the car tax has been reintroduced and every Deputy who walks through those lobbies on this section too, be he from Limerick or anywhere else, is helping this Minister for Finance to say to the motorists "You are entitled to be hit again because a previous administration granted you a concession by taking away the road tax; therefore we will restore it". They will restore it because of the support they will get in the lobbies here in this House, but the motorist will remember that they have hit the petrol, the excise duty and VAT, thus increasing the cost of maintenance, spare parts and new car purchases.

We oppose this measure. We are entitled to oppose it. It is not merited; it is not justified. In the Minister's own party very many people would like the opportunity of voting in this House against this measure, which is completely unnecessary.

I have said that this budget is part of a whole——

Propaganda exercise.

——propaganda campaign supported by certain Independents in this House who will make one speech agreeing with a line of policy and then will vote completely against it. The day of reckoning will come and the motorist will remember all those people. I have nothing to add except that we are opposed absolutely to this section.

I do not want to delay the House too long, but surely the Minister realises that by this taxation he will further affect unemployment in the car industry. As Deputy Fitzgerald said earlier, in Cork especially there will be considerable disquiet about the imposition of this tax. Of course, the attitude of the Cabinet and the Government will be to continue to disclaim all responsibility for what is happening and again to blame Fianna Fáil for it. We intend to highlight as much as possible the utter cynicism with which this Government have used the ordinary working man of the country. The cost to the State must be at least £4,000 between benefits and loss of revenue for each person who is unemployed.

Perhaps the Minister has more accurate figures than that.

The Financial Times had an article about that.

Had they? The point is that surely it would be more in the interest of the country from the Government's point of view and from everybody's point of view if they resisted the temptation to impose all these different taxes——

It is not a temptation.

——and put it more positively into job creation instead of closing down industries. The car industry in this country will suffer considerably as a result of the Minister's decision on this, while he and his colleagues will continue to disclaim all responsibility for it. I wonder what the hidden unemployment position is here. How many youngsters coming out of school who would normally be available for jobs have decided to go back and do another year in school because no employment is available for them? I venture to suggest that 130,000 is an under-estimation of the number of people officially unemployed. There must be many more thousands of people in the category I have described as hidden unemployment. This action by the Minister and the Government was an act of political revenge. There were a lot of sour grapes after the 1977 election.

It was one of the things that beat them.

It was a decision of political revenge in the strongest and most vicious possible sense. They broke all precedent by going completely back on an undertaking given by a previous Government based on an attitude that we could afford to do it. I am surprised to hear the Minister saying that everybody else in Ireland was under the wrong impression about where this country was going and reminding me that they were all out of step except our John. I assure the Minister that the people are well aware of what is happening and that the sine qua non of a Coalition Government is to create unemployment, to affect industry and to hit at the smallest man, the man who needs a motor car to get to work, to carry out his job and to have a small bit of pleasure and luxury at the weekend. This was a very bad decision by the Government, viciously and vindictively taken.

I could not accept the suggestion made by Deputy Crowley that this decision was vindictive; it was nothing of the sort. It was what we considered to be a responsible decision in the light of a very difficult financial situation. Deputy Crowley spoke of resisting temptation to introduce new measures of taxation like this as if the Government were looking for such opportunities. This is nonsence. I do not wish to be offensive to the Deputy but his suggestion that the Government want to introduce taxation and have to be held back from doing so is diametrically opposed to the truth. A measure like this is something no Government want to introduce but we were reluctantly convinced that it was absolutely essential. That is the truth of the matter.

This debate is not suitable for a discussion on the general question of employment. The key element in protecting employment is competitiveness and it is extremely important to get our balance of payments right and to get moderate increases in incomes for all members of the community in order to increase our competitiveness.

What will be the impact of this increase on the CPI?

It will be 0.24 per cent.

Question put.
The Dáil divided: Tá, 79; Níl, 70.

  • Allen, Bernard.
  • Barry, Myra.
  • Barry, Peter.
  • Begley, Michael.
  • Bermingham, Joseph.
  • Birmingham, George.
  • Boland, John.
  • Browne, Noel.
  • Bruton, John.
  • Burke, Dick.
  • Burke, Liam.
  • Byrne, Hugh. (Dublin North-West).
  • Conlon, John F.
  • Connaughton, Paul.
  • Connor, John.
  • Cooney, Patrick M.
  • Corish, Brendan.
  • Cosgrave, Liam T.
  • Cosgrave, Michael J.
  • Coveney, Hugh.
  • Creed, Donal.
  • Crotty, Kieran.
  • Crowley, Frank.
  • Deasy, Martin A.
  • Desmond, Barry.
  • Desmond, Eileen.
  • Donnellan, John F.
  • Dukes, Alan M.
  • Durkan, Bernard J.
  • Enright, Thomas W.
  • Farrelly, John V.
  • Fennell, Nuala.
  • FitzGerald, Garret.
  • Fitzpatrick, Tom. (Cavan-Monaghan).
  • Flaherty, Mary.
  • Flanagan, Oliver J.
  • Fleming, Brian.
  • Glenn, Alice.
  • Governey, Desmond.
  • Barrett, Seán.
  • Griffin, Brendan.
  • Harte, Patrick D.
  • Higgins, Michael D.
  • Kavanagh, Liam.
  • Keating, Michael.
  • Kelly, John.
  • Kemmy, Jim.
  • Kenny, Enda.
  • L'Estrange, Gerry.
  • McCartin, John J.
  • McMahon, Larry.
  • Markey, Bernard.
  • Mitchell, Gay.
  • Mitchell, Jim.
  • Molony, David.
  • Moynihan, Michael.
  • Nealon, Ted.
  • Noonan, Michael. (Limerick East).
  • O'Brien, Fergus.
  • O'Brien, William.
  • O'Donnell, Tom.
  • O'Keeffe, Jim.
  • O'Leary, Michael.
  • O'Sullivan, Toddy.
  • O'Toole, Paddy.
  • Owen, Nora.
  • Pattison, Séamus.
  • Ryan, John J.
  • Ryan, Richie.
  • Shatter, Alan.
  • Sheehan, Patrick J.
  • Spring, Dick.
  • Taylor, Madeleine.
  • Taylor, Mervyn.
  • Timmins, Godfrey.
  • Treacy, Seán.
  • Tully, James.
  • White, James.
  • Yates, Ivan.

Níl

  • Ahern, Bertie.
  • Allen, Lorcan.
  • Andrews, David.
  • Aylward, Liam.
  • Barrett, Michael.
  • Barrett, Sylvester.
  • Brady, Gerard.
  • Brady, Vincent.
  • Brennan, Paudge.
  • Brennan, Seamus.
  • Briscoe, Ben.
  • Burke, Raphael P.
  • Byrne, Hugh.
  • (Wexford).
  • Callanan, John.
  • Clohessy, Peadar.
  • Colley, George.
  • Collins, Gerard.
  • Conaghan, Hugh.
  • Coughlan, Clement.
  • Cowen, Bernard.
  • Crowley, Flor.
  • Lemass, Eileen.
  • Lenihan, Brian.
  • Leyden, Terry.
  • Lyons, Denis.
  • McCarthy, Seán.
  • McCreevy, Charlie.
  • McEllistrim, Thomas.
  • MacSharry, Ray.
  • Meaney, Tom.
  • Molloy, Robert.
  • Moore, Seán.
  • Morley, P.J.
  • Murphy, Ciarán P.
  • Nolan, Tom.
  • Daly, Brendan.
  • Doherty, Seán.
  • Ellis, John.
  • Fahey, Jackie.
  • Filgate, Eddie.
  • Fitzgerald, Gene.
  • Fitzgerald, Liam.
  • Fitzpatrick, Tom. (Dublin South-Central).
  • Fitzsimons, Jim.
  • Foley, Denis.
  • French, Seán.
  • Gallagher, Denis.
  • Gallagher, Pat Cope.
  • Geoghegan-Quinn, Máire.
  • Harney, Mary.
  • Haughey, Charles J.
  • Hyland, Liam.
  • Joyce, Carey.
  • Keegan, Seán.
  • Kenneally, William.
  • Killilea, Mark.
  • Kitt, Michael P.
  • Noonan, Michael J. (Limerick West).
  • O'Donoghue, Martin.
  • O'Hanlon, Rory.
  • O'Leary, John.
  • O'Malley, Desmond.
  • Power, Paddy.
  • Reynolds, Albert.
  • Smith, Michael.
  • Tunney, Jim.
  • Walsh, Seán.
  • Wilson, John P.
  • Woods, Michael J.
  • Wyse, Pearse.
Tellers: Tá, Deputies F. O'Brien and Mervyn Taylor; Níl, Deputies Moore and Briscoe.
Question declared carried.
SECTION 9.
Question proposed: "That section 9 stand part of the Bill."

As the House will probably be aware, the tax on tobacco, unlike other taxes, is a combination of an ad valorem tax which varies with the price of the commodity. It goes up as the price goes up, for whatever reason. Another specific element is that it is a tax levied at a particular sum for a particular quantity and it remains at that sum until it is changed, regardless of what happens to the price of cigarettes in the meantime.

The section obviously is designed to avoid an element of double taxation. Cigarettes have been increased in price under the excise duty code by a change made in the budget in July. They also fell to be increased in price again as a result of the increase in value-added tax from 1 September but because of the way in which the excise duty is structured, partially as a specific tax and partially as an ad valorem tax — a tax on the value — there was the danger that the excise duty would again be increased from 1 September because the increase in VAT from that date increased the value of the product sold, and because part of the excise duty is ad valorem there would have been a further excise duty increase on top of the value-added tax increase. Clearly, that is not the intention of the Government and in order to ensure that further unintended increases do not occur this section is being introduced. Hence, it is a relieving section and I trust it will have the support of all sides.

I agree with the section. I am aware that our time for debate on the Bill is limited.

Question put and agreed to.
SECTION 10.
Question proposed: "That section 10 stand part of the Bill."

This is a definition section and I do not think there can be any problem about it.

Question put and agreed to.
SECTION 11.
Question proposed: "That section 11 stand part of the Bill."

This section raises the turnover limits above which traders are obliged to be registered for value-added tax. It is also a relieving section and I trust it will have support. It introduces two new limits of £30,000 and £15,000 annual taxable turnover to replace the present three limits which, expressed in annual terms, amount to £18,000, £9,000 and £3,000. There is a slight difference here that might make the drafting somewhat obscure. In the past the registration limits have been expressed in terms of turnover for the accounting period which is two months whereas under the new dispensation they are being expressed in terms of annual turnover. The effect of this is to raise the limits to £30,000 and £15,000 instead of £18,000, £9,000 and £3,000. The new registration limit of £3,000 will apply to a trader whose turnover consists of 90 per cent or more of the sale of taxable goods. The £15,000 limit will apply to all other categories of trading.

The Government recognise, as was stated in their programme, that there is a heavy burden of paper work imposed by our tax system on small traders. We realise that small traders have enough problems competing with the large multiple stores and other new developments in the retail sector without imposing on them massive burdens of paper work which are unrelated to the amount of revenue to which they are liable. For small traders we are adjusting these limits to relieve a significant number of them of the responsibility of keeping the books in question. The cost to the Exchequer of this relief, because tax will obviously be foregone as a result, will be £750,000 in a full year. It is expected that between 400 and 500 traders who are now registered will be enabled to have their registrations cancelled. There are a number of traders, probably an even greater number, who are unregistered although they should be registered, or about to be registered under the old regime, but they will not now have to be registered. Applications for cancellation of registration will be allowed by the Revenue Commissioners on the basis of direct application by the taxpayer concerned and will be submitted for examination in the normal way. This section is a welcome one and it will go some distance to helping small traders with the many difficulties they have in the competitive field. The Government recognise that they face those difficulties and hope that this matter will have universal support in the House.

We have no major objection to the section but some Deputies may have questions to put to the Minister. I should like to ask the Minister if there are any hidden snags in the change from the two-monthly period he has spoken of. The Minister after mentioning the totals involved told us that he was changing the accounting period from two months. Will the Minister elaborate on that point?

(Dublin South-Central): I was pleased to hear the Minister express sympathy with small traders but that is little consolation to them.

The section does something for the small traders.

(Dublin South-Central): Very little.

It is more than the Deputy's party did when in government.

(Dublin South-Central): With the rate of inflation and the increase in prices this concession will be short-lived. Like the income tax brackets it will not be long before many of those traders are inside the group again. The important fact is—I have mentioned this to successive Governments—that this one section of the community is involved in doing unpaid work for the Revenue Commissioners. I do not know any other section of the community that would sit up late every night making up turnover tax returns. Very few realise the amount of complicated work involved in this. A trader would not need to be a substantial business man to take in £15,000 per year. With prices going up 25 per cent and 30 per cent it is obvious that the Minister had to make this move. There are enormous complications for small traders since this burden was put on them. When turnover tax applied some years ago a concession was given to traders to compensate them in a small way for the amount of work they had to carry out in preparing returns. If the Minister was considering some form of generosity towards small traders he should concede something to compensate them for this work which is causing them a lot of harassment.

We are all aware how difficult it is to get an exact balance into such returns and traders are asked to explain the least little irregularity. Invoices can get lost and it is almost impossible for such traders with a small staff to explain that to the Revenue Commissioners. I do not believe the exemption the Minister mentioned will apply to a sufficient number. I do not have any sympathy with the larger combines who can employ a secretary to do this work but the small traders cannot do that. They cannot afford the personnel to allocate to this work during a working day when such work should be done. Instead, the unfortunate trader has to do this work after trading hours, after he has closed his doors at 6 o'clock. The trader must work until midnight making up these books and he should be given compensation for the valuable service he renders to the Minister for Finance. It is much more complicated to make up than was the turnover tax which is quite simple. Deputy Fitzgerald mentioned the question of taking the full 12 months into consideration instead of the two-month period. As far as I can see if that is to be the case, in the event of a trader expanding his business in the last two or three months of the period, he can be caught for the whole previous ten months. As far as I can see, it cannot mean anything else. We welcome the increase in the exemptions but they are not enough because of the way prices have gone over the past 12 months, with inflation running at 20 to 25 per cent.

First I would like to welcome the increase in the exemption limits. They were introduced in 1972 and were increased on a couple of occasions since but they are still far too low. The people who supply small shopkeepers and the grocery trade have most of their goods at 0 per cent and only a certain percentage of their goods at 15 per cent to 25 per cent. There are various formulas agreed by the Revenue Commissioners to work out the VAT return at the end of the two-month period. A shop with a turnover of £2,000 per week would be very small and the VAT collected in a two-monthly period, after a long process of keeping books and records and thousands of invoices, would be very small. I would ask the Minister to consider, in the next Finance Bill, raising the exemption limit to £100,000 for people whose turnover consists largely of items sold at 0 per cent because the amount of money collected from such people is very small in comparison with the amount of bookkeeping needed.

I agree with Deputy Fitzpatrick on the amount of time that an ordinary shopkeeper or any small businessman has to put into keeping books. Because of the paperwork involved many small shopkeepers or businessmen prefer to get out of the business altogether and get into something else such as running a small farm. We have reached the point where a person going into business would want to have his head examined because there is no incentive; he has to bear all the headaches and nobody cares a tuppenny damn about him. If he goes bang there is nobody to pay him social welfare; he does not have security of employment. Yet, in addition to all the normal headaches of going into business he is faced with ever-increasing amounts of paperwork — VAT returns, PAYE returns and so on. Even the smallest businessman would need to employ someone on a full-time basis to look after it. Officials and civil servants and officers of the Revenue Commissioners do not appreciate the amount of work involved. I imagine that Deputy Bruton appreciates the amount of work involved.

We are the people who are making the laws so I suppose we cannot blame the officials.

I am suggesting that if the Minister were to raise the exemption limit to £100,000 for people whose turnover is mixed he would not lose any money and he would save these people all this paperwork.

I would also like to refer to the question of changing the wording from "the turnover exceeds in a two-monthly period" to "shall not exceed in any continuous period of 12 months". I would like the Minister to explain how this is going to work. Up to now with the limit at about £18,000, if the turnover exceeded £2,500 in a two-monthly period a businessman would automatically have to register for VAT. The idea behind the new suggestion is good because it has happened that a person has gone over the limit for two months and then back to the lower income and there was chaos and nobody knew what to do; he should have registered and stayed registered. It is a good idea to introduce the continuous period of 12 months. But how is this period going to be determined? Deputy Fitzpatrick suggested that it would be based on a person's accounts period of 12 months. But I understand from reading the section that that is not what is meant. It refers to any continuous 12-months period. They are two entirely different things. A person's accounting year could end on 31 December and his turnover for that period could be below the threshold. But if the continuous period of 12 months were counted from June last year to June next year the figure might be greater than £30,000. That person would then be registered for VAT because the turnover would be greater than the threshold. If it is not made clear how this section is going to operate there will be difficulties.

Deputy McCreevy has partly done my job of answering the question raised by Deputy Fitzpatrick in explaining the reason for going over to the annual basis of assessment rather than the two-month one.

To answer the question he himself raised, as I understand it—and if there is anything inaccurate in what I am saying I can come back and clarify it on Report Stage—the way it would work is that at any given time during the year, if it looks as if on the basis of the two-monthly period a person's annual outturn will be in excess of the limit, then the situation would fall to be examined as to whether he would be obliged to register. But in assessing this, account will be taken not just of those two months but now, as a result of this, of his overall pattern over the entire year. So in the case of somebody who is a seasonal trader and whose turnover goes up very rapidly in two months during the summer when perhaps he does most of his business, it will not trigger an examination because his pattern over the year will reveal immediately that it is only a seasonal phenomenon. But in the case of somebody who is not a seasonal trader, his reaching the same level of turnover in a given two-monthly period would trigger a different response because it would be obvious from his previous record what his pattern was.

I would like to reply to a point made by Deputy McCreevy and Deputy Fitzpatrick about paperwork. This is, by far, the biggest increase in the threshold in recent times. There was one other increase in 1979, but on increase from 1972 up to 1979. The threshold which is now £30,000 was increased to a range of £9,000 to £18,000 in 1979 from a previous rate of £6,000 to £12,000 — in other words, it was increased by 50 per cent in 1979. The present increase is more in the nature of £12,000 to £30,000, an increase of more than 100 per cent — about 150 per cent. That was a deliberate choice. I decided during the three weeks in which work was done preparing the budget that, regardless of the situation, I would give thought to the serious inequity in the first budget, which I have now done. Naturally enough, I am happy to look for suggestions for further relief in this respect as mentioned by Deputies Fitzpatrick, McCreevy and others.

The only problem here is that people may not be all that keen to take this up. Most of a butcher's sales, for example, are of zero rated commodities, in fact all his sales are. Of course, if he is not registered, his inputs of light and equipment used in his business are not capable of being claimed back. If he is registered, he can. Removing the requirement to register is not always the whole story, as far as the decision of the traders is concerned. In many cases, those who are trading in zero rated commodities will see it as being in their interests to register.

The person who will benefit from this, of course, is one whose sales are all at nought percentage. It is in his interests to register. All his inputs will be recoverable in the two monthly period. The grocer, for example, has a mixed sale. The Minister might check on the amount of revenue from people who have turnovers of up to £200,000 of mixed sales — so many at nought per cent, so many at 25 per cent and 50 per cent. The amount that will be collected there will be quite small.

Regarding the 12 month period, subsection (4) is one of the key interpretation sections. That, from my reading of it, will be the subsection used to interpret when a taxable person commences to be taxable, having gone over the threshold. It will be like the old system again of going back and finding when he crossed the two monthly equivalent of the annual period.

I welcome the change from the 12 monthly period but it may be two years before an inspector comes to check a person's turnover and if a person registers himself how will he know that his actual turnover will be over £30,000? When an inspector calls he usually has to go back a long time in the records. It could be the old system, doctored up in a new way.

Is the case which the Deputy is making that people will not know where they stand under the new system as readily as they did?

Yes. I appreciate the position better now.

I can see the point that the Deputy is making. I will have a look at that situation between now and Report Stage.

Perhaps the Minister could issue some guidelines on the situation?

Yes, that might be the answer. I will see what I can do between now and Report Stage.

Question put and agreed to.
SECTION 12.
Question proposed: "That section 12 stand part of the Bill."

Deputy Fitzgerald.

I am sorry, Minister, I will cede to you at any time.

We are becoming very courteous. This is another relieving section.

It is not a relieving section.

It is relieving people of more money.

I was thinking of another section. In confirmation of the financial resolution passed in Dáil Éireann on 21 July last, this section confirms the increase in the former 10 per cent VAT rate to 15 per cent with respect from 1 September 1981. At the same time, it provides that, despite the increase in the tax rate in question, there will be no increase in the effective charge of 3 per cent on buildings and building work. It also extends the list of specified agricultural services to the 3 per cent charge which applies to buildings and building work, in lieu of the 15 per cent which would otherwise have applied.

As the House is aware, the increase in value-added tax from 10 to 15 per cent is one of the major revenue generating parts of the July budget. The additional yield is estimated to be £28.2 million in 1981 and £188.5 million for the full year of 1982. The estimated total 1981 yield from VAT will be £594 million. This is a major increase in revenue, which will make a big contribution towards helping to reduce the current deficit and put the Government and the state in a more solvent position. It is a very big revenue earner, and very important for that reason.

I would like to advert to one of the sections here, which is a relieving part of the general section, namely the reduction in value-added tax on agricultural contracting. The Government recognise that there is a big problem in the country at large at the moment because of farmers now not being able to get contractors to do work for them. This is partly due to the problems with which agriculture is beset, but also to the fact that the professional contractor was at a disadvantage so far as tax was concerned. He was competing with the farmer, who might do some work with his own machinery for three or four neighbours and who did not have to register for VAT. The fact that the contractor was paying 10 per cent VAT put him at a disadvantage.

It is the Government's wish, in the interests of employment, to encourage the development of agricultural contracting services on a professional basis in rural Ireland. This will enable agriculture to operate on a much more flexible basis. It is not practicable for farmers to have all their own machinery and to provide for all their own needs. If they attempt to do that, it will drive them into even greater credit difficulties than many face at the moment. The aim must be for the best use of machinery and of capital and to minimise the requirements of farmers to borrow money to buy their own machinery — to encourage them, as far as possible, to use contractors. There is great scope for an increase in contracting services in rural Ireland, in response to the present economic problems facing them.

There are a lot of out-of-work contractors who would not agree with the Minister.

In order to help in that direction, we are reducing the value-added tax rate to 3 per cent on a list of important agricultural services provided by contractors. This is a major measure to help agriculture at a time when such a measure is needed. When farmers come to study the provisions of the budget in more detail I believe this particular measure will be seen by them as an important one to assist a major industry. It goes directly to where help is needed, towards providing better services and lower costs for farmers. We all know that farmers are facing increased prices for their products and that their incomes are considerably less than those of other people. This is beyond our control to a great extent because those prices are determined outside the country by agreement with EEC levels. One way we can help in the income squeeze which results from this is by reducing the price of inputs which have to be bought by farmers. One of the biggest inputs is the contracting of machinery services. This measure, which reduces the rate from 10 per cent to 3 per cent or from what would have been 15 per cent if this had not been done, is a great assistance to an industry which we all know is in need of assistance at the moment.

Before I go into the details of the section I would like to clear the arrangements under the Order of Business this morning in regard to this Bill. Am I right in thinking that this Bill must be through the House by 6.20 p.m.?

All aspects of it must therefore be ended by then. It is no reflection on the Minister, but I regret that such an agreement was entered into, because we do not have enough time to discuss this section and the later sections of the Bill. Obviously, Report Stage will now be more important as it will probably attract more interest from some of the other Members. This is not as satisfactory as the Committee Stage. I take it that we have to have the vote completed by 6.20 p.m. Is that the position?

The final vote must take place at 6.20 p.m. That is the order of the House.

We are not concluding the Bill at 6.20 p.m.?

We have to stop talking at 6.20 p.m.

The debate will cease at 6.20 p.m. at which stage the appropriate questions to conclude the Committee Stage will be put. That is the order which has been made and is the one to which the Chair was referring earlier on and encouraging expedition in the debate.

It is not a reflection on the Minister because I understand there is a deadline. We have to be very careful in all of these issues, particularly in relation to Financial Resolutions and Finance Bills, that adequate time is given to the Opposition to tease out the details of the amendments. That is obviously denied to us today through an agreement we have entered into and about which I cannot complain. It is worth making the point because it can always be of some benefit afterwards to prevent this happening again or to find some loophole out of it.

I will have to be very brief on this. I am not clear how we will finish this Bill because obviously there will be some sections we will not get to. This section is repugnant to this side of the House. The increase in VAT from 10 per cent to 15 per cent means a 50 per cent increase and is the gravest penal imposition of the budget. I believe it is the greatest contributor to the fact that this year we have not a real basis for a national wage agreement. Surely all this budget did was contribute to increasing the CPI figure by about 5 per cent and reducing the magically achieved norm—I do not know how it was achieved — from 9.5 per cent to 6.5 per cent.

We are now discussing the VAT increase. I said on the Second Stage of this Bill and also during the budget debate that nobody could say that almost every item covered by the 10 per cent VAT rating was not an essential in the home. All those items are important factors in the home, the office, industry, the farm or anywhere else. A brief definition of the category of items in that grouping is all things, excluding luxury items and essential clothing and foodstuffs which are zero-rated. That is the short formula of what is in it. Forget about the luxuries and about the few items which are zero-rated and we find that everything else is included in the 10 per cent rating. The Minister, therefore, attacked all those items and increased the rating by 50 per cent. School books, newspapers, periodicals and every service is affected. There are so many things here that I could not hope to go into them this evening. We are opposed to this section. We do not agree with a 50 per cent increase in the VAT rating nor do we believe it is merited.

We have not time to tease out all the points we would like to, but there are a few things we can mention. Where are the real cuts the Minister spoke about in the budget? Can we have them itemised on Report Stage when we can go into the matter in more detail? We are opposing this. My colleagues will have something to say. I am at a loss to know how we can tidy up other sections which are of some interest. There is stamp duty, which is very important. We are not opposing the principle of the idea. It is possibly a good idea, but we are very interested in the detail of the proposal. I cannot see us this evening being able to go into the detail of how these new bank charges will be imposed. It means we will have to give longer time to Report Stage, although I appreciate that it is a less satisfactory way of handling important matters like that.

I would like to make a few comments on the section. We can divide this section into two distinct categories. One of the categories, as Deputy Fitzgerald has outlined, is the increase in the VAT rate from 10 per cent to 15 per cent. The second division is the relief to agricultural contractors. In one section we have a penalty imposed and a relief given. It is an unusual section. If the Minister for Finance can do this in all future Finance Bills it will make it quite difficult to vote against such Bills if he is able to combine in one section a major penalty clause and also some relief.

Deputy Fitzgerald spoke about the increase in the VAT rate from 10 per cent to 15 per cent. I should like to mention a few other aspects of the section. I would welcome a uniform rate of 10 per cent or 15 per cent, or what ever the case may be. When VAT was first introduced the rate which would now be equivalent to 15 per cent was 5.26 per cent, and the higher rate was 16.37 per cent. Today people may wonder how those figures were arrived at. There were good reasons at the time. The 5.26 per cent rate was equivalent to the 5 per cent gross turnover tax on an inclusive exclusive basis. The 16.37 per cent was equivalent to the 10 per cent wholesale tax rate.

I maintained at the time that it was absolutely ridiculous to impose such percentages on the tax paying public. People had to have schedules, tables, reducing amounts, tax exclusives and tax inclusives. Huge permutations had to be worked out every month. It was beyond me why they could not have decided on 6 per cent and 10 per cent at the time. We should stand back from the system every so often and ask do we have to continue with it. At the time it was said we had to have the equivalent of the turnover and wholesale tax rates. It would have been better to have had a simpler system.

The problem was confounded when the Coalition Government increased the VAT rate by 5 per cent and pushed the 5.26 per cent rate up to 6.75 per cent, and the 16.37 per cent rate up to 19.5 per cent. Those may not be the exact figures. This shows the type of straightjacket we can get into. The bookeeping involved was astronomical.

I do not welcome VAT increases or any tax increases but, from an administrative point of view, I would welcome a simple rate of 10 per cent or 20 per cent, or some percentage like that. When VAT was introduced in 1972 I was not a Member of this House but I asked why did we have to have different rates. Instead of having a 10 per cent and 25 per cent rate, why not have a 20 per cent rate or a 16 per cent rate and include certain items in the 16 per cent rate and take other items out of the 25 per cent rate? This would produce the same revenue. We should have a cost benefit analysis. If we wanted to take in so much money based on statistics of consumption, and so on, we could have one rate of VAT with everything else zero-rated. With two rates only of 15 per cent and 25 per cent the bands are very close.

In 1972 certain items were put in the high tax rate because they were regarded as luxuries. Other items were put in the 5 per cent rate because they were not regarded as luxuries. It was an arbitrary decision by the Government of the day. Since then there have been changes in what are considered to be luxuries and what are considered not to be luxuries and the rates are different. Now that the tax bands are so close together is there any reason to have certain items rated at 25 per cent? Why not have just one VAT rate? This might put up the price of certain items. Rates are not increased for the good of the taxpayer. VAT is the easiest way of collecting money for the Exchequer. It brings money in fast. The Minister knows exactly what he will get.

I may have strayed a little from the section. When the Minister is introducing his next budget perhaps he would have a look at the whole area of what is in the different bands and adopt my idea. My view is that we should have just one VAT rate.

I share Deputy McGreevy's view as a general principle. I would have to consider carefully whether it would be practicable to adopt it. If we were to have one rate, it would be somewhere in the region of 17 per cent. Obviously it would save a considerable amount of administrative cost in that traders would not have to make calculations. If the item were in the VAT rate it would be at a particular rate set at the time. I do not accept — and this is bandied about in the debate — that goods in the 25 per cent rate are luxuries. Most of them are not luxuries. There is the ridiculous situation that if you buy clothes they are zero-rated but if you buy a zip to keep your clothes up, it is designated as a luxury and you pay 25 per cent.

It depends on where you are using the zip.

That is absurd. Furniture is considered to be a luxury and is rated at 25 per cent. It is not a luxury. You have to have furniture. There is not much of an ethical basis for the distinction which exists. The issue raised by Deputy McCreevy is a big one. I am giving my personal view at the moment, and I will look into it in detail.

The most savage tax imposed in this Bill is the increase of 50 per cent in VAT.

Five per cent.

It means that it increases by 50 per cent.

It depends on which side of the House you are on.

A big play was made about the problem the small trader has in filling in forms and trying to meet his commitments when the VAT man calls around. Many family-run businesses whose turnovers are well in excess of the figures mentioned in the budget by the Minister are still family-run businesses and are put to the pin of their collars to try to keep their operations going. They become involved in returning these figures to the VAT man. This is causing them a great deal of concern. Many of them are going out of business because of the worry, the stresses and pressures on them in trying to keep those books. Would the Minister consider giving positive incentives to those firms by way of subsidising their staffs? I am not just talking about AnCO but I am talking of giving something far more substantial, say, £60 or £70 per week subsidy to every extra person employed in those businesses above a base level. I do not want the Minister to give money to an inefficient firm for a few months. I am talking of backing the winners, of backing the people who have a commitment.

The employment incentive scheme does that.

It is not good enough. We cannot get the people with the necessary expertise.

Deputy Fitzgerald will tell the Deputy all about that.

That scheme is very good in its own way and I have no objection to it. I am talking of a scheme allied to that scheme and the people I have in mind are experts in their field. If the Minister would adopt this course many people could be taken from the register of unemployed and from the emigrant ships and given employment at home. I do not know what other solutions there are to all the paperwork that is involved in making out VAT returns.

The Minister made great play of the exemptions in relation to agriculture. I know the farming organisations are not crying very loudly about this because probably they do not wish to be too hard on their former employee. However, we will cry out about it. If there is any one action, apart from the bank interest rates, that has worsened the lot of the farmers it is the VAT increase. It has compounded their problems and they have confidence to continue with their operations. Rather than making the few exemptions he has made in his budget, the Minister should consider carefully the matter of a further subsidy for farmers. As I pointed out before, the farmer is the barometer of the economy. I would like to have developed that point but as we are under pressure of time I will give way to another speaker.

I am not quite sure how the remaining Stages of the Bill will be handled. We are opposed to the increase in VAT and we will vote against it. We are sorry that there has not been an adequate opportunity of discussing very important aspects of the Bill.

The Deputy is wasting time discussing something to which he has agreed.

This is typical of the way the Government are handling business. When business has to be done in this House we are quite prepared to do it but we object to having to rush through business when it is given to us at a late stage. Obviously our only solution is to have a well-prepared and long drawn-out Report Stage. In principle we are not opposed to some of the innovations in the Bill and probably we will support some of them but we want to tease out details of the operation of stamp duties and so on.

I am sure the Deputy appreciates that whether we like it or not we are subject to the order that was made. That order requires that we discharge the Committee Stage of this Bill not later than 6.20 p.m. All sections, whether discussed or not, will be put in the question that will be put to the House at that time.

May we vote at 6.20 p.m.?

We can carry on without a decision on this section?

I am sure the Deputy appreciates that the question will be a comprehensive question encompassing all that is in the Bill.

If the Deputy talks this out we will not be able to discuss the other sections.

The Minister should realise that the section involves the most penal imposition of taxes. What is involved is the income he will gain, particularly in 1982.

Not me, the country.

The Minister must also realise that this is being done for one specific purpose, namely, to help to fund the £9.60 in respect of which the Revenue Commissioners will be advertising very shortly for applications. That is the reason for this penal imposition of VAT. What we can do with the remaining sections is most unsatisfactory——

I think Deputy McCreevy has indicated his wish to speak on section 12.

In view of the fact that time is too limited to discuss very important issues, will the Chair say if we will have the right on Report Stage to have a Committee Stage type of debate?

The Deputy will appreciate that as I have not been in the post of Leas-Cheann Comhairle for very long I am reluctant to make any promises with regard to what may happen on any Stage. I am asking the House that we proceed in accordance with the order that has been made and that for the remaining 10 minutes we apply ourselves to the section. I am calling Deputy McCreevy.

With regard to section 12, will the Minister give the House an indication of the expected total VAT to be collected in 1982? Further, will the Minister state what amount will be collected in 1981 as a result of increasing the rate? However, I am more interested in the Department's estimate of what will be collected in 1982. With regard to relief given to agricultural contractors, I welcome the decrease in the rate for farming from 10 per cent to 3 per cent which is the equivalent of what building contractors have had for a number of years. Presumably the intention is to give farmers some relief. Because of the Act of 1978 agricultural services came within the ambit of VAT legislation. Prior to that agricultural contractors were not obliged to register for VAT and they did not have to charge VAT on their contract work.

The reason the then Government charged VAT was as a result of an EEC directive which compelled us to bring the supply of agricultural services within the VAT framework. Agricultural contractors will now only be allowed to charge VAT at 3 per cent. This should give some relief to farmers. Since they were brought into the VAT net there has been a decrease in the numbers of contractors. Prior to 1978 any small farmer with a combine or whatever would help his neighbours and do part-time agricultural contract work. Under the Finance Acts if a person is deemed to be carrying on a trade as a farmer he would have to produce books and accounts irrespective of his land valuation. As a result many people stopped doing agricultural contract work. The effect has been that there are now only specialised contract workers. The fear of VAT and tax legislation has forced a number of small farmers out of this work.

The cost of agricultural services is rising, and this is one of the reasons. There is no competition. Small farmers are afraid to do this work any more unless they are guaranteed that they will be paid in cash and the person for whom they do the work will not claim it against income tax. Reducing VAT on the supply of agricultural services to 3 per cent offers some relief. There are problems in agriculture at present. We see the farmer demonstrations and hear advice given to them by organisations. I welcome any concessions that could be given. There is a serious problem in agriculture and nothing will be gained by farm organisations acting in an ad hoc fashion. This section gives relief to farmers and I welcome it.

Deputy McCreevy asked a question which is rather difficult to answer. He asked the likely yield from VAT next year. I do not have the officially calculated figure available at present, but I can give a rough calculation. On the basis that the total yield for this year is £594 million, of that £28 million is as a result of increases in the budget; and, if one takes that away and adds on what we anticipate will be the full effect of the budget, £188 million, that gives something in the region of £654 million. If one includes a value increase in sales of 15 per cent next year, one can add 15 per cent to that and one will get a rough amateur calculation as to the likely total revenue from VAT.

(Dublin South-Central): £200 million.

That is a rough calculation. If the Deputy wishes to put down a question I will get the answer for him.

I am amazed that the Minister is reluctant to answer that.

I am not reluctant. I do not have the answer with me.

If the Minister says he will be prepared to answer if a question is put down——

I do not have the answer now.

——one would think that he would have the information for Committee Stage. I am sure Deputy McCreevy will forgive him if he endeavours to have it for Report Stage on Tuesday next.

I shall do that.

(Dublin South-Central): There is nothing as disruptive to business as introducing two taxes in one year. This is probably the first time we had to encounter this kind of difficulty. In the July budget the Minister introduced various indirect taxes which had an inflationary impact. There is no question but that VAT had the most inflationary impact of all. It is very difficult to define what the impact will be on the cost of living. One can be precise about the effects of direct taxation but there is no economist who can predict what the impact of VAT will be on the cost of living. There are too many fluctuations. No-one knows what prices will increase by because it is just not possible to be precise to the exact penny. That is a fact of business life.

There is no question about the hardship this will cause to the weaker sections of the community, large families and old age pensioners, who can ill afford to carry the increases at present. I condemn this, as Deputy Fitzgerald did, because it will have a big impact on the cost of living index. As regards VAT, retailers are responsible for all sales as and from 1 September. What is the position regarding wholesalers who send out invoices after 1 September but whose goods were delivered during August? What rate of VAT will they be subject to? Will they be subject to the 10 per cent at which the goods were ordered or will they send out invoices with the new rate?

It will be chargeable at the higher rate but deductible by the retailer at that rate, too, so that the retailer will not be in any worse position.

(Dublin South-Central): Will this be the position even if the goods are received in August?

Yes. The relevant date for the retailer is the date on which they are sold at retail level.

(Dublin South-Central): I am talking about the wholesaler.

The retailer will get a tax credit on his purchases at the new rate even if they were ordered at the time at which the old rate was in force.

(Dublin South-Central): In effect, therefore, this VAT is not in operation as and from 1 September. According to what the Minister is saying, if a wholesaler failed to send out invoices for July and August, the goods would carry the 15 per cent rate.

The relevant date for the 15 per cent VAT rate is the date at which the item is sold by the retailer.

(Dublin South-Central): But the relevant date at which the item was sold by the wholesaler could have been during July or August.

As everyone knows, VAT is a tax on final consumption.

Question put: "That all amendments set down by the Minister for Finance and not disposed of are hereby made to the Bill, that the Bill, as amended, is hereby agreed to and, as amended, is reported to the House."
The Committee divided: Tá, 79; Níl, 72.

  • Barrett, Seán.
  • Barry, Myra.
  • Barry, Peter.
  • Begley, Michael.
  • Bermingham, Joseph.
  • Birmingham, George.
  • Boland, John.
  • Browne, Noel.
  • Bruton, John.
  • Burke, Dick.
  • Burke, Liam.
  • Byrne, Hugh.
  • (Dublin North-West).
  • Conlon, John F.
  • Connaughton, Paul.
  • Connor, John.
  • Cooney, Patrick M.
  • Corish, Brendan.
  • Cosgrave, Liam T.
  • Cosgrave, Michael J.
  • Coveney, Hugh.
  • Higgins, Michael D.
  • Kavanagh, Liam.
  • Keating, Michael.
  • Kelly, John.
  • Kemmy, Jim.
  • Kenny, Enda.
  • L'Estrange, Gerry.
  • McCartin, John J.
  • McMahon, Larry.
  • Markey, Bernard.
  • Mitchell, Gay.
  • Mitchell, Jim.
  • Molony, David.
  • Moynihan, Michael.
  • Nealon, Ted.
  • Noonan, Michael.
  • (Limerick East).
  • O'Brien, Fergus.
  • O'Brien, William.
  • Creed, Donal.
  • Crotty, Kieran.
  • Crowley, Frank.
  • D'Arcy, Michael J.
  • Deasy, Martin A.
  • Desmond, Barry.
  • Desmond, Eileen.
  • Donnellan, John F.
  • Dukes, Alan M.
  • Durkan, Bernard J.
  • Enright, Thomas W.
  • Farrelly, John V.
  • Fennell, Nuala.
  • FitzGerald, Garret.
  • Fitzpatrick, Tom. (Cavan-Monaghan).
  • Flaherty, Mary.
  • Flanagan, Oliver J.
  • Fleming, Brian.
  • Glenn, Alice.
  • Governey, Desmond.
  • Griffin, Brendan.
  • Harte, Patrick D.
  • O'Donnell, Tom.
  • O'Keeffe, Jim.
  • O'Leary, Michael.
  • O'Sullivan, Toddy.
  • O'Toole, Paddy.
  • Owen, Nora.
  • Pattison, Séamus.
  • Ryan, John J.
  • Ryan, Richie.
  • Shatter, Alan.
  • Sheehan, Patrick J.
  • Spring, Dick.
  • Taylor, Madeleine.
  • Taylor, Mervyn.
  • Timmins, Godfrey.
  • Treacy, Seán.
  • Tully, James.
  • White, James.
  • Yates, Ivan.

Níl

  • Ahern, Bertie.
  • Allen, Lorcan.
  • Andrews, David.
  • Aylward, Liam.
  • Barrett, Michael.
  • Barrett, Sylvester.
  • Brady, Gerard.
  • Brady, Vincent.
  • Brennan, Paudge.
  • Brennan, Seamus.
  • Briscoe, Ben.
  • Burke, Raphael P.
  • Byrne, Hugh. (Wexford).
  • Callanan, John.
  • Clohessy, Peadar.
  • Colley, George.
  • Collins, Gerard.
  • Conaghan, Hugh.
  • Connolly, Gerard.
  • Coughlan, Clement.
  • Cowen, Bernard.
  • Crowley, Flor.
  • Daly, Brendan.
  • Doherty, Seán.
  • Ellis, John.
  • Fahey, Jackie.
  • Filgate, Eddie.
  • Fitzgerald, Gene.
  • Fitzgerald, Liam.
  • Fitzpatrick, Tom (Dublin South-Central).
  • Fitzsimons, Jim.
  • Flynn, Pádraig.
  • Foley, Denis.
  • French, Seán.
  • Gallagher, Denis.
  • Gallagher, Pat Cope.
  • Geoghegan-Quinn, Máire.
  • Harney, Mary.
  • Haughey, Charles J.
  • Hyland, Liam.
  • Joyce, Carey.
  • Keegan, Seán.
  • Kenneally, William.
  • Killilea, Mark.
  • Kitt, Michael P.
  • Lemass, Eileen.
  • Lenihan, Brian.
  • Leyden, Terry.
  • Loughnane, William.
  • Lyons, Denis.
  • McCarthy, Seán.
  • McCreevy, Charlie.
  • McEllistrim, Thomas.
  • MacSharry, Ray.
  • Meaney, Tom.
  • Molloy, Robert.
  • Moore, Seán.
  • Morley, P.J.
  • Murphy, Ciarán P.
  • Nolan, Tom.
  • Noonan, Michael J. (Limerick West).
  • O'Donoghue, Martin.
  • O'Hanlon, Rory.
  • O'Leary, John.
  • O'Malley, Desmond.
  • Power, Paddy.
  • Reynolds, Albert.
  • Smith, Michael.
  • Tunney, Jim.
  • Walsh, Seán.
  • Wilson, John P.
  • Woods, Michael J.
Tellers: Tá, Deputies F. O'Brien and Mervyn Taylor; Níl, Deputies Moore and Briscoe.
Question declared carried.
Report Stage ordered for Tuesday, 17 November 1981.
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