Financial Resolution No. 9. - Financial Resolution No. 11: Income Tax.

Financial Resolutions No. 11 and 12 are being taken together.

I move:

(1) That, in relation to income tax for the year 1983-84 and any subsequent year of assessment, section 8 of the Finance Act, 1980 (No. 14 of 1980), shall be amended, by the substitution of the Table to this paragraph for the Table to that section:

TABLE

PART I

Part of taxable income

Rate of tax

Description of rate

(1)

(2)

(3)

The first £1,000

25 per cent.

the reduced rate

The next £3,000

35 per cent.

the standard rate

The next £2,000The next £2,000The next £2,000The remainder

45 per cent.55 per cent.60 per cent.65 per cent.

the higher rates

PART II

Part of taxable income

Rate of tax

Description of rate

(1)

(2)

(3)

The first £2,000

25 per cent.

the reduced rate

The next £6,000

35 per cent.

the standard rate

The next £4,000The next £4,000The next £4,000The remainder

45 per cent.55 per cent.60 per cent.65 per cent.

the higher rates

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

This is the first budget in a number of years where direct income taxpayers have been hit fairly hard with no worthwhile relief for the vast majority of PAYE contributions. The figure of £4 million is given by Deputy MacSharry. Every PAYE contributor who is still at work when the effects of all this hit Irish industry will be paying substantially more by way of PAYE. Already today there has been the reduction of £26 in the £312 PRSI allowance introduced last year by Deputy MacSharry to alleviate hardship.

In Financial Resolution No. 11 another tax band is introduced and we are told in the nicely couched language of the Minister's speech that this is an effort to get at the more highly paid. I would ask the Taoiseach to say how much income tax would have been paid prior to the introduction of this budget by a single person earning £12,000. I want him also to state what the increase is. Secondly, I would ask him to take the case of a two income family where both earners have a salary of £12,000 and tell the House what income tax they would have been paying prior to the introduction of these measures, assuming in both cases that they were in receipt of the £312 allowance.

In the year 1982-83 a single person earning £12,000 paid £4,283 in tax and that figure now becomes £4,418, an increase of £135 or 3 per cent. In the case of a married couple, without children, both spouses earning £12,000 a year between them and opting for joint assessment, the increase in tax is from £2,347 to £2,485 or £138, an increase of 6 per cent.

An increase of £138 each, of course.

No, in total. The increase is £69 each.

The only change in regard to tax bands is the introduction of the new band at 65 per cent. It seems a little ridiculous that rates should go from 55 per cent to 60 per cent and then to 65 per cent and I see no reason why they should not go from 55 per cent to 65 per cent. The administrative difficulties in having such small differences in the tax bands are not justified. I am not saying that more taxation should be imposed. I remember a time when there was a rate of 77 per cent and it was agreed that this represented a considerable disincentive. Rates are now going up again. The evidence is that there are considerable disincentives when a person reaches taxation level above 50 per cent.

I recall a discussion on this aspect of last year's budget and the narrowing of the 35 per cent band. Quite an amount was said on this subject by the present Taoiseach and by Members of the Labour Party. Perhaps the Taoiseach can now give the PAYE sector an explanation as to why he has not done what he was demanding last July.

Because of the mess we inherited.

It takes a little time to undo all the things which had been unwisely done by the previous Government and some of these are matters to be tackled in next year's budget. It would, of course, be possible to change the 60 per cent band to 65 per cent but the effect would be to increase very significantly taxation on people at that level. It is arguable that we reach high tax rates too soon. There may be arguments as to whether the top tax rate is too high or too low but compared to other countries we tend to reach high tax rates at lower income levels. Single people who have not great incomes, not much over £10,000 a year — not an enormous income by any means — are at the 60 per cent tax rate. In those circumstances simply to increase the 60 per cent rate to 65 per cent would involve a rather hard imposition at that level. The Government were concerned that in the economic situation now facing us those in the community who have relatively high incomes would contribute disproportionately to the needs of the economy and make contributions enabling us to relieve the burden at other levels in terms of social welfare increases, without additional PRSI, and in terms of the family income supplement. The way to do that appeared to us to be to introduce a higher income tax rate than 60 per cent — not going back to the 80 or 77 per cent that was there before we took office in the mid-seventies, but certainly some higher impost on the people with high income but not to apply to a single person on £10,000 per year or a married person with £20,000 but at a somewhat higher level.

One can legitimately argue as to what the bands should have been. It could be argued that there should be a £4,000 band so that a married person reaches the highest tax rate at £24,000 instead of £20,000 as it is now approximately — £23,500 as against £19,500 to be more precise — or people might argue that we should have a wider band. In that event the amount of money we would get would be less. This imposition brings in £7 million this year and £11 million next year. Given the critical situation of the country it did not seem unreasonable to seek a sum of that order of magnitude from the higher income earners. When one balances the undesirability of reaching the highest tax rate at too low a level of income, especially for single people, and on the other hand the desirability of getting at least something of the order of £10 million per year from the people with the highest incomes in the country, the best judgment we could make was to introduce the 65 per cent tax rate with a £4,000 band or £2,000 in the case of single people. Obviously, it is a matter of judgment as to precisely where one places that and this is the best judgment we could make. I am satisfied that broadly it is the correct course of action.

If we are going to convince all our people that equity is the objective of the Government, that we are seeking to have an equitable tax system we must tackle avoidance and evasion vigorously but we must also in certain circumstances seek from the better off a greater contribution than hitherto without imposing that burden at too low a level where it would be harsh. In my view we have got it about right and the broad acceptability of the budget to the great majority of our people — I know we are paying 65 per cent — is increased by virtue of the fact that they see that those who are best off are going to pay more. I am satisfied that it is a wise provision and one that contributes to the overall balance of the budget.

Will the Taoiseach indicate the total increase he expects to get from the PAYE sector next year, not just the £11 million he expects to get under the new rate?

There is not an additional imposition in the budget. The PRSI relief was for one year only and we have re-introduced it this year at a slightly lower level so as to leave £5 million free for the family income supplement. That is technically a relief by comparison with what would have happened had we done nothing. It is fair to say that people probably expected the PRSI relief to continue and if one takes that position there is a marginal reduction in it involving perhaps £15 per year for a typical worker. I believe most workers would be willing to contribute £15 per year so that 20,000 of the lowest paid workers could have £5 per week more. It seems to most that it is a reasonable proposition. That is the only change in income tax in the budget, apart from the 65 per cent rate.

There is, of course, the buoyancy of revenue from income tax which is substantial in a situation where no changes were made in the bands. In other circumstances this or any other Government would wish to adjust the bands in order to offer some relief related to the increase that has taken place in the cost of living and the position with regard to incomes generally over the period. In the budget that has not been practicable. Were we to have sought to have given any relief that would be noticeable in terms of the level of the bands the sums of money involved in that would be very large. I recall one proposition — I cannot remember the exact details of it — which would have involved £68 million. Obviously, with the constraints imposed upon us in this budget that was simply not practicable. There is nowhere else we could reasonably look for that money. Nobody has told us that the VAT increases are too low although, for example, we could get more money there. Nobody has said that the excise duties are too low. It is not clear to me where the money could have been got on that scale to give any significant relief in the bands. There is, because of fiscal drag arising from the fact that the bands have not been changed, significant buoyancy in income tax revenue. That does not arise from any act in the budget but from the omission of any relief in terms of the bands. That has led to a situation where the level of income tax receipts are estimated at £1,739 million in the budget as against £1,459 million last year, an increase of £280 million or about 20 per cent.

£300 million extra from PAYE.

Another point we will have to pay some attention to is that this reference to PAYE is confusing. The assumption seems to be that PAYE is what the ordinary worker pays. It is, but it is paid also by other people. My information is that some of the wealthiest people here are PAYE taxpayers on their earnings. In some cases that can run into several hundred thousand pounds per year. We are going to see if we can sort this out and I am anxious that the PAYE receipts be broken down by the level of incomes in question so that we can see how much comes from the different groups. At present, when people say that 87 per cent is imposed on the PAYE worker, it is not clear that some proportion of that is coming from some of the wealthiest people. We would get a clearer picture if we could see how much comes from the lower paid, the middle income and higher income groups. I hope we can present the data in that way to avoid the confusion that exists at present which is giving a distorted impression.

50 employees in a factory and only one boss.

When the budget is studied in detail I am sure that many hidden taxes will be revealed. It is easy to say that the tax bands have not been changed but when one takes into account the decision to remove relief of personal interest on married couples one can see that there will be an increase in tax revenue. That will have the effect of putting many taxpayers into the higher bands. That has not been stated by Government speakers. In my view thousands of people will now be moving from the 45 per cent to the 55 per cent bracket and from the 35 per cent into the 45 per cent bracket. In effect that amounts to a hidden tax. What is the expected yield as a result of the decision to alter the position in regard to the relief on personal interest?

The amount of extra revenue accruing from the abolition of the interest relief is about £4 million. There is no break down of that as between PAYE taxpayers and others. It is fairly evident that personal interest payments on overdrafts are more likely to arise in the case of people in the middle and upper income brackets than in the lower income groups. The latter do not have, in many cases, bank accounts, not to mention overdrafts or interest payments. The allowances in respect of personal interest, like the other allowances in our tax system are all regressive and involve benefits accruing to the better off people requiring, therefore, that when a given amount of money has to be raised more tax is raised from the less well-off. Our system of taxation contains many of these features which we have inherited from the past and which are perverse, regressive and involve relief being given to those who are in the middle and upper income groups and more particularly to the people in the upper income groups who can arrange their affairs so as to get maximum benefit but which are of no benefit to the people lower down. In practice few or none of the people in the lower level of the income tax bands can afford to get into the situation of having personal loans. No one would lend them money because of their income. They would not be in a position to borrow and, therefore, get the benefit of these reliefs. The removal of this relief is going to mean that £4 million will be collected. It will affect people in the middle income group as well as in the upper income group, and much more in the latter than the former. It is a small move towards a more progressive system in which the whole taxation system will not be distorted in favour of the middle and upper income groups as against the less well off. In those terms it is defensible and I defend it very strongly.

I want to ask a very fast question.

By the agreement of the Whips the time set is almost up.

Despite what the Taoiseach said, no budget in recent times has given less consideration to equity than this one. The PAYE worker has been loaded with an unbearable and impossible burden. The Leader of my party mentioned the postponement of the tax credits. Nobody more than the Taoiseach has spoken so confusingly about income tax over the past two years. Tax credits are now postponed once again. Have we seen the end of them? Is he now prepared to admit that the £9.60 con job he perpetrated on the electorate in June 1981 was nothing more than a confidence trick?

I am not prepared to admit anything of the kind. I am more than happy to defend that proposal.

Where is it?

Why not introduce it?

The concept behind it was sound.

Deputy Cooney promised little brown envelopes the week after the Coalition were elected.

That is news for me.

Acting Chairman

The Taoiseach to reply, and I am giving him a short time to reply because we are over the time.

It involved two elements one a family income supplement of up to £10 a week averaging in most cases about £4 payable by the State through the tax system. It involved in addition the right of a woman when getting married to retain the benefit of her personal allowance and not have it handed over to her husband.

Where is it?

Why not introduce it?

We introduced it and sought to get support for it, but a campaign against it was waged by the Opposition Party regardless of impact on equity in the distribution of the family allowance, and regardless of the fact that it led to a situation where the number of people seeking it was far smaller than the number who were entitled to it.

The Taoiseach's colleagues are embarrassed.

The proposal lapsed when Fianna Fáil returned to Government. I personally regret that, and I still think that because a woman gets married she should not lose her right to her personal allowance.

I want to ask a question.

Acting Chairman

We are in injury time now.

I should like to ask a question on Resolution No. 12. How much has been saved by anti-marriage Resolution No. 12?

The amount is £6 million this year and £8 million in a full year. A situation had arisen as a result of changes in our tax laws in recent years in which people in the year of marriage were getting cumulative benefits which were very difficult to defend on the grounds of equity. The removal of this was recommended by the Commission on Taxation which said that in these cases any repayment due should be reduced in the proportion that the period of marriage bears to the full year.

The Taoiseach is anti-marriage.

He did not answer the question.

I am very much in favour of it.

Resolution put.

We are not going through the division lobbies on this resolution because we are running out of time. I want to explain that. If we had more time at our disposal we would vote on it because we are totally opposed to it.

Question put and agreed to.