Statements on Taxation .

Minister for Finance (Mr. Dukes)

: In making time available for this debate the Government are anxious to give the House the opportunity to express its views on an important and topical issue which has become very contentious in recent weeks. For obvious reasons taxation is of immediate concern to all the community, not least because of its impact on everyday living. My principal concern this afternoon is to present our taxation arrangements in their proper perspective and to re-emphasise the commitment of this Government to changes that will lead to a fairer distribution of the tax burden.

In recent weeks the subject of tax equity has been in the news consistently. The present high rates of taxation have focussed attention on the need for change. I want to repeat categorically, as I have on many occasions in the last few weeks, that I accept the need for improvement. In my budget statement on 9 February I announced a package of proposals on tax evasion and avoidance which go well beyond any new measures introduced by Ministers for Finance in recent years. I see the budget proposals as simply a first step in an extended programme to counter evasion. I have already outlined in quite some detail in the Oireachtas and elsewhere the problems associated with the collection of taxes and I intend to go over some of this ground again. There is much that is unsatisfactory in this respect that requires urgent attention. On the other hand some greatly exaggerated figures about tax outstanding, which give an entirely misleading picture of the situation, have been given considerabe currency.

Effective action in relation to evasion and collection procedures, which I intend to put into effect without further delay, will bring about a significant improvement. I acknowledge that such action alone will not be enough and that we must go still further if we are to achieve a demonstrably fairer tax system. I can understand the frustration of PAYE taxpayers who feel that they are being asked to bear an unfair burden. At the same time, it is only fair to recognise that there are many other taxpayers who also are being heavily taxed and who pay their due share in accordance with the law. The issue is not simply the PAYE taxpayer versus the rest and it would be regrettable if we pursued solutions solely within this framework.

I accept the need to move quickly towards a wider distribution of the tax net and to provide that those who are better off must pay more. I can give an assurance to the House that these considerations are at the very basis of Government policy on taxation and I feel I can rightly claim that our actions to date in our short period in office bear witness to this.

I have already mentioned the high levels of taxation. It is this factor, I believe, above all else, which has stirred up the present agitation about equity. Tax rates are high because public expenditure is high. This is the uncomfortable equation underlying our present difficulties. I want to highlight this reality because it is central to the whole discussion about taxation.

The main purpose of taxation is the necessity to raise adequate revenue to finance Government spending across the whole range of Government activity — in the social and economic areas, on investment and in all other areas of Government activity. Over a number of years tax revenue has not been sufficient for this purpose with the consequence that we have accumulated growing deficits and an increasing burden of debt. This increasing burden of debt becomes a further charge to be met by taxation. There is a general acceptance that this situation could not continue further. It would put at risk all our plans to increase economic activity and provide openings for more employment. Those who are critical of our high levels of taxation must address themselves to this problem; otherwise they are avoiding the main issue and this only adds to confusion and misinformation.

We have a young and rapidly growing population. This is a unique asset and a great benefit to us. It also, however, brings responsibilities and imposes an extra strain on our finances in the shorter term and we must be ready to pay for this. Because we have a high dependency ratio, we will inevitably continue to have a rather high expenditure profile. Our increasing population creates pressure for substantial additional expenditures in certain areas. Above all else it necessitates a high level of investment to generate further employment. This investment itself creates an interest burden which must be met from taxation. Our increasing population requires additional social expenditure. Because of the extra demands, the Government must determine priorities.

These priorities concern both expenditure and taxation. If we look at only one side of the equaiton, our view will be distorted and we will run a very serious risk of creating new problems for out-selves. The relationship between expenditure and taxation is at the very heart of the problems that we are discussing this afternoon.

Some will say that the right approach, and indeed the only approach, is to widen the tax base. This will be done, but it is only a partial solution. It is unrealistic to believe that we can ignore the problem of expenditure. Better collection procedures and changes in tax law, which I will bring before this House in the immediate future, will represent a big step forward. On their own they will not be sufficient to bridge the enromous gap between spending and revenue. There are areas of taxation from which the present yields are insufficient and the Government are paying close attention to these. But I must caution that there are no huge untapped sources of taxation on a scale which would make an appreciable difference to our problems.

I would now like to turn to the question of tax collection. In answer to a parliamentary question in this House on 24 March I gave details of tax outstanding. I indicated that the figure at the end of 1982 was £961.7 million and this related to all tax outstanding for all years up to and including 1981-82. I emphasised, however, that this included assessments and that the actual true liability is far less. The figure of £961.7 million is an accounting figure and is a function of the assessment and estimating procedures under which amounts assessed or estimated continue to be shown as outstanding until such time as cases are finalised and liability agreed. This may take a number of years because of the collection processes and system of appeals which we operate. I have said already, and I repeat, that there is need for improvement here and improvements will be made in the immediate future.

It is unfortunate that in spite of the detailed explanations contained in the official source documents the figure of £1,000 million for uncollected taxes has come to be accepted as fact in many quarters. It is totally misleading. A large proportion of this will be successfully appealed. I cannot say how much of the outstanding tax will ultimately be payable because this depends on appeals that have yet to be heard. The only guideline I can point to is that between mid-1982 and the end of the year the figure reduced by about £250 million. Of this reduction, some 10 per cent was brought into the Exchequer with the balance discharged as not being properly due. If this pattern were to continue in respect of the end-year figure, then the balance ultimately paid into the Exchequer would be no more than £90 million to £100 million.

This balance, I would repeat, is what is found to be the true liability as opposed to the initially assessed liability after all the accounts and other evidence have been presented and examined by the Revenue Commissioners. I must stress, however, that this calculation could be well wide of the mark because there is no evidence that the previous pattern will be continued. It would be wrong to use a 10 per cent ratio as a valid figure. It is quite impossible to predict what ratios will emerge in due course when the whole procedure has been gone through.

It is said that the Revenue Commissioners add to the confusion by making assessments which bear no relationship to reality. In many instances the assessments are obviously very high. In the absence of accounts, the Revenue Commissioners have no choice but to estimate figures for tax due. It is only to be expected that they will tend to err on the high side and this will encourage the taxpayer to meet his obligations and make proper returns.

I hope that what I have said will help to bring a greater reality to the discussion about collection and put the figures in proper perspective. I do not want to convey the impression, however, that all is well with our collection system. On the contrary, there is an urgent need for improvement. The system of appeals is far too generous to the taxpayer and the time allowed for appeals has to be shortened. There are huge and unacceptable backlogs in the area of enforcement. Some changes will require amendments to the law and I will take these on board in the Finance Bill. Other changes will require administrative action and I can assure the House that I am giving close attention to this.

The Irish Congress of Trade Unions recently made a submission to the Government on the subject of tax evasion. It listed a total of 41 individual proposals for change. Some of these have already been mentioned in my budget statement and others are being included in the Finance Bill. Many of the Congress proposals have considerable merit. They will be the subject of continuing discussion by the Working Party on Taxation, which is a joint Government-Congress forum for discussing taxation matters, and I have every reason to believe that we will see clear evidence of progress. The next meeting of the working party will take place on Thursday. I will also be discussing wider issues of taxation with Congress in the near future.

I welcome the positive approach of Congress to the present situation and I am satisfied that their initiatives can lead to substantial improvements. This action contrasts with the policy of non-cooperation being pursued by some groups of workers as a means of highlighting their dissatisfaction with the present system. This latter approach is unfortunate and it serves no constructive purpose. If continued it will only create difficulties for the workers themselves and for their firms. It would threaten jobs at a time when we can ill afford to lose employment. It will achieve nothing useful because there are no immediate tax giveaways for anybody. I appeal to the good sense of the workers concerned to abandon this approach because it is leading nowhere. There are other, and far more effective, ways for them to express their dissatisfaction.

We all accept — I believe correctly — that tax evasion is widespread and that it is on the increase. Because of its very nature we cannot quantify it, but all the evidence suggests that it is on a large scale and that we are certainly losing millions of pounds in taxation as a consequence. We are all against evasion in principle. There are calls for jail sentences and tough monetary penalties. At the same time, regrettably, some evasion practices have been regarded as socially acceptable and our attitude as a community on this issue is often ambivalent.

As Minister for Finance, I can propose amendments in the law and I can finetune the administration of the system to make life more difficult for the tax evader. Ultimately, however, we must bring about a change in public attitudes, and until we do this the tax evader will be allowed too much scope. Just recently there may be hopeful signs of a significant shift in attitudes. I welcome this and I hope that it will gather momentum.

Every group in society has a strong tendency to blame other sections of society for evasion. The experience of the Revenue Commissioners is that evasion is being practised in all walks of society. At a more blatant level there are those who falsify accounts and returns or, on the indirect tax side, engage in smuggling activities. Then there are many people who are not declaring their full earnings for tax purposes. This is facilitated by everyone who employs persons of whom there is every reason to believe that they are not paying their fair share of taxes.

I am giving special consideration to the situation where income is not reported in full. Apart from legislation, I believe that significant progress can be made by changes in administrative practices and I am looking carefully at this. In this connection I said in the course of the budget statement that reporting arrangements for payments to individuals and companies by Government Departments and public authorities were under review so that those who benefit directly or indirectly from such payments will pay the appropriate tax on such income.

There is a reluctance to report individual instances of evasion because, I suppose, this may cast a person in the role of informer or perhaps because it is felt that, if one person is caught, it will make no difference in the overall context. If we do not face up to the problem in individual cases I cannot be optimistic about progress in the overall framework.

The Finance Bill will shortly be circulated to Deputies. In advance of circulation I am not at liberty to discuss the details. I can inform the House, however, that it will contain a number of additional measures, over and above the budget proposals, which will be directed specifically against tax evasion. I expect that these new measures will have an early and significant effect. I want to stress again that, while the Finance Bill will introduce a substantial number of new anti-evasion measures, which are well overdue, it is by no means the last word on this. I see scope for further substantial changes and I will pursue these. What we must realise is that some changes will take time to formulate and implement because of the administrative and other complications which would follow. The Finance Bill will, however, be a clear indicator of a new determination to counter evasion.

In our Programme for Government we gave a high profile to equity in our society, including in particular reforms in our taxation system. We recognised the need for a fairer distribution of tax. In the four months since we came into office we have already introduced substantial changes which are a clear indication of our commitment in this area. The Finance Bill will reinforce this. We cannot deal with all the issues that require attention in a short period but we are well on course. As I have already said, the budget package on tax evasion and avoidance goes well beyond any changes introduced in recent years. The proof of this is the spirited reaction from the variety of interested parties who will be at the receiving end of these new measures and who have been exerting pressure for modifications.

I can assure the House that there will be further substantial changes which will demonstrate our commitment to greater tax equity. I am already looking beyond 1983 and to more fundamental improvements. There is a need for substantial change; I recognise this and I am giving it priority.

Mr. O'Kennedy

: This debate has been occasioned by an unprecedented concern about the level and incidence of taxation and the burden of the PAYE sector. It has also been generated by divisions created in society as a result of ministerial statements made before today referring to action which would be taken against the self-employed, apparently to accommodate the views of the PAYE sector. If this was the purpose, what the Minister said will do nothing to allay the concern and frustration of that sector. Rather it may create further divisions, dissension and apprehension particularly among the self-employed. Many of them now, perhaps justifiably, feel that that phrase is being used almost as a bad word at a time when above all else we need initiative, incentive and encouragement.

The Minister would have done well to reflect on whether the bland generalities we heard from him would be appropriate in this debate. He made some serious mistakes about the content and timing of some of his statements. What he said today will do very little to allay the concern of those who have been loudest in their protests. It will only fuel their reaction. The Minister said: "In the four months since we came into office, we have already introduced substantial changes which are a clear indication of our commitment in this area". The commitment is for greater tax equity and to relieve the burden of taxation generally. What have the Government done in their four months in office? The projected tax revenue in the budget this year represents 36 per cent of GNP by comparison with 34 per cent last year. Within that 36 per cent, income tax represents 38 per cent of total tax revenue by comparison with 36 per cent last year.

We hear "let me make the point" reassurances from the Minister from time to time but this will have little impact on those waiting to hear something significant from the Minister. The reassurance which the Minister offers in his speech is not for those who have been protesting against the level of taxation. He said: " ...the proof of this is the spirited reaction from the variety of interested parties who will be at the receiving end of these new measures and who have been exerting pressure for modifications". If we are to have a degree of equity we must ensure that there will be people at the receiving end and that is why I asked that we should have the Finance Bill as quickly as possible in its published form. We must protect investment confidence.

I am in agreement with the Minister on a number of areas particularly in relation to public expenditure. However, let us look at the genesis of the problem. What is significant about this tax revolt is that it occurred after the budget whereas previously tax revolts occurred before budgets were introduced and were an indication to the Minister for Finance of the day that adjustments needed to be made. I experienced this in my time as Minister. None of us wish to boast about our achievements as Minister for Finance in terms of popularity — it is not a place one looks for popularity — but the Minister would do well to recall that his predecessors adjusted the tax bands to take account of inflation——

Mr. Dukes

: Except for my immediate predecessor who went in the opposite direction.

Mr. O'Kennedy

: Who increased social welfare payments to a level beyond what the Minister has.

Mr. Dukes

: About 25 per cent of which we have provided for.

An Leas-Cheann Comhairle

: Deputy O'Kennedy, without interruption.

Mr. O'Kennedy

: I hope the Minister and I can have a reasoned discussion without interrupting each other. I did not interrupt him and I hope he will afford me the same courtesy.

As a consequence of the concern felt by married couples, particularly where a wife was working at home, I introduced the principle of the split income allowance. The recent tax revolt is unique in that it occurred after the budget which was meant to be, the Minister would claim, an instrument of equity in taxation. The impact of the budget this year will add a further 3½ per cent to the CPI. Take the 1 per cent income levy and the decision not to adjust the tax bands. This will result in £190 million extra this year or £300 million in a full year to the Exchequer. So much for their commitment to equity in taxation. The budget has no strategy for employment. That together with the impact on CPI has given rise to the demonstrations on the streets. The trade union leaders have said that. It is not just about taxation but about the "no hope" budget in terms of employment and the impact on poorer classes. The Minister would do well to recognise that it is sowing the seeds of unrest in society.

We have to live with the effects of devaluation. I warned about it at the time. We are importing a further 7 per cent or 8 per cent of inflation. The devaluation was damaging and unnecessary having regard to the trend of currencies, particularly sterling, outside the EMS. What I said at the time has been proved to be true earlier than I expected.

Sometimes what happens is as a result of the Minister's actions and sometimes as a result of his statements. There is a time for silence and a time for action. The Minister seems to pick the wrong times. He gives bland reassurances such as he did today. He makes statements such as that which he made to the CII, which was bad in its timing and in many ways inflammatory. In a one sentence dismissal of the reaction of workers he said we could not have any deduction in taxation until we reduced expenditure. We all know this is a fact but to say it from the safe haven of the CII showed extraordinary judgement. On the same day he fuelled the argument further by saying they were not going to have nonselective cuts in public expenditure. He mentioned, among other things, the annual increases in social welfare for those who cannot help themselves, the old and the sick, in conjunction with the decision to look at food subsidies. As a consequence of that, we had a further chapter in the "Spring rebukes Dukes" saga.

When the Minister for Finance makes a statement, foreign investors expect it to be an authoritive statement of the Government. They do not expect it from the Minister for Social Welfare or the Minister for the Environment. They expect the Minister for Finance to create a climate of stability so that their investments will be secure. We have seen quite the opposite in this inter-reaction of trying to assuage one group in society by pointing the finger at another and implying that small investors in banks, building societies, post office savings and so on can all run for cover at this stage. It is not surprising that a former member of the Minister's party, head of a building society, felt the need to make a statement recently to the effect that there was no possibility of disclosure of investors in that society by any action taken by the Government. That, together with other information from the ACC, building societies and banks, must have signalled to the Minister that statements from Ministers recently are having a deadly effect on the liquidity and the savings deposits of these institutions. The investment climate is being undermined by the Minister's reaction, rather than positive developments taking place.

For the first time, the Minister recognised today that figures which he gave here for outstanding tax have further fuelled this whole reaction. It took almost two pages to explain what was said here by him on 24 March 1982. He must know that every newspaper report the following day headlined the Minister as indicating the amount of outstanding tax and that there was almost a billion pounds outstanding from the self-employed. If the Minister had taken the trouble that day to explain the figures in much greater detail, as he has now done, the present frustration might not have built up. If he had given those figures earlier as a statement of fact, it would have been very helpful and perhaps it would have stopped tax marches on our streets. This is a matter of very serious concern for the democratic stability of the State.

The Minister mentioned the meeting in Barrettstown yesterday. I note that a number of meetings have taken place in rather palatial splendour in County Kildare recently. The Labour Party have found a nice castle as well which is quite appropriate to their recent positions. We were told yesterday by the Government spokesman that there was no specific discussion on the tax question at the meeting in Barrettstown Castle. If that is true it is extraordinary. Neither was there any discussion on last week's marches. A newspaper report asked was this because of any past or impending crisis. Apparently, they discussed economic prospects up to 1987, giving the impression that the Government are determined to stay in power until then. There is not much reassurance for anybody in that. If they had found time yesterday to discuss the present crisis, to solve it and to publicly state that they were talking about the crisis and were concerned about the dangers to our democratic stability, at least we would have some degree of reassurance. We were issued with a bland statement of generalities which we could have heard from any Minister for Finance over the last five years.

I agree with the Minister — and I said it a week before he did when I addressed a meeting of the junior chamber in Wexford — that the key to our problems is controlling public expenditure. Therefore, I could hardly believe my ears when I heard Deputy Spring say in a radio interview that he was in favour of public expenditure. The real issue is the control of public expenditure but also the target priorities within that public expenditure. Incidentally, one should not assume that the trade union leaders who were demonstrating are in favour of public expenditure. For example, Mr. Des Geraghty, National Group Secretary of the Transport and General Workers' Union, called for a reappraisal of the various youth employment schemes and work experience programmes operated by the Department of Labour. He is talking common sense.

The Estimate for the Department of Labour grew from £45 million last year to almost £110 million this year. That is a growth of a size and dimension that is unprecedented in the fiscal and economic experience of this country. Can these two parties reconcile themselves to directing public expenditure, which must be controlled, to priority areas instead of watching the uncontrolled growth through all the agencies in which the Government take great pride? There are employment agencies, equality agencies, who are now co-ordinating their actions by supervising each other. There is a growth of administrative overseeing swallowing up the taxpayers' money to no particular purpose. If the Minister could explain the 125 per cent growth in one Department we might be reassured as to where this money is going. He is in a very real sense a trustee of the taxpayers to see that not one penny of public money is wasted. There is training for the sake of training, experience for the sake of experience and so on. I am not going into it in detail now, We are now told that the National Development Corporation will solve all our problems. They will supervise what is going on.

There is another matter which could be looked at in terms of public expenditure control and that is the Department of Health. There have been enough signals already and perhaps the Minister would look at some of these areas and ensure that priorities in terms of prescription targets in that Department are adhered to. This would effect quite a significant saving. I have put this on the record of the House previously and if both Ministers look over my speeches for the last 12 months they will find something to help them. If we look at public expenditure, these are the areas where we cannot reassure because the public are concerned that the tax that is paid is paid to maximum effect. Lest I forget, I mention in debating taxation that we have a Commission on Taxation which I myself set up over two years ago. This Minister has already treated that commission in a very dismissive way. He has just dismissed whatever they had to say and it is quite clear not only from his words but also from his actions that almost everything he is proposing is running counter to the general trend of what they are suggesting. There was a time when a summary of these would be brought to the Minister's attention and but for the short period available to us I could say a great deal more about this. The very introduction to their report, not to mention the terms of reference given to them, are totally and utterly ignored by the Minister and itsy-bitsy impositions are being introduced by him which run counter to the whole trend which the commission obviously are trying to set. I hope they will not be frustrated and that this will not end up in just another exercise which will not have any considerable impact. A Leas-Cheann Comhairle, could I mention one or two other matters?

An Leas-Cheann Comhairle

: You have four minutes.

Mr. O'Kennedy

: I will try to curtail myself to the time limit.

Mr. Keating

: On a point of order, is there a time limit on speakers?

An Leas-Cheann Comhairle

: No, there is no time limit but the debate is to conclude at 7 p.m. and so many want to get in. That is the difficulty.

Mr. O'Kennedy

: I thought we would have maybe 20 or 25 minutes.

Mr. Keating

: On a further point of order, I understand there was an agreement with the Whips that there would be a limitation of 15 minutes.

An Leas-Cheann Comhairle

: There was no Whips' agreement. It is purely a gentleman's agreement.

Mr. O'Kennedy

: I would advise the Minister to be very conscious of two final matters. The only concern of the taxpayer is his net income and whether it can be undermined further by any further addition to the inflation spiral that we have been experiencing. We had good news to an extent yesterday in the OECD Report of inflation trends over the six months to February which show that Ireland's inflation fell faster than that of any other of the 23 member states of the OECD. We had a price rise of just 4.1 per cent in that time. However, since February dramatic developments indeed have occurred in terms of the impact on the CPI of the Minister's actions. Instead of reducing the level of inflation and increasing the value of the real incomes in the workers' pockets, we will see just the opposite in addition to the effects of the Minister's budget actions. This Minister is the first in recent years to have the benefit of the impact of falling oil prices on our balance of payments and our deficits in every direction. It is time that he recognised that a budget is not just a bureaucratic book-keeping exercise. It is time that he recognised that the need to encourage a proper investment climate is at least as important as playing one end off against the other. It is time that he recognised that incentive and initiative are essential elements in this society and that throwing threats around the place and sending everybody scurrying in every direction is doing nothing to reassure those people out there protesting.

The Minister has my agreement about control of public expenditure but God knows if we will do it. It is time that some of the stuff that the Government paraded, such as the reduction in the number of State cars and things of that nature, even as demonstrations, should be acted upon or else they should keep their peace in these areas and not add insult to injury. I hope we will see a little more effective action and that at least we will not be fuelling further the reaction of the masses outside this House.

Minister for Health (Mr. B. Desmond)

: A great deal of the public debate on the taxation question has centred around the PRSI system, so much so that PRSI and PAYE are synonymous in the public mind. I want to concentrate on that aspect of our taxation discussion for 15 minutes or thereabouts.

It is critical that Members of this House, and employers and workers throughout the country, appreciate that PRSI is another form of taxation in effect on a different basis and that it is provided to ensure income maintenance for persons who are not in a position to obtain income due to sickness, unemployment, old age, widowhood and so on. Those who are now complaining vociferously about PRSI and all of us must be reminded that we are perhaps the first generation who have brought about a national system of social insurance so that we protect the individual and the family against the contingencies of life in a way which cannot be achieved by the individual himself or by the family and can be done only on a collective basis by employers, by workers and by the State jointly sharing the cost of the provision of PRSI. That first point is of critical importance in understanding an integral part of our general system of taxation and social insurance, because both are directly intertwined. I stress with great vehemence that when we attack the system of PRSI — and there have been some sustained attacks from the most unlikely quarters in recent weeks — we should remember that on a pure insurance basis alone some 88,000 workers who have no jobs at present get unemployment benefit from social insurance, some 67,000 persons in receipt of disability benefit receive benefits from social insurance, some 75,000 persons are in receipt of contributory widows' pensions alone and 103,000 persons are currently in receipt, and will be so for the remainder of their lives, of contributory old-age and retirement pensions.

PRSI is compulsory. That is a deliberate decision of the Government. While one may have varying views about the contribution of William Norton's role in Irish public life, it must be admitted that in 1952-53 he introduced the social insurance system after decades of agitation by the trade union movement. From a strictly economic point of view any compulsory payment is a form of taxation because it involves a statutory transfer of income towards expenditures which are determined by this House on behalf of the individual for the individual later in life or to meet contingencies he may have to face. It is of critical importance that we bear that fact in mind.

PRSI contributions are earmarked for expenditure on which the individual places a high priority and that expenditure goes to the Social Insurance Fund. This is concrete evidence of the existence of a right to benefit. It has been argued — but I do not accept it — that social insurance should be financed exclusively out of general taxation. The great advantage of the current system is that the contributions are clearly seen as a deferment of present consumption to provide, for example, for retirement and replacement income if and when the need arises.

I want to defend the Oireachtas and our system of democracy against what I regard as unfair and eroneous attacks on the PRSI system which have been fomented in recent weeks. It is very important that we make that defence as trenchant as possible because there are those who wish to dismantle that system. Our present system is in many respects an independent distribution of income from the healthy to the sick, from the employed to the unemployed and retired. As such it is a modern social insurance system and achieves a certain amount — not as much as I would wish — of vertical redistribution of income from those with the highest incomes to those with low incomes.

Up to 1979 contributions had been flat rate. This meant that all workers, irrespective of earnings, paid the same amount. That system was very heavily criticised as a regressive system of taxation and social insurance. It was particularly criticised as being inequitable in the way it affected lower paid workers. Up to 1979 workers who earned £40, £50 or £80 a week paid the same contributions as workers earning £100 or £140. There was a need to change the system and in April 1979 the pay-related social insurance system was introduced.

It is interesting to note that much of the present criticism has come from those in the higher income group. Under the present PRSI system a fixed percentage of worker's earnings is paid by the employer and the employee. In April 1983 the employer paid 11.6 per cent and the worker 5.5 per cent for social welfare, part of the PRSI contribution. In other words, for every £1 PRSI a worker contributes, the employer is obliged to pay £2. Let the trade union movement and those who are campaigning against PRSI remember that simple reality. There is a ceiling of £13,000 for the income tax year from 6 April 1983. Many progressive socialists argue that that ceiling should be abolished. This year the income for the PRSI fund will be £1,019 million. The employers will contribute 52.7 per cent, employees will contribute 25.6 per cent and the Exchequer will contribute 21.7 per cent from general taxation.

I stress that we have a reasonably well developed system of social insurance, but if we could bring in all the self-employed and those in the farming community we would have a far better system. At the moment the total number of persons qualifying for benefit each week under the insurance system is about 371,000 persons, to which must be added 285,000 dependants. This is a major system and a great deal of the mythology about its alleged inequities should be counteracted by every responsible Deputy.

There have been criticisms about the reduced rates of PRSI paid by permanent and pensionable employees in the public sector. It is important to point out that about 900,000 employees pay the full PRSI contribution rates while about 150,000 civil servants, teachers, gardaí, officers of the Defence Forces and employees of local authorities and other State bodies are covered by a reduced rate of PRSI. It must be remembered that those paying full rates receive all the benefits under the social insurance system while those paying reduced rates qualify for a very limited range of benefits, namely, widows' and orphans' pensions and deserted wives' benefits.

The exclusion of public servants from full insurance arises from the fact that when the present system was being established in 1952 the social security needs of these employees were seen to have been provided for under their conditions of service through the then occupational pay and pensions schemes. I want to emphasise, lest there be public misconceptions about this matter, that the special PRSI tax allowance introduced last year, and retained this year at a slightly reduced rate, does not apply to persons in the public service who pay the lower rates of contributions. In that respect there is a differential.

When I saw a substantial number of teachers marching against paying PRSI and PAYE, it came home to me very forcibly that they pay one-third of the general rate of PRSI. I am not sure I know what these people are complaining about because they pay only 2.9 per cent as against an 8.5 per cent rate, if one takes the levies into account.

So one must be careful and ask one's fellow workers, whether on a march, at a meeting or at home: "What do you pay? What rate do you pay? How much tax do you pay?" I say that as a voluntary contributor paying 6.5 per cent of my salary as a Member of the Oireachtas up to £13,000. Lest people imagine we get pensions for nothing, I pay 6 per cent of my Oireachtas salary towards my Oireachtas pension. In addition, I pay 6 per cent of my salary towards whatever prospect of a ministerial pension one might have later — I have views about that. One pays and one should therefore always ask fellow workers, "What do you pay?" In that way one gets the reality of the position.

These are aspects which are important in the matter of collection of social insurance contributions. They are normally collected by the Revenue Commissioners through the PAYE system. In addition to the collection of PRSI, the PAYE system is also used for the collection of information on the duration of each employee's insurable employment, on which entitlement to flat rate benefits depends. His reckonable earnings are used to calculate entitlement to pay-related benefits. The total PRSI contribution is the amount deducted from the employee's pay, plus the amount payable by the employer. This must be remitted to the Collector General within nine days of the end of each income tax or clendar month. The moneys collected by way of PRSI are then transferred from the Collector General to the Social Insurance Fund on a regular basis. I stress that under our legislation the employer is directly responsible for the payment of the entire contributions, but he is entitled to deduct the employees' share at the point of paying wages.

Therefore, it is in the interests of the employer to make the correct deductions at the proper times. Otherwise he would be liable to bear the cost of the entire contribution as well as any arrears and, of course, any benefits which might be foregone by a worker in claiming benefits. At the end of the income tax year an employer must send to the Collector General within 25 days of the end of the year a comprehensive statement giving details of the employees' total remuneration in the preceding tax year, the amount of PRSI deducted and the number of contribution weeks in which each worker was in insurable employment.

It is a matter of serious concern that a small minority of workers in some firms are attempting to disrupt the collection of PRSI contributions. Lest there be any mistaken belief about that, I do not know of anybody in my party who is advocating that course of the non-payment of the PRSI contributions. There seems to be some mythology that perhaps Mr. Matt Merrigan is a member of the Labour Party. Thank God he has not been a member of the Labour Party for years. That is a point I would like to stress. He has nothing whatsoever to do with the Labour Party, even though his union may be affiliated to the party. I want to make that clear lest there would be any public misconception on this matter. His views do not represent the broad views of the trade union movement.

I again stress that the deliberate non-payment of social insurance contributions not only would deprive the State of revenue essential for the provision of social services but would jeopardise the entitlement of a worker and his family to social welfare benefits. I can well understand the resentment that has developed in relation to the payment of PRSI contributions, particularly since they reached their present relatively high level, but I emphasise that there has not been an increase this year, none at all, in the actual rate of the contributions: all that has happened is that the contribution rates have been maintained but the ceiling has gone up from £9,500 to £13,000. It is only those workers who are earning more than £9,500 up to £13,000 who were expected to pay slightly more in PRSI contributions.

Of course, there are the other levies but they do not go towards the PRSI income system. Therefore, though I share the concern and the frustration of many PAYE people in regard to tax evasion and uncollected taxes — this is being dealt with in great measure in the Finance Bill which I am precluded from commenting on because it has not been circulated — it would be a retrograde step if employees were to indulge, one might say, in the same practice which they have vehemently criticised, namely, non-payment of tax. It would not be to anybody's advantage, particularly in the matter of benefit entitlements. It is well known that some employers avoid remitting PAYE tax and PRSI contributions for as long as possible. That is a practice I have condemned wholeheartedly. In 1981-82 the total PRSI contributions due to the Social Insurance Fund was £600 million and by the end of the year some £25 million, or 4 per cent, was still unpaid. About £20 million of that will be collected this year, leaving £5 million, or less than 1 per cent, still outstanding. In times of recession, with about 86,000 employers in the country, a collection rate of that effectiveness is reasonable. My inspectorate in the Department of Social Welfare have been particularly vigilant in ensuring that contributions are being fully paid.

It is a policy of the Government to extend the social insurance system and, as I indicated, I intend to introduce a national income-related pension scheme, and therefore the whole question of extending social insurance to the self-employed will arise. The quicker it will arise the better. The self-employed, including farmers, represent some 25 per cent of the work force. The extension of contributory social insurance to the self-employed would make for a more equitable distribution of the cost of social security than is the position under present arrangements. It would mean that a greater part of the cost of income maintenance for the self-employed would be borne specifically by that group itself. At present under the non-contributory social assistance schemes the general body of taxpayers, including employees who are already contributing heavily as insured persons to the cost of their own social insurance, bear the total cost. I will be pressing ahead with this fundamental reform as a matter of urgency. In other words, I intend to extend the whole system of PRSI contributions to the entire labour force, not just to 75 per cent as at present. The cost will then be borne on a broad national basis. That will be a fundamental reform.

Because the matters of PRSI and PAYE have become so interlocked in the public mind, it is important that we be careful in advising our fellow workers, men and women, about what exactly the system of social insurance is about, and distinguishing it from other aspects of income taxation in our community to ensure that no widespread misconceptions are fostered or allowed to develop. If that were to be so it might destroy or injure irrevocably a feature of Irish social policy, the redistribution of income, which has been built up painfully over the years and has led to a reduction of poverty within our community but which is still widespread. This system must be developed if poverty is to be eradicated in the eighties. If we continue that work in Dáil Éireann we will succeed in eradicating poverty, but we must all share in the cost.

An Leas-Cheann Comhairle

: Deputy Lenihan.

Mr. Mac Giolla

: I understood we would have alternative speakers.

An Leas-Cheann Comhairle

: We will have Deputy Lenihan, then Deputy Bruton and then back to the Opposition.

Mr. Mac Giolla

: I understood the speakers would alternate from both sides of the House.

An Leas-Cheann Comhairle

: Alternating between the Government and the Opposition. That is the rule. The Deputy will be called in due course.

Mr. Mac Giolla

: Following precedent I should be called next.

An Leas-Cheann Comhairle

: Deputy Lenihan has offered. The Chair decides on who is next to speak. If the Deputy will await his turn he will have an opportunity to speak.

Mr. Mac Giolla

: I am aware that that is your privilege, but I should be called to speak next in accordance with the precedent set by the Ceann Comhairle.

An Leas-Cheann Comhairle

: This is a very special type of debate. I am calling Deputy Lenihan. Deputy Bruton, who has also offered, will be called, and then I will call on Deputy Mac Giolla with the agreement of the Opposition.

Mr. De Rossa

: On a point of order, is this debate not taking place under the Standing Order covering the making of statements by the Government and the Opposition?

An Leas-Cheann Comhairle

: That Standing Order has been suspended for this debate. I will arrange for Deputy Mac Giolla to get in.

Mr. Blaney

: In case you may not have seen me in the welter of people who are offering, I also wish to speak.

Mr. Lenihan

: I understand that we are to keep within the limits of a certain amount of time, 15 minutes, I think. I just want to refer to a certain number of what I regard as very pertinent points. I know the debate relates to taxation but, as the Minister said, you cannot isolate taxation from the other factors involved in the economy such as generating economic activity by private and Government expenditure and, of course, investment which is the all-important generator of economic activity.

I find it very hard to see how the Minister for Finance can accept a regressive taxation policy side by side with an investment policy which actively promotes less public capital expenditure and discourages private capital investment. The only justification for taxation increases of any kind, particularly when they are regressive, is that the economy is being stimulated by way of increased capital investment both public and private in the productive sectors.

A classic example of this was the major error made by the Government in the budget when £220 million was cut from the proposed capital expenditure budget inherited by this Government, covering basic infrastructure areas such as telecommunications, roads, housing, sanitary services, construction and industry, and mainly affecting the construction industry. Apart from the fact that the construction industry generates economic activity and, with an increased work force, provides more taxation and a broader spread of taxation, it also has spin-off effects involving the utilisation, in Ireland in particular, of raw materials to the extent of 70 per cent to 80 per cent of inputs into the construction industry. There are also spin-off effects on the cement industry and the furniture industry, to mention only two. Increased activity in industries like that leads inevitably to a further generating of incomes, further employment and further spin-offs in revenue take to the Exchequer.

That sort of thinking by the Government would justify taxation increases. They can be justified if there is also a positive investment policy. With a regressive taxation policy side by side with a policy of reduced investment in the public sector and a lack of confidence in private investment particularly in the building and construction industry, there is a loss of confidence by the private sector of the building industry which fits into public sector investment and causes a further reduction in economic activity in the private and public sector of the construction industry.

That is a pattern which leads to a policy of depression and further disemployment. This policy was adumbrated in the budget statement, which is entirely regressive and negative in all its attitudes.

It is in contrast with the positive approach taken in the report of the Commission on Taxation which the Government had to hand and which was published last July, practically a year ago. It is a very formidable document running to 600 pages. It is a compendium of all the recommendations required by any Government in the fields of taxation and related expenditure and investment, but primarily because of its terms of reference in the taxation field.

I will go into some of the key conclusions reached by the commission. Contrary to what was implied by the Minister, representation on the commission was widespread including Donal Nevin of the Congress of Trade Unions, a respected figure in the trade union movement. The commission made some very important decisions which run counter to what we have in this budget. This accounts for the dissatisfaction felt by the ordinary taxpayer, and in particular by the PAYE taxpayer, about the inequities in the recent budget and which will be dealt with further in the finance legislation.

The massive feeling of rejection and frustration against the taxation system and its inequities on the part of the PAYE taxpayers flows from the fact that the Minister for Finance and the Government failed to implement a single recommendation in the commission's report, a single recommendation of any importance relating to the conclusions which I will mention. I want to quote from page 42 of the report which sets out the key elements. One is that income tax should be charged at a single rate on all income arising in the personal and corporate sector.

Another recommendation was that the single rate of income tax should be lower than the current standard rate and should apply to a much more equitable and comprehensive definition of income than at present, including wages, salaries, profits, realised capital gains, lump sum receipts, gifts, inheritances and other windfalls. The report stated that the extraordinary range of exemptions and deductions from income for tax purposes which narrow the tax base and result in higher tax rates should be abandoned. Only standard personal allowances given in the form of tax credits should remain. It was stated that the essential redistributive function of the tax and public expenditure systems should be achieved through direct payments at the bottom of the scale, through the choice of a level of personal credit and the tax rate in the middle income range and the imposition of a progressive direct tax on expenditure at the top of the scale.

There was also another positive recommendation which runs counter to what the Minister for Social Welfare has stated but which is one to which Mr. Donal Nevin has agreed as one of the main people involved in the preparation of the report. The commission stated that social insurance contributions should be replaced by a social security tax levied at a single rate on all income as we define it, including realised capital gains and taxable gifts and inheritances. Another recommendation was that the tax system should be adjusted systematically to deal with the distortions arising from inflation through indexation of progressive tax structures and capital-income adjustments to take account of changes in the real value of liabilities and income-producing assets.

I have referred to only a few of the nine recommendations of the Commission on Taxation, all of which have been completely ignored in the budget. A short while ago we had what was called a comprehensive address by the Minister for Finance running to ten pages. However, his speech did not contain a single reference to this report which contains practical, radical recommendations that could be implemented by the Government if they had the will.

It is not as though something unique was being suggested in the matter of reform of the taxation system. There is one country in the EEC which has the same type of economic and social structures that we have in Ireland, although on a much larger scale. I refer to France. Because of the need there to capture a wide range of taxpayers and to provide a greater degree of equity, for a number of years there has existed a single tax system with definite compensations for the less well off sectors in the form of social welfare. That type of basic system recommended in the report of the Commission on Taxation is the only way forward if we are to make any progress. The kind of regressive taxation in the budget will not help. The extra 1 per cent levy across the board to be imposed on income taxpayers, the PRSI system and particularly the system introduced last year in connection with financing the Youth Employment Agency is inequitable and regressive and has been the cause of much of the annoyance felt by PAYE people recently. They do not make any distinction between contributions and taxation. They are worried about their take-home pay. Income tax, PRSI contributions, the 1 per cent youth employment levy and other levies and social welfare contributions are taxes so far as the PAYE workers are concerned. The higher the levy payment in the overall contribution, the higher will be the degree of inequity that arises. A flat 1 per cent payment on all taxpayers without regard to income creates anomalies and is inequitable.

The Commission on Taxation came down decisively on levies of this kind. They said they should be removed as quickly as possible from the tax code if any degree of equity was to be established. In order to get by, the Government introduced a 1 per cent rate on all income taxpayers and have persisted with the PRSI system but, at the same time, they have not even bothered to tell the public that they intend to treat seriously the positive recommendations contained in the report of the Commission on Taxation. If the Government are to re-establish their credibility with the tax paying public, they must indicate that they are not just using a patchwork device designed to yield extra millions of pounds, as was blatantly set out in the budget. The Minister did not put any gloss on it. He said the 1 per cent levy was strictly a revenue device to secure extra money without having any regard to the obvious inequity of the system which runs counter to the recommendations of the Commission on Taxation.

We must have social stability before we can have economic and investment stability. There must be an indication from the Government and from the Minister for Finance that they intend to take seriously reforms in the taxation system which have been spelled out so directly in the excellent report of the Commission on Taxation which was commissioned by a Fianna Fáil Government. Unless that is done, no progress can be made within the ambit of the present system. There is no point in pretending that in the present system of taxation some money is available at the end of the rainbow and I was glad to hear the Minister for Social Welfare spell out that fact. The Minister for Finance in a statement earlier today drew back from what he called a misinterpretation of statements he made previously. At the very least he had left the clear impression that by curbing evasion and avoidance techniques utilised in the present system there might be a large amount of money available to alleviate the situation with regard to PAYE workers. That is not the case and I was glad to hear the Minister for Finance and the Minister for Social Welfare, two Ministers who have spoken in this debate, point out that fact. There is no point in fooling people.

We must be realistic. In the present system of taxation there is no way inequities can be removed, revenue raised and incentives given to enable investment to take place. I am not saying that the recommendations in the report on the Commission on Taxation can be adopted overnight but if they are shown to be under consideration and under detailed examination by the Government with a view to their implementation at an early date, at least it would be evidence of their bona fides that the matter was being considered seriously.

Investment confidence is an important factor. The question of real taxation reforms is important from the point of view of equity in the tax paying classes and also from the point of view of incentives so far as investment is concerned. The behaviour of the Government is a very important ingredient so far as confidence in investment is concerned.

I ask the Government to consider very seriously the ill-effects of the contradictory view points expressed in statements by senior Ministers in regard to financing generally. Financing and taxation are the kernel of running any community. It is all about the creation of confidence, the raising of the level of investment and the provision of the necessary taxation without imposing any disincentives to the further creation of greater levels of investment. That is a thumbnail sketch of what investment is about in the public and private sectors.

If the behaviour of Ministers in Government gives a rise to a lack of confidence in the implementation of our taxation system and their handling of public finances, one is straight away into an area in which investment just stops. The scene last week of very serious financial disagreement of a most fundamental kind in the running of a Government exhibited in public by the Tánaiste and the Minister for Finance does not do the country any good. It does far more damage to investment than any other Government statement or attitude that I could think of.

I make a particular appeal, in the national interest, that Government Ministers realise when they are talking about money, investment and taxation that these are very serious matters indeed which are treated very earnestly by investors all over the world. We are all one global village and all these aspects are major considerations in making investment plans which depend on whether our climate of investment is a proper or appropriate one. Generally, what is needed is a consistent and positive policy, particularly concerned with those reforms which are suggested in the form of the Report of the Commission on Taxation which has now been to hand for almost a year and in regard to which there should be some immediate statement of intent, at the very least, from the Government as to adopting and implementing, over a period of time, the recommendations contained in that report.

Mr. R. Bruton

: I am glad that Deputy Lenihan has drawn attention to the Report of the Commission on Taxation. It underlines the fact that one of the most firm plans in the joint programme of Government is the commitment by the Government to taxation reform. The Deputy draws attention to the conclusions of this report. However, if he had read on to the next sentence, he would have seen that the commission pointed out that these proposals constitute a formidable programme of tax reform which could not be carried through easily, or in a short time. The report continues that many of the individual recommendations may be opposed but that they regard their proposals as a single package. In other words, they are saying that this is something which cannot be done quickly and that they would like to see it done en bloc, not piecemeal. Deputy Lenihan is not quite fair to the Government because it would not be right, as the Commission on Taxation warn against, that the recommendations which we like should be taken and those which we do not like left behind. The Government must proceed with tax reform as an overall policy. Indeed, the Minister recently pointed out that it would be a very early priority of the Government.

There are two sides to tax equity. One, which we are discussing here, is reform of the tax code. Equally important is reform of the tax administration. In many ways, as a system of getting quick equity into our tax code that is a far more productive line of approach. Our tax system is perhaps one of the most tortuous which could be dreamed up, certainly as it applies to the self-employed. Their tax is assessed on a previous year's basis and then assessed by the tax commission, followed by a series of inquiries, appeals, adjudications, demands and ultimately enforcement if necessary. By the very nature of that long system of tax collection and assessment, there are always substantial sums of outstanding tax in the system.

At the end of 1982, for example, there was £1,500 million in outstanding taxes. The Minister has rightly pointed out that this is not a crock of gold which can be quickly cashed in. Of that £1,500 million — which applies to the three previous years — less than half, £500 million, was agreed in June, so the vast bulk is still under inquiry or appeal. A further point is that over half of all that money referred to the tax year just gone — the 1981-82 tax year. In terms of our system of collection, that is a very recent year. It is difficult to get in taxes very quickly from that year under our present system. Our system is a little like water flowing through a pipe. The tax outstanding is the amount of water in the pipe at any given time and it is hard to flush all that out in a short time. Essentially, under our system of collection, it proceeds slowly through the pipe. This important consideration must be borne in mind when we contemplate how much can be got from just speeding up the process.

The most important aspect of our tortuous system of tax collection is the large inequity between the PAYE and PRSI payer and the self-employed. There can be absolutely no doubt about that at present. If we ignore the taxation on appeal and just take the amount of taxation agreed as due, the following picture emerges, in relation to the 1980-81 tax year as at the end of 1982. The situation was that the PAYE and PRSI sector had paid up 91 per cent on time, 7 per cent was late and 2 per cent of that agreed due was not yet paid. On the other hand, the self-employed were in the position that only 47 per cent was paid on time, 15 per cent was paid late and 39 per cent agreed due was not yet paid. In other words, even ignoring the money on appeal, the self-employed are paying far later and time is money when one is talking about tax revenue.

A further point is that there are substantial sums on appeal in reference to the self-employed, which is not at all the case with regard to PAYE payers. That is the fundamental inequity in our tax collection system. It is not so much that there is a crock of gold to be collected but that there is inequity between different types of taxpayers.

There are also three other serious creaking points in our tax system. One, which the Minister made clear in reply to questions earlier this year, is that interest on late payments is just not being collected by the Revenue Commissioners.

They are so pleased to reach a settlement that they ignore the interest which would have been due on late payments. The figures which the Minister revealed showed about 1½ per cent in toto as being collected in interest on late payments which, when one considers that the penalty is supposed to be 1½ per cent per month, means that, effectively, the system is not being worked at all.

Another creaking point to which I draw attention is that penalties levied on tax evaders, of which only very few are caught — about 100 last year — at 50 per cent are tiny. In effect, it is cheaper than one would borrow money on a legitimate debt from a bank for a period of two to three years. That, again, is a serious weakness in our tax administration system.

A final very serious weakness in our tax administration system is that the legal enforcement procedures are creaking to a halt; they are very seriously deficient. The Auditor General drew attention to this. In the last tax year 10 per cent only of the face value of tax sought was produced as a yield. That was considerably worse than in previous years; it was 16 per cent three years ago. Therefore, even though there may be an element of pure assessment that may never be realised, there is no doubt but that our legal enforcement system is seriously overstrained and is deteriorating in its ability to get in money. I believe that those sorts of difficulties in our tax administration system are not lost on people who are willing to endeavour to defraud the tax code altogether. The fact that there are no penalties for late payment and very little penalties for outright evasion will certainly act as an incentive to people to endeavour to avoid their due responsibilities.

It is very pleasing to note that the Minister in his budget statement, and now, has promised further measures in the Finance Bill to tighten up this system. He mentioned stiffer penalties, shorter appeals procedures, tighter disclosure arrangements for financial institutions and many other measures such as prison sentences and publication of names. It is important when penalties are introduced that they be used, because I believe there are already considerable penalties within our tax code that can but are not now being used. It is important that the Revenue Commissioners pursue these penalties vigorously.

At this stage, with regard to the enforcement side of things — where obviously the Solicitor-General, the sheriffs and so on are seriously overstrained with work — it would be a wise idea to take in private consultants to have a look at our tax collection procedures, making it clear that they would have to report in a very short time to see how we can speed up these procedures. The sums produced from reforms and findings of that nature should be clearly used to relieve the PAYE sector, that that should be shown to be the case and an explicit statement made to that effect.

Having dealt with what I believe to be commendable moves by the Minister to tighten up our tax system — and there are several loopholes that will be tightened up — the situation still begs the question that there is need for a thorough-going change in our system of tax collection. We must move towards the self-assessment system for the self-employed which would bring it much closer to the "pay as you go" system and would complement the Minister's move already to put the self-employed on the same year tax basis. That would constitute the greatest reform, making the PAYE and self-employed sectors seen to be on the same basis. Many people have criticised that idea, maintaining that it would be a charter for evasion. I do not believe that would be the case if, firstly, there are introduced stringent penalties and, secondly, a system of random and exhaustive checking of certain taxpayers — perhaps one in 20 — who would be placed under very severe scrutiny with very severe penalties for abuse.

Under such a scheme we could operate a self-assessment method. It is about time we moved towards such a scheme, particularly when one considers that not only do the United States use it but Britain, which has a tax code similar to ours, are introducing it in so far as they have initiated a pilot scheme in this respect. There is very strong argument for such a scheme. I would not accept any argument that it is impractical. Its advantages are many, four of which spring to my mind immediately. First, it would release inspectors' time to tackle the real problem of tax evasion. With each inspector having to handle approximately 800 files I reckon the sort of time he could give to an individual tax file would be approximately one hour. Therefore there would be plainly no opportunity for an inspector to visit premises or go into great depth in regard to tax returns if that were the sort of time available to him. A self-assessment system would release time to him for much more detailed examination of individual tax returns. The other great advantage is that collection and assessment would occur on the same day. Great attention has been given to the fact of taxes outstanding in an amount of over £1 billion. But if we had a self-assessment system, on the day appointed at the end of the year when the self-assessment was made the cheque would issue with that assessment. In other words, the Government would have the money in their pockets and appeal would not occur, as it does now, with the Government out of pocket for the whole of the self-employed person's tax due. Another advantage of self-assessment would be that it would take the legitimate taxpayer out of the annual entanglement many self-employed taxpayers face by way of long series of letters and costly exchanges with the Revenue Commissioners merely to establish their fair tax liability.

However the most important advantage is that it would demonstrate visible equity in that both the self-employed and PAYE would be on a "pay as you go" system. That would constitute tremendous progress.

The report of the Commission on Taxation is a valuable one to which we must give great consideration, but within the short time available on this debate we cannot give it the justice it deserves.

There are a few anomalies in our tax code to which I should like to refer. One is on the question of disclosure. At present we have a system that is discriminatory between certain types of financial institutions as to the rules of disclosure. The building societies are treated far more favourably than are the banks. I cannot see any reason, in logic or equity, for treating some financial institutions differently from others. Both should have the same disclosure arrangements, both should have the same withholding tax arrangements and indeed the same balancing calculations of tax due for individual taxpayers. Another important reform would be that all institutions should have to check the bona fides of overseas accounts. At present, as we know, overseas accounts do not have to be reported to the Revenue. There is the widespread belief that many overseas accommodation addresses are being used in this country to avoid legitimate tax due. That is one anomaly that must be removed from our tax code.

I would seriously consider also the Commission on Taxation's point that there is excessive disincentive to saving under our present system where all the nominal value of interest is assessed for taxation. There should be some indexation clause written in there to give greater incentive to save. I can see no reason for operating different disclosure arrangements for different types of financial institutions.

A second area where anomaly arises is that in the capital gains area. A serious anomaly obtaining there is that Government stockage enjoy complete exemption from capital gains tax which would be paid by any other investor. The Minister is endeavouring to do something about that. He has announced that disclosure of all transactions in Government bonds will have to be made. It is only right that that anomaly in our tax code be removed as a matter of priority.

A third area I should like to mention is that of section 23 lending. This is a concession which has been remarkably successful in relation to getting residential property investment. I cannot see why this concession which is afforded to one type of activity, the construction of dwellings for letting, should not equally be afforded to the more productive type of investment in our industrial sector.

There is a need overall in our tax code and our grants system to examine the situation whereby our tax codes and our grants are very much more pressing investable funds towards the property end rather than towards the productive investment end of economic activity. More concessions should be afforded to the industrial and productive ends of investment where, after all, we can look to permanent jobs and not just jobs during the construction period only.

Mr. Wilson

: Including agriculture.

Mr. R. Bruton

: Of course. That is an important direction for reform to be moving towards. Perhaps it would be difficult to proceed rapidly in that direction with the building industry in such difficulties. If one looks back over the years where we had very high investment ratios but not high growth in employment one will see that one of the reasons was that funds generally were encouraged towards property rather than towards productive investment that would provide jobs in the long run.

A final point which I should like to make about what I consider to be anomalies in our tax code is the relationship between new capital investment by companies compared to new employment by companies. The capital investment has a series of generous assistances. There are grants, capital write-offs and interest on money borrowed for capital investment is allowable; but taking on new employment is open to a payroll tax and also ties an employer to future costs. For example, if redundancy eventually occurs that employer is bound by our social welfare and redundancy payment codes to pay. In a real sense there is a heavy investment and commitment by employers in taking on new employees. The tax code, far from alleviating that, has aggravated it. In the context of reform of our tax code we must look at the balance of incentives between investment in capital and the taking on of employees by companies. Greater employment is our essential objective and it is regrettable that our tax code over the years has evolved types of taxation and grants that militate against that profound objective. I hope that in the near future we will have a more thorough debate on the report of the taxation commission, a document worthy of a debate here.

Mr. Mac Giolla

: When I was informed that this debate was to take place I was very pleased. It was most unusual that it should be ordered because there was not a motion on the Order Paper but it appears that with the Government and Opposition Whips agreeing that the credibility of the House was at stake we should discuss the major issue of the moment, taxation policy. I was a bit naive in accepting in good faith that that was the purpose of the debate but now that it has gone on for a number of hours I have got the drift of its purpose: a continuation of a debate that has been going on in the media since the great tax march last Wednesday. The great phrase we have heard is that there is no crock of gold, the £1,000 million is all nonsense and those who use that figure are only adding on three noughts. We have been told that there is practically no money outstanding and the whole purpose of the speech by the Minister for Finance today was to stress that the money is not there in spite of the fact that in reply to Dáil questions, he told us that the money is there. The Revenue Commissioners, and the Comptroller and Auditor General, have given us the figure but today the Minister told us that those figures are misleading, are only estimates. The Minister said:

The only guideline I can point to is that between mid-1982 and the end of the year the figure reduced by £250 million.

I should like to know what figure reduced by that amount. The Minister went on to say:

Of this reduction, some 10 per cent was brought into the Exchequer with the balance discharged as not being properly due. If this pattern were to continue in respect of the end-year figure, then the balance ultimately paid into the Exchequer would be no more than £90 million to £100 million.

In response to that statement the Fianna Fáil spokesman, Deputy O'Kennedy, said the Minister should have explained the position some months back and he was now admitting that the figures he gave earlier were wrong. Fianna Fáil and Fine Gael, and the Minister for Social Welfare who added his tuppence worth on the PRSI question, are trying to show that the agitation about unfair taxation is eye-wash. They accept that there is some injustice, that it must be tidied up but say that there is not a crock of gold.

I should like to know who used that phrase, a crock of gold, first. It was never used by the trade union movement. There is big money out there irrespective of what one calls it. Deputy Richard Bruton, who has put down many questions in recent months on taxation, used figures which are contrary to those of the Minister for Finance. The Deputy got those figures from the Minister for Finance in the course of a reply to a Dáil question on Tuesday, 1 March 1983. The Minister for Finance today denied those figures. According to Deputy Richard Bruton £1,500 million is outstanding but the Minister for Finance said the figure was £1,000 million, a difference of £500 million.

Mr. R. Bruton

: On a point of information——

An Ceann Comhairle

: There is no such a point.

Mr. Mac Giolla

: Deputy Richard Bruton said that much of the £1,500 million outstanding is under appeal and that only £500 million had been agreed as being due to be paid. My calculations did not go that high and the CAG said the figure was £350 million. However, I knew the figure due was higher than the figure mentioned by the Minister for Finance, £90 million to £100 million. Deputy Richard Bruton has told us that £500 million has gone through all the appeals, delays and everything else and is due to be paid but has not been paid. That could be described as a crock of gold and a big one. It could reduce the budget deficit enormously, help to alleviate the PAYE sector and the Minister for Social Welfare who had to introduce such a shocking Bill recently.

The question of tax evasion can be looked at in three different ways. There are those who are not registered, they are lost and hidden in little attics. There are those who are registered but are not returning their income or are returning a lower figure than they should. Finally there are those who are registered, who have been assessed and have gone through all the appeals but still have not paid. The £500 million we are talking about is only one portion of the outstanding taxes.

The problem of people who were not registered for tax was not tackled until 1979 when a special inquiry branch was set up in Dublin. Investigators from the Revenue Commissioners went along the streets knocking at doors and discovering new companies. In three years they discovered 24,000 previously unregistered self-employed people. The inquiry unit should be extended to cover all parts of the country, not just Dublin. They discovered self-employed traders, newly registered companies and professional people such as engineering consultants, solicitors, accountants, doctors and so on. These people have various ways of hiding and when discovered they may still escape and hide again. The inquiry unit has undoubtedly been of great value and should be extended.

There is also the problem of people who are registered for tax but do not declare their income. We are all aware of the doctor who is paid a fiver which he puts into a drawer. This is common practice and receipts are not given for these cash transactions. It is a very difficult problem to deal with.

The Workers' Party have recommended to three different Governments that a system of random sampling should be introduced whereby certain people are subject to in-depth examination and inquiry. This system has been in use in the United States for a number of years and there is also a sampling system in the UK. The report of the UK Public Accounts Committee published on 28 April 1982 indicated that in 1981 2.8 per cent of self-employed and 1 per cent of companies were examined in this in-depth fashion and the results showed that only 13 per cent had no understatement, while 87 per cent of those examined understated their income. Under such a system of random sampling severe penalties should be imposed on people who are understating their income.

Deputy Bruton said that £500 million is due in taxation. The report of the Comptroller and Auditor General dealing with the business sector states that taxes due to 31 December 1981 and not under appeal amounted to £224.3 million in non-PAYE income tax, £91 million in corporation tax and £21.9 million in PAYE deducted from workers but not paid to the Revenue Commissioners, a total of £337 million. I would suggest that this is a crock of gold particularly when we are referring to only one area of tax evasion. Those figures do not include VAT. I have not the figure for the amount of VAT outstanding but it must be very substantial and could amount to several million pounds.

Deputy Bruton also referred to the system of taxing the self-employed. It is completely different from the system used for PAYE workers. If the Revenue Commissioners believe that a PAYE worker has income which he is not declaring, penal taxation is immediately imposed and that tax is deducted from his salary. If the self-employed are put on penal tax they are simply told that if they do not delcare their income they will be charged £10,000. Long appeal procedures then ensue while nothing is paid, but the PAYE worker must pay tax during the course of his appeal. If his appeal is successful the amount of tax overpaid will be refunded but he will not receive any interest. If a self-employed person pays too much tax he will be paid interest at the rate of 1.5 per cent per month. This represents a very substantial income for that person, far more than he would get from investing in a building society and it comes tax free from the Revenue Commissioners. This is a very clever device used by many of the self-employed, so much so that the Revenue Commissioners are afraid to charge them too much. This is holding back the whole system and it is totally unfair that workers whose money is deducted at source get no interest whatsoever on over-payments while the self-employed receive a very high percentage payment.

The differing attitudes in relation to PAYE workers and others became very clear some weeks ago when the Waterford Glass workers began their protest. I do not support their refusal to pay and our party have never supported it, but they were immediately attacked and told that the Offences Against the State Act would be used against them if they refused to pay their taxes. I recall that two years ago a resource tax was imposed on farmers. This was a legal tax which was included in the Finance Act. The farmers met and stated publicly that they would refuse to pay that resource tax. They did not pay it but action was not taken against even one farmer for that refusal. Whereas £7 million was expected to accrue, only £700,000 came to the Exchequer. Last year the Fianna Fáil Government in their Finance Bill took the unprecedented step, never taken before in any other country, of refunding £700,000 to the small percentage of honest farmers who paid their resource tax. The others are allowed to forget about it. The Fianna Fáil Government were saying that when they put on the tax and the farmers refused to pay it they were giving it back to those who paid it and they would try to think of some tax the farmers would not mind paying because it would be so small. That is the attitude which brings people on to the streets in great anger. They see everybody else treated in a completely different manner, people who can decide if they will pay or will not pay their taxes and they see the health contributions for the self-employed outstanding by £7.957 million and tax from farmers outstanding by £8,359,000, which is over £16 million outstanding in health contributions. There are many more medical cards around the country than there are in Dublin. Those people are getting the benefits but they are not paying a penny.

In relation to the youth employment levy from the self-employed a sum of £11.5 million is outstanding and from farmers £5.5 million is outstanding. The total amount between the health contributions and the youth employment levy is £19 million outstanding from the self-employed and £14.5 million from farmers. This is what drives people mad. The workers are saying that other people can decide if they will pay their taxes and they want the same right to choose. There is nothing done to those people when they do not pay. The only property workers have is their week's wages. The workers are saying that they have never got a week's wages into their pockets. They are saying they are entitled to their week's wages and they can then decide when they will pay their income tax or any other taxes. The workers want the same right as everybody else to decide if they will pay their taxes.

I advise the Minister for Finance to tear up his glib statements and realise what is happening. If the workers decide, the same as everybody else is allowed to decide, that they will not pay their taxes the whole country will come to a standstill. The workers will make those decisions pretty quickly. There is no use trying to say there is no money outstanding when we know that a large sum of money is outstanding. Some people laugh at the whole taxation system, get all the benefits and grants they can and do not pay anything.

The workers have never refused to pay their taxes. In the great tax marches of three years ago they did not say they wanted to do away with the PAYE system of taxation. They simply said they wanted a just, fair and equitable tax system. The Government got the warning and the message. Everybody thought the matter was defused and that was the end of the story. It is not the end of the story. What we saw last week is just a beginning of a campaign that will not stop this time but will keep going on until action is taken and the workers see that everybody else pays a fair amount of tax. The workers are quite prepared to pay their taxes and to make sacrifices if they see hope for the future and if they see a purpose to it. There is no purpose to this, there is no promise and there is no function in relation to the payment of taxes. There are only more cutbacks. I want to emphasise that what happened three years ago will not happen on this occasion. This tax campaign will be fought to a finish.

An Leas-Cheann Comhairle

: Deputy Michael Keating.

Mr. Wilson

: On what basis?

An Leas-Cheann Comhairle

: On the basis that it is back to the Government side again. Deputy Keating was here an hour ago.

Mr. Wilson

: Is Deputy Mac Giolla in effect taking time off the Fianna Fáil Party? Is that the ruling?

An Leas-Cheann Comhairle

: Yes.

Mr. Wilson

: What is the basis for the ruling?

Mr. Barrett

(Dún Laoghaire): I am sure everybody will co-operate to make absolutely certain that Deputy Wilson gets an opportunity to speak.

An Leas-Cheann Comhairle

: Each speaker is being as brief as possible to get in as many as possible. Before I left the Chair an hour ago Deputy Keating was offering. Deputy Blaney had also offered.

Mr. Wilson

: Deputy Keating was not here when I came in.

An Leas-Cheann Comhairle

: He was here before the Deputy came in.

Mr. Wilson

: The two of you went out together.

An Leas-Cheann Comhairle

: He is here listed as wishing to speak. As the clock moves on we are wasting time. Deputy Michael Keating.

Mr. Blaney

: May I ask if there is a hope of any of us who have offered getting in would the others stick to the time a little more closely as it would be a help?

Mr. Keating

: I am pleased to have the opportunity of making a brief contribution to this important debate. I want to make two basic points and, as far as possible, I will try to avoid repeating what has been the theme of the afternoon. The two points are, firstly, reform of the taxation system is needed but the reform must be fundamental and much of the concern of this debate and perhaps the concern of the public controversy are not germane to real and fundamental reform at all. The second point I wish to make is that much of the public protest and the trends in that direction are inimical to real progress and are detrimental to the interests of those who seek the change.

I listened with interest to the Minister's contribution and to other contributions. I accept there is much agitation and quite justified concern about the need for greater equity, the need to deal with evasion and the need to clear up anomalies and injustices in the system. I suggest that the system needs examination also. We should not let this debate go without questioning the basic premise underlying our taxation system. I refer specifically to the PAYE income tax system. The preoccupation with evasion, with spreading the load wider and including people who do not pay tax into the net is fine but in essence it is secondary and peripheral to much more fundamental concerns.

The Commission on Taxation did very fine and useful work under the chairmanship of Miriam Hederman-O'Brien and is a very helpful reference book in this area. The terms of reference with which they were charged were, I suppose understandably, circumscribed to a proposal to overhaul the present structure. I am not oversatisfied that fundamental questions may have been asked about the PAYE system even in the context of that very voluminous report although I believe there is an enormous amount of good work being done by that commission. I believe there are lessons to be learned arising from their recommendations.

The essential question is not how we clear up questions of evasion or bring more people into the tax net but how we create a system which raises revenue for the State and yet encourages initiative and enterprise. Ironically, much of the taxation system, whether it is PAYE or PRSI cannot be said to be other than directly repressive of energy, initiative and enterprise. As the base constricts and evasion grows the irony is that those who produce most and work hardest are those who are very often asked in those circumstances to bear a greater burden. There are all kinds of peripheral questions here, including the growth of public expenditure and the need for some redress, in that very frightening spectre.

I want specifically to deal for a short while with the PAYE system. First of all, the marching we witnessed must be fully understood and accepted as being an expression, even though some of us might believe somewhat misguided, of righteous anger and understandable concern that despite agitation over the years precious little appears to have been done. There is ample evidence to indicate that there is injustice in the tax system. Recently we saw reports relating to comparisons between urban and rural household incomes and the manner in which the distribution of resources was assigned between those two areas. I have often bemoaned the fact that there is increasing division between urban and rural in this area. There are clear lessons to be learned from the article by J. Higgins in the magazine Farm and Food Research last month. Comparisons between the spending power of farm and non-farm households is available in that magazine. There are injustices which could be removed if the political will existed to do so. There is no other way out.

Mr. Wilson

: Were the differences between the farming community alone or between urban and rural?

Mr. Keating

: Within the farming community itself, the non-rural town house and the rural house. There were problems and comparisons to be drawn between strictly rural and people in urban areas. The differences were so great as to suggest a structured discrimination against people living in urban areas.

Does the PAYE system serve the need it was originally designed for? It was a system which we inherited, as we did so much of our legislation, from the British. It is based on certain principles which are illusory. The fundamental question should be how to release the natural instinct of man to work. How do we reward good work and discourage the opposite? It seems that those who work hard are quite often expected to carry disproportionate burdens. I am not talking about people who cannot find work but about those who are not interested in working or have no desire to do so. They should not be rewarded for that.

Let us look at some of the assumptions underlying the PAYE system. It is assumed that it is a tax on employees. There is evidence to indicate that is not the case. The tax element is a major irritant to those paying PAYE and fuels their understandable anxiety about the way economic trends are going. In truth, income tax ostensibly paid by the average worker is paid by the employer and is in a sense a tax on production and employment. I do not offer this as something I am definite about at this stage but rather as a suggestion for consideration. The PAYE system is not essentially a tax on income but rather a tax on employment. It is ultimately borne by the employer. If the amount of tax which goes to the State is increased, employees demand higher take-home pay. We could argue that the tax system is repressive as far as job creation is concerned, that it is a tax on production and on the product of the business itself, perhaps simply a part of the Government's share of the value added by the company or undertaking concerned. The real earnings from employment comprise a man's disposable income. Any increase in tax which impinges on that disposable income is inevitably shifted to his employer by a demand for higher wages or salaries. It always comes back to the employer since for the employee the proper rate for a job is what appears in his or her pay packet and give or take a few pence that is what they expect.

Despite the significant rise in gross take-home pay over the last 23 years, which would indicate that in real terms the employee had a much higher standard of living, the facts point elsewhere. In 1960, as a percentage of GNP gross wages and salaries represented 45.4 per cent and net wages and salaries were 43.4 per cent. In other words, the actual rake off to the State was 2 per cent. In 1978 gross wages and salaries represented a substantial increase at 54.9 per cent of GNP. However, when one looks at the net wages and salaries, the take-home pay of employees, the figure was 41.6 per cent, which is slightly less than it was in 1960.

Mr. Wilson

: Is that direct tax only or is everything included?

Mr. Keating

: It is purely direct taxation. During that time the State's take had increased from 2 per cent to 13.3 per cent. There are reasons for that, but it is maligning the work force to pretend that over the years they never had it so good. It raises serious questions about public expenditure in terms of efficiency and productivity. We should reconsider our system of taxation. It is quite arbitrary. It seeks to levy tax on employees without any reference to the ability of that sector to pay. If we accept my previous suggestion, which is that the employer ultimately pays the tax, then we can see that to continue to exact tax from each employee, whether in the clothing industry, banking or whatever, regardless of the capacity of that element which eventually pays the tax to pay, will cause problems. We are taxing employment.

Let us take the clothing industry which we all know is in distress. They recently approached us about PRSI. They said it was a tax on employment. I do not go all the way with that because there is social good from it. Employment in the apparel trade has decreased from 32,000 in 1973 to 21,500 in 1981. Imports as a percentage of home consumption have risen from 48 per cent in 1976 to 78 per cent in 1981. In other words, the apparel industry is in difficulty. Every employee in that industry is expected to pay the same tax to the State as employees in other sectors where their added value and ability to generate more revenue for their sector is far greater. I appeal to the Minister to look at these points and consider reform in a fundamental way.

As regards protests, they are very negative and incipient steps towards a state of anarchy. I do not want to overdramatise it but recent comments included a trade unionist encouraging witholding of PRSI in Waterford. I heard a trade union leader say on the radio that we should "put the boot into the Government", as if the Government existed apart from the people and had some kind of extra terrestrial origin. I have seen a trade union leader exhorting members to agitate for the refund of the £10 fee for examinations which the Government recently introduced. Even though I am not an enthusiastic advocate of that measure, I abhor anyone exhorting people to break the law. I have seen a trade union leader on television justifying the witholding of payments and I heard a spokesman for ACRA last night saying they will refuse to pay local charges. These are very dangerous trends and this protest is leading us only one way.

We must accept that protest has to be available as a means of ventilating concern; but there is a need for great leadership, not just at Government level but also at trade union level. Many of the trade unions are fighting battles which they have already won. We should look not only at the reform of taxation but at the umbrella of structures dealing with conflict in the workplace, because the place ultimately to resolve difficulties should be around a table and not in the streets. The logic of people stopping work in the middle of a week is suicidal in its implications and the very last thing we need. I suppose I would be ridiculed if I suggested that if future protest marches take place they should be held on Saturdays when workers would not injure each other. We must all use our best resources. I ask the Minister not merely to look at the issues he has raised today but also the fundamental issues of how we can unleash the good that is in our work force.

Mr. Wilson

: I am very disappointed at the speech which the Minister for Finance made today. There is no light at the end of any tunnel. He talked about the heavy social expenditure and how he had to get money in by taxation in order to cope with it. The burden of his speech was evasion, evasion and evasion of taxation. Deputy Mac Giolla correctly pointed out that the Minister was the chief culprit in talking about evasion but is now running for cover saying there is not so much evasion after all. I know a good deal of what the Minister says is true, that the figure which was given originally included assessments—and sometimes the tax people simply throw in a large assessment to frighten the living gizzard out of the taxpayer and bring him quickly to the office lest he be put out of house and home. If somebody is malevolent enough to give a name, as happened in my constituency recently when a man living in a labourer's cottage with two acres of land got a bill for £500, that would be included in the global figure which was being bandied about as tax which was owed. There is truth in the statement by the Minister but the propaganda was started by him and others, for what purpose I do not know. In these assessments they seem to just think of a number in order to draw the taxpayer in.

I could not help smiling wryly when I read what the Minister said about social commitment when for a mere bagatelle he decided that the oral examinations in modern languages are to be wiped out in the schools simply to save a half a million pounds or £1 million. This is ridiculous in the context of taxation policy.

The Minister of State at the Department of the Taoiseach told me today that we paid £25 million for potatoes imported last year. That would nearly pay for the total school transport system about which there has been such a brouhaha quite recently. We behave in a crazy fashion. This year we have a superfluous supply of potatoes. Next year we will probably have no potatoes and we will be paying money to import them from Cyprus or New Zealand where poor quality potatoes come from.

The general subject of the severity of the taxation policy of the Government has been well debated. I read the report of the Commission on Taxation and I am not going to deal with anything on the broad philosophic level as Deputy Keating did. My own contribution will be mainly concentrated on the area around the Border but, before that, I want to correct something which Deputy Mac Giolla said. Fianna Fáil did not pay back the resource tax as Deputy Mac Giolla alleged. This was a decision of Deputy Bruton and Deputy Dukes in the budget of July 1981. It was in their election manifesto and they were responsible for paying the resource tax.

I mentioned in the House already that this budget, its direct taxation, increase in PRSI and especially the increase in excise duty and VAT have practically killed commerce in the Border area. I do not think the Minister or the House realise how serious it is for the commercial and general life of the community which I represent, plus the community in Louth, Leitrim, Sligo and Donegal. As the House knows, it all arises from a Border which should not be there in the first place and which set up all kinds of artificial patterns in trade since it was first foisted upon the country because in my area Belfast was the commercial capital. The commercial pull was to Belfast rather than to Dublin before the Border was established. The same is true of Donegal and Derry. A savage gash was inflicted by the imposition of the Border in the first place on the commercial life of that area but we have compounded the error by all our activities since 1922. We have closed the railways in that area and the taxpayers there are contributing to a £76 million subsidy to the railways and derive no benefit from it despite the fact that we were promised extra money for roads in the area when the railways were done away with. The closure of the railways affects the two counties of my constituency, the western part of the Six Counties and Donegal in particular.

I would like to make a point to the budding economist. There has not been any in-depth economic study of the problems created by the Border for the Border areas. Whatever economic research has been done has been done on a — if it is not too big a word for such a small entity — global basis for the whole Six Counties, the major portion of which is in the eastern part in and around Belfast city. Studies with regard to the Twenty-six Counties have generally been about the whole country but there has not been any in-depth study of the effect on the economies of the Border areas. I suggest that it would be a very good idea to do that now with a view to finding out what measures — governmental, local or private — can be taken to remedy the effects of this disastrous budget.

We had a visit from the Economic and Social Committee of the EEC. They have no power to take action. As the chairman of the committee said, they have no pouvoir, but they have compulsion. They have not the power. They were appalled at the situation industrially, commercially and socially, along the Border. They were prepared to admit that. One does not wash one's native linen too much in public before visitors and those of us who made a contribution when they visited refrained from attacking our Government in the presence of people from the economic and social committee who were foreign to us. I consider this a good principle to go on. It could have been said that much of the trouble at present in that area is directly due to the taxation policy of the Government as shown in this budget.

Many people are now aware that from a social point of view and from the point of the workings of the Department of Justice it is having a very deleterious effect on the inhabitants around the Border. I am referring to wholesale smuggling which is bound to result from this. Busloads are now travelling from all over the country, from the south of Ireland, from Dublin as well as from the Border counties, to purchase goods in the Six Counties with a consequent loss to the Revenue Commissioners here, to the excise people and to VAT also. Border traders made out a long and detailed document and sent it to the Minister for Finance. I have not time here to deal with it but it takes up all these aspects of the budget and the effect it is having on the area there, and I am making an appeal now to the Minister for Finance and to serious-minded Members of this House to take cognisance of what is being done by deliberate Government action in that area by way of damaging the communities along the Border right around from Donegal to Louth.

We are hopefully building up a tourist industry based on coarse fishing and game fishing. The Government aid in that regard is to increase VAT on the hotel charges in the area. The political aspects are also important and they have been touched on already by some people in the course of this discussion on taxation. Where you have unemployment, as you will have, in the distributive trades and in industry and a large number of very active young people with the advantage of a post-primary education, which their grandfathers did not have, you are preparing a very dangerous social recipe, particularly along the Border where the emotive issues and the very existence of the Border add fuel to any fire created by the Government action in this regard. As a result you will have destabilisation, and plenty of people are quite anxious to see our society in general destablished and in particular the society along the Border.

On a national scale we cannot reiterate often enough how important the capital budget is for the country in general. I know that Ministers and economists have said that perhaps our capital investment was not as good as it might be, that it was not producing the results it might produce. In the construction industry, and particularly in areas which are not heavily industrialised, capital investment in worthwhile infrastructural projects, projects that will assist the industrial and agricultural development of an area, is essential. We had an austere programme. There is no question about that. We do not deny it and to do so would be hypocritical. We campaigned up and down the country on the document The Way Forward but we had a plan for substantial capital expenditure particularly in the areas that would bring quick results from the point of view of employment. The taxation imposed — direct, excise and VAT — has been severe and I do not see how anybody could but understand the people who are marching, but my real sympathy is with the people who have no jobs. My real sympathy is with the areas where traditionally people as soon as they were finished at one time in the national school had to head off mainly to Britain and the US. There is no place to go now and we have a more sophisticated work force. Again, here is a recipe for severe social unrest.

I have been requested by traders of the area to ask the Minister for Finance to employ more customs and excise officers. There is a ban on the employment of extra officials in the public service. He might look at that and it might be helpful if he did so. People are shopping from all over the country in the Border area and some of our shops are being closed down or opened for only part of the day. I want to refer to one thing which public commentators in the media particularly are saying now. They are saying, "Well, you cannot blame the people, the prices are so low. You are not going to criticise them for going across the Border and purchasing". I do not go along with that grá mo chroí approach to this because the very people who are getting old age pensions, disability pensions, children's allowances, agricultural grants and so on are getting them from our Exchequer. They need not go to Stormont or Westminster if they are looking for that money. Consequently when they are spending and enriching the UK Government, which is what they are doing, they are doing harm to the place that they themselves are drawing their money from. I am prepared to argue with any person I meet who puts up that kind of argument. I am prepared to argue with people who are dependent on the State here for direct payments who have argued with me that it is a good thing for them — after all they have so many children to feed — to go up and make purchases in the Six Counties. I do not accept that. They are taking up children's allowances from here to benefit another exchequer. Where do third-level grants come from? Where do agricultural and housing grants come from? We should establish a climate of opinion that the person who does that kind of thing is doing damage to the country. In Sinn Féin times when that organisation was first established people went to no end of trouble and extra expense to themselves to support their own. I may be laughed at, it is naive, simplistic and so on, but I must continue to say that that is what I believe in.

Some people have suggested that there should be a compulsion to spend 48 hours in the Six Counties before allowing them to bring duty-free goods in here. I do not know whether that would work. We know about butter ships and so on and the problems in the North Sea. Denmark has a regulation that 48 hours must elapse over the border in Germany before the customs allowances can be availed of. I do not know whether there is any possibility in that of helping our traders.

Reverting to capital investment, in my area we in Government had a programme for decentralisation. The construction industry is at a very low ebb, in some places with unemployment as high as 48 per cent. This Government should continue with the plans we had for decentralisation which, as I said earlier, will have the most immediate impact on the employment situation in that area. For that reason I would be willing to go along with the statement made already in this House that when one can relate the payment of tax to the creation of employment it is much easier to take.

What remedy can I suggest for the Border areas? I do not believe the refusal to pay movement should be countenanced. When we were in office and when very few people on this side of the House were taking an objective or philosophic view, the present Minister for Health, Deputy B. Desmond, made that kind of speech here. Everybody knows Jerry Browne, Governor of California, found himself in serious trouble when he cut taxes and did not have the wherewithal for services.

An Ceann Comhairle

: Would the Deputy conclude, please?

Mr. Wilson

: I made the point that unemployment is a serious problem, particularly unemployment among our young people. I have one suggestion to make, but it is not a fully formed idea. The EEC invented a system of MCAs to try to iron out difficulties when the various currencies got out of kilter. In aid of the Border areas, could the Minister for Finance not evolve a scheme similar to the MCA scheme so that he will not totally kill commerce in the Border counties?

Mr. G. Mitchell

: I want to make a few points but I will not mention points which have already been made. From what Deputy Mac Giolla said there seems to be an inference that only people paying PAYE are workers. I do not know what he means by "workers" but I consider myself to be a worker. At what level of income does one stop being a worker? Perhaps Deputy Mac Giolla who has the same salary as I have, does not consider I am a worker but he is. There are people, some of them trade union leaders, earning £30,000 a year. Does Deputy Mac Giolla consider them to be workers? Does he consider that those people have the same justification to ask for tax reforms as the people on lower incomes?

If a medical practitioner is guilty of malpractice he is struck off the register. In certain circumstances accountants can certify accounts or tax practitioners can negotiate with the inspector of taxes, but there is no comeback if on inspection the Revenue people find serious irregularities. If we are serious about tackling the tax problem we should ensure that accountants, tax practitioners and so on are State registered. At present there are five or six bodies of accountants registered, and for limited companies anybody can submit a tax return. I believe most of the people making tax returns are registered as businesses but they should also be registered with the State. If they are found guilty of malpractice they should be struck off the register as happens when a medical practitioner is found guilty of malpractice, because the social injustice is just as serious.

Last week we had marches which were the result of information supplied to this House by the Minister for Finance. I said in my budget speech that the information supplied to the Minister by his officials was not correct. I said there was a large degree of estimating in those figures. Many people took to the streets, mainly because of the information supplied by the Department of Finance which was not accurate. I strongly believe that the Minister should take severe action against the people who supplied that information. He should find out why that information was supplied in such a way as to cause the people to take to the streets to protest.

Mr. Wilson

: It is the assessments.

Mr. G. Mitchell

: I will be raising this matter elsewhere. People were given the impression that a very large sum of money was outstanding, but that was not so. I want to know how that happened. It caused workers to lose about £80 million when they took to the streets in protest. I support the case for PAYE reform.

We should be clear that tax evaders and avoiders are as numerous in the PAYE sector as in other sections of the community. For instance, there are many PAYE people, such as directors of companies, who have other incomes, and others do nixers. All tax evaders are not outside the PAYE sector. For instance, I suspect there are a certain number of people who are paid a certain sum each week, and that amount is shown on the books, but these people often get a few pounds under the counter. If we are to be serious about tax evasion and avoidance we must look at it right across the board.

I want to make this point very clearly and do not wish to cause any unnecessary drama, but I take very serious exception to information confidentally collected by the Revenue service and the inspector of taxes being supplied and used by these people in other ways than through this House. If any of these people employed as civil servants want the information to be brought to the attention of this House they should give it to the Members. There are too many suggestions that there are people who for their own ends supply information and take up attitudes for reasons other than in the public interest. This approach should be checked. I want to see this matter being brought to a head and dealt with, but I do not want to see certain sections of the community taking advantage of the situation for their own good. Let us be serious about the difficulties facing those in the PAYE sector and try to redress the situation.

Over the last few days I was glad to hear that it is likely that the yield from capital taxes will be increased. In my view the capital tax area is not contributing its fair share to the community and has not done so since Deputy Colley, as Minister for Finance, abolished wealth tax, the car tax and rates were removed and where there was the virtual abolition of capital gains tax for certain categories of taxpayers. The matter of justice being done is one thing, but justice being seen to be done is another thing. Those who are working and who are heavily taxed should be given a sense of confidence in the tax system. That confidence does not exist at the moment and a system of capital taxation, justly administered, could adjust that situation.

Most PAYE people are in a position where there is little scope for tax evasion, but it is fair to say, and it should be said, that many businessmen — I, as an accountant, come in contact with them frequently — are meticulous about making their VAT, PAYE and PRSI returns. Those people should be told that it is appreciated, because such standards should be encouraged among the rest of the business community who are not paying their way. Not everybody in business is avoiding or evading tax: there are many conscientious people and unless we are to discourage people who are in business from giving employment we should be careful to give encouragement to those people in business who maintain high standards.

I feel strongly about groups who have been behaving in a bullying manner towards the Executive, towards the Government and towards this House in many ways. I am talking about farmers' associations and others against whom I have no grievance in particular — I worked with them for some time and I was very happy with them. The attitude those people have been taking publicly — privately they agree they have to pay their way — has been seen by people in the PAYE sector to be succeeding. Those people have been seen to succeed because they have pressure groups and not because their case has been either right or wrong. They have the voting power, they have the public relations machines, the bullying power. This sort of thing has crept in. The sooner we nip it in the bud and get back to proper representation in elected assemblies like this House the better it will be for everybody.

We have to tell this to the farmers and to trade unionists who have been growing increasingly intemperate in their language. We have to tell them that although democratic opposition is acceptable, and in my view to be encouraged, we will not accept anything that would usurp or threaten the State. The language being used by those people should be thrown back at them. We should make it very clear that that sort of language is totally unnecessary. I speak about some of the speeches last week, which were unnecessary: the march itself was sufficient, if indeed it was necessary. We must make it clear that we will not give way to bullying no matter which source it comes from. Those people have their own reasons for making the extreme speeches they made, but they should take note of that. It might go down well in the papers and with their members but I do not think any of the Members of this House will be bullied, cajoled, or pushed by this sort of crowd hysteria.

I should like to make clear my support for the case for tax reform, for the case for an equitable tax system. It should come sooner rather than later. It will require a certain amount of courage on the part of the Government. If the Government are to lose revenue from one source because of tax reform they will have to find it from another source. It will mean difficult decisions, which will be opposed by Fianna Fáil but particularly by Deputy Mac Giolla, who is everybody's friend and wants to give everybody everything. Any changes we attempt to make will be opposed by those people when the time comes, but we should get on to make those reforms because we would be justified and will be seen to be justified. If we do not respond to just cases this House will lose its credibility.

My final point is in relation to the many people who are in pensionable guaranteed employment. Take a man in such a situation, with an income of £10,000 a year. Then take the position of a man who works down a sewer, also with £10,000 a year, although the latter would be unlikely to have that kind of income. Should both pay the same tax? Should a man who has to toil seven days or seven nights a week have to pay the same tax as a man who arrives at his office at ten in the morning, has his tea break and knocks off at 5 p.m. and has two months holidays a year and is paid 100 per cent income while he is out sick be in the same tax category as the other? If we are really out for justice in the tax system, let us not be cosmetic because if so we are only putting off the day when the section of the community we are being unfair to will take it upon themselves to reject the system. We must get real justice into the system and any reform will have to be on that basis.

Mr. Blaney

: The problems we face began ten years ago. We laid the basis for them gradually, inexorably, in the seventies. We were living beyond our means and we borrowed in order to plug the gaps in the hope that the days would get better as we went on. Instead, the days got worse, time got worse, depression became widespread in Europe and throughout the world, and we continued to borrow even further. The pre-election promises of 1977 marked the high point of the madness that grew on us as a political entity five or six years previously. The succeeding years were the same, until we were pulled up sharply in the last couple of budgets.

We had gone mad. We believed we could continue to borrow and to make promises at elections for which we did not have the money to pay, and it was from Billy to Jack: we were bidding and counter-bidding in auction politics. That is where the mess we are in today began, but it is not all of it.

What all Governments from 1977 onwards failed to realise is that we had work to do, that we had the hands to do it, but instead of putting them busy to do that useful work we paid them a pittance for idleness. That is what we have been doing, and I have been one of the few in those years, at each election, through the manifestoes of my very small party, who tried to bring to light and to the notice of the big parties that we had a construction industry that was running down, we had a growing population, above all we had and still have an expanding need for houses, our roads are a disgrace, the provision of services has slowed down, our schools and hospitals are too small, public buildings of various kinds are inadequate for the jobs they have to do, and yet we continue blindly ignoring the fact that we are paying out almost as much to upwards of 50,000 people who could be employed directly or indirectly in the construction industry doing a great job that will be required in the future at far greater cost than we could do it for now. What a boost it would be to any government or party, and to the country as a whole, if we could only get 20,000 reemployed. We could give employment to 50,000 to do the work that requires to be done. We continue to ignore it. Why, I do not know. It is the maddest episode of our time. Do not tell me, as I have been told before, that it is the same in all the countries in Europe, and the same all over the world. The difference is that they have too many houses. Their populations are going down. they have not got a young growing population as we have. Their schools are too big. Their roads are adequate for 50 years ahead. They have these things in abundance. That is their problem. We have a growing population. We have idle hands. We have money going out and coming in, and we talk about protests. The protests are because of the fact that too few people are working to pay the tax necessary to maintain the unfortunates who cannot get work. That is really our problem.

The answer must be employment. We must have useful employment, not going back to the days when a foreign government got our people to build things merely for the sake of putting them to work. Monuments are still to be seen. They are not very beautiful but at least they are there. The foreign government recognised that work was not a bad thing. We need to employ our young people and many of those who are out of employment. We must provide the services without which we will not be able to keep our population, and particularly our young population. When things begin to brighten elsewhere they will be gone like snow off the ditch. I would not blame them. Why should they stay if they have not got the houses and the facilities they can get elsewhere?

As somebody said, we have not got the safety valve of emigration to fall back on. There is no outlet because there is nowhere to go. There will be places to go if we are optimistic enough to believe that this depression cannot last forever and that there will be an end to it. It will end elsewhere before it ends here, and our people will stream out of the country. As I know, and as those who come from the part of the country I come from know only too well, no matter what changes may take place in the future, many of those who go will not return. This is the sad fact with which we are confronted.

I want to add to what has already been said by Deputy Wilson. Over and above all the other problems talked about in this House, we have a problem in the Border counties about which the Minister for Finance was well and truly warned before he introduced the taxes which are now crippling our entire economy and killing commercial life within 40 or 50 miles of the Border from Louth to Donegal. I was a member of the deputation who told him about the grave consequences and the disaster we foresaw within 12 months affecting our commercial and business life within a band of 40 miles of the Border.

The problem stems from a number of taxes which have put our prices far ahead of prices on the other side of the artificial yoke of a Border. Our people are streaming across the Border. The one price above all others which is motivating them is the difference of 80p per gallon in the price of petrol. Car owners are streaming across the Border. Coaches are being run from here but that is for a day out. It is nothing compared with what is happening where I come from. People are going across to get petrol to come and go to work if they are fortunate enough to have work, or to bring the children to school. The man and his wife, or somebody from the household, go across once a week for a fill up and they buy all the goods they want for the household in the supermarkets across the Border. If they want something from a draper's shop or a shoe shop, even if it might be cheaper and better here, for convenience they will go into that shop across the Border. The stream has only started. I repeat what I said to the Minister for Finance before he imposed these taxes. Unless he changes his policy, within 12 months there will be no business of any kind within 40 miles of the Border.

To compound that, the increase in VAT is killing off what was left of our tourist industry and hotel business. We are losing our hotels. Look at the number on the market. There would be more on the market but for the fact that the demand is not there. Restaurants, pubs, filling stations, garages and service stations will go, and with them will go the grocery shops, the drapery shops and the shoe shops. There is no doubt about that.

Another problem will creep in within a matter of months. As soon as stocks have been cleared much slower than they would have been cleared even a year ago, they will not be replenished. Within a matter of six months, people who are crossing the Border and encouraging others to cross it because of the difference in prices, will no longer have the alternative of buying at home because the traders will not have the stocks. Trade will be too slow. The money will have dried up and they will have to cut down on the variety of their stocks, thereby further reducing whatever little trade may be left to them. Before they allow this flood to become a deluge, the Government should take action on the price of petrol and the price of oil. They might also take a swipe at the oil companies. In the UK the base price of oil and petrol is 89p a gallon, or thereabouts, and here it is £1.29 per gallon before tax and duties. Why? It is time we knew. It is time the Government put the screws on to find out why there is such a difference in the base price before we add the penal taxes.

I am told it would cost £150 million to take 50p off the price of a gallon of petrol. The Government will lose more if they do not take it off, because the revenue will not come in. The Minister and the Government are codding themselves. There is also the fact that the outgoings on the newly created unemployment along the Border, never mind what is happening throughout the country, will cost far in excess of what the Government propose to take in from this tax. I regard it as a phoney tax on petrol in our part of the country.

I did not mention liquor. You can buy a bottle for £5 across the Border and it costs £13 here. At home people might not think of buying liquor but, when they are across the Border they realise it is a bargain and they buy it. This replaces sales which might have been made here and the Government lose the revenue. The parties and weddings and functions which used to come streaming across the Border are now drying up and the reverse trend has started. I do not blame anyone for that. It pays to do it. Our attractions are not sufficient any more when set against the additional costs of functions here.

People used to be attracted to come here because it was more peaceful. They wanted to get away from the problems and the troubles of their own. They are no longer coming here. In spite of the difficulties of cross-Border travel, our people are going across for functions and weddings. A grim picture has begun to emerge which gives no hope for the survival of any business within 40 or 50 miles of the Border. Whatever other protests there may be, the Government should have a look at this problem. It is the most urgent and most vital of all of them. No matter what may be said about workers on PAYE, this problem comes out at the top.

The only way out is a reduction in tax. It is up to the Government. They were warned about it before they imposed these taxes which were well telegraphed. They did not take note of those warnings. I hope they do so soon. If they allow the situation to continue the remedy will not work because the commercial life of the region south of that artificial Border will be destroyed.

Much more could be said but I cannot overrun my time at 7 p.m. as many other speakers have done. However, I must admit that the last speaker did not do that. I ask the Government to look again at the petrol and oil tax above all other taxes. In addition, they should give work to those people who are idle and who are being paid money which the taxpayers find impossible to provide. People should be given work to do so that they, too, can pay tax and thus ease the burden on the rest. In this way the Government will get the revenue they need so badly and which they must have.

Dáil Éireann debate - Tuesday, 19 Apr 1983

Statements on Taxation .

Dáil Éireann debate -
Tuesday, 19 Apr 1983