Amendment No. 1 in the names of Deputies Mac Giolla and De Rossa. Amendment No. 3 is related. Amendments Nos. 2 and 4 are alternatives to amendments Nos. 1 and 3 respectively. Amendments Nos. 9, 10, 11 and 12 are consequential on amendments Nos. 1, 2, 3 and 4 respectively. Amendments Nos. 1, 2, 3, 4, 9, 10, 11 and 12 to be taken together by agreement.
Finance Bill, 1984: Committee Stage.
Do I understand that we are now taking together amendments Nos. 1, 2, 3, 4, 9, 10, 11 and 12?
That is correct. They will be discussed together but put separately.
And amendments Nos. 5, 6, 7 and 8 are separate?
Yes, that is correct.
I move amendment No. 1:
In page 9, line 19, to delete "£5,000", and substitute "£5,500".
In this and other amendments we are proposing changes in the general exemption limits. This year the take from income tax will again be considerably increased. Estimates of the increase over last year's take range between 17 per cent and 20 per cent at a time when the general income of those at work is less. The effect of the budget generally has been to increase once again the take from tax on income. On the other hand, there is actually a reduction in taxes on capital.
The Bill provides for the exemption limit to be raised from £4,800 to £5,000 but we propose that it be increased to £5,500. Apart from the increase in inflation which has occurred during the past 18 months, there is a need for a larger increase in the general exemption limit due to the tremendous difficulties being experienced by people on lower incomes due to high prices and the level of mortgage repayments, as well as the fact that fewer members of families are working.
We will also be proposing a higher take at the upper end of the scale as well as increases in the area of capital taxation.
In relation to amendment No. 3, I would stress the need for higher exemption limits for widows. They are included with single people but perhaps there should be a separate scale or exemption limit for them. The inclusion of widows in the single persons' category would be one of the reasons for raising the exemption limit from £2,500 to £2,750.
The increase in the level of income tax take can be very dramatically illustrated by indicating that in the past four years income tax has increased from £1,000 million to just short of £2,000 million. We have all expressed concern for the lower paid and their burden of taxation. Twenty years ago the industrial worker with average industrial earnings would have been outside the taxation bands, but he is now caught in the net at an income level of approximately £7,000.
Each year the Minister for Finance announces in his budget that because of concessions he is making and the increase in the exemption limits a certain number of people will be removed from tax liability. It is important to compare what this Minister has done with what has been done by his predecessors in relation to the number of people to be exempted from income tax. In 1980 — a year beloved by me for a number of reasons since I was sitting where the Minister is now but also because we set up the Commission on Taxation, about which we have heard very little in the meantime — one saw the disincentive effect of increasing the burden of taxation and approximately 1,800 tax-payers, or almost two-thirds of those liable to pay tax at the higher rate, were reduced to the lower rate of tax. That was a considerable move to diminish or cancel altogether the burden of taxation on the lower paid. In 1981 as a consequence of the provisions for exemption 37,000 people were exempted from tax liability. In 1982 24,000 people were exempted from tax liability. This year the Minister is telling us that he is making a generous provision for those on the lowest level of income by taking 15,000 people out of the tax net. Significantly, those who are not removed from the tax net move into a higher tax band of 35 per cent. Last year they would have been paying only 25 per cent. Previously we have seen as many as 37,000 people taken out of the tax net and 180,000 paying at a lower rate. The Minister's forecast of a total income taxation is £1,952 million and out of the generosity of his heart he is making provision to exempt 15,000 of the very low paid.
I will have much to say during this debate about the impact of taxation on the economy and on social attitudes. The Minister and the public must be reminded that people on the very lowest level of income will now be paying tax at the rate of 35 per cent where previously they would have been liable for 25 per cent.
This Finance Bill proposes to raise at least an extra £300 million over the amount of money raised last year. Among those who will make a significant contribution to that extra money are those on the very lowest level of income. All of those people, except 15,000 of them, will now be included in this because of the rather low exemption limits the Minister is proposing. We recognise that there are limitations on how far a Minister can go on this. It is because of what those people on the lowest income are expected to pay that I propose that the exemption limits the Minister has for the single person of £2,500 and £5,000 for married persons — as a consequence of what I did in the Finance Bill where the married couple, irrespective of whether the wife works at home or in some job, are entitled to twice the allowance of the single person — be increased to £2,700 for the single person and £5,200 for the married couple. It is not, a generous gesture on the part of each succeeding Minister. It is that the level of income, because of inflation which might have escaped last year in real terms is in this year. That is why we have always adjusted the exemption limits. The Minister's minimal adjustments this year when inflation has only reduced by about two points during the whole year means that they are nothing like adequate to meet the normal requirements of protecting the really low paid. That is the reason why I propose amendments Nos. 2 and 4. As the Chair has indicated amendments Nos. 9, 10, 11 and 12 are consequential. The same figures are in those amendments. We have the figures of £2,500 being increased to £2,750 and £5,000 being increased to £5,400. These are the reasons, as well as others I will be producing later in relation to other issues on income tax, why I hope the Minister will see fit to follow a long since established pattern to ensure that the income tax burden is not placed on the shoulders of those who have very little to contribute at this stage.
I would like to make a couple of points about the amendments. The first one is in relation to the exemption limits for income tax purposes. I would like to draw the Minister's attention to the fact that quite a number of people are not aware of the exemption limits and how they work. Many people think that an exemption limit is the same as an allowance but that is not the case. If you go over the limit you lose the exemption entirely and revert to ordinary allowances. There is of course a threshold for the difference between your income and the exemption figure. The reason I mention this this morning is that I get quite a number of people coming to me who are in the 65, 70 and 75 age group and have the higher exemption limits but have not been claiming them because they were not aware they could claim them. Those people are usually exempt from tax without having known about it. Perhaps some special steps could be taken through the Department of Social Welfare whey they are issuing pensions to draw the attention of those people to those exemptions.
I would like to see the figures being increased even more than proposed by Deputy O'Kennedy and Deputy Mac Giolla but the reality of the situation is that we are now four weeks into the new income tax year and there is no hope of those being applied even if we were to vote them through this morning. Deputy Mac Giolla and Deputy O'Kennedy know that. We are only really playing to the gallery in proposing these amendments when there are quite a lot of serious amendments later on.
If the amendments we propose are going to be presented as playing to the gallery——
The Deputy can make his points later on.
I am sorry if I touched a nerve.
If that is what we are being regarded as doing by proposing those amendments we may as well go home.
If the Deputy is going to make the sort of contribution he made earlier he might as well go home. It is up to the Deputy whether he stays in the House or leaves.
Deputy Mac Giolla accused the Deputy of telling a lie and he should withdraw that.
I withdraw that.
The Deputy's apology is accepted. I have attended public meetings and I know Deputy Mac Giolla has also attended such meetings, about water rates and all sorts of other things. Deputy Mac Giolla has been playing to the gallery and telling the crowd what they need not pay, what they do not have to do, and what extra water rates they do not have to pay. We know only too well that the only way we can increase these allowances is by cutting public expenditure. In relation to every area where we have tried to cut public expenditure there has been an outcry led particularly by people like Deputy Mac Giolla ranging from four year olds going to school to water rates and anything else one wants to mention. If people are serious about increasing the tax-free allowance thresholds — it is an excellent idea which we will have to do sooner or later because of the despondency there is about people working — the only way to do that is to cut public expenditure. If we are not pre-pared to bite the bitter pill we will not be able to increase those allowances. It is time we stopped having a bob each way. We are either in favour of reducing PAYE by reducing public expenditure or we are not. We cannot have it any other way.
Section 1 of this Finance Bill proposes to increase the general exemption limits and those for aged persons. If tax exemption is not increased to meet the level of inflation it simply is an additional tax burden. That is the major point I want to make on section 1. The Minister is increasing the exemption limit in the case of elderly persons by 10 per cent, which I support and compliment him on doing. He is increasing it by only 4.2 per cent in the case of those under 65 years. The general exemption limit is only slightly over 4 per cent, which is 6 per cent below the rate of inflation. It has to be put on the record in debating this section that this amounts to an additional tax burden on the ordinary PAYE worker because the tax exemption is 6 per cent below the rate of inflation.
The Fianna Fáil amendments set the figure across the board at approximately 12 per cent which takes account of the rate of inflation and is, therefore, a more equitable proposal and a more equitable solution. In giving the 10 per cent to the elderly the Minister is doing the right thing. If you have got anything to give at all you should give it to those people but the 4 per cent at the other end of the scale is very short of what is needed to meet the rate of inflation. I would like to remind the Minister that the National Planning Board in the report presented to him last week strongly recommended that the Government look at the indexation situation and act on it as quickly as possible. While the Minister is increasing by the 4 per cent I am talking about the exemption limit of £5,000, £100 a week for a married couple, we should be clear in our minds what we are doing. The exemption from income tax for people who earn less than £100 per week is to be applauded. At the same time we must not clap ourselves on the back merely because of this, because £100 per week for a married couple is a miserly sum and is far short of what they would need to attempt to make ends meet. In so far as the provision is a gesture, I support what the Government are trying to do, but it is 6 per cent short of inflation. It must be said that any time an exemption is short of the rate of inflation it represents an additional tax burden. Therefore, section 1 is imposing an additional tax burden, and that is what we must be clear about.
I support what Deputies O'Kennedy and Brennan have said. There is an inconsistency in the rate of increase in those tax exemption levels. The exemption level in respect of a single or widowed person under 65 is being increased from £2,400 to £2,500. This represents one twenty-fourth of the existing limit, which is just more than 4 per cent. For people between 65 and 75 the increase represents three twenty-fifths, which is about 12 per cent. That is about right. For people who are over 75 the increase is 10 per cent. It is difficult to understand why there should be such inconsistency between the different categories, categories created when there was introduced the concept of exemption up to certain levels.
Deputy Brennan has made the point that an increase of just more than 4 per cent represents 6 per cent less than the rate of inflation, and in respect of people who are under 65 whether they be single, married or widowed, this will increase the overall burden on the PAYE sector. What it means in effect is that proportionately more low income earners are now liable for tax than was the case this time last year. This is a deplorable situation. While our amendment is not over generous, it about strikes the right balance, and I urge the Minister to consider it seriously.
I can understand the concerns that have led to Deputies Mac Giolla and O'Kennedy proposing these amendments. Clearly, it is the wish of all of us that people be relieved to the maximum possible extent from income taxation. However, I cannot share all of the analysis presented by the two Deputies and by others.
We have taxation in the first place to allow us as individuals to contribute to financing the needs of the community. To the extent that we decide what the community needs, it is inevitable that we must make substantial contributions by way of taxation. Deputy Mitchell referred to this in a very direct way. It is an inescapable result of our present situation that tax levels are as high as they are. Deputy O'Kennedy has been making a meal in recent months of the fact that the total take from income taxation will be increased this year. I am not so sure that the meal is as toothsome as the Deputy seems to think it is. It is an inevitable consequence of the kind of system we have that if tax rates, bands and all the rest of the paraphernalia remain unchanged and money incomes increase, the total amount of money taken in by the taxation system must increase. If we had no inflation and did not make any changes in our tax bands or rates but had an increase in money incomes, the total tax take would increase. It can happen also, and this is the case this year, that the increase in money incomes is more than enough to offset the effects of increased allowances and other changes in the system. All else being equal, there will be a reduction in the total amount of taxation taken from individuals. In those circumstances the total amount of revenue from taxation would increase as a direct result of the increase in money incomes. The total increase in tax revenue would be less if changes were made in the system to relieve taxation at any level. To be specific, the amount of the increase in tax revenue this year would be larger than what is now projected if we had not increased personal allowances, if we had not increased the exemption limits and if we had not taken the action we have taken.
The elimination of the 25 per cent rate, contrary to what Deputy O'Kennedy has been pretending since Budget day, combined with the increase in personal allowances, means that at those levels of money incomes less taxation will be paid in 1984-85 than was paid in 1983-84. Individuals will find that the total amount of tax they pay will be more because of the increases in the total amount of their incomes and because of their proceeding up through the bands.
There are questions of presentation in the way some of these matters are put, questions which would require of us in this House somewhat more precision than we manage sometimes to achieve. For example, Deputy O'Kennedy said that all but 15,000 of those on lower levels of income are included in the tax system this year. That is a terminologically loose way of referring to what is meant when we say that 15,000 people have been removed from the tax system.
The fact is that 15,000 people at the lower levels of income have been removed from the tax net.
It is by no means the case that only those 15,000 are excluded from the tax net. A much larger number of people on lower incomes than Deputy O'Kennedy would seem to suggest, are excluded also by way of the operation of the exemption limits.
I share Deputy Mitchell's concern that many people may not be aware of the exemption limits, of how they operate and of how the exemption limits on marginal relief operate. To the extent that we can find more efficient ways of identifying those people and making clear to them what their entitlements are, I am happy to do so. One way is to have as many people as possible who might be in that position to make tax returns. All we would need then would be to have their date of birth in order to determine which of the exemption limits would apply.
I take fully the point that it is wrong that people should be paying tax when the proper application of the system would exempt them from tax or would result in their paying less tax than they are paying. I do not know in how many cases this situation arises. I am sure Deputy Mitchell would agree that the cases that come to our attention are the hard cases. We never hear about those cases in which the system works properly, but the more of those hard cases that we can resolve properly the happier we shall be.
Deputy Brennan said that £100 a week is a miserly amount. As I said, we would all like to relieve the burden of taxation more than we are in a position to do. There is an attraction in the idea of indexing bands and thereby of relieving people of taxation in a fairly substantial way. However, I must make the point that the cost of indexation would be substantial.
Are we talking about indexation or about the exemption limit?
I wish to make a reference in passing to the overall problem. The overall cost of indexation in 1984 of exemption limits and rate bands would be about £95 million this year and £159 million in a full year. That puts it in a particular context and it is reasonable to say that if we want indexation there are certain other inescapable consequences which we must accept. I have no evidence that my colleagues on the other side of the House would accept those consequences because they have made no suggestion to that effect.
We are taking amendments Nos. 1 to 4 and 9 and 12, as they are the most directly related. Amendments Nos. 1,3, 9 and 11 were put forward by Deputy Mac Giolla and Deputy De Rossa and propose higher increases in the exemption limits than are proposed in the Bill. The cost of implementing those amendments would be £7 million in 1984 and just under £12 million in a full year. Obviously 18,500 taxpayers would benefit from that but we must bear the cost factors in mind.
Amendments Nos. 2, 4, 10 and 12 are in Deputy O'Kennedy's name and do not go quite as far as those of Deputy Mac Giolla and Deputy De Rossa. Deputy O'Kennedy's amendments would reduce revenue to the Exchequer by about £5.4 million in 1984 and just under £9 million in a full year and would benefit about 13,800 taxpayers. The Bill already proposes increases in the general exemption limits by £200 in the case of married couples and by £100 in the case of single and widowed persons. The cost of those changes is £3 million in 1984 and £5 million in a full year which will benefit 9,600 taxpayers. In the Government's view this is the limit we can do in that respect this year. As I said when introducing Second Stage, this Bill gives effect to the budgetary policy which I outlined last January and, as I said on that occasion and many times since, the extent to which we can depart from the overall budgetary targets set out in January is very limited.
In their budget policy the Government have put together the most balanced package which responds in the best way to our needs at present. I am, therefore, not in a position to make the kind of changes to the revenue side that would be involved in either the amendments of Deputy Mac Giolla or Deputy De Rossa or in those put forward by Deputy O'Kennedy. I oppose those amendments and propose that we accept the section of the Bill in so far as the matters covered by these amendments are concerned.
Some matters arise from the Minister's reply and also from Deputy Mitchell's speech. If anything we propose either on this or other sections is playing to the gallery then we can go home now. However, that is not our job and we are going to stay here. I hope the Minister will be receptive to some amendments. Of course it does not need to be stated that only those 15,000 people who have been exempted this year will be exempt from taxation. Of course those on lower incomes than those 15,000 will also be exempt from taxation. It would be an extraordinary world if others who are already exempt on lower incomes than those about which we are talking were, for some reason or another, to find that they were not now to be exempt. The Minister does not need to tell us that we are not just exempting these 15,000——
The Deputy sounded as if he needed to be told.
Precision helps but we do not need that kind of enlightment.
The Deputy is a legal man——
Sometimes the Minister, in his calm presentation, gives the impression that he is being quite generous because there is another group who are even less well off than the 15,000 to whom he referred. The answer from them and from me is —"thanks for nothing". We do not really need that kind of clarification or point making in this debate. The Minister indicated that, if our proposals were adopted, an extra 13,800 people would be exempted which would bring the total exempted this year to 28,800 or thereabouts which is still below what the pattern has been but near enough to the average of exemptions over the years. It was 37,000 in 1981 but we will not argue about that. It would not be stretching generosity to the limit——
The difference would be 4,200, the Deputy's measure would exempt 13,800.
I am looking at the Minister's statement where he said that 15,000 would be exempt from tax.
That is the total figure.
We can take the whole lot together so the figure here relating to this category of exempted people is less than the figure I was talking about.
It is part of it.
We are talking about people between the incomes of £96 per week on the Minister's proposal and less than £103 per week on my proposal. We are proposing that people earning those princely incomes should be exempt. I do not think anyone could say we are unreasonable in making such a proposal which is very much in line with and indeed below the traditional pattern of exemptions in previous Finance Bills.
The Minister made the fair point that any exemption or allowance is going to cost money. Let us look at the cost of what we propose and put it in context. The Minister mentioned my proposals. Was he talking about these particular ones only, or the total proposals?
These particular ones.
To increase the £5,000 to £5,400 or the total exemptions?
I was talking about the specific ones we are discussing here.
The Minister said that to increase the exemption limit from £2,500 to £2,700 for a single person and from £5,000 to £5,500 for a married person would cost the Exchequer £5.4 million and the Minister cannot afford that. Let us put it in context. The total tax bill for this year, on the Minister's own forecast, will be £6,125 million. We must get it in context to see how we can help these 13,800 people who are on very low levels of income. A figure of £5.4 million out of a total taxation bill of £6,125 million is not even in line with the last four digits. That is the kind of percentage we are talking about to help people on the very lowest level of income who find this a crushing burden.
Deputy Mitchell made a point about no extra allowances. He was right because, if they are in the tax band, they do not get exemptions because of the way the allowances come into play. Those with £8 a week will be taxed at 35 per cent roughly. We are talking about people at that level of income who will be paying something like £2.50 per week in tax. For people on that level of income that is a major problem which many of us in this House do not readily appreciate. We meet them once in a while in our clinics and when we go around and hopefully keep in contact with the realities of poverty. We do not meet this problem in the home. We do not see the effect of having to pay that kind of sum out of that miserable pittance. Allowing for the problem any Minister for Finance has in saying: "In principle I would like to do it but I cannot afford it", and having regard to the amount involved, which is a pittance in comparison with the total tax take this year, the Minister should realise, as his predecessors did, the need to keep the exemption limits in line with inflation. Then those who are least able to afford to pay this tax would not be brought into a tax system which is already ridiculously overburdened.
How much public time, complicated procedures, inquiries and money will be wasted in trying to extract money from people like this? We all know the tax system is creaking at the edges. Apparently it is creaking to the point where it is ready to collapse. We have to get consultants in to advise us as to how it should operate.
Which ones is the Deputy talking about? The famous alleged American consultants?
I am talking about Australians, Canadians and all kinds of consultants.
Absolute nonsense. The Deputy set up the Commission on Taxation last year. He is the last man who should make that kind of nonsensical point.
I am talking about anybody from any jurisdiction in the world who could put some bit of sense into this Minister's head. The Minister sees it as his sole and exclusive function — and I quote him — to be the first Minister to control and regulate taxation. He is the one man in this nation who will control and regulate it to the point where we will all react like robots when he decides how we will be controlled and regulated.
The Deputy is really scraping the barrel.
He needs consultants to advise him on the simple fact of life that the more he tries to impose by way of tax and the more he tries to spread the tax net to cover people who are not in a position to pay tax, the more he will unduly complicate the system which is already incapable of meeting the greatest needs of the Government. Let us not be personal.
Be personal. The needs of the people.
I do not see how that arises.
May I remind the Deputy that we have a gentlemen's agreement to dispose of Chapters I and II today?
Our proposal is intended to keep this taxation in line with inflation and to protect people on the very lowest level of incomes, apart from those already exempted. We are talking about people with incomes of between £96 and £103 per week. We want to take them out of the tax net. Having regard to the tax bill of £6,125 million, surely that is reasonable.
I will not be making any lengthy contribution on the additional age exemptions because the case I have made is sufficient to sustain the arguments in that regard. We have adjusted them marginally in our proposals to acknowledge the principle that people over 65 and 75 years of age are entitled to extra exemptions. If the Minister does not adjust the base we are now dealing with, the adjustment for those over 65 and 75 years of age will not be very effective. I want to ask the Minister — although Deputy Mitchell tells me there is no point in asking him; I do not know why — to adopt our reasonable amendments which would not open the floodgates of exemptions for people who can afford to pay tax.
I will be brief. I want to make a few general remarks. Deputy Mitchell made the point that if we are serious in this debate we must either increase the take from income tax or reduce public expenditure, that there is no other way, his actual words. It was a rather foolish remark to which I would not have adverted but for the fact that the Minister endorsed it.
They are not my actual words.
Increase income tax or reduce public expenditure, there is no other way, the words he used. There are other ways apart from increasing income tax. There are many forms of taxation. At all times when I suggested reductions in tax I never suggested in this House or anywhere else a reduction in the total tax take. Deputy Mitchell and the Minister will be aware of that. Apart from reductions in expenditure to ensure the efficient running of the State machine I have objected to reductions in public expenditure because of the iniquitous tax system. The Minister said that increasing the exemption limits would reduce his take by £7 million this year and £12 million in a full year and that he has to look at our amendments in the context of the total amount of money available to him. As in all other cases I could suggest other ways in which he could make up his £7 million this year and his £12 million in a full year. A simple way would be a reduction in the threshold of the capital acquisitions tax. About £13 million is taken in on it and that could be doubled quite easily with less inequity than keeping the exemption limits at a lower increase than the increase in the level of inflation. The effect of that is to bring people who were not and should not be in the tax net into it. If there is not an increase at least in line with the level of inflation people who should not be in the tax net will be brought in.
The question at issue in this case is one of equity in taxation. I wholeheartedly agree with the many points made by Deputy O'Kennedy about the lack of equity in bringing people with a low level of income into the tax net. I should like to ask the Minister to have another look at the exemption limits from the point of view of tax equity and the growing poverty here. He should consider the serious effect inflation has on the lower income groups compared to higher income groups. It is easy to say what the general level of inflation is but even if it is 5 per cent it is more serious on lower income groups because they spend all their income on essentials, such as food and rent. A high level of inflation affects them more than those in the higher income groups. If there is to be equity the minimum increase will have to be about 10 per cent. The minimum the Minister should bring in is about £5,280. In other words, he is at least £250 short of the necessary amount to keep those who are outside the tax net in that position. I urge the Minister to have another look at this.
I should like to take up the points made by Deputies O'Kennedy and Mac Giolla. As I said at the outset, we all wish we could raise the exemption limit higher than it is. For Deputy O'Kennedy to put the discussion in the context of total tax income is a very useful ploy when one talks about £5 million or £7 million in the context of just over £6 billion. Of course it is not a large amount, it is a very small fraction of the total, but when we put it in the context of £1.9 billion it begins to look rather bigger. Deputy O'Kennedy changes the basis of comparison in order to get the effects he wants. That is an argument of presentation and I would not quibble too much with the Deputy for making the argument in that way. However, if he looks at the actual sums of money I believe Deputy O'Kennedy will agree that the raising of £4 million, £5 million or £7 million, relatively small amounts in the context of total tax revenue, by increasing taxation in some other area is a far more difficult job than would be suggested by the proportion between £4 million, £5 million or £7 million and £2 billion or the proportion between any one of those figures and £6 billion. That is the way we will have to look at this. There is no way out of saying at this point that if we were to reduce the tax take by an amount of this order in any one area we would have to find a way either of increasing the tax take from another area or reduce expenditure. I am not prepared to take the kind of action that would change the overall budgetary arithmetic in that way and, therefore, I cannot respond to the type of amendments that have been put forward.
As far as the position of people concerned goes, I must point out to Deputy O'Kennedy that perhaps he has not allowed for all of the factors. Of course any person whose income is below the exemption limit does not pay the tax. For people whose income does not exceed the exemption limit by a large amount we operate the system of marginal relief. Within a certain band there is a choice and we pick deliberately a choice which reduces the tax liability so that if the application of the tax system strictly would result in a given figure and the operation of marginal relief would result in a smaller figure it is the smaller figure which applies.
Deputy Mitchell's point is still correct.
Deputy O'Kennedy was worried about the effect of all this on the administration of the tax system.
That is the least of my worries.
What is happening is that people are going out of the system to that extent. I would wish, as Deputy O'Kennedy does, that there were more. I use those words in their strict sense. I know that a few little words have been bandied around in the last 24 hours in a particular way. I wish that a larger number of people could go out of the tax system because of this and other measures which we might readily enough agree on were we to agree on the consequences. No time is spent extracting money from these people once they are out of the system.
The operation of the system with exemption limits and, indeed, with the system of marginal relief, is not a vastly complicated part of the system. I do not think the Deputy need worry that the simple operation of that represents a major burden. There is no doubt that if we had a smaller number of taxpayers in the system it would be easier to organise. However, we have to strike the balance between the total revenue and the total expenditure which that revenue is to support.
Deputy O'Kennedy asked me to accept his amendment. I wish we could go a lot further than the provision I have in the Bill, which represents the limit of the change I can make this year. Deputy Mac Giolla usefully pointed out that he has never suggested an overall reduction in the tax take. That simple statement shows a very big difference in approach to these matters between Deputy Mac Giolla, myself and Deputy O'Kennedy. We have not reduced the tax take this year and that is an argument for a different day. We should aim in the direction of reducing the total tax take. I am not referring to the distribution but to the total tax take, the three Ts as they may be called. That has been an important factor which has a substantial influence on the level of activity here and on the way people react to their own participation in the economy. I should like to ask Deputy Mac Giolla to rethink a little in those terms because it is not until we have in this House for a beginning the kind of consensus that is needed in order to put ourselves in a position where we can make progress in stimulating the economy from our own efforts internally in a real way.
For the clarity of Deputies I should like to give Deputy O'Kennedy, and the House, a breakdown of the numbers of people affected by the proposal in the Bill and their distribution over the different categories. The increase in the general exemption limit will exempt 5,000 married persons, 4,500 single persons and 100 widowed persons, a total of 9,600, under my proposals. The change in the limit applying to people between the ages of 65 and 75 years would bring 2,500 married people, 800 single people and 900 widowed people, a total of 4,200, out of tax. The change in the limits in respect of people older than 75 years would take out 300 married persons, 300 single people and 600 widowed persons. In other words, under my proposals, 15,000 persons are being taken out.
The Minister said the income tax take will be up. According to my sums the increase in the tax take compared with last year will be 18 per cent to 20 per cent. On the other hand, the Minister said the tax burden on the people will not be increased. He was speaking about the money incomes of people. People's incomes will not increase by anything like 18 per cent to 20 per cent this year.
As money incomes go up people move up through the bands and, other things being equal, a bigger proportion of incremental incomes is taken. That is why tax revenue increases proportionately faster.
Fewer people paying more tax, not more people paying less tax.
It is not. It is people now paying tax moving up through the bands. This is a normal result of our system. If a taxpayer is at the top of a band and his income increases by, say, 10 per cent, his tax bill will increase faster because he will move into a new rate band. That is why the tax take, depending on what happens to allowances, tends to increase faster than incomes.
It is worth emphasising that the tax bill of workers will be up by 20 per cent.
Total income tax revenue last year was £1,664 million, and the forecast for this year is £1,952 million, an increase of 18 per cent or 19 per cent. No amount of inflation would account for a figure like that. I agree that taxation has reached such a growth rate that it is killing incentive and creating divisions among different sectors of the community. The income tax take this year has increased considerably. We can only deal with the thing generally, and it is for that reason that I have proposed, in particular, that the people at the lower end of the scale, those on the miserable wages of between £96 and £103 per week for a married couple, be taken out of the tax net. I am not seriously worried that the presence of such people in the tax net simplifies our complex tax system. My concern is that they have no place in the tax system. What I am concerned about is the impact a tax bill has on such people, about 13,000 of them who are paying tax That is why I am asking the Minister to accept our amendment. We must try to get ourselves into the homes of such people and see the impact of even a small tax bill on them. The Minister should adjust for inflation in their case, and if he does not I will have to press this.
- Allen, Bernard.
- Barnes, Monica.
- Barrett, Seán.
- Boland, John.
- Bruton, Richard.
- Burke, Liam.
- Carey, Donal.
- Cluskey, Frank.
- Collins, Edward.
- Conlon, John F.
- Connaughton, Paul.
- Coogan, Fintan.
- Cooney, Patrick Mark.
- Cosgrave, Liam T.
- Cosgrave, Michael Joe.
- Coveney, Hugh.
- Creed, Donal.
- Crotty, Kieran.
- Crowley, Frank.
- D'Arcy, Michael.
- Deasy, Martin Austin.
- Desmond, Barry.
- Dowling, Dick.
- Doyle, Avril.
- Doyle, Joe.
- Dukes, Alan.
- Durkan, Bernard J.
- Enright, Thomas W.
- Farrelly, John V.
- Fennell, Nuala.
- FitzGerald, Garret.
- Flaherty, Mary.
- Flanagan, Oliver J.
- Glenn, Alice.
- Griffin, Brendan.
- Hegarty, Paddy.
- Begley, Michael.
- Bermingham, Joe.
- Birmingham, George Martin.
- Kelly, John.
- Kenny, Enda.
- L'Estrange, Gerry.
- McCartin, Joe.
- McGahon, Brendan.
- McLoughlin, Frank.
- Manning, Maurice.
- Mitchell, Gay.
- Mitchell, Jim.
- Molony, David.
- Moynihan, Michael.
- Naughten, Liam.
- Nealon, Ted.
- Noonan, Michael.
- (Limerick East)
- O'Brien, Fergus.
- O'Brien, Willie.
- O'Leary, Michael.
- O'Sullivan, Toddy.
- O'Toole, Paddy.
- Owen, Nora.
- Pattison, Séamus.
- Ryan, John.
- Shatter, Alan.
- Sheehan, Patrick Joseph.
- Skelly, Liam.
- Spring, Dick.
- Taylor, Mervyn.
- Taylor-Quinn, Madeline.
- Timmins, Godfrey.
- Treacy, Seán.
- Yates, Ivan.
- Ahern, Bertie.
- Aylward, Liam.
- Barrett, Michael.
- Brady, Gerard.
- Brennan, Mattie.
- Brennan, Paudge.
- Brennan, Séamus.
- Briscoe, Ben.
- Browne, John.
- Burke, Raphael P.
- Byrne, Hugh.
- Byrne, Seán.
- Collins, Gerard.
- Conaghan, Hugh.
- Connolly, Ger.
- Daly, Brendan.
- De Rossa, Proinsias.
- Fahey, Francis.
- Fahey, Jackie.
- Faulkner, Pádraig.
- Fitzgerald, Liam Joseph.
- Flynn, Pádraig.
- Foley, Denis.
- Gallagher, Denis.
- Gallagher, Pat Cope.
- Geoghegan-Quinn, Máire.
- Gregory-Independent, Tony.
- Harney, Mary.
- Walsh, Joe.
- Walsh, Seán.
- Wilson, John P.
- Haughey, Charles J.
- Hyland, Liam.
- Kirk, Séamus.
- Kitt, Michael.
- Lenihan, Brian.
- Leonard, Jimmy.
- Leonard, Tom.
- Leyden, Terry.
- Lyons, Denis.
- McCarthy, Seán.
- McEllistrim, Tom.
- Mac Giolla, Tomás.
- MacSharry, Ray.
- Morley, P.J.
- Moynihan, Donal.
- Nolan, M.J.
- Noonan, Michael J.
- (Limerick West)
- O'Dea, William.
- O'Hanlon, Rory.
- O'Keeffe, Edmond.
- O'Kennedy, Michael.
- O'Malley, Desmond J.
- Ormonde, Donal.
- Power, Paddy.
- Treacy, Noel.
- Tunney, Jim.
- Wallace, Dan.
- Woods, Michael.
- Wyse, Pearse.
I move amendment No. 3:
In page 9, line 21, to delete "£2,500" and substitute "£2,750".
I am putting the question: "That the figure proposed to be deleted stand".
Amendments Nos. 5 and 7 are related; amendments Nos. 13 and 15 are consequential on amendments Nos. 5 and 7 respectively. Amendments Nos. 5, 7, 13 and 15 will be taken together, by agreement.
I move amendment No. 5:
In page 9, line 23, to delete "£5,600" and substitute "£5,700".
This is an amendment to increase the amount mentioned in the Finance Act, 1982, from which the £5,000 figure dates and has not been altered since, although there have been considerable alterations since 1982 both in tax and inflation. While our increase is not very much more than the Minister's it is essential that the figure be raised above £5,600 which the Minister proposes in the Bill.
I am discussing amendments Nos. 5, 6, 7 and 8. In amendment No. 6 we would like to see the Minister's figure of £6,600 increased to £6,700. The Minister's figure of £6,600 replaces the figure of £6,000 mentioned in the Finance Act, 1982, which in turn amended the Finance Act, 1980. We are proposing that the figure of £6,600 be increased to £6,700 because the increase given by the Minister is not sufficient to cover the changes in the cost of living and so on which have taken place since. In amendments Nos. 5 and 6 we propose that the Minister's figure be increased by a further £100 and in amendment No. 7 we propose that the figure of £2,800 be increased to £2,850. In amendment No. 8 we propose that the figure of £3,300 be increased to £3,350, an increase of £50 in each case.
We are speaking now about amendments Nos. 5, 7, 13 and 15. The amendments which we are proposing are exactly the same as those proposed in this case by Deputy Mac Giolla. The increases being proposed here are very marginal — an increase of £50 for a single person and of £100 for a married person over and above the Minister's proposals in respect of people who have additional exemptions because of being over 65 years of age.
I want to draw the Minister's attention to the fact that we did not raise these matters last year. As Deputy Mac Giolla has mentioned, we are trying to adjust upwards over a two-year period. Last year we acknowledged the then difficulties and that because of the adjustment in the general tax allowance we did not then contest the matters. Deputy Mac Giolla has pointed out that the Minister's adjustments are here more in line with actual inflation than at the lower level. The Minister should consider the extra hardship for people over 65 and 75 years, very few being involved. Could he say precisely, if our amendments were adopted, how many people would benefit? Secondly what would be the cost to revenue of adopting the amendments, now that the other have been defeated? How much are we speaking about in terms of cost to the revenue to give this extra minimum relief to these old people?
The exemption limits were first introduced in 1980 at a level of £1,700 for single persons and £3,400 for married couples. Those were the general limits. The age exemption limits were £2,000 and £4,000 for single persons and married couples respectively between 65 and 75, and £2,500 and £5,000 for single persons and married couples over 75.
In 1981 all exemption limits were raised by £300 for single persons and £600 for married couples. In the Finance Act 1982, they were again raised by £200 for single persons and £400 for married couples. In 1983 we were able to increase only the general exemption limits by £200 for single persons and £400 for married couples. The additional increase which I am proposing this year in the age exemption limits would catch up and match the increases made in the general exemption limits of last year. It is for that reason that I am now proposing in the Bill that we increase the age exemption limits of people between 65 and 75 by £300 for single people and £600 for married couples. These increases and the associated marginal relief would cost about £0.9 million this year and £1½ million for a full year and would, as I mentioned earlier, work to the benefit of 4,200 people.
The additional cost of the amendments as proposed here would be about £120,000 in the current year and £200,000 in a full year and would benefit some 300 taxpayers — that is as far as the married people are concerned. There would, in addition, be a further cost of £60,000 in 1984 and £100,000 in a full year for some 150 single and widowed persons. I think that is the information which the Deputy requested. There would be a total of 450 altogether — 200 married persons and another 150 single and widowed. The total cost, taking the two together, would be £180,000 in 1984 and £300,000 in a full year.
As I have said, the Bill proposes increases in the age exemption limits for these groups this year to catch up with and compensate for the fact that we were not in a position last year to increase the age exemption limits but were in a position to increase the general exemption limits. What we have done is restored relativity between the general exemption limits and this group in the age exemption limits this year.
I have every sympathy with the more generous approach being put forward by Deputies O'Kennedy and Mac Giolla on these matters. As I have said in this and other cases in relation to allowances and exemptions, I would wish to be in a position to make further moves. We all have the same objective and all feel the same way about people at these low levels of income. However, I do not find myself in a position where I can depart from the lines set out in the budget statement.
My question was how much would it cost if the amendments proposed by Deputy Mac Giolla and myself were adopted and how many would be affected?
The additional cost for the 65 to 75 age group would be £180,000 in 1984——
This is the additional cost?
——over and above the cost of what I have proposed in the Bill, and £300,000 for a full year, for an extra 450 people.
I do not know if I can add anything to those figures. We are talking about exemptions which were not adjusted at all last year. Deputy O'Dea was perhaps a little generous initially in saying that the adjustments on the age exemptions were more generous than they were on the normal exemptions, for the simple fact that the age exemptions were not adjusted at all last year. Taking account of the present adjustment for people between 65 and 75 and those over 75, they are nowhere near being in line with inflation in the two years but I am not going to go into that matter. The fact that they more or less line up with the general level of increases of exemptions for other categories is not a very persuasive argument.
We are now talking about buttons, in terms of the proportion of total tax. I know that it is difficult for a Minister who has come to a conclusion and proposed a figure for any exemption subsequently to hear an argument from those in opposition for increasing that exemption. There is always the possibility that no matter what figure is fixed, the Opposition will want it raised. However, one must acknowledge that the amendments being proposed by Deputy Mac Giolla and myself are, to say the least of it, restrained. We are talking about a £50 increase for a single person and £100 for a married couple.
In these proposals we are not proposing a huge charge on the revenue. We are talking, for this year, about £180,000 and for a full year £300,000 to include all categories — married, widowed or single. We are talking about an extra 450 people for whom this would be some measure of relief at a stage of life when they need it most and would not have to worry about tax. They probably have enough worries without that. I do not want to milk the sympathy for old people but would have thought this to be a case where nothing would be lost to revenue. The Minister's fundamental obligations, as he may see them and as we acknowledge on occasions to maintain a balance of responsibility between public expenditure and revenue, will not be in any way distorted and for once all parties in the House could agree enthusiastically that we are not being generous to these old people in these amendments. Far from it, we will not be catching up with the position of two years ago. Ideally we should go much further. We did not do it at all last year; we are proposing it this year. I hope that the Minister, for the sake of the £180,000 that he will lose in a full year, will adopt this. What more can I say? At least 450 people who are old and also very badly off would have a little more security and comfort and a little less worry and anxiety. If we can give so much to these people it would be some small contribution from us.
What I have to say is really the same thing but I want to ask the Minister emphatically if he is satisfied that he has adjusted for two years here. Inflation last year was well over 12 per cent and at the moment it is running at about 10 per cent. Taking an average of 10 per cent over the two years, we would need to bring it up to the £6,000 mark to adjust fully for that.
The average for the two years was much more than 10 per cent. The Deputy is talking about nearly 25 per cent.
It might have been 17 per cent in 1982, so that £5,000 at this stage on those grounds should be coming up to nearly £6,000. Does the Minister feel that he has made adequate adjustment for this? In these cases of people over 65 the small amount of money involved as far as the Minister is concerned could mean a very big difference to 450 people, which is a considerable number of elderly people.
Taking Deputy Mac Giolla's last point first, as I explained at the beginning, my intention in the case of the age exemption limits was to catch up and to compensate for the fact that last year we were not in a position to increase the age exemption limits. Of course, people in those categories got the increase in the general exemption limit last year but we were not able to make a specific addition for the age exemption limits. What I am proposing in the Bill will, first of all, bring into the age exemption limits the increase in the general limits that we have this year and, secondly, compensate for the fact that there was no increase, in a relative sense, in the age exemption limits last year. Therefore, the effect of the operation could be, in a sense, to restore the relationship that was there between the age exemption limits and the general exemption limits in 1982. Deputy O'Kennedy has asked, quite properly, for information on the extra cost of making the amendment which is under discussion at the moment and I have said that it would be £180,000 in this year. The cost in respect of those in the other age exemption limit group, those over 75 years, would not be enormous in absolute terms either.
That is so.
However, the total cost of the increases in the general exemption limits and age exemption limits as included in the Bill and the associated marginal relief would be £4.3 million in 1984 and would be just over £7 million in a full year. Therefore, it is not quite complete — let me put it that way — to present the argument in the way Deputy O'Kennedy has. Of course, I have a great deal of sympathy with the view he is taking on it but already in what we have provided in the Bill, which brings a substantial increase in each of these exemption limits for the current tax year, the cost in the current year will be £4.3 million which is a substantial and fair proportion of the total amount available this year for allocation by way of extra tax reliefs. That being the case, I consider that what we have in the Bill, taking account of the factors I have mentioned, represents in this year's circumstances a reasonable effort at making a concession to these people who, I recognise, are in a difficult position, particularly people in the older age groups. We would all agree that we would prefer to see such people not having to deal with the complexities of income tax, but the total of what is in the Bill when we take it all together represents in the circumstances of this year a reasonable effort to deal with their problem and the allocation of a reasonable and very fair proportion of the total available for tax reliefs this year to those people affected.
I know that the Minister on his own authority in matters of such little impact in terms of total revenue can come to a decision as he sits there now. He does not need to go back to his Government or to consult with his officials. If one accepts anything, obviously one is changing what one proposes. If the Minister is in a position to do that and accept what we are proposing, it must be recorded that for the sake of £180,000 this year in total taxation we are not prepared to bring these age exemption limits for these 450 people anywhere near in line with what it would have been had we adjusted for inflation over two years. Even our proposals do not do that, as Deputy Mac Giolla should recognise. Our proposals do not go anywhere near keeping pace with inflation over two years. A Minister is, of course, constrained coming into this House in terms of what amendments he can adopt here or there. He must answer to the Government, to officials and even to parliamentary draftsmen, but this is one occasion when a Minister who has authority can act on his own and go back to his Government, his officials, the Secretary of his Department and the Chairman of the Revenue Commissioners and say that he has decided because of £180,000 to help 450 old people and to ensure that they will not be burdened with taxation. The Minister does not see that he is in a position to do that, and I regret it. I am afraid we must just press the amendment.
We are speaking about increasing the exemption limit from £5,600 to £5,700 in amendment No. 5. Therefore, we are talking about an increase of £100 for a married couple. This exemption operates to the effect that if you go over the exemption limit you then automatically revert to your ordinary allowances, with the exception that the maximum amount of tax you must pay is 60 per cent of the difference between your income and the exemption figure. In other words, if your income was £6,000 and the exemption figure was £5,600, the difference is £400 and 60 per cent of that is £240. That would be the maximum amount of tax you would have to pay. If you compute your tax liability on your ordinary allowances, if the amount you arrive at is in excess of £420 your limit is restricted to the £420.
That is correct, but start to explain that to a 74-year-old.
I am trying to explain it because of the point I am about to make. I do not know how old Deputy O'Kennedy is, but I am sure he is not 74.
I have been here longer than the Deputy has but I have not reached that stage yet.
I mention this because the difference between £5,600 and £5,700 is £100 and 60 per cent of that is £60. That divided between a married couple is £30 each and that works out at something like 75p a week. Deputy O'Kennedy is not really being as magnanimous as he appears to be, and I do not know how the Minister arrives at the figure of £180,000. We are talking of something in the region of 70p or 75p per person between the ages of 65 and 75. That is all we are talking about here. It is important that it be put in context.
I might add one brief comment to all of this. Deputy O'Kennedy becomes very eloquent about what can and what cannot be done in all kinds of circumstances, but I would have to say——
Unless the rules are changing.
The rules have changed and I have no difficulty whatsoever with the changes in the rules because, in many cases it was I who suggested them. When we talk of this in terms of £180,000 and 450 people, of course it seems to be a matter of no great moment one way or the other. I suppose basically that is the situation. But I am talking about the total of the provision that is made in the Bill. In 1984 we provided £4.3 million for this group in our society whom, as we all recognise, have made their contribution over many years.
We are talking about the old people.
All of those who come within the exemption limits. I am sorry if this appears to irritate Deputy O'Kennedy but I am putting the matter in its overall context. Of the total amount available for relief this year — which I readily grant was fairly restrictive — we have allocated what I regard as a fair and reasonable amount to the people who are covered by the exemption limits. This year we have compensated for the fact that we were not in a position last year to give increases in the age exemption limits. Personally I am not all that happy that we should not have gone any further but, of course, there are other considerations in these matters.
How is the figure of £180,000 arrived at? It seems an extraordinarily high figure if there are 450 people only involved in this exemption. Surely the figure should be somewhat higher?
The figures I have given necessarily are estimates of the total. Indeed the figure of £180,000 does not relate only to the 450 people mentioned by Deputy Mitchell. It includes a figure for the loss of revenue by having a number of people left out of the tax system. It includes also a cost element because of the fact that there is an additional span in marginal relief at this point.
Is amendment No. 5 being pressed?
Amendment No. 6. Amendment No. 8 is related. Amendment Nos. 14 and 16 are consequential on amendments Nos. 6 and 8 respectively. Amendments Nos. 6, 8; 14 and 16 to be taken together by agreement.
I move amendment No. 6:
In page 9, line 25, to delete "£6,600" and substitute "£6,700".
The argument for this amendment is similar to that advanced in the case of the previous one where the Minister is raising the limit for either spouse of 75 years or over from £6,000 to £6,600. We propose that that figure be £6,700. This is an area in which no adjustment was made in 1982 unlike earlier amendments where an adjustment had been made in 1983. In this case, as in the last one, no adjustment had been made in the Finance Bills since 1982. Therefore, we are speaking of adjustments for two years, 1982 and 1983 and again for 1983 to 1984, to endeavour to maintain these people at or as near as possible to the same level as they were at in 1982. In fact their standard of living is deteriorating. Our amendment is an effort to assist them without over-burdening the Minister for Finance.
If the Minister is in a position to accept any adjustments to this Finance Bill, here is an area in which he can do so with very little difficulty, with very little adjustment being made to his budget because of the small amount of money and the proportion of elderly people involved. It is a substantial number of elderly people whose standards of living are being affected annually, more than those of younger people, because of the increases in the cost of living. Like the last amendment, this would entail a very small adjustment of the Minister's figures in an endeavour to assist people over the age of 75.
We are now talking of people over 75 on low levels of income, not of people over 75 who may have good pensions or who have family security for one reason or another. In his exemptions how many people is the Minister assisting this year and at what cost? Secondly, if he adopted our amendments — which are additional to his exemptions — how many extra people would be involved and at what extra cost? I suspect that the figures would be so low as to be of no consequence.
The Deputy's suspicion is indeed a very shrewd one. I am speaking now specifically of people aged 75 and over——
Single, married, widowed and so on.
Three hundred, 300 and 600, a total of 1,200 people. Those were the figures I gave the Deputy when we were discussing the first amendment.
And the cost of the Minister's proposals?
The cost of the whole lot together is £4.3 million.
No, we are talking only of people over 75 now.
I understand that but I am not sure if I have the figure exactly in my brief. I have a breakdown of it somewhere here but I cannot at present put my finger on it. I will revert to it in a moment. The extra cost of the proposal that the Deputy suggests would be £120,000 in 1984, £200,000 in a full year and would increase the numbers of people exempted by approximately 200.
Enough said; I have nothing to add.
The cost of the proposal as I have it is £900,000 in 1984 and £1,500,000 in a full year.
A cost of £120,000 this year for people over 75; I have no more to say. It is a pity that we cannot show some degree of human compassion.
I have a great deal of sympathy with what the Deputy is proposing here. Indeed it is nice to see Deputy Mac Giolla and Deputy O'Kennedy ploughing the same furrow in this, in a matter on which I can agree with them. The proposals I have made would allocate an extra £900,000 tax relief in 1984 to people over 75 and an extra £1.5 million in a full year. Taking all the exemption limit proposals in the Bill, we are allocating £4.3 million this year to the people who benefit from these exemption limits. We are catching up this year and compensating for the fact that we were not able to increase the exemption limits last year. It seems to be a reasonable and fair proportion of the total allocation available for tax relief to people in those groups. I would wish that the total were bigger but it is not and I have struck a balance between people who benefit from exemption limits and the age exemption limits which seems fair and reasonable and takes account of the situation of those people. I will not accept that the argument hinges around £60,000 or £120,000, although I am bound to say that there could be occasions when the Deputy might reflect that if you look after the pennies the pounds will look after themselves and if you do not look after the pennies then you are in trouble with the pounds.
There is a case that anybody over the age of 75 should be exempt from tax. It is not always a matter of money given or not given. It is often a matter of relieving anxiety, providing a telephone, free electricity or free transport. People over 75 on a low level of income will be filling in tax forms. Would it not be possible to tell them this anxiety is over?
That is not what the Deputy is talking about.
There are so few of them there anyway.
I have a great deal of sympathy with what the Deputy is saying and I might even go as far as to agree that almost anybody over 75 years of age should be relieved of the burden of paying tax, although I can think immediately of several cases where it would not be justified. There is a big difference between that and what the Deputy is proposing. We are talking about exemption limits and age exemption limits. Happily we have numbers of people aged over 75 whose incomes are substantially above the limits where this becomes a factor. Whether we take my proposals or the Deputy's amendment, we are not talking about relieving people over 75 years of the anxiety of filling in tax forms.
This will be an excruciating debate on the Finance Bill if we spend so much time——
I reminded Deputies earlier that we have a gentlemen's agreement to complete Chapters I and II by this evening.
The Minister's proposal is to allow married persons over 75 years £132 a week without paying tax. Deputy O'Kennedy's proposals is to make that figure £134 a week. That is what this argument has been about — £2 a week. The Minister is being a little ungenerous in not even splitting the difference and getting the matter out of the way. We will not get to the root of the problems facing this country if we spend so much time on the taxation of £2 a week. It angers me somewhat that we cannot be generous in a small area like this and get on to our main business. We are talking about people over 75 years of age who have probably worked for 40 years and paid an average of £2,000 or £3,000 taxation per annum at today's prices, the guts of £200,000 throughout a career. It is an insult to people who have paid up to £200,000 taxation throughout their lives that we are fighting about whether we should give them tax exemption of £132 or £134 a week. Perhaps the Minister would agree to the amendment so that we can get on with the business of the Finance Bill.
I move amendment No. 7:
In page 9, line 26, to delete "£2,800" and substitute "£2,850".
I move amendment No. 8:
In page 9, line 27, to delete "£3,300" and substitute "£3,350".
Amendments Nos. 17, 18, 21 and 22 are related and may be taken together, by agreement.
I move amendment No. 17:
In page 10, subsection (1) (a), line 25, after “Income Tax Act, 1967,” to insert “and is not a person to whom paragraph (c) applies,”.
Here we are dealing with the whole basis of our tax band system, the level of taxation and the total take of income tax. Our proposals are obviously intended to alleviate the total burden of taxation and minimise the divisive and disincentive effects of income taxation. I will give some global figures as to the level of increase in income tax in recent years and some comparisons with the position in other countries. I will focus on the consequences of the unprecedented and historically high level of taxation here. We have proposed these amendments to bring the tax bands somewhat more into line with inflation but also to ensure that the impact of the increasing burden of taxation will not kill the very spirit of enterprise that is at a very low ebb in the country at the moment. I started with 1980 because it is the year that I had some particular involvement in. In 1979 the total income tax collected here was £732 million. Five years later it is moving close to three times that amount at just short of £2,000,000,000. The figure is £1,952 million. It has increased by a sum which far outstrips any other experience we have had even in public expenditure and is way out of line with what has happened elsewhere in the democratic world.
Let us put it in another context. In 1979 income tax as a percentage of our total GNP — it is important to express in the round as well as percentages — represented 16.9 per cent. It was 18 per cent in 1980 and this year, on the forecasts and on the tax bands the Minister is proposing, it will represent 23.1 per cent of our GNP. That is an enormous increase. In real terms, measured against any standard you want to apply in this country or elsewhere, an increase in the tax take from this economy from 16.9 per cent five years ago to 23.1 per cent now is a huge increase. The total taxes in 1979 were only a little more than what the Minister is proposing to get from income tax this year. In 1979 our total taxes were £2,317 million. I know money values were different but it gives some indication of what is happening in our economy. That figure is not much in excess of £1,952 million now. That is the first point which needs to be got across when we look at the tax bands we are now proposing to somehow give relief to taxpayers who find they are being so burdened that the incentive which is required in our economy is being killed, and the divisiveness which has emerged is also a very negative fact.
The second point I would like to make is that while that is the reality in this country we should look at the reality in other countries. The Minister for Finance is the one person who has, more than any other Minister in my experience, focused on one issue as being the main avenue for us coming out of the recession, which most other countries have already come out of, the magic term "competitiveness". I have heard it repeated even in the debate on the Planning Board when he and a colleague of his engaged each other in debate on an RTE programme recently.
We did not engage each other in debate.
If I did not hear competitiveness from the Minister that night——
The Minister for the Environment and I were interviewed separately.
I know that but for those of us who had simply the privilege of listening, as distinct from being allowed to participate in the debate, we had two Government Ministers on the same programme.
It is not in order to engage in a discussion like this.
I am just making a passing reference to it. I will quote about competitiveness. I heard it that evening from the Minister for Finance and he was not singing the same tune on the same programme as a colleague of his, the Minister for Labour.
The Deputy seems to be raising the rights and wrongs of some people who appeared on a programme and that is not in order here.
Those of us on this side of the House who did not have the opportunity to engage in that discussion on that national television programme will now use it here.
The Deputy will have to find another occasion for ventiliating that complaint.
Let us take a look at competitveness. Our nearest competitor and our nearest customer is the UK. What do we find the situation is there by comparison with the tax bands we have here? We find that a person earning up to £15,400 pays tax at the rate of 30 per cent. When a person exceeds £12,000 here one is already at the highest rate of tax, 65 per cent, a band which does not exist in the UK. A person can earn well over £3,000 more — that is sterling and you have to adjust up so that we are talking about well over £5,000 extra — in Britain than here and he will pay at the lowest rate of tax at 30 per cent whereas over here, in the country where we are always being told we should be more competitive, such a person will pay at the highest rate of tax of 65 per cent. When you go down through the scale you find that when a person's earnings get up to £18,200 sterling, which is the equivalent of £22,000 here he pays income tax at 40 per cent. Here he has long since entered the 65 per cent tax bracket. At £23,100 he comes into a tax band of 45 per cent. That figure represents about £26,000 here.
It is 50 per cent.
It is 45 per cent.
Once you go over £23,000 it is 50 per cent.
50 per cent comes up next up to £30,600 sterling. It is 55 per cent up to £38,000 sterling. We have to add the increases all the time in Irish terms. When you get to the final one you find that those who are really classified as capable of paying at the rate of surtax, which in the UK is 60 per cent, have to earn in excess of £38,000 sterling, which is equivalent to between £44,000 and £45,000 in Irish terms. We now get some measure of comparison between tax burden here and that in other countries with whom we are being asked to compete and the consequence this has for workers who are understandably saying: "We hear these sermons about competitiveness but we are anxious to know at the end how we will compete with people who have much more in their pockets than we have". It is no surprise that, because of the crushing burden of taxation, which is understating it, maybe they make demands in what are sometimes seen to be unreasonable terms that the economy cannot afford.
There are other comparisons that can be made. There are other countries with whom we compete but who are also customers of ours. It will surprise the Minister to know, having regard to the increase we have seen particularly in the final couple of years, that in the USA the level of income taxation as a percentage of GNP has stayed constant for about 20 years at something of the order of 22 per cent. Is it any wonder that over there there is a spirit of enterprise and initiative that people, whether they are employers or employees, are actually conscious of the fact that they are in an economy in a country where if you work and try to succeed you will not be penalised for it and the levels will stay the same in real terms for 20 years?
Will the Deputy now look at the level of public expenditure as a proportion of GNP?
The Minister comes back every time to public expenditure. I appreciate that but if we look at what has happened here in the last two years the disincentive effect of what the Minister has done in some instances by increasing tax rates is to bring about a lesser return than would be the case if the rates had been left as they were. The tax rates are being increased at every level.
The 25 per cent band no longer exists. Some of those people we were talking about this morning and who would otherwise have been exempt are now in the 35 per cent band. The reality is that by comparison with any other country to which we hope to sell our products or with which we wish to compete, the tax burden here is crushing, not only in financial terms but in destroying the very spirit of enterprise and initiative we need. Worse, it is causing divisions between the various sections of the community. Deputy Mac Giolla has dealt with some elements of that situation. There is the view that because of the level of PAYE taxation those taxpayers who comprise a considerable portion of all this are paying for everything while the remainder are not paying for anything. The Minister, unwittingly no doubt, contributed to the division last year when he gave inaccurate figures.
That is not true.
When he was asked the amount of outstanding tax he gave a figure on the basis of assessment. This caused all kinds of reactions among the PAYE sector. When you were asked about PAYE tax you did not indicate what proportion of PAYE is paid by the self employed and by those in what are known as close or family companies.
The Deputy should address the Chair.
I am asking the Minister to tell us today what proportion of PAYE tax is paid by the self-employed and by those in close companies. It is important to have the figure on record so that we know exactly how much is paid by the employee and how much is paid by those who are described generally as self-employed but who are also in the PAYE system. Whichever proportion we are talking of at least we are clear on one fact, that is, that all of those people are now contributing at a level of taxation which has increased enormously in recent years to 23.1 per cent of GNP. That is in terms of income taxation. It has gone beyond the point at which there is any encouragement for incentive on the part either of employer or of employee. The reality points totally the other way. If one inquires from any potential businessman as to why he is not expanding, he will reply in perhaps most unparliamentary terms that it is not worthwhile expanding. The climate is such that effort, initiative and investment are not being rewarded, that in fact they are being penalised. If we ask an employee why he is not interested in doing extra work his reply will be similar because for every extra £2 he earns, especially if his income is more than the £12,000 level, he will pay 65 per cent tax. In other words, that level of income puts him into the bracket of being a very wealthy man. We wonder then about the growth area of our economy. It is no harm to return to the question of the black economy. The reason we have a black economy is because of these levels of taxation which the Minister is increasing this year.
The black economy is not the result of taxation.
Why, then, does it exist?
The Chair would prefer that Deputy Skelly did not seek to impart such information.
Has taxation nothing to do with it?
The Chair would ask Deputies to address the Chair and to do so only one at a time.
Everybody other than Deputy Skelly seems to acknowledge that taxation is at least the major, if not the exclusive, factor in the growth of the black economy. We heard recently about black holes and about suction pipes that take revenue out of the economy, but there is a leakage in every economy to the extent that there is some element of the black economy in it and the growth of it in this economy by comparison with the decrease in the level of normal economic activity is a cause for concern. Obviously, one of the reasons for this state of affairs is the level of taxation and of income taxation in particular. For that reason our proposals address this basic issue. They do so, first, on the basis of restoring the 25 per cent tax band. If one is above the exemption levels one goes into the tax net now at 35 per cent whereas his counterpart in Britain pays at only 30 per cent up to an income of ST£15,400. The situation here is that if one is earning more than £5,000 he will be paying at 35 per cent. Surely these are the sort of disparities and anomalies the Minister would need to correct. They underline the basic cause of the lack of competitiveness.
One must always give practical examples in order to translate the effect of figures. On that basis let us ask what the impact will be in a fairly representative case. Let us take the position of a married man with two children. If, in 1981-82 he was earning £100, and assuming normal allowances, he was liable for tax at £13.21. If he was earning £150 then, he was liable for tax at £30.70 and if he was earning £200, his tax would have been £48.21. What is significant is that in each case the person concerned would have been comfortably within the 35 per cent tax band at that time.
If we adjust for inflation and take 47 per cent as the overall figure in that regard, in the past three years we find that the person who was earning £100 in 1981-82 would be earning £147 this year and would be liable for tax of £19.41 while the person who had been earning £150 then would now be earning £220 and would be liable for tax at £45.14 while the one who was earning £200 would now be earning £284 and would be paying £70.87 taxation. No longer would the person earning up to £200 be comfortably within the 35 per cent tax band. He has now gone into the higher tax band, he is at the top of the 45 per cent band and he will soon be paying the most penal level of 60 per cent. That applies to someone who was on the lowest level of tax two or three years ago. Take home pay is worth one penny more and when people get their tax allowances for this year they will appreciate that the economy needs zip, incentive, enterprising spirit, investment and competitiveness. The Revenue Commissioners would also stand to gain a little more from increased investment, buoyancy in activity and proper guidelines.
In 1957 there were dramatic changes when people realised that they no longer had to emigrate and even the Taoiseach acknowledged that. People were told that if they worked they would be rewarded. A member of the Planning Board said recently that if the Government got off a certain part of their anatomy——
The Deputy is being coy.
The Minister remembers what they said. People want to work but the level of taxation makes it impossible. The Government are going to regulate and control tax contributions and to seal every loophole. They see the role of Government as one of prevention and obstruction and will not try to create a climate in which people will work for themselves. The Minister for Finance is on everybody's mind, he is the one person on whom we all have to focus because he decides what the tax levels will be. Is it any wonder that the workers, businessmen and entrepreneurs do not get off that part of the anatomy which they were advised to do and are sitting exactly where they are?
The Deputy's delicacy does him credit.
I do not know what experience the Minister for Finance has of normal business life or of the impact of taxation as a disincentive to those who work and those in business but I suspect he has very little from the approach he has adopted, especially with regard to income tax. Perhaps Deputy Mitchell is right when he said we should have stayed at home but, in a vain effort to bring some sense into it, we are proposing that the tax bands should be adjusted to restore the 25 per cent band and to get rid of the 65 per cent nonsense. I know Deputy Mac Giolla will not agree with me but he must realise that he cannot get any more money from that source. Many of those people will invest elsewhere.
We have an unemployment problem but it would be worse except for emigration which we thought we were rid of. People are leaving every parish in the country and the figures will eventually prove it. We used to pride ourselves on attracting investment from other countries. We talked about the outlets to Europe, competitiveness and the skilled labour force and we attracted investment. The Minister must know that we are now driving investment out——
We are still attracting investment.
I agree with everything the Deputy said.
Deputy Skelly agrees with me and he is a businessman. It is good to see our established companies branching into international commerce but, unfortunately, their level of investment is very much higher outside the country. The big construction companies are investing five times as much outside the country as in it. Some businessmen have told me, not on the basis of political point scoring, that they are investing on a ratio of five to one outside the country to maintain skeleton activity at home. Can the Minister and the Government not see the signs or are they merely concerned with tax? The role of Government should be broader and more important than that. They should create a climate in which those who are not in Government will ensure that we succeed.
The other view of the role of Government is that they are going to regulate, control, squeeze and seal off loopholes in every direction. This is a role to which I do not subscribe although the Government seem to. In view of the comparisons I made I hope that the Minister will agree to adopt our proposals. I know the figures will be of more consequence than the figures we mentioned with regard to exemption. I am convinced that the return to the Revenue Commissioners would be very much more significant if we took down the old signposts to the cul-de-sacs and put up new ones pointing forward. There is a challenge to be met and I am sure many people will respond.
Deputy O'Kennedy dutifully raised the issues which are his responsibility and it is appropriate that we should discuss them. I am sure the Minister is also concerned at the rates of income tax and the disincentive they cause. We cannot get away from the fact that we will either have to find another source of revenue or cut public spending if we are substantially to improve those bands.
Deputy O'Kennedy quoted levels of taxation in the United Kingdom and said that one would have to have over £38,000 taxable income before paying the 60 per cent rate of tax. I do not think it is relevant to say whether it is in sterling or punts. It is only relevant where sterling earned in the United Kingdom is spent here. This goes to the kernel of the need for income tax reform. In the long-term we cannot sustain a level of taxation where a single person goes on the 65 per cent tax rate on £8,000 of taxable income. The sooner we tackle that specific problem the better. It is not long since we had tax marches. Perhaps to some extent they were sparked off by misinformation about outstanding taxation. It would take very little to cause justifiable dissatisfaction.
On the last section we spoke about tax exemptions and about our aged citizens. We are all disposed to improve their lot as best we can. In the United Kingdom they have not got the facilities we have here for senior citizens: free electricity, free travel, free television licences and free telephone rental. We should maintain and improve those benefits. If the Minister is to improve the tax bands he will have to cut other areas of public expenditure substantially. As soon as he attempts to do that, there will be an outcry from the same Deputies who are now crying out against the tax bands. We will have to deal with this problem sooner or later, and it might as well be sooner rather than later.
The only way to do that is for the Minister at a later stage in the year to bring in legislation to cut public expenditure substantially and simultaneously to widen the tax bands. The Opposition cannot have it both ways. That is the only way it can be done. It is necessary in the interests of the income tax payer and the PAYE worker and also in the national interest. Income from VAT and areas like that would probably ensure that we were a little better off. The Minister should consider that seriously. It is time we stopped managing the affairs of the country. We have the responsibility to govern.
By November of this year we will be heading towards the half way mark in the Government's term of office. I believe we can do something about the tax bands and give people an incentive to work. There is no incentive to work with the present tax bands. The only way to reduce the tax bands is by cutting public expenditure. It is possible, desirable and feasible to reduce the tax bands and cut public expenditure and it is just a matter of having the courage to do it. If we do not, next year we will still have the same outrageously high tax bands which are a total disincentive to work.
On the range of taxation Deputy O'Kennedy confined his remarks to comparing us with Britain. I do not think he compared us with Britain on the spending side very fairly. His sterling comments were not really relevant. The range of taxes here is similar to the range of taxes in Britain. The problem is on the spending side and, unless we have the courage to tackle that, we will not make any significant advance under this section.
We are dealing with amendments Nos. 17, 18, 21 and 22. I will be moving amendment No. 22. Our amendments Nos. 20 and 23 were ruled out of order. On the issue of the tax bands I approve of a good deal of what was said not only by Deputy O'Kennedy but also by Deputy Mitchell on the need for adjustments in PAYE taxes from the bottom to the top. I do not agree with Deputy Mitchell's means for doing so. There are many other forms of taxation to compensate for a cut in the PAYE take and a reduction in the take from the tax bands. A land tax is an obvious one which everyone expected to appear in this budget and which would bring in around £80 million without any great imposition on the farming community. It must also be said that consistently in the budgets over the past decade there has been a reduction in the take from capital taxation — it is down to 4 per cent this year, the lowest in ten years — and a constant increase in the take from the PAYE sector.
On this Finance Bill we cannot deal with issues like that or suggest new taxes. We would prefer if there were only two tax bands, 35 per cent and 65 per cent, to try to bring some equity into the present system. We are more concerned about a reduction at the bottom level — in other words, increasing taxable income at 35 per cent. Because we felt our amendment would be ruled out of order on the ground that it would impose a charge on the Exchequer we tried to cover that by increasing the top bracket to 75 per cent. We wanted to have the 35 per cent rate on the first £5,000 for a single person and £10,000 for married people. We proposed that over £13,000 for a single person and over £26,000 for a married couple income should be taxable at 75 per cent. We do not think it is unreasonable, if we are on a tax band system, that the people at the top should pay the most. We felt we had covered the reduction in take from the increase in the 35 per cent rate by putting in that 75 per cent rate. Apparently not. We do not have any figures to indicate why, because the amendment was ruled out of order. It was held that it would involve a potential charge on the people. I accept that the Ceann Comhairle has done his figures on that.
We want the Minister to increase the amount of taxable income on the 35 per cent band. We would prefer if up to £10,000 of taxable income was on the 35 per cent band and that the tax take above that figure be increased. We are into the question of tax bands and trying to bring some equity into the narrow area of PAYE taxpayers. That is not the area we want to be in at all. We believe that should be reduced and the take on capital taxation increased to make up for that. The people on the higher rate, 60 or 65 per cent, do not have any incentive.
Last year and the year before we tabled similar amendments asking that widows, widowers, separated spouses and single parents be put on the Part 2 table, on the married persons tax bands. Each year we made the same arguments pointing out that those people have the same problems and expenditure as married persons. A house is a house and it needs a roof over it whether one is a single parent, a widow or married. One has to pay for the house either by way of mortgage or rent. The education of children must be paid for and it is also necessary to pay for clothes, food and travelling expenses for children. The single parent in order to provide for dependants must try to get work. A single person who is working has more expenses than a married person. They must pay for a housekeeper, a person who comes in to clean the house, and are obliged to pay for special arrangements to get children to and from school and so on. Their costs can be a lot greater than for married people.
The Minister does not have any real argument against our proposal. Two years ago the Minister suggested that there were some difficulties involved — I do not know if they were legal or constitutional — but he undertook to look into the matter recognising the equity of the argument. Last year Minister Dukes argued against our proposal but not from the point of view of equity or the amount of money involved. He suggested that if this was granted those who already have the advantage would be looking for the advantage again. He said that in this way there would be some leap-frogging in the system if the concession was given to such people. That is not an argument at all against our proposal. We are talking about tax equity and justice.
There is a strong case for putting the people I have referred to on the same tax band basis as married couples. Ministers for Finance have not made an argument that our proposal was not justified. They did not make the argument that because a spouse was dead the surviving person had less expenses for food or clothes and that the system was justified on the basis of the money income and money expenditure. That is the only way one can argue whether a tax is justified or not, but Ministers for Finance have not made that argument.
I appeal to the Minister to look at this matter again and endeavour to introduce equity into this area. Severe financial and emotional strain and social problems are created by the loss or absence of one spouse. The amendment askes that Part 2 of the table apply to persons with dependants who are widows, widowers or single parents, the same wording as last year's proposal. I am sure the Minister will not be able to contest the inequity of this this year any more than he or his predecessor was able in the last two years.
Will the Minister be able to give me some figures? If he does not have them in the Chamber perhaps he will be good enough to give them to me later. Will the Minister give the up-to-date figure of the number of people who are being moved into the 35 per cent band rate as a result of the abolition of the 25 per cent band rate?
I do not have that information here but I will get it for the Deputy.
I seem to remember a figure of 70,000 people who because of the abolition of the 25 per cent band are now on the 35 per cent rate. Is the Minister in a position to tell the House the number of taxpayers in each band? That would be useful information.
I am not sure that I have all that information on hand but if the Deputy outlines all the information required we can put it together.
I appreciate that. I should like to know the total number of taxpayers and the number in each band. What proportion of taxpayers are in the 35 per cent band, and what proportion are in the other bands? What percentage of all taxpayers are on the 65 per cent rate? It would be useful if we had that information later in the debate because we would know exactly where the burden of taxation is falling. We would be in a position to see what the trends are likely to be. I understand that there are about 760,000 taxpayers and that a breakdown of that figure would show that a preponderance of them are in the 35 per cent band.
Fianna Fáil are trying to restore the 25 per cent rate because a large number of the people who were in that band have moved into the 35 per cent band. We are seeking to introduce for widows and widowers a new range of bands, an imaginative and sensible proposal and one which the Minister should look at generously. We are also seeking to abolish the 65 per cent rate of taxation. The proportion of people in that rate and the money brought in would seem to indicate that it is not worth the administration cost involved. I concur with the comments made by Deputy O'Kennedy about the effect on incentive and work of this crippling level of taxation. I must stress that because the bands have not been increased in line with inflation there is an additional burden of taxation on people. If the bands are not changed and inflation continues to increase it simply amounts to additional taxation.
There is an impression that benefits have been handed out in the budget. Let us have a look at these benefits. The average single person earning £8,000 a year with mortgage interest relief of £2,000 and PRSI deductions will have £22 more per annum, 42p per week. It would not buy The Irish Times. A married person with three children on £11,000 per annum getting mortgage interest relief of £3,000 will have £45 per annum more, 85p or 86p a week. Considering the increases in indirect taxation, most people are worse off because of this budget.
I appreciate that the Minister has reasons. He says he is doing the best he can. One must be reasonable and remember that public expenditure has gone to the stage when it is gobbling up a greater proportion of people's incomes. However, it is useless to give people 42p per week in their pockets. That will only deepen the recession because if people have less disposable income demand for goods and services is smaller, production is smaller and unemployment is greater, and this budget, therefore, does not do anything to ease unemployment.
The Minister might take a look at some of the economic reports on his desk and he will see the effect of budgets like this and taxation like this on the level of unemployment. Have the Government grasped the relationship between employment and taxation? Recently, The Times of London in an editorial pointed out that if unemployment in the UK could be brought down from 3 million at once it would allow the standard rate of income tax to be cut from 30 to 20 per cent. That has been backed up by a number of leading economists.
I therefore say to the Minister, let us have pro-employment policies because if we can reduce unemployment we will reduce our need for additional taxation. The Minister is going at this in the wrong way. The need for additional taxation is being justified by increased public expenditure. I understand that pressure on any Minister for Finance in any Government, but this Minister is going at it in the wrong way. If we can tackle unemployment concurrently with trying to get the budget into some kind of shape — I believe we can do it — we will then get people back to work, and if we can do that the need for taxation will be less.
That is the kind of policy we must pursue and if we do not do it taxation will go through the roof, and the less disposable income people have the deeper the recession will go. We must look at the problem from an employment point of view. If the Minister can produce policies of this kind, if he puts people back to work, the greater the chance he will have to reduce taxation.
The Minister must take risks, or a shot in the dark, to use a favourite phrase of the Minister. He must bring in a sliding scale of PRSI payments so that the more people who are employed the less the PRSI payments will be. He will find that firms will employ more and consequently the Minister will get in more money. In the case of a person being paid £12,000 a year at present, the PRSI contribution by him and the employer is £2,500. The Minister gets that money, that tax on employment, and the more we tax employment the less money we will get in and the more difficult it will be to handle public expenditure.
The Minister has many reports on his desk. He has got the reports of the National Planning Board, the Commission on Taxation and the ESRI. What we need is an economic plan based on reduced taxation which can be achieved by reducing unemployment and controlling public expenditure. I do not suggest that these are simple things to achieve, but at least the Minister should try to get the direction right. The Tánaiste is on record time and time again as saying that he favours a continuing high level of public expenditure. The ESRI Report backs that up — it suggests more public expenditure. The Commission on Taxation Report and the Report of the National Planning Board propose the opposite — they want to reduce public expenditure. Which side does the Minister back? Which side do the Government back? Will expenditure go up or down?
When we talk about taxation a decision has to be taken on that question. Is the Tánaiste right or is the Minister correct? Whichever direction we decide to go let us get started in that direction together. If we are to depend on the State providing employment let us get started with the plan. If we are not, let us say that and go in the other direction and reduce public expenditure, reduce taxation, give people more disposable income and in that way restore a viable economy.
We are on amendment No. 17. I appreciate your concern but you must confine yourself to this group of amendments.
I am discussing personal taxation. In 1980-81, 107,000 people were liable for the higher rates of taxation, 12 per cent of all taxpayers. Two years later the number had risen to 336,000 taxpayers, 40 per cent of all taxpayers. That shows the galloping escalation in taxation levels imposed by section 2. I support what Deputy O'Kennedy has been saying. If you want to give a worker a 12½ per cent pay increase and if you want to let him take home £1 extra per week, it costs the firm almost £4. I am talking about a single worker on £12,700 a year. That is an anti-employment policy. If the Minister wants to get the burden of taxation down he must make it easy to employ people, not difficult. That should be the Minister's guideline. I know he thinks like that and I know his day-to-day financial pressures. I ask the Minister to stand back and be courageous. He should pursue pro-employment policies. That is the best way to get our taxation into shape. It costs a company £20,000 a year to allow an employee take home £10,000 a year. That means a company must sell an extra £100,000 worth of business. That is what the Minister is asking companies to do. The odds are too great. It must become national economic policy to close that gap. That is the approach I recommend be adopted towards taxation.
I support the comments and amendments made by Deputy O'Kennedy. The Minister should pursue pro-employment policies. He should not keep going back to the taxation bucket and say that we do not understand the pressures he is under. We know the pressures he is under but we are saying that he is going in the wrong direction. He should have a chat with the Tánaiste and try to get it going in the same direction. For the sake of the country that should be done quickly.
With regard to amendment No. 21, would it adversely affect people investing in building societies if the standard rate of tax was reduced to 25 per cent?
What will be the effect on a person's tax free allowance certificate of the first £1,000 of taxable income being taxed at 35 per cent? People who were paying tax above 25 per cent prior to this Bill had a special table allowance. How much will that be reduced by now to take account of the fact that the first £1,000 is taxable at 35 per cent rather than 25 per cent?
I have been wondering for the last 40 minutes whether we were having a Committee Stage or Second Stage debate. It is not my place to say so but it seemed to be more in the nature of a Second Stage debate. Many points were made which in the normal course I would reply to. However, I do not intend to reply to them because we agreed that there is a limit on the amount of time available for the first chapters of the Bill.
Deputies opposite did not say a lot about the amendments. In reply to Deputy O'Dea, the fact is that it depends on an individual's position. What we have done is increased the personal allowance, taken out the 25 per cent band and made the income that becomes taxable once a person has used up the increased personal allowance taxable at the 35 per cent rate.
A person whose maximum rate of tax last year was 35 per cent got an allowance under Table R. What is the level of that allowance?
We have Tables R, S, T and V where the double bands apply and for single bands, Tables A, B, C and D. They will continue to operate. The point at which a taxpayer begins to pay tax depends on his allowances. The increases in the personal allowances which we have in the Bill this year more than compensate for the fact that we have abolished the 25 per cent band. At any given level of income for the same money income this year as last year there is a reduction in the tax bill as a result of our having increased the personal allowances by more than enough to compensate for the abolition of the 25 per cent rate.
The question of comparisons between our tax system and those of other countries is one which Deputies find tempting to pursue in a debate of this kind. It is not all that relevant but I shall allow myself to be tempted along that road because there is a great deal of mythology attached to this. If we take the position, for 1984-85, in Ireland of a married couple with no children where the husband only is earning IR£10,000, he pays 20.3 per cent in tax. In the United Kingdom the same person earning £10,000 would pay 20.5 per cent of his income in tax. At £7,000 the respective proportions are 13.57 per cent and 16.48 per cent.
Is that £7,000 taxable income?
No, that is total income. A married man earning £6,000, whose wife is working in the home, pays 9.8 per cent income in taxation and in the UK he pays 14.2 per cent. In the lower ranges——
The Minister is engaging in special pleading.
Up to £10,300 the burden of taxation here is lighter than in the UK. Over that the burden becomes progressively heavier. We have a different distribution of the tax base.
That is so. I could sing it.
The same applies in the case of a married couple with two children where the husband only is earning — the cross-over point is £11,500. Up to that point the Irish taxpayer pays a smaller proportion of his income in taxation than his UK counterpart. After that the UK taxpayer begins to get an advantage. I mention that only because comparisons have been made by Deputies on the opposite side. It is not relevant to compare our system to the taxation system of a country with a population of 60 million with a long history of higher incomes per head and with completely different needs. The UK does not have a population growth equal to ours nor does it have the same population distribution. It does not have our infrastructural investment problems. It has a longer history of higher real incomes. The point is, so what?
They have more problems.
They may have.
We will have more problems too.
We must construct our tax system here in order to accommodate our situation. Another point raised was the change in the tax liability of a person in Ireland over the last few years. Take Deputy O'Kennedy's example of a person earning £200 a week in 1980-81. In that year he paid 24.1 per cent of his salary in taxes. If we take that same person and simply index his money income and look at his situation in 1984-85, his pay will be £284 a week and he is paying 24.9 per cent of his income in tax, in other words, .8 per cent more of his income is being taken from him now. I would not regard that as being a dramatic turn of the screw. It represents an increased liability, a high liability, but it does not in any way support Deputy O'Kennedy's contention that there has been a galloping up of the rate of liability to tax during those years.
Essentially, what I believe is this: in much of what he says about the levels of taxation Deputy O'Kennedy has a perfectly good case but he flogs it to death with his nonsensical exaggerating which bears very little relationship to reality. The question was raised what proportion of tax accounted for under PAYE is paid by directors of close companies. The latest year for which a full analysis is available is 1979-80. In that year the proportion of income tax accounted for under PAYE paid by directors of close companies was about 7½ per cent. Offhand I do not have a more detailed analysis than that but my recollection — and I am subject to correction on this — from discussions we had last year, was that on a crude calculation, the proportion has increased slightly but is in the region of 7 per cent to 8 per cent. I will come back to the Deputy on this and no doubt we will have another opportunity to discuss these matters at a later stage.
I am not going into international comparisons of the tax burden, the proportion of GNP taken in taxation, although I have some figures here that show that the situation is not quite as Deputy O'Kennedy illustrated.
Since the Deputy mentioned it, I will. Let us take the year 1982, the latest year for which we have OECD comparative tax statistics. Total tax revenue as a percentage of GDP, 1982, in a list of 23 countries — enumerated from one to 23 — Ireland is eighth at 40 per cent and the United Kingdom is ninth at 40 per cent. The countries which take a higher proportion of GDP in taxation than Ireland, are in order, Sweden, Norway, Belgium, the Netherlands, Denmark, France and Austria. The United States is far down the list but I do not have comparative figures of expenditure. I do not see the direct relevance of all that to the amendments before us.
I have been asked if I could give some information on the numbers of people in the different tax bands, how many people are paying tax at the given rates. In 1983-84 the total figures were as follows: for those who benefited from marginal relief, 45,200; people paying tax at 25 per cent, 72,000; at 35 per cent 425,800; at 45 per cent 174,000; at 55 per cent 82,400; at 60 per cent 36,500 and at 65 per cent 33,000. The situation for 1984-85, post budget, is as follows: the number of people benefiting from marginal relief is 36,000, the number paying tax at not more than 35 per cent—and that covers what used to be two bands—484,600; at 45 per cent 173,000; at 55 per cent 85,400; at 60 per cent 39,500 and at 65 per cent 38,900. The total for 1983-84 was 869,000 and for 1984-85 post budget, estimated, 857,400.
Deputy O'Kennedy's amendments Nos. 17, 18 and 21 propose the introduction of a new rate band structure for single and widowed parents at a level about halfway between the single and married rate band structures. He also proposes to introduce a 25 per cent rate band for the first £1,000 of taxable income of a single person or £1,500 in the case of a widowed person, or £2,000 in the case of a married couple, sets the 35 per cent band at £3,000 for a single person, £4,500 for a widowed person and £6,000 for a married couple and abolishes the 65 per cent band.
Amendment No. 22 in the names of Deputy Mac Giolla and Deputy de Rossa proposes to extend the double rate bands applicable to married persons to single and widowed parents. One of the consequences of increasing the rate bands for single and widowed parents would be that married couples with children, each spouse with an income, would find it substantially to their advantage to choose to be assessed to tax as single persons under section 193 of the 1967 Income Tax Act. In that way, if each spouse accepted responsibility for one or more of the children they would obtain the benefit of two sets of increased rate bands compared with a married couple who have only one source of income or who are chargeable to tax in respect of their joint incomes under section 194 and would gain a fairly substantial advantage. In addition, it would be extremely difficult to insert an additional separate rate structure applying to widowed and single parents with dependants into the current existing PAYE computer programme.
If the wording of the amendment were to be changed to prevent married couples from claiming two sets of increased bands — one of the difficulties I see with it — the measure could then be regarded as being repugnant to the Constitution, being inimical to the institution of marriage following the Supreme Court decision in the Murphy case. We would create a situation where if a widow and widower, each with children, wished to marry each other, with that proposed change they would be discouraged from doing so because as a married couple they would be entitled to only one set of doubled rate bands while if they remained in their separate states, they would get one set of double-rate bands each.
Would it be a widow marrying a widower?
It would. If it is a widow or a widower marrying a single person, there would be one double rate band and one single rate band.
Marrying a single parent?
No, not marrying a single parent. A widow or widower with children who would get the double rates band under that proposal, marrying a single person who would have a single rate band would also lose. One does not need quite the same coincidence to bring about the anomaly in the situation which the Deputy appears to find amusing.
Does the Minister think that a couple would marry simply because of tax considerations?
The giving of these advantages to people in the way which would flow from implementation of this amendment would be unconstitutional ——
No, that is not so.
——particularly given the terms of the Murphy case.
I have read the Murphy case and that is not so.
Even if it were possible to implement, it would inevitably have the effect of creating the leapfrogging of which I spoke in the corresponding debate last year and which Deputy Mac Giolla did not seem to have grasped.
The cost of amending the rate bands applicable to single and married persons, as proposed by Deputy O'Kennedy, would be £73.6 million in 1984 and £122.6 million in a full year. The additional cost of a new increased rate band structure for single and widowed persons would be about £1½ million in 1984 and £2½ million for a full year. If, as I think would be likely, married couples with children, having two incomes, were to opt for single assessment so as to benefit from these rate bands, there would be an additional cost of £9 million in 1984 and £15 million in a full year. So, the cost of that operation, which would be of highly dubious constitutionality, would be, quite frankly, prohibitive.
The extension of the double rate band to single persons proposed by Deputies Mac Giolla and De Rossa would cost about £2 million in 1984 and £3 million in a full year if married couples were excluded. If they were included — and, as I have said, I do not think it would be constitutionally possible to exclude them — the cost would be about £8 million in 1984 and £13.4 million in a full year. These, of course, are estimates, based on what would happen in the very unlikely event that the system could actually cope with this type of change.
Those are the reasons for my not being able to accept those amendments this year. They are also the reasons why last year I could not accept a somewhat similar amendment to today's amendment put forward by Deputies Mac Giolla and De Rossa. The situation is largely determined for us by a ruling in a constitutional case. Unless we want to change the basis of that, I think we have no option but to reject the amendments put forward here. I might add that we have deliberately, over a couple of years, found ways of increasing the amounts of allowances available to single parents and to widowed parents so that, in terms of allowances, they get the same total of allowances as married couples. We cannot apply the double rate bands to those persons because the doubled rate bands to married couples are given because they are two persons. A single band is given to each person. We cannot then give double bands to one person.
The Minister did not deal with my question with regard how the standard rate would affect a person investing in a building society, if it were reduced to 25 per cent. At the moment, persons receiving interest on investment in a building society are deemed to have paid tax at the standard rate of 35 per cent. Would that mean that, in computing a person's tax liability, if we were to reduce the rate as suggested here to 25 per cent, persons investing in a building society could have a higher tax bill? It appears to me that they would, but that may not be so.
My second question deals with the section of the 1982 Act, concerned with double tax bands. This matter is more complicated than the Minister has outlined. What happens in the case of a woman who is living apart from her husband or whose marriage has been annulled by the church, now living happily with somebody else and having children from that person — making up a family unit to all intents and purposes? Does the father of those children receive the single allowance and the mother also receive a single allowance and can they claim for children's allowances? In other words, are they treated as a family unit? Do they come out as well off as the single parent family to whom the Minister has referred? My information is that they do not, that if the man is the earner of the income he is treated, to all intents and purposes, as a single person, receives the single allowance and can only claim the single rate mortgage interest relief of £2,000 and the wife is treated as an interloper. Those cases are quite separate from the ones outlined by the Minister. I have been recently in touch with the Minister about a particular case. As far as I can make out from information received, the only way around it would be for the father to covenant his income to his common law wife, who would then have allowances against that but only as a single person. The area is much more complicated than the question raised by Deputy Mac Giolla's amendment, of giving single parent families and widows the double allowance. Whether we like it or not, there are many family units of the category which I mention and for that reason the Committee on Marital Breakdown has been instituted. We should be aware of these complications.
Just to clarify the decision in the Murphy case and its implications on the amendment, firstly when is a married parent not a single parent? The answer is when he or she is a married parent. Also when is a single parent not a married parent? When he or she is a single parent. There is no ruling in law to suggest at all that if one makes provision, as is requested here, for widows, widowers and single parents, who have a very definite characteristic and distinction, one could say that married parents, who have a very different characteristic could suddenly declare themselves not married parents, but two single parents. If the law were to reach that point it would then really be an ass, but it is not quite that much of an ass.
The Minister is drawing the long bow in replying to my proposal in relation to a separate, special band for widows, widowers and single parents. He says that one could have a good case for married parents declaring themselves entitled to assessment on the same basis as single parents. That makes no sense and I can think of no court of law anywhere which would hold that. It is not fair to ask officials to dream up responses like that to what is a case in its own right. I was a Minister in government when the Murphy decision was made. It was to apply the same allowances to a married couple, both of them earning outside the home, as if they were two single people earning. In government we extended the effect of that decision to an area to which we were not obliged or required to extend it under the Supreme Court decision, to give the same double allowance to all married couples as would apply to married couples both working outside the home. That was the effect of the Murphy decision. To say it will raise implications is to draw another long bow. To say that it would raise implications for what I am seeking for windows, widowers and single parents by expanding it into an area where the court never went is not sustainable. I do not know whether there is some new legal section in the Department of Finance coming up with such ideas, but if it is there it could not possibly sustain that argument, neither could the Attorney General.
To come back to the amendment, the Minister is right in nothing that because of the special condition of widows, widowers and single parents we are trying to fix a balance here between the position of the single person who is not a parent and the married couple who are parents. First of all, there is a growing number of widows, widowers and single parents in our society and there should be a special band to take account of that. They have to deal with the same problems, and the same overheads as have other people in relation to any of the normal running expenses of anything from household equipment to mortgages or anything else. At the same time they are not being granted anything like a commensurate tax adjustment or allowance in respect of those standard expenses. I acknowledge that there is a limit to what can be achieved, but the Minister tells me at the same time that to adopt my amendment this year — it does not push too far, as I think he would acknowledge — would cost £1.5 million. We are not talking about major sums for a very big category in our society at this stage. In terms of equity, justice and whatever else you may care to mention, there is a strong case which is not answered by the arguments that the Minister has dreamed up which have no basis whatsoever in law and, if possible, less basis in fact.
The Minister made reference to some of the broader arguments. He mentioned the OECD countries and he picked out those which are higher than we are. That does not occasion surprise because that is why I asked him to pick them out. Everybody knows that the standard of social service in the northern European countries is at a sophisticated level away ahead of anything we have. These countries now, Sweden, Norway, Denmark, Belgium, the Netherlands——
— and Austria — France is perhaps the exception, being outside the northern European band — have levels of sophisticated service. Even France at the moment, as the Minister will know, in terms of promoting balance in the demographic structure there, makes grants available for family units over two, three, four, five, and the mother of five children gets all kinds of passes and exemptions and so on. President Giscard D'Estaing introduced that a few years back to correct the trend in French society where the average family unit was going as low as 1.5 and they were concerned about the situation which would emerge in about ten years where the level of dependency of both the youth and the aged would be far too high to be sustained by the working population. The tax situation in France reflects that kind of social programme which we have not got. The level of the sophisticated service that the other countries have had for years would explain their level of taxation. Any of the other democratic countries of the 23 with which we try to compete are away below us.
The UK is at the same level.
It is below us and the Minister in his selective quotations from the UK bands insisted on keeping himself below the £15,400 because there is only one band between £1 and £15,400, and that is 30 per cent. Once you start to move above that the difference is all against us all the way.
That is irrelevant to the argument.
As the Minister indicated, the increase in the level of taxation from thereon is such as to be undoubtedly a disincentive element on activity, on employment and on our economy. Let me quote some figures to confirm what Deputy Brennan has said on this. Recent surveys indicate that if we are concerned to use tax having regard to the needs of the economy and the needs to generate activity in the economy — a tax system can do that as well as imposing a brake — the tax system here at the moment is a disincentive to employment. For every £100 that an employer invests in a worker it costs him £170 to discharge his bill. Each worker to whom he pays £100 costs the employer £170. Machinery for which he pays £100——
I hate to interrupt the Deputy. He quoted Deputy Brennan but I indicated that he had wandered away from amendment No. 17.
I am talking about the tax bands.
Confine yourself to the amendments.
Having regard to income tax, PRSI and levies, the tax situation here is such that for every £100 take-home pay of an employee an employer must provide at least £170. On the other hand, every £100 that he invests in a machine costs him £45. There we have the answer. There is an incentive to remove the worker. That is what our system is doing, and the disincentive applies particularly to the tax code, PRSI and the income levy. We can talk all we like about trying to generate employment and so on, but go out to the people who give employment and ask them if they will create more jobs and they will give you the answer fairly fast as to what it will cost them to do so while to get in another machine to do the same work will cost them a great deal less. That is what the tax bill is doing. In the last 12 months I have had communications from a number of accountancy firms — giving information which I did not seek — that for every £100 they pay to any of their employees they must make £200 before they begin to break even, and that even in the service sector of our economy. That is the kind of thing we have been underlining in here. That is why the tax bands are the disincentive we have pointed them out to be. In the last two years the Minister on his own responsibility has increased income tax from £1,459 million to £1,952 million or, in fair rounded figures, by 2 per cent of GDP which we should always include also. It is all very fine to say that we should know that it should be lower but the Government and the Minister here have done this and they have brought about a disincentive effect where employment, either the employee himself or the potential employer, is being penalised. For that reason we have introduced this proposal which, incidentally the Minister has costed at a figure of £73 million, which is in line with our own. That is gross; I know it is. If one allows for a buoyancy factor of approximately 35 to 40 per cent one is then talking about a net cost to the Exchequer of something less than £50 million. Apart from the figures, if the Minister were to give this concession the effect would be so dynamic that at the end of the day he would actually lose little or nothing. That is why I am asking the Minister to accept these amendments.