Amendments Nos. 22 and 23 are related.
Finance Bill, 1985: Committee Stage (Resumed).
Debate resumed on amendment No. 22:
In page 7, in the Table, Part I, Column (2), opposite "The next £2,800" to delete "48 per cent." and substitute "45 per cent.".
—(Deputy O'Kennedy.)
What we are seeking to do in these two amendments, Nos. 22 and 23, is to substitute a new rate of 45 per cent for the rate of 48 per cent proposed in the Finance Bill. Deputies are aware that the Finance Bill will now propose three rates for income tax: 35 per cent, which is the standard rate and which is on the first £4,500 of taxable income; 48 per cent, which will be applicable to the next £2,800 after the first £4,500; and a rate of 60 per cent, which will be applicable to the remainder of the income. In this current year the Minister proposes to have these three income rates — 35 per cent, 48 per cent and 60 per cent.
On this side of the House we are very conscious of the fact that to interfere at all with income tax rates is a very expensive matter. The smallest changes can be very expensive indeed. For instance, we would very much like to reduce that 35 per cent to 25 per cent. We are not, perhaps, terribly concerned with the 60 per cent, although I suppose ultimately everybody would like to see it coming down too. To change the 35 per cent would be enormously expensive. Perhaps the Minister would give us the figure of the cost that would be involved in reducing it from 35 per cent to 25 per cent.
At this stage I should remind the House that Fine Gael and the present Taoiseach fought an election on the basis of introducing a standard rate of 25 per cent. In one of their election campaigns in the past few years they solemnly promised that, if elected, they would make 25 per cent the standard rate. That is a Fine Gael promise which has gone the way of so many other Fine Gael election promises. Deputies will also recall that, in the general election campaign in the summer of 1981, Fine Gael also promised to give every housewife £9.60 into her hand as soon as they were elected to office. That promise was also forgotten as soon as they got into office. That is the history of at least two specific electoral promises on taxation by Fine Gael. I suppose there is not much point in talking about them now.
It is in that context that we want to propose this reduction in the middle band, as it were, from 48 per cent to 45 per cent. A party with such a history of promises about taxation should be very responsive to this proposal on our part. This 48 per cent from the point of view of the majority of taxpayers is a very aggravating figure. For the PAYE sector it is a rate which is very penal indeed. We would like to reduce it to 35 per cent or 40 per cent, but we are very conscious of the state of the Exchequer and the enormous borrowing which the Minister for Finance has undertaken this year and last year in order to balance the national accounts. We are very conscious of the fact that this Minister for Finance has borrowed more at home and abroad, relatively speaking, than any of his predecessors. In fact, if he were to last his full term in office and keep on at the rate he is going, he would have borrowed more than all his predecessors put together.
We are conscious of that background to this Finance Bill. Therefore, we do not want to put forward proposals which would have very serious repercussions on the Exchequer position, much as we would like to. It would be very attractive to us to be able to put forward proposals which would reduce considerably the burden on the PAYE sector. That is what Fine Gael did time and time again in this House when they were in Opposition. We are a bit more responsible than that.
We decided on this aspect of the Finance Bill to confine ourselves to a very restricted, limited proposal and within this pretty key central range to ask the Minister to reduce the rate from 48 per cent to 45 per cent. Our information is that that reduction would cost the Exchequer £18 million this year in tax. I do not think that is a figure which the Minister need shy away from. Some of the things he is proposing this year are costing a great deal more than that. This is one reform, one amendment to what the Minister proposes which would be infinitely preferable to some of the other things he is doing, and which he should substitute for some of the other things he is doing, if he cannot take aboard an extra £18 million of loss of revenue.
I have a feeling that, if he were to reduce this rate, it would very soon be self-financing. The Minister is aware, as everyone else is aware, of the fact that returns from income tax in the first quarter of the year were substantially down on estimates. The Exchequer returns which we have been getting do not show that there has been any great improvement in that position since. It is obvious that the rates which the Minister is implementing at present are having an unnaturally depressing effect on incomes. In a long, long time there has not been a falling off of the sort that is occurring this year in returns from income tax.
As far as we can interpret it on this side of the House, that falling off in income tax returns is not due, as the Minister would probably like to suggest, to some anomalies or some exceptional features. It is mirrored by a falling off in the returns from the 1 per cent income levy, which, incidently, we will be opposing later on. We will be opposing the maintenance this year of this 1 per cent income levy. The same reduction which is taking place in the returns from income tax is also evident in the returns from that employment levy. Therefore, it seems fairly clear that the outcome of this Government's general economic and financial policies is to depress the level of economic activity to the point where income are being seriously depressed. That is reflected in the returns both from income tax and from the employment levy at this stage in the year.
From the point of view of returns to the Exchequer, what we are proposing in regard to the 48 per cent band is not a black and white issue. The cost of our proposal is estimated at £18 million for this year but having regard to the fact that we are in a diminishing returns situation in so far as income tax is concerned, we need not necessarily accept that the cost of our amendment would be a full £18 million. My instinct tells me that the buoyant effect of a reduction in the rate, if that reduction were to be effected at this stage, would be considerable and that we could possibly anticipate it making up for a fair proportion of the £18 million which, on paper, our amendment would cost.
We are putting this proposal very specifically to the Minister. If any concession can be made, the place to make it is in regard to the 48 per cent band because the operation of that rate is pressing most heavily on the PAYE sector. It is resulting in practically no alleviation of the tax burden on this sector. The reduction to 45 per cent would be very welcome in so far as the hard pressed PAYE sector are concerned having regard to the point in the income structure at which the rate operates. In amendment No. 21 The Worker's Party propose that the 48 per cent rate be abolished and that a new rate of about 45 per cent be substituted. Therefore I presume that The Worker's Party will support us in this amendment. One would expect, too, that the Labour Party would be inclined to support our amendment purporting as they do to represent the working population, the trade union sector and those who are at present being particularly hit by the rates of PAYE. However, it would be too much to expect that the present Labour Party would show sufficient spunk to support an amendment of this kind, one which would be in alleviation of trade unionists generally.
What we are proposing could be done, perhaps more as a gesture than anything else. At a cost of £18 million it would not have any significant across-the-board impact but it would indicate to the PAYE sector that we on this side of the House recognise that the rates are too high, that they are oppressive and are beginning to give effect to diminishing returns. Our income tax rates are so high that they are counter productive. We on this side of the House have been advocating constantly the theory that if rates were reduced very quickly there would be an increase in returns to the Exchequer which would more than compensate for the immediate loss of revenue. Though I am not allowed to appeal to your good self while you are in the Chair—
I cannot be in two places at once.
I realise that but if you were sitting on the benches across the House at this time I would be appealing to you to support our amendment since you come here with the support of trade unionists and of the PAYE sector. Our amendment is not outrageous. It is a reasonable amendment. In the normal course of events it would not throw out of line completely the Minister's calculations. There are some other items in his general budgetary proposals that could be sacrificed in favour of this proposal. We are recommending our amendment very strongly to the Minister because we believe the reduction in the rate would have a very good impact on output and economic activity generally. It would provide an incentive to people throughout the economic process, an incentive that is very much lacking now. If we could effect this small amelioration of the PAYE sector, there would be an all round beneficial effect. The Minister should not regard the cost of £18 million fixed but even if it were to work out to that full extent it would be well worth-while in the present depressed circumstances of the economy and in the present state of national output. All we are proposing is that for the very important middle sector, the rate of 48 per cent is reduced to 45 per cent for this year.
I rise to indicate that the Government are not complying with Standing Orders in maintaining a quorum in the House.
Notice taken that 20 Members were not present; House counted and 20 Members being present.
The Minister for Finance, to respond.
At the beginning of his remarks, Deputy Haughey asked what the cost would be of reducing the standard rate from 35 per cent to 25 per cent. The full year cost is what is of most interest and in 1985 that would be £370 million which, as the Deputy says, is a not inconsiderable sum. On the question of the rate itself, there are a couple of points which I made last evening to Deputy O'Kennedy which seem to have escaped Deputy Haughey's notice as far as the cost of their proposal is concerned. The amendment before us at the moment would cost about £15.4 million in 1985 and just under £26 million for the full year. That is information which I gave last evening to Deputy O'Kennedy and not quite the figure about which Deputy Haughey was talking.
I do not know if the Leas-Cheann Comhairle will allow me latitude to go into some of the areas into which Deputy Haughey strayed in the course of his remarks.
Passing references, Minister.
They had to do with some matters which are not entirely germane to the amendment before us. As far as the first quarter figures are concerned, the Deputy has suggested that he draws an inference, from the first quarter figures, of revenue for the year being behind expectations. That is a matter on which we have touched in the House on several occasions since the figures were published. Again, as I said to Deputy O'Kennedy last night, I have no reason at this stage to be other than confident that the overall budgetary figures will be on target, so Deputy Haughey may be assured that that is the conclusion which I have drawn from an examination of the various factors which went into making up the first quarter figures as they turned out and were published.
The Minister has the April figures now.
We do not publish monthly figures.
But the Minister has them.
As I said two minutes ago and last night, I have no reason to be other than confident that we will keep to the budget targets for this year.
There was some discussion last night also as to whether the move of which this 48 per cent rate is a part, represents — as I would claim it does — considerable progress in the direction of tax reform and could be seen as a move in the direction pointed out by the Commission on Taxation. Deputy O'Kennedy did not seem to believe that, but I would point out that we now have a three-rate income tax system. This is the first time that we have had such a system, as opposed to one with a larger number of rates, since the unified tax structure was put together in 1975. There are very many arguments in favour of moving from the system as it was last year in the direction of a single rate of taxation although there are difficulties about doing it at this point. I shall not repeat all those arguments. It is obvious that if we want to move towards that kind of system, the initial part of the process must consist first of reducing the number of rates and then of widening the bands. That is what we are doing. It would be a little premature at this point to indicate just how quickly we will go along that path, but I certainly have the intention of moving in that direction and this year's move is a first step.
I also indicated last night the effects of these changes, including the 48 per cent rate and the marginal rates on which people will be paying tax during the course of this year. Again, I made the point that 25,600 people will move out of liability, 15,400 will move from tax liability into a situation in which they will benefit from marginal relief, 205,000 will move to lower marginal tax rates, 481,000 will remain liable at the same marginal rate as previously and 149,000 taxpayers will be taxed at higher marginal rates but, nevertheless, will have a lower tax bill than they would have without this change, owing to the fact that the allowances have been increased and bigger slices of their income have been taxed at lower rates than was the case up to now. When we take all these things together, it seems perfectly clear and true to say that this represents a substantial move in terms of reform of the system.
Deputy Haughey, in arguing for a 45 per cent tax rate, relies very heavily on the way that particular change would be perceived by taxpayers and I can agree entirely with him. There is no doubt that a 45 per cent rate, from the taxpayer's point of view, is preferable to a 48 per cent rate. I am not giving away any secrets or making any momentous declaration in saying that I also would like to have a 45 per cent instead of a 48 per cent tax rate. However, we must look at these things within the limits of the amount of financial elbow room we have for making changes in the system. As I pointed out last night, the changes proposed in the Bill, compared with the system as it was before, will cost the Exchequer just over £44 million in 1985 and over £90 million in a full year. Deputy Haughey is proposing now to add £15.5 million, roughly, to that in 1985. That kind of figure cannot be accommodated within the budgetary constraints which we have to observe this year and which Deputy Haughey and his colleagues have been very careful to outline in recent weeks. Curiously enough, they appear to have had a conversion on that matter.
The extra cost of the proposal could not be contained within the limits we have to work within this year. I say that with some regret because I can see, just as much as anybody else, that a 45 per cent rate would be less uncongenial than a 48 per cent rate. Having regard to the fact that the proposals in the Bill itself represent such a major improvement in the structure of the system and have the effects of reducing the marginal rate being paid by large numbers of taxpayers and of reducing the total tax bill for every taxpayer, it seems that what is in the Bill is drafted reasonably well within the framework of our budgetary constraints. As I said last evening, taking all that into consideration I regret to say that I cannot accept this amendment.
On the Sunday following the budget there was an article in the Sunday Press— I do not have the exact reference with me and, therefore, I cannot quote from it but I shall have it shortly and will be able to quote it under another section. In the article written by Brian O'Connor he assumed a 6 per cent rate of inflation for the tax year 1985-86. Assuming a 6 per cent rate, which the Minister admitted last night was his own assumption and that of his Department, Brian O'Connor pointed out that the result of the tax changes in the budget was that real purchasing power would fall.
I must confess I was somewhat surprised yesterday morning when I saw Deputy O'Kennedy's amendment. As Deputy Haughey has pointed out, it proposes an extremely moderate and small change. Our figures suggest it would cost £18 million and the Minister contends it would cost £26 million. However, whether it be £18 million or £26 million, in terms of the benefit that could be achieved the cost is relatively small, certainly in the context of the total amount of money being dealt with in the budget. I was surprised Deputy O'Kennedy's amendment was so mild and moderate. In fact, I told the Deputy I thought he was going to extremes of moderation in proposing simply that the 48 per cent rate of income tax be reduced to 45 per cent. If it is the Minister's intention to give consumers more purchasing power, to increase retail sales which have been depressed for the past five or six years and generally to boost the economy, then I am afraid the tax changes he has brought about will result in his being doomed to disappointment in that regard. A far more radical approach to the income tax system is needed to bring about that result.
The Minister has said he cannot accept the very moderate and mild amendment we have proposed because of financial constraints. Even though this does not answer the question, nevertheless I put it to the Minister that the budgetary and financial constraints under which the Government are labouring are largely of their own making. A reply to a written question tabled by a Fianna Fáil Deputy elicited the information that this Government have been borrowing an average of £9 million per day since they came to office. Against that background and against rising interest rates, it is little wonder the Minister feels compelled to come here and to talk about constraints. However, in order to get ourselves out of this situation of increasing taxation, increasing borrowing and further increasing taxation to pay the interest on the increased borrowing we need to break out of the vicious circle at some stage. While I am not suggesting that Deputy O'Kennedy's amendment would, in itself, take us out of that vicious circle, nevertheless it would be a beginning.
Deputy Haughey mentioned the psychological effect of the 48 per cent rate. Since the new tax-free allowance certificates were issued, many people who were previously in a marginal tax rate of 45 per cent, which means they got the allowance and were then taxed at 45 per cent on their taxable income, are now in the 48 per cent tax bracket. The psychological effect is quite considerable and this has been pointed out to me by people who have come to me in regard to the matter. I am not saying that all taxpayers who were previously in the 45 per cent rate are now in the 48 per cent rate but many are in that band.
The Minister mentioned we are moving in the direction of accepting the recommendations of the Commission on Taxation in that we have now three separate rates of income tax instead of four or five as was the case previously. We now have only three rates instead of five but I do not see that as having any intrinsic merit in itself. The Minister seems to assume that to arrive at the situation in respect of income tax as recommended by the commission we will gradually have to reduce the number of rates, that we cannot make the move at once, but I do not accept that for a moment. We are not talking here of the number of rates of tax but the size of those rates. If those rates are too high they will have profound economic implications. Members here who represent ordinary people are well aware of the effects. In order to make a start to get away from that situation we are proposing this very moderate amendment. It will not be very costly and it will remove the damaging psychological effect of the increase from 45 per cent to 48 per cent on the second band of taxpayers. In all fairness, the Minister should give serious consideration to the amendment.
It is now clearly understood that we have reached the point of diminishing returns with regard to income tax. According to my information, in the first four months revenue from income tax is not running as projected. There is much talk about people being better off under the changes proposed but that is not so. Let us take the case of a married couple, one of whom is working, earning £8,000 and having two children. An increase of 6 per cent will bring their income to £8,480. Under the Government proposals they will be £29 worse off. A person could not go very far on an income of £8,480 when he has to care for two children. In our amendment we are asking for a very modest concession, of reducing the 48 per cent band to 45 per cent. The Minister tells us it will cost approximately £15 million. I presume he has gone to the higher end of the bracket and I have some reservations with regard to that figure.
The Deputy's colleague claimed it would cost £18 million. He must also have gone to the higher end of the bracket.
We were going to the higher end of the bracket. The Minister has told us now it would cost £15 million. I am sure he has taken a very careful line and possibly he has over-estimated the figure slightly.
I am taking a careful line.
A single person earning £12,000 will be £80 worse off. Many PAYE people, lucky enough to have a job, are now complaining to Members here about the amount being deducted from them. In addition there is the income levy being deducted. We on this side of the House realise the difficult position in which the Minister for Finance and the Government have got themselves in regard to the finances of the country. Everybody is now aware that this Government, since assuming office in December 1983, have borrowed more money than any Government in the history of this State. I will give the House round figures per minute——
A passing reference only is permissible, Deputy.
I appreciate that the Minister, in order to keep the operations of his nation going, must now borrow at the rate of approximately £6,000 per minute. That emerged on a quick calculation from a reply he gave the House yesterday. Therefore we had to be very careful and responsible putting down our amendments. That was not the case when the party opposite sat on these benches when they put down some very irresponsible amendments. However, that is another day's work.
This involves a tiny amount only and, in order to create more purchasing power, I would ask the Minister to give our amendment sympathetic consideration. We should have liked to go much further but we realise that the Exchequer, in its present plight, does not allow much room to manoeuvre.
Deputies on the other side refer frequently to this concept of diminishing returns and most often misuse that concept. The situation in relation to income tax, in particular, is one to which that description cannot be applied. Had Deputy Connolly been listening to his colleague, Deputy O'Kennedy, last evening, he would have realised that Deputy O'Kennedy's contention is not that there is a situation of diminishing returns from income taxation but that we have a situation of increasing returns. I do not know what kinds of procedures they have within their party for getting their heads together——
One could kill the goose that lays the golden egg.
——but I suggest that they might give it a little thought so that there would be some consistent approach to the matter under discussion.
Deputy Connolly referred to the position of a married couple with two children and one spouse earning £8,000. From the tables we produced with the budget speech it will be seen that a married couple with two children, earning a constant £8,000 this year, will pay £70 less in taxation this year under the system proposed in the Bill than they would have had we made no changes. Of course one can elaborate on the argument and examine the other factors that enter into it. If one examines their position, comparing the pre-budget and post-budget positions, taking account of income tax, PRSI and the social welfare child allowance, one will find that the increase in disposable income is a little greater than the reduction in taxation. Then we come to the nub of the problem. Quite a number of people will actually have larger tax bills this year than last year because they have an increase in income. If one indexes the rate bands and allowances in order to keep the real burden of taxation roughly static, and the taxpayer has an increase in total income of approximately the same amount as the rate of inflation, then a couple of things happen. The taxpayer has a higher tax bill, total tax revenue increases — if we assume that we are talking about 6 per cent indexation — the taxpayers' bill goes up by approximately 6 per cent, total tax revenue goes up by approximately 6 per cent and after tax income also goes up by about 6 per cent. What we provided for in the changes we made this year is the equivalent of a bit more than the indexation, as I pointed out on budget day. Therefore the taxpayer stands to gain a little extra over and above what he would have gained from indexation from the changes we have made here.
Deputy O'Kennedy spent a lot of time yesterday claiming that, because he had discerned that there is an increase of just over 8 per cent in the total forecast of tax revenue for this year, that meant that we are taking that much more from each taxpayer, that we are taking a bigger bite out of each taxpayer. As I have said to Deputy O'Kennedy on a number of occasions, and to some of his colleagues, that totally ignores the fact that the total base of taxation is increasing. If incomes increase by approximately the rate of inflation, and one indexes the tax system, total tax revenue goes up by 6 per cent. We have done a bit more than indexation so that, on that basis, tax revenue would go up by somewhat less than 8 per cent but there will be more income in the system, subject to taxation, and that gives us the difference between a little less than 6 per cent and the increase in revenue of over 8 per cent which Deputy O'Kennedy rightly pointed out is included in the forecast for this year.
Deputy O'Kennedy and his colleagues cannot have it both ways, claiming on the one hand that I am taking a bigger bite out of people's incomes and, on the other, that when they look at the first quarterly returns, I am not going to get all that tax. The two things do not hang together. I appreciate that each one may provide the pretext for an argument of circumstance, depending on which point one is making, but to use the two and at the same time to make the same case does not seem to me to be all that sensible.
Having said all that I go back to where I started. I would agree with Deputies opposite, and I know that all of my colleagues on this side of the House would agree, that it would be desirable to get that rate down to 45 per cent instead of 48 per cent. But, given the effects of the very substantial changes we are making in the system — which represent very real progress this year — given the overall budgetary constraints, within those limits, what is proposed in the Bill seems to me to be the best use of the available resources that can be put together.
I too have sympathy with members of the PAYE-paying public who continuously carry this high burden of income tax. There are areas within the system which give rise to difficulties. In this amendment Deputies opposite seek to maintain a figure of 45 per cent. Certainly there is a case to be made for that. As the Minister has already pointed out, he is rationalising the rates under the provisions of this Bill.
I should like to ask the Minister what preparations have been made for an overall check on the PAYE certificates that are issued. The letters applied in the computer system are sometimes in error and PAYE taxpayers find at the end of the year that they have been undercharged or overcharged for tax depending on whether or not they got the correct letter on the PAYE cert issued by the Revenue Commissioners. In some companies employees have presented tax certs and have been charged——
In referring to tax certs is the Deputy referring to a particular percentage, because that is what we are dealing with in this section?
The 48 per cent is a particular number and because it is a new number will the Minister say what precaution has been taken to ensure that this new number is applied correctly in the issue of new tax certificates from the Revenue Commissioners for 1985-86?
As Deputy Carey said, it appears that the tax certs relating to the S bracket seem to be incorrect. The Minister said that people, particularly those in the £8,000 bracket, are better off. The facts do not bear that out. I am sure that is a problem that can be sorted out. A significant number of people are taxed at 48 per cent, especially people who are lucky enough to get overtime. People on a certain income are discouraged from working harder by this tax disincentive. This does not benefit the economy. The Minister gave the impression that, due to the changes in the taxation system, the vast majority of taxpayers would benefit. On the assumption the Minister made that there would be a 6 per cent increase in wages this year, I came to the conclusion that people generally will pay more tax and that only about 5 per cent or 6 per cent of taxpayers would benefit from the changes. If the tax rate were changed from 48 per cent to 45 per cent it would give benefit to a greater number of people and the benefit to the economy would be greater. The Minister has given the impression that everybody will benefit from the changes in the tax bands. He said that the system was simpler, but a simpler system does not necessarily mean it is a fairer system. Will the Minister implement Deputy O'Kennedy's amendment, which is not excessive and which would result in benefit for the country?
Deputy Carey referred to a series of cases where it appears that the code number at the end of the RSI No. inserted on a tax free allowance form was incorrect. Some appear to have been incorrect last year and that is creating problems for taxpayers in the calculation of their tax free allowances for this year. These are specific cases which are best dealt with on a case by case basis. However, the tax table designation for any given taxpayer and the insertion of table allowances are being done on the basis of a computer programme and also on the basis of estimated income for 1985-86. That is the normal procedure. The intention as far as is possible is to make sure that there is an even deduction of tax throughout the year. It is not always possible because if there is difference between the estimated income and the actual income as it goes through the year the one gets out of line with the other and that can in some cases present difficulties.
As far as Deputy Ahern's remarks are concerned, all I can say is that Deputy Ahern cannot convince me and would find it hard to convince himself that the situation is other than I have set out. This year every single taxpayer will pay less tax under our new system than he would have paid had we not changed the system. There is no escaping that fact and there is no denying it. There is no point in trying to deny it because it would be totally at variance with what we have done. The effect of the changes is that every taxpayer will have his tax liability reduced below what it would have been otherwise. I have no doubt that there are numbers of taxpayers who will find that their tax bill this year will be greater than it was last year. That is the inevitable result of the fact that in most cases there will be an increase in income. How that impacts on taxation depends on the circumstances of the taxpayer. These taxpayers, the same as any others, will be paying less tax under the restructured system than they would have paid if we did not restructure the system.
I do not agree with some of the Minister's figures. Married people at the middle and upper end of the tax scale will pay £1 or £2 a week more on average. We can bandy figures around here but everybody knows that PAYE taxpayers will pay more. The Minister is talking about a tiny minority outside of the tax bands, but the middle income people will pay more. All the people are saying it. The Minister cannot beat the public. The public are a great judge of everything. They are very intelligent and they will get an opportunity to show that in the near future.
Is that on the section?
No, but we will refer to the section, of course. It all combines. Take a man who was earning £8,000 on 1 January, married with two children. He got a 6 per cent increase. I may have confused the Minister somewhat on this with the figures. I am allowing that a 6 per cent increase on £8,000 gives him £480 more, so that brings him to £8,480. I am only going on the standard, I am not taking in mortgage or anything like that, I am taking the standard allowances, levies and so on. He will be £29 worse off. That is my reading of the situation. Take the middle and upper income groups. I will deal with the middle income group who are the very poor in our society now because they are the targets who have to carry everything. This is a very modest amendment we have put down. The people outside are saying that half of their money is going in tax, 48 per cent at any rate. If you want to get into the mathematics you can say that it is 2 per cent short of 50 per cent. While the introduction of the three bands is welcome, the people are considering what these bands are. They are still extremely high and we accept that because the state of the revenue and the Minister's Department with a borrowing capacity of £6,000 a minute put the Government completely off target in their finances after they came into office. We all know that before they came into office one of their planks in the election had been the basis of taxation. We have seen no new relief on that, so we are back to where we were. That promise, like the promise of the £9.60 per week to every housewife——
Maybe you will promise to stay on the section.
Yes, but it is all around that.
Stay with the section.
I am hoping to do so. In this country the middle income groups are the poorest. They are carrying everything. They are carrying the country on their backs, and how long they will be able to carry it I do not know. With a borrowing rate of £6,000 a minute, I leave it to the Minister because, with all due respect, he was preaching financial rectitude and saying that the Government would have everything in apple-pie order in three or four years, but they abandoned all that, threw it out the window and said that it was not on.
Are you abandoning the section?
I am not abandoning it. We are dealing with the finances and the intake in PAYE.
Stay on the centre, please.
On the centre of the issue, we are asking for a small concession of £15 million which will give some additional relief to the middle income group and will create more spending power also. On the roundabout you may be able to pick up the additional revenue with more purchasing power on other commodities. I am asking the Minister once again to accommodate us in that.
I do not understand the Minister's response to the case put forward by Deputy Connolly. Deputy Connolly's point is that even if we agree that a person's after tax income will rise, which the Minister is saying, nevertheless the fall in the value of his after tax income due to inflation will be insufficient to compensate to keep it even at its present level.
That is the kernel.
Deputy O'Dea is mixing up a few things and not taking enough account of the factors I mentioned. I said that if a person's income increases in line with the rate of inflation and if at the same time you index tax bands and allowances, not only do you index a person's income and his tax bill but you also index his after tax income. In that situation you get an increase by the amount of the index increase in tax revenue and you get an increase by the same percentage in after tax income. You can see it by using the very simplest rule of thumb. It follows automatically that if everything is being indexed every single component is being indexed.
Does it work out?
The question then arises which I think Deputy Ahern is coming to, whether everybody is getting indexation of wages. The total base for income tax would increase by more this year than the rate of inflation, so that on the whole people are getting increases in money incomes that go beyond this.
Therefore you can afford to reduce from 48 per cent to 45 per cent.
No, because the tax revenue I have forecast and which is included in the budget already takes account of the effects of the tax expenditures that we provided for in the Bill, so that the £15.4 million cost of the amendment that the Deputies are putting forward would be extra. It would be a further reduction in tax revenue below what is provided for in the budget. Deputy Connolly referred to the case of the married——
Does the Minister estimate the wage increase to be 6 per cent? If the wage increases are to be more than 6 per cent and he is going to take in extra revenue he can afford to give that extra by reducing the 48 per cent to 45 per cent.
The Deputy just did not bother to listen. I have already taken account of that in the figures. The forecast for tax revenue already includes the effects of what the Deputy is talking about, so that the amendment the Deputy is talking about already takes a view of what the change in incomes is going to be. The amendment being proposed by the Deputies would be a net reduction in tax revenue below the figure we have forecast.
Deputy Connolly talked about the £8,000 income earner with spouse working and two children. I cannot see the relevance of that case to the amendment we are talking about because that person stays in the 35 per cent tax rate anyway.
But we must allow for a 6 per cent increase plus the inflation. The Minister did not follow me.
That is not what the Deputy was saying.
That is what I pointed out.
I have had the calculation checked again. That taxpayer who gets an increase of 6 per cent this year to bring it to £8,480 still stays in the 35 per cent bracket. He is not affected by the 48 per cent rate. His increase in gross income is £480; his increase in income after tax is £382. Had we not changed the system his after tax increase in income would have been £312. Therefore he has gained £70 out of the transaction by comparison with what would have been the case had we not made the change. The other point I made is that there is an increase of £382 after tax out of his increase of £480.
The Minister may use a rule of thumb but the people use the rule of the wage packet. That is not coming across. This is a very modest amendment. It was difficult for the Minister to calculate early in the year what the wage increases would be because the Minister for the Public Service agreed to a 6 per cent increase. Some semi-State bodies got 8½ per cent increases which will mean more tax for the Minister and many private industries have reached agreement on pay increases way above 6 per cent. This too will mean extra tax for the Minister. I accept the reason for the early agreements in the public sector pay negotiations, but you are sticking to a hard line. If I am not reading the situation correctly, and most financial commentators agreed you were digging your heels in as far as a 6 per cent increase was concerned——
You should speak through the Chair. Please address the Minister in the third person.
I am doing that. We are talking about a buoyancy in revenue to make up this £15 million. My interpretation of the Government's announcements —— very crude announcements — in regard to pay was that first they agreed to 3 per cent, then 5 per cent and finally 6 per cent but now some semi-State companies have agreed to settlements of 8½ per cent. I maintain that this figure, which is above the Minister's projected increase, will yield extra tax for the Exchequer. I am not sure if the Minister was aware that these higher increases were being agreed; perhaps he told the semi-State companies in private that they could grant these increases if it appeared that the employees were taking to the road. Only the Minister and the Government can say if that is so. As far as I can see the Minister now has room to manoeuvre and many commentators and financial correspondents agree with me. We have given this matter very serious consideration and ask the Minister to accept this amendment.
This has been a very long debate. May I put the amendment?
I do not wish to be awkward because this is a very important amendment which you will agree——
I do not have the right to put the question, I am only suggesting it.
I accept it was only a suggestion but in view of these higher increases——
Unemployment has increased so much that the Minister——
I do not want to get into that area because the Ceann Comhairle could rule me out of order, but I will deal with that later. Unemployment may be the underlying cause and if it is maybe the Minister would let me know. I know the Government have under-projected the unemployment figure but I will not get into that subject at this time. I will deal with it later. When the Finance Bill was prepared many of these pay increases were not confirmed. The Minister must have some leeway since some of the semi-State and private organisations gave increases from 8½ per cent to 10 per cent.
Sometimes Fianna Fáil Deputies tell me I am not going to get the tax revenue I project for the year, and sometimes they say I will get more than I projected. If they could make up their minds what they want to believe, we could have a discussion about it, but since they cannot make up their minds, this is a factor I will leave out of my considerations at the moment. I was unable to resist the opportunity to say that.
If it is any consolation to Deputy Connolly I thought very carefully about the 48 per cent rate and I can assure Deputies that the 45 per cent rate was very much a part of my consideration of the matter. Before we drew up the budget the Government and I came to the conclusion that the rate would be 48 per cent which represents substantial progress in the structure of the system. I have found no sufficient reason to depart from that, particularly given all the factors I mentioned in my four interventions in this debate so far.
I support the case so eloquently made by Deputy Connolly. Perhaps the reason why we are finding it so difficult to make up our minds is that the Minister tends to confuse us because we have to follow him down various roads. One minute he is saying one thing and the next minute he is saying something else. We are only the Opposition but the Minister has the whole Civil Service to draw from. We are doing our best.
You do not want to believe the answer.
We do not know where you are going.
Deputies should address the Chair and should not address other Members across the House.
It has been a very orderly debate.
Is the Minister saying that if we project an increase in wages of 6 per cent over the 12 months covered by the Finance Bill, then to accept our amendment would involve a net cost to the Exchequer of £26 million?
The figure is £15.4 million in 1985 and just under £26 million in a full year.
Could the Minister ascertain the level of wage increase at which buoyancy would be sufficient to accept our amendment at no net cost to the Exchequer?
That would be a highly speculative exercise which would not serve any useful purpose. Deputies opposite have been seduced for some time past by the notion that there exists an animal called the "self-financing tax cut". Deputy Haughey referred to it earlier. He seems to believe it would produce such a rapid reaction that we would more than make up the revenue difference in one year. I do not accept that and I would not see any point in going down the hypothetical by-road mentioned by the Deputy.
(Interruptions.)
Deputies may well ask about spirits and I will be happy to tell them what I have already told the House on several occasions. I reckon that the change in spirits duty reduced excise revenue by about £9 million for the short part of last year for which it was in force. I expect that we may by the end of this year get back to a position where revenue will be restored. It might take a little longer. That is the best example, the nearest thing to the kind of creature Deputies opposite keep chasing. It takes time. In that case I think it will take a bit more than a year and in all the other cases where the elasticities are totally different and much less favourable it would take considerably longer.
I must once again point out that the Government are in breach of Standing Orders and call for a quorum.
Notice taken that 20 Members were not present; House counted and 20 Members being present,
I wish to refer to the Public Service pay award of 6 per cent earlier in the year. There has been a lead off of 8.5 per cent recently. I do not begrudge it because those people work hard for their living. There will now be other pay settlements in the public sector following this lead off — when one gets it the others follow. There is every reason to believe that the increase in the public sector will be in excess of 6.2 per cent. However, taking a figure of 6.2 per cent across the board, would it be true to say that our amendment would not cost anything at all?
I do not think it would serve any useful purpose to estimate either what the total wage increase would have to be or the total in the public sector in order to produce £15.4 million extra revenue to compensate for the cost of this amendment.
The Minister's back-up service should be able to provide computerisation in this regard. I am talking about a mere 6.2 per cent which would bring the base down to 45 per cent. I am sure Members would approve of this because it would create more purchasing power. This affects everybody who is lucky enough to have a job. Deputy O'Dea and Deputy Ahern dealt with this in a most constructive way and pointed out that if it was a 6.2 per cent wage increase across the board it would cost the Exchequer nothing. Some people think that the wage increase will be substantially more than 6.2 per cent and, if that is the case, not alone will it cost £15 million but the Minister will take in even more on the figures he projected. Perhaps the Minister would clarify this point.
As I said before, it is a hypothetical question. In addition, doing that kind of calculation in public would not be particularly helpful for the course of public expenditure or industrial relations. However, we built into the budget figures the expected cost this year of the changes made in relation to public service pay on the expenditure side. As Deputy Ahern said, we included a sum of £50 million for revenue buoyancy which, among other things, took account of the effects on revenue of the changes made on budget day, including public sector pay. All that is already taken into account in the revenue and expenditure projections on which we are working and against which we are measuring the course of revenue and expenditure, quarter by quarter, as the year goes on. Therefore, the amendment proposed by the Deputies would reduce tax revenue below a figure which already takes account of the factors that were known when we put the budget projections together.
If the Deputy were to ask what other trends in the economy would be required to produce an extra £15.4 million, I could not answer because there are a whole series of things which might produce that. However, having looked at the first quarter's returns and at the trends in a number of factors, I have come to the conclusion that, broadly speaking, we will be on target as far as the budget figures are concerned for this year. The amendment the Deputies are proposing would reduce tax revenue by £15.4 million below a kind of point that we need to reach in order to keep the budget figures on target.
I think there is some confusion in the Minister's mind——
None at all.
His reference to our attitude on public service pay implies that we are in favour of very high wage increases in the public sector but nothing could be further from the truth. Indeed, I do not know why he mentioned it as we only wish to take account of reality. Labour is one of the primary factors of production and its cost must affect the competitiveness of the goods and services produced here. For that reason, the cost of labour should be kept as low as possible, particularly in the present economic circumstances. Deputy Connolly pointed out that some workers received an increase of 8½ per cent and that negotiations are starting in many other cases. However, the Minister is sticking rigidly to a projected wage increase figure of 6 per cent although there is more than an even chance that it will be more than that figure. If it went as high as even 6.2 per cent, our amendment would, in effect, cost nothing and we could gain from it in terms of the psychological impact of a reduction in the 48 per cent rate to 45 per cent and also in terms of the other beneficial factors which Deputy Haughey outlined at great length this afternoon.
In the budget the Minister allowed for a wage increase of a certain limit but that has now gone by the board. We have always agreed with arbitration and we have been very responsible in that regard. However, recent increases had to have the approval of the Government and the Minister. Bord na Móna workers are the hardest working semi-State employees in the country and they received an increase of 8½ per cent as recommended by the Labour Court. We fully accept that they were entitled to that but the award exceeded the guidelines laid down by the Government. I am sure the Minister will correct me if I am wrong but my information is that the Minister for Energy gave the go ahead for this award by telephone. When you open the gate a lot more follows. That is what I call the base rate. Many more are under negotiation.
Who opened the gate in the Kildare by-election?
It is a bit heavy for the Deputy. The Deputy would not understand this. He should not get involved in this because he could get badly bogged down.
The Deputy's party started it.
In this complex financial area we still believe, as Deputy O'Dea rightly pointed out, that an increase of 6.2 per cent across the board would not cost the Exchequer anything. It would balance out, given the projected figures. The PAYE sector could be given a boost. I spoke earlier about the middle income group who are carrying many burdens and are now known as the new poor. I believe the wage increase will be more than 6.2 per cent but if it is 6.2 per cent it is true that it will not cost the Exchequer anything.
There is a lot of repetition.
There is not.
It is the same point over and over again.
Put the question.
The Minister has spoken about £50 million buoyancy built into the budget. He has admitted now that it was to be made up from the excess over the 6 per cent of a wage increase. At the time of the budget the £50 million was to come from the extra people who would be employed.
That is not what I said.
We have heard different stories between January and now and we must look at the credibility of the Government.
Deputies opposite are suffering either from desperation or reticence but I think I know the reason. Deputy Ahern was either not listening to the debate or did not pay any attention to what I said on 30 January or today about revenue buoyancy. None of the stories the Deputy has told us about revenue buoyancy has any bearing on anything I said either today or on 30 January. It is a sad spectacle to see three respected and able Members of the Opposition scraping around the bottom of the barrel for an argument like that.
Go back to the facts.
We will not get anything now. You are being offensive.
The Deputy should not refer to another Deputy as "you".
What were we referred to as?
(Interruptions.)
I have said there is no way a reduction of £15.4 million in revenue flowing from the Opposition's amendment could be made up in the course of this year. The Deputies are endeavouring to suggest there might be some prospect that the result in terms of pay increases in the economy this year would be that extra revenue would be generated to the tune of £15 million. I do not see that prospect.
It is only simple arithmetic.
The Deputies opposite only like to see one side of the simple arithmetic. There are two other things to be remembered. If wage rates in either the public or private sector increase by more than they think they will, that could bring about some costs on the expenditure side. There is not an unambiguous gain in terms of tax revenue and balance in the Exchequer.
Deputies referred to some specific wage changes. There are other areas where wage changes are less than the ones they spoke about. The effect this year of the public service 6 per cent is not a net 6 per cent increase in the level this year over last year. This year it turns into 4½ per cent looking at the extra effect through the year. If the Deputies are relying on factors like that to find a reason for claiming that this amendment would produce a self-financing tax cut they are on very shaky ground. There is no foundation for it.
The broad estimate I have given of the extra cost of their amendment this year is one which has been reliably calculated taking account of all factors. There are good reasons for putting this amendment down but the question is: can we afford it within the parameters of the budget this year? My answer is "no".
I am glad we got some information from the Minister. I know what the Minister means now. With total revenue and the projections for unemployment being higher, I can see the Minister is not in a position to do it because the finances are off target.
Question put: "That the words and figures proposed to be deleted stand part of the Bill."
The Committee divided: Tá, 70; Níl, 63.
Tá
- Allen, Bernard.
- Barnes, Monica.
- Barrett, Seán.
- Barry, Peter.
- Begley, Michael.
- Bell, Michael.
- Collins, Edward.
- Conlon, John F.
- Connaughton, Paul.
- Coogan, Fintan.
- Cooney, Patrick Mark.
- Cosgrave, Michael Joe.
- Coveney, Hugh.
- Creed, Donal.
- Crotty, Kieran.
- Crowley, Frank.
- D'Arcy, Michael.
- Deasy, Martin Austin.
- Desmond, Barry.
- Desmond, Eileen.
- Donnellan, John.
- Dowling, Dick.
- Doyle, Avril.
- Doyle, Joe.
- Dukes, Alan.
- Durkan, Bernard J.
- Farrelly, John V.
- Fennell, Nuala.
- Flaherty, Mary.
- Flanagan, Oliver J.
- Glenn, Alice.
- Griffin, Brendan.
- Harte, Patrick D.
- Kavanagh, Liam.
- Keating, Michael.
- Kelly, John.
- Kenny, Enda.
- Bermingham, Joe.
- Birmingham, George Martin.
- Bruton, John.
- Bruton, Richard.
- Carey, Donal.
- Cluskey, Frank.
- L'Estrange, Gerry.
- McGahon, Brendan.
- McGinley, Dinny.
- McLoughlin, Frank.
- Manning, Maurice.
- Mitchell, Gay.
- Mitchell, Jim.
- Moynihan, Michael.
- Naughten, Liam.
- Nealon, Ted.
- Noonan, Michael.
- (Limerick East)
- O'Brien, Willie.
- O'Sullivan, Toddy.
- O'Toole, Paddy.
- Owen, Nora.
- Pattison, Séamus.
- Prendergast, Frank.
- Quinn, Ruairí.
- Ryan, John.
- Shatter, Alan.
- Sheehan, Patrick Joseph.
- Skelly, Liam.
- Spring, Dick.
- Taylor, Mervyn.
- Taylor-Quinn, Madeline.
- Timmins, Godfrey.
- Yates, Ivan.
Níl
- Ahern, Bertie.
- Ahern, Michael.
- Andrews, David.
- Aylward, Liam.
- Barrett, Michael.
- Brady, Vincent.
- Brennan, Mattie.
- Brennan, Paudge.
- Briscoe, Ben.
- Browne, John.
- Burke, Raphael P.
- Byrne, Hugh.
- Byrne, Seán.
- Calleary, Seán.
- Conaghan, Hugh.
- Connolly, Ger.
- Coughlan, Cathal Seán.
- Cowen, Brian.
- Daly, Brendan.
- De Rossa, Proinsias.
- Doherty, Seán.
- Fahey, Francis.
- Fahey, Jackie.
- Faulkner, Pádraig.
- Fitzgerald, Liam Joseph.
- Flynn, Pádraig.
- Foley, Denis.
- Gallagher, Denis.
- Gallagher, Pat Cope.
- Geoghegan-Quinn, Máire.
- Harney, Mary.
- Hilliard, Colm.
- Hyland, Liam.
- Kirk, Séamus.
- Kitt, Michael.
- Leonard, Jimmy.
- Leonard, Tom.
- Leyden, Terry.
- Lyons, Denis.
- McCarthy, Seán.
- McCreevy, Charlie.
- McEllistrim, Tom.
- MacGiolla, Tomás.
- Molloy, Robert.
- Morley, P. J.
- Moynihan, Donal.
- Nolan, M. J.
- Noonan, Michael J.
- (Limerick West)
- O'Connell, John.
- O'Dea, William.
- O'Keeffe, Edmond.
- O'Leary, John.
- Ormonde, Donal.
- O'Rourke, Mary.
- Power, Paddy.
- Reynolds, Albert.
- Treacy, Noel.
- Tunney, Jim.
- Wallace, Dan.
- Walsh, Joe.
- Walsh, Seán.
- Wilson, John P.
- Wyse, Pearse.
Tellers: Tá, Deputies Barrett(Dún Laoghaire) and Taylor; Níl, Deputies V. Brady and Barrett (Dublin North-West).
Question declared carried.
Amendment declared lost.
I move amendment No. 23:
In page 7, in the Table, Part II, column (2), opposite "The next £5,600" to delete "48 per cent." and substitute "45 per cent.".
Question: "That the words proposed to be deleted stand", put and declared carried.
Amendment declared lost.
I move amendment No. 24:
In page 7, after Part II of the Table to insert the following:
"Notwithstanding anything contained in the Tax Acts, Part 2 of the Table to Section 8, of the Finance Act, 1980 (inserted by this section) shall apply to persons with dependants who are widows, widowers or single parents.".
This proposal has become rather a hardy annual. The amendment seeks to have applied the double tax band to widows, widowers and single parents with dependants.
Silence, please.
Perhaps by calling a quorum, we will put manners on those who are creating the noise. The reasoning behind the amendment is that it is no less costly for widows or single parents with children to live than it is for two-parent families. All must meet mortgage repayments and pay the same prices for food and clothes for themselves and their children. The same applies to school fees.
It can be argued that there are very many extra expenses involved for the single parent family because a parent in such circumstances who is working may very often have to engage a housekeeper or someone to clean the house or may have to make special arrangements for children to be taken to school. Therefore, in many cases it is more expensive for the single parent family to survive.
In previous years the Minister, as was the case also with his predecessor, argued that there was a constitutional obstacle to providing for these double bands for this category of taxpayer. During last year's debate on a similar amendment, Deputy O'Kennedy as spokesman for the main Opposition pointed out that in his view the interpretation that the proposal would be unconstitutional was incorrect. I quote from column 196 of the Official Report for 3 May 1984. Deputy O'Kennedy said:
...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.
Deputy O'Kennedy was giving his interpretation of the Murphy case. He is a lawyer and I am not, so I cannot say if his interpretation is correct but I would assume that at least the Minister will have checked out that statement of the Deputy's and will be able to indicate whether previous interpretations of the Murphy case in terms of blocking this proposal are correct.
I would draw the Minister's attention also to section 4 of this year's Bill and my reason for doing so is that last year in his opposition to an amendment similar to the one before us, the Minister implied that if he were to provide for double tax bands, his action could be construed by the courts as being in some way inimical to family life. The reference is to providing additional allowances for widows and others in respect of children. Section 4(2) of the current Finance Act says: these special allowances which are being allocated to widows and others will only be paid "provided that this section shall not apply for any year of assessment in the case of a husband or wife where the wife is living with her husband and in the case of a man and woman who are living together as man and wife".
Surely the Minister cannot argue that providing double tax bands to widows, widowers and single parents is inimical to the Constitution and the keeping together of families if, on the other hand, he is providing in this year's Finance Bill that special allowances will be paid to widows or widowers providing they are living alone, provided husband and wife are not living together or a man and woman are not living together as man and wife? There is a contradiction here and I am anxious to hear the Minister's explanation of how that section—and presumably he must have checked it with his legal advisers—is in order and not contrary to the Constitution or inimical to the family, if the amendment we are proposing is out of order as far as he is concerned.
As I said previously, it may very well be that the wording of our amendment is not perfect. However, if the Minister were to concede that there is justice in argument, then it is up to him to come forward with wording which would have the same effect and would alleviate considerable hardship on widows, widowers and single parents who are working and paying tax.
On a point of information, are we taking amendments Nos. 24 and 25 together?
No, amendment No. 24 on its own.
Is amendment No. 25 ruled out of order?
It is ruled out of order.
The amendment before us proposes to extend the double rate bands which are applicable to married persons to single and widowed parents. One of the consequences of doing this would be that married couples with children, where each spouse had an income, would find it vastly more to their advantage to be assessed for tax as single persons under section 193 of the Income Tax Act of 1967 than to be assessed in any other way. If each spouse accepted responsibility for one or more of the children they would then obtain the benefit of two sets of increased rate bands compared with a married couple who would have either one source of income or who are jointly charged for tax in respect of joint incomes under section 194 of the Act.
If the wording of the amendment were altered in order to prevent married couples from claiming two sets of increased rate bands, that measure could be regarded as being repugnant to the Constitution on the grounds that it was inimical to the institution of marriage following on the court decision in the Murphy case. For example, where a widow and a widower, both with children, wished to marry, with that proposed change they would be discouraged from doing so by the fact that as a married couple they would be entitled to only one set of double rate bands or two sets of single rate bands as single persons.
Under that amendment a man and woman living together who have care of children would be accorded two sets of increased rate bands rather than two sets of single bands. Quite apart from the constitutional implications, it would clearly give rise, as I said during the course of the debate last year, to a link problem situation which under the wording of the amendment would be absolutely impossible to stop. The amendment is technically defective in that it proposes to alter section 8 of the Finance Act, 1980, which has been overtaken by section 2 of the Finance Act of 1984. That is a minor and technical matter. The fundamental aspects are those which I have outlined.
For those reasons, I shall not accept the amendment. I fully appreciate that in many cases there is a problem. Deputy De Rossa in this case is choosing the wrong way to go about dealing with that problem.
Very briefly, while I understand the points the Minister has made, perhaps we would be more inclined to support this amendment if Deputy De Rossa were to confine it to widows and widowers rather than bringing in single parents. From my own recollection and interpretation of the Murphy case, the Minister could bring in legislation to prevent some of the anomalies he mentioned in relation to widows and widowers. However, it would constitutionally be very difficult for him to do so in relation to single parents. Perhaps Deputy De Rossa would give further thought to bringing in an amendment, perhaps on Report Stage, and confining this to people whose spouses are deceased.
As I have already indicated, the purpose of our amendment is to achieve some relief for persons who have care of children on their own, whether it be a man or woman, whether their children be the result of a marriage or whether they be unmarried. I have no allegiance to the wording of this amendment. I am not a lawyer or a parliamentary draftsman. I am in the hands of the Minister as far as going about it the right way is concerned, since he indicates that we are perhaps going about it in the wrong way. Could he indicate what he considers to be the right way of going about it and when to adopt those means to achieve the relief about which I am speaking?
I am not keen on leaving out single parents—the unmarried parents, if you like—who have children. These people have the same problems in relation to the rearing of their families as have married couples. Indeed, in many circumstances they have more expenses because of their circumstances.
The Minister and Deputy O'Dea referred to the Murphy case and the constitutional difficulties which arise. As I understand it, the Murphy case referred to married couples who were working and being paid for work outside the home and who were being discriminated against because only one of them was entitled to qualify for allowances. The decision of the case in the High Court was that they were both entitled to single allowances.
The people about whom we are talking here are single people, either as a result of a death of a spouse or of never having married. Perhaps in my ignorance of the law, I cannot see how giving double tax bands to people who effectively are not married can be inimical to family life. It is also difficult to see why it is not possible for the Department of Finance to devise a means whereby the abuses to which the Minister referred—in other words, widows and widowers wishing to marry and claiming four times the bands— would arise. There are likely to be abuses of any system which is brought in. All Government Departments are adept at rules and regulations to exclude this, that and the other abuse. I cannot see why it is beyond the competence of the Minister and his Department to devise a system to achieve the effect we are looking for in our amendment. The Minister has indicated we may be choosing the wrong way to go about it. We freely admit we may be choosing the wrong way and we would welcome enlightenment as to what is the right way. Perhaps the Minister would indicate what that is.
The Murphy judgment dealt only with tax bands, not with allowances. I think it would probably be unconstitutional to deal with single parents in this context. The matter is quite complicated in view of the court's judgment. I have considerable sympathy for the Deputy in regard to the amendment. Perhaps he should give consideration to allowances for widows and put down an appropriate amendment on Report State.
If the Minister asked me to do that I would be delighted.
The points put forward by the Deputy transgress the judgment given in the Murphy case. It is quite complicated.
I have here the conclusion of the judgment of the Supreme Court in the Murphy case. The concluding paragraph reads as follows:
The court accepts the proposition that the State has conferred many revenue, social and other advantages and privileges on married couples and their children. Nevertheless, the nature and potentially progressive extent of the burden created by section 192 of the Act of 1967 is such that, in the opinion of the court, it is a breach of the pledge by the State to guard with special care the institution of marriage and to protect it against attack. Such a breach is, in the view of the court, not compensated for or justified by such advantages and privileges. The court will, accordingly, declare that sections 192-98 inclusive of the Act of 1967 in so far as these sections provide for the aggregation of the earned incomes of married couples are repugnant to the Constitution
While that states fairly clearly what the court wanted to state, there are some of us—I am not a lawyer myself—who are left wondering just how far we have to interpret that and how far we can go without running the risk of the censure of the court in the terms in which it gave that decision.
The court objected to provisions in the Income Tax Acts which produced a situation in which a married couple paid more tax than two unmarried persons with comparable incomes. The amendment put forward by the Deputy would create that situation again and, for that reason, I am not able to accept it. The Deputy has also asked me to state what is the right way of solving this problem, if this is not the right way. I would like to be in a position to give him an answer. However, many people other than myself have tried to find a way to answer that problem but have not yet found it. What I can say is that the way of dealing with it is not within the scope of this Finance Bill. It would require action along a number of different lines.
I conclude with the observation that tax law operates within the framework of our customs, beliefs and our general approach to the way we want society to be organised. If we want to change the way society is organised, I do not believe the tax law is the right tool to use.
I must say I am disappointed because I thought we were going to get an indication of the right way. I appreciate there are difficulties. I do not know if it was by oversight or if it was deliberate but I am pleased the Minister has not said it is not possibly because of the cost. I understand that last year the cost was between £3 million and £4 million and that simply covered widows, widowers and single parents. Presumably the door is open and perhaps the Minister will take the matter on board in the coming six or seven months when he is considering his next budget. Perhaps he will ensure that some steps are taken to rectify what is a grave injustice to the people with whom we are trying to deal in the amendment. However, I think the amendment should be pressed, simply to make the point that there is need for change and urgent need for the Minister to take some action on it.
Amendment put and declared lost.
Amendment No. 25 not moved.
Section 2 agreed to.
SECTION 3.
Amendments Nos. 26, 27, 28 and 29 are related. They can be discussed together by agreement.
I move amendment No. 26:
In page 7, subsection (1), in the Table, column (3), opposite "3,600" to delete "3,800" and substitute "4,000".
In this case we are asking for some minor adjustments and I hope the Minister will give sympathetic consideration to our case. Before we go into matters in detail, we have some information on what the cost would be but we would like to know the Minister's figure.
The amendment proposes to increase the personal allowance, in addition to increases already provided for in the Bill, by £200 for a married couple and £100 for widowed and single persons. The cost of the changes advocated in the amendment would be £28.3 million in 1985 and £47.2 million in a full year. I notice — particularly after, I think, Deputy O'Dea's remarks on the last amendment — that Deputy O'Kennedy and his colleagues did not seem to be proposing a corresponding increase in the single parent allowance provided for under section 4 of the Bill. If that were to be added the total cost would be £28.6 million in 1985 and approximately £47.7 million in a full year. I would have to say on this, as indeed on some of the other matters we discussed earlier, that the budget proposals, as they have been put forward, in combination with the other tax changes, represent the maximum we can fit in this year within the framework of the budgetary constraints on us. I might point out that the total cost of my proposals in this Bill, taken all together, would be £113.8 million this year and just under £190 million in a full year. I regret to say that to add almost £30 million this year and approximately £48 million in a full year to the cost of that is far and away beyond what we could cope with given the constraints we have at present.
We understand the Minister's financial and budgetary difficulties which, as I have said already, are largely of his creation.
In reply to me last evening and again today the Minister admitted that the expected rate of inflation for the period to be covered by the provisions of this Bill will be 6 per cent.
I said it would be less than 6 per cent for this year and approximately 5½ per cent next year.
I am glad that is the Minister's expectation because the increases the Minister is proposing in the married and single allowance come to less than 6 per cent; according to my quick calculations they amount to approximately 5½ per cent. The Government appear to be marking time. Even on the Minister's own admission, if he happens to be right —and I think most economic commentators do not agree with his projections——
They think I am bit on the high side.
I could quote a few who think the Minister's figures are on the low side also. Even if they are correct the Government are just marking time, not giving any relief to the hard pressed PAYE sector. I notice that the increase in the widow's or widower's allowance will amount to just over 4 per cent. The attitude of the Government appears to be weighted heavily against unfortunate widows and widowers. Perhaps Deputy De Rossa will have something to say about that. The Minister has mentioned that the inflation figures will be something less than 6 per cent. Could he give some thought to ensuring that the rises in taxfree allowance will at least match inflation, leaving a reasonable margin for error. Can he adjust the situation in relation to widows and widowers, at least bringing their increase into line with those given to single and married persons?
As we have set out in the national plan, it is our intention to adjust rate bands and allowances each year in order to ensure that the real burden of taxation of income tax payers does not increase. What we have provided in this year's budget and in this Bill matches up to that fully. The total effect of the changes in the income tax structure, and in the rates and bands of allowances, come to more than the effect of indexation this year. The Deputy need have no worries whatsoever. We are keeping fully in line with that commitment and intend to continue doing so.
For the past three years we have heard much about the taxation system, how the Minister will change it to render it more efficient, reliable and make people better off. We heard it again approximately four months ago, that this budget would bear goodies for all of the PAYE sector as well as those assessed under schedule D. But when we see what has emerged then we realise that the promises do not live up to the reality.
As Deputy O'Dea has said, the increase for a married man is 5.5 per cent whereas a widow or widower receives an increase of 4.35 per cent. Why does a widowed person receive an increase of only 4.35 per cent? It seems strange that they should be singled out to receive less than the rest of us.
I would request the Minister to reexamine our figures. The amendment put down by Deputy O'Kennedy is quite reasonable. The Minister talks about a 6 per cent projected inflation rate. Why then does he not meet the 6 per cent inflation rate in the increases in personal allowances?
Our intention, as set out in the national plan, was to adjust tax bands and allowances each year in order to bring about the results I mentioned. Of course there is a judgment to be made on each occasion as to what balance one strikes between changes in allowances, on the one hand, and changes in bands, on the other. In a sense this year we decided to attach particular importance to changes in the structure of the rates and associated changes in the bands. In itself that had a very significant influence on the question of the balance as between allowances and bands. The total of the two amounts to more than the effect of indexation. We maintain a situation in which widowed persons with children get the same aggregate allowances as a married couple. It is important that we should do so. It is in that light that Deputies should look at the changes in each specific head of allowance. We get to the situation in which a widowed person with children receives the same aggregate allowances as a person whose spouse is still living.
I might point out to Deputies that one that has not been mentioned at all is the allowance available in respect of a housekeeper taking care of an incapacitated spouse which this year is being increased from £2,000 to £2,500.
We are happy with that.
I was afraid it might not get into the record. I just mention that that allowance is being increased by 25 per cent.
The allowance under section 11 of the 1971 Finance Act for a blind person is being increased from £500 to £600. Again, lest Deputies opposite might neglect to mention it, that is an increase of 20 per cent. And in cases where both spouses are blind there is an increase of £200 which represents 16.6 per cent, just in case the House might get the idea that all the percentages are in low, single figures.
I am reverting to the situation of a single person earning £12,000 on 1 January last. That person received a 6 per cent increase giving him £720 extra, rendering his total gross income £12,720. Without allowing for a house mortgage or anything like that and assuming that the projected inflation rate is 6 per cent, that person will be £80 worse off. I can appreciate that it is difficult for the Minister to project an inflation rate of 6 per cent for this year as that will depend on price increases, the economy and the financial climate. However, I will not dispute the 6 per cent figure given by the Minister.
Since 5 April last, the people have been saying that this is not as rosy as it looked. A single person with a gross wage of £12,000 per annum on 1 January getting a 6 per cent increase, would take home £12,720. Allowing for tax levies and standard deductions and allowing for 6 per cent inflation that person will be worse off. In our amendment we are attempting to give him some kind of relief. The middle income group are being hammered by taxation.
Nearly every PAYE worker today uses transport to get to work whether it be private or public transport and the cost of transport has increased savagely. Petrol has gone up by 12p a gallon and diesel by 9p a gallon. Costs are rising continually and people are lucky to have jobs. Another area where costs have increased dramatically is in the area of motor car insurance. Insurance on an average motor car now costs about £400. The implementation of this budget will mean substantial additional costs to employees, companies and so on. Employers are also affected by it because they too are covered in the tax system. In many cases wage increases have already been wiped out by increased costs. That is what everybody is saying, and one cannot beat the public who are the best judges. When employees get their wage packets they can do simple calculations to see how they are being affected by the budget. All these people cannot be wrong. They thought the system was grand on 5 April but now they know that things are not so rosy. That is why we put down these amendments. We wish to help the hard pressed PAYE worker. Many of the wage increases granted are backdated, so that requires another calculation. Some of the increases are backdated to last November and some to last September in the semi-State sector. You would be getting additional revenue here and that should also be looked into. We are going by the figures the Minister gave us. Financial correspondents have maintained that the figures in the Minister's budget will not stand up. You say they will stand up. I say that you say they will stand up.
I say what I say. You have no need to say it for me.
I am pinning you down.
Deputy, you cannot speak to the Minister. It will read very badly in the Official Report and posterity will think that either you or I never read Standing Orders and I would not like that to happen.
I do not intend to be discourteous in any way.
No, I did not think that at all.
If the Minister's figures stand up as he says they will and are not off the rail at all, they will be dead on target. That is what he is telling us. If that be the case, then he has room for manoeuvre with the way wages and salaries are being negotiated. That is the kernel of the matter. We are asking for a very minor adjustment and I would be grateful if the Minister would give that very careful consideration.
The Minister is giving a sort of biblical status to this promise the Government made not to increase taxation. The Minister in his previous capacity as a professional economist must know better than I know that you cannot give that categorical assurance because you must make a number of assumptions to say that you are going to bring about a situation whereby taxation will not increase. Some of the assumptions that this Minister has made have been so far out of line as to be just unreal. We should get away from just the figures we are talking about here and look at reality. We could argue all night about figures. The Minister's approach seems to be that we will adjust the bands and allowances to keep people standing still so that taxation will not be increased, but of course we will base our calculations and adjustment of the bands on the minimum assumption for inflation which is the major assumption to be taken into account here. I plead with the Minister, let us go outside this Chamber and look at reality. With 240,000 unemployed we are on the brink of social revolution due largely to unemployment.
There are many reasons for our present level of unemployment but the major reason, and every economic commentator from the left to the right, whether he be a professional economist or just somebody who is in touch with the ordinary people, agrees that one of the major reasons for the stifling of economic development is the crushing disincentive of the Irish tax system. We ask the Minister if he is seriously interested in turning this situation around. If he were he would not be coming in here fiddling around with bands and rates just to ensure that people stand still. If people stand still that means the present situation is maintained and that situation is totally unsatisfactory. It has given rise to 240,000 unemployed and to a near total breakdown in law and order. It has brought us to the brink of social revolution, and the response of the Minister for Finance, the man who is in charge of managing the country's economy, whom we look to to turn the situation around, is to come into this House to tell us that the allowances for two blind people have been increased by 16.6 per cent. For goodness sake, let us face reality and try to start before the situation becomes worse to do something positive about the tax system. To accept our very minor, very moderate amendment here would be a very small start but at least it would be a step along the right road.
To find our three colleagues on the other side of the House now proposing to use the same source of extra revenue to finance tax reductions of £28.6 million as they were going to use an hour ago to finance tax reductions of £15.4 million does not seem to have an awful lot to do with reality. They do not seem to square too well.
We did not get the reduction.
As far as the exemplary taxpayer referred to by Deputy Connolly is concerned, one must come to the conclusion that, given the increase in income which Deputy Connolly attributes to him, he will end up better off this year with the system provided for in the Bill. Not only that, he will end up better off with this new system than he would have been had we not changed the system.
Better off in what way?
He has more money in his pocket.
But it is less because of inflation.
I would have thought it fairly evident that if you increase gross income by 6 per cent and index tax bands and allowances, at the end of the day you will have 6 per cent more tax revenue and after tax income will have increased also by 6 per cent. If the Deputies opposite do not accept that they had better go and write a few new rules of arithmetic because there is no way out of it. As I have said, the measures that we have in the Bill do a little more than would be required to bring about indexation so that as a general rule the proposals we have in this Bill will keep people if anything a little ahead of inflation. That seems to answer the kernel of the points being made by the gentlemen on the opposite side.
I cannot accept the Minister's reasoning there. He says that if you put 6 per cent increase on wages and 6 per cent on the bands everything will be OK, people will be where they were. Did he take into account that car insurance has increased by 100 per cent, petrol has increased by 10, 15 or 20 per cent and the cost of electricity? Are these included in the 6 per cent inflation?
Many of those costs were due to the Government's measures in the budget.
The Deputy is wrong in that.
How much?
People are bringing home less in their wage packets since 5 April than they were getting prior to that. You can use all the logic, all the textbook stuff but when you come down to hard reality, that is where people are feeling the pinch. The Minister can spend the next six or seven weeks during the local elections talking to the people at their doors and then he will find out whether his increases will keep them better off than they were over the past year.
It really is not all that ingenious of Deputy Ahern to come along and say that he is wondering about a forecast of inflation of 6 per cent. If I remember correctly, about this time last year in the House I was saying that I reckoned that inflation for 1984 was going to be below 10 per cent and Deputies on the other side of the House chose not to believe me.
What about borrowing?
As it turned out I was, if anything, a little on the pessimistic side in the forecast. Deputies on the other side of the House then, of course, picked out things that were increasing by fairly large percentages and said, "Is that what you mean, that inflation is running at the kind of level you are talking about?" just as Deputy Ahern has done here today.
What about borrowing?
If Deputy O'Dea wants to have a debate on borrowing he can have it anytime. It might do him good to sit in with Deputy O'Kennedy and me when we are having a chat about borrowing. Deputy O'Dea's contribution to that debate has not been the most illuminating so far.
If Deputy Ahern wants a discussion on the composition of the consumer price index there will be an occasion for that, but it is very wrong to pick specific little items included in the index and ignore the rest because the Deputy knows as well as I do that it covers a very wide range of items. I am prepared to admit, in case Deputy Ahern has not thought of it, that it is a general index and the effect of the changes in the consumer price index is different for different people. It would be different for Deputy Ahern than it would be for me. It would be different for Deputy Ahern than for another person with exactly the same income because that person might have different tastes and choose to spend his money differently. But this is the best global indicator we can get of the effect of price increases on society in general and on incomes. I am confident, given the trends I have seen so far, that I will not be too far out in that forecast of inflation. Deputies opposite may choose to disagree with me for the tactical purpose of an argument, but that does not shake my belief in the reliability of the forecast.
Procrastinations——
The Deputy is amusing himself but he does not like to admit that at the back of his mind he thinks the forecast is probably right. He should not be afraid to admit that. It is no skin off his nose to agree with me.
The Minister amazes me. He comes from a constituency close to mine and a good deal of it is in a rural area. Remembering the cases I have mentioned, we have to admit that everybody cannot be wrong.
I am not talking to everybody.
I have my feet firmly on the ground as the Minister learned when he came to Laois/Offaly last January. We are talking about increases in the tax bands and in allowances. Since the beginning of the year, and especially since the budget, petrol has increased by an average of 14p per gallon. Workers from the midlands who travel 30 or 40 miles a day to work tell me that before the increases it cost them £25 per week for petrol but since the increases were introduced it is costing them another £2 to £2.50 per week. As Deputy Ahern said, car insurance has also increased substantially. Nobody can deny that. The cost of fuel in the home has increased substantially —turf, briquettes, gas, electricity and coal. We had two substantial gas increases recently. Where is the Minister getting his figures? The Minister was speaking earlier about the rule of thumb. That is all right when one is dealing with mathematics but we are talking about increases in the cost of living which are affecting people who have to travel long distances to work using private transport. Even if they use public transport it must be remembered that there has been a substantial increase in these costs too— I think 8 per cent.
May I ask Deputy Connolly if he would consider restricting his discourse on inflation so that we could put the question and say that at the end of two days work we have passed three sections of the Bill?
That is for us to decide. We are beginning to hurt and now the Minister wants to rush this through the House——
We are having a lot of repetition.
We are not repeating our arguments; we are getting to the kernel of the problem. Earlier we were dealing with tax bands and allowances, but I have mentioned the increases which have to be borne by the PAYE taxpayers who are lucky enough to have jobs. They tell me their petrol has increased to £27 or £27.50 per week instead of the £25 they paid some months ago. Can that be denied? It cannot.
I have been in politics a long time but I could not sell this to my constituents, who are very intelligent people, and I have no doubt that applies to the people in Kildare too. I am talking about increases in very essential items. Many financial commentators say, and I agree with them, that the Minister juggled with the figures and with the tax bands. I accept that. I wonder if the increases in incomes will continue at the projected rate. It seems the Government have drawn back from the stand they took on pay. That has been thrown out the window, as have many other parts of their package. If the Minister for the Environment increases rents of local authority houses by 18 per cent where will we be? It is possible that these increases will not be brought until after 20 June——
They are going to get rid of the water charges.
The Minister is talking about giving relief. If one looks at the figures one can see that the Minister gave relief but when inflation and all the other increases on essential items are taken into account those who are lucky enough to have jobs will find that they are worse off. Nobody can deny that. The Minister admitted the adjustments he was making were very minor.
No.
He gave an instance of the infirm and we are all very glad of that increase, but we want to be very clear about it. I am clear in my mind about what is involved. The PAYE taxpayer fully realises that because of the increase in the cost of living since the budget was introduced he is worse off. I say that even allowing for an increase of 6 per cent or more in salaries. I am giving the Government the benefit of the doubt in saying that the rate of inflation may be 6 per cent. They had to abandon the 6 per cent ceiling on pay rises.
Progress reported; Committee to sit again.