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Dáil Éireann debate -
Thursday, 16 May 1985

Vol. 358 No. 7

Finance Bill, 1985: Report Stage.

Amendment No. a.1 and amendment No. b.1, in the name of Deputy O'Kennedy, are related and, by agreement, they may be discussed together.

I move amendment No. a.1:

In page 8, in the Table, Part I, between lines 12 and 13, column (1), to delete "£4,500" and substitute "£5,000".

My amendment seeks to increase the allowance in respect of all taxable incomes from the first £4,500 to the first £5,000 to be taxed at the standard rate of 35 per cent. Amendment No. a.1 is in respect of the single income and No. b.1 is in respect of the consequential adjustment required for a double income. I am proposing that the first £5,000 of taxable income be taxed at 35 per cent in respect of single persons and the first £10,000 in respect of married persons. The existing provision is that for single people the first £4,500 is taxable at 35 per cent and the first £9,000 in the case of married people. I am proposing this for a number of cogent and important reasons.

It is accepted by all commentators on our tax system that the burden of tax is hitting particularly hard at those on the lower level of income. The introduction into the highest level of income tax after the first £4,500 means that the highest rates of tax apply too soon on the income tax scales. People have talked about everything from the poverty trap to what I regard as the tax trap. As soon as a person earns £4,500 of taxable income he becomes liable for tax at the higher rate. Our levels of income tax are intolerably high. They are much higher than anything that exists in the European Community countries. A whole range of expert reports and objective analyses has shown that this level of taxation is having serious disincentive effects on our economy generally. OECD comments on our economy, ESRI comments, NESC comments and Commission on Taxation comments all verify this fact.

The consequences of this policy include unemployment, emigration and borrowing. Each time we try to find the main source of our problems the one thing that emerges about our current economic situation is that the Government have deliberately, mistakenly, but not maliciously, decided that the way to bridge our current budget deficit is to load on taxation at a level which was unprecedented here and which is not comparable with any other European country. The Minister may instance OECD comments about Finland, Japan, Switzerland, Austria and so on, but in those countries the highest rates of taxation do not apply to low level income and he will also find that the standard of income in those countries is higher than it is here.

Having failed to persuade the Minister to adopt any of our amendments in respect of exemptions and increased allowances there is only one sensible alternative and that is to remove many people from the tax trap of the highest tax levels because they do not belong there in the first place. However, I know that one single action will not solve this whole problem. To come into the highest tax levels in Britain, a single man or woman would be earning something equivalent to £40,000 but to come to the top level of 60 per cent here one would only have to earn about £12,000. We wonder what is happening to this economy. Everyone knows that the disincentive element of our high tax levels is having a major impact on all sections of the community. Each section feels they are being singled out. Yesterday I talked to a number of married ladies from some Dublin constituency who had been in the Public Gallery. They were convinced that the biggest problem is that there is no regard at all for the ordinary working wife at home. I reminded them of the provisions I made in 1980 in the Finance Act when I multiplied the allowances.

I noticed yesterday that the Minister was not familiar with the amendments he introduced and he is now obviously unfamiliar with the effect of the Murphy court case. It is time that the Minister was educated as to the development of the tax law. The Murphy decision ruled that working wives outside of the home——

We discussed it on the day you were in court.

——were entitled to the benefit, if they opted for it, of a single person's allowance so that where a wife worked outside of the home and a husband worked outside of the home they were entitled to be assessed as two single people. That was the Murphy decision. The decision I took as Minister for Finance, in case the Minister is not aware of it——

I do not see the relevance of this.

I am conducting a much needed education programme. The decision I took as Minister for Finance in the same year was to introduce the double allowances for all wives even those not covered by the Murphy decision. I introduced the provision that the working wife at home would be reckonable for the same entitlement as the working wife outside of the home. That was the significance of my decision.

It is not related to this.

It all relates to the tax issue but the Minister apparently was not aware that my decision was not required by the Murphy decision.

The married ladies I talked to yesterday were convinced, despite my decision in 1980, that the only people who got unfair treatment under the income tax code or in the provisions made by Government in social or other expenditures were ordinary married women. They had a case. The irony of it is that if one turns to the people at the other end of the scale, the people on the top income levels, they are convinced that the people on high incomes are singled out to ensure that they will be discouraged from further successes leading to greater income. The people on the middle income scale, who I am most concerned with now, are driven from the standard rate, which is a fairly high standard rate of 35 per cent, by the Minister, who abolished the lower rate of 25 per cent. Those who jump from the standard rate to the higher rate are convinced that they are the ones singled out to bear the burden of this tax regime. No matter whom you consult who is paying tax they are all convinced that they are specially singled out by this Minister and this Government, and they are all correct. They are all being singled out and being used as a target by this Government because of the unreasonable levels of tax that this Government have introduced.

It is all very fine to ask if Deputy O'Kennedy will tell us where he is to find the money to make up the shortfall. If the Minister is not already aware of the money that he has lost because of the level of tax that he has imposed in the last two years, then no words of mine will convince him this morning, whether it is the black hole, the leakages or the multinational executives living here who after three years send signals back to Ohio or Mississippi or Silicon Valley that things are not going too well in this Irish plant because the impact of our tax on their salaries is such as to discourage them from staying here. Wherever you look all of the consequences derive from the level and burden of income tax that this Government have chosen to put on the shoulders of every section of the community. I do not know exactly how much this amendment will cost. We finished Committee Stage only last night and I had to spend late last night and early this morning working on amendments to get them through in time for today. I have not the benefit of the facilities that the Minister has but I do not claim any special concern for that. He could have gone home to bed in any event——

Jealousy will get the Deputy nowhere.

——but I was up late drafting these things. Whatever it will cost I know the standard reply the Minister will make. I can deliver the lines before he responds, although he may surprise us and decide not to use this argument this morning. I appreciate that he will have to give me the cost but he must take into account the fact that this will be a signal to all that he is really at last conscious of the burden of taxation and its disincentive element and perhaps he will give a belated lift to the economy. In a sense our problems begin if not end with the levels of taxation. It is necessary to be disciplined in relation to the national finances and the Government will have my support and that of my party in respect of that. I acknowledge the difficulty the Government have but they have chosen the wrong path, that of increasing taxation instead of the path of reduced current expenditure. We have many examples of that. That is why I have always said they are not Thatcherite because Mrs. Thatcher, whatever anyone says about her, is reducing expenditure, not increasing taxation.

The Deputy is a Thatcherite since yesterday.

I do not have to follow her policies, but if to be Thatcherite is to be accused, then to be Dukesite is to be condemned out of hand. The difference is that, all right, we are talking about fiscal rectitude but in this instance this Government are talking about bridging deficits by heaping on levels of taxation in every direction, income tax, indirect tax, levies, PRSI, wherever you look, if it moves, hit it. As Burke said some time back, any fool can contrive a new tax. I was one such fool at one time, though I have not the imagination to contrive as much as the Minister at present in the House, but I plead to him to give us some signal of his readiness to create a new climate and give a new direction through reducing the tax burden.

This obviously is the most important matter of this Finance Bill. We can address it only once and I hope that what I have said is sufficient to bring across to the Minister, if not to persuade him of, the importance of this amendment. I hope he can accept it. If not I would like him at least to give us some indication that he accepts that the burden of taxation is the main problem. I think he does at this point because yesterday he acknowledged that the main cause of the growth of the black economy, perhaps the sole cause, is the level of taxation that we have.

The Minister did no such thing.

It will be found on the record of the House.

I said it would be idle to pretend there was not a link.

The two growth areas are taxation and the black economy, and they grow together at great speed. If the Minister is not prepared to respond to this he will have laid claim to the unenviable distinction of being the one who by the time he left office had heaped on penal level of taxation and had given a stimulus to the black economy that is unprecedented here or elsewhere.

I have a great deal of sympathy with the amendment being put forward by Deputy O'Kennedy. I do not know why he should be so contentious about these things and why he should wander so far from the Bill. He knows perfectly well that his amendment is not designed simpliciter to bring about an increase in the allowances. His amendment is designed to bring about a further increase in the allowances on top of the increases already provided for in the Bill. Therefore, Deputy O'Kennedy is not the only person in the House this morning who is proposing an increase in allowances. I got there before him.

I would like to be able to go as far as Deputy O'Kennedy would wish to go in increasing the allowances. Let me recall for the House, since I think it would be useful in this context, just what is in the Bill. Sections 2 and 3 of the Bill, as I pointed out on Committee Stage, provide for a restructuring of the rate bands and an increase in general allowances. The cost in terms of revenue foregone to the Exchequer is £54.25 million in 1985 and £90.6 million in a full year with some 818,600 taxpayers benefiting from it. If we add on to that the total of the budget proposals as reflected in this Bill and look at those allowances, retention of PRSI allowances, changes in the exemption limits and the change in rent relief which is also in the Bill, the total cost of the package is £113.8 million in 1985 and £189.8 million in a full year. I want to establish very clearly for the benefit of the House that in this amendment we are talking about an increase on the increases in the allowances already provided for in the Bill.

Of course. The amount involved is changing what is in the Bill.

Deputy O'Kennedy will have the right of reply.

To the extent that Deputy O'Kennedy's remarks could be interpreted as saying that he is the only one who is proposing increases they are, to say the least, rather disingenuous. This is not a courtroom although I know Deputy O'Kennedy spent some of Committee Stage in a courtroom. We must be more directly concerned with the content of the Bill.

I devote more of my time personally to my responsibilities than the Minister is doing. I hope he has somebody to help him. Does he want any assistance?

Deputy O'Kennedy may be getting into an area——

Deputy, you may make political charges when you have the floor but not across the floor when somebody else is speaking.

I do not intend to follow that hare. That is a hare which, as the Limerick man once said, I will let sit. The extra cost of making the further changes Deputy O'Kennedy is proposing would be £23 million in 1985 and £38.4 million in a full year. Therefore there would be very serious budgetary obstacles to accepting those amendments.

The pre-budget situation for a single person, a PAYE taxpayer paying the full PRSI rate, PAYE and PRSI allowances moved into the higher rate bands, then 45 per cent, with a total income of £6,686. After the budget that figure increased to £7,286. Before the budget a married person with a working spouse, with the same PAYE and PRSI allowances, but not including any other allowances, moved into the higher rate band at £12,486 income. That has now become £13,686. Before the budget a single person with the same allowances reached the 60 per cent rate after an income of £10,086 and that has increased to £10,586. A married person under the same conditions pre-budget reached the 60 per cent band at £19,206 and that figure has been increased to £20,206. That is the effect of the provisions we have already made that are comprehended for the total cost for the tax package. As I said, on Committee Stage, after the budget provisions have been implemented, 40.3 per cent of taxpayers will be in the higher tax bracket, which is down from the 47.1 per cent which would have been the case had we not made these changes.

While I have a great deal of sympathy with the direction of this amendment, and have proposed in the budget and in this Bill to move substantially in that direction, the total amount of leeway available to us this year for the relief of the tax burden — and we are talking about relief — is limited to the amount I have given as the total cost of making budget changes. It is with regret that I cannot accept this amendment.

I will dispose of one preliminary point which can be made in respect of every amendment. Of course, my amendments involve a change in what is in the Bill. The Minister need not trouble to make the case on every amendment that what I am proposing is additional to what is in the Bill. An amendment, by definition, is a change in what is in the Bill. If I were to fall in with what the Minister is suggesting, the only reaction appropriate to me would be to say nothing, do nothing and propose nothing.

The Minister's tone this morning, if not his response, is more reasonable, but I must ask myself if it might have been better if I had not put down any amendments at any stage, or if we need not have troubled to debate this Bill in this Chamber because so far the Minister has not responded to even one amendment. Therefore, the Bill is exactly as when it was introduced.

The Minister has acknowledged that my amendment would cost £23 million this year, which in net terms represents about £15 million. I invite the House and the Minister to consider what that represents in terms of the total tax revenue the Minister is collecting this year — £5,622 million. The adjustment I am asking for would cost only £15 million——

No, £23 million.

I told the Deputy about that.

This time the Minister is on the wrong line.

No, I am not.

I have not been able to work out the actual percentage but it will be around .002 per cent or .003 per cent. This is the kind of amendment the Minister should adopt. He has given figures to explain where we stand in terms of the application of standard and higher rates of tax to income at various stages. The best way to judge this is to look at the top of the scale. A married man with all allowances comes into the 60 per cent rate band at £20,206. A person reaching the same tax band in Britain would not reach that point until he has at least IR£45,000 or even more. That demonstrates more than anything else that our tax levels are heavier, bite earlier and are having the consequences which employers are complaining about so much. They say employees are not interested in working towards the end of the financial year because this will bring them into the higher tax band. I have heard of cases in the south-east where the health of some people is not so good as it might be towards the end of the financial year because this means they can claim their tax rebates and escape going into the higher tax net. The black economy and the fact that top class skilled executives do not find it worth their while to work here are a natural consequence of our high tax levels. For the sake of a miserable £15 million out of a total of £5,622 million this year, the Minister cannot see fit to make this adjustment.

I knew when I put down this amendment that it would not cost much, but I thought it would cost around £30 million. I am reassured to find that it will cost as little as £23 million. I believe this is an opportunity for the Minister to do something for these people. He may ask me where we will get the money. The Minister has sanctioned an extra £66 million for the agencies of the Department of Labour this year. They have the biggest growth in the whole public expenditure programme. However, they have gone for the wrong option. If we want to generate employment, which is so badly needed, we can do so by lifting the crushing tax burden and not by developing countless new schemes. Recently, in reply to a Dáil question, I was given a list of the schemes which operate to generate employment and, after I read it, I was more confused than ever. There are about 17 schemes in operation and not one of them is having any effect because the only way to generate activity in the economy is by recognising that we have almost killed the incentive in the economy by tax levels. The Minister would get a lot more value by allowing that £15 million than for the extra £60 million. In fact, we are providing £160 million for the agencies of the Department of Labour this year. Where are the jobs? Where is the new spirit? Where is the "up and at you" message that came through in Lemass's time? There is no indication that these agencies are providing a new dynamism, challenge and opportunity. If the Minister accepted this amendment he would get much better value for much less money as it does not represent one-tenth of the amount of money he sanctioned for these agencies. However, I rest my case. I know there are sensible men, especially in Fine Gael, who share my views but unfortunately these things are decided beforehand.

Deputy Yates rose.

I am sorry, we are on Report Stage now and the procedure is that the proposer of the amendment speaks, anybody else can speak once, the proposer may reply, and that concludes the debate. I deliberately asked Deputy O'Kennedy if he was concluding and you could have offered at that stage.

I was offering then.

I could not have missed you if you had stood up. I am sorry, there is nothing I can do.

I also regret it. I would have liked to hear Deputy Yates.

If Deputies are offering they should stand up. If I had realised that anybody was offering, I would not have called on Deputy O'Kennedy to conclude.

How many amendments will be taken today?

We can take them all if we do not waste time on matters which cannot be changed.

This is a very important amendment——

I am surprised at Deputy Yates. My hands are tied to the well defined procedure on Report Stage.

No other Deputy has spoken on this amendment, apart from the Minister.

That is not the fault of the Chair. I looked around the House and at Deputy Mac Giolla. I am sorry.

Question put: "That the figure proposed to be deleted stand part of the Bill".
The Committee divided: Tá, 65; Níl, 51.

  • Allen, Bernard.
  • Barnes, Monica.
  • Barrett, Seán.
  • Barry, Myra.
  • Barry, Peter.
  • Begley, Michael.
  • Bermingham, Joe.
  • Boland, John.
  • Bruton, John.
  • Bruton, Richard.
  • Carey, Donal.
  • Cluskey, Frank.
  • Collins, Edward.
  • Conlon, John F.
  • Connaughton, Paul.
  • Cooney, Patrick Mark.
  • Cosgrave, Liam T.
  • Cosgrave, Michael Joe.
  • Coveney, Hugh.
  • Crotty, Kieran.
  • Crowley, Frank.
  • D'Arcy, Michael.
  • Desmond, Barry.
  • Molony, David.
  • Moynihan, Michael.
  • Noonan, Michael, (Limerick East).
  • O'Brien, Willie.
  • O'Keeffe, Jim.
  • O'Leary, Michael.
  • O'Sullivan, Toddy.
  • O'Toole, Paddy.
  • Owen, Nora.
  • Desmond, Eileen.
  • Donnellan, John.
  • Doyle, Avril.
  • Doyle, Joe.
  • Dukes, Alan.
  • Durkan, Bernard J.
  • Farrelly, John V.
  • Fennell, Nuala.
  • FitzGerald, Garret.
  • Flaherty, Mary.
  • Flanagan, Oliver J.
  • Hegarty, Paddy.
  • Hussey, Gemma.
  • Kavanagh, Liam.
  • Keating, Michael.
  • Kelly, John.
  • Kenny, Enda.
  • L'Estrange, Gerry.
  • McGahon, Brendan.
  • McGinley, Dinny.
  • McLoughlin, Frank.
  • Manning, Maurice.
  • Mitchell, Jim.
  • Pattison, Séamus.
  • Prendergast, Frank.
  • Quinn, Ruairí. Ryan, John.
  • Sheehan, Patrick Joseph.
  • Skelly, Liam.
  • Spring, Dick.
  • Taylor-Quinn, Madeline.
  • Timmins, Godfrey.
  • Yates, Ivan.

Níl

  • Ahern, Bertie.
  • Ahern, Michael.
  • Barrett, Michael.
  • Brady, Vincent.
  • Brennan, Mattie.
  • Brennan, Paudge.
  • Briscoe, Ben.
  • Browne, John.
  • Burke, Raphael P.
  • Calleary, Seán.
  • Connolly, Ger.
  • Coughlan, Cathal Seán.
  • Cowen, Brian.
  • Daly, Brendan.
  • De Rossa, Proinsias.
  • Fahey, Francis.
  • Fahey, Jackie.
  • Faulkner, Pádraig.
  • Fitzgerald, Gene.
  • Fitzgerald, Liam Joseph.
  • Flynn, Pádraig.
  • Foley, Denis.
  • Geoghegan-Quinn, Máire.
  • Haughey, Charles J.
  • Hilliard, Colm.
  • Hyland, Liam.
  • Kirk, Séamus.
  • Kitt, Michael.
  • Lenihan, Brian.
  • Leonard, Tom.
  • Leyden, Terry.
  • Lyons, Denis.
  • McCarthy, Seán.
  • McEllistrim, Tom.
  • Mac Giolla, Tomás.
  • Molloy, Robert.
  • Morley, P.J.
  • Moynihan, Donal.
  • Noonan, Michael J.,
  • (Limerick West).
  • O'Connell, John.
  • O'Dea, William.
  • O'Keeffe, Edmond.
  • O'Kennedy, Michael.
  • O'Leary, John.
  • O'Rourke, Mary.
  • Reynolds, Albert.
  • Treacy, Noel.
  • Wallace, Dan.
  • Walsh, Joe.
  • Wilson, John P.
  • Wyse, Pearse.
Tellers: Tá, Deputies Barrett(Dún Laoghaire) and McLoughlin; Níl, Deputies V. Brady and Browne.
Question declared lost.
Amendment declared lost.
Amendment No. b.1 not moved.

I move amendment No. 1:

In page 9, between lines 3 and 4, to insert the following:

"(3) The dependent relative allowance shall be increased to £350.".

We have been discussing the burden on the economy of the high tax levels and in this amendment I will address myself to the very severe social consequence of this factor.

In our social programme we can encourage people either to provide for their relatives at home or to pass on responsibility to the State in this respect. We have the choice of strengthening the family unit, in the broadest sense of that term, or of looking outside the family and to the State services in terms of providing for dependent relatives. It is clear that at this point in the development of our social character, we must give a clear signal to all income earners that the State will encourage them to provide at home for their dependants as distinct from forcing wage earners to transfer that responsibility to, for instance, the Minister for Health and Social Welfare who I notice is still in the House and who in turn will tell us that unfortunately funds are not available to support the medical services. That is why I am proposing that the tax allowance of £112, the level that has been in the tax code for a considerable time in respect of a dependent relative allowance be increased to £350. I am convinced that it we move in that direction we will save the State countless millions of pounds but I am convinced also that in that way we will provide much better care for the old and promote a much more caring community than is perhaps universally the case.

A characteristic of Irish society in recent times has been a growing awareness of our obligation to the old but that awareness is not matched by the economic facilities necessary to provide for these old people. In full recognition of the wonderful work being done in geriatric homes by the various personnel involved — nuns, nurses, doctors and so on — it must be acknowledged that these institutions are not equipped fully to deal with all the various physical and mental problems which confront people in old age. It is time we all recognised that the best place for the old person is the home he created, with the family he reared and in the community in which he is secure. For their sakes and for our sakes we must do everything possible to ensure that the old are looked after at home as distinct from being transferred to institutional care. Too often we hear from the Minister for Health and Minister for Social Welfare, who, incidentally, is tending to distract my concentration, that our resources are not adequate to provide for our old people in our various hospitals, institutions and day care centres. If that is the case we should at least encourage families to look after their dependent relatives. No great expert economic analysis is required for one to realise the advantages involved in helping people economically to look after their relatives. There are those who would suggest that in this respect the compensation is by way of payment. In that way the more burdensome cost of keeping people in institutions would be avoided.

I trust the Minister will be able to produce a figure in this regard but whatever that figure might be it would be only a fraction of the cost of keeping an old person in a hospital or institution, where very often the old people are lonely and suffer a sense of separation despite the care they may be receiving from the nursing staff. In many ways old people in those surroundings consider themselves neglected. We are all glad that the term "county home" is used no longer. These places were originally know as workhouses but both terms had a certain connotation, especially for old people. We are grateful that these institutions are of a very high standard and are staffed by dedicated personnel but most of the people in care there would prefer to be looked after at home.

The desirability of old people being looked after in their own homes is being acknowledged in most enlightened societies. One thinks of Switzerland, for instance, which was not always noted for its social programme as distinct from its economic success, but there great incentives are offered to income earners to provide for their parents or in some cases their grandparents or aunts or uncles in a family home environment, Anyone who has regard to the social programme will agree with what I am saying. There is no better place in which old people can be provided for than in their own homes and that is what this amendment is all about.

On the last occasion I referred to the cost of a bed in any Dublin hospital. I was talking of a public bed occupied by an old person who, though he might be on a drip which would be costly, would not be receiving any other treatment. That sort of accommodation is not less than £1,000 per week or £52,000 per annum and the taxpayer is footing the bill. At that stage the person concerned is in a different category. He would be in the category of disabled in respect of which there is special provision in the finance legislation but my purpose is to ensure that as few as possible of our old people reach that stage. Very often neglect is the cause of their being forced to go to hospital, sometimes as chronic patients. It is the failure to provide for them at home that gives rise to the deterioration in their health.

We have seen this in our own communities. A few in our home town are over 90 years of age and are being well looked after in their own home environment, but I am not going to personalise. It is so reassuring to find people like this, so happy, healthy and confident. Age is immaterial. They still have the same mind and enthusiasm as they had 50 years ago because they are being properly looked after by their own families and feel part of the family. I attended a ninetieth birthday in our home town recently and I am sure the Leas-Cheann Comhairle, who is nodding, knows the lady I am speaking about. She was dressed in her Irish tweeds and looked as spritely as she did 40 years ago — a marvellous lady, all because she felt part of the family. I have seen others, in our place and elsewhere, who are neglected by their families, for one reason or another, who could be forty years junior to that lady but looked very much older and deprived. They had no spirit for life.

I am simply trying to encourage people, by reference to a reasonable increase in the dependent relative's allowance, to provide for these people in their own place. I know that allowance is not confined exclusively to old people. It is confined to people who are dependent, who have no income source of their own. It could even be a young unemployed person and if so, let it be. It could be some other relative within the given category who has no adequate income. I want all these included, because it is time that we demonstrated some imagination and concern. I have no doubt that we would save the country countless millions of pounds. If there is one area that has run amuck in recent times, it is the growth in the administration and otherwise of the health service. I think the Minister acknowledges that — any Minister for Finance would have to. There is no administration attached to looking after people in their own place. I would love to see a new awareness in our community which would make life healthier and happier for all concerned.

I am convinced that the young people, particularly, would welcome this more than anybody. Imagine the effect that it would have on them calling to their grandmothers or great-grandmothers, having a chat and helping them. I have always been reassured by the great understanding which exists between the young and the old in our community. I invite the Minister to adopt this proposal. The consequences of it would be very far-reaching, indeed.

I support Deputy O'Kennedy's amendment. As he has so aptly put it, the family is of the utmost importance and our Constitution recognises that fact. I am afraid our tax laws do not.

Hear, hear.

As the Deputy has said, there is a social aspect to this amendment. As we all know, old people who are confined in homes funded under the social welfare scheme become depressed because they are not mixing with their own families. Old people living in the family environment and dealing with younger people and children stay younger longer. They have a better spirit for life. They can advise and educate the young members in the history of the family and on many important aspects of life for which the parents may not have time. Any family who have a grandparent, an old aunt or an old person living with them have a fuller life than in cases where the grandparent or relative is confined unnecessarily in an institution.

The cost of keeping relatives is one of the reasons why many people put their relatives into these homes for the aged. It is time that the allowances were used to help people to take care of their relatives. As pointed out by Deputy O'Kennedy — and I am sure that the Minister will give a costing on this — the cost of keeping these relatives in their family environment is much smaller than having them cared for under the social welfare services. A grandparent at home can help the family unit in time of trouble. This leads to fewer breakdowns in the family which, unfortunately, is happening more frequently today. I ask the Minister to give serious consideration to this amendment and I hope he will be able to find his way to accepting it.

I have a few brief comments. At first sight, this appears quite a constructive amendment to which one would be sympathetic. There are some points that need to be made, but there might be a better way of trying to solve this problem. That a husband and wife keep or do not keep their old parent or aunt or any other person in their home is not connected with tax. There can be friction, for instance, between two women in the one house who do not get on well together and there are many factors which are totally human. To assume that any change in tax allowances would lead to a breakthrough in the rate of geriatric care and bed occupancy in State and county homes is somewhat unrealistic. One should not overrate the significance of a change such as this.

However, there are problems in this area. I would specifically mention the prescribed relative's allowance, by which people can get an increase in their pension of £23.10 a week when being minded by someone who perhaps comes home from England or gives up a job to do this. It would be more appropriate for the Minister for Finance to take up that matter with the Minister for Health and Social Welfare. There are very stringent conditions laid down for this prescribed relative's allowance scheme. If it is a daughter-in-law or a wife who is maintaining the old person, this allowance is not given.

The other State scheme for helping elderly people is the home help scheme. One condition of this scheme as operated precludes most cases. That is the condition that relatives cannot be paid the home help allowance. I have one case in mind in which a couple in their fifties have a father or father-in-law who is 86 years of age and lives ten doors away in the same estate. That man needs all his household work, cleaning and washing done and if the daughter or daughter-in-law provides that help she does not get any assistance. If a black stranger did it, she would get it. That seems a little unfair. Elderly people do not like strangers coming into their houses.

This is not a matter for the Minister for Finance.

I accept that. Before the Leas-Cheann Comhairle came into the Chair I was prevented from speaking at all, unfortunately, on a very important matter connected with income tax. What I am saying is relevant because there are different ways to solve the problem.

It is my view that the aspect of the dependent allowance needs to be looked at. Let us take the case of a deserted wife who is on some form of social assistance and whose eldest child of 24 or 25 is working. Are there any circumstances where the breadwinner, in this case the eldest child who is supporting the household, could get a tax allowance?

All of the amendments tabled by Deputy O'Kennedy relate to income tax. Most of my constituents have now been issued with their amended tax-free allowances for the tax year April 1985 to April 1986. Is it not the case that acceptance of these amendments would cause utter chaos in the calculation of individual tax-free allowances?

Is it the system or the people the Deputy is worried about?

I am worried about the people who come to my clinics and who have enough trouble in trying to ascertain their own tax liability. Because of administrative errors they may find there is a miscalculation in their tax-free allowance. My point is that most of my constituents have been issued with their amended tax-free allowances for this year which, I assume, have taken account of the budget changes. My question is, should the Minister accept the amendments would that not cause chaos for my constituents who are PAYE taxpayers? In principle I have sympathy for community care as opposed to institutionalised care but I think the problem can be met in a better way by adjusting the home help and the prescribed relative allowances that are already in existence.

This budget has been very severe on old people and on the widowed. Unless we put together an attractive tax incentive scheme for people who are prepared to look after the old and the widowed, we will have waiting lists a mile long at all the homes for old people. There is a long waiting list at St. Joseph's Hospital, Trim, in my constituency. Many on the list are seriously ill and need urgent attention but some of the beds in that hospital are occupied by patients who could be looked after at home if the Government were prepared to give the necessary incentive.

The allowance of £110 has not been increased for the past three years. There is also a regulation attached to it. The allowance is reduced by one pound for each pound by which the income of the person exceeds the maximum rate of the old age pension payable to a single person. That means that if a couple or a single person have a retirement pension after working for 30 or 40 years, the allowance of £110 will be reduced because of the extra income. I know this does not relate specifically to the amendment now before the House but I should like the Minister to look into the matter.

The Minister may tell us that what we are seeking will cost a considerable amount of money and he may ask us where this money will come from. The recent budget is taking more tax from the old people and widowed. I do not know if the Minister has been badly advised on this point. A single old age pensioner gets an increase of £100 in his tax-free allowance and the same applies to a widowed person and we know that the Minister has given an increase of 6 per cent in old age pensions. The Revenue Commissioners set an average figure on these pensions that is deductible from the tax-free allowances. In the past month I know of cases where the extra increase in the pension was greater than the increase in the tax-free allowance and the result has been that the person concerned must pay more tax. The Minister could easily estimate how much money that extra taxation will yield in that area and that could be pooled to give a concession to the old people and those who will look after them.

Many old age pensioners and widowed people have received tax-free allowances that should be at the maximum exemption rate and which had been on that maximum exemption rate for the past few years. However, because of some computer error only the basic tax-free allowance was given to these people and, as a result they have already paid that extra money to the Revenue Commissioners. Now they will have to apply for the proper tax-free allowance and it may be a few months before they get their money back. This should not happen to old people and I should like the Minister to investigate that matter. It is obvious that old age pensioners and widowed people are being conned into paying extra tax.

I have allowed the Deputy to make a passing reference to the matter but we cannot have a debate on it.

I appreciate the leniency the Chair has shown me. I am merely highlighting a matter we are discussing at the moment, namely, the dependent allowance of £110. I am building on that point and saying that the old people have been treated very badly in the budget by the Government.

The Deputy is doing more than building. He is creating a whole new structure.

Old people are shoved out of their homes by families who cannot afford to keep them because they have not the income. They have to look after their own families. Surely the Minister could give some incentive, say, a tax-free allowance to a son or daughter to encourage them to keep old people in their own home. This would avoid many old people having to go into homes. These people have a major role to play in family life. They have been cut out of family life. I understood that one of the priorities of the Constitution was to cherish family life.

In support of what Deputies Hilliard and Ahern have said, we are not suggesting that acceptance of our amendment would create a vast change in the situation whereby too many people were put into institutional care. We are drawing to the Minister's attention the social effect of institutional care and its economic cost. As Deputy Yates said, perhaps a better way to do it would be to adjust the prescribed relative allowance but that is not for discussion here. We are discussing a specific amendment to the Finance Bill. Whereas this amendment of itself would not rectify the situation it would constitute a significant step in the right direction. If the Minister wants to make a change in this area of revenue law he does not have to confine himself to the limits set out in our amendment; he can grant much more generous allowances if he wishes.

I want to put on the record that I found Deputy Yates's argument one of the most spurious I have heard since coming into this House. He suggested that it would be impractical, unreal or in some way wrong for this party to put forward amendments to the Finance Bill because the Revenue Commissioners have already issued certificates of tax-free allowances based on the Minister's budget speech. Were we to push that argument to its logical conclusion we might as well not be here at all. Those people who have received their tax-free allowance certificates would have no objection whatever to receiving another with an increased allowance within the next couple of weeks. I would ask the Minister to give this amendment serious consideration.

Before dealing with the detail of the amendment I should communicate to the House a number of facts about the operation of this allowance. For example, in 1981-82 there were 50,371 claims under PAYE for the dependent relative allowance. The following year there were 46,667, in 1983-84 there were 41,344 and in 1984-85, 38,175. Therefore there has been a drop of almost a quarter in the number of claims under PAYE for this allowance from 1981-82 to 1984-85. In addition, there have been fairly substantial increases in the income limit for the scheme over the years. The income limit for 1985-86 is £2,985. With the income limit increasing I suppose one might have expected that there would have tended to be an increase in the number of claims but that has not been the case. That would appear to suggest that, because of the actual amounts of income available through social welfare payments and other schemes, including superannuation schemes for people who have been in such schemes, retirement benefit schemes and so on, numbers of people are in a better position now to make provision for their retirement than they had been in previous years. I do not advance that as a conclusive argument about the scheme itself but nevertheless it is something we should bear in mind.

At the same time it is the people who are maintaining their old folk who have not the income, and the old folk are entitled——

I am afraid we must look at the total picture of both the dependent relative and the persons claiming the relief.

Deputy Yates did draw attention to a fairly important factor when he suggested that we should not overrate the capacity of the tax system to resolve the problem obtaining in regard to the relationship between elderly persons and their families. We all know there are cases where family members will go to almost any lengths to be able to care for an elderly relative at home. They will do so because they feel that that is what they should do and indeed would do so without any financial assistance. Equally we are aware — all of us meet these cases — that there are cases where it would be virtually impossible to conceive of a situation in which some people would wish to have an elderly relative living with them.

That is all the more reason the allowance should be increased.

An increase in the allowance in a case such as that would be totally irrelevant.

Not in that case, but in the opposite case.

I am endeavouring to deal with the points raised by the Opposition. I know Deputy Hilliard has a great enthusiasm in this area. I am going through the points raised and shall come to his in a moment.

I was supporting the point made by Deputy Yates to say that we should not overestimate the ability of the tax system to deal with the human and social problems met in the area about which we are now talking. In relation to a number of other schemes — to which I will make a passing reference later — Deputy Yates asked if some of the conditions for access to them, whether it be the prescribed relative allowance or the home help scheme, were not too restrictive. That is a fair question and should be taken up in another context.

Deputy Yates also asked what would be the situation in case of marital breakdown where a deserted wife had a child at work, whether the eldest child could get some allowance where he or she was the breadwinner. One would have to examine each specific case. For example, where there were younger children dependent on and being supported by an older son or daughter, in that case the older son or daughter could qualify for the child income tax allowance. But it is something that would have to be examined in each specific case. One could not make a general ruling about it because it would be dependent on a number of factors.

The amendment proposes that the allowance be increased to £350.

What would it cost?

In 1985 the cost would be approximately £2.6 million and, in a full year, approximately £4.3 million. There are approximately 38,000 taxpayers under PAYE claiming this allowance and approximately 4,000 other taxpayers claiming the allowance also. I might point out that section 1 already provides for substantial increases in exemption limits in general for taxpayers, particularly applicable to those 65 years and upwards, and indeed automatically for an increase or a modification in the operation of marginal relief associated therewith. Taking the total cost of the increases in the general and age exemption limits, that amounts to approximately £3.7 million this year and in a full year, £6.3 million, and it will take 10,500 taxpayers out of the income tax net.

There is also a wide range of substantial increases in social welfare payments of various kinds produced in the budget many of which are relevant to the dependent relatives about whom we are talking. We have also increased the allowance available to a taxpayer for a person looking after an incapacitated taxpayer or an incapacitated taxpayer's spouse. That has gone up from £2,000 to £2,500. There is a social welfare allowance for an incapacitated pensioner who is receiving full-time care and attention from a prescribed person and there are the other schemes mentioned by Deputy Hilliard and Deputy Yates which are operated through the health boards. It is not as if no improved provision has been made during the course of this year to cover the categories of people concerned. There have been substantial improvements in provisions for elderly persons and I should like to rebut Deputy Hilliard's contention that this budget has been severe on old people and widows.

They are paying more tax.

That is not the case.

That is the case.

We have provided in this budget, as we have for the past two years, an improvement in the real value of social welfare allowances made to old people. The intermingling of the tax system and the social welfare system gives rise to difficulties for quite a number of old people, but we must ask why those difficulties arise. They arise because we operate the system so as to make sure that social welfare pensions can be paid without deduction of tax, although the total income is liable for tax. If there is any tax burden it falls on the other source of income, if any, which is available to the taxpayer. It is there that the value of the increases in the exemption limits becomes clear. Deputy Hilliard spoke in that connection about the restriction on this allowance where the income of the dependent relative is in excess of the prescribed limit. That is a matter of principle. We can argue about the levels but the question he raises is one of principle, which has to do with the idea that we try to target those various social benefits in order to make sure that the biggest advantage goes to those who need it most. I would not accept that Deputy Hilliard has a case on the point of principle. There is obviously a case to be made by the Opposition on the question of the levels.

Deputy O'Dea suggested that we increase the dependent relative allowance. Obviously he is supporting the case. Increases in tax allowances are of benefit only to people who have a tax liability and the more tax liability an individual has, the more the increase in the allowance is worth. This is a point I will leave with the Opposition to reflect upon. Indeed, we could all usefully consider the line of thought which ran through the report of the Commission on Taxation that perhaps we could target schemes more effectively not through the tax system but by direct payments, which would of course require some assessment of means to make sure the payments would go to those who needed them.

What has emerged from the Minister's reply strengthens considerably our case and underlines the need to adopt an amendment of this kind. The Minister has indicated that in 1981 50,301 people were claiming dependent relative allowances.

The figure was 50,371.

That figure dropped to 46,000 in 1982, 41,000 in 1983 and it is now down to 38,000. That more than anything else demonstrates the fact that our amendment must be adopted. With a growing number of old people in our society——

Better provided for by the State.

There is the difference. We find that 12,000 fewer people are claiming the dependent relatives allowance than in 1981. The number has been dropping on a continuous slide.

In spite of the income limit going up.

I do not have the precise demographic information but the number of old people over 65 is considerably more now than in 1981. Despite that, the claims being made by income taxpayers have declined by 12,000 as against the figure four years ago. Clearly it is not that people are not claiming in respect of relatives for whom they are providing. The Minister has pointed out that there has been an increase in the income limit in respect of people who could claim. Naturally they would be claiming for people if they were providing for them. The Minister has said more to prove our case than we could ever do. The truth is that people are not being provided for at home in anything like the same numbers. The reason is equally obvious. This allowance has not been increased for a very considerable number of years. We may say that people should be more responsible and concerned but when they find that in spite of their awareness and concern the amount they get by way of tax free allowance is only £110, then it is not surprising that they are actually pushing the old folk out of their homes. If they were in their homes they would be claiming for them. Never have I found figures so dramatically in support of our case as those which the Minister has given. I am wondering why it does not occur to somebody in the Revenue Commissioners or in the Minister's Department to ask why there is such a dramatic decline in the numbers claiming this allowance. There is only one answer. Old people are being shunted out of private homes into State homes. As the Minister said, the Government are providing for them at much greater cost.

The incomes of the people concerned have a bearing.

We argued for age exemptions on Committee Stage but the Minister would not increase the age exemptions for income tax by a miserable £200.

I did increase the exemption limits.

The Minister admitted that to adopt our proposal in respect of people over the age of 75 — God knows anybody who reaches that age should be taken out of the net completely——

We have increased the age exemption limits.

Not in real terms. The old age pensioner is paying more tax.

Allow Deputy O'Kennedy to conclude the debate on this amendment.

We were proposing an 8 per cent to 10 per cent increase in the age exemptions, just marginally ahead of inflation. The Minister would not adopt it. The Minister said that it would increase the limits but, of course, the limits have to be increased each year to take account of inflation. The Minister told me that the figure involved in accepting one of those amendments would be of the order of a couple of hundred thousand pounds which in the context of a total tax bill of £6,000 million would not even register on the scale much less be an issue. It would have applied to a few thousand pensioners. They would no longer be burdened with the old problem of filling up forms which, in the final analysis, would probably yield 35p or 40p per week to the Revenue. We must also take account of the worry and tension it causes such people and the cost of sending the forms out.

I insist that the matter be looked at more seriously than it has been. I should like to say to the Revenue Commissioners that when trends like that emerge they should not see themselves as operating in isolation and only being concerned with how much comes in and how much goes out. If they see trends like that in dependent relative claims surely they should see it as an obligation to pass on to the Minister for Finance the view that something dramatic was happening, that claims were not being submitted and people were not being cared for at home.

That is not necessary. The Deputy is only looking at one side of the argument.

The figures mentioned by the Minister are the most dramatic I have seen for a long time. The Minister should be asking the Minister for Health and Social Welfare what the cause is. The Minister told the House that our suggestion would cost £2.6 million in 1985 and it appears that that figure is overstated. It is on the basis that everybody would make the full claim in every respect. Let us assume that the Minister's figure is correct, that the cost of adopting the suggestion would be £4.3 million in a full year. I should like to put the alternative cost. In 1981, 50,000 people claimed this allowance but in 1984-85 that number dropped by 12,000 to 38,000. If those people are not in their own homes they are elsewhere under the care of the State. If one multiplies 12,000 by a low figure for maintenance — I will estimate this as low as possible in the interest of the Minister; we will not say £50,000 per annum which is the regular cost of a bed in any hospital per year for old people but let us say £10,000 per annum which is the cheapest care available in any home or otherwise for an old person — by the low figure of £10,000, one comes up with £120 million per annum. That calculation gives the Minister the benefit of the cheapest care and maintainance cost in any institution.

Those who are not being provided for at home and who, according to the Minister, would cost £4.3 million per year, are costing him instead £120 million to be looked after in a place where they are not at all as happy or do not feel as secure as they would be if they were in their home.

It must also be said that their contribution to society is not at all as meaningful as it might be. The term "dependent relative" is a tax term but I would like to think that we could convey to old people the notion that we do not always see them as being just dependants, that we also see them as contributors in a real sense to a happier and better society. Old people have, for one reason or another, a lot to contribute in the family home and in the community in rural Ireland. If one listens to them telling stories of the past about hurling matches and great events, chatting to youngsters at the crossroads or to each other one will realise that their contribution to the well-being of society is great.

However, if we insist that they are not to be provided for at home and are to be looked after elsewhere they will concede to themselves, though wrongly, that they are being left to mingle with their contemporaries, with people like themselves who are being minded in hospitals and institutions. Those people would not be encouraged to think that they are other than dependants waiting for the final call. That is deplorable. In view of the cost involved, it is time we woke up. I am often asked where will I find the money but in this case the Minister's reply has indicated where I could find it. By adopting our proposal the State could save a huge sum of money. The truth is that the people we are referring to are not the type who would be represented. What has happened is that people cannot afford to keep such people at home. They are not being looked after at home any more and the State is being asked to look after them. That is why the numbers given by the Minister this morning shows such a dramatic decline.

The Deputy is ignoring completely what is happening to the income limit.

Old age pensioners are paying more tax.

The Minister was quoting Deputy Yates when he said that we should not overestimate the consequence of the tax system and how we could promote a social awareness through it. I have taken account of that. I do not think we could underestimate the damaging effect of a tax system that as not given any consideration to the social consequences that derive from its limited tunnelled vision. A proposal under which a miserable allowance has stayed the same for the last number of years is damaging. It is not surprising that families who are under income pressures are saying: "Wherever else gran or granda stay they are not going to stay in our house. We have enough problems without having to look after either of them and change the bed clothes and so on. They can do that somewhere else. We will not take on those problems."

The Deputy did not make any changes in that in 1980.

The Minister should not be introducing red herrings.

Is that the best the Minister can do?

The Minister should do his own job now that he is in Government.

In 1981 the figure involved was 50,301 and at a guess it was about 55,000 in 1980. The allowance in 1980 was a lot more valuable than the allowance in 1985.

That cuts both ways. The income limit was lower.

I would hope that the Minister once in a while would have a thought for the consequences of the crude deliberate decisions. I worry about the lack of experience of the human condition of the Minister and about the lack of contact of the Minister.

On a point of order, what has the Deputy's nonsensical views concerning my experience of the human condition, about which he knows nothing whatever, got to do with the Bill? We have had enough of this cant and rubbish.

The Minister should look to the other side of the responsibility of any Minister and not just always add up, subtract and, as the Minister says, strike the balance on figures.

Your problem is that you cannot make up your mind.

The day that a Minister confines himself to that little exercise is the day the people we are concerned about will be confined in institutions.

The Deputy is incapable of deciding anything.

(Interruptions.)

They could be happier and well provided for at a much smaller cost. Next we will have the Minister for Health saying that he has not enough money in the health services. We are pressing our amendment.

Amendment put and declared lost.

I move amendment No. 2:

In page 11, to delete lines 2 and 3.

This amendment relates to PRSI. We have been dealing with the social impact of short-sighted tax legislation. I dealt with the economic impact of the levels of taxation in my first amendment. I failed to get a response from the Minister on either proposition and I know I will not get a response on this. That will not prevent me from making the case to restore the PRSI tax allowance to what it was in 1981. The allowance originally was £312, but it was reduced by the Minister in his first budget to £286, and there it has stayed. To restore the allowance to what it was four or give years ago in real terms would not be anywhere near the value it was then.

Because of the levels of taxation, levies and PRSI, employment is being penalised thus creating unemployment problems. As the Commission on Taxation pointed out and as the Government's advisers pointed out, our tax system discriminates against employment. It discriminates in favour of costs of equipment against costs of employment. The level of PRSI is a considerable factor in the growth of unemployment. As unemployment grows more and more people are claiming pay-related benefits for as long as they can. I was in Government in the early seventies so I have some little experience of the system when it was introduced. Into the late seventies the PRSI fund was in surplus. I recall the late Deputy Joe Brennan saying to us in Government one day when we were wondering where we could get £1 million for a worthwhile project. We worried about those things then.

The Deputy is not worried now.

That showed how we had matters under control.

From 1979 to 1982 the current deficit overran by an average of 56 per cent of the original estimate.

(Interruptions.)

When we looked for a few million pounds I remember the late Deputy Joe Brennan saying that he had it in his fund. This fund was in surplus and the late Deputy Joe Brennan invited us to consider making an application to him for the use of that fund. That fund was in surplus because we had buoyant activity in the economy and very few claims on the fund. In recent times we have a depressed economy and growing claims on the fund.

I will give the trend of contributions which the taxpayer has to make to the social welfare fund. In 1981 income to the fund was £470 million, expenditure was £650 million and the difference between income and expenditure was £180 million. In 1982 income was £650 million, expenditure was £870 million and the difference on expenditure over income was £220 million, a growth of £140 million. In 1983 that figure grew. The income was £760 million and expenditure was at £1,000 million, the difference being £240 million. In 1984 the provisional figure for income is £800 million and expenditure is £1,1000 million the difference being £300 million. The estimated figure for 1985 is income at £0.89 billion and the expenditure is estimated at £1.2 billion, the difference being £310 million.

The shortfall between income and expenditure in respect of this fund has grown from £180 million to £310 million through constant and ever-increasing stages over the last five years. That demonstrates beyond doubt that we are witnessing the consequence of growing unemployment and the demand which that is making on this fund. It is not surprising as we get into this vicious circle that PAYE workers are screaming about PRSI. The PRSI worker does not and cannot realise that he is subsidising the fund only to the tune of £310 million this year. What they do not know is that they are not paying enough to cover the expenditure from the fund and that the deficit is being made up by by extra contributions in tax. If we confine ourselves to reacting by increasing PRSI contributions we will drive more and more people out of work and put more and more claims on to this fund so that we will be unable to extract ourselves from this vicious circle. We should restore the allowance to £312 as I propose in this amendment. That would be no increase at all over the 1981 figure; it would be a decrease.

There is not much more that I should say. The facts speak for themselves in this case and no doubt some of my colleagues may want to make a contribution. As long as we continue, as this Minister seems determined to continue, to work only on the basis that we will do it all by addition and subtraction: "that all of you human-kind out there behave like the robots that I think you should be, not as human beings who will give up work if the level of tax is too much, who will be discouraged by levels of PRSI. I look on you as pawns and when I move you from one place to the other you stay moved" we will see even further consequences on this table and on tax next year. We will have higher levels of tax, higher levels of PRSI and fewer people at work.

I support the points made by Deputy O'Kennedy. I pointed out yesterday and the day before since we started to debate this Finance Bill that one of the major disincentives to employment creation is the level of taxation generally, and PRSI is a significant factor in that. We are talking here, in relation to PRSI and PAYE, about double taxation. Levies, PRSI, youth employment levy etc. are deducted from a person's gross income and then PAYE is levied on gross income; in other words he is paying tax on income which has already borne tax. He is paying tax on income which he does not have. He is paying tax on a notional income. God knows, the levels of taxation are high enough without a person having to pay tax on income which he did not receive. Our amendment would not rectify that situation but it would go a small way to restore some equity to this area.

The Minister has paid a great deal of lip service to equity in taxation and to the fact that the burden of taxation is too high. Here is his chance to do something small to reduce it in such a way that he would move substantially in the direction of restoring equity to the tax system. It would be a small step in the right direction and I urge the Minister to accept it.

We had a similar amendment on Committee Stage which went further than Deputy O'Kennedy's amendment goes. Deputy O'Kennedy's amendment would cost £3.6 million this year and about £6 million in a full year.

In relation to moving towards tax equity, I remind Deputy O'Dea that the first report of the Commission on Taxation, much quoted by Deputy O'Kennedy, takes the line that in order to bring about equity and an improvement in the tax system we should as far as possible do away with the various allowances that are in the system and apply, as they suggest, a single rate of taxation to all income.

That is not to suggest that double taxation is equity.

I have already told the House on a number of occasions that that is broadly the direction in which we should go but first we must take action in relation to the overall level of taxation, which we have set about doing in the mational plan. Permit me to wander briefly. I would have thought that by now Deputy O'Kennedy would have become tired of his constant attempt — I do not know whether he believes it; if he does then I have no hope at all for him — to present the Minister for Finance as some kind of robot who plays with pawns. The difficulty is that Deputy O'Kennedy has not managed to surmount the fact that he is not capable — I am not being personal about this — his party are not capable of making up their minds about priorities. Drawing up a budget or a plan requires making decisions on priorities. Looking at these amendments requires making decisions on whether the change in priorities suggested by the amendment, this or any other, is justified in relation to the overall budgetary picture. I do not find that this amendment would be justified in relation to the overall budgetary picture.

Deputy O'Kennedy to conclude the debate on this amendment.

The Minister's response which has said so little says it all, and that is typical. At least he is being consistent.

You are not on a chess board.

Having regard to the overall budgetary picture he does not find that it would be justified. He could say it in five or six of his other jargon phrases such as: "It would not be such as to get the right balance between income and expenditure"; "It would not be justified in current economic conditions" and so on. Why did he not say again that the spokesman for the Opposition did not point out where the money could be got? For the record I will point out in this case where this amount of money could be got this year to great effect. I have demonstrated every case I have made here this morning where the revenue could be saved. The Minister might not like what I am going to say in this instance but he is going to hear it in any event. This year the gross cost will be £3.6 million. I accept the figure. It will be of the order of £2.5 million net. I will tell where it can be saved.

That does not take into account that we have already taken account of revenue buoyancy.

Let us save about 60 per cent of what this Government are spending on spurious public relations campaigns for each and every Minister in this Government. I have sat around a number of Government tables without having the benefit of any public relations adviser in my Departments of Finance and Foreign Affairs. I have been asked to point out where the money will come from. Every Minister in this Government including the Minister at present in the House, never mind the Taoiseach, the Minister for the Public Service and even the Minister for Foreign Affairs who has a well-known Waterford man whom I used to know well and who belonged to a good hurling family——

The Deputy is misleading the House.

Does the Minister want to find out where the money is to come from?

The Deputy is misleading the House.

Unless the Minister has a point of order——

The Deputy has claimed that I have a public relations consultant.

The Minister is out of order. No doubt he will get an opportunity later on of saying what he wants to say.

I was saying that the workers who are loaded with the level of PRSI can know now that for the sake of putting them back to where they were when I was in the Minister's position — and that is not nearly bringing them up in line with inflation — this Government are not prepared even to reduce the public relations propaganda machine that they are using, which is the only thing they are using with any degree of effect. I accept what the Minister says, that he has no public relations consultant although I was under the impression that he had one, but I think I am right in mentioning the Minister for the Public Service and the Taoiseach and I know the Minister for Foreign Affairs has one. When I was Minister for Foreign Affairs——

The Deputy may refer to these matters but he may not have a full dress debate about them.

I have the figures and I know what they cost. I was, as every Minister should be, not only satisfied with the press relations office in the Department of Foreign Affairs, I thought I was very fortunate to have such professional people. I do not think that bringing someone in from outside at enormous cost to the taxpayer was warranted to try to keep the Minister's personality up front in headlines every day, and the same is true of all of them. The workers are entitled to say at least that if it is costing so little to restore PRSI to where it was, then give us half at least of what you are spending on spurious propaganda campaigns in every Department on those close — I do not want to use the term — to the Government who are doing rather well out of this new development in Government services. They will be queueing up if we keep this going. They are doing exceptionally well out of this. Our first priority is to the workers, not to public relations. The Minister is not going to adopt this suggestion, so all I can do is let the record stand.

Amendment put and declared lost.

I move amendment No. 3:

In page 14, line 9, to delete "seven" and substitute "five".

During the Committee Stage we had a discussion on section 10 about the length of the lease period in respect of which the exemption provided for in this section would apply. In the Bill as originally proposed we provided for a lease period of seven years. What I am now proposing, following the Committee Stage discussion, is instead of a period of seven years to provide a period of five years. That would be by way of a modification of section 10 (1) (a) (ii). Having regard to previous discussions it was agreed that a three year period would be too short. From the point of view of the person taking the land on a lease, I think seven years would be the appropriate period, but I am open to the thought that we need to provoke movement on both sides and from that point I am prepared to see how we get on with a period of five years.

The Minister has accepted one of the points we made on Committee Stage. I am at a disadvantage, because it becomes a habit to be critical, but in this instance I want to express my appreciation for the Minister accepting this proposal. I hope it will prove to be the right course. The Minister has proved flexible in respect of the qualification for land leasing and the land leasing allowance under the Finance Bill, but if experience shows the Minister, or whichever of us fills this role very soon, that this is too generous and if the Minister or I find we want to come back, we will have open minds on it. As I said, I appreciate that the Minister has accepted the spirit of our proposal.

Amendment agreed to.

Amendment No. 4 is in the name of Deputy O'Kennedy.

While this amendment is in my name, may it be moved by another Deputy?

Yes, but if Deputy Ahern moves it he will have to reply to it, although you may speak.

I move amendment No. 4:

In page 16, between lines 15 and 16, to insert the following:

"(2) For the purposes of income levy, that all self-employed persons be levied on their net profit.".

This amendment deals with the levy on the self-employed. This tax is levied on a PAYE worker's gross income before personal allowances, whereas the self-employed have this tax levied on their gross income before capital and personal allowances. I believe this tax should be levied on net profits, because the gross profit is not a true reflection of a person's income. As this was to be a temporary levy, but it is continued year in and year out to collect money in an easy way, I think it is time it was removed or, if not removed, then at least it should be levied on net profit rather than gross profit.

I support this amendment. We are opposed to the principle of this levy because it was supposed to be a temporary levy and from the Minister's contribution the last day we have no idea when it will be removed. It has all the characteristics of a permanent levy, and that is why we would welcome any adjustment in this area. This levy falls into the category of the disincentive elements of taxation, because the Commission on Taxation pointed out that all the extra contributions, be they income tax levies or PRSI, should be treated as tax deductions from salary because once they are levied at source they become tax deductions.

There are inequities in the tax system. Deputy Ahern is an accountant and has practical experience in this area. It seems there is an inequity in this tax being levied on the gross profit as distinct from net profit of farmers. Farmers have often said they should be treated the same as everybody else. We are talking here about the self-employed because the PAYE workers have these deductions made at source. I hope the Minister will accept this amendment.

This amendment refers to the income levy only, but we have three levies which are collected on the same base. It is difficult to decide what difference this would make because we do not know the Deputy's definition of "net profit". However, there are a number of considerations we have to bear in mind in approaching an amendment like this. First, it would probably have to be extended to the other two levies, and, secondly, PAYE taxpayers are assessed on their gross income, and were this approach to be adopted it could be expected that they would seek a similar concession.

The self-employed are already allowed a number of deductions, such as business expenses and interest on loans for business purposes. This is in keeping with the base on which we defined the income levies. The same definition of income is used as a base for the income levy as is used for the other two levies. The reckonable income is contained in regulation 6 of the Youth Employment Regulations, 1982. I do not propose to go into all these regulations but I will quote from the most relevant parts:

For the purposes of the Act, "reckonable income" means, in relation to an individual, for a contribution year, the aggregate of the individual's income from all sources, other than——

(a) non-pecuniary income, and

(b) payments under the Social Welfare Acts, 1981 and 1982,

for the contribution year, as estimated in accordance with the provisions of the Income Tax Acts, ... after deducting from the income so much of any deduction allowed by virtue of Chapter II of Part I of the Finance Act, 1972...as is to be deducted from or set off against that income in charging it to income tax.

This "reckonable income" covers income from all sources, except benefits in kind and payments under the Social Welfare Acts less superannuation contributions. It includes all income from self-employment, dividends, rents and so on. As I said at the beginning, the amendment does not define exactly what is meant by net profit. The profit figure shown by a set of accounts cannot be the one that is meant because such a figure might be arrived at after a number of deductions which would not be acceptable for tax purposes, such as personal expenditure, interest on personal borrowings or capital expenditure. In that case we would have a base which was not consistent with that for the other levies. If the amendment was intended to refer to net profit for tax purposes, it comes back to the figure on the basis of which the levies are calculated at present anyway so, in effect, there would be no change.

The basis of the complaints which I think I can reasonably infer has given rise to the amendment is that some self-employed people, particularly farmers, take the view that they are unfairly treated in that they do not get any allowance for capital expenditure and dispute the fact that they are treated in the same way as other people, since they maintain that PAYE workers do not have capital expenditure. That is not true because a number of PAYE workers, as Deputy Ahern knows, are entitled to some special allowances in relation to protective clothing, wear and tear on tools and so on. Expenditure of that kind is not allowable as a deduction against reckonable income for the purpose of calculating these levies. As I said on Committee Stage, we have a reasonable concordance of treatment of the self-employed and employees in the calculation of their liability for these levies. To arrive at reckonable income, for example, a farmer would deduct all his allowable expenses and stock relief before arriving at the reckonable income base for the purpose of these levies. Business expenses are properly deducted for the purpose of these levies, so the treatment, in so far as we can make it, is the same for all categories of taxpayer.

Amendment put and declared lost.
Amendment No. 5 not moved.

Amendments Nos. 6, 8, 9 and 10 will be taken together, by agreement.

I move amendment No. 6:

In page 40, between lines 25 and 26, to insert the following:

"(d) Five per cent of the amount on which tax is chargeable in relation to the supply of the following goods or services:

(i) services consisting of the development of immovable goods, and the maintenance and repair of immovable goods including the installation of fixtures, where the value of movable goods (if any) provided in pursuance of an agreement in relation to such services does not exceed two-thirds of the total amount on which tax is chargeable in respect of the agreement;

(ii) concrete ready to pour;

(iii) blocks, of concrete, of a kind which comply with the specification contained in the Standard Specification (Concrete Building Blocks) Declaration, 1974 (Irish Standard 20: 1974);

(iv) articles of personal clothing and textile handkerchiefs excluding—

(a) articles of clothing made wholly or partly of fur skin, other than garments merely trimmed with fur skin unless the trimming has an area greater than one-fifth of the area of the outside material, and

(b) articles of personal clothing of a kind specified in paragraphs (xvii) and (xviii) of the Second Schedule;

(v) (a) fabrics, yarn, thread and leather, of a kind normally used in the manufacture of clothing, including elastics, tapes and padding materials in the form supplied for the manufacture of clothing, and

(b) yarn of a kind normally used in the manufacture of clothing fabrics;

(vi) articles of personal footwear, other than articles of personal footwear of a kind specified in paragraph (xix) of the Second Schedule;

(vii) sole and upper leather of a kind normally used for the manufacture and repair of footwear, and also soles, heels and insoles of any material;".

This would involve introducing a new VAT tax band of 5 per cent in respect of the goods covered by this amendment. The basis on which the amendment is introduced is that the Minister did not accede to any case we made on Committee Stage in respect of building, footwear and clothing. It was not open to me to repeat the same proposals in an amendment for Report Stage. Consequently, the only basis on which I could raise these issues again now — and they are matters of considerable importance — was to substitute a different amendment which was not covered on Committee Stage.

I am as anxious as anyone to ensure that the complexities of the VAT system are reduced but, if reducing the number of bands means, particularly in respect of the building industry, that the level of VAT is increased by 100 per cent, then even our determination to simplify the system should not allow us to close our eyes to the consequences of the extra tax burden on a very important industry.

The same argument applies to the rate of VAT on clothing. Where we take the view that the VAT levels in respect of particularly sensitive and important areas are too high and the increases too severe, the proper course for us to adopt is to propose that the adjustments will be back to where they were or, in the case of clothing, slightly less than where they were. Since we have been arguing the case here, the indications conveyed to us by the construction industry are that we did not put the case as fully as we should have done. Obviously, they were influenced by the necessarily abbreviated newspaper reports and I am not criticising that even though, in some cases, the reports were non-existent. I do not wish to repeat the comments which I made regarding the Irish Press last night and I did not see today's issue. Some of our newspapers have endeavoured to cover this rather tedious debate fully and I wish to express my appreciation to them.

We are told that legislators should legislate and their obligations in that regard can best be demonstrated on Committee Stage of a Bill. At that point, details of every section are gone through before they apply in law to the citizens whom we are concerned to protect. It is not very exciting or dramatic but it is, nonetheless, very important. The provisions we are dealing with here have very serious consequences for various sectors, especially the building industry in which there are 50,000 people unemployed at present. The number on the live register is 230,000 which puts into focus the dramatic decline in the building industry. When you think of the cost of social welfare payments to numbers like that — and the social welfare payments do not include the PRSI payments, the yawning gap which I pointed out this morning in an earlier proposal — you can see the pressure that brings to bear on the Exchequer. Money which should be invested here is being invested elsewhere. That is the trend. People in the building sector are being forced to move out instead of, as was the position, encouraging others to move in. Six, seven or eight years ago some major construction companies were anxious to move in to this healthy climate. That is not the case now. Some of our major construction companies have their poster, placards and signs decorating cities in Europe, the Middle East and the United States. One has to welcome the fact that they have reached that stage of development, but the whole climate for investment in the construction industry needs to be drastically reappraised and given a significant shot in the arm.

In contrast to many other industries, almost all the materials and components are produced at home for the building industry. That should not be overlooked when we are trying to maximise the amount of employment that can be generated by our own activities in processing and manufacturing. This industry should be singled out for special treatment. The Minister should have included the building and construction industry in the venture capital scheme. He cannot do it now because the Bill is about to pass, but I hope he will keep an open mind and if he wants to bring in an amendment I will respond favourably. If a qualification for that scheme was that you could not get the money otherwise, every construction company here would be well qualified indeed. They cannot get money. They are being pressed by the banks and, in many cases, they are being put out of business. I will not make judgment on whether the banks should do this, that or the other.

I invite the Minister to look at the files in the Office of the Revenue Commissioners without checking on individual names. If he does that, he will see that construction companies feature very prominently in claims made by the Revenue Commissioners. They are determined to claim interest payments as well as tax due from some of these companies. Because they were not prepared to compromise on the interest three years ago, interest has accrued and some companies cannot pay even the original capital sum. I appeal to the Minister to convey to the Chairman of the Revenue Commissioners that if a commercial enterprise has a tax bill of £150,000 plus interest of £50,000 the Commissioners should accept the original sum and not insist on interest, as happens now. I have seen many examples of this since the debate started. If you refuse to accept the sum due without interest, in three years time there is nothing available to pay the capital or the interest. That is happening in the case of contractors and sub-contractors who have run into difficulties. As contractors fall, naturally sub-contractors fall with them.

The Minister should check in the Office of the Revenue Commissioners on the number of agricultural contractors who were unable to discharge their obligations to the inspector of taxes over the past few years. I know a number of them in my own constituency. Three or four of them have gone out of business because of the depressed state of agriculture, because of the suspension of the farm modernisation scheme and because building programmes were declining. I am sure the files of the Revenue Commissioners are full of the names of people like that. People are getting letters and demands. The powers of the Revenue Commissioners are being strengthened, because in this Bill the Minister has put interest payments on the same footing as other payments. They cannot be statute barred. That is a major step. Between the Revenue and the citizen there should always be a balance between right and obligation. That balance no longer exists. The Revenue Commissioners can go back without any limitation on time. That is wrong in principle. They can go back 30 years. You never know when you have discharged your responsibility.

There is no reason why those who sit in the offices of inspectors of taxes or Revenue Commissioners should be in a specially privileged position. There is no reason why they should be able to say: "On our terms or not at all". I am not saying they should not have power and authority within the law to deal with people who evade or avoid their responsibilities. They should not be not only all powerful but almighty. People with companies with real problems feel totally at the mercy, sometimes the rather tender mercy, of the Revenue Commissioners. They fear certain officers. I am talking in particular about builders' providers, contractors and sub-contractors. They are constantly preoccupied with this and they try to convey their fears to me by phoning me at all hours of the day and night asking me to do something about it or to get on to the Minister. This is becoming very serious.

I want the Minister to ask the Chairman of the Revenue Commissioners — I know he cannot look at the files — how many claims are outstanding in respect of the business sector and how many proceedings are being threatened. He will be appalled at the information he will get. This is a consequence of the depressed state of the industry. The revenue which could be generated by a buoyant construction industry is exemplified by the tax contributions made in the good years, in the sixties and the seventies. The industry is labour intensive. If unemployment is our major problem I cannot understand why the industries providing employment opportunities are not singled out for special help as distinct from special punishment.

The construction industry fits into this pattern. In a television interview which was noted for other comments also, a former Minister for Local Government, Deputy Blaney, focussed on the construction industry as being the major avenue through which we can boost the economy. Obviously, he was interested in dealing with economic issues as opposed to some of the other matters that were being discussed during the interview. Of course the capital programme is not unlimited, but, as I indicted to the Minister at Committee Stage, some of what has been done by the Government should be undone. For instance, such nonsense taxes as the residential property tax should be abolished, a tax that is not yielding any money. The Government would bring in more by way of stamp duty. Such steps on their part would give a signal not only to those who are here to begin again but to those who might wish to invest here that this is a healthy climate for investment.

There was a time when we prided ourselves on the amount of investment we attracted. That was a focal point of all our capital programme policy, but matters have gone the other way in the past few years. Surely in the interest of the revenue alone the Minister ought to be concerned to ensure that the building industry be given a chance to breathe again and then perhaps to develop to the great potential it is capable of.

If the areas of building and the clothing and footwear industries have anything in common, it is that each involves high employment potential. Also, they are very much the traditional domestic activities in our economy. Unfortunately some of the footwear industries and many of the clothing industries have gone to the wall, but those remaining should be maintained and strengthened to the point where we can use this native base from which to build something bigger in the future. Those industries that have survived the famine of recent times must be fairly strong.

The potential of Irish industry, particularly of domestic industry, has not begun to be tapped. I regret that the Minister did not see fit to accept my amendment in relation to marketing. By accepting it he would have been making a major impact on the clothing and footwear industries, for instance. There is enormous potential for growth in our domestic industry but we must be prepared to research the market. If, for example, we wish to sell clothes to the French or the Swiss we must ascertain what these markets demand. The same applies to footwear. Without going into any further detail I would ask the Minister to reconsider his position in respect of these three elements of the economy. Our proposal is that VAT levels in all these aspects be reduced to a new tax band of 5 per cent. Obviously I would require the Minister to tell us what the cost involved in that change would be, either in net or in gross terms, but I consider the case in respect of the construction industry particularly to be almost unanswerable.

The decision of the Government to increase the VAT in this instance from 5 per cent to 10 per cent and to reduce the rate on materials and so on from 35 to 23 per cent while reducing the rate on blocks and other materials to 10 per cent will have a serious effect on the building trade. I do not know how the Minister could think otherwise. One assumes the Government's action is a means of squeezing more tax from the industry without taking into account the consequences of that action.

There are a few facts and figures in this regard that I should like the Minister to explain. Apart from ourselves, the builders and all those involved in the industry have difficulty in understanding the economic strategy behind this decision. At the old rate of 5 per cent, the tax in respect of a house costing £30,000 would be £1,500 so far as the purchaser was concerned, but with the rate being increased to 10 per cent the cost to the purchaser in terms of tax will be £3,000. Who does the Minister expect to pay that extra tax? Will the builder be expected to pay it or will it be the responsibility of the purchaser, or is the builder expected to add that amount to the price of the house so that the purchaser will pay for it anyway? These are very important questions, and I trust the Minister will give us a satisfactory explanation. Housing provides us with our greatest potential to create employment. That has been the case for many years. At a time when the industry is on its knees, the Government decision can hardly be justified.

This amendment relates to the increases in VAT on various sectors of the industry. The Minister gave the deaf ear to arguments on a similar amendment yesterday. Today's amendment is in slightly different form and I understand it would involve the creation of a new VAT band. The reason for this is technical. We have no wish to create new bands of VAT. On the contrary, we favour a move towards a single rate, but the Minister will understand that we could not table for Report Stage an amendment that had been tabled for Committee Stage. Therefore, we can only reiterate the arguments put forward yesterday in regard to the building, clothing and footwear industries. Anyone coming here from outside and considering the reality of what is being done would be astonished.

The Government put forward two proposals in regard to the construction industry — the doubling of the £1,000 new house grant and reduction in the rate of VAT on cement blocks to compensate for the doubling of VAT on houses. In effect, it will not do this. It takes more than cement blocks to build a house. As I pointed out yesterday, the reduction in VAT on cement blocks will encourage the black economy. I did not hear the Minister advance any convincing answer to these arguments. Perhaps he did not grasp their meaning, and hearing them for a second time will appreciate them and respond to them. The reduction in VAT on cement blocks reduces the price of this raw material for those who are not registered for VAT. It enables these people to be more competitive in their price.

Is that why the Deputy is proposing a further reduction in the rate?

This is part of a conglomerate amendment. The Minister will understand our technical difficulties. We cannot put forward the same type of amendment as yesterday, because that was defeated at the Minister's insistence. What the Minister proposes in order to offset the main change of doubling the VAT on houses will not have that effect. There will be detrimental consequences which probably were not in the forefront of his mind when making the original changes. The effects of these changes have been pointed out by us and by the CIF. Other interested parties outside the House have at great length and with great publicity shown the detrimental consequences of the Minister's actions. Our queries have not been answered by the Government, their representatives or their handlers. If they have no answer to our arguments, they should accept, at least in part, our amendments. The Minister does not say how the doubling of the VAT rate will help in the creation of employment in the construction industry, which is one of our most labour intensive industries. The Minister said yesterday that the housing industry is a barometer for the economy and that you do not improve the economy by tinkering about with that barometer, but something must be done to stimulate the economy. A certain amount of sympathy and consideration on the Government's part towards the construction industry at this time of depression would provide a considerable stimulus to the economy. This is not just our view on this side of the House, but that of many economic commentators.

The net result of the changes in the VAT rate in the Finance Bill will be to take £75 million out of the building industry. That is based on output figures for 1984-85. The effect on the private sector, according to the figures issued by the CIF — that is, private housing, agriculture, industrial and commercial development — will be about £40.5 million. Something in excess of £30 million will be taken from public work in the private sector — houses, schools, hospitals and so forth. Various spokesmen have advanced the argument that the reduction in VAT will create a cash flow advantage for the building industry, but that is not the case. My experience is that the refunding of VAT charged on input is normally given within the credit period which operates in the building industry generally.

These matters have been discussed at length in the budget debate and on Second, Committee and Report Stages. Could the Minister justify his reasons for doubling VAT on the building industry? I have not heard one word of justification, explanation or argument on that matter from the Government side. Has he an economic justification for it, or is it just a revenue collection exercise? Is there some good social or economic reason for it?

The Deputy was told on 13 January.

I have not heard one logical, rational explanation from the Minister to justify this change. I hope at the twelfth hour that he will answer our arguments. I would feel a lot easier in my mind if the Minister could explain that in simple terms. Perhaps I cannot grasp these high economic realities.

The Deputy would find them in the yellow booklet in front of him.

The people outside this House do not appear to have grasped the Minister's arguments either. That will be reflected on 20 June.

I think that they are sharp enough.

I can promise the Minister that, and it will not be like the Minister's promises. It will be fulfilled, I can assure him.

The other labour intensive industries, namely clothing and footwear, and the motor trade have also suffered from taxation increases. These are all areas where employment could be created and where employment has been lost due to the recession. There is no economic or other logic which can be advanced to justify that. It is incomprehensible, not just to me and my colleagues on this side of the House but to those outside the House. The Minister told us yesterday that the increase in VAT on footwear would not have any effect on employment in the footwear industry.

No, I did not.

If the Minister wants to tell that to those outside the House, on the doorsteps of County Kildare during the local election campaign, well and good. If they accept that, fine. I am not an economist and perhaps that is why I cannot understand it. The Minister tells us that VAT on footwear is a revenue collecting exercise. The logic of that is that the Minister could accept many more desirable amendments such as an increase in the dependent relatives' allowance advanced earlier here today. He could impose any rate of VAT, perhaps 90 per cent, on the footwear industry if it does not affect employment in that industry. He would have solved the problem and that would fill the black hole. He could increase VAT on the footwear industry to his heart's content, if it is not going to have any effect whatever on the levels of employment in that industry.

The Deputy has not got his facts right. He is a big disappointment.

I heard the Minister.

The people will tell the Minister how serious they are.

I heard the Minister. It is on the record. The Minister said that to increase the levels of VAT on the footwear industry would not affect employment within that industry.

That is not what I said.

The Minister said that yesterday and I now challenge him to deny it. It will be found on the record.

That is not what I said.

Perhaps the Minister is so confused that he cannot remember what he said yesterday.

No, the Deputy was not listening.

I am not surprised, because the attitude is changing from day to day. When it is changing so rapidly, it is hard to remember what you said yesterday.

He is becoming like the Taoiseach.

He has not become quite that bad yet, but he is on the way.

I have no difficulty at all. The trouble is that the Deputy does not want to listen to what is being said.

If the Minister continues along his present path, he will in due course reach the depths that the Taoiseach has reached.

Wandering, wandering.

The Deputies are weak.

We were dealing with wandering horses last night.

The Minister will know how weak we are on 20 June. The people are not fools.

Indeed, he will. We are only telling the Minister for his own good.

We are getting him ready for it. We have a dreadful unemployment problem from which many of our social problems stem. In that connection our law and order problem arises largely from unemployment. Yet, the response of the Minister and the Government is to increase taxation on labour-intensive industries. If somebody can explain to me the logic of that action I will accept it, and I will go home happy. I have not been happy in my mind about what the Government have been doing and I am not just taking a partisan view of this. I want the country and the economy to work. I do not want the IMF or some other body moving in here to take control. It is not a question of political point scoring but I still want to know how unemployment can be attacked if the Government persist in heaping extra taxation on labour intensive industries.

The Minister should have regard to what has been said not just in this House but also outside it by commentators, some of them supporters of his own party. He should give serious consideration to our amendment. It would be wrong to refuse to accept it just because it is coming from this side of the House. He should consider the independent arguments that have been advanced by the CIF and by representatives of the industries affected by the tax increases. If he is unwilling or unable to consider our amendment or to make any change of his own that would ease the situation, he should tell us the reason.

Because of the importance of the building industry it behoves us to express our deeply-felt fears about what will happen to that industry. I have been connected with the building industry for longer than I care to remember but I have never seen it in such a state. Both the small and the larger companies are now involved. For instance, in Mayo County Council small contractors are not able to compete in the tendering for house construction. I know of one instance where the 1984 house prices were £1,000 down on the 1983 prices. There is cut throat competition and it is not healthy. There is no way that standards can be maintained when prices are being reduced continually.

An indication of the way the industry is proceeding can be taken from the number of planning permissions granted, although I accept it is not the only indicator. According to statistics dated 14 May 1985 from the Central Statistics Office, in 1982 some 13,328 planning permissions were granted for new dwellings; in 1983 that was reduced to 11,221 and in 1984 the figure was 9,399. That is an indication of the decline of the industry and anything that accelerates that decline is bad for the industry and the economy.

Statistics released from the Central Statistics Office on 1 May 1985 in relation to employment in the building and construction industry show the decline that has occurred since last year. In the first three months of this year there has been an average drop of 12.5 per cent as compared with the first three months of last year. The index was at 60.6 for January 1985, it was 58.6 for February 1985 and it was 58 for March 1985. This is a decrease over the same months in 1984 of 11.4 per cent, 12.3 per cent and 12.9 per cent.

Like Deputy O'Dea, I fail to see the logic of imposing an extra 5 per cent tax on an industry that is on its knees. I appeal to the Minister, even at this late stage, to remove that extra 5 per cent tax. To my mind the tax should be removed completely. It was imposed at a time when the industry was buoyant but that was a mistake. To increase it at a time when the industry is in a disastrous state would be a very bad error.

I accept that the extra £1,000 grant will go some way towards compensating new housebuyers. However, it is not available to those purchasing secondhand houses. When one reads the various articles in the property section of newspapers and journals, one realises that the only thing saving the industry is the sale of houses in the £30,000 range. However, what the Minister is proposing now will affect even those sales. It is significant that up to 1 May there was a considerable increase in the number of houses sold when people were trying to buy before the new rates came into operation.

Even in respect of a local authority loan, a purchaser will have to pay approximately £130 a year extra and when this is taken in conjunction with the original price of the house a considerable amount of money is involved. For every house and school that is built and for the roadworks carried out this extra 5 per cent will be imposed and it will find itself eventually back in the Estimates of every Department. The Minister should rethink the matter. In the short term it may yield extra money but what the industry needs at the moment is encouragement, not the imposition of extra taxation.

Last Monday a young man called to see me. He had some problems. In 1982 he had 37 men employed but now he has three employed. The harsh reality in a constituency such as mine, so dependent on the building industry, is that one contractor has now lost that number of men. He was confronted with another problem in that the Revenue Commissioners refused to accept money from him, believe it or not, because he had not included the interest thereon. There is much talk about tax and tax evasion. In this connection the Revenue Commissioners should not stand on their rights but rather take whatever money they can get, which would alleviate the overall position. Let them argue later as to whether interest should have been included in the sums being given them but let them take what is being offered. The position in this case is that the man is now unable to pay even the amount of money that the Revenue Commissioners allege he owes and the whole company will have gone to the wall very soon.

I fail to see the logic of the increase. If the Minister will not change his mind then I would ask that he monitor very closely the effect of the 5 per cent imposition on this industry, because all over the country there are now people collecting unemployment assistance and benefit and yet engaging in casual employment. They are involved in the construction industry, while those companies that have gone to the trouble of registering, of paying income tax, PRSI and so on, acting responsibly, find themselves unable to compete. I say that sincerely as one who has been associated with the industry for a long time. Probably there are a number of ways in which that could be stopped. The actual situation at present is that any reduction in VAT on single items has worked to the detriment of registered contractors. It means that people on unemployment benefit or assistance are doing jobs on the side at a rate with which registered builders are unable to compete.

The latest statistics emanating from the Central Statistics Office of the number of planning permissions granted must make us all take a very hard look at the way the industry is going. We must also be worried about the severe drop in the number of dwellings for the year 1984 which perhaps in some way is occasioned by charges; I do not know, but perhaps it is. Certainly it is an indicator of what will happen in the building industry over the next couple of years. Bearing in mind the very severe drop in the number of planning permissions granted and the extra imposition provided for in this budget the building industry, while already in rough waters, will find itself in the centre of a tornado over the next couple of years. It has been correctly said that the construction industry is a barometer of how the economy is progressing. The fact that that industry is in such a poor state must fairly well reflect the state of our economy at present.

I might say a few brief words about the footwear and clothing industries, two extremely labour-intensive industries under severe attack from imports. I do not like to advocate protectionism but they should at least be encouraged. Certainly this extra imposition on them will not help in any way. I do not have to tell the Minister the number of firms that have been subjected to severe pressure in the last couple of years, many outstanding names in the footwear and clothing industries which have gone to the wall. The imposition of duty on them can only accentuate that trend. I must say I have sympathy for the Minister in his task, but it is a question of endeavouring to get the balance right. I would have to say sincerely that in respect of the three industries about which I am talking the balance struck in this Bill has been wrong. I believe that the extra duty imposed on the footwear, clothing and construction industries will not yield the return the Minister had hoped or, if it does, what we shall gain on the swings we shall lose on the roundabouts. By that I mean that the number of people who will be rendered unemployed will more than offset any gain to the State. Rather than the State collecting money in this respect it will lose it in the payment of social welfare. If half only of the people at present unemployed in the building industry could be put back to work the gain to central Government would be enormous — rather than paying out unemployment assistance and benefit to many thousands of workers the Minister would be receiving income tax and PRSI from them. It appears to me to be bad management to impose a tax that will cause unemployment, causing the Government to pay more in social welfare benefits, when probably it would have been better not to have imposed it in the first place, leaving a greater number of people at work.

Even at this late stage I would appeal to the Minister to think seriously about the implications of what he is doing for the construction industry and indeed all Departments of Government.

I might make a passing reference to the matter with which Deputy O'Kennedy started out, that is in relation to the collection of interest on arrears of taxation. I might make the point to the House that interest on overdue income tax was first introduced in the Finance Act 1962 and has obtained ever since. The collection of interest on outstanding tax is a statutory obligation on the Revenue. I am somewhat surprised to hear Deputies on the other side of the House who are accountants and, in one case, a lawyer seriously suggest that one should do a deal on the amount of tax that is payable. I can imagine there are quite a few people around the country who would love to be able to do a deal on the amount of tax they should pay, people who would be quite happy to operate on that basis. One can be quite sure there would be very little equity left in the system if that became a widespread practice.

I was talking about——

The remark I made was in response to a point made after Deputy O'Kennedy had left for lunch.

I was asking the Minister to accept the money that was being offered.

I was referring to an earlier point, a remark that people should be prepared to do a deal. Deputy O'Kennedy started querying the point and I would make the point for the benefit of Deputy O'Kennedy that interest on arrears of income tax has been chargeable by statute ever since 1962.

I know that.

On a point of order——

I do not think it is a point of order.

Is the Minister saying that he is not concerned about interest being charged?

That is not a point of order.

I am extremely concerned about interest being charged on arrears of tax on foot of statutes passed in this House by successive Governments, some of which were run by the party of which Deputies opposite are members and some of which were run by parties, to one of which I belong. It is a statutory provision which must statutorily be applied. That is all I am saying.

We are accepting that but we cannot accept the refusal of the Revenue Commissioners to accept any money at all.

That is a different point. A system by which we accepted that we should throw out the statutory obligation and do a deal would be one in which there could be very little equity.

Nobody has suggested that.

If there is a problem, is the Minister going to close his ears to it?

No. We have made a number of improvements going back to the 1983 Finance Act and including this year's Finance Bill designed to make sure that we collect the tax that is due so that we can take some of the pressure off, or avoid pressure coming on, people in the tax net.

I am saying that the Revenue Commissioners refuse to take the tax if the interest is not added on. Why not take the tax and fight for the interest later?

That is a separate matter. There are two kinds of cases where that can arise but that point should not detain us now. There is the enforcement and collection problem.

The amendment proposes a reduction in VAT from 10 per cent to 5 per cent on building, readymix concrete and concrete blocks, adult clothing and adult footwear. The cost in 1985 of implementing such a proposal would be just under £54 million. Revenue would be reduced by just under £54 million compared to the system provided for in this Bill. That would represent a very substantial change in tax revenue and would require very substantial changes in other items of tax revenue or of expenditure. Deputies opposite have been asking rather insistently why we are having a 10 per cent VAT rate on building. We are not specifically having a 10 per cent VAT rate on building. Deputies have homed in on this industry and I can understand why. We have to look at the broader picture.

What would the 5 per cent reduction alone cost?

About £36 million.

In a full year?

This year. We have a difficulty in the VAT system that for one reason or another — usually for very good reasons—cases have been accepted over the years that given products or groups of products should be treated differently from others, that there should be a lower rate than usual on this product, group of products or service. It is not difficult to see the basis on which those cases are made, particularly since most people appreciate a point which tends to be overlooked in a discussion like this — that at the end of the day VAT is a tax which is paid by the consumer. It is easy to see that cases can be made for treating different groups of products differently.

One of the most notable features of our system is the fact that the zero rate applies to about 25 per cent of consumer expenditure. It is inevitable if we have a zero rate applying over such a wide range of consumer expenditure that for a given revenue requirement the rate of tax on the rest of the products in the system must be much higher. It is not today or yesterday that I pointed out that we could have VAT at 13.5 per cent on everything, a single rate. If this rate were applied to all consumer expenditure it would raise roughly the same revenue. Of course there are many groups who would not like to see that. There are equally many areas in the economy where people would be very happy to see a VAT rate of 13.5 per cent, although they are fewer than they used to be, given the improvements we have made in the system. Over a fairly wide range of the economy people would regard that as being a positive move. The fact that we are not at that stage is a direct result of accepting over the years cases for differential treatment. What we need to do — this is the advice of the Commission on Taxation also — is to bring as many things into the scope of the system as we can in order to spread the burden of the system in a way that will create less difficulty for various sections of the economy. That is what we have done with this modification of the system this year. We now have three rates and having taken out the standard rate of 35 per cent we now have the main rate at 23 per cent. There is also a 10 per cent rate and a zero rate. If we had rates of 23 per cent and 5 per cent it is obvious that we would have had to bring many more things from the zero rate or the 10 per cent rate would have had to be increased to a figure nearer to 23 per cent. If we were to keep a 5 per cent rate in the system, as Deputies opposite are proposing, we would have to compensate for it somewhere else, either by getting rid of the zero rate or increasing the 23 per cent and 10 per cent rates. There are no two ways about it. That is the issue we have to face.

In putting together the new system we were concerned to bring about the maximum possible beneficial effect on employment. Taking out the 35 per cent rate was the most important part of that. Being the standard rate, the 35 per cent applied on a wide scale to inter-industry transfers and a lot of VAT paid at point of entry. We know whom we have to thank for VAT at point of entry. It was that rate which put most pressure on industry in terms of tax flow and their capacity to employ people. One of the Deputies opposite indicated yesterday that he could not understand that argument. It is very straightforward and a few minutes chat with any industrialist involved — I have spoken to very many of them——

I am sure the Minister has.

——will indicate very quickly that it was a problem to the extent that if the VAT rate was reduced the cash flow problem was also reduced. Deputies opposite might, with benefit, take a trip out now and again and talk to some of these people in terms of that effect on the tax system.

The only journey the Minister travels every day is in the tunnel from Merrion Square over to the House; he is locked in.

I have never heard a more pathetic attempt to put together an argument. They started off with what is a very respectable and perfectly normal debating ploy; they show up an Aunt Sally but they say it so often that they believe it themselves.

(Interruptions.)

The Opposition have really tripped themselves up on this one because it is obvious they cannot see.

It is obvious that the Minister cannot see.

The Minister is now acting as an optician. He is expert in enough areas already.

Even Deputy O'Kennedy who was not there for very long cannot remember what it was like to be a Minister for Finance who in the normal course of events was in the way of meeting quite a lot of people. They may talk, perhaps, more comprehensively to me than they do to Deputy O'Kennedy. The question of the 35 per cent rate and the cash flow implications of it was one I considered, and the Government agreed, that we should tackle it as a matter of urgency when we had the leeway to do so. Had we not taken the budgetary action we took in 1983-84 we would not have been in a position to make the kind of progress we are now making. Not only that but we would have had an even bigger bind because we would have had more of our resources tied up in repaying debt.

The Minister would not have had to take the VAT off again.

There has been very little progress in the building industry.

Deputies opposite in their mad enthusiasm to follow up these very facile arguments are rushing over the precipice, the Gadarene swine rushing to their own doom——

The Minister cannot be serious.

——getting engulfed in the nonsense of their own arguments.

The hard fact is that there has not been any progress in the building trade.

We must have order.

The pupils are being very unruly and not listening to the master. The teacher is speaking.

I must ask for the forgiveness of the Chair for going off on a bit of a generality like that but Deputies opposite wanted to know why we have a 10 per cent rate of VAT on building. I am telling the House that having a 10 per cent VAT rate on building is an essential and integral part of the restructuring of the VAT system. If we are to have a simpler system which Deputies opposite have been asking for for quite a long time, if we are to have a system that has lower rates then one of the very few combinations we can have, given the Revenue requirements now, is 23 per cent, 10 per cent and zero. If we are to move more things into zero, as Deputies opposite were proposing yesterday, or have a 5 per cent instead of a 10 per cent rate, we must accept the consequences. We either increase the 23 per cent rate or move more things out of zero and into charge. That is the basic logic of having the system as we have it now.

The builders would love to hear that.

Representatives of the building industry have probably had longer discussions with me about that point than with Deputies, and we have had long Second Stage speeches during the Committee Stage debate. I have discussed this in more detail with representatives of the building industry and they have been far sharper in their approach to it and more understanding than Deputies on the other side of the House.

I am sure they were and there is a very good reason why they would be.

That was a very fine choice of words.

Left to themselves they make a hell of a better case than the Opposition.

Their case was not accepted.

It fell on deaf ears.

I have answered the questions put by Deputies Hilliard and O'Dea. If Deputies opposite do not like the idea of the 10 per cent rate I must point out to them that although they had since 30 January, when it was announced, they have not come forward with a different proposal about a structure of VAT that would achieve the objectives they want in relation to the building industry and also avoid a different set of problems in any other part of the economy. They have not faced that. They talk constantly about tax reform, about the burden of taxation but they do not take any opportunity of putting up an alternative. I am serious in saying that I have considered quite a number of different proposals——

The Minister is generally frivolous and he is now telling us that he is going to be serious for a change.

If Deputy O'Kennedy wants to amuse himself with these puerile verbal gymnastics I suggest he do it somewhere else because it is not getting us anywhere in the Chamber. The structure we have arrived at is only one of quite a number of structures that we examined. We decided on this structure after close consideration of all the effects, not just of this one, but of the effects of the other possible ways of going about a rationalisation of the VAT system. Having considered all that we came to a conclusion that this was the best way of doing it. This structure is one which on balance would be supported by the generality of opinion.

Deputies opposite have been referring to the position in the clothing and footwear industries. One Deputy mentioned the case of Clarks. He seemed to have inferred from my remarks on that case an opinion which he thinks I hold that the rate of VAT makes no difference to the Irish footwear industry. That is not true. What I was saying was that in the case of that firm — this is my information and, perhaps, it is not 100 per cent accurate — they were selling most of their output, if not all of it, on the UK market. It was the UK rate of VAT and the competitive position of the UK market that was of direct relevance to that firm. The Irish footwear manufacturing industry in general exports, as far as I am aware, about 90 per cent of its output. As far as Irish footwear manufacturers are concerned the rate of VAT here does not have much direct impact on them except on the cash flow question. It is not the rate of VAT that the consumers of their products have to pay because they charge no VAT on their exports. For those who are selling here the rate of VAT, of course, is a difficulty. If one is looking at a group who are affected by a change in the rate of VAT on footwear it is to the retail sector one should look rather than to the industrial sector because most of the footwear bought here is imported. I do not have the figure but the proportion is fairly high.

It is a matter about which the Minister should be concerned.

VAT is a consumer tax and it is one of several ways of getting the population in general to contribute the funds that are required to provide a given level of public services. It comes from the population in general. It does not come from the industry; it comes from the consumer. I am fully aware that the building industry has been in some difficulty for some time. Deputies opposite may make what they like of that. One of the greatest difficulties from which the industry has suffered has been the virtual collapse over the last couple of years of private sector demand. I mentioned yesterday the level of Exchequer commitment to the building industry and I now have the figures. In the public capital programme affecting the building industry total expenditure in 1984 was £1,166 million. For 1985 we project a figure of £1,233 million, an increase of £67 million.

Has the Minister the 1983 figures?

I have not the 1983 figures. The Exchequer funding part in 1984 was £868 million and in 1985 it will be £984 million, an increase of £116 million. In 1985 the Exchequer will make available £116 million more than it did in 1984 for activity in the building industry. The non Exchequer part of it is down by £49 million between these two years which is what gives us the net change of £67 million. The increased VAT on buildings in 1985 will amount to £36 million. There is more expenditure there than extra VAT. Some 70 per cent of total demand for building and construction is funded from the public capital programme through Exchequer or non-Exchequer sources and that level has been holding up fairly well in recent years. The deficiency is coming on the private side. Somebody on the other side of the House said yesterday that building was a barometer of the economy. I agree with that. There is no way one can artificially stimulate the economy by stimulating building. If one stimulates the economy it will inevitably stimulate demand——

Would the Minister consider getting rid of that tax?

——for the output of the building sector.

I know that the Minister is opposed to the residential property tax. Why does he not get rid of it? I know that Minister Bruton is also opposed to it.

If Deputy O'Kennedy thinks that a change in the residential property tax would stimulate extra output in the building industry he is very much misled.

Will the Deputies stay with the amendment, please?

There are other ways to stimulate the building industry which would be far more effective than a change in residential property tax.

There was talk today about unregistered builders, their competitive position and the effect of VAT changes on them. I was asked earlier on in a slightly disorderly interruption how Deputies opposite were proposing a reduction in VAT and then telling me that a reduction in one of the VAT rates that I introduced is something that they did not want because it helps the unregistered contractor. They have not worked out the full logic of that position. Even with the changes made in the VAT system most building operators will be in a net VAT reclaim position. They will claim more VAT on inputs than they are collecting on their outputs. If that is the case there is not an advantage in the VAT system for the unregistered builder. If he is paying VAT on his inputs and not collecting VAT on his outputs he cannot be getting an advantage. I concede that to the extent that he is not accounting for income tax or PRSI there is an advantage, but it does not arise in the VAT system.

Deputy Yates may contribute but he must understand that the Minister cannot respond.

I note that Deputy O'Kennedy's amendments seek to include a number of items which are currently at 10 per cent at 5 per cent. Perhaps Fianna Fáil did not make the point which would be more pertinent in that regard, which is that a whole series of services where there is a labour content such as the motor industry, television repairs and electrical work and so on suffers from black economy activities.

We made the point but we are glad to have the Deputy confirm it for us.

Fianna Fáil tend to suggest that we take in less VAT, but my point is that we should look at the 23 per cent band with a view to increasing it to 25 per cent on the basis of introducing a 5 per cent labour rate band. If a garage owner who is in the VAT net paying the tax is competing with a nixer guy, both pay VAT on their materials. The higher the VAT rate on materials the greater the incentive to become registered because VAT will become a higher percentage of turnover. On the other side, the VAT on labour rates should be reduced. Seeing that we have had an ongoing debate about the rates of VAT, with the Commission on Taxation suggesting one rate at about 14½ per cent and the Minister finally settling for a three rate system of VAT, would the Minister consider in the longer term, instead of getting one single rate and instead of taking less VAT receipts as Deputy O'Kennedy would wish, going for a 25 or 26 per cent goods rate and a 5 per cent labour rate? For instance, for agricultural contractors machinery is a very expensive item and there is an onus to get registered, and the higher the rate the greater is the onus. At the moment people who have one tractor, one combine and so on for their own use are allowing their sons to use it for hire work and they are undercutting legitimate operations. The same goes for TV repairs and so on.

I will reflect on the points made by the Deputy and I will deal with them, if not in my reply, then next year. The Deputy's suggestions are very sensible.

Debate adjourned.
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