This morning I propose to deal with six aspects of the Finance Bill. First, I want to refer to the appalling slowness in the reform of our taxation system. Secondly, I want to put up some alternative measures on taxation. The Minister has rightly challenged those who wish to see reliefs introduced or to see the general level of taxation reduced and he has asked them to suggest alternative measures to obtain Exchequer resources. It is not unfair to say that Deputy McDowell last evening put forward several measures on tax reduction but not a shred of an alternative proposition for meeting the inevitable reduction in Exchequer resources. Thirdly, I want to deal with the land tax decision by the Government and, fourthly with the very exceptional decision of the Government relating to the building societies and the banks and the policies issued here. Then I shall deal with the exclusion of the VHI from retention tax, something I regard as a serious anomaly. I refer to the exclusion of contribution payments by VHI subscribers in respect of consultants. Finally, I shall be making some observations on the international financial services proposal which is being hyped up beyond all merit and prospects.
Regarding taxation reform, time slips by rapidly both in this House and in terms of reform. It slips by so rapidly that it has resulted in the conversion of the Taoiseach who has decided to go for broke in restoring the nation's finances to some order. He saw from 1981 to 1987 valiant efforts on our part but nothing emerging from his own assessment in 1980-81, and he has decided to undergo a massive conversion. That is to be welcomed. It is in the areas and methods of conversion where we in the Labour Party part company with him, but in view of the overall thrust and necessity of bringing some sanity into financing Exchequer expenditure we do not cavil in any way at that policy approach.
It is now five years, July 1982, since we had the first report of the Commision on Taxation which pointed out on page 70 in paragraph 1.11 that turnover tax was introduced in November 1983, wholesale tax in 1966 and VAT in November 1972, that there was an extension of income tax to certain farmers in 1974, that estate duties were removed in 1975 and replaced by capital acquisitions tax, that the gift tax was introduced in 1974, that inheritance tax then changed in 1975, that capital gains tax and wealth tax were introduced in that year, that wealth tax was abolished in 1978 while corporation tax on company profits was introduced in 1976, that rates on private houses were abolished in 1978 and the PRSI contributions system was brought in in 1979. I suppose since then the only other major reform has been the DIRT which was brought in a year or so ago.
We have not in any way, contrary to anything the Minister said yesterday evening, broadened the tax base to any necessary extent. We have not made the tax system fairer and we have now introduced a multiple series of allowances within the tax system. This causes enormous confusion to the taxpayer, imposes great difficulty in the administration of the taxation system and encourages a great deal of tax avoidance and tax evasion within the system, so much so that we have a very substantial black economy. It is difficult to estimate the size of that but I would not be surprised if it is in the region of 10 per cent of GNP because the more I remain a Member of the House, whether in Government or Opposition, the more I become aware of the manner in which so many people operate outside the formal system, apparently with some success. That is the only conclusion I can come to from seeing the way some people live and how they have disposable income readily available to them. The House and successive Governments have failed to enter into fundamental reforms in the tax system as called for by successive reports of the Commission on Taxation onwards from July 1982. It is not unfair to say that successive Ministers for Finance are little more than what one might call Exchequer firebrigade officers and expenditure controllers to a degree. As each Minister knows well, every month a budget trend report, a revenue trend report, an expenditure trend report is presented to the Cabinet. Most Ministers for Finance spend most of their time just policing the expenditure, fighting battle after battle in Cabinet, preventing the expenditure from rising ever more and trying to ensure that revenue is brought into the State.
This brings me to a fundamental question about the organisation of Government which impinges very much on the Finance Bill. I do not think it possible for a Minister for Finance, in our current Cabinet structure who is required to bring in some six or seven thousand million pounds a year in tax revenue and the best part of six or seven hundred million pounds in non-tax revenue, to do all that work and simultaneously act virtually as a Minister for public expenditure and control the multiple Votes of Cabinet. Within six months most Ministers for Finance have either declined into virtual ill health because of the pressures on them — there is not a Minister for Finance who has not undergone that trauma — or have discovered how obdurate are their colleagues in terms of acceptance of their views or the views of the Department of Finance. Remember that Ministers for Finance must take on virtually the whole Government and fight battles on a very lonely basis. In the end, most Ministers for Finance after two or three years and particularly coming up to an election, tend to throw in the towel. Their real target in the long term, in turning around the taxation system, in introducing fundamental reforms and, above all else, ensuring that people pay their taxes becomes an almost impossible task to discharge.
There is a need for the reorganisation of Government. It is no secret that, in Government, the Labour Party put forward a view that perhaps there should be a Minister who would be responsible for public expenditure — just on the expenditure side — a senior Cabinet Minister responsible for controlling expenditure, responsible for what one might call the perennial, bilateral debates with other Government Departments. The Minister is currently engaged in bilateral discussions with his colleagues, probably with a view to a mid-summer budget. There is all the smell of a mid-term budget about it at present, bearing in mind in particular the letter which was issued from the Taoiseach's office.
Within the structure of Government if the Minister for Finance were relieved of the appallingly difficult job of controlling public expenditure, requiring only to take macro-decisions relating to expenditure, then he could sit back and become somewhat more reflective in his work. Above all else, he could occupy himself with taxation reform. With profound respect it is my opinion that we do not have a Department of Finance in this country. In fact, what we have is a department of public expenditure control. Most departmental officers in the Department of Finance at Deputy Secretary, Assistant Secretary and Principal Officer level are busy with their own Votes, particularly on the expenditure side, operating at second remove from the Revenue Commissioners and it means that, as such, we do not have a Department which is innovative in terms of taxation reform, a Department which can sit back and take a long hard look at the requirements of, for example, the First Report of the Commission on Taxation.
I spent four years in Government, during which time there was not a response from the Department to the commission's report and very little internal discussion in relation to the various reports produced. Admittedly there were all sorts of reasons X, Y or Z reform could not be introduced or implemented. The officers of the Department were unstinting in assisting Government Ministers in those discussions. Nevertheless, a small Government Department with a limited number of experts available, working at second remove from the Revenue Commissioners, is not in a position to introduce fundamental reforms into the system.
It is strongly arguable that perhaps Cabinet responsibility should be split. I have no desire to introduce further divisions of labour within the Department of Finance. We saw the chaos that ensued when we had a Minister for Economic Planning and Development, when the Department of Finance declared war on other Departments. Eventually that Minister was subsumed out of the body politic, the Department being brought back into line but there is a very strong case to be made that in the Cabinet one Minister should be responsible for public expenditure and another for the revenue system. There is absolutely no doubt in my mind that the revenue collection system has broken down. It has been acknowledged that it has broken down. Despite the best intentions of successive Ministers for Finance, there is widespread evasion and widespread avoidance.
I come now to a proposal which would stop all that. In fairness to Deputy McDowell I should say he was totally honest last evening when he said the main reason people were not objecting to the deposit interest retention tax or other taxes in relation to disclosure is because they know they are getting away with substantial hidden benefits by virtue of not having total disclosure of moneys lodged in bank accounts, building societies or in the system generally. I hold the view strongly that we will never have here a fair taxation system and we will never be able to eliminate the black economy unless there is total disclosure in the banking system. That is an imperative. Otherwise one can wipe out any real prospect of fundamental reform of the taxation system.
I well remember the assurances given by successive Ministers. Particularly when the deposit interest retention tax was introduced, I remember well the trenchant and quite ridiculous allegations made at the time that we were taxing children's confirmation money, widows' savings, that we were imposing penal taxation. No sooner were Fianna Fáil in office than they immediately accepted that that fundamental reform was needed as far as the country was concerned. I am very much in favour of it. Mind you, the Department of Finance were not in favour of the deposit interest retention tax and there were some strong objections raised, allegedly because it was thought it would cause havoc in the banking system. Needless to remark, it has not. In fact, the banking system tried a very smart move last year in the crediting of interest. They are caught this year under the provisions of the Finance Bill, which means we have recovered back moneys we had anticipated we would get in 1987 and which they tried to dodge in terms of payment.
I come back to the fundamental plea for disclosure. The ordinary industrial worker here has nothing whatsoever to worry about in terms of disclosure. He has no money to disclose full stop: he has no money. He spends every penny he earns in a week. If his earnings have not been spent on Thursday evening certainly they have on Friday evening. He does not have any savings. By and large in terms of the ordinary industrial worker there is no money to be saved — a person bringing home, say, £95 or £120 a week, or a pensioner with £47 or £50 a week, that is all they have and they spend it. But there are people — and it is widely known — in manufacturing industries, in personal service industries, in a whole range of industries, who keep two books. One is on an official counting basis and the other is on a cash basis. The cash is deposited and the cheques and the ordinary invoice payments are for the Revenue Commissioners. No matter how clever the Revenue Commissioners are, there are always people who are up to dodges and money goes into deposit accounts, building societies and banking accounts. We saw recently several major cases — constituting the tip of the iceberg only — when the Revenue Commissioners caught up with a few people, when they had to pay £1 million or £0.5 million in revenue assessments which were proven but they got away with those which were unproven.
That boils down to the fundamental question. The overwhelming majority of ordinary income earners have nothing to fear from the disclosure of income. I have no doubt whatever that if the Revenue Commissioners had a fundamental right to simply ring up a bank and say: "I want a print out of the depositors in the Carrick-on-Shannon branch" they might have found a fish deal much faster and it would be interesting in that case to find out who was signing a promissory note for a couple of million pounds. That would be more satisfactory. At present the Revenue Commissioners are virtually precluded from getting a schedule of depositors.
I was Minister for Social Welfare for the best part of four years and I found some very interesting cases of people who applied for non-contributory pension and they had deposits which the Revenue Commissioners would never hear about in a thousand years under the current system. There is massive objection to the disclosure of income. There is not a solicitor in a government who would not run a thousand miles from disclosure. Solicitors keep clients' accounts on the basis of confidentiality and non-disclosure. Most Dáil Deputies, particularly those who come from rural constituencies and those who come from a business background, would run a mile from disclosure. They and their closest constituents would literally whip people from one end of a townland to another at the very thought of them standing at a chapel gate and advocating disclosure. It would be regarded as the State inquiring into the private affairs of a citizen, but there is no alternative.
The taxation system could be regarded as just fulfilling about 30 per cent to 40 per cent of its true purpose of ensuring that people who earn money pay a modest proportion of it to the Government of the day to enable the running of our essential public services. That is the purpose of taxation. Most people want and demand services but are very reluctant to pay for those services. We should have to pay tax on the basis of total disclosure of income. I make that general point because it is a fundamental aspect of our taxation system which is ignored time and time again in the House.
There are other aspects of reform to which I want to refer, which would ensure that the Government would have some reasonable revenue in 1987 with which to run the country and which would at least be an answer to those who, as the Minister correctly claimed, advocate tax reliefs and simultaneously refuse to indicate from where the alternative sources of revenue should come. I want to refer to the Minister's confirmation, in relation to the Finance Bill, of the reduction of the VAT refund scheme for unregistered farmers from 2.4 per cent to 1.7 per cent. I do not have the exact yield figure but I think it is about £9 million in 1987. The Minister should have abolished the refund scheme or should have reduced it by 50 per cent. I would have reduced it from 2.4 per cent to 1.2 per cent and I would have availed of the extra £8 million or £9 million in 1987. The reduction by half of that amount would have meant a legitimate income to the Exchequer. I would have abolished it completely in 1988. Our taxation system is such a multiple mess of allowances and refunds that I sympathise with any civil servant who tries to administer it. The reason I home in on the VAT refund system for unregistered farmers is that successive Governments have, for all practical purposes, abdicated their responsibility of ensuring that the same system of income taxation applies to the farming community as applies to the PAYE workers.
There is multiple evidence in this Finance Bill of successive Governments who chopped and changed the basis for taxing farm incomes. In real terms they have actually reduced substantially the level of taxation of the farming community. That is a disgrace and there is great public anger about this matter. I was proud in Government that at least we had some system of rationality in this regard although it was not a perfect system. Farm tax was introduced in 1986 for 2,150 farmers with 150 adjusted acres and upwards, despite vociferous opposition from the Fianna Fáil Party. I am glad the Fine Gael Party and the Labour Party in Government reached agreement on it. It was a singularly important achievement just as the DIRT tax was very important and produced the best part of £150 million a year which was critically necessary revenue with which to run the country. It was envisaged that from 1987 the farm tax would apply to all farmers with above 80 adjusted acres and the estimated yield for 1987 was about £30 million, but the Fianna Fáil Party decided to abolish that tax. We had envisaged that in the three to four years between 1987 and 1991 the farm tax would be extended to cover all farmers above 20 adjusted acres. It was being brought in slowly but surely on an effective basis.
We spent £4 million or £5 million setting up the farm classification office. It was an excellent office which uncovered some very valuable information in relation to the farm structural system. As I said already, one office found that a couple of greyhounds owned a couple of hundred acres of land and those greyhounds had very good surnames. Other offices discovered that people who lived in towns owned land but you would not think they owned their backyards. Slowly but surely, for the first time in the history of the State, the farm classification office was doing exceptional work which would have been tremendously valuable when considering the higher education grants in future and also to the health boards in terms of applications for medical cards. It would have been invaluable also when doing household budgets. The information that those offices would collect would have been invaluable in future taxation profiles and the Revenue Commissioners would have had fundamental information available to them. All the information would have been brought together by dedicated public officers.
Admittedly these officers were employed on a contract basis; many of them were not employed full time in the public service.
I have been very critical of the role of the Department of Finance but I know the Department worked well in bringing in the farm tax system. They deserve credit for their efforts. What happened? The Minister for Finance and the Fianna Fáil Party, to placate a few raucous farm leaders, said during the general election that they would abolish the farm tax. Have they done so? Not yet. We are running out of time in 1987. The House will adjourn on 26 June or thereabouts and I suppose we will not be back until 15 October. Will the revocation and the abolition of the land tax, the formal legislative measure, go through between now and the summer recess? Will it go through between October and December? It is highly unlikely. I doubt if we would even get it through in time for the next Finance Bill.
Meanwhile, to add insult to injury, we had the High Court case in Youghal last week. An Act of the Oireachtas relating to the health contributions of 1979 was signed and promulgated for 6 April. Deputy Haughey as Minister for Health probably inadvertently — I do not hold him responsible because it was more a departmental matter than a ministerial fault — signed the order for 4 April thus invalidating the order. This means that any farmer can refuse to pay and once again one section of the community who can afford to pay, for all practical purposes, will not be paying a reasonable contribution to the Exchequer.
In fairness to the Minister for Finance, in January 1987 he mooted the possibility of a farm tax being introduced for all farmers above 20 adjusted acres on an interim basis of self-assessment. I went along with that because I thought it was an effort to accelerate the general application of the farm tax. That has been abolished by this Government. The option of self-assessment for 1987 would have allowed the Government's farm tax reform programme to be implemented to the fullest extent in 1987. It could be argued that all farmers with the ability to pay were being brought into an effective tax system this year. I was glad to note that the ICMSA were not particularly hostile to bringing forward the self-assessment system for the farming community and I thought that was a useful and valuable development and one which I, in Government, strongly supported. The main advantage of that option was that compliance of the farming community would be ensured and then slowly but surely the system would have gelled together.
I bitterly regret that this Government have made a fundamental error which they will have great difficulty in living with particularly in urban constituencies when people point out to the Fianna Fáil Party the formal abolition of the land tax and the virtual non-replacement of any other form of taxation. The question of accounts will be disputed and will be the subject of enormous administrative delay. In the long run and once again we will drift into the non-collection of a reasonable contribution from the farming community.
I make that point because I do not think it has dawned on the Irish body politic the extent to which there is a maltransfer of resources within the community. I will give a couple of examples. I brought in the child benefit scheme — £15.10 per child — which was a valuable innovation. What are we doing this year? We are giving the farming community about £27 million in child benefit, a straight transfer of child benefit to the farming community. We abolished the £100 tax allowance for PAYE workers in lieu of child benefit but we increased the children's allowance from £12 to £15. Members of the farming community benefited from that but they paid no tax. Effectively there was an additional net transfer of resources to one section of the community. I do not think it is fully appreciated when we see cutbacks in local government, that the grant in lieu of rates on agricultural land — running at about £125 million — is a very substantial transfer of resources, and there is nothing coming back. This is the reality.
The Minister should look at the data. There is £175 million being paid by way of old age pensions and widow's pensions directly into the farming community on a non-contributory basis, and there is nothing coming back. A farmer will hand over his farm to his son so that he will qualify for the old age pension. Six months later he will get an old age pension for himself and his wife, if she is over 66 years of age. He will have free travel and he can travel at his leisure because his son is working his farm, which he has been working for the past ten years. If people realised the extent to which money is transferred from the Exchequer to the farming community there would be an uproar. We can add to the pension free travel, free television licences and free electricity to the tune of how much? In 1986 the figure was £23.8 million. If the Ministers have any problems with my figures, all they have to do is ask the Department of Finance for an up-date. The last date I have is 28 October 1986.
I said to the previous Government, "In the name of God, what are we doing?" We are crucifying ourselves and this Dáil for a lousy £6.5 million raised by way of £10 outpatients' charges. The Department of Finance go into a frenzy of public spending cutting from people who go into a hospital and all for £10 million or £12 million. We introduce all sorts of micro cuts which amount to £6 million or £7 million. At the same time the really big money lies untouched because politically it would be dynamite in certain constituencies to touch it whether it is Fianna Fáil, Fine Gael or, in some cases, the Progressive Democrats who are involved. Indeed, in some rural constituencies the Progressive Democrats would run a thousand miles from any effort to touch such money.