In a way, that is an important question because even those collection rates would be improved by the new method of collecting tax. I shall come to collection in a moment.
I want to mention the question of review of the scheme. It is accepted that in the longer term it may be necessary to increase the rate of contribution under the provisions of the scheme. The provisions of the Bill specifically provide for a review of the scheme's financing to be carried out before the end of the third year of its operations. What the Government have done is entirely reasonable. We have arranged for a phased contribution, rising to a figure of 5 per cent which appears reasonable and the provisions of the Bill allow for a review of the whole question at the end of the three year period.
That is the most practical way to go about it. There is reasonable evidence to suggest that the income base may actually be larger than is conservatively estimated. If that proves to be the case, then there will be no need for any increase in the contribution rate. However, I reiterate that the whole question must be reviewed at the end of the third year. The Government are confident, however, that with the major improvements in the income tax collection system being introduced in practice the actual contribution yield will be higher than forecast.
Some commentators have referred to the figure of £14 million quoted in the Budget Statement of the Minister for Finance as the yield in 1988 from a 3 per cent contribution. This would be the yield up to 31 December 1988 which would, in practice, represent slightly over 50 per cent of income for the full year. Therefore, the figure of £14 million should be grossed up to £27 million on a full year basis. One commentator recently, who has been widely publicised, grossed the figure up to £18.7 million and concluded, wrongly, on that basis that there would be a significant loss to the Exchequer from the operations of the scheme, sending everybody off on this false trail. On that basis — and he has published this information — he assumed that the income from a 5 per cent contribution would be £31 million, calculating from that initial error. If anybody likes to sit down with me I will explain it to them any time, and the commentator in question, when I will show him just exactly where he went wrong. That figure should be £50 million and that is where the error arises.
Deputy McDowell came back and quoted that former figure today. I should have thought he would have checked it because I know he is somebody who checks his brief fairly well and I would have assumed that he might have done so in this case also. Perhaps after this explanation he may understand the position somewhat better. Therefore, on the effective actual income base the Revenue Commissioners are using, the 5 per cent contribution, plus the flat-rate of £2, will yield £50 million. The Government are quite confident that the actual yield will be greater because of a variety of factors I have mentioned already.
The system of collection of tax, PRSI, health charges and the levy is being revolutionised. This is being done by combining tax and PRSI collection and by the introduction of self-assessment. It will be seen that we are facing a totally new tax collection system. This is one of the most important things being done at present because the health and PRSI charges were always left behind when the collection of the main bulk of taxation was being preceded with. Self-assessment and the combination of tax and PRSI collection will improve the collection process enormously. I fear members are missing the impact of this change. Accountants tell me again and again it breaks their hearts to have to go into court for the big sum, knowing the other remains outstanding but, because it may amount to £5,000 or thereabouts, it may never be collected; they are not collected together. The two processes are separate and, consequently, the remainder is never pursued. It will be pursued now which will make a big difference to the collection.
The collection of health contributions and the employment and training levy have always been regarded as deficient by the Revenue Commissioners. The principal reason for this has been the Revenue Commissioners' practice of deploying resources towards collection and enforcement of the various taxes in a way which reflects the scale of the arrears in the context of all arrears. As a consequence, the present collection rate is most unsatisfactory.
In order to avoid similar problems in the collection of social insurance from the self-employed and to improve collection generally, the Revenue Commissioners have decided to introduce an integrated collection system combining tax, social insurance, health contributions and the employment and training levy for collection purposes. The necessary distinction as between the charges for tax and contributions/levy will be provided for within the assessment process but no distinction will be drawn within the collection and enforcement documents and procedures.
Under the proposed new arrangements for tax returns and assessments, an inspector of taxes will issue an estimate of liability in the period July-August. The single sum specified in this Estimate will include tax, social insurance, health contributions and employment and training levy. It will not be open to the taxpayer to appeal this estimate as he may displace the estimate at any time by making his own estimate and paying his liability on that basis.
If the taxpayer does not make his own estimate, the inspector's estimate will be referred for collection and where this is not paid by 1 November, interest will be charged at the rate of 1.25 per cent per month. Where the taxpayer does make and pay his own estimate, the amount paid must be not less than 90 per cent of the liability ultimately found to be due; otherwise interest will be charged on the shortfall, again at the rate of 1.25 per cent per month.
Taxpayers, in accordance with existing requirment, must make a return of income not later than 31 December. Where this is not done, the taxpayer will be liable for a surcharge equal to 10 per cent of his annual liability.
The current collection rate for health contributions and employment and training levy is of no relevance in the context of collection of social insurance in view of the commissioners' plans to integrate collection of social insurance, and the health contribution and employment and training levy, with the Schedule D tax. Apart from achieving a more realistic collection rate for social insurance, these proposals will result in very considerable improvements in the collection rate for the health contribution and employment levy. Furthermore, the Government's plans for the move to self-assessment will improve collection of the Schedule D tax which will henceforth include the various contributions and levy.
It has been suggested that the new scheme will be abused by persons who will evade payment of social insurance contrbutions and seek to qualify for contributory pensions on the basis of contributions paid over the minimum period of ten years in the latter part of their working lives. This will not happen. In order to qualify for contributory pension, the claimant is required to have a minimum yearly average number of contributions calculated from the date on which he first entered insurance.
In the case of a self-employed person that is the beginning of the first contribution year in which he has reckonable income or reckonable emoluments regardless of whether the contributions payable have in fact been paid. This is provided for in subsection 17A of section 11 of the Bill. This means that the yearly average number of contributions required for entitlement to pension in the case of a person who succeeds in evading payment will be diluted by the period in respect of which those contributions were not paid. Furthermore, the defaulter would still be liable for all arrears, together with interest on late payment and the surcharge on the late submission of returns of income. It will be in the interests of all self-employed persons, therefore, to ensure that they do not remain outside the system and that their tax affairs are kept up to date. Various Deputies suggested that the collection system is not adequate. That is recognised and is being very dramatically improved.
Several Deputies questioned the fact that persons who would not be entitled to a non-contributory pension will now become entitled to a contributory pension. The suggestion is that persons with other income or means should not get a pension, even a contributory one. Under the present arrangements for pensions for employees, a similar situation can arise. Persons with occupational pensions can receive contributory pensions and their occupational pension does not in any way affect their social welfare pension. It would clearly be inequitable to have one rule for the self-employed and a different one for the employed population.
The basis of the proposals is the integration of social insurance for the self-employed with the existing system. To move to a situation where all pensions would be means tested or limited in some way because of other income would be a major departure from the present system and a retrograde step in the development of the social welfare system and in removing the stigma that is often associated with means tested schemes. The proposal for pensions based on contributions implies a basic level of protection as a right and without a means test. We are probably the only country in Europe which does not have a basic pension without means test for self-employed people, so at the end of the day what we are doing is not that extraordinary. We are really only doing something now which most other self-employed members of the Community who have introduced a basic level of cover for themselves have already done.
A number of Deputies raised the question of a disincentive to transfer farms by reason of the fact that entitlement to pension will not depend on the farm being transferred. The National Pensions Board had considerable discussion on a retirement condition for the self-employed. It is clear that there was disagreement on this issue within the board. Interestingly enough, the minority report of one of the farming organisations represented on the board, that is the ICMSA, come out very strongly against the idea of a requirement on farmers under the scheme to transfer their farms. The board did not come to a final conclusion on this question and recommended that for the present the extension of pensions to the self-employed should be on the same basis as employees, that is a pension without a means test from age 66. However, the board will be examining the question of a retirement condition for employees and the self-employed and will be reporting on this matter.
However, this question should not delay the introduction of the new scheme. Pensions will not generally be paid under the scheme for ten years and any proposals which may be devised by the pensions board in relation to the question of a retirement condition can be implemented if considered necessary or desirable within that time scale. Therefore, it is not a question of the Government having decided not to have a retirement condition but rather leaving the question and precise form of any retirement condition that might be proposed to be determined in the light of the forthcoming report of the board and to be determined in relation to both employees and the self-employed.
Deputy Bell raised the question of the powers given to the Minister by way of regulations. The regulatory powers contained in the Bill can be divided into two broad categories; those which empower the Minister to vary certain provisions contained in the Bill and those dealing with certain administrative matters. The first category includes the power to vary the earning ceiling up to which contributions will be payable, to vary the rate of contributions, to add to the list of accepted self-employed contributors and to include among self-employed contributors any of the classes of persons so excepted.
However, in all instances the Bill provides that these regulations will require a motion of approval of both Houses of the Oireachtas. Furthermore, similar powers already exist in relation to persons insurable as employees. The remaining regulatory powers contained in the Bill deal with administrative matters such as the time and manner of payment of self-employment contributions and other related matters, the time and manner of payment of voluntary contributions by persons who cease to be self-employed contributors and the determination of contributions payable by persons who are both employed and self-employed in a particular year. These regulations will deal with technical and, in some instances, very complex administrative matters and it would be inappropriate to include provisions of this nature in the Bill.
Many other aspects were raised. There was very genuine support on all sides of the House for the provisions in the Bill. I would like to thank Deputies for their warm welcome and support for these measures. In relation to the major change taking place in the Bill, I hope that I have helped Deputies to understand that this scheme is a very valuable and well thought out one. There will never be a time when it will be thought out better. This is the opportunity to go ahead with the new PRSI scheme for the self-employed.
