Finance Bill, 1988: Report Stage.

I move amendment No. 1:

In page 8, between lines 17 and 18, to insert the following:

"Notwithstanding anything contained in the Tax Acts, Part II of the Table to section 2 of the Finance Act, 1986 (inserted by this section) shall apply to persons with dependents who are widows, widowers or single parents."

This amendment, not having been reached on Committee Stage, is brought forward on Report Stage because it relates to a very important matter that I have raised on each Finance Bill for a number of years past. It is that widows, widowers and single parents should have the same benefits with regard to tax allowances as married people and should be regarded as married persons for the purposes of the Finance Bill. Such people, particularly those with dependants, have all the same problems as married couples. The only difference is having one less mouth to feed. They have the same problems with housing, mortgages, rents, children to feed, cloth, educate, bring to the hospital or doctor and so forth, yet they have not the appropriate tax allowance. Every time I raised this matter it was agreed by Ministers and other Deputies in the Dáil that there was a great injustice in this respect. There is an even greater problem for widows, widowers and single parents than for married couples in that the single parent will have to get a job to keep the family and, if that is so, somebody must be hired to mind the children who are left at home. These people have far more expenses than have married couples in looking after their dependants, yet our tax system never acknowledges this.

In 1986 Deputy Bruton was Minister for Finance and his explanation, presumably that of the Department of Finance, for not allowing for justice in the case to widows, widowers and single parents was that to do so would bring about a whole series of problems, with married couples claiming, individually and so forth. In fact, the major obstacle to giving justice to these people, according to Deputy Bruton at that time, was that if widows, widowers or single parents met somebdy else and wanted to get married, this tax system would discourage them from doing so, would encourage them to live together rather than remarry. That seemed to be a terrible problem for Minister Bruton. I could not follow that. It is some kind of moral dilemma which faces Ministers for Finance so that they cannot give justice to those single parents who are living singly with their dependants, not getting married, but trying to eke out their existence and help their children. They are to be denied what every Minister has acknowledged as being just because of the possibility that some widow, widower or single parent would be discouraged from marrying because of having this tax benefit to which only one partner would be entitled if they were married.

I had a lengthy argument with Deputy Bruton a couple of years back on this issue and he got no place on it because the justice of the case of widows, widowers and single parents was admitted, but they were to continue to be penalised most unjustly because of a possibility that somebody else might be prevented from getting married and might start living together. What a dreadful possibility for a Minister for Finance to face — that he would be responsible for people living together and not marrying because of the tax system that he introduced. This seemed to be the tenor of the argument.

At that time, I would remind the Minister for Finance, I got great support from Deputy Haughey, now Taoiseach. He came to my assistance saying that he felt there was a grave injustice being done to widows, widowers and single parents, that the tax system was wrong and should be altered. While there may be difficulties that one would see now, surely Ministers and Department of Finance officials, who have achieved such extraordinary contortions in the tax system in massive, complicated areas with their great ingenuity, could devise a system whereby these people would get this tax allowance while they remain single but would lose it if they married or lived with somebody else. Unmarried mothers lose their allowance if they live with somebody else. Surely Ministers and officials can find their way round this possibility of fiddling and give justice now to these people. Surely they can devise a system to prevent people from getting the allowance if they get married or live together. I am talking about those who are now widows or widowers who are not living with anybody else and have no intention of doing so, who are just trying to live out their lives but are being penalised.

The question of deserted wives comes into this, but deserted husbands are in an even worse position because they are not recognised at all in the social welfare or tax allowance systems as having any rights or being in a situation different from when they were married. I do not want to go into that area because that is a mixture of tax, social welfare and everything else. I am simply taking the case of widowers and single parents trying to bring up their children while having to work and pay somebody to look after the children along with paying for education, clothing, mortgage, rent and so on, without the appropriate married person's tax-allowance. The purpose of this amendment is to address that problem.

I do not want to join in a long stream of people who have come to Deputy Mac Giolla's aid and who later had to support people who disappointed him, but it strikes me that there is a problem which the present tax code does not address and that relates to the structure of our allowance system. I do not accept the proposition that the effect of the Murphy tax decision in the Supreme Court was to require the Exchequer to double the allowances for married people over what is available to single people.

When the Government responded to the Murphy tax decision by doubling allowances and tax bands for married people they made a fundamental and strategic error and this is one of the chief reasons why our tax system is out of kilter today. There would be much more merit, especially for those now engaged in the business of radical reform of our tax system, in investigating whether earned income as opposed to unearned income should be more favourably treated, and by that means, to make a lesser differentiation between a married couple and single people as regards tax reliefs. It does not follow from any law of logic or of compassion that the tax allowances and bands for single people should be half that of married people. The reasoning which led the Government to double tax bands for married people and to double tax allowances led directly to the situation we now have where we have a viciously progressive tax system for single people.

Deputy Mac Giolla rightly pointed out that a widower is left in a hopeless situation because even though he now receives a concession that his married status is carried on for the year in which his spouse dies, he is very heavily discriminated against thereafter by our structure of tax allowances. It is absolutely unconscionable that somebody whose tax allowance structure is geared towards a family should find that it is hacked away at the same time that he loses his spouse. I agree with Deputy Mac Giolla that the present system is not based on any considerations of logic or on any sense of justice and the spurious reasons of morality to which he referred leave me breathless.

I suggest that all of this stems from the absurd interpretation of the Murphy decision which doubled tax allowances and bands for married people over what was available to single people and which treated a non-working spouse as a working spouse for tax purposes. The inevitable consequence was bound to be that where a widower found himself looking after a family he would be hammered by the tax system in a most unfair way. There should be a head of household allowance which could be divided between a husband and wife if they wanted, or made available to one or other, or available to the person with the most earnings. That kind of arrangement would be more rational and fairer than the present system.

If there are to be proposals for radical tax reform from this House I hope that there will not be in proposals for changing our tax system any effort to keep the idea that the married couple must get twice the tax allowance and double the tax band of the single person because that leads to the very injustice about which Deputy Mac Giolla talked.

The basic problems which give rise to requests to extend the double rate bands to single parents are the high rates of direct taxation and the low levels of income at which the higher tax rates apply. If the vast bulk of taxpayers paid tax at the standard rate only, the distinction between the double rate bands and the single rate bands would become largely irrelevant. It is the Government's objective as was set out in theProgramme for National Recovery to bring two-thirds of taxpayers onto the standard rate. This year substantial progress has been made towards achieving that objective. A further 93,000 taxpayers who would otherwise have paid tax at the rate of 48 per cent have been brought within the standard rate and nearly 63 per cent of taxpayers are now paying tax at the standard rate only. Consequently for them, the question of whether there are single or double rate bands is irrelevant as their marginal rate of tax is the same irrespective of the band structure. In addition, something like 55,000 taxpayers who would otherwise pay tax at the top rate of 58 per cent will now pay tax at 48 per cent.

This general reduction in tax rates which benefits all taxpayers and reduces the disincentive effects of high tax rates is the correct way forward. Providing special rate structures for selected groups, no matter how deserving, only impedes progress towards lower tax rates and gives rise to further anomalies and constitutional difficulties. Within the limited scope available for tax reductions in the present economic climate, it is considered that the greatest benefit can be obtained by providing for the overall reductions in tax rates which, on the attainment of the Government objective will lead to the elimination of most of the anomalies of concern to Deputies and will provide a better and more acceptable tax system for all taxpayers. Single parents get a special allowance which give them the same personal reliefs as a married couple. This allowance in the case of a widow is £1,550 and in the case of other single parents it is £2,050.

A number of points have been raised by Deputy McDowell today and on Second Stage regarding the Murphy decision. The Deputy's reading of the literal significance of the Murphy decision is correct. The decision of the court was summed up in the final sentence of its judgment as follows:

The Court will accordingly declare that ss. 192 to 198 (inclusive) of the Act of 1967, in so far as these sections provide for the aggregation of the earned incomes of married couples, are repugnant to the Constitution.

That was the only question the courts were asked to decide on. However, it would be naive to think that the decision would have been different if a decision on unearned income was also required.

In deciding what action to take consequent on the court's decision, the Government of the day had to have regard to the wider implications of the decision and not just to the narrow interpretation, of which the Government were fully aware, and which is now being put forward by Deputy McDowell.

In addition to the question of unearned income, there was for instance the implications of the decision for one income families. A narrow approach towards effecting the minimum changes to meet the Supreme Court's decision would have led to unjustifiable discrimination against one-income families, particularly where a married woman elects to care for the family on a full-time basis at home rather than take up work outside the home. Families with only one income earner would have been worse off than a two income family with the same level of total income. Even in cases where both spouses were working, their tax liability, on the basis of the courts decision, would have varied depending on how their incomes were divided between them.

In the case of the self-employed and better off taxpayers, there was considerable scope for tax avoidance under arrangements for both spouses to have an income designed to minimise tax liability. In the circumstances, to implement the basic principle that taxpayers with the same income, the same family and social circumstances should implement the same income, the same family and social circumstances should pay the same amount of tax the Government decided to implement in full their long-term plans for income splitting. This meant in effect that all married couples whether one or two incomes would have the benefit of double the personal allowance and rate bands applicable to single persons.

Subsequent support for the Government's decision came from the Commission on Taxation in its first report when it recommended that a husband and wife living together should be regarded as a basic unit for tax purposes and it accepted the doubling of the single entitlements for such a unit. In coming to the recommendation the commission was particularly influenced by the need to ensure that families in the same circumstances with the same joint resources should be taxed equally. In regard to Deputy McDowell's suggestion for the reintroduction of earned income relief, I would like to point out that the tax code contained such a relief up to 1973. It was, however, an unnecessary and complicating feature which has little logical foundation and was abandoned in a simplification process introduced in 1974. There are many other reasons which I could give but I do not want to delay the proceedings of the House. As I said on Committee Stage, I cannot accept the amendment moved by Deputy Mac Giolla.

There is not a lot which I could add to what I have already said. The Minister has not responded to the case which I made on behalf of widows, widowers and single parents. The only thing he seems to have in mimd is the implementation of long-terms plans and changes in the rate bands which, according to the Minister, will eventually lead to an equalising of the position. I cannot see this happening and it will certainly not happen in the short term. What I am talking about is this year and next year. The Minister did not address the case which I made or deny the justice of the case. He said that taxpayers with the same income, the same family and social circumstances, should pay the same amount of tax but that is what my amendment seeks to achieve. Let us take a family where the wife has died and the widower is left with the same family but in order to be able to attend to his job he must hire somebody to look after his family. Therefore, his outgoings in the area of education and looking after his children remain the same. In fact, the only change in his outgoings is that there is one person less to feed but this is balanced by the need to hire somebody to look after his family. In that reference I thought the Minister was admitting that the objective in taxation should be that people in the same circumstances be taxed equally, but that is not and never has been the position in regard to widows, widowers or single parents looking after a family.

I am glad the Minister did not come up with the range of possibilities of what they might do if they got the allowance which Deputy Bruton when he was Minister came up with two years ago but, at the same time, he has not addressed the injustice which exists nor has he denied that such an injustice exists. All he said was that the Government's long-term plans will help to resolve this problem in the future. That is not good enough from a Minister for Finance. There is nothing further I can add to what I have already said on the justice of this case. I thought the Minister would at least have given the extra cost on the Exchequer. He came up with no costing. I do not know whether this means that they have never actually looked at the problem and at how many people find themselves affected by it but if the Minister knows what the cost would be I would appreciate it if he could let us know.

May I put the amendment now?

Can the Minister give us any idea of what it would cost to implement this?

I will only allow a very brief comment.

The cost of extending the double rate bands to one parent families would amount to £1.6 million in 1988 and £2.7 million in a full year. These costs, however would be much higher, £15.7 million in 1988 and £26.2 million in a full year with 75,000 taxpayers benefiting, if married couples opting for single treatment could not be successfully excluded. If the married entitlement to mortgage interest relief and life assurance relief were also extended to one parent families, as should logically be the case, the cost would be even greater. Let me say quickly in conclusion for the information of the House that 75.6 per cent of all widows and widowers are taxed at the 35 per cent rate at present.

Amendment put and declared lost.

(Limerick East): I move amendment No. 2:

In page 8, between lines 17 and 18, to insert the following:

"3.— Section 2 of the Finance Act, 1986, is hereby amended, as respect the year 1989-90 and subsequent years of assessment, by the substitution of the following Table for the Table to the said section:

‘TABLE

PART I

Part of taxable income

Rate of tax

Description of rate

The first £5,700

25 per cent.

the standard rate

The remainder

40 per cent.

the higher rate

PART II

Part of taxable income

Rate of tax

Description of rate

The first £11,400

25 per cent.

the standard rate

The remainder

40 per cent.

the higher rate

'. ".

Because of the procedures of the House the amendment appears in a truncated form. When circulated on Committee Stage it was more extensive and sought an all-party committee of the House to be set up to discuss certain matters concerning personal taxation. This topic has received a good airing over the past week and it proved worthwhile putting down the amendment on Committee Stage because it allowed people to state their positions.

I would like to state briefly what I had in mind. First, I am not approaching this matter simply as a tax reform measure.

As I have argued quite frequently during the past six months, the focus of Government economic policy is now too narrow. We are faced with serious problems in our economy other than the question of debt control. There are aspects of the way in which we are arranging matters which are preventing growth and they would still be with us even if we had stabilised the debt-GNP ratio and were proceeding to reduce the debt.

It is reported in the newspapers this morning that the Central Bank have argued that there will be no growth this year and a further loss of jobs and that we now need to look specifically at the factors in our economy which are preventing the creation of employment. They also referred to the high rates of PRSI and high marginal tax rates.

While I have not read the full article it is interesting to note that the type of arguments I have rehearsed here on occasions since budget day are now coming through strongly from a series of sources and economic commentators. It is extremely disturbing that, in an economy which last year grew by 4 per cent — I think the Central Bank are now raising that figure to perhaps 5 per cent — 25,000 jobs were lost. We are all looking at the unemployment figures, the live register and all the rest of it. Not being able to quantify emigration in any particular month the unemployment figures do not reveal the full picture but the employment figures do reveal a full picture. It is difficult to understand why an economy that grew in net terms by that amount should have incurred such serious job losses. The predictions are that this trend will continue this year and into next year. We have an absolute responsibility to examine the position, ascertaining how we can improve it.

We have stated our case and the view of our party. The Progressive Democrats have clearly stated their cases. The cost of what I am talking about would be £660 million. I know, and I agree with the Minister, that there are no resources like that in our economy which could be allocated to tax reform without taking them from somewhere else. It is not a question of North Sea oil solving the problems of this country. It is not a question of some kind of crock of gold being around into which we could dip for lower marginal tax rates. What I am talking about is a rearrangement of taxation so that £660 million would be applied to the income tax code to achieve low marginal rates because I believe that the current high marginal rates are a huge disincentive to work.

Different people in this House have different views on taxation. Some parties in this House seem to make it up as they go along. Deputy Desmond, who represented the Labour Party view on taxation, scorned the notion of these resources being available in any fashion in order to achieve these results. Yet he tabled 13 amendments, the cost of which would be £220 million. He made no suggestion at all as to where that amount of money could be found. He did so in a manner which simply applied £220 million to allowances. On occasion he has accused our plan and that of the Progressive Democrats as being a blueprint for the rich. Yet he seeks £220 million to be applied to allowances which would give somebody on the 58 per cent band £58 for every £100 of allowances in their pocket and somebody on the 35 per cent band £35 for every £100 of allowances in their pocket. I do not know whether that is Labour Party policy. It seems to me to be extraordinarily peculiar coming from a socialist party. Quite frankly, I do not believe there is a Labour Party policy on taxation. I do not know whether there is a Fianna Fáil Party policy on taxation. It appears to me that the Minister will proceed year after year doing his best, hoping that he will have some money at the end of the day he can apply to increased allowances or slightly widening the far bands. For example, this year he has spent £91 million one way or another on income tax relief which, in a full year, he has told us, would amount to £152 million. That is a significant amount of money. I wonder have the Government got an attitude to personal taxation? Do they believe there is a connection between the income tax system we apply and job creation in our economy? Does the Minister agree with the arguments that the currents high marginal tax rates are costing us jobs and will continue to do so? If so, is there a Government attitude to high labour costs in our economy and how does the Minister's view of taxation fit into that? Or, is his view rather like that of the Labour Party — that it is a good thing in general to give money by way of allowances or widening the tax bands; if we had more we would give more but, because we have not, we can give this much only, but we will ascertain next year whether there are a few pounds lying around and we will apply them again? Is that the attitude or is there a tax philosophy underpinning the Minister's decisions?

I suggest that the best way to proceed would be by way of a committee of this House — a tax of a committee, fiscal committee, finance committee, call it what you like. I do not think that the reply from the Minister for Finance or from the Taoiseach adequately dealt with what I have in mind. If we agree, and we seem to, that tax reform is a good thing then we should ascertain whether we can deliver on it. Accepting that there are different views, there seems to be agreement now right around the House that tax reform is a great idea. But we should not stop there.

If we are seeking the kinds of resources I am talking about, £660 million, it must be realised that they can be got only by an extension of the tax base or by rearranging the present system in some way or another. I have pointed out that there are areas where tax is foregone. For example, there is £622 million foregone in the allowance with which we are all familiar and from which many of us benefit, such as PAYE, PRSI, mortgage interest relief, VHI allowance and insurance relief. The point about changing the allowances is simple enough. For example, if one is on the 58 per cent marginal rate of tax £100 worth of allowances is worth £58, whereas if one is on the standard rate of 35 per cent, £100 worth of allowances is worth £35 only. Therefore, it will be seen that any tax system based on extensive allowances favours the better-off especially while the marginal rates are high.

The first proposition any committee should examine is this: should we trade these allowances, or part of them, for lower rates? Would it be a more efficient tax system, more conducive to work had we a top rate of say, 40 per cent and the allowances were foregone? On the other hand, would it be a fairer system, for example, if the allowances were all applicable at the standard rate? Why should somebody on high earnings, on the high rate, receive their allowances at 58 per cent while somebody else, of very moderate income, gets his allowance at 35 per cent, the standard rate? That is worth examining. Of course, I can readily see that the moment anybody talks about doing away with mortgage interest relief, the cry will go up all around: ah, so that is what you are at. Then there is a political advantage perceived and off we go on the merry-go-round again, when nobody can achieve anything.

The other area which must be examined is an extension of the tax base. There are two ways only in which this can be done. We must examine the areas of property taxation and capital taxes.

I hesitate to interrupt the Deputy but I feel he is ranging too wide over the whole field of taxation. Our scope in respect of a Report Stage, as the Deputy well knows, is rather limited. I would prefer if he dealt more specifically with his amendment before the House rather than engaging in what might be more appropriate to a Second Stage debate.

(Limerick East): I will bear that advice in mind. In brief, and to be orderly, I am saying that there are areas that could be examined to find the kind of resources we are talking about but, to do so, requires the taking of political decisions which could be highly unpopular and which I believe will not be taken by one party in the House. Had we a mechanism, a political framework, for taking decisions such as these, we might make progress. I should like to continue but I will bear in mind what the Ceann Comhairle has said.

I should like to hear the Minister's view, not in any contentious or point-scoring way. Is there a Government view on taxation? Is there a philosophy underpinning the incremental manner in which they sought to benefit PAYE taxpayers in this year's and last year's budgets and, if there is, what is it and how does he perceive the position? Does he accept the connection between high marginal rates and employment in our economy and, if so, could we have his views?

I could give what might be described as a contentious reply but I will not. However, I will be realistic in my response to this amendment, as I was when we had it on Committee Stage.

It can be said to be quite easy for people to propose that tax rates be pitched at 40 per cent and 25 per cent. I would love to see such rates applicable tomorrow. There is no doubt but that everybody in this House, every taxpayer, would like to see the application of such rates, or even lower ones, if such were possible. Obviously, we must live in the real world. The reality was made quite clear even in the course of the last General Election when the commitment we gave at that time — the only commitment in relation to income taxation — was that we would seek to have two-thirds of taxpayers paying at the standard rate. Already we have succeeded in getting 63 per cent of them to that rate and we will continue in that way.

As Deputy Noonan rightly pointed out, his amendment would cost £662 million in a full year. But who is going to benefit? It has been denied by Deputy Noonan and others that it would not be the higher paid taxpayers, but the amendment would result in 70 per cent of the benefit going to taxpayers on the 48 per cent and 58 per cent marginal rates. It would cost a total of £462 million and it is broken down as follows: bringing the higher rates of 48 per cent and 58 per cent down to 40 per cent would cost £212 million and £248 million of the £450 million left would be attributed to reducing the 35 per cent rate to 25 per cent. That would mean that 70 per cent of the benefit would go to the existing higher rate taxpayers, £460 million of the £662 million.

However, that is neither here nor there at this stage because to a certain extent this point was raised by the Progressive Democrats prior to the last election, on roughly the same lines now being proposed by Fine Gael, but in both instances they did not go into any great detail, definitely in the Fine Gael instance, on the ways and means to raise this money. That is the biggest question. Deputy Noonan was honest when he said quite clearly that it would be very difficult for any political party to say how these amounts could be funded, but that being the case it is dishonest to put forward such proposals when you know in your heart that you cannot realistically provide the resources in the near future to pay for such reductions in taxes. That has got to be understood. I would be the last one to raise any expectations for the PAYE sector. God knows they have enough difficulty in trying to meet the commitments they have. We have honoured so far the commitment we have given them and hope to complete it in the not too distant future.

It has become public knowledge now that what we have got to have considered by the public at large and all taxpayers — and Deputy Noonan has begun to refer to this now, which he did not do before — is what would happen if we were to contemplate a reduction of the order of £662 million for all sectors by changing the rates to 40 per cent and 25 per cent. As the Deputy rightly said, the abolition of mortgage interest relief would have to come up for consideration. It is the PAYE sector who benefit from that. That costs £160 million. VHI relief, which costs £48 million, would have to go and that would hit the people who are providing the wherewithal to pay for their own health services. Life assurance relief costs £44 million and retirement lump sums, which have been tax free, would cost, if one were to tax them, £49 million.

As well as those there are a number of other possibilities which would have to be put on the table so that the full package could be considered by all concerned and not just the political parties. Property tax would cost £150 million to £200 million, however it would be devised. VAT on food, footwear and clothing at 15 per cent would bring in about £300 million. These are the kind of decisions that would need to be taken if we were to have rates of tax of 40 per cent and 25 per cent. That is what we have to look at, and I am sure everybody will seriously consider whether the tens of thousands of taxpayers who are benefiting under mortgage interest relief, VHI relief and life assurance relief, will forego all of those reliefs, which are worth something to them, for the sake of having 40 per cent and 25 per cent tax rates. It is a question which has to be considered very seriously.

Deputy Noonan suggested that a committee should be set up. It has to be accepted that the amount of tax relief that would be given in any particular financial year must be determined by the Government of the day in the context of their budget strategy. That has to be accepted by all. One cannot begin to do certain cost elements of the budget long in advance of how one is going to provide the resources to meet those costs. This amendment would tie the hands of the Government months in advance of the decisions which would be made for next year's budget and would severely restrict their options to take whatever action they considered appropriate in the light of changing circumstances between now and then. No Minister for Finance of any party would wish to have his hands so tied and I doubt if any Government could, and we have already said we could not, accept this amendment. While accepting the need to reduce tax rates further, in the circumstance I have to strenuously oppose this amendment.

That was a very interesting exchange because even though the Ceann Comhairle cut it back to size, which was undoubtedly a matter of proper order of the House, the Minister did say a few interesting things in reply. He said that no Minister for Finance would want to be curtailed in advance by a set of targets which were set out in the form of an amendment to the Finance Bill. Of course, that is true and any Minister for Finance who found himself statutorily bound to do X and Y next year would find himself at a great disadvantagevis-á-vis other Ministers for Finance and previous Governments.

We need to be clear about this. If we are going to transform our tax system we must set out a programme to do it. I differ from Fine Gael because I do not believe it could be done in one year. I do not believe that £660 million of resources could be transferred to make this amendment feasible in one year. One could not say to the mortgage interest payers, "I am sorry it is all over in one year, you will have to do something else to fix yourselves up". I do not think one could say to industry, "I am sorry, you will have to stop your investment plans half way through because we are going to treat your plant and machinery investment totally differently in one year" and effectively turn off the existing tax treatment of a variety of things as if you were turning off an electric light bulb. That cannot be done. In many respects we need a dimmer switch for the tax treatment of various aspects of our economy. Likewise, one cannot phase in a property tax in one year with a sudden jolt. Physically putting together a tax base, the machinery to collect it and a fair system of payment would take longer than that.

It is naive to suggest that all these things can be done in one year. If I thought they could be done in one year would it not, when I proposed that they could be done over five years, have been much more politically advantageous to suggest that they could be done in one year? If it has been politically advantageous for me to suggest it then — and I disregarded that choice because I thought it was dishonest — I have to suggest that it is dishonest to now suggest to this House that it can be done in one year, especially when not a single shred of information on how it can be achieved has been put forward.

I have to say, critically of Fine Gael and of the Stance they have taken in tabling these two amendments, and especially the earlier amendment in which there was reference to an all-party committee of this House, I do not believe they will break the log-jam in Irish politics if they say, "There are ways and means of doing this but we cannot tell what they are or even sketch out what they might be." The people in this country are maturing and are willing to say, "Fair enough, at least that policy document from that party spelt out the options in great detail and at least that policy document set out in some sense the arguments for and against each individual measure". This proposal, coupled with the idea that the down side will be done on a multi-party basis and will be considered without political risk to the proponents of the good news, is fundamentally flawed. I know it is a great step forward for Fine Gael even to think about this but they have to take their courage in their hands and say one more thing, and that is that regardless of whether they get a response from us, from Fianna Fáil or from anybody else in this House, they are willing to develop these plans unilaterally, that they are willing to take some political risks and spell out some of the consequences of what they are talking about.

Tax reform of this kind without any connected reform of the social insurance system would also be deeply unfair and have negative consequences for other people. That is why I am interested to see that Fine Gael have also in this week made suggestions for integration the taxation and social welfare systems. But I can tell them one thing, the idea of a minimum wage is easy to spell out in the form of a speech, and if one calls one's speech the new politics, that is fine, but when one comes down to the actual quantification of a minimum wage or entitlement for everybody the figures begin to fall apart and the arithmetic changes dramatically.

The Deputy is straying somewhat from the amendment before us.

I appreciate that, a Cheann Comhairle. In relation to this amendment, I am saying that in so far as it is supposed to be the occasion on which a debate as to radical tax reform is to occur, that is fine but in so far as it is intended to suggest that everything can be done in one year, it should not be taken seriously because it cannot be done in one year. Any political party that pretends to the public at large that it can be done in one year is codding itself — there is a lot of self delusion about this — and they are codding the public, which is worse. If we are serious about radical tax reform we must spell out the adverse consequences; we must be willing to inform the mortgage payers that they will lose their mortgage relief and we must be willing to show them how, in those circumstances, we will look after them.

I find the process by which Fine Gael are shifting their ground on this and coming up with an amendment of this kind interesting to watch but in terms of improving confidence in the political process, their reticence — and I will not use a stronger term than that — about spelling out any of the adverse consequences takes away from the efficacy of what is suggested in this amendment.

(Limerick East): Both the Minister and Deputy McDowell have charged me with being dishonest, and I would like to reject that charge.

I did not say the Deputy, I said it would be dishonest.

(Limerick East): I would prefer if both the Minister and Deputy McDowell were in better humour early in the morning. Deputy McDowell seems to fluctuate like our tax rates. Early in the morning he is quite sunny but he is probably allergic to the rashers and eggs because around mid morning he is quite crusty and then he is quite pleasant again in the early afternoon.

The Minister says he would love to see this. I do not think he would. All the logic of what he has done last year and this year is running against this proposal because there is nothing in anything the Minister has said or done so far to suggest that he is in favour of low marginal rates. I know the Minister is in favour of people paying less tax, who is not, but there is no suggestion yet from the Minister that he is in favour of low marginal rates. What he has done is to widen the bands and give a little bit extra in allowances. He has deliberately followed that course now in two budgets and seems to intend to continue to do so as he talks about two-thirds of taxpayers paying at the standard rate. The implication of that is that the Minister is not going to proceed to change the rates and that we are going to have 58 per cent, 48 per cent and 35 per cent rates. I am not sure what the Minister's position is on low marginal rates.

The second question is whether the Minister sees a connection between income tax reform and job creation. I see the connection and, increasingly, economic commentators are making that connection. Yet the Minister has not addressed himself to that at all. The Minister asked the rhetorical question as to who benefits. Of course the people on the high rates benefit. Two-thirds of the £660 million will go to people on the high rates. The Minister gave a breakdown and the implication of what he said is the exact implication and twist the Labour Party put on these things; because it is the people on the high rates who benefit it is a kind of charter for the rich. This comes close to the centre of the proposal, and I will repeat it again. Single people on the average industrial wage are paying tax at 48 per cent, and if they are on full PRSI, there is another 7.75 per cent on top of that, so the effective rate is 55.75 per cent. Single people on around £11,500, even after the expenditure of £152 million in the budget, would be moving on to the 65.75 per cent rate. So to suggest that because people on high marginal rates benefit, this benefits the well off is not correct.

I said the higher taxpayers.

(Limerick East): The implication of what the Minister is saying is that people on high tax rates and the rich are synonymous. They are not, and that is the problem with our tax system. People on quite low incomes now go on these rates.

The Minister has not referred to the connection between tax reform and job creation. In particular he has not addressed himself at all to the problem of the mobility of capital and labour which is increasing all the time, and that mobility is even more pronounced between economies whose people speak the same language — the United States and Canada, ourselves and the United Kingdom. There is extraordinary mobility now and it is increasing all the time; there is a concentration now on access transport costs.

The Minister spoke about the difficulties of putting tax on food, putting VAT on zero rated items. The Minister is as aware as anybody else that difficult decisions will be faced anyway in the harmonisation of VAT as we approach 1992. Rather than be dragged into major impositions on food and other zero rated items, would it not be better to do it in a planned way?

Deputy McDowell was upset about the idea that this could be done in a year but I am saying, and what I have said all the time is, that if we had a committee obviously my views would not dominate the committee; any committee will form its own dynamic and its own creativity. I would be interested in the decisions being taken in a package, and the decisions could easily be taken over a period of 12 months. The implementation of those decisions might and probably would need a longer time frame.

That is a change.

(Limerick East): But the decisions on an all-party basis would have to be taken over a short period of time. Otherwise, we would have another outbreak of “committeeitis” in the House where the thing would drift on forever with majority and minority reports and it would not even be discussed in the House.

We have seen a bit of very neat footwork there.

I am sure the Ceann Comhairle has reminded Deputy McDowell that on Report Stage he is only allowed to make one offering.

He has not had an opportunity to do that. This is my first sin. It is just a heckle.

Deputy Noonan, confine yourself to the terms of the amendment, please.

(Limerick East): Before I was interrupted there by the member for Dublin South East I was outlining the proposal. It is good that we had some discussion in this House on tax reform. One can sometimes feel frustrated in these hallowed halls. The Commission on Taxation examined tax reform, and I do not recall that their reports were ever discussed in here. I do not recall any serious debate on tax reform in this House until this Finance Bill was introduced. We have had a series of aspirations along the lines that reductions in income tax are a good thing; we get the kind of Labour Party approach, the 13 amendment approach but there has been no attempt to put tax reform centre stage, analyse it and establish the connection between tax reform and job creation.

We have to look at the dynamics of the income tax system and in examining them we have to continue to seek solutions. Deputy McDowell was very strong in his challenge that we should have costed this proposal. I think I have dealt with that adequately and I said that in a committee we would have to make hard choices. The basis of having a committee to look at it was that the choices would be hard. The implication of what he said is that the Progressive Democrats' programme is costed and, of course, it is not. The target rates which the Progressive Democrats aim at are 48 per cent and 25 per cent, which would cost £660 million exactly, and that is the proposal I brought forward. As well as that the Progressive Democrats would roll PRSI and tax into one unit; the cost of that would be £1.1 billion. Deputy McDowell's party — with good footwork — have created the impression that they have actually costed the proposals but they have not.

I have a feeling that Deputy Noonan is moving a little beyond this debate.

(Limerick East): I am replying to the debate on the amendment and I think I have an obligation to take up the points which were raised in the normal manner of replying.

I am sure that Deputy McDowell will attempt to explain the totality of whatever proposals his party has on the taxation system. That is his right.

(Limerick East): I want to make a passing reference to the notion that one can collect £1.1 billion from an unspecified property tax in this country. Depending on which Progressive Democratic member one speaks with it could be £200 million, £300 million or, more acceptably, within the ballpark of £400 million to £600 million. The most explicit costings I have seen of the Progressive Democrats proposals are those published by Mr. Paul Tansey, the well known commentator, in The Sunday Tribune. The arithmetic there suggested that over five years one could create £1.1 billion in resources by a net expenditure of £100 million a year. There is a lot of buoyancy and tax creativity built in there. If we are to shine the spotlight on the Fine Gael——

It is the magic touch.

(Limerick East): It is magic, yes. There is the rabbit. There are certain benefits in the Fine Gael proposal both at financial and political level. I would be very happy if the fact that we put up a proposal, and we are attacked on the basis that it is not costed, shines the light on all other proposals and if explicit costing is to be the flavour of the next 12 months, let us start with the people who pretend they have it explicitly costed, because they have not and have not even come near it. I would like to congratulate Deputy McDowell because the plain people of Ireland are under the impression that not only have the Progressive Democrats an objective of a higher rate of 40 per cent and of a standard rate of 25 per cent that PRSI payments would be abolished completely and that these figures would be net figures not propped up by PRSI employee contributions, but that this is all fully costed.

If I was to say to Deputy Noonan that perhaps he has brought enough myxomatosis to that rabbit, can I encourage him to move on so that we can deal with the other amendments.

(Limerick East): Is the Chair referring to my swollen presentation or to the swollen Progressive Democrats costings?

I am referring to the rabbit.

Or is it the swollen heads of the Progressive Democrats?

(Limerick East): You are bringing rabbits with myxomatosis into this House and trotting them up and down for the benefit of the Gallery.

Deputy Noonan brought in the rabbit. I think that was an escape route and I think we might escape on to the next amendment.

(Limerick East): Before I withdraw the amendment — I am not pressing it because I want a serious discussion on tax reform — I would like to congratulate the Progressive Democrats because not since the great impressionist school of painting in late 19th century France have we seen the delivery of such effective illusions and the fact the at a distance everything has form, when you move close up to it becomes misty and hazy. If we are to have a serious discussion on the costing of proposals, let the light shine fully and brightly on all proposals. If we are to have an argument on who costed what, Deputy McDowell's proposals will not look that great under the spotlight. I thank you for your tolerance, a Leas-Cheann Comhairle.

Be assured that it will not happen again.

(Limerick East): We will make progress now because I will not push this to a vote, so we have gained another 20 minutes.

Will the Chair indicate for the record that I was not allowed to——

Let the record show.

We hope that if and when an opportunity might present itself to you, Deputy McDowell, that your recollection will have dimmed and you will apply yourself to whatever amendment is before him rather than what might have been said now.

Amendment, by leave, withdrawn.

I move amendment No. 3:

In page 9, between lines 11 and 12, to insert the following:

5. — (1) Where, but for an insufficiency of profits or gains, a reduction of income tax would have been granted to an individual under the provisions of section 16 of the Finance Act, 1986, in respect of the full amount of farm tax paid by him on or before 31st December, 1986, he may claim to have his income tax in respect of profits or gains from farming for the years 1985-86 and 1987-88 reduced by the amount by which the farm tax so paid by him exceeds the tax appropriate to the profits or gains from farming in relation to that individual for the year 1986-87;

Provided that—

(a) the reduction to be granted under this subsection shall be set off, so far as possible, against the individual's liability for the year 1985-86, and

(b) no reduction under this subsection shall be allowed more than once in respect of the same amount of farm tax paid by the individual.

(2) This section shall be construed together with section 16 of the Finance Act, 1986.

I am glad to have the opportunity of moving amendment No. 3 because, unfortunately, with the timing arrangements for Committee Stage it was not possible to have this amendment discussed. It was withdrawn on Committee Stage and retabled here. However, in my contribution on Second Stage I made a detailed reference to it. This is a small amendment and it deals with a gross anomaly that has arisen due to the change of Government and the different policy position taken by successive Governments on the farm tax. I seek to address a matter of State integrity, integrity of the Department of Finance, the Department of the Environment, local authorities and successive Ministers.

I wish to set out, very briefly, exactly what happened. The land tax was introduced in the 1985-86 period. In October-November the then Minister for Finance, Deputy John Bruton, gave an assurance to the Dáil that farmers who paid their farm tax by 31 December 1986 would not only be allowed the income tax credit for such payments in the tax year 1986-87 but would also be allowed to offset it against any tax liability for 1985-86 and 1987-88, that is any unused portion of the land tax payments. The position is that arising out of that Government decision the Department of Finance sent a circular Fin. 33/86 to all local authorities on 10 December 1986. I will not go into the details of the APO who signed it, but I would like to quote from one relevant paragraph of this circular which states:

As you are aware the Finance Act, 1986, allow farmers who pay their farm tax in the current tax year to offset this amount against any income tax liability arising in 1986/87. The Government however announced at the end of September that the income tax concessions would be improved for those farmers who pay their farm tax before the end of 1986. The improvement will be the facility to offset any unused portion of 1986 farm tax credit against their income tax liability for 1985/86 and 1987/88.

You may consider it appropriate to advise persons from whom farm tax has been demanded of the new arrangements, so as to improve early collection of the tax.

Arising out of that, in my own constituency and in many other constituencies, local authorities wrote to farmers from whom the tax had been demanded. I quote from a particular letter sent by Wexford County Council to a number of such farmers:

I refer to the demand for farm tax issued to you on 1st December, 1986.

Under the Finance Act, 1986 farmers who pay their farm tax in the current tax year can offset this amount against any income tax liability arising in 1986/87. The Council has now been advised by the Department that in addition to this facility any farmer who pays his/her farm tax before the end of 1986 will be able to offset any unused portion of the 1986 farm tax credit against their income tax liability for 1985/86 and 1987/88.

We have here a succession of written undertakings from the Minister for Finance to this House and from the Department of Finance to local authorities who were involved in the collection of tax and a carrot put forward to farmers in respect of paying tax within a period of one month. I am making this amendment very strictly in terms of that promise. In a very small number of cases in late 1987 farmers were advised by the Chief Inspector of Taxes that this credit no longer applied. A small number of my constituents who are diligent in their tax affairs, who employ accountants and pay their tax every year are very upset. I am not talking about people who are being dealt with by the sheriff but about proper, conformist taxpayers who now find that assurances by Government Ministers in the Dáil, confirmation by Department of Finance officials both over the phone and in writing and confirmation by Wexford County Council mean nothing.

Therefore, I seek to move this amendment without further ado. I sent the Minister all the correspondence some months ago and I asked him to consider this matter sympathetically, not on the basis of whether farmers should be given a tax concession but on the basis of the integrity of continuity of Government and different arms of State. I understand it would cost less than £250,000 and I emphasise that this is not like many other tax concessions which are going to cost so much this year, more next year and even more the year after. This is a once-off matter that will not put a recurring charge on the Exchequer. I do not wish to detain the House as there are many other amendments on Report Stage. I ask the Minister to take on board sympathetically this change at this time as it is the last Stage in this House on this Bill when we can do so.

I thank Deputy Noonan and Deputy Yates for raising this question. It was not reached on Committee Stage and now the issue has been put fully on the record. I have considered all the issues involved in regard to the amendment and the office of the Attorney General has been consulted on the matter. I have decided on balance to accept the amendment for the following reasons.

First, though there is no legal obligation on this Government to honour a promise made by the previous Government, the advice from the office of the Attorney General is that the matter might be regarded for this Government as one of good faith or consistency. The previous Government, of which Deputy Noonan was a member, had made the promise to give a three year offset against income tax for farm tax paid in 1986 and stated that the necessary provision would be included in the 1987 Finance Bill.

Secondly, the maximum total cost to the Exchequer is estimated at £150,000 which is not a significant amount. Thirdly, no administrative difficulties are involved for the Revenue Commissioners in giving effect to the proposals. For those reasons I accept the amendment.

I thank the Minister for his very constructive and reasonable approach on this. I feel the reasons he has given are absolutely correct and I acknowledge with thanks his willingness to accept this amendment.

Amendment agreed to.

(Limerick East): I move amendment No. 4:

In page 9, to delete lines 38 to 43, in page 10, to delete lines 1 to 47, in page 11, to delete lines 1 to 41, in page 12, to delete lines 1 to 53 and in page 13 to delete lines 1 to 24 and substitute the following:

"7. — The Voluntary Health Insurance Board and all other authorised insurers who offer medical insurance will each month provide the Revenue Commissioners with the following information:

(i) the total amount of money paid to members to cover medical expenses claimed by medical practitioners, and

(ii) the names and tax numbers of medical practitioners with the amount paid to the benefit of each individual medical practitioner.".

Amendment No. 4 is an amendment to section 7. We did not reach section 7 on Committee Stage so this amendment is retabled.

There will be no section 7 if the Deputy gets his way.

(Limerick East): Section 7 applies to witholding tax on fees paid by the VHI to doctors. The method of payment of VHI fees will have to be changed. At the moment they are paid to the member who is the patient of the doctor and the patient pays the doctor. That will have to be changed now and is being changed in this section where the payments will be paid directly to the doctor and the obligation of the withholding tax which the Minister introduced last year will then apply to the VHI and they will have to return 35 per cent of any payment made to the Revenue Commissioners.

I can see a certain logic in extending the scheme but the VHI have a relationship with their members which is different from the relationship which the semi-State organisations have with the professionals they employ. That was the scope of the section last year. This is going far beyond that and changing the concept of the withholding tax. I understand the Minister's desire to have an effective tax collection system and I am familiar with the arguments he has made on behalf of the withholding tax and its contribution to the efficiency of tax collection. I do not agree with the arguments he has made. I think it has worked very unevenly and unfairly in certain professions, in particular with doctors in the GMS scheme. The Minister should look at that area again.

This is being extended further now to payments made by VHI, I think unnecessarily. I remember when in Government concern being expressed on a number of occasions that consultants in particular were rather tardy in making returns of what they owed to the Revenue Commissioners. The point was made that it would lead to a far more efficient system if the VHI would inform the Revenue Commissioners of the amount they paid to each doctor or to a patient to be paid to the doctor. If this information was provided freely by the VHI this problem would be removed. The VHI consistently refused to do so. I understand they have now changed their minds and the VHI Board are now willing to provide to the Revenue Commissioners all the information that would be necessary to inform the Revenue Commissioners of the full details of every payment made to medical practitioners. That being so, if we included that provision in this Finance Bill to underpin their willingness by statutory obligation, the problem would be solved effectively and efficiently. The relationship between the VHI and their members would be maintained. Where a contract of service exists between the member and the doctor he attends that would be maintained, the VHI would continue to pay the member rather than the doctor and then the member and the doctor would come to their own arrangements. That is a far better way of proceeding.

I have proposed in this amendment that the section be deleted and an alternative section substituted which would impose a statutory obligation on the VHI to give full, accurate information to the Revenue Commissioners regarding payments made to doctors on foot of insurance cover provided by the VHI. That is the centre of it. I think the section as it stands is going to present VHI members with difficulties. Despite the attempts made by the Minister to protect the member of the VHI here in his relationship with the doctor, difficulties are likely to arise and some doctors will attempt to recover from the patient the amount withheld. There will be upward pressure now on fees and what used to cost £200 will now cost 35 per cent more.

It has been brought to my notice that the appearance of this section in the Finance Bill has introduced a new category of patients into an already over-categorised medical system. I was informed by somebody who attended a doctor that the person was asked by the doctor's secretary, "Are you a private patient?" The answer was, "Yes, I am in the VHI" and the secretary said, "That is not what I mean. Are you private or VHI?" When people start asking that question the implications become very clear. If you are in the VHI the doctor has to wait to be paid and 35 per cent will be deducted. If you are private it is money on the table before the service is given. There is nothing in the section to prevent this happening.

Obviously, patients are in a vulnerable position when they go for medical treatment and it is at that point demands can be made, such as the one to which I referred. I know that doctors have said they intend to recover the amount. The Minister has introduced immunities to ensure that there will be no residual liability on the patient but that will not meet the situation. If a person is in pain, if there is a long waiting list and the choice is between borrowing or drawing the money from a bank and waiting for treatment, it is obvious what will happen.

The section will not operate as the Minister intended because the doctor will be giving the money back to the patient when he gets a cheque from the VHI with 35 per cent taken off. This is unnecessary because whatever difficulties there were in collecting tax from private practice medical practitioners, once the VHI have indicated their willingness to provide full and accurate information to the Revenue Commissioners as to payments made, then that problem is eliminated. My amendment seeks to approach it in that fashion.

I strongly urge the Minister to reconsider the section and to accept my amendment as being more appropriate, effective and to the benefit of the patient. It will also yield the revenue which the Minister desires.

Before I call on Deputy McDowell, I suggest to Deputy Mac Giolla that he looks at his amendment and to consider his position in respect of the other amendment we are discussing. Perhaps he will elect to have his amendment discussed in unison with this one.

I will consider it.

I will give you the implications in regard to yourself later on when we come back to it.

When the idea of a withholding tax was brought in last year, all the explanations were trotted out at great length in the House, examined and teased out. I had a profound objection to some aspects of the tax at the time. I thought that it was crude and that the rate applied was absurd because it did not discriminate between the likely level of overheads obtaining in medicine, with solicitors and barristers — who have very low overheads — and engineers, who have very high overheads. It was a barbarous instrument to apply to the problem. It was ill-thought out, ill-considered and could only have been conceived by people who did not know the different circumstances of the professions to which it was applied.

I still think it is a crude tax. I am a barrister and I know it had much less effect on my profession then others because of low overheads. Many barristers were grateful for the opportunity to save out of their income rather than putting money into a bank, avoiding the temptation to spend it and then giving it back to the Revenue Commissioners. That is not the case in regard to a large engineering practice or a quantity surveyor's practice where overheads are extremely high relative to the fee income of the practice. The 35 per cent rate was applied on the basis that it was the standard rate of income tax. I do not know the relevance of that since it is a withholding tax and I do not see why the standard rate of income tax should have any bearing on it.

One of the groups to which it was applied was the GMS doctors and it has caused huge cash flow problems because many of them are almost wholly dependent on fees paid by the State as reimbursement. It put doctors on the equivalent of emergency tax and it did not discriminate between the complying doctor and the non-complying doctor, the doctor who had greater draws on his purse and the doctor who did not. It did not differentiate between the doctor who had a family and the doctor who was single, with no major commitments. One of the anomalies was that they, as a very hard-working group, were hammered by the tax man and were on emergency tax in respect of GMS fees.

The people further up the earnings ladder in the medical area, the consultants, seem to have escaped the same consequences because most of their income is generated from private sources. Undoubtedly, it seems unfair that a GMS doctor is hammered by the Revenue while the State leaves specialists and consultants free to take in their fee income from patients on a much more advantageous basis. That disparity and unfairness drove the Department of Finance — egged on by the Department of Health — to take a sterner view of consultants' fees and to see what could be done to establish equity between various members of the medical profession. However, when you start from one unfair position and decide to bring everybody to the same level of unfairness you are bound to make mistakes. The fundamental mistake made in regard to this measure was the failure to appreciate that there was an absolute distinction between the consultants and the GMS doctors.

A barrister who gets his fees from the Director of Public Prosecutions or the Attorney General cannot raise them to take care of the withholding tax on his cash flow. Similarly, a GMS doctor cannot, unilaterally, put up his fees but I have no doubt that it is the case, and clearly becoming established as the practice, that the medical profession, at consultant level, when confronted with this withholding tax by the VHI can and will raise their fees. Whatever view you may take of their behaviour, it is to be expected as a consequence of this measure.

The Department of Finance also seem to think — and they are wrong — that the VHI payment represents the totality of a payment by a patient to a consultant. The VHI only pay a certain fraction of the amount, the fraction they consider reasonable for treatment given. The VHI do not take the consultant's word in regard to the value of the treatment, they have their own estimate and only reimburse their policyholders to the extent of their own estimate of the value of the treatment by the consultant——

It also depends on the amount insured.

Indeed. The VHI have a totally different function in relation to payment of the cost of private consultants' fees in which they have an interest compared to the Department of Health in the GMS scheme. The VHI patient has a private and separate contract with his consultant and there is only partial reimbursement on the VHI contract. As Deputy Cooney said, it is not only depends on their estimate of the value of the treatment but also on their estimate of the units of the insured person and the extent of the policy cover.

The geniuses who thought up this provision seemed to think that in some sense they could take out their slice of the VHI payments. They thought up a very complicated and slightly crazy system to take their slice out of a payment which, in fact, is not a payment to the doctor but a payment to the patient to reimburse the doctor. We have all sorts of contra items going this way and that and obligations to refund this and that to patients but in the last analysis what is not understood in the brains of those who dreamt up this scheme is that the doctor is going to say, "I want £300 to do an appendectomy and I do not care how I get it but I want it as my fee and if your insurance company is being messed about by the Department of Finance that is your bad luck." The doctor may say that he is entitled to receive that fee there and then. If at the end of the day an obligation is put on him to give a balancing item to a patient when he receives his VHI payment and to effectively absorb the amount of the deduction of 35 per cent — that is the purpose of the scheme — he may say at the outset that he is going to put himself in a position that will mean he can avoid as far as possible the adverse consequences of that deduction. That will mean one thing, and one thing only, that the patient will be charged more.

Deputy Mac Giolla's amendment, which I will not debate at this stage, is the rational accompanying feature of the scheme that the Department of Finance have dreamt up, a scheme which would permit the Minister, or the Department, to somehow control the fees of consultants. Unless one can control the flow a withholding tax is a joke because it does not become a tax on the person who receives the money but a tax on the person who pays the money if the person who receives the money can vary the flow of money upwards to take account of the cashflow problem. It worked with the barristers, the DPP and the Attorney General, in so far as the Attorney General ever paid any barristers.

All in good time.

It works with doctors in the GMS, and very savagely. They cannot go to the Department and say that they are increasing the amount of fees owed to take account of this. However, it manifestly does not work where a specialist can fix his own fee and say he wants it now and whatever arrangements there are for reimbursing is the problem of the patient but that he intends to maintain his level of income and his cash flow this year at what it was last year. There is nothing in the section which prevents consultants doing that.

Some might think that there are various factors determining the level of consultants fees. The purest economists might think that there is a question of supply and demand and that there are laws of economics which decide that appendectomys cost £300, or £350 or £250 but there is no advertising involved. There are no billboards outside hospitals or consultants rooms stating that appendectomys cost £350. Nobody deals with the medical profession on the basis of ana la carte menu where they can compare one doctor with another. That is not the way the system works.

Therefore, the price of the service — it is crude to talk about it in those terms but it is the truth — is very often arrived at by the judgment only of the consultant as to what a fair remuneration is for himself and the capacity of the person whom he is asking to pay the amount. That is the case among professional men, expecially consultants. They are not in rigid price competition one with the other. They can name their own fee and they do so by a complex formula. I am not suggesting that they are engaged in some form of rip-off. They charge what they consider a proper fee in the vast majority of cases for the work they do and they take into account the capacity of the patient to pay.

However, we must be clear about one thing, in the last analysis they are the judges of what their fee will be and no parent is in a position, with a son or a daughter in a state of acute gastric pain with a suspected appendix condition, to start haggling there and then with the doctor. Very few patients, and they are decent people, if the fees we never mentioned, would contest the consultant's fees later and point out that they were being charged more than they had been charged the previous year or ask how much of the fee represented an increase because of the VHI arrangements introduced by the Minister for Finance. The consequence of that, and this is something that the Department of Finance had better get firmly into their heads, is that the consultants are not going to be strapped for cash or will put into the same iniquitous position as doctors in the GMS. The consequences of this measure are that the patient will have to pay more for the service and the VHI, as a system of reimbursement, will become less and less adequate. If there was a willingness, and I am glad there is not for other reasons, to regulate the structure of fees and state the maximum fees that doctors could charge, the position would be entirely different because the barristers who are retained by the DPP and the surgeons who carry out appendectomys would be paid on the same basis and there would be no way of avoiding the consequences of this imposition.

However, the diametric opposite is the case. There is no point in the Minister fooling himself, patients will pay for this. We should learn a lesson from this silly section which is based on a misunderstanding of the basic professional position and the "he who pays the piper" aspect of consultant medicine. The Minister had better get one thing firmly into his mind, if he intends extending withholding taxes for the purposes of applying them to the people who provide the service he must only do so where the effect is not to give the person who is providing the service an opportunity to reimburse himself at the expense of the person receiving. That is why this provision, althought it may seem fair as between GMS doctors and consultants, is totally and radically different. Doctors in the GMS service are stuck with the fees they get but the consultants are not. They will charge more to take account of the problem they will encounter if the section is passed. The losers will be the patients.

In my view this amounts to a tax on operations and a tax on consultant services. It is not a tax on consultant's incomes. Mark my words, fees will go up to take account of this and the people who will have to pay the tax will be those who receive the consultants' services.

I have decided to accept the advice of the Leas-Cheann Comhairle and debate my amendment with the amendment before the House.

In circumstances where Deputy Noonan might press his amendment and it was defeated, the Deputy's amendment could not be accommodated later.

I am left with no option after Deputy McDowell's contribution. He has spoken more eloquently than I on my proposal. My amendment states:

In page 13, between lines 2 and 3, to insert the following:

"(i) provide for measures to prevent practitioners from increasing medical fees consequent on the implementation of this section".

I am not in a position to suggest the type of wording that would be required to introduce these measures and that is why my amendment simply states, "provide for measures". I have not given any detail of the type of measures I envisage but the Minister, and his Department, are competent enough to draft a list of measures. Deputy McDowell has set out clearly the need for such an amendment.

Every Deputy must have experience of people who are prepared to sell all their property to secure the health of their family. When an affiction strikes a member of a family they are prepared to go to every possible length to raise the money so that the necessary operation or treatment can be carried out as quickly as possible. People who are very ill may not be able to wait to have the necessary procedures carried out in the public health service and they are forced to avail of the private medical service. In effect, the patient is held to ransom. He or she is told what this private treatment will cost and must then find the money. The amount demanded is not questioned, no matter how high, because life is worth more than the highest medical fee. The only question is how to raise the money.

It is almost certain than an effort will be made to overcome the proposed tax deduction by increasing the fee to the patient. In effect, the patient will pay the tax for the medical practitioner or consultant. The purpose of this amendment is to prevent that happening. The possibility exists among all professions to raise the level of fees. Deputy McDowell made the important point that in the medical area there is no question of competition. In the private sector competion is the major factor in ensuring that a person gets value for money. It is possible to shop around and get the best price. If one were hardnosed and brutal enough one could ask various medical people what they would charge for a particular operation but word would be passed around very quickly and the same answer would be given everywhere. It might be no harm if we had a VHI or Department of Health shopping list which would enable the public to find out the cost factors involved in surgery and medical care. That would generate a kind of competition. There would not be a notice board, such as one finds outside a supermarket, giving the price of various operations and drugs but nevertheless that information should be available somewhere.

The medical profession is strictly controlled. At the bottom is the young doctor, who may be about 35 years of age, working for 50 or 60 hours per week in a hospital. It is very difficult to break through to the consultancy or specialist area because it is fairly tightly controlled. If this were not the case an element of competition could be developed.

The imposition of a tax on consultants, specialists and medical practitioners will result in that tax being paid by the patient, unless something along the lines of this amendment is included. If we pass this Bill as it is we will definitely ensure the payment of the tax by the patients who already have enormous bills but will have to pay more. That is not the Minister's intention. We want to see that a reasonable amount of tax is taken from a very important and highly regarded profession who deserve to be well paid. They should pay their share of tax, just as everybody else. An amendment like this is essential to make sure they will do so.

I support the amendment moved by Deputy Noonan. I presume that the rationale behind the Minister's proposal is a desire to ensure that there will be full disclosure of income received from medical insurance by the consultants concerned. For that reason he has introduced this section which, of course, goes further than disclosure. It also makes deductions by extending the withholding tax regime to payments made by health insurers.

I think that it is common case on this side of the House that the withholding tax, while it may be effective from the point of view of the revenue in generating a cash flow, is in many ways obnoxious because it has within it many injustices to citizens. Laws that are capable of having that effect are not good laws and should be avoided. Here we have them being extended, and extended to what is essentially the private area of a citizen's arrangements for his own medical cover. I suppose that one could say that there is a certain logic in the case where the State is the paymaster and is also to be the beneficiary of the tax, that the State shortens the circle by stopping the tax from the payment that it is making. There is a certain superficial logic about that to justify the withholding tax as we know it, but that argument is totally absent in the case now being proposed in this Bill, where the Minister is seeking to interfere in a private contractual arrangement by a citizen with an insurance company to provide cover for his medical expenses. I find that interference to be particularly obnoxious.

I also raised the point at an earlier stage of the debate on this Bill that I would at the back of my mind have a question about the constitutionality of this attempt by the Minister to interfere in a private contract. If I insure my medical expenses, I have a contract with my insurer and on foot of that contract, if certain things happen, he will pay the amount that I have insured if the contingency provided for in the contract happens. The State is now interfering in that private contractual arrangement and is directing my insurer how, when and to what amount the sum which I insured is to be paid. There is something wrong about that and I can foresee a situation arising in which my right under that contract is being interfered with in circumstances that enforce me as a citizen to seek redress, a declaration that the State, the third party, is not entitled to come in between me and the other partner to the contract. There is a property right that I have established by virtue of the contract and it is my belief that under the Constitution that property right cannot be interfered with unilaterally by the State, no matter what good reason the State may put forward for that. That is something that I have no doubt will be tested in the fullness of time.

Another reason that I consider this interference by the State in my private medical insurance arrangements obnoxious is that it is breaching the confidentiality that traditionally has surrounded medical arrangements. If I make private arrangements for medical cover and if I, or some member of my family, is unlucky enough to contract an ailment that in the current state of society's thinking would be regarded as socially reprehensible and a claim has to be made on foot of the contract for the medical expenses of that condition, it is a serious breach of confidentiality that the claim of the medical person which would indicate the nature of the condition and probably indicated by account also would then become known, not just to me and my insurers but to the Revenue Commissioners and all their staff. This is something that should be avoided. Those are a couple of examples of adverse consequences arising from what the Minister is proposing. What he is proposing is a section in order to ensure that the State gets from the consultants who receive money from medical insurers a fair return of tax, that the tax liability accruing to them arising from that income will be paid.

The Revenue Commissioners have all the powers in the world. Once they have knowledge of income, they do not lack power to procure the payment that is due on that income. That is why I would urge the Minister to look at Deputy Noonan's amendment. It provides for disclosure and that is the big weapon in the Revenue Commissioners' armoury. If they have knowledge of the medical claims that have been made by insurers to medical consultants, there can be no avoidance or evasion. The further weapon that the Minister is using in this section, that of withholding tax, becomes unnecessary and the adverse consequences to which I have pointed as potentially arising from it are avoided, such as that of the matter being unconstitutional, apart from its inherent injustice. It is obnoxious to see the State interfering in a private arrangement that I, as a citizen, have made and there is the question of the possible breach of confidentiality in that the condition which is being paid for may become known to a much wider circle of people than would normally be the case.

Again, this principle of interfering in a private contract is a dangerous one. Why does it have to stop at a contract for medical cover? One would have to be worried that if the principle is admitted here it may be only a matter of time before big brother starts to put his toe into other private arrangements made by citizens between each other or between themselves and insurers. Again, I would plead with the Minister to be content to have disclosure, because if he has this he has all he needs. He has the mechanisms then to get his tax and avoids the dangers of the consequences to which I have adverted.

First, let me deal with Deputy Noonan's amendment. As the Deputy has said, the purpose of that amendment is to secure the transmission of certain information by the VHI to the Revenue Commissioners about payments to subscribers to cover medical fees. The amendment, however, fails to recognise one of the principal objectives of the withholding tax, which is to bring the tax levied on certain payments for professional services into line with receipt of the income to which the tax relates, just as in the case with PAYE. As part of the administration process for the withholding tax, the Inspector of Taxes, is automatically alerted to the amounts of income received by a person who has suffered the tax when that persons claims an interim refund or credit for tax deducted. In the case of payments made by the VHI to practitioners and subject to the withholding tax, the Revenue Commissioners will be informed of the amounts when claims for refund or credit are made.

The amendment would result in a serious shortfall of about £6 million in the expected yield from the withholding tax scheme this year. In fact, depending on the accounting dates adopted by practitioners, a portion of this amount might not be payable until 1 November, 1990. Such an undermining of the yield for the current year and postponement of part, at least, of the tax receipts to 1990 would not be acceptable and, therefore, I cannot accept the amendment.

A number of points were made about the withholding tax, with which I will try to deal. It was alleged that the withholding tax was a tax on turnover. That is not so. The withholding tax is initially deducted from the full amount of the payment to the practitioner. Interim repayments first arise when the amount of withholding tax deducted exceeds the tax liability or the income of the previous accounting period. In calculating the amount of any interim repayments, the Revenue retain an amount equal to this liability and repay any excess withholding tax deducted. Thus, interim repayments and the tax retained for credit later against income tax liability are determined by reference to taxable income rather than turnover.

Taxable income will reflect all allowable deductions in respect of trading expenses such as wages to staff, travelling expenses, heating, lighting and so on, as well as particular tax reliefs such as personal allowances. The level of expenses incurred by individuals in a profession and among professionals vary so much that to determine some artifical standard would not result in greater equity. The differences which exist are best resolved by applying the withholding tax to the full amount of all payments and making interim repayments by reference to actual tax liabilities and thereby to incomes in individual cases.

They do not make repayments.

They do, if people are entitled to them. While I know there has been and will be a lot of argument about this, Deputies should remember that so far this tax has yielded nearly £39 million. Where else can we get this money? It is all very fine for people to criticise it——

Never mind the injustice.

It is not a question of injustice.

We do not know.

I do, because I have seen it operating for up to 12 months and I do not see any grave injustice as outlined by the Deputies this year and last year. In reply to numerous queries in this debate, I have voiced our concern about the PAYE sector but still their incomes will have tax deducted tomorrow night when they get paid. That is the position and we are bringing some of these professionals into the tax net on a similar basis.

The PAYE sector get allowances.

Eventually the professionals do as well.

Yes, eventually.

It is not a tax on turnover but a tax on income. In regard to Deputy MacGiolla's amendment, there are two main reasons why an increase in professional fees to transfer the incidence of withholding tax to subscribers are not justified. First, the withholding tax deducted does not impose any additional tax on the practitioner. It is either repaid by way of interim repayment, credited against his normal income tax liability or refunded where the credit for withholding tax exceeds income tax liability for the relevant year. Thus, the withholding tax deducted is no more than an advance payment of tax otherwise due. In fact, the timing of the application of the withholding tax ensures that the payment of tax is more directly linked to the receipt of the income upon which it is levied just as is the case in the PAYE sector. In this context it is worth noting what the Taoiseach said last year on budget night as reported in the Official Report of 31 March 1987 at column 915 where he said:

It is not basically fair that the PAYE sector should pay week after week, month after month on a current basis where other sections of the community through the assessment process can pay 18 months, two years or three years later.

Secondly, the subscriber or member is indemnified in the new section 14A of the Finance Act, 1987, in respect of direct payment by the authorised insurer to the practitioner and the new section 15 (1) in respect of the tax deducted from the payment as it had paid the practitioner. These new sections are being inserted into the Finance Act, 1987 by section 7 of this Bill and thus the practitioner can have no grounds for claiming that the subscriber or member has failed to pay the amount of the insurance benefit which has been deducted under the withholding tax scheme. For these reasons there is no justification for an increase in fees to transfer the burden of tax to the subscriber.

It will just happen.

There is no justification for it. Indeed, in some cases there may be some savings in terms of collection costs for the practitioner, in receiving monthly payment from the VHI in respect of services provided to their subscribers. Practitioners will not as at present have to pursue their patients for the element of their fees which is covered by the insurance claim.

In relation to the point made by Deputy McDowell and Deputy Mac Giolla, Dr. Ken Egan, President of the Irish Medical Association as reported in theIrish Independent of 9 April 1988 said that there had been unnecessary scaremongering about possible fee hikes. We have heard this again this morning. They cannot and will not arise.

(Interruptions.)

I see no need for special measures to prohibit practitioners from increasing medical fees consequent on the implementation of this section. Even if necessary, such measures would be inappropriate for a Finance Bill. For that reason, too, I cannot accept Deputy Mac Giolla's amendment.

In reply to points raised, there are no statutory controls on consultants' fees. Such controls if they were to be introduced, would be a matter for the Minister for Health. The VHI recommend to their customers, however, that they do not pay more than the VHI payment. In the Bill under section 7 amending section 15 (1) (b) of the Finance Act, 1987 regulations can be used to prohibit practitioners from forcing payment in advance of submission of a claim by a subscriber and to impose sanctions on practitioners for forcing payment of fees in advance of the submission of a claim by a subscriber. Everything that needs to be done will be done in relation to this problem. The VHI advise their customers very carefully as to what payments should be made and as to what arrangements should be made with consultants. They decide what amounts they will pay towards certain fees. It is not just a question of consultants saying that they will increase their fees because of the withholding tax.

The question of the constitutionality of the issue was raised by Deputy Cooney. The office of the Attorney General was consulted and the proposals are not an invasion of property rights but are simply a method of collecting from certain medical personnel the income tax for which they are already liable under the law. In relation to another point raised by Deputy Cooney, the Revenue will get a return of the payment to the doctor only. The subscriber's name is not made known to Revenue, let alone the subscriber's medical condition. There is no breach of confidentiality.

In relation to interim refunds, up to 5 April 1988 a total of £2 million withholding tax has been paid to Irish residents and a further sum of £50,000 has been set off against outstanding amounts of PAYE, PRSI and VAT.

How many refunds?

The repayments and set-offs involve some 262 cases and not, as the Deputy said a few moments ago, none. More than one payment was made in certain cases and, in addition, repayments totalling £390,000 have been made to non-residents. The first figure I referred to was in respect of residents. Therefore, I think we can all see that notwithstanding all of the criticism, abuse and scaremongering over the introduction of the withholding tax last year and now over its extension to cover VHI payments, the system is working and is, as I have said, providing an important cash flow, £39 million to date, for the Exchequer. It has not led to anybody becoming bankrupt though allegations were made along those lines. It is only right that we should allow this section of the Bill to stand. I do not think there is any necessity to amend it. Deputy Noonan recommended that it be abolished and Deputy Mac Giolla proposed that we should introduce measures to prevent practitioners from increasing fees.

(Limerick East): I have listened carefully to all of the contributions which have been made and I am now more convinced than ever that the approach we are adopting is the correct one. It is inevitable that following the implementation of this section, medical costs will increase. The relationship between the VHI and its members is going to be put at risk. This is going to work against the interests of the VHI. Some newspaper reports have suggested that the VHI lost in the order of £16 million last year. We will know the true position when their report is published later this month or early in June. The position may be that they lost between £5 million and £6 million net last year. It is inevitable that the Government are going to have to sanction an increase in VHI fees in early autumn to maintain the flow of contributions necessary to cover their liabilities. I believe that an increase of around 10 per cent will be required with a similar increase being required next year. Unless action is taken very quickly the VHI will face serious problems in 1990 and 1991.

This is not scaremongering and I am sure the Minister is as well aware of the problem as I am. To put further pressure on the VHI by changing the arrangements between the VHI board and its members in the manner suggested in this section is only going to aggravate the problem and may worsen it. It is now time to look at the relationship between the VHI and the Department of Health and indeed the relationship between the VHI and the Government. I think the time is ripe for a break and I think the VHI like other insurance companies should be accountable to the Department of Industry and Commerce and be obligated to fulfil the normal requirements as regards solvency which insurance companies have to comply with at present. The Department of Industry and Commerce have overall charge for the insurance industry and the link between the VHI and the Department of Health is unhealthy for the company. I am sure the Minister is going to argue that the Government are going to underpin the balance sheet of the VHI in any event but I do not think this is the correct way of going about solving the problem.

The Minister together with the Minister for Health are going to have to look at the present problems within the VHI and they will have to move to correct the serious imbalances which are now emerging. Sanctioning an increase in premia is only going to deal with part of the problem, they will also have to look at the nature of the company. The time is now ripe for a voluntary health insurance company which is independent and which complies with the requirements imposed on all other insurance companies as regards solvency by the Department of Industry and Commerce. I am pressing my amendment.

Question put: "That the words proposed to be deleted stand."
The Dáil divided: Tá, 68; Níl, 60.

  • Abbott, Henry.
  • Ahern, Dermot.
  • Ahern, Michael.
  • Andrews, David.
  • Barrett, Michael.
  • Brady, Gerard.
  • Brady, Vincent.
  • Brennan, Matthew.
  • Brennan, Séamus.
  • Briscoe, Ben.
  • Browne, John.
  • Burke, Ray.
  • Byrne, Hugh.
  • Collins, Gerard.
  • Conaghan, Hugh.
  • Connolly, Ger.
  • Coughlan, Mary T.
  • Cowen, Brian.
  • Daly, Brendan.
  • Davern, Noel.
  • Dempsey, Noel.
  • Dennehy, John.
  • de Valera, Síle.
  • Doherty, Seán.
  • Ellis, John.
  • Fahey, Jackie.
  • Fitzpatrick, Dermot.
  • Foley, Denis.
  • Gallagher, Denis.
  • Haughey, Charles J.
  • Hilliard, Colm Michael.
  • Hyland, Liam.
  • Jacob, Joe.
  • Kirk, Séamus.
  • Kitt, Michael P.
  • Kitt, Tom.
  • Lawlor, Liam.
  • Leonard, Jimmy.
  • Leyden, Terry.
  • Lynch, Michael.
  • Lyons, Denis.
  • McCarthy, Seán.
  • McCreevy, Charlie.
  • MacSharry, Ray.
  • Mooney, Mary.
  • Morley, P. J.
  • Moynihan, Donal.
  • Noonan, Michael J. (Limerick West).
  • O'Dea, William Gerard.
  • O'Donoghue, John.
  • O'Hanlon, Rory.
  • O'Keeffe, Batt.
  • O'Keeffe, Ned.
  • O'Leary, John.
  • O'Rourke, Mary.
  • Power, Paddy.
  • Reynolds, Albert.
  • Roche, Dick.
  • Smith, Michael.
  • Stafford, John.
  • Swift, Brian.
  • Treacy, Noel.
  • Tunney, Jim.
  • Wallace, Dan.
  • Walsh, Joe.
  • Walsh, Seán.
  • Woods, Michael.
  • Wright, G.V.

Níl

  • Allen, Bernard.
  • Barnes, Monica.
  • Barrett, Seán.
  • Birmingham, George.
  • Bruton, John.
  • Bruton Richard.
  • Burke, Liam.
  • Carey, Donal.
  • Clohessy, Peadar.
  • Colley, Anne.
  • Connaughton, Paul.
  • Cooney, Patrick Mark.
  • Gibbons, Martin Patrick.
  • Gregory, Tony.
  • Griffin, Brendan.
  • Harney, Mary.
  • Harte, Paddy.
  • Higgins, Jim.
  • Higgins, Michael D.
  • Howlin, Brendan.
  • Kavanagh, Liam.
  • Kemmy, Jim.
  • Kennedy, Geraldine.
  • McCartan, Pat.
  • McCoy, John S.
  • McDowell, Michael.
  • McGinley, Dinny.
  • Mac Giolla, Tomás.
  • Molloy, Robert.
  • Naughten, Liam.
  • Cosgrave, Michael Joe.
  • Crotty, Kieran.
  • Crowley, Frank.
  • Cullen, Martin.
  • De Rossa, Proinsias.
  • Desmond, Barry.
  • Doyle, Avril.
  • Durkan, Bernard.
  • Enright, Thomas.
  • Farrelly, John V.
  • FitzGerald, Garret.
  • Flanagan, Charles.
  • Noonan, Michael (Limerick East).
  • O'Brien, Fergus.
  • O'Keeffe, Jim.
  • O'Malley, Desmond J.
  • O'Malley, Pat.
  • O'Sullivan, Toddy.
  • Pattison, Séamus.
  • Quill, Máirin.
  • Quinn, Ruairí.
  • Shatter, Alan.
  • Sheehan, P.J.
  • Sherlock, Joe.
  • Spring, Dick.
  • Stagg, Emmet.
  • Taylor, Mervyn.
  • Taylor-Quinn, Madeleine.
  • Wyse, Pearse.
  • Yates, Ivan.
Tellers: Tá, Deputies V. Brady and Briscoe; Níl, Deputies O'Brien and Flanagan.
Question declared carried.
Amendment declared lost.

Before we continue on the Finance Bill, may I seek permission to raise on the Adjournment the lack of funding provided to the office of the Ombudsman and the difficulties created by that for the Ombudsman?

I will communicate with the Deputy.

Amendment No. 5 in the names of Deputies De Rossa, Mac Giolla, Sherlock and McCartan may not now be moved. It automatically falls because amendment No. 4 was defeated.

Amendment No. 5 not moved.

I move amendment No. 6:

In page 28, between lines 27 and 28, to insert the following:

21.—(1) A payment to which this section applies shall be disregarded for all the purposes of the Tax Acts.

(2) This section applies to any payment made, whether before or after the passing of this Act, to a person, being a payment made under—

(a) the Enterprise Allowance Scheme or the Enterprise Scheme of the Minister for Labour, or

(b) the Enterprise Scheme of An Foras Áiseanna Saothair.

This amendment arises from my undertaking on Committee Stage to introduce a provision to exempt payments under the enterprise allowance scheme, now the enterprise scheme, from tax. As Deputies will be aware the tax treatment of these payments had been under consideration following a ruling by the appeal commissioners in the matter. In the absence of a specific provision exempting these payments from tax, the Revenue Commissioners had been treating payments under the scheme as trading receipts. This treatment had consequences for the tax treatment of scheme payments because of the special commencement provision in tax law for starting up a business. This aspect had caused particular concern and I had received a certain amount of correspondence in connection with it. While there are arguments in favour of proceeding with an appeal to the High Court in the matter I have come to the conclusion, having regard to the purpose for which the scheme as initiated, that payments under the scheme should be made exempt from tax altogether. The amendment now before the House makes provision accordingly.

I welcome the amendment in the Minister's name and I thank him for moving speedily on the matter. The situation that arose from the appeal commissioners' ruling was, without any disrespect to them, somewhat anomalous. It meant that people who were receiving sums of around £1,680 in one year from the enterprise allowance scheme could be taxed to 95 per cent, and in some cases to the full extent, of the moneys they had received. It took away completely from the idea of the scheme which was meant to act as an incentive to people to become involved in enterprise rather than staying on the dole.

It is desirable that it should be retrospective in effect and should cover all the cases that have now been decided so that, in effect, it will be treated as never having been the law that this sum of money could have been clawed back almost completely under the tax system. I had some correspondence—and perhaps it is the same correspondence the Minister received— on this matter and it was that which prompted Deputy O'Malley and I to put down the amendment last week. I am very gratified that that amendment has brought about a change in the law within a week effectively of the matter coming to our notice.

Amendment agreed to.

I move amendment No. 7:

In page 36, between lines 25 and 26, to insert the following:

"(4) The foregoing provisions of this section shall not apply in the case of any company which by notice in writing given to the Revenue Commissioners before the 6th day of April, 1989, elects that section 45 of the Finance Act, 1980 shall continue to apply to distributions made by it as if this section had not been enacted.".

This amendment deals with the provisions of the Bill which are designed to replace the primary fund concept as outlined by the Minister. Our reason for putting down this amendment is that it is our view that there are circumstances in which the Minister's proposal, which is by law to introduce a system of proportion into the distribution of profits of companies and to apply those proportions irrespective of the actual origins of the profits which are being distributed, may lead to some undesirable consequences. I think the Minister is aware, as many Deputies in the House may be aware also, that the primary fund concept was made redundant to a large extent by the full implementation of the advance corporation tax. But there are, nonetheless, cases where it is advantageous for a company to pay different shareholders' taxes derived from different profits accumulated under differing rates of tax. Some profits are derived under export sales relief, others under the 10 per cent manufacturing rate of corporation tax and others under a fuller rate of tax. These profits, when translated into dividends for distribution among the shareholders of a company, carry with them different tax implications.

The Minister's section has the effect in reality of deciding to apportion a distribution of profits in any given year on the basis of the rates of corporation tax which accrued to the differing activities of the company in the previous tax year. It prohibits a company from distributing dividends from a particular pool of profits which were generated at a favourable tax rate to a set of shareholders to whom that tax rate is particularly attractive.

Large companies, in particular, find that the tax treatment of dividends received by them vary in attractiveness from one class of shareholder to another. Large institutional shareholders may have, for perfectly good reasons, totally different requirements of a dividend in relation to the amount of tax credit it carries with it as far as they are concerned from small shareholders. Shares may be comparatively more attractive if they can be remunerated by dividends taken from low taxed profits or zero taxed profits on the one hand compared with high taxed profits on the other hand. We have received representations — and I cannot see anything wrong with them in principle at all — from substantial companies who feel that to force them to distribute their profits with an artificial allocation of the source of those profits between the various tax pools of different rates is, in fact, to make their shares less attractive on the stock markets, because the interests of large institutional investors differs from the interests of small individual shareholders. It was open to companies, if this measure is not brought into effect, to pay out dividends from the most appropriate pool, bearing in mind the particular interests of the class of shareholders to which the dividends were to be paid. They had in mind, and they intended, to set aside the profits deriving from differing activities with differing tax rates and to apply them by way of distribution to different classes of shareholders with a view to optimising the value of their shares and the rate of return to the shareholders in question.

It seems to me unfortunate to bring into our law a mandatory system of mentally distributing the source of taxed profits in proportion to the areas where the profits were derived by the company in the previous year. As a matter of history it is an artificial thing to do because, in the last analysis, some profits have been derived from zero taxed areas, some from 10 per cent taxed areas and others from higher rates of corporation tax areas. In those cases it seems foolish to take away from a company what is now an advantage which that company has, that is, the right to remunerate the different classes of shareholders in a manner which best suits the interest of those shareholders from the different funds and profits now derived. It seems foolish to introduce a law to bring in a constraint to force them to treat their profits on distribution as coming in a particular pattern based on an artificiality, that is, the source of taxed profits in the year prior to the distribution unless there is a very good reason for doing so.

I have not heard from the Minister any good reason for introducing this constraint on companies. Our position is very simply that, we believe that if there is no need for this legislation it should not be brought into effect because there is an advantage to Irish companies which makes their shares more attractive, makes their investment in those companies more attractive if they are left to hand out profits to different classes of shareholders on different funds of profits to the maximum advantage of those shareholders. We are taking that advantage away from them and making their shares comparatively less attractive by imposing on them this artificial regime.

If there was a substantial revenue loss involved or if the Minister felt that the revenue foregone under the proposal which we are making, which is to leave the situation as it was. I would like the Minister to quantify it and estimate how much money he feels is at stake. I believe that we must have a good reason to scrap what is an advantage to Irish industry in terms of attracting shareholders' funds and doing justice as between large institutional shareholders and small shareholders. Otherwise, we should refrain from doing so.

I believe, and I assume everybody else in this House believes, that in relation to the shareholdings in large firms there is an interest in ensuring that small shareholders, to the greatest extent possible, are encouraged to take out shareholdings and invest in these companies. The problem is that if an artificial system of deciding from which sources of profit the dividends paid out are to be derived, it militates against flexibility and, in the last analysis, the company will tailor its activities to meet the interests of corporate shareholders rather than individual shareholders and the small investor will be the loser.

What we are proposing is, effectively, an amendment which provides that the artificial arrangements now being proposed by the Minister, which will deem profits to have arisen in the manner that the general profits to the company arose in the previous financial year prior to the distribution, will not apply to a company which elects, by notice in writing prior to 6 April 1989, that section 45 of the Finance Act 1980 shall continue to apply to that company. In other words, companies that want to make a once-off election for the flexible arrangement should be permitted to do so. I appreciate that the Minister has, in his amendments to the Bill tabled on Committee Stage, sought to postpone to some extent the implementation of the system and to give himself room to manoeuvre to re-examine the implications of what is happening, and presumably the effect of his amendment is to make it to some extent voluntary or an option for one year.

What we are proposing is to allow companies to opt for the pre-existing law on a once-off basis if they so decide in the interests of their shareholders. The basis of our desire to do that in this case is to increase flexibility and thereby to enable companies to use their profits in the most attractive way to potential shareholders, to differentiate between the interests of different classes of shareholders who have different requirements as to the tax treatment of their dividends, and thereby to make those investments as attractive as possible with the aim — and this is the only aim we have — of making the shares of those companies as attractive as they possibly can be in the overall framework of the Irish tax system.

It seems to me that to allow a company to opt for the present arrangement could not carry with it very substantial revenue implications but could carry with it huge opportunities in terms of maximising the attractiveness of shares in Irish industry to investment, both foreign and domestic. Acceptance of our amendment, therefore, could have a very beneficial effect on large industries with minimal cost to the Exchequer.

(Limerick East): The original section 29 was amended by the Minister in a number of ways. He did move to meet the concerns of companies which would be forced away from the traditional primary fund concept to the idea of proportionality which he has introduced. He has allowed the section to be deferred until 6 April 1989 and he has also given a choice that companies can operate one or the other for the next 12 months. That choice should be made permanent and that introduces the flexibility which is required. I do not think there would be a serious loss of revenue. If the Minister would put forward an amendment along those lines that would solve the problems.

The amendment refers to section 30, previously section 29, which provides for a new arrangement with respect to dividends paid from profits relieved under 10 per cent scheme. Following the amendments provided for on Committee Stage, the commencement of the new provisions has, in effect, been deferred for a year subject to an option being available to any company which wishes to have this section applied to its dividends before that date. As I explained at some length on Committee Stage, the new system is being introduced because with the adoption of full advanced corporation tax it is now possible to dispense with the primary fund arrangements which was an extreme solution to a problem that arose from the absence of advance corporation tax when the 10 per cent scheme was introduced in 1980.

The proportional system proposed in section 30 is a logical and fair solution having regard to the needs of both shareholders and the Exchequer to the determination of the tax credit that should attach to dividends paid from the profits of a company which has profits taxed at 10 per cent and other profits taxed at the full rate of corporation tax. It was recommended by the Commission on Taxation as being a desirable alternative to the primary fund. A criticism that has been made of the new arrangements arises from the fact that companies want a free hand to determine tax credits to the maximum advantage of their different classes of shareholders: pension funds which like a full tax credit because they can claim a refund and individuals because they can benefit from the relief from income tax provided by section 14 of the Finance Act, 1986. These often conflicting interests do not warrant a free-for-all, whereby tax relief is maximised at the expense of the Exchequer by the calculation of tax credits, by reference to particular parts rather than the whole of a company's profit. The commercial reality is that a company pays dividends out of its entire profit, notwithstanding that that profit may have been derived from different sources charged at different rates of corporation tax. Section 30 recognises this reality and ensures that the tax credit given to shareholders will reflect all of the elements of the profit out of which dividends are paid and not merely a particular part of that profit.

The composition of a company's profit as between profits charged at 50 per cent and profits charged at 10 per cent will be proportionately reflected in the amount of the tax credit calculated under section 30. This is a fair and reasonable method for calculating tax credits given to shareholders. Focusing on particular parts of a company's profit, such as the part of the company's profit which is charged at 10 per cent, does not necessarily give a fair result either to shareholders or the Exchequer. In contrast to an approach whereby a company could focus on certain parts of its profits in order to maximise tax benefits to particular groups of shareholders, section 30 provides for a consistent and fair method of crediting corporation tax to all shareholders based on the entire profit of a company.

The amendments already made to this section on Committee Stage are a reasonable response which recognise that companies need time to adjust their affairs. The deferral will also allow time for consideration of any other genuine problems that may arise from what is inevitably a complex provision. Complexity in this area is difficult to avoid, given the various ways in which the 10 per cent scheme, the export sales relief scheme and section 84 lending can interact with each other. A free-for-all, however, is not in the best interests of the Exchequer and for those reason I cannot accept this amendment.

I have listened to what the Minister has said in reply to Deputy McDowell. He has not shown how the Exchequer can be at any loss if the present situation as in the 1980 Act is retained. I think Deputy McDowell explained this matter as clearly as anybody could, given its extraordinary complexity and the points he made have not been rebutted. The provision was put in in 1980 when there was a change in the tax system and the Commission on Taxation made recommendations at a time when advance corporation tax did not apply in cases such as this and where they could not have envisaged or assumed that it would apply. They made the recommendations, in the absence of legislation, imposing full advance corporation tax. Therefore, it is entirely out of context to say that they recommended something of this kind when they recommended it in circumstances that were totally different from what is there today.

One of the features of the reports of the Commission on Taxation is that they object to bits and pieces of their reports being taken piecemeal. In their view the whole lot, or a substantial part, had to hang together and individual bits and pieces could not be taken on their own. That would be bad enough but the problem is compounded by the fact that advance corporation tax did not exist when they made the recommendation. Therefore, it is not valid for the Minister to claim what they have to say in relation to it. He has not shown that the Exchequer will be at any loss. I believe the Exchequer cannot be at a loss because advance corporation tax is paid in respect of these dividends. Irrespective of what is done on their distribution, it cannot be of any assistance, or detriment, to the Exchequer afterwards. It seems unreasonable to say to companies after full advance corporation tax has been taken — and the profits are fully taxed — that notwithstanding that, you still cannot distribute your profits in whatever fashion seems reasonable to you. Even though it will not do the State revenue any good, we will still prevent you doing what would be advantageous to your shareholders.

This section, as amended, runs to no less than four and a half pages of text. It is incredibly complicated. It is on top of the existing section in the 1980 Act. Think of the position of people who have to explain to potential investors in this country what the distribution rules are and the way in which distribution of profits are constrained. Somebody who is trying to assess whether he should make an investment in this country could not but be frightened off by the incredible complexity of this section and the section in the 1980 Act. At least the 1980 section is clear now and people know what they can do. With this section it becomes impossible. It seems so unnecessary. If there were a tax benefit to the Exchequer there might be some case for it but the Minister, although invited to show where the Exchequer would lose, has not been able to show it. I think he cannot show it because the Exchequer cannot lose, irrespective of the manner in which——

£5 million plus.

—— the distribution takes place.

£5 million plus on the basis of the amendment.

That is the first we have heard of that figure. We do not know how it was arrived at. How can you lose anything from the distribution of already fully taxed profits? I think that is a fair question to ask. Is it not an extraordinary intrusion on the affairs of companies to have this incredible complexity thrust upon them when the previous system seemed to work fairly? This is exactly the sort of thing that puts people off investing in this country. It seems to be done almost gratuitously. It is not done, so far as one can judge, for revenue raising purposes. It is not recommended by the Commission on Taxation because their suggestions were made in a completely different context.

Regarding amendments which have been made in relation to payment of the interim dividend, people who understand these matters fully and have to deal with them tell me it makes no sense at all because it seems to put the position backwards. It is allowable to disribute an interim dividend on the basis of current year profits even though you do not know in what proportions the current year profits are going to arise, but you have to distribute the final dividend on the basis of the previous year's profits. When you come to pay your interim dividend you would know what the proportionality of profits in your previous accounting period was, and if the thing were followed logically you would, therefore, pay your interim dividend on the basis of your previous year's profits. You do not do that and you pay your subsequent final dividend on the basis of your previous year, but the earlier interim dividend on the basis of your present year. That does not seem to make sense and to people who have to deal with it it does not make sense either.

The Minister has seen fit — and I give him credit for that — to postpone the effect of this section for a year to those who wish to retain the present system for a year. I am sure he has not done that lightly. There must be good reason for it, but an argument that would postpone it for a year is often equally valid for postponing it altogether. If an option is given to companies for a year, that option should be given to those companies permanently. There is nothing improper or illegal in what companies have been doing. It has cost the Exchequer nothing, is costing it nothing now and will cost it nothing in the future. Therefore, rather than complicate the position incredibly on top of what is already of necessity fairly difficult, this option which has already been given to them for a year should be extended indefinitely so that they are not put in an almost impossible position that shares which are otherwise attractive to particular classes of shareholders become very unattractive to them and they will not make the necessary investment.

Deputy McDowell to conclude.

The Minister comes up with £5 million now and that can only be a "guesstimate". This thing by its very nature involves a prediction of how corporations will behave in an unforeseen tax situation. It may be £5 million or £3 million, but it is not £5 million corporation tax being lost. The Minister thinks that by putting a constraint into the distribution of profits he can prevent shareholders from arranging things through their board of directors to benefit them most. In effect he is saying he wants to put an artificial constraint to prevent shareholders in a company from arranging the distribution of dividends from profits so as best to suit us individually on a tax basis.

To suit both.

I appreciate that, but I feel it is illogical that if there are company A and company B one of whom is manufacturing completely and the other supplying services completely, the shareholders in company A could get their dividends paid out with a 10 per cent tax implication and shareholders in the other company would take out their dividends with whatever it is, and it could be 40 per cent in a couple of years. Investors would be able to say, " I will put money into this company and I will avoid going to that company". The Minister is saying that because one company owns both activities — which could in theory be separate with totally separate tax implications for shareholders — because the functions are carried on by one company he will not allow the investors to maximise the tax benefit from their investment. He is saying that because the two profit generating activities are owned by one company he will decide on the basis of last year's profits how next year's dividends will be subjected to tax treatment. He is introducing that constraint for the purpose of preventing the shareholders from arranging things to suit themselves. Is that logical? If they could invest in two separate enterprises and thus maximise tax advantage, why go for the big company who have to go to the stock market and say to that company, "because you are one company with two activities you must now labour at a disadvantagevis-á-vis a company doing one thing only”? A company who have a variety of activities and a variety of shareholders with different interests are being hammered because they are not small and not deriving their profits from one area or another or their shareholders are not constituted purely of one class of the community vis-á-vis another. This is a constraint being brought in by the bureaucrats because it suits them to constrain the way in which these profits can be dealt with. They feel that optimisation of tax treatment works against the Revenue Commissioners' interests and, through the Minister, they have floated out here a figure of £5 million. It may be right, it may be wrong, we do not know, but all they are doing is saying that the big companies who have a diversity of profit sources and of shareholders' interests should be discriminated against vis-á-vis small companies who could carry out just the same operations with more advantage.

In other words, if I have £10 to spend on shares and can put it into one company which runs both manufacturing and services or if I had the choice of putting £5 into the manufacturing company and £5 into the services or putting the whole £10 into one or other company I would be able to optimise my own tax dividend. The Minister is saying that because there is a big conglomerate with a large number of different classes of shareholders with different tax interests, that should not be allowed. That is just introducing an artificial constraint for its own sake. It has no rational basis. It has nothing to do with fairness or anything else, it is simply there to bring unnecessary and very complicated bureaucracy to bear in the interests of preventing people from maximising their tax situation. Shorn of all its encrustations this measure discriminates against the large company who have to go to the stock market and appeal to a variety of different classes of shareholders with different interests. It discriminates against the company who carry on more that one activityvis-á-vis two companies one of whom carries on activity A and the other activity B, both of whom can, on the basis of offering their shares to the public, offer people the opportunity to maximise their tax advantage.

I am sorry the Department of Finance and the Revenue Commissioners see it necessary to come in with their artificial tax treatments and say that because one company has two activities and different classes of shareholders with different tax interests they must be discriminated against. The basic position seems to be that people can choose to pay profits out of activities at whatever tax rate those profits carry with them to shareholders in whose interests it is to receive those profits. There is a total failure to justify bringing in artificial constraints here.

Do I take it the Deputy is not pressing his amendment?

We have made our point.

Amendment, by leave, withdrawn.

(Limerick East): I move amendment No. 8:

In page 42, between lines 40 and 41, to insert the following:

"37.— The provision of sections 34, 35 and 36 will apply to companies carrying out business in the Shannon Free Zone.".

Under sections 34, 35 and 36 as they are now in the Bill, certain advantages are being arranged for the Custom House Docks site which will not apply to the Shannon Free Zone. I am particularly concerned about provisions under sections 35 and 36 under which interest may be payable by a company carrying on international financial service activities to a parent company outside the State.

Section 36 amends the Finance Act, 1974 to enable companies carrying on international financial service activities in the State to pay interest to non-residents without deducting tax. Both of these should apply to the Shannon Free Zone also. There has been an on-going commitment which has not been delivered on that there would be a level playing field between the two locations for service industries. I ask the Minister to accept this amendment.

I support Deputy Noonan's amendment. On Committee Stage the Minister said he had not received a request from the company for these amendments. However, I have since been in touch with the company and they are very anxious to have the same status as the Custom House Docks site. There have been protestations that there will be no difference between one area and another but it is difficult to accept that the Minister does not realise there is discrimination in the Bill. I understand that a request was made to the Department of Industry and Commerce by Shannon Development Company in this regard. I wonder if the Department of Industry and Commerce have consulted the Department of Finance about this matter? I appeal to the Minister to accede to Deputy Noonan's request.

My reply will be rather lengthy because it deals with sections 34, 35 and 36. The amendments attempt to bring about greater equality of treatment between Shannon companies and companies in the international financial services sector in the Customs House Docks area.

Section 34 removes the requirement on companies in the international financial services centre to locate in certain temporary accommodation pending the completion of buildings in the docks area. This has no relevance for Shannon companies. The section also permits speculative commodity trading to qualify for the 10 per cent rate of corporation tax in the financial services sector. Such activity is already capable of being certified for the 10 per cent rate at Shannon. In addition, section 34 provides for a maximum 10 per cent rate of tax on the income or gains of a foreign life assurance business or a foreign unit trust business in the financial services centre. This is not being extended to Shannon since there has been no request for similar relief for Shannon companies.

Section 35 is a technical matter affecting the tax treatment of interest on loans from a non-resident parent. The inclusion of Shannon companies within the provision of this section is not an important issue at this stage and, therefore, there is no overwhelming reason to act. There is no evidence that there is any reluctance by international banks to invest in Shannon companies because of the tax treatment of interest. However, I am prepared to review the situation again next year if circumstances warrant it.

Section 36 enables companies in the Custom House Docks area and in the Shannon zone, which qualify for the 10 per cent rate of corporation tax, to pay interest to non-residents without deducting tax. Deputy Noonan's amendments go further than this in regard to Shannon companies and would extend section 36 to exempt companies also. As I explained to the House on Committee Stage, there is no justification for this since companies in Shannon, which enjoy complete exemption from corporation tax and from income tax on dividends, have enormous advantages over companies paying 10 per cent and it is not necessary to give them further benefits.

I should like to make a general point about the question of equality of treatment between Shannon companies and companies in the international financial services centre. There is no compelling reason for strict equality of treatment or level of payments between the companies in question because the Shannon zone and the docks area are not identical in conception or purpose. The international financial services centre is strictly limited in financial services, whereas Shannon embraces all services, including financial.

It is not possible to distinguish in framing tax measures for Shannon between the financial services companies there and the others. Since, therefore, any tax concession designed for financial services companies in Shannon must be extended to all companies in the zone, it follows that it is not necessarily wise to extend to Shannon every single tax incentive provided for the Custom House Docks area. The appropriateness, or otherwise, of extending individual incentives to Shannon must be looked at on a case by case basis on the merits of each particular case. I am, however, anxious to ensure, as far as is practicable, that financial services companies at Shannon are not put at a serious competitive disadvantage and I will keep the overall position in this regard under review.

(Limerick East): Will the Minister give a commitment that when the zero-rated companies at Shannon come under the 10 per cent regime in 1990 he will extend the provisions of section 36 to them? If he gives a commitment that he will do this in next year's Finance Bill, it would meet the major point.

When they become 10 per cent companies, it will be automatic.

(Limerick East): Without extending the section?

(Limerick East): That is good news, I will withdraw the amendment.

Amendment, by leave, withdrawn.

I move amendment No. 9:

In page 52, to delete lines 26 to 30.

The purpose of this amendment is to remove the charging section from the pension fund levy. I do not want to reiterate at great length the points I made yesterday but we believe that the levy on pension funds is erroneous in principle and that it will be a permanent feature of the tax system. It was introduced with that in mind, whatever the protestations of the Minister to the contrary. It should not be levied this year.

Our arguments yesterday in our efforts to oppose the entire section apply equally on this occasion for not charging the levy in this financial year. The arguments are that the levy fails to distinguish between solvent pension funds, in terms of their long-term liability, and those which are not. It fails to distinguish the extent to which funds are solvent, it fails to take into account the fact that most funds are only keeping pace with the rate of inflation to the extent of two-thirds and are, in relative terms, falling behind. It fails to take into account the fact that pension funds which are funded instances of deferred income should not be taxed twice. It is, inevitably, a form of double taxation to tax a pension fund at the time when the fund receives some income, inadequate though it may be, to maintain its real value and to tax it when the sums in it become payable to the beneficiaries of the trust involved.

The pension fund levy should not be introduced. We can only go so far today in relation to pushing the matter to the point of not imposing a charge constituted by the levy. I reiterate the point I made yesterday; it is not sufficient to say that it will be put in on a one-off basis and to pretend — as Fine Gael have — that by attempting to confine its effect to one year, which is the law of the land anyway, they in some sense evade the responsibility of allowing it to slip through. It is a mistake, it discriminates against those who have made some provision for themselves, it fails to discriminate between the weak and strong pension funds, even in its own terms, and it fails to take into account that a huge number of people have made no provision for their pensions but will receive pension funds linked to their current salaries. These salaries will be linked to the rate of inflation without any prior funding or any sum on which a levy like this could be imposed. It is discriminatory and undesirable on all those accounts and it should not become law, even as a temporary measure, which it is by virtue of the drafting of this section. It cannot be prevented from becoming law by any amendment put down by Fine Gael.

The House should take the last chance it has to prevent this levy from becoming law by preventing the charging section from being in operation in this financial year.

The amendment seeks to delete the entire of subsection (3). Since this subsection is the charging provision under which the pension fund levy is imposed the effect of the amendment is to render the entire provision inoperable. As I stated in the course of the Committee Stage debate, the levy will be a once-off imposition only. Out of total pension fund assets of almost £5,000 million the levy will yield a modest £16.5 million and will have no impact on the solvency of the fund. Therefore, I cannot accept the amendment.

(Limerick East): I have outlined Fine Gael opposition to this section. Members have had correspondence from and discussions with pension fund subscribers and those in the pension fund business. Professor Brendan Walsh was quoted extensively yesterday and I know that he, and others in the pension fund industry, recognise the Exchequer position and that if £16 million is to be taken out of the budgetary arithmetic it has to be found in another manner. It was as a result of discussions with Professor Walsh, and others in the insurance business, that I framed my amendment. The feeling in that industry was that there was a real merit in writing a section into the Bill which would confine the levy to one year. I reject the charges made today by Deputy McDowell. I accept the Minister's assurance that this will be a once-off levy although I would prefer if that was written into the section.

However, we had a vote on that yesterday and lost.

The case for the amendment has been well put by Deputy McDowell. The Minister's brief reply was simply to the effect that the provision is there now, we can lump it or like it and he will not attempt to justify it. It appears that it will be forced through. When one puts down an amendment opposed to the imposition of a tax the question is sometimes asked, where would we propose to raise the revenue that would otherwise be brought in. On this occasion the question could be reversed because if £16 million-plus is to be raised by this levy this year and if it is to remain for one year where does the Minister propose to get that amount of money next year? He will still have a duty to get that money next year. By far the easiest way to get it would not be to look anywhere else for it but to continue with the levy. I am here long enough to recall a number of levies which were introduced in each case as a once-off one year levy. Of four of them I can recall offhand only one has since been abolished and that after several years. The other three are still in effect and are accepted nowadays, in practice anyway, as being a permanent part of our taxation.

Like many people I have a perfectly legitimate fear that this levy will be a permanent part of our legislation for the simple reason that when the Minister comes to look at the matter next year he will decide that it is too difficult to get the money anywhere else and he will retain it. That was the same reason in respect of the other three one-year levies which are now permanent features of our taxation system.

The Minister has not today attempted to deal with the point I made yesterday, any more than he did yesterday, about the appalling discrimination that is involved as between one set of pensioners and another. People who have paid their money into funds set up for the purpose of giving them a pension are penalised for doing that while those who did not pay any money in and who get an index-linked pension without any payment or contribution bear no penalty. I posed the question yesterday that if two people working for different employers, doing similar jobs and getting exactly the same pay were charged different rates of tax simply because their employer is different, would that not be regarded immediately as discrimination. Essentially, pay is no different from a pension. A pension is the pay one gets in respect of the job after one has retired from it. If this discriminatory aspect was to be regarded as wrong and unacceptable if applied to pay why is it not totally wrong and unacceptable when applied to pensions? In my view it is wrong and unacceptable and this is why the Minister has not sought to defend it either yesterday or today. It should not be allowed to go through for that reason.

The Minister, in claiming this would raise £16 million on assets of approximately £5,000 million is, of course, misleading because the tax does not purport to be a tax on assets, it purports to be a tax on the imputed income of the funds. The income of the funds may vary greatly from year to year, as it has over the last 20 years. In some years the income was well below the rate of inflation. It is a fact that as things stand many such funds here are insolvent by the normal actuarial standards. As Deputy McDowell has said, this makes no distinction between funds that are able to bear impositions or charges of this kind and those that are not. Of course, one does make an enormous distinction between cases where the pensions are funded and cases where they are not. In my view this is an encouragement to employees and employers of companies, State bodies and others, not to bother with pension funds but to do what the State does in relation to its own direct employees, pay their pensions out of current revenue. If everybody was to do that it would be a serious matter for the country but the encouragement is there now to do it. Those who are provident are penalised and those who are improvident are allowed benefit.

In the last resort this levy is borne not by some vague financial institution, which is the impression the Minister seeks to give, but either by existing pensioners, the contributors or, as the case of many funds in practice, by a combination of both. In other words, the pensioners will get less and the contributors will pay more so that the State can take taxation from them. In addition, pensioners will pay income tax which will mean they will be taxed twice while those who are drawing pensions from unfunded sources will only pay tax once. That is wrong and the Minister has not sought to defend it. If he feels that he cannot he should not seek to impose it.

Effectively, this is a wealth tax whether it is 6 per cent or 9 per cent of the value of pension funds. It is like the old wealth tax that was so unpopular in the seventies, it is 0.54 per cent wealth tax on a capital sum. It is no more and no less than that. This is not a levy but a wealth tax. Who are the people who will be hit by this? They are not the wealthy. The Minister referred to the great tax breaks that pension funds get but I cannot disagree with what Deputy Mac Giolla said about this yesterday.

The exempted funds are the ones where the doctors and barristers have their money. The big funds to which this applies are those to which ordinary, working people subscribe who cannot afford their own separate funds. This is a wealth tax not on the haves in society but on the have nots. It will be borne in general by those who have less while those who are exempt are, in general, those who have more. It is a sad measure in terms of tax equity.

There is no basis for saying that this levy will be gone next year. I was reading an article by Nuala Ó Faoláin inThe Irish Times about things that may or may not happen to the Minister. The certainty with which he says this is a once-off levy may have more to do with the fact that he is hoping not to be here when it is proven not to be than with any conviction on his part.

Is this my own personal Bill, not the Government's? That is nonsense.

Amendment put and declared lost.

I move amendment No. 10:

In page 56, to delete lines 41 to 44 and in page 57, to delete lines 1 and 2.

I understood we were to get through these amendments fairly quickly but one amendment from Deputy McDowell took three quarters of an hour and there was much repetition. This amendment is designed to remove the 5 per cent rate of VAT on electricity, one of the measures proposed in the budget which is causing problems to people in poor circumstances and on social welfare. We were told it would not increase the price of electricity but it prevented a reduction in price which was due. The Minister is expecting to raise £10 million from VAT on electricity. He did not say it had anything to do with the harmonisation of VAT by 1992. That was never stated as one of the reasons for introducing this VAT levy. I intend to press the amendment.

(Limerick East): An amendment was circulated in my name which proposed to reduce the VAT on confectionery from 25 per cent to 5 per cent. It has been ruled out of order but I want to mention it now in the hope that the Minister may find 30 seconds to react.

Another amendment which was ruled out of order suggested that the Minister should give serious consideration to imputing a transaction in relation to gifts at petrol stations so that a petrol company which buys objects is not entitled to deduct the VAT and to hand out those objects as free gifts at a cost which is less than that which would be incurred by a retailer. I would ask the Minister to change the VAT Act next year to eliminate the subsidy to people who give out objects as free gifts and to eliminate the element of unfair competition. Retailers have to pay VAT on the whole transaction.

Gifts over £15 are taxable. They are VAT-free under £15. If the amendment as proposed by Deputy Noonan were to cover flour confectionery alone the cost to the Exchequer this year from 1 July would be £4 million and £14 million in a full year. If it were applied to all confectionery, biscuits, sweets, chocolates, etc., it would be £21 million from 1 July this year and £71 million in a full year. That could not be considered at this stage. It was considered at budget time and no doubt will be again.

The effect of the amendment proposed by The Workers' Party would be to maintain the zero rate on electricity. This would give rise to an Exchequer cost estimated at £10 million in 1988 and £16 million in a full year. The introduction of the 5 per cent rate for electricity does not result in an increase in electricity prices. In the case of VAT-registered consumers of electricity there is a reduction in price. Other sources of energy for heating and lighting such as oil and gas are liable for VAT at the 10 per cent rate. I cannot accept the amendment.

Question put: "That the words proposed to be deleted stand."
The Dáil divided: Tá, 64; Níl, 15.

  • Abbott, Henry.
  • Ahern, Dermot.
  • Ahern, Michael.
  • Andrews, David.
  • Barrett, Michael.
  • Brady, Gerard.
  • Brady, Vincent.
  • Brennan, Matthew.
  • Briscoe, Ben.
  • Browne, John.
  • Burke, Ray.
  • Byrne, Hugh.
  • Collins, Gerard.
  • Conaghan, Hugh.
  • Connolly, Ger.
  • Coughlan, Mary T.
  • Cowen, Brian.
  • Daly, Brendan.
  • Davern, Noel.
  • Dempsey, Noel.
  • Dennehy, John.
  • de Valera, Síle.
  • Doherty, Seán.
  • Fahey, Frank.
  • Fahey, Jackie.
  • Fitzpatrick, Dermot.
  • Foley, Denis.
  • Gallagher, Denis.
  • Haughey, Charles J.
  • Hilliard, Colm Michael.
  • Hyland, Liam.
  • Jacob, Joe.
  • Kirk, Séamus.
  • Kitt, Michael P.
  • Kitt, Tom.
  • Lawlor, Liam.
  • Leonard, Jimmy.
  • Leyden, Terry.
  • Lynch, Michael.
  • Lyons, Denis.
  • McCarthy, Seán.
  • McCreevy, Charlie.
  • MacSharry, Ray.
  • Mooney, Mary.
  • Morley, P.J.
  • Moynihan, Donal.
  • Noonan, Michael J. (Limerick West).
  • O'Dea, William Gerard.
  • O'Donoghue, John.
  • O'Hanlon, Rory.
  • O'Keeffe, Batt.
  • O'Keeffe, Ned.
  • O'Rourke, Mary.
  • Roche, Dick.
  • Smith, Michael.
  • Stafford, John.
  • Treacy, Noel.
  • Tunney, Jim.
  • Wallace, Dan.
  • Walsh, Joe.
  • Walsh, Seán.
  • Woods, Michael.
  • Wright, G.V.

Níl

  • De Rossa, Proinsias.
  • Desmond, Barry.
  • Gregory, Tony.
  • Higgins, Michael D.
  • Mac Giolla, Tomás.
  • O'Sullivan, Toddy.
  • Pattison, Séamus.
  • Quinn, Ruairí.
  • Howlin, Brendan.
  • Kavanagh, Liam.
  • Kemmy, Jim.
  • McCartan, Pat.
  • Sherlock, Joe.
  • Stagg, Emmet.
  • Taylor, Mervyn.
Tellers: Tá, Deputies V. Brady and Briscoe; Níl, Deputies McCartan and Sherlock.
Question declared carried.
Amendment declared lost.