Finance Bill, 1989: Committee Stage.

SECTION 1.

Amendment No. 1 in the names of Deputies De Rossa, Mac Giolla, Sherlock and McCartan. Amendments Nos. 5, 6 and 8 are related. Amendments Nos. 3, 10 and 12 are consequential on amendments Nos. 1, 6 and 8. Amendments Nos. 2, 4, 7, 9, 11 and 13 are alternatives to amendments Nos. 1, 3, 6, 8, 10 and 12. I suggest therefore that we discuss amendments Nos. 1 to 13, inclusive, together by agreement. Is that satisfactory? Agreed.

I move amendment No. 1:

In page 9, paragraph (a), line 24, to delete "£6,000" and substitute "£6,250".

These amendments to the first section of the Finance Bill relate to income tax allowances. It is at this point that we must decide on the amount of personal tax to be levied. Deputies of all parties have complained about this matter and the Government have said that they are doing something about it. In the budget the greatest reductions took place at the very top levels. We ask in this amendment that we look at the very bottom levels first and that the basic allowance at the bottom levels be raised. There are PAYE taxpayers at the very basic level who have insufficient income to maintain their families, yet they still have to pay income tax. There are others, such as the unemployed, who do not pay as much tax even though they are in receipt of far greater income.

The first point that needs to be made is that people should have a minimum income and be allowed to retain enough to maintain themselves and their families before the taxman moves in. The threshold should be raised much higher. It is usually raised each year but it needs to be raised much higher if we are to eliminate poverty in society, the level of which has been highlighted in recent reports. We believe that the allowances are not adequate.

I take it that I am only moving amendments No. 1 even though we are discussing amendments Nos. 1 to 13 together?

The position is that only one amendment may be moved. All of the amendments will be discussed and, if necessary, there can be a question on each amendment. Only one amendment is formally moved at this stage.

Will I be able to speak again on the other amendments?

I must say I was a bit surprised at the approach adopted by Deputy Mac Giolla who called for an increase in tax-free allowances as one method of alleviating poverty. We all know very well that the tax-free allowances give a disproportionate benefit at the higher end of the income scale. Introducing tax credits is a more effective way of assisting——

That will come later.

The Deputy has made his case and we will have to follow each of the hares as the Deputy lets them out of traps. There is no point in the Deputy telling me that he has another hare in training. He has let this one out here and I intend to make sure that it is pursued in a kindly fashion, of course. I would not wish to cause any undue——

(Interruptions.)

I have to be very careful about that, a Leas-Cheann Comhairle, as you will appreciate. I would be watched. I wanted to make the point that Deputy Mac Giolla is mistaken in thinking that raises allowance is the better way. In 1982, when Minister for Finance, I attempted to introduce tax credits into our tax system. The budget contained a number of things which got a lot more publicity which led people for various reasons, confused reasons in most cases, to vote against it. It is worth recalling that that budget contained a proposal to substitute tax credits for tax allowances.

Tax credits have one benefit over allowances in that a fixed sum would be given to everybody regardless of what income level they were at. Therefore, a tax credit is worth the same amount to someone paying tax at 58 per cent on most of their income as it is to someone paying tax at 32 per cent on the top slice. Tax credits would remove the discrimination built into the system of allowances which gives a disproportionate benefit at the top end of the scale, and would introduce nothing more than neutrality. We are not looking for social engineering in proposing tax credits but neutrality. I believe that Deputies Mac Giolla, De Rossa, Sherlock and McCartan and their associate, Deputy Desmond, in the various amendments they are putting forward, are barking up the wrong tree. They should be looking for a much more radical approach in the reform of the tax system. I am glad to say that the Progressive Democrats have also agreed with the concept of tax credits which I espoused in the 1982 budget. Unfortunately, the Dáil on that occasion, including some of those who subsequently went on to form the Progressive Democrats, voted against it. Please God, they will have another opportunity to vote for tax credits and one of the things to which I am committed in my political career is to have an opportunity of being part of a Government which introduce tax credits which will restore justice to our tax system and remove the in-built bias in favour of the better off and the disincentive to effort by those on marginal incomes caused by the present system of tax allowances.

I should also like to refer to a matter which is being inadequately dealt with by the Government in the early sections of the Bill, the tax treatment of children. In France and Germany it is recognised that the cost for a bread-winner — male or female — of supporting a dependent child is almost as much as the cost of supporting a dependent spouse. The family is a unit recognised under the Constitution and also in practice in most domestic budgeting. People budget as a family rather than as individuals within the family and I do not see why, therefore, a person should get a tax credit or allowance — whichever it will be — for a spouse but do not qualify for an allowance for a child or children. It is a structured injustice built into our system which promotes poverty because it has been identified by various groups who have studied poverty in this country that family poverty — and the poverty of families with a relatively large number of children — is particularly acute. It is a form of poverty which receives no recognition in the tax system, apart from the children's allowance, which the Government have frozen since they came into office and which the Minister for Finance threatened to do away with in part for some families. He was acting on advice which would normally be quite good but which in this case was mistaken. The person to whom I refer usually gives the Minister good advice but she did not on this occassion. I know the Minister has thought again about that and, as he has rethought that silly proposal, he might go a bit further and conclude that there should be some form of allowance for children in the tax code. I would prefer to see a system of tax credits and if one did a survey of the tax treatment of children throughout Europe one would find that virtually all the continental European countries have either tax allowances or tax quotients which are similar in their effect to allow for the cost of supporting dependants——

They do not have children, that is the trouble.

I will not follow that particular rabbit. I am a bit worried about the way the Minister is approaching this by increasing exemption limits which, by their definition, are a very crude way of reforming the tax system. As we know, if exemption limits are increased by leaving the rate bands more or less intact it merely means that once a person gets to the end of the exemption limits the extra pounds earned are taxed at an astronomically high marginal rate because you reach a relatively high rate of tax — which the person would have been paying if there was no exemption limit — and when the exemption ceases to operate a very high rate of tax is paid. As we know, the budget has been criticised by many because there will be a very high marginal rate of tax on people who have incomes slightly in excess of the exemption limits set in the budget. That will be the case regardless of whether Deputy Mac Giolla's amendments are accepted. If the limits are increased the poverty trap will occur at a slightly higher level of income but it will still be there. It arises from the fundamental flaw in the budget, of trying to help families through exemption limits rather than a thorough reform of the tax system.

I would prefer to get rid of exemption limits because they are not a good way of approaching the problem and having a system of universal tax credits at one level for adults and perhaps variable levels for children, depending on age. There should also be an integrated child benefit payable into such a system of tax credits for adults, children and other dependants. These are my reasons for not wanting to support Deputy Mac Giolla's amendment — or even that of Deputy Desmond which has not yet been moved — because the Deputies concerned are essentially accepting the structure of the budget presented by the Government. I suppose that is not surprising considering the fact that they let them in in the first place. However, I do not accept the structure of the budget and it would be better to approach it in an entirely different way on the basis of tax credits.

I generally agreed with Deputy Bruton in relation to these proposals. The patchwork of statutory provisions for lower tax levels is now coming undone. There is a choice to be made — which I believe should be made in favour of tax credits — between a system of credits and allowances. The case for credits is unanswerable and one of the reasons for a system of exemptions as opposed to tax allowances is that the whole system of credits was never in place to start with. As Deputy Bruton pointed out, if you increase a tax allowance at present by £1,000 it is worth £350 to someone on a low income and about £550 to a person on a high income. It is no wonder, in those circumstances, that we have arrived at a situation where tax allowances as a matter of social equity — because of the consequences of increasing them — were kept depressed. Tax allowances, therefore, ceased to have any logical connection with the idea of what each individual should have exempt from tax. The construction of income exemption levels, another rickety construction, was superimposed on top of that for certain classes of the community. This applied to those on low incomes and they are differentiated in accordance with their circumstances, dependants and their ages.

We have an extremely complicated system of tax exemption levels and every Deputy who has anything to do with finance is inundated with letters after every budget written by people who simply cannot understand the tax system and who have no idea as to how it works in relation to them. Those who can understand the system write to complain about its unfairness and those who cannot understand it just shrink in horror from its complexities.

I believe that the systems of tax exemptions and allowances should be swept away and in their place should be one single system of tax credits based on some notion of social justice, some notion of what income should be earned without any exposure to taxation of any kind. In this context another crib I have with the amendments tabled by Deputies Mac Giolla, Desmond and Sherlock is that they do not take into account the basic level of tax that is paid on all income, that is the 7.75 per cent of tax which is paid in the form of PRSI under that label but, in fact, affects all incomes of whatever level and for which there is no exemption of any kind.

Let us look at the United Kingdom which has a system of social insurance contributions which is distinct from the tax system and even there low levels of income are totally exempt. There are rising rates of percentages as income grows. However, here we have a flat rate of tax dressed up as PRSI and payable on all low incomes. Deputy Mac Giolla's amendment fails to attack that, the greatest tax on the poor and the lowest paid. This series of amendments completely ignores that feature of the PRSI and PAYE systems. I should like to indicate opposition to the principle of tinkering around any further with the system of tax exemption levels. I want to indicate opposition to the idea that we should maintain a system of tax allowances and opposition to any system of taxation which fails to recognise the fundamental identity of PRSI and tax as it affects lower incomes. I should like to put instead a radically different notion, one where employee PRSI and income tax are integrated into one system and where the lowest level of tax is of the order of 25 per cent, as I have argued for in various places and in various documents. The tax credit should reflect some reality as to what level of income should be exempt from taxation.

The only addition to that view on Deputy Mac Giolla's proposal is that the series of proposals tabled by him, Deputy Desmond and others, to this and later sections share one common defect in that they fail to address what I believe is the other great deficiency in our tax system, the one which flows from the reaction of the Revenue Commissioners — I will not put it any further than that — to the Supreme Court decision in the Murphy case. We have a system where taxation allowances and taxation bands for married people are double those available to a single person. In my view that is a fundamental mistake and it is unjustifiable. It is wrong to give to a married couple double the taxation bands and allowances as a recognition of the fact that they are married. It is done in the interests of keeping in place the revenue system of aggregating the income of husband and wife. It was an unjustifiable response to the Murphy case and has ended up, again, with the predictable consequence that the taxation lot of the single person is gravely prejudiced because of the constraints which the taxation of married people, at double their rate, presents to the Exchequer.

That was not necessary as a response to the Murphy case and we are paying the price for it today in terms of young people leaving the country. On all fronts I object to the approach being taken by Deputy Mac Giolla. I accept that he is well motivated but he is prolonging the system by failing to challenge it on a radical basis. I appeal to the parties of the left to join with the Progressive Democrats on this issue, to look for radical tax reform and not to propose tinkering amendments to the system anymore. That only encourages those in Dublin Castle to keep at it.

Since I was elected to the Dáil in 1982 I have advocated tax credits in every budget and every Finance Bill. The House will note that I have tabled an amendment, No. 20, as follows:

Notwithstanding anything in the Tax Acts, for the years 1989-90 and subsequent years of assessment, personal and PAYE allowances shall be converted to tax credits.

I do not have to wait for any lectures from Deputy Bruton who was years in Government and against whom, and against whose Government, I made the same case.

The Deputy voted against the only budget that provided for tax credits. In the last four years the Deputy had a chance to vote for them but he did not do anything about them. In fact, he voted against a budget that provided for them.

Deputy Bruton is all for tax credits now but he has no power to implement them. When the Deputy had the power he did not implement tax credits.

The Deputy could have voted for them but he did not.

I do not see anything in the amendments about tax credits but Deputies Bruton and McDowell tell me that they are ridiculous amendments and that what we should be suggesting is major tax reform in the form of tax credits. For seven years I have been at this. I have put my case to two Ministers for Finance in the National Coalition and two Minister for Finance in the Fianna Fáil Government. None of them did anything about implementing tax credits. Perhaps when Deputy McDowell gets into such a position, if ever, I will have to attack him to have tax credits introduced. For some reason when people get in charge of the Department of Finance tax credits become impossible to implement. For that matter they find it impossible to implement any kind of tax reform.

I agree with Deputies Bruton and McDowell in regard to tax credits. The Deputies have said they are against all the amendments to section 1 but they have not said that they are against the section which provides for certain allowances. I hope the Deputies will demonstrate that they are against it. It is the Minister who is introducing the tax allowances and in our amendment we are trying to get approval for increases in the allowances since that is the system the Minister has introduced. Deputies Bruton and McDowell must be aware of how difficult it is to produce amendments which will be in order on the Finance Bill. They are aware that Members cannot table amendments that will impose a tax on people. However, we can propose an increase in allowances which will have the effect of exempting certain people from tax. While those amendments have been accepted a whole series of others have been ruled out of order. Deputies Bruton and McDowell should indicate what they intend to do in regard to this section and not confine their remarks to criticisms of our amendments which attempt to introduce some level of equity for the lowest paid in our society.

I should like to jog the Deputy's memory. A budget was presented which contained tax credits and Deputy Mac Giolla's party voted against it.

There was a lot more in that budget than tax credits, as the Deputy is aware.

The Deputy wants á la carte tax reform, where he can pick and choose, but that will not work.

Deputy Bruton has said what I intended saying, that everybody wants a à la carte tax reform, everybody wants to pick and choose. The only tax change I hear people suggesting is tax reduction and not tax reform. Deputy Bruton referred to his 1982 budget which fell and I suggest that he should look at the 1982 Fianna Fáil budget which succeeded in introducing a system which had the same effect as his tax credits. The Deputy referred to child allowances but his memory must be very short in regard to them. The last semblance of it, the £100 allowance per child, was taken out by the Coalition but now he is suggesting that we should include it. If that is not à la carte I do not know what is.

I should like to refer to the principal subject being discussed by Members, the question of tax credits. I should like to put that in perspective and then return to what is in the Bill. We will weigh up the arguments in relation to what I have attempted to do as a start in trying to focus on those on low income. The main argument put forward in relation to tax credits is that such a system would reduce the relief to, and thereby increase the tax liability of, those with higher incomes. In other words, a direct switch to tax credits would increase the progressivity of the income tax code. Proponents of the tax credit system claim that it would provide relief for those on low incomes by taking from the better off. However, a switch to tax credits based on exact conversion from the existing system would take from people who could not be described as better off.

The essential difference between the existing system and a tax credit system is that the higher rates of tax commence under the tax credit system at a lower level of total income. At present more than one-third of all taxpayers pay tax at the higher rates. This means that if the present system was replaced by a tax credit system, and if there were no compensating increases in the amounts of personal allowances given in the form of tax credits or adjustment of the rate bands, some 60 per cent of taxpayers would be liable at the higher rates. In other words, all existing higher rate taxpayers and very many of those currently paying tax at the standard rate would be forced to pay extra tax. When a taxpayer is liable at the higher rates it clearly creates a loss for him if his personal allowances or deductions are converted from deductions on his marginal rate of tax to deductions by way of tax credit computed at one of the lower rates.

If only the wealthy were liable to tax at the higher rates this would be justified on progressivity grounds but it could not be justified in the context of a tax rate structure which imposes the higher rates on a person having less than an average wage. The changeover to tax credits would, in fact, bear relatively more heavily on those with modest and middle incomes than on the better off. That is the reality of the situation in relation to this present structure. When we are talking about tax credits, for heaven's sake let us get it into perspective.

Let us look at what I have attempted to do in relation to focusing in on the lower paid — raising the exemption limits and introducing a child benefit of £200 per child to focus the money that was available directly towards those on lower incomes. The best argument which can be made in this discussion here today is that it should be more, and I would agree with that, but within the limits available to me I have made a start and I believe it is the right way to go in trying to focus in on people who are on low pay.

I have heard the argument being made about marginal rates of tax. I can only gather from that that there is a lack of understanding in regard to exactly what happens. All taxpayers on marginal relief pay less tax than they would under the normal taxation system. That is the reality of the situation. Quite clearly it would be unfair to subject a person whose income is only a little more than the exemption limit provided, to the normal taxation rules. Accordingly, an easement from tax is given by way of what is commonly called the marginal relief system. Basically marginal relief means that if a taxpayer's income is in excess of the appropriate exemption limit for his circumstances, his maximum liability to income tax will be set at 60 per cent of the difference between his income and the appropriate exemption limit. Marginal relief can be quite significant depending on a taxpayer's circumstances. I will give one example. A married man with two children who earns £7,000 a year, who pays tax under PAYE and is subject to the normal rate of PRSI, would be some £220 better off as a result of the application of the marginal relief system. Basically what I have set out to do in section 1 of the Bill is to focus in on the lower paid, and especially to try to focus in on the lower paid who have large families. I think this provision should be welcomed by everybody. Maybe it is misunderstood in its application with regard to the marginal rate but if the Deputies want to do their sums they will see quite clearly where the benefit comes.

I want to respond to Deputy McDowell's other question in relation to the application of the Murphy case by the Revenue Commissioners. What the Deputy has said here today suggests to me that he is totally ignoring in those circumstances — by denying the double allowance to a married couple — a wife who stays at home and does not go out to work. That has to be the result of the argument I heard the Deputy put forward, but if that is not it, perhaps he would clarify it for me at some other stage. If we do not apply the double relief, then we will ignore a wife who stays at home and does not go out to work. I do not think too many Members in this House would be in favour of that proposal.

We are into a very central argument at the moment about the tax system, and even though it is an argument which has taken place in this House before, to little avail, it is no harm having it again.

The Minister is defending the system of exemption limits which this Bill uses to help the lower paid workers. It is no harm recalling that the Commission on Taxation had to say about exemption limits in paragraph 16.46 of their report. They said:

Exemption limits cause some administrative difficulty in the operation of PAYE since they cannot readily be implemented until the taxpayer's income is known, which must be after the end of the year of assessment. Prior to this an attempt is made to identify the taxpayers involved. Consequently a significant number of adjustments are required at the end of the year. Exemption limits also require the provision of marginal relief for persons with incomes slightly in excess of the exemption limits. Depending on the size of the exemption limits in relation to the level of personal allowances, this can result in high marginal rates of tax on significant numbers of taxpayers with below average incomes. For example, over 50,000 low income taxpayers had a marginal tax rate of 60 per cent in 1981-82.

The Commission on Taxation believed this was undesirable. They went on to say:

We also believe that general exemption limits are misconceived in principle, since to help the poor effectively it is unnecessary to relieve them from taxation but rather to ensure that they have an adequate income by means of social welfare payments. We do not recommend that general exemption limits remain as a permanent feature of the income tax code.

That is what the commission said about exemption limits. Now I want to turn to what they said about tax credits, which may be amusing to the ears of Deputy Mac Giolla in his new incarnation since his party changed their minds about tax credit in practice. I am only trying to annoy the Deputy.

I want to quote again from the report of the Commission on Taxation on the subject of tax credits. They put the case for tax credits more succinctly than I could. In paragraph 16.55 of their report they state:

On this basis, there is a clear case for converting all allowances ... into credits. However, we also believe that the married and single allowances should be given in the form of credits for three main reasons. Firstly, it would mean a complete change to credits. This would simplify the operation of PAYE compared to a system in which there were both allowances and credits.

In other words, they say that it is not sensible to give credits for, say, mortgages, unless one goes the whole way and gives credits for everything. They continued:

Secondly, a credit system is easier for the taxpayer to understand in so far as the rate structure is defined in terms of total income or expenditure rather than taxable income under an allowance system. This enables a taxpayer to identify his marginal rate of tax more easily. Thirdly, under a credit system it is much easier to give equal absolute increases in income to all single or married taxpayers. While this can be achieved under an allowance system, it is more complicated in that rate band adjustments are necessary.

The Chair has tolerated a certain reference to date in respect of the credit system, but the Deputy will appreciate that in respect of Committee Stage we are obliged to refer to what is in the section. I do not see any reference to tax credits in the section and while we might regret its absence, all we can do is pass on to what is in the section.

As the Chair might say, I am not unmindful of your latitude.

I think I have exhausted the subject. I do not think the Minister is as previous as he should be to arguments on this occasion, but perhaps an opportunity will occur when tax credits can be introduced because I believe they are the solution to the injustices in the tax system. There would be no need for this "tricking around"— and that is all it is — with exemption limits and all sorts of fiddling with bands in order to create a cosmetic situation in which people appear to be better off at lower income levels where, if they get a slight pay increase, suddenly they are dramatically worse off because they go over the limit which has been arbitrarily set and chosen by the Minister.

The Minister is setting himself an impossible puzzle in trying to help the poor within the existing tax system when what is needed is a radically reformed system along the lines I have suggested. I am sorry to say that Deputies Desmond and Mac Giolla, in their amendments, are simply applying cosmetics to a system that is beyond redemption. While Deputy Desmond's cosmetic efforts in this regard, of endeavouring to make a decent budget of what is fundamentally not so, are laudable for the sake of argument, they are not laudable in practice. I would prefer to see the support of all in this House, including the Government, for the substitution of credits for allowances in general. That would get over the problem. I am well aware of Deputy Desmond's consistent record of support for such a policy.

Deputy Desmond rose.

Perhaps members are not aware of it but I might remind them that they will have disposed of sections 1 to 6, inclusive, by 7 o'clock. I remind Deputies of that and they can take whatever lesson they deem appropriate therefrom.

I accept the good-humoured admonition of the Chair. My tabling of these amendments was more a matter of desperation than of equity. I accept totally the need for the introduction of tax credits. I have one slight problem only, that is that Ministers for Finance come and go like whoever that fellow is who comes and goes in a puppet show; they pop up, make budget statements and are gone. Meanwhile we have the report of the Commission on Taxation which is now assuming a venerability comparable to that of the Book of Kells. In due course I predict we will have officials of the Department of Finance, in the year 2010, transcribing it by hand and selling copies in Nassau Street because that is the way we are going.

Tax-free manuscripts.

It is not a work of fiction yet.

I hope it will be zero VAT-rated anyway. Can I put this serious question to the Minister: is there any thinking at all going on, any administrative chink of activity at all; has there been one quarter of an hour of governmental discussion in the lifetime of this Government on the merits of introducing a tax credits system within the taxation framework? I recall when we discussed the matter at great length in Government the Revenue Commissioners had an outbreak of duodenal ulcers; that was all we got.

Whatever is wrong, they do not have it at all now.

We got the classic response that it just could not be done, certainly it could not be done that year, that was 1983; it is now 1989 and on we go. The report of the Commission on Taxation was an eminently successful one which I am quite certain would merit and obtain the overwhelming support of all political parties in this House, one in respect of which there is universal agreement among the social partners that we need a tax credits system enshrined within our overall taxation code. Yet, year in, year out we have to deal with the basic exemption limits and their defects.

My tabling of these amendments was simply to highlight that aspect and, in the process, endeavour to bring about some further degree of relief for those on very low incomes within the multiple deficiencies inherent in the current taxation system. That was the only reason I tabled the amendments I did on behalf of the Labour Party. As the Minister well knows, my party published a document in the middle of last year which was substantially endorsed by my party's annual conference quite recently, when we came out trenchantly in favour of tax credits. Unfortunately, the Minister has not, either in the course of his remarks on budget day or since, in the work done on the Finance Bill, taken this prospective benefit in tow and implemented it. Perhaps we will have an historic announcement in the House this evening. I might ask the Minister: is there any hope at all of some fresh thinking within his Department, within the Revenue Commissioners, within the structure, recommending that we will go on to a tax credits system? If that were so, to say the least, I would be pleased. I have no doubt whatever that our taxpayers would then see that a system which is lop-sided, inequitable, incomprehensible — which changes year in, year out in terms of its basic exemption limits — would be corrected, those basic deficiencies being removed overnight. Perhaps we could do that. I look forward to hearing from the Minister on that fundamental issue.

I might also ask the Minister if, for example, one were to increase the basic exemption limit from £6,000 to £7,000 — I presume that the mandarins of his Department by now have conducted a firm costing of that change — how much implementation of the amendments we have tabled would cost. I have no doubt the cost would be very substantial but it is always interesting to have it updated. I remember well in November 1981 when the Minister's predecessor, Deputy Mac-Sharry, was transfixed there and when both the Labour Party and the Workers' Party proposed a modest increase in the basic exemption limits, when we finished up having a general election on the issue. Much to our surprise we won the vote. Yet we did not know at the time how much it would cost. However, the then Government were much more frozen than the present administration. We would be interested in knowing the cost of these concessions demanded. Indeed those concessions and the additional moneys could be transformed into a tax credits system which would have a huge impact on our overall taxation code. I look forward to hearing from the Minister on those points.

I want to speak about amendment No. 3 in the names of members of The Workers' Party seeking the deletion of £3,000 and its substitution by £3,125. Ever since the introduction of PAYE here the lower paid and least well off hand the understanding that that figure of £3,000 represented some kind of subsistence rate applicable to them.

I noted what the Minister said earlier about his ambition to ensure that the lower paid were looked after; that is an admirable attempt on his part. However, his colleague in the Department of the Environment managed to implement a rent increase in respect of local authority houses. If one were to discount all of the other expenses or increases, the generous way in which the Minister for Finance appeared to treat the lower paid would render him as somebody who could be described as a Minister for good news, at least for himself anyway.

Take the example of a single person with an income of £3,000. How well off will such a person be? In what position would a single person in this city find themselves endeavouring to seek refuge or accommodation on that type of income? Would they get digs for £60 per week? I do not think he would. I do not think he could survive but there are people who survive on less. We should try to ensure that the very badly off are well looked after. It was Deputy John Bruton as Minister for Finance who originally introduced the tax credit idea. Deputy Desmond's mind must have slipped because he was a party to the Government who sought to introduce tax credits and produced the appropriate legislation. There is no doubt that there were a lot of hiccups at the time. People were worried about children's clothing and children's shoes but nobody is worried about the VAT which is now imposed on such items and which is bringing in money. As far as tax credits are concerned the whole idea sank with our budget of 1982 which was the most socialist budget ever brought into this House. I have to say——

I would remind Deputy Carey that already I detect the fatality of his good resolution to be in order and that he is now moving into areas that have already been adequately covered and have been out of order.

People in the media have examined fully what was in that budget. The members of The Workers' Party should have examined it because they voted against that budget in this House and as a result it cost a lot of money. The progress in this House was stopped and we had paralysis for six months. The Minister for Finance brings in a Finance Bill but cannot bring in reform because his motto is "steady as she goes". He is saying that £3,000 for a single person is adequate for survival in Dublin. A Leas-Cheann Comhairle, do you think that is right? Do you think that £3,000 is a subsistance income by which a person can survive in this town? This £3,000 which is picked out by the moguls in the Department of Finance — whom I love so much — has nothing to do with life. What Deputy Bruton proposed in the budget of 1982 regarding tax credits should be implemented. When the Minister for Finance moves on to better things he will be wondering why he was not more adventurous in his first budget. I think this is the only budget in which he will have had a chance to be adventurous. He will be more conservative for his next budget and say: "I made a mistake in 1989 but I will not do so again". The little man on the other side will remind him that he cannot do that. For that reason I object to £3,000 figure being regarded as an adequate subsistence allowance for a single person. This House should get together before 1992 and have all the taxation affairs of this country reformed.

Amendment put and declared lost.
Amendments Nos. 2 to 13, inclusive, not moved.
Question proposed: "That section 1 stand part of the Bill."

Will the Minister speak on the section?

Even if the Minister were disposed to making that dramatic pronouncement that Deputy Desmond has envisaged I do not think——

Not on the question of credits. The total cost to the Exchequer of the amendments Deputy Desmond is talking about would be £17.8 million in 1989 and £29.8 million in a full year. I am referring to amendments Nos. 2, 4, 7, 9, 11 and 13.

There were one or two other points raised by Deputy Bruton to which I would like to refer. The Commission on Taxation looked at tax credits in the context of — this is important — a flat rate of income tax, not in the context of the steeply progressive structure we have at present. Therefore, it is a misrepresentation of their views to state it in the terms in which the Deputy has done. I did not go into the administrative side of it but I want to tell Deputy Desmond that when I came to look at the budget for 1989 I did not look at the question of tax credits because from all I had heard and read about them I knew I could not hope to achieve anything for budget 1989 and I went in the only sensible direction, that of exemption limits, and introduced exemptions for children in order to try to focus in on the low paid because that was something specific I could do.

In relation to Deputy Bruton's comment from the Commission on Taxation regarding exemption limits the system has changed. We forced the change in the system to accomodate the exemption limits. The child benefits this year are given throughout the year, not in the context of what the Deputy read out from the Commission on Taxation, that they are there at the end of the year. That is why on budget night we saw on television advertisements from the Revenue Commissioners advocating applying for exemption limits straight away. We changed the whole system because the reaction to its introduction and trying to focus in was that the system could not accommodate it. We made the system accommodate it and that is why we made it work in deference to what the Commission on Taxation has said about it.

In the hope and expectation that the Minister will have another 12 months as Minister for Finance is there any hope of his looking at this question in the current year?

I can assure the Deputy and Deputy Bruton, too, that if I had the opportunity of four and a half years to look at it — as they had — I would certainly have made more progress with it than they would seem to have made in that time. The Deputy said they discussed tax rates, of tax bands, of tables that would be required——

It never happened.

——in simple terms, if you discussed and examined it you know as well as I do that it is simply not practicable with the present system which would have to be scrapped. It did not take me four and a half years to find that out.

Question put and agreed to.
SECTION 2.
Amendments Nos. 14 and 15 not moved.

I move amendment No. 16:

In page 11, between lines 9 and 10, to insert the following:

"(2) Notwithstanding anything contained in the Tax Acts, Part II of the Table to section 2 of the Finance Act, 1984, (inserted by this section) shall apply to persons with dependants who are widows, widowers or single parents.".

All we are doing in this section is tinkering around with the existing system. We would have disagreed with the tinkering around at the top of the existing system, in other words the constant erosion at the top rate as evidenced in this section. Our amendment which has been ruled out of order sought to substitute a stiffer penalty — a rate higher than 56 per cent — at the top rate where a single person would have £25,000 taxable income and where a married couple would have a taxable income of £50,000 or, in other words, a gross income of almost £70,000. I agree that this is part of the tinkering around with the system. The tinkering is being done at the wrong end all the time. There is a reduction at the lower rate but the amount of the actual income increase to the people on the top rates is far greater than the miserable increase in income given to those on the lower rates as a result of the system we operate.

Amendment No. 16 contains a proposal we put forward in recent years, that "Notwithstanding anything contained in the Tax Acts, Part II of the Table to section 2 of the Finance Act, 1984, (inserted by this section) shall apply to persons with dependants who are widows, widowers, or single parents". It has already been mentioned that there is no justification for doubling tax allowances for married couples over single people. Whether there is any argument in that, as mentioned by Deputy Bruton, the fact is that widows, widowers and single parents are the most discriminated against in the taxation system. They have to raise families in precisely the same way as two parent families. They have greater difficulties because, as well as raising their families, they must earn incomes. They have therefore to pay somebody to look after their young families and have many more expenses and difficulties in bringing up their children than a married couple. Yet they do not get the same allowance as the married couple get.

There was a time when there was a widow's organisation but, unfortunately, that seems to have lapsed. There is nobody speaking for widows and widowers now. Every Deputy here has had representations from families and individuals in this category about the discrimination against them under the taxation system. It is only right that the new Minister for Finance be asked to look into this issue, to see if there is anything that he can do to rectify the situation.

I do not have to go into all the details as I am sure that everybody knows them. The Minister is probably aware of the difficulties experienced by people in his own area. We are putting this forward as a blanket amendment to put these people on exactly the same basis as married couples with regard to tax allowances, tax bands, etc., and to end discrimination.

I agree with Deputy Mac Giolla's criticism of the taxation system in relation to the treatment of widowed people. That is one of the natural outcomes of the Murphy decision, one of the invidious aspects in the way in which that decision has been interpreted by the Revenue Commissioners for which the Minister, despite all his earlier smart remarks about the effect of my views, has no answer. It is completely wrong to say to a married man with a large family whose wife dies suddenly that his tax situation will suddenly worsen. To say that that is in some way justifiable on the basis that prior to his wife's death their tax treatment was a recognition of her work in the home, is compounded by the insult that when he loses her services, his take-home, disposable income collapses. Would the Minister mind telling me how that amounts to a recognition of the woman's work in the home if when she dies, the family, taken as a group, get hammered by the Revenue Commissioners? There is no explanation for that. It shows how wrong the system is when one's marital status suddenly doubles one's tax bands and tax allowances.

It is a nonsense to say that a person, by virtue of his marriage, even if his wife has disappeared and he no longer lives with her, should have double the tax allowances and double the tax bands, which is the present law. It is an artificiality which is not required by the Murphy decision. As Deputy Mac Giolla said, when you apply this mad logic to a widower, whose family have suffered a huge personal tragedy, for tax reasons, it is irrevelant that they have lost the services of one of the pillars of the family, because suddenly the Revenue Commissioners gang up on that family and demolish their tax status, taking away half the benefit they had because there was a spouse in the home.

Another example of how wrong the Minister's defence of the present difference between taxation of single and married people, is to be found in the following proposition. Is the Minister saying that the present tax system is a recognition of the contribution of married women in the home? If so, is he saying that a working class wife contributes less to the home than her very wealthy counterpart in a rich area in Dublin? If we double the allowances and the bands, we are saying that a wealthy lady's contribution at home is worth a hell of a lot more than that of a working class family with an income of £6,000 or £7,000. That proves how nonsensical that defence is.

It is wrong in principle to say that because a person is married he or she should get double the tax allowances and double the tax band. No amount of phoney defence will make up for the fact that where it applies in practice to a widower, it is most unjust. That is why the Progressive Democrat's policy, to which Deputy Bruton referred so generously earlier, carried with it the idea that the difference between the thresholds of the lower and the higher tax bands would apply, not on a basis of being married but on the family basis. Either a family situation should justify a further extension upwards of the basic rate from £12,000 to £16,000, or it does not. There is no justification whatsoever in saying to a married person that he or she is to have double tax status compared with a single person, but telling widows or widowers the year after they are bereaved, their situation is suddenly worsened.

By way of footnote in support of what Deputy Mac Giolla says, I worry slightly about the single parents situation in this proposal, but there are many single parents who need a tax break. It would be artificial if the mere fact that one is a single parent doubled one's tax bands and tax allowances. In logic, that is not defensible. In the last analysis, what Deputy Mac Giolla has pointed out in the context of widowed people underlines the nonsensical nature of the Revenue response to the Murphy decision. There was a better way, but it required disaggregating family incomes, separating husbands' incomes from wives' and treating them separately, which is the only fair way to tax people. Some wives cannot make a contribution in the home, some have to go out and work.

Is it fair to a working class family that a very wealthy middle class or upper class lady gets double the tax breaks simply because she is the spouse of a very wealthy man? I do not think that is right. The more you think about the Murphy decision and the way the Revenue Commissioners responded to it the worse a decision it was, and the proof of the pudding is in the disgraceful way it treats widows and widowers. It just adds to the disaster that befalls them especially when they have a dependent family, when the State then says it wants to take more and more of their income tax as a result of their bereavement. I find it completely beyond my capacity even to explain it let alone justify it to any widow or widower who writes to me. The indignation in their letters and telephone calls is very hard to deal with because it is scandalously morally wrong to treat them in the way the tax system does now. We should admit this in this House, tear up the Murphy decision as interpreted by the Revenue Commissioners and start again and build a fair system which does justice between people who are in roughly the same circumstances but have very different incomes.

The proposal I was making earlier in the debate addressed quite well the problem put forward by Deputies Mac Giolla and McDowell. The problem as put by them is that if a person is widowed and suddenly discovers that he or she no longer has double tax bands, has a double allowance but not double tax bands, the cost to that person of losing the double tax bands is enormous and occurs at a time when frequently the extra expense involved as a result of the bereavement is great, so the person is hit both in terms of having perhaps to hire help to look after children where previously the couple could have afforded to do it between them, by having their tax situation worsened by removal of the double tax bands. I emphasise that frequently happens but not always. If there is a bereavement but there are no children and just two adults living together, while the bereavement is undoubtedly substantial in its phychological effect, the financial effects may not be as severe as would be the case if that couple, one of whom dies, had a number of children. Therefore, any solution to the problem should discriminate somewhat between those who have children and those who have not, at least where the financial burden more heavily falls.

As Deputy McDowell correctly acknowledged, the tax code cannot take away the pain of bereavement; it is concerned simply with financial unfairness that may arise. My solution to that is simply to say that people with children, with family responsibilities, should have those responsibilities acknowledged through the tax code by a tax credit for the children. At the moment the only recognition essentially given — apart from social welfare allowance to children — is in the form of a totally artificial doubling of the tax bands which is taken away in case of bereavement. If one were to move over to a system where, for instance — to revert to the argument made by the Minister — there were two tax rates and a system of tax credits for adult dependants and child dependants, while there would be some loss for a widow or widower in that they might in respect of the scond band, if they did not have a doubled allowance against that band be somewhat worse off, the fact that they would have a credit for the children would greatly mitigate that problem. That is an alternative way of approaching this injustice.

Deputy McDowell made a devastating criticism of the way the Murphy decision was interpreted in so far as its effects on widows and widowers are concerned. I do not want to think it is fair to expect the present Minister to take entire and sole responsibility for the situation in which he finds himself. While one might have a good time teasing him about the present system, that would not be particularly fair because he is not there long enough to be able to overcome a very difficult problem arising from the Murphy decision. It is not in that spirit I am speaking, but the Minister must acknowledge — which I think he will — that Deputies Mac Giolla, McDowell and, in support, myself have a case here. I would like to look at it in the context of some form of tax credit or allowance for children because that would discriminate in their favour as against the case where apart from the pain of bereavement, there is a financial saving if two people are working, have no children, both are in their fifties and well off, and one of them dies. That saving does not apply if there are a large number of children. The solution to this problem should be targeted to some degree at widows or widowers with children. Perhaps the Minister could look at that in whatever time is available to him.

First let me say to Deputy McDowell that my earlier comments were not meant to be in the smart aleck way he seemed to have taken them up because they were only interpeting part of the argument. There is a problem here which I recognise openly. The calls for doubling of the bands would result from the high tax rates in general. It is a question of doing the best you can with what is available to you.

Let me put the matter in perspective to give the Deputies an idea of what is involved. The cost of extending the double rate bands to one parent families would be about £1.8 million in 1989 and £3 million in a full year. You could stop there. People would say that does not look too bad. Then you go on. These costs would, however, be much higher: £18.4 million in 1989 and £30.6 million in a full year if married couples opting for single treatment could not be successfully excluded. That is where we run into the first problem. Then there is another problem. If the marriage entitlement to mortgage interest relief and life assurance relief were also extended to one parent families, as should logically be the case if you are travelling that route, the costs would be ever greater.

Therefore, against that background there is not an easy solution. As Deputy Bruton rightly says, I am a short period here but I recognise there are selected groups it falls very heavily on, but to say they are not recognised at all in the tax code is not true. When a person dies the present married allowance and the higher mortgage interest relief are applied. The following year the widow or widower has an allowance; there is mortgage interest relief again and the widow has widow's pension and relief at widow's rate. Therefore they are recognised, but not fully recognised in the way we in this House might like to recognise them. I agree we would like to find a solution to some of the real problems out there in society, but it is not as simple as that.

I will not get into the argument about the Murphy case and the interpretation of it. I have listened to Deputy McDowell who has a better legal brain than I have. I do not pretend to have a legal brain at all. I look for practical solutions to problems I see in front of me.

I knew there was an insult.

I will not argue, but it would appear it is not just as simple as changing the interpretation. We will look to see if different interpretations can be put on it. Deputy Bruton has recognised the problem in saying there is not an easy solution to it. He talked about going back to the child allowance in the tax code.

Child tax credits.

Leave the tax credit aside for the moment. I want to put this in perspective and let Deputies know what sort of money we are talking about. In 1989 for £100 child allowance the cost would be £15 million and a full year for £100 would cost £25 million. I do not subscribe to the view that the tax code is the place to deal with children. You can deal with the size of families more directly through children's allowance and so on. We also have to think in terms of the family who are not in the tax code. I directed more money this year to people in the social welfare code. I do not hold the view that the tax code is the place to deal with this problem. It can be looked after and better focused through the social welfare code where there are fewer administrative problems. In the circumstances I could not accept the amendment but we will use the opportunity throughout the year to look at the question of widows.

I thank the Minister and I recognise that he is sympathetic. The figure he has given is quite small in that the cost of implementing this measure in respect of single parent families would be £3 million in a full year and £1.8 million this year. The Minister indicates that it would be difficult to include them and exclude others. I do not understand how that difficulty arises. There is no difficulty in excluding widows, widowers etc. at present. What is the difficulty of excluding others if we include them? I fail to understand that.

That is where we get into trouble.

There are always complications put forward by civil servants in regard to any proposal for change. The net result is that nothing is done. The Minister recognises that this is discriminatory. It relates only to the tax bands and there is no good argument for discriminating against single parents in this case. The Minister said he would look at it again later in the year. Perhaps he could look at it before Report Stage and come up with a suitable wording which would include them and exclude married couples opting for single allowances, etc. Surely with the expertise at his disposal the Minister could find a phrase which would include only single parents. When somebody is included, there will always be somebody else excluded. Every new tax allowance or incentive has anomalies. This is an anomaly which has hung on for a number of years. Perhaps the Minister could find a way to deal with it since he sees the justice of the case.

The problem that arises is that married couples can opt for single treatment and they cannot successfully be excluded because it is their right under the law. If we create an exclusive band we cannot keep the others out since it is their right in law to opt for single treatment. It is not just an administrative problem. That is where the big costs come in.

The Minister expressed the view that the tax code was not the right place to recognise the cost of looking after children, in this case the children of a widow or widower. I do not agree. I do not understand how one can be entitled to claim a tax allowance in respect of a dependent spouse and not be able to claim that allowance for a child who is equally dependent on the taxpayer. Our tax code already gives a dependent relative allowance of £110 for an adult who is not a spouse living with a taxpayer and dependent on him or her. The Minister is not questioning the rectitude of such an allowance or proposing to get rid of it. If the dependent relative happens to be one's child as distinct from an aunt or nephew one is not entitled to the allowance. It is an allowance which is not given in respect of children. In respect of a spouse one gets an allowance similar to one's own which is in the region of £2,050, plus double tax bands. If another adult is a dependant and not one's spouse one is entitled to a tax free allowance of £110. I do not understand why the Minister can justify a tax free allowance for a dependent relative who is not one's child and not allow a tax free allowance for a dependent relative who is one's child. It does not make sense.

I know the Minister will say that the previous Government got rid of this and that I was a member of that Government. I am not saying anything here today which is news to any member of that Government. I was resolutely opposed to that proposal, which I regard as one of the worst decisions we made. If there is to be recognition for dependency in the tax code there is a case for recognising the dependency of children. I stress the condition — if there is to be recognition of dependency in the tax code there is a case for recognising the dependency of children. I stress the condition — if there is to be recognition of dependency at all. If the Minister's case is that everybody should pay the same tax whether they have 20 people depending on them or are just making money for themselves, there is no justification for a child tax allowance. If, on the other hand, he is prepared to allow a tax free allowance for a spouse, for an aged or handicapped relative living in the home or a non-handicapped relative who is simply dependent, but not for children, then the Minister is being inconsistent.

The argument trotted out by those who wanted to get rid of child tax allowances was that it was unfair in that it was worth more to a family with six children living on £30,000 than to a family with six children earning £5,000 a year. That was the argument used for getting rid of the recognition of children in the tax code. It was, of course, a false argument. If it was a valid argument we should have got rid of all tax allowances, not just the ones for children. The argument can be applied to all tax allowances. If we do not want that sort of discrimination, the solution is to have tax credits for children, a system which could easily be integrated with the social welfare children's allowance. I hope the Minister sees the logic of this.

There are arguments the Minister might make about other continental countries. Minister Wilson said earlier that these countries have not enough young people and are worried about the future. All the people in France and Germany will be old in 20 or 30 years' time and there will not be enough young people to support them. We are not far from that situation in Ireland if emigration continues at its present rate. That very same situation could occur here quite quickly. The birth rate has fallen quite dramatically since 1980. It is still the highest in Europe but it is falling more rapidly than the birth rate in most European countries. The decline here is probably more rapid since 1980 than in any other European country. The arguments which encourage other countries at least not actively to discourage people from having children would possibly apply with equal force here. In the seventies there was the problem of the great increase in child numbers going to school. It posed a fiscal problem and many schools had to rebuild to accommodate them. Those schools have now been built and they are rapidly beginning to empty in the lower classes because of the effects of the falling birth rate. So there is no fiscal or social engineering argument for not having this allowance, because whatever expense there is has already been incurred, at least as far as capital costs are concerned.

I do not believe in using those sorts of utilitarian arguments in favour of an allowance of this kind. It sounds as if one were talking about incentives for increased production. What we are really talking about is recognition of the actual expenses involved for individuals in looking after a family as against those who do not. The present Minister, for all his occasional mistakes in this field, is well aware of what I am talking about and knows exactly the reasons such an allowance is justified. I wanted to say that because I think the Minister has inadvertently accepted an argument that was probably passed across to him about there being no justification for recognition of children in the tax code. If that is the case there are a whole lot of other allowances that should be got rid of as well.

I still hold strongly to the view that the use of the social welfare system is the best way to channel any available money to children in large families, or whatever the Deputy is referring to here. In relation to the tax code, I have no doubt that Deputy Bruton was part of the same argument and the same logic when his own Government decided to get rid of the £100 in the tax code because it disproportionately favoured the better off. I presume that was the logic, because it is the logic I would use. They took the decision to get rid of it.

It was a false logic. I have dealt with that already. I explained my position on that.

The Deputy is entitled to his view, but the fact remains that his Government got rid of that £100, so the Deputy cannot come in here and argue the same logic in reverse. My logic simply is that I believe that whatever money is available to help families should be channelled in through the social welfare code. That is where one gets straight at them. I still hold that view very strongly.

Why have an allowance for a wife? Why not give the allowance to spouses though the social welfare system?

We could go down that road. I am talking about families and children. That is what the basic argument is about — the £100 child allowance.

At that rate the Minister may as well give all allowances for dependants through the social welfare code.

I would agree with the Deputy if he suggested scrapping the whole system and starting again, but he knows it is not practical to do that either.

Why is the Minister saying that the only allowance to be given through the social welfare system and not through the tax code is to be the allowance given in respect of children? Why is he prepared to say that there should be a tax allowance for a spouse who is a dependant or for an adult dependent relative in the tax code as well as in the social welfare code, but that there should not be one for children? That is not consistent.

I am saying the better use of the money available is to channel it through the social welfare code to help children. That is my view and I will defend that view anywhere.

It does not cover all families.

How stands the amendment?

I agree with Deputy Bruton in regard to the last remark. The Minister's view sounds praiseworthy, but the social welfare code does not cover families with children over the age of 16. It does not cover families with handicapped children and all sorts of other problems.

The Deputy should get it right. It covers children over 16 in certain circumstances.

There are other types of dependants which the social welfare code does not cover. In regard to the amendment, the Minister said earlier that he was sympathetic to the idea but had a difficulty in implementing it. Perhaps he would look at it. I would like him to look at the possibility of trying to get something along these lines into next year's Finance Bill. This has been going on for a long time. There must be ways round these difficulties. I would ask the Minister to have a look at the situation to see if something can be implemented for next year.

Amendment, by leave, withdrawn.
Question proposed: "That section 2 stand part of the Bill."

Could the Minister indicate the reason for the adjustments that have been made here? We note that the 48 per cent rate remains as it was and the 35 per cent and 58 per cent rates were reduced to 32 per cent and 56 per cent respectively. There is no consistent logic in his decision to reduce the top and bottom rates but not the middle one. I know the Minister had to make a choice, and perhaps he tossed a coin and decided to reduce one by 3 per cent, another by 2 per cent and not reduce the other at all. I would be grateful if he would explain why he chose not to make any reduction in the middle rate but only in the lower and top rates.

The Deputy is right. I had choices to make with the money that was available to me. The 48 per cent band was widened as well. I made a decision based on the amount of money that was available to me and reduced the 35 per cent rate to 32 per cent — the first time it has been touched for 20 years. I reduced the 58 per cent rate to 56 per cent and, of course, everybody in the higher bracket will get the benefit of the lowering of the 35 per cent rate to 32 per cent because they have to come through the lower band to get to the higher bands. I would like to have done more but these are the choices I made. Furthermore, I would like to see two rates of tax and, hopefully, given time, we will achieve that.

Can I tempt the Minister to say what he would like the two rates to be?

I am not going to commit myself at this stage. I am working on it.

I would not dream of asking the Minister to commit himself. I would be interested to know whether his priority would be to reduce the bottom, middle or top rate. There would appear to be a good case for concentrating the reduction on the 32 per cent rate in an effort to get it down to 30 per cent. However, the problem faced by all tax reformers is the argument made about equity which we always hear about in debates of this kind. We are not operating in an entirely isolated environment. The fact is that people can leave the country to work elsewhere relatively easily.

I was a member of the Government that reduced the top rate by the greatest possible amount; it was 80 per cent at one stage and we brought it down more or less to 58 per cent. The Minister has now brought it down a further two percentage points to 56 per cent. One of the reasons this has to happen is the increasing mobility of talent. While one might want to stand back from the whole thing in an atmosphere of total isolationist objectivity and say the priority is to do something lower down the scale, the fact is that to provide jobs we need to keep people with high earning potential in the country. That, I suppose, is one of the reasons that prompted the Minister to make the reduction from 58 per cent to 56 per cent. I would be interested if the Minister, without committing himself — which I would not expect him to do — would give some indication of his general philosophy about where we go from here in so far as rates of tax are concerned. I agree with him that it would be highly desirable — and I have said this already in this deabate — to move to two rates of tax. If we did that it would mitigate some of the problems we were discussing earlier in regard to widows in the sense that the bands would not be quite as important as they were. There would be just one point at which the band element would have a deleterious effect and for many more people the bands phenomenon would be of no importance in comparison with what it is at present. Perhaps the Minister could comment on this.

My philosophy is very straightforward and simple — I want to get tax rates down. That has been my aim since I came to office and it was also the aim of my predecessor. Our commitment under the Programme for National Recovery was to give tax relief of £225 million but before the second year is up we have given tax reductions of £700 million. Certainly I will be looking at the matter in the context of next year's budget. My personal commitment is to have two rates of tax as soon as is practical within the economic constraints and within the choices open to me, whether in next year's budget or that of the following year — I could not even hazard a guess at this stage.

The Deputy, from his former experience, will know quite well that the most expensive area in which to reduce tax is at the lower end. One has to be fair and equitable when considering the hard choices that have to be made and the amount of money that is available. That is my approach. I agree with the Deputy that the high rates of tax are a disincentive and certainly encourage some people who are in jobs to leave the country and go elsewhere but we have to continue and the only way to do so is to continue to bring the finances into better order, try to get more growth in the economy and leave more revenue available so that we can reduce the taxes to the level we would all like to see.

Question put and agreed to.
NEW SECTION.

I move amendment No. 17:

In page 11, before section 3, to insert the following new section:

"3.—(1) Where a deduction falls to be made from the total income of an individual for the year 1989-90 or any subsequent year of assessment in respect of relief to which the individual is entitled under a provision mentioned in column (1) of the Table to this subsection and the amount of the deduction would, but for this section, be an amount specified in column (2) of the said Table, the amount of the deduction shall, in lieu of being the amount specified in the said column (2), be the amount specified in column (3) of the said Table opposite the mention of the amount in the said column (2).

TABLE

Statutory provision

Amount to be deducted from total income for 1988-89

Amount to be deducted from total income for 1989-90 and subsequent years

(1)

(2)

(3)

£

£

Income Tax Act, 1967:

section 138

(married man)

4,100

4,400

(widowed person)

2,550

2,750

(widow bereaved in the year of assessment)

4,100

4,400

(widower bereaved in the year of assessment)

4,100

4,400

(single person)

2,050

2,200

section 138A

(additional allowance for widows and others in respect of child- ren)

(widowed person)

1,550

1,650

(others)

2,050

2,200

section 138B

(employee allowance)

800

1,000

(2) Section 3 of the Finance Act, 1986, shall have effect subject to the provisions of this section.".

Will the Deputy explain the amendment? Is its purpose just to increase the allowance?

A similar increase is sought for widows and widowers.

All the arguments have been made and there is no point in pursuing the matter.

Is the amendment being pressed?

The cost of the suggested changes under amendment No. 17 would be £82.0 million in 1989 and £136 million in a full year.

Amendment, by leave, withdrawn.

I move amendment No. 18:

In page 11, paragraph (b), line 15, to delete "£286" and substitute "£500".

This relates to the allowance for those on the higher rate of PRSI. The purpose of the amendment is simply to increase this sum, which was originally £312 and was reduced in each year subsequently to £286, to £500. I would much prefer if all PRSI payments and levies — various levies such as youth employment levies, health levies and so on have been imposed — were allowed as a tax allowance in the same way as pensions and superannuation payments. I cannot understand why PRSI payments are not given the same status under the Finance Acts as superannuation payments and so on. If that was the case we could abolish all the PRSI allowances. That would be by far the fairest, best and simplest way of operating the taxation system and the PRSI payments. It seems constitutionally wrong and against the individual rights that people are taxed twice on their gross wages and that one tax is not offset against the other. This has been a flaw ever since PRSI payments were brought in and that is the reason I propose this amendment. It proposes to almost double the allowance to cover those on the higher rates of PRSI payments. The Minister should accept it. The same rate of allowance has applied since 1983 and the Minister should now alter that allowance upwards to the amount I am suggesting — £500.

I have a problem with this allowance. It seems to be a bit anomalous to charge some people money for what is essentially considered to be part of Government expenditure, namely, social welfare services and then give them a tax allowance on it. You take the money away and then give a little back. I do not quite see the point of it. I know the argument is that social insurance is separate from taxation and I know many people feel that if they pay social insurance they acquire certain entitlements that they do not acquire when they pay income tax. In other words, the social insurance money that goes towards social welfare payments is their money whereas money they pay as income tax is money paid to the Minister for Finance to spend on education for their children or on other benefits for them. It is not quite their money in the sense that the money they pay in social insurance is.

For that reason the Commission on Social Welfare rejected the idea that social insurance benefits should be paid for out of general taxation and opted to retain a separate social insurance fund. I am not entirely convinced of that. The reality is that these are benefits provided by the taxpayer. Social insurance is a tax that is particularly unfair to the low paid people in the sense that they pay it on every pound they earn. It would probably be a lot simpler and more sensible to amalgamate social insurance and tax and have one single system to finance all services including those currently financed out of the social insurance fund. Seventy five per cent of those services are financed from the social insurance fund and the anomaly here is that the remaining 25 per cent of social insurance expenditure comes from general taxation anyway. The whole thing is a fiction and there is no independent management of the social insurance fund. Workers do not decide on the rate of social welfare through representatives sitting on a board of directors of the social insurance fund. The fund is a pure fiction controlled and run by the Government. The contributors, the employers and employees have no control over the activities of this fund.

We should go one way or the other. We should accept that social insurance is a fiction and finance it from taxation giving people on lower income exemption from social insurance payments which they have to pay at the moment. This should be done on the basis that it is just taxation and that if people are allowed an exemption on the first £3,000 income, they are entitled to an exemption for PRSI purposes. Alternatively we should make the social insurance fund genuinely self financing and run by the FUE and the Irish Congress of Trade Unions and we should let them set out the entitlements, collect the money and run it as an independent system with a general level of subsidy from the Minister for Finance. The present system where we have a nominal fund is riddled with injustices in the way it operates, because it is levied on every pound a person earns and not levied on people earning over a certain amount and it is controlled by the Government although it has a nominal appearance of independence in the sense of being a fund. We should go one way or the other and regularise the system. We should pay for all the benefits out of taxation or have a genuinely independent fund. Either system would be markedly better than the present system. I am interested to hear the Minister's reaction to that approach and the reaction of Deputy Mac Giolla.

We have an allowance for those on the higher rate of PRSI. Why is there not an equivalent allowance for those on the lower rates of PRSI? It does not make sense to have an allowance for those on the higher rates and nothing for those on the lower rates. Those on the lower rates are civil servants and the self employed. Increasingly the self employed will move upwards, to 5 per cent in two years time and will presumably reach the employees' rate for general PRSI. If we are going to retain a PRSI allowance it does not make sense to have it available only for one category of PRSI payment. I am interested in the Minister's response to that. If we do not do what I suggest we will build into the system another anomaly by having an allowance for one form of PRSI and not for another. All sorts of special cases will be made in relation to this. A solution is to get rid of PRSI altogether and incorporate it in general taxation or make it a genuinely self financing, self managed system of social insurance with contributors paying in and being represented in the decision making process.

I was very interested in Deputy Bruton's contribution. The whole issue needs to be opened up and debated. Is PRSI social insurance or not? What is the point in keeping a face on something which does not exist. If it was a fund managed independently as Deputy Bruton suggests, people contributing to the fund would have specific rights. At the moment they do not have rights, they have benefits. Those who are adept at seeking out their entitlements get all the benefits and those who are lax get nothing. Deputy Bruton's suggestion would need more examination but I am certainly interested in his comments.

PRSI is seen by the people as a tax. If it is a tax it should be incorporated into the tax system so that we do not fool ourselves and try to fool others especially those who have the deductions made from their wages. People only understand PRSI as money going out and they do not know to what they are entitled on foot of those payments. PRSI as it is at the moment could be dealt with under the tax system. It is wrong to make two separate tax deductions from a person's wages, and that is how people see it. It is wrong that both payments are deducted on the gross and one is not offset against the other. It is time the Minister looked at the whole system of PRSI and tax and got his act together. There is a lot to be said for what Deputy Bruton said with regard to incorporating PRSI into the tax system or alternatively for having some separate social insurance fund.

I agree that the amendment I have put down is just tinkering around with the system. I pointed out at the beginning that I was rather reluctant about this amendment. I am in favour of amalgamating the PRSI and tax so that PRSI payments can be offset against tax payments but in the absence of that system I am putting down this amendment that the allowance for those on the higher rates of PRSI be increased now from £286 to £500. I would certainly like to hear the Minister's comments on tax in relation to PRSI.

The increase in the amendment seeks to impose a cost of an additional £34 million in 1989 and £56.6 million in a full year and would benefit approximately 612,000 taxpayers with income sufficient to benefit in whole or in part from the increase. Of these 612,000 some 10,000 taxpayers will become exempt from tax and 602,000 would face a lower tax liability. Let us put in context the cost of what is already included in the Bill which is at the rate of £286. The estimated cost is £51.1 million in 1989 and £85.1 million in a full year. About 625,000 taxpayers benefit from it, of whom 612,000 would have a reduced tax liability and 13,000 would be relieved of tax altogether, of all those who are expected to benefit. In cost terms alone it is simply not on, in view of the situation and taking into consideration that over £200 million in tax relief has already been given this year. While I would accept what Deputy J. Bruton says, to an ordinary person, no matter what they pay their money for, PRSI is Government money and a tax. That is a very general impression. However, let us be very clear what PRSI is: it is a social contribution, not a tax, and as such is accepted——

Tax is a social contribution.

——as a social insurance contribution.

On a day I went down to a coursing meeting I remember hearing the Taoiseach say on radio that PRSI was a tax.

As Deputy Bruton has said, whatever way you pay money to the Government, the ordinary person says that is tax; that is what they think. Let us come to the core. PRSI is a social insurance contribution and subscribers have a right to the benefits arising from it, whereas if the money went into general taxation, they would not see themselves as having rights to it. Second, the trade unions themselves do not regard or see PRSI as a tax.

That is the problem.

They had two representatives at the Commission on Taxation giving evidence and they did not see it as a tax, they saw it as a social insurance contribution.

The majority have a different view.

They may well have, but I am only talking about the trade union representatives at this stage.

To put the matter in context, giving tax relief for all PRSI payments would cost £370 million in a full year, and if you were to abolish it altogether and bring it into the general taxation, we are talking about a figure of £1,363 million, that is what is collected in PRSI. This allowance is not paid by civil servants and some other contributors.

I do not accept that, I believe it should be separate. I know there is a lot of misunderstanding about PRSI, some ordinary people see it as a tax because it is taken out of their wage packet, but the reality is that it is a contribution to a social fund from which the contributors get benefits, but they would not be entitled to these benefits if these contributions went into general taxation.

Finally, while many people think that the rate of PRSI is exceptionally high it is the third lowest, in the EC member states. Because of the cost implications, there is no way I can accept this amendment.

Is Deputy Mac Giolla anxious to press the amendment?

There is another speaker offering.

Gabh mo leithscéal. I thought I detected mild——

——gibing.

That was a failing that the Chair was not aware was peculiar to the Deputy.

I would draw the Minister's attention to the fact that while the trade union members on the Commission on Taxation expressed a sentimental attachment to social insurance — I think that is what it was — the majority of the commission said we should get rid of social insurance contributions and have a social security tax which would be levied on all income, including capital gains. In other words, everybody, not just those in insurable employment, would pay a contribution towards social welfare. Of course, the effect of amalgamating it into the overall system, would be that everybody would benefit from tax credits against their social insurance contributions, just as they were benefiting from them as against their tax contribution. That would be a much more equitable system of taxation for everybody. The reservations expressed by the two trade union members on the Commission on Taxation may well have represented a certain conservation of thinking that applied in the trade union movement at that particular point in the history of the movement but I am not so sure that would be the case now. However I am not going to speak on that subject. My feeling is that there has been a great deal of change in attitudes in the trade union movement and there would be a greater openness to these thoughts now than there was in 1984.

Amendment, by leave, withdrawn.
Section 3 agreed to.
NEW SECTION.

I move amendment No. 19:

In page 11, before section 4, to insert the following new section:

"4.—(1) (a) In this section—

`authorised person' means—

(i) an inspector or other officer of the Revenue Commissioners authorised by them in writing for the purposes of this section, or

(ii) a person nominated by the Commissioners of Public Works in Ireland, authorised by them in writing for the purposes of this section;

`designated area' has, subject to section 27 of the Finance Act, 1987, the meaning assigned by section 41 of the Finance Act, 1986;

`owner', in relation to a building, includes an individual entitled to acquire the fee simple in a dwellinghouse under Part II of the Landlord and Tenant (Ground Rents) (No. 2) Act, 1978, and references to `owns' and `owner-occupied', in relation to a building, shall be construed accordingly;

`qualifying building' means a building the site of which is wholly within a designated area and which, on application to the Commissioners of Public Works in Ireland in that behalf by the individual who owns the building, is determined by those Commissioners to be a building which is of significant scientific, historical, architectural or aesthetic interest;

`qualifying owner-occupied dwelling', in relation to an individual, means a qualifying building which is either—

(i) used at the time the relevant expenditure is incurred, or

(ii) first used after the relevant expenditure has been incurred,

by him as his sole or main residence;

`qualifying period' means the period commencing on the date of the passing of this Act and ending on the 31st day of May, 1991;

`relevant expenditure', in relation to an individual, means the amount of the expenditure incurred, during the qualifying period, by the individual in respect of any work of repair, maintenance or restoration carried out on a qualifying owner-occupied dwelling of the individual.

(b) For the purpose of this section, so much of any expenditure as is equal to any sum received, or to be received, directly or indirectly in respect of or by reference to that expenditure, or in respect of or by reference to the qualifying building or the work to which it relates, by the individual making a claim in respect of that expenditure under subsection (2) from the State, a public or local authority or any other person or under any contract of insurance or by way of compensation or otherwise shall not be regarded as having been incurred.

(c) (i) Where relevant expenditure in relation to a qualifying building is incurred by two or more individuals, each of those individuals shall be treated as having incurred only so much of the expenditure as the inspector, to the best of his knowledge and judgment, considers to be just and reasonable and the expenditure shall be apportioned accordingly.

(ii) An apportionment made under subparagraph (i) may be amended by the Appeal Commissioners or by the Circuit Court on the hearing, or the rehearing, of an appeal against any relief granted on the basis of the apportionment.

(2) Subject to the provisions of this section, where an individual, having made a claim in that behalf, proves that he has incurred relevant expenditure in a year of assessment, he shall be entitled for that year of assessment to have a deduction made from his total income of an amount equal to 25 per cent. of the amount of the relevant expenditure and, in each of the five immediately subsequent years of assessment, to a like deduction equal to 5 per cent. of such relevant expenditure.

(3) No relief shall be allowed under this section for expenditure in respect of which relief may be claimed under any other provision of the Income Tax Acts.

(4) (a) Where the Commissioners of Public Works in Ireland have made a determination that a building is a qualifying building and subsequently, by reason of any alteration made or to be made to the building, they consider that the building is, or will be, no longer a building which is of significant scientific, historical, architectural or aesthetic interest, they shall—

(i) by notice in writing given to the owner of the building, revoke the determination, and

(ii) notify the Revenue Commissioners of the revocation and the date thereof.

(b) If relief has been given under this section to an individual in respect of relevant expenditure incurred in relation to a building which has had a determination revoked in accordance with paragraph (a), that relief shall, where that individual has caused the alteration to be made, be withdrawn and there shall be made on the individual all such assessments or additional assessments as are necessary to give effect to the provisions of this subsection.

(5) (a) Where an individual makes a claim under subsection (2), an authorised person may, at any reasonable time, enter the qualifying building in respect of which the relevant expenditure has been incurred for the purpose of inspecting the building or the work in respect of which the expenditure to which the claim relates was incurred.

(b) Whenever an authorised person exercises any power conferred on him by this subsection, he shall, on request, produce his authorisation for the purposes of this section to any person concerned.

(c) Any person who obstructs or interferes with an authorised person in the course of exercising a power conferred on him by this subsection shall be guilty of an offence and shall be liable, on summary conviction, to a fine not exceeding £500.

(6) Any claim for relief under this section shall—

(a) be made in such form as the Revenue Commissioners may from time to time prescribe, and

(b) be accompanied by such statements in writing as regards the expenditure for which the relief is claimed, including statements by persons to whom payments were made, as may be indicated by the prescribed form.

(7) All such provisions of the Income Tax Acts as apply in relation to the deductions specified in sections 138 to 143 of the Income Tax Act, 1967, shall, with any necessary modifications, apply in relation to deductions under this section.

(8) Section 198 (1) (inserted by the Finance Act, 1980) of the Income Tax Act, 1967, is hereby amended by the addition to paragraph (a) of the following subparagraph after subparagraph (xi) (inserted by the Finance Act, 1986):

`(xii) so far as it flows from relief under section 4 of the Finance Act, 1989, in the proportions in which they incurred the expenditure giving rise to the relief,'.".

I am introducing this measure in response to representations suggesting that tax relief should be made available to encourage individuals to come and live in inner city areas and to renovate houses there that are historically or architecturally significant. There are, of course, already provisions in the income tax code along these lines, for example, section 19 of the Finance Act, 1982, provides full tax relief for maintenance, repair, etc. expenditure on houses which are determined by the Commissioners of Public Works to be of significant, scientific, historical, architectural or aesthetic interest, provided public access is allowed on at least 30 days each year. In addition, section 44 of the Finance Act, 1986, provides for relief spread over ten years on 50 per cent of the net cost of construction or refurbishment of grant size houses in the designated inner city areas. That is the position at present.

It has been claimed that the public access requirement under section 19 was preventing people from qualifying under that section, while section 44 relief is restricted to grant size houses, and this rules out most of the houses of the Georgian type in respect of which relief is now sought. In addition, it has been argued that the spread of this relief is too long — that is, over a period of ten years.

The measures which I am now proposing to the House are pitched between those two existing reliefs and contain the following features: houses broadly of the type referred to in section 19 of the Finance Act, 1982, determined, of course by the Commissioners of Public Works to be of significant historical or architectural merit will qualify, but there will be no public access requirement. We are eliminating that condition. The houses will have to be in a designated area, but there will be no upper size limit. Relief will be confined to 50 per cent of the cost of repairs, but up to 25 per cent of the relief may be claimed in the first year and the balance over five years. This is to meet calls for relief structured to meet the high initial repairs which might face the purchaser of a house in a very poor state of repair. The relief will operate up until the end of May 1991 when the designated areas relief comes up for review.

I commend this amendment to the House.

The House is being asked to agree to an immensely complicated amendment running over three pages of text. I think the House needs to look at this in detail, in view of the fact that, unlike the Finance Bill proper, this has not been in widespread circulation among tax consultants and so on, who may wish to make submissions. This is always a problem with amendments introduced at this stage.

The first question I would like to ask the Minister is, why is this relief confined to designated areas? That seems to be an artificiality. Presumably houses of a type that one would wish to preserve exist elsewhere in Dublin, other than in the very arbitrarily drawn line. I presume that such a building in inner city Castlebar which has been designated, would apply, but an historic building in the town of Westport would not achieve similar relief. To my mind that is anomalous; in the town of Westport, which I know very well, a town containing some magnificent buildings which ought to be preserved and would not qualify for this relief, but in parts of the town of Castlebar — because this was chosen for reasons best known to a Minister for whom I have the highest esteem — there is the possibility of obtaining this relief. Can the Minister explain why this relief would be available in respect of buildings in Castlebar but not in Westport? Longford has some notable buildings.

But not designated.

Why would relief not be available in respect of buildings there to enable them be preserved and why would this relief only be payable in respect of buildings in designated areas? I think it was Deputy Michael Pat Murphy who used to say "lu—dikras". I hope the Minister will not attempt to justify it.

How will the record of the House pick that up?

That is another argument in favour of television. I may have been passing unfair judgment on Deputy Michael Pat Murphy as possibly it may not have been he who said that. If he did, it was in jest. I am also concerned at the removal of the requirement to have public access. Who is worried about allowing access on some days of the year? Perhaps 30 days a year is a bit much but if someone obtains tax relief in respect of a building of this kind it is not unreasonable to require public access. I am aware that tax relief is available in respect of stately homes and there is a requirements to have public access. What we are now saying is that if one owns a stately home within a designated area of a city one can qualify for tax relief without there being any requirement to have public access. What is the justification for this? Is the Minister saying that in order to qualify for tax relief in respect of a big house in the country there should be public access whereas if the house is in the city there is no need to have public access? What is the reasoning behind this?

I am also concerned about a phrase which is written into our tax code and that is the phrase "in the opinion of". In this amendment there is reference to the opinions of the Board of Works about the aesthetics of a building. They are about the most subjective criteria one could get. Essentially aesthetics is a subjective phenonemon. Something new is often unpleasing to the eye but with the passage of years it becomes extremely pleasing to the eye because people's opinions have changed through familiarity with new forms of expression. The Board of Works would decide in their collective wisdom what is aesthetically pleasing and therefore qualify for money from the taxpayer in the form of tax relief. If there ever was an invitation to corrupt, there it is. Officials would decide on the basis of aesthetic considerations whether A would qualify for tax relief and B would not. We are very lucky to have a Civil Service which has hitherto been almost entirely incorruptible.

The way out for officials in the Revenue who cannot draft sufficiently tightly the terms for a relief a Minister wants to give is for them to say: "we know what you want, Minister, but we cannot quite put down on paper what exactly qualifies and what does not but we will get out of this difficulty by giving to some fellow, be it a guy who has been taken on by the Revenue Commissioners to decide whether a book is a work of art or a guy in the Board of Works who is to decide whether a book is a work of art or a guy in the Board of Works who is to decide whether a building is aesthetic, the power to make a decision on a case by case basis." To grant tax exemptions on the basis of the subjective opinions of an official is no way to do business. Yet, our tax code is riddled with that kind of phraseology. The business expansion scheme is riddled with it. Under that scheme Board Fáilte make decisions about whether particular activities qualify for tax relief.

The merit of our tax code in the past was that it was based on rules and not on the decisions of rulers, whether they be civil servants or Ministers. It is important that we get back to that concept. I am aware that there is no corrupt intent behind this amendment but if we want to get to a position in a few year's time where our system is thoroughly corrupt we should continue in the way we have been going, where Ministers or officials are able to decide that A shall have one tax status and B shall not on the basis of subjective criteria, be it wealth creating capacity or some other subjective ground which is prayed in aid of what is essentially a decision to deny something to one person and give it to another.

If the Minister wants to do this, the way to do it is to say that any building that is and can be demonstrated to be 200 years old or more shall qualify and that any building less than 200 years old shall not qualify. There could be no argument about that. It would simply be a matter of establishing the age of the building but if people are going to decide on the basis that they like the look of a particular building on one street and do not like the look of a building on another street we are in trouble. It is about time that the Revenue Commissioners — I criticise them and do so quite openly — did their job and presented us with proper legislation which lays down clear rules for deciding whether someone qualifies and not adopt this cheap approach of giving the power to some official in the Board of Works to decide whether a building qualifies. This is a sign of intellectual laziness on the part of the Revenue Commissioners who have produced this section to harassed Ministers who want to do something that will be of benefit. I am sure I introduced similar sections when Minister for Finance.

The Deputy did.

If one wants to do something they say that the only way one can do it, because they could not draft the rules tightly enough, is to give someone the power to decide. In relation to the Custom House Dock site the Minister has the power to decide that one company qualify while another do not. To my mind, it should be automatic and there should be clear defining characteristics. People should either qualify or not. If they do not qualify, the place to determine whether that is the case is the courts and not the Minister's office or the office of an official.

It is only in the last six to eight years that this sort of legislation has been coming into this House, where individual subjective judgments are having to be made. That is not a good thing at all. This is something that I frankly wanted to say in this House before and I am glad that I have the opportunity to say it on this section as this is probably the one case where one should not decide on aesthetic grounds. In relation to tax relief on books they will decide whether something is art, and this is even sillier. I ask the Minister to reconsider the amendment in that light because it is not the right approach. I am not too sure that I agree with the idea of not having some public access to buildings. If people qualify for this tax relief why should the public be denied access? Perhaps a period of three days a year would be adequate.

The purpose of the whole exercise is to try to get people to live in inner cities.

I accept that.

I am glad the Deputy accepts it. We are trying to get people to live there so that it will become a live city. The present schemes are not working. I am not saying that this is the whole answer to the problem and I have taken some of the Deputy's points on board because they had already occurred to me. However, it is addressing some of the reasons for the existing schemes not working. The Deputy mentioned that there should be access by the public for 30 days per year. If you want people to live in the inner city and spend their money on renovating nice Georgian houses in parts of the inner city, it is a bit much to ask them to allow the public access for 30 days per year, because you do not ask those who are receiving £150 million in mortgage interest relief to let people into their houses. Right or wrong, that is my reasoning. I did not spread the relief over ten years because I wanted to give an incentive to people to finish the work fairly quickly. I have no hang-ups about a wider definition and perhaps the House will help me in this regard. I could name houses outside the designated areas which I should like to see restored. What definition will I use? I am not prepared to allow local authorities to decide this matter because it would spread all over the country. I am left with "designated areas" and if somebody can give me a better definition——

I will try.

Fine. This can make a contribution to reviving part of the city and give people a reasonable chance of carrying out the necessary extensive renovations. It is no more than that, it is not being set up for any particular purpose or individual. I do not accept that local authorities would do the job better than the Office of Public Works. It could not be a countrywide scheme as it would be open to all kinds of abuses and I should like to confine it to inner cities.

Without having the degree of deliberation I would have liked, I suggest that the Minister confines the relief to houses more than 200 years old anywhere in the country. I know that there would be difficulties in determining whether some houses are 230 or 180 years old——

That is the problem.

In that situation it would be reasonable to allow officials— on the basis of information about similar houses and their architectural history— to decide whether a house was 200 years old. That is as far as I would like officials to go in picking and choosing the age of a house. Officials would be placed in an impossible situation if they were asked to decide on the basis of aesthetics in terms of the types of pressure that could be brought to bear on them either directly or through Ministers. At least if you set an age level there is something objective and if an official makes a manifestly stupid decision that a house which is obviously 100 years old is 200 years old, you have something to go on in dealing with that abuse. However, there would be absolutely nothing to go on if the abuse was based on the official's aesthetic judgment, because one man's aesthetic horror is another man's aesthetic dream. In basing the decision on age you would be dealing with most of the houses in inner city Georgian Dublin, which the Minister is anxious to deal with, but you would not exclude some of the beautiful old farmhouses on the road into the town of Longford, for example.

There are Georgian and Queen Anne farmhouses and cottages in different parts of the country, the roofs of which are falling in, of magnificent aesthetic value but which are only attractive if someone is living in them and not preserved as museums. However, they are all excluded, the only thing that qualifies for relief is houses in the inner city and stately homes. Small cottages in rural areas, which were inhabited by the ancestors of the overwhelming majority of the people in this House, do not qualify for relief, even if they are 300 years old. On the other hand, a stately home where the ancestors of very few of the Members lived qualifies. There are also certain houses in designated areas in the inner city which qualify in the opinion of the Office of Public Works. It would make a lot more sense to say that all houses over 200 years in rural areas or the city qualify. It would be a much more favourable approach to the problem and would have a tremendous effect on the inner cities.

There is a lot to be said — I have tried to get this point over in previous debates on the Finance Bill — for preserving what is known as vernacular architecture, the architecture of the general population, where ordinary people lived. We should not confine it to the architecture of the rich. Unfortunately, society — it may be a form of inverted snobbery — has decided that we will give tax relief to stately homes and Georgian houses but not to the houses in which most of my ancestors and those of the Minister and Deputy McDowell lived. If we discriminate on the basis of the social origins, the occupiers or the size of the house, it should be on the basis of age only. There should be relief for houses which are over 200 years old. I ask the Minister to look at that suggestion which would get rid of many problems.

In general terms one has to be in favour of relief for expenditure of a certain kind on houses of historical value. However, in this case I have grave misgivings whether the Minister will achieve what he wants to do. We are talking about designated areas of the inner city and the only one with which I am concerned is Dublin.

I have in the grey cells of my mind some of the outlines of the designated areas. I know that Henrietta Street and North Great Georges street are in it but I do not think that much of my constituency is included, although I may be wrong. I do not think that Merrion Square is a designated area but areas around the Liberties and Christchurch are in the area. Perhaps the area that CIE own around Temple Bar may be included, I am not clear about that, but the Custom House Dock site, curiously, is in it and the quays. There are few enough places in these areas where families will live. It is a nice idea but not very practical. There is private ownership of houses in Henrietta Street and North Great Georges Street but they have fallen into decay although some people swam against the tide to keep them going. I do not know whether it is necessary, in those circumstances to provide them with tax relief to renovate their houses. It is not unfair to mention one person, Senator David Norris, who has made a great job of preserving his house in North Great Georges Street. Is it right to say of someone in his circumstances in particular that 50 per cent of relevant expenditure, as defined by this section, should be tax deductible? I do not know whether it is right or wrong. There is no claw back provision in the section. One could buy one of those houses, renovate it, live in it and then dispose of it. I may be wrong about that but I do not see the claw back in it and that worries me.

One worry I have about this is that we give capital gains taxation a free run here. We are also going to allow income tax deductions on certain forms of expenditure. I do not know if we are going about this in the right way. I agree with Deputy Bruton that there is a very uncertain test of eligibility for this. Adam Smith did suggest that certainty should be one of the canons of taxation. When one tries to focus tax relief on a particular problem it is sometimes difficult to have sufficient flexibility and sufficient certainty in any statutory formula. However, here we have buildings which are determined by the Commissioners of Public Works to be buildings which are of significant scientific, historical, architectural or aesthetic interest. I think I am right in saying that Mountjoy Square is in a designated area. Every house in Mountjoy Square is, in my view, of significant interest but the number of people who will move into those houses and use them as family homes will be very few. If one wants to bring people to live in the inner city one would have a better chance by giving tax relief to people who in places like Camden Street, Stoneybatter and so on, agree to take accommodation over shops and pubs and convert it into places where they are going to live rather than going about it in the way suggested by the Minister.

"Relevant expenditure" is extraordinarily defined. It means, we are told, the amount of the expenditure incurred by the individual during the qualifying period, which is up to 1991, in respect of any work of repair, maintenance or restoration carried out on a qualifying owner-occupied dwelling of the individual. Work of maintenance could be virtually anything; it could almost involve the Senator's cleaning lady. Her work in cleaning up the house and tidying it is a form of maintenance. I am amazed that maintenance has been added to this provision. Heating is arguably a form of maintenance. This is a very wide definition and it worries me on that account.

The nature of the expenditure is not adequately defined. If I get a house in Henrietta Street and decide that I am going to spend £100,000 refurbishing it, make a hames of it in the process, put in a jacuzzi and saunas in the middle of a Georgian structure, transform it but in a way that was never contemplated by the Minister, put in a bar in the corner of the salon on the first floor and a disco in the basement — that is all qualifying expenditure because one is refurbishing the house — the worst that could happen would be that the commissioners on inspecting the house might say that by virtue of what I had done to it it had ceased to be of major architectural significance. If one went too far one could provoke the Commissioners of Public Works into being so outraged that they would de-designate the house.

The approach of Deputy Bruton is, on balance, correct. There should be an objective definition and it should not be confined to these designated areas. As the pointed out, designated areas were put there for very different reasons. Ministers have moved might and main to get various portions of other towns around the country designated for this purpose. This House, when it laid down those boundaries, never took a look at the whole issue of what buildings were inside and outside the boundary. If that had been the criterion, if we were talking about houses for people to live in as family homes, the lines would have been drawn very differently. The Quays in Dublin may not have been included at all. Nobody would suggest that people should go to live along the Quays. I imagine that places such as where the Jesuits have their church at Gardiner Street, Eccles Street and other areas in Dublin which could do with some kind of incentive scheme like this to rescue a lot of north city Georgian Dublin from destruction could benefit from it but they were never, so far as I know, included in the designated areas scheme.

We have now reached the stage that a scheme which was devised for business men is being applied as a geographical criterion for family homes and residential purposes. It was also devised without any regard to aesthetics. It appears we have decided that this is to be the outer limit of an architectural conservation zone. I travel along the Quays every day as I go between this House and another place and I note a huge programme of building taking place. It is not going fast enough but I note that most of the building is commercial building and the very beneficial tax régime for tenants and lettings is having a substantial effect on that area. Houses are being torn down and refurbished in order to take advantage of the new tax régime. At the same time the boundary in terms of principal private dwellings is now being used to set out where people should go and live.

I wonder if there are so many people who are inhibited from going to live in those places if they want to do so by the fact that they cannot get these qualifying expenditures deducted from their tax. I wonder will that, as an incentive, be of much worth. I wonder how many people will say, "this incentive is now available and I must go mooching in the areas of Dublin around which this line has been drawn and see if there is any place in there that I can go and live in". It is of much concern to me that the expenditure does not have to have any aesthetic content, that it can be horrific expenditure in terms of the damage it does to buildings. I do not see anything in the section that requires the expenditure to be approved of. I am always loath to get An Taisce involved but I would be very loath to see people getting a tax subsidy to wreck an old Georgian house which is of some interest and to put into it what they consider to be appointments. I do not think that is a good idea.

I re-echo what Deputy Bruton said, that this is thrown at us and we have not had time to think about it. It arrived on our desks this morning. It may be said that Deputy Noonan and I did the same to the Minister and in that event fair is fair.

I do say that.

The Minister has a little more assistance than us.

The Minister has more assistance to analyse these amendments. On the face of it this provision seems to be arbitrary and open to abuse. It is open ended. As far as I can see one could spend £1 million on such a house and get tax relief on half that expenditure. It is a decent gesture in the right direction but I do not think it will achieve what it is supposed to achieve. I do not think the provision was well thought out. If I were Minister for Finance and I was told that centre city Dublin needed more people to go and live in it and I was asked to devise a scheme for that the last thing I would do would be to start with the designated area. I cannot see how the designated area has anything to do with it. Areas like High Street, Thomas Street, Kilmainham, Mount Brown and Stoneybatter which need some incentive to get people to come back to live in them have been excluded from this provision. At the same time places where nobody in their right minds would go to live, such as down in the docks area in its present state — presumably it will be changed later — will be preserved.

The last thing I want to say is that there are many cases where there is a street of nondescript houses but when the whole street is taken together it is of architectural importance. None of the houses are all that important in themselves, and some of them may be quite unimportant, but suppose two families who live side by side decide to go into the inner city and one family buy a red brick fronted house dating from 1880 and the other family move into a house dating from 1790 and both families spend the same amount of money going to live in the inner city and are in the same circumstances. If one family get half of their expenditure handed back because the Board of Works decide their house has a special merit, I wonder if that will be regarded as justice in the last analysis. I agree with Deputy Bruton that this amendment is badly thought out and even though the Minister is on the side of the angels on this, I do not think he will achieve what he is supposed to achieve.

There are a few points I want to respond to fairly quickly. First, the scheme is about promoting the inner city and getting people to live in the inner city. I want to make a few specific remarks which might ease the fears which were expressed by Deputy McDowell in relation to certain points. We are using the same definition which was there in 1982. If it was a big bonanza it would have been well abused by 1989, and I am sure the Deputy will accept that point quite clearly.

Secondly, there was nothing weird involved in choosing the definitions in regard to the areas. What alternatives do we have? If we used county boroughs it would have been to extensive.

Why not draw a new map?

Why draw a map at all?

As the Deputy will appreciate I do not have the time to draw a new map in relation to this matter. What I am saying is that I am approving a scheme which is there in order to try to get people to live in the inner city, which I think would be desired by everybody in this House, and it is a question of which is the best way to do it. So far, I believe this is the best way to do it. I want to extend the provision to some of the areas mentioned by Deputy McDowell but I have not yet found a way to confine it to those areas or to draw a new map, as the Deputy suggested. We do not have time between now and 7 p.m. to draw a new map in order to satisfy the Deputy, but I said, first it was not the bonanza some people think it was and, secondly, it is confined to 50 per cent of the total expenditure spread over six years.

I want to come back to the age of the house. All houses over 200 years may not necessarly be of architectural value. If we were able to prove that a house was 199 years or 201 years, would we be talking about marginal relief or something crazy like that? The suggestion in regard to 200 years sounds right but it just does not work when it is redefined down.

It does work.

No way does it work. Let us be sensible about this matter. How can one prove whether a house is 180 years old or 200 years old? The Deputy will have to tell me because I do not know.

Records my eye; there are no records available for half the houses.

Does the Minister want to know?

There may be records for stately homes——

This is not my job but I will tell the Minister.

——but how can one prove that a cottage in Donegal is 180 years old?

Of course, there are answers to that——

They are not the answers to the tight definition one wants in a Finance Bill, and Deputy Bruton knows that as well as I do.

Those are some answers to the points raised by Deputies. The reason the Bill does not cover the areas referred to by Deputy McDowell is that new maps are required or whatever. I am prepared to look at this relief in order to extend it to those areas so as to get people into them to live, which I imagine would be desired by most Members of this House. As I said, the scheme is not, as some Deputies feared, being left wide open. If the scheme does not work it will have cost the Exchequer no money and the fears which have been expressed by the Deputies will not be justified at all.

I think the Minister has been unduly dismissive of the serious case I have been making about this point, and I know it is a technique in which he has a lot of practice. I have made a serious point which I think the Minister has totally ignored——

The age of the house.

——with regard to the age of the house. If the Minister laid down a criterion of age at least there would be some measure of objectivity in that. There may be doubts around the margin as to whether a house is 180 years old or 200 years old.

Or more than that.

As I said already, I anticipated that argument by saying that I would have no objection to officials making a decision of that kind because at least it would have been grounded in something objective. In my view any houses which have survived this long have survived because of some intrinsic merit anyway and they should qualify for relief. I am not sure if I know of any house which is over 200 years old about which one could say it did not have some artistic or architectural merit. The very fact that a house has survived indicates that somebody at least thought it was worth preserving for the past 200 years. That is good enough for me, and certainly it is much better than the idea of somebody in the Board of Works, at a particular moment in our current history, making such a decision. It is a decision which has stood the test of time quite literally.

There is a genuine problem in that this relief is confined to Dublin and is not available in other parts of Ireland. The provisions of subsection (4) of the amendment are very dubious in that they provide that the Commissioners of Public Works can determine whether a building is any longer of significant scientific, historical, architectural or aesthetic interest. What criteria will be used in determining whether such a building is no longer of significant scientific, historical, architectural or aesthetic interest? Presumably if the external facade of a building continues to exist, even though the building has been internally savaged, that facade will be of sufficient architectural interest to ensure that the tax relief cannot be withdrawn. If that is the case it would appear that subsection (4) of the amendment is meaningless.

The Minister made the appealing argument that this provision has not been abused since 1982——

What criteria?

The definition is the same as that used in 1982. There is a clawback mechanism.

The definition is the same as that used in 1982. The argument that it has not been abused much in the past is not valid either because there are many tax reliefs which have lain dormant for years but when one or two accountants decided they were worth promoting in order to build up their practice they suddenly became huge tax loopholes. It is not an excuse for bad legislation to say that similar legislation has not so far been abused on a major scale.

The Minister did not reply to Deputy McDowell's point about whether there would be any clawback of relief that was determined to have been incorrectly obtained, nor did he give any indication as to what would constitute maintenance or restoration. It seems to me that we need to say that maintenance — and I suggest that these words should be included in the amendment — is maintenance which is consistent with the original character of the building.

I do not think a manservant who cleaned up the floor——

Something of that nature should be included in order to limit the relief.

As I have said, some entry requirement for the public should be retained. I suggest an amendment which would redefine a qualifying building and delete all words after "qualifying building" at the top of page four of the Bill and insert the words "means a building which is 200 years old or more". If the Minister did that he could get rid of most of page five of the Bill and still achieve the effect he wants to achieve.

If the Minister goes the way Deputy McDowell seems to be urging him, bringing in new areas such as Mount Brown, Stoneybatter, and all of those places — much as I would love to see Stoneybatter included in the "designated area", as I used to shop there as a child — the next thing we would be hearing would be: sure, there are a few houses on the Old Cabra Road; perhaps they should be included as well? What about the North Circular Road and all those other places where there are very interesting buildings. If one looks around the North Circular Road one will find there are some very interesting buildings there, some that are very old and a few which were built at the same time as was most of the road. Is one to say that buildings there of particular aesthetic merit should not qualify because they happen to be on the wrong side of some arbitrarily drawn line on a map?

I persist in the point with which I feel the Minister has not dealt at all, that the criterion should be age and age only; if a house or building is 200 years of age then it should qualify for tax relief wherever it is located in Ireland. Of course, that will tend to have greater benefits in inner city areas because they are, by definition, older, have been there longer and there will be more 200-year-old buildings in inner city areas than there will be in outer suburbs. But at least those in outer suburbs which happen to qualify will not be excluded. If one relies on lines on a map rather than age to delimit the "designated area" there will be constant anomalies, complaints and the like. I still believe the Minister should reconsider his position.

I should say there is provision for claw-back relief in 4 (b) in relation to Deputy Bruton's suggestion on maintenance commensurate with character. I can accept that. However, I cannot accept at this stage — without going into the matter in much greater detail — the question of the 200-year-old houses located countrywide. The purpose of the scheme is to try and improve the quality of inner cities, urban areas. Endeavouring to have included 200-year-old buildings countrywide is off-side with the objectives of the scheme. I could not accept that at all.

In regard to the Deputy's earlier question with regard to the Office of Public Works, I recognise they have an adjudication role under the provisions of section 19 of the Finance Act, 1982. I have never heard any complaints about them. I do not accept that they would be open to all sorts of bribery and abuse with regard to their decisions vis-à-vis cultural or aesthetic merit. Who is better qualified to so decide? For example, is the Deputy thinking of listing local authorities and advocating that they decide? I would not accept that proposition either.

What about the question of age?

I will certainly examine all the pitfalls of the age criterion. However, I have mentioned a few off the top of my head that would totally defeat the purpose of the scheme. Within reason I accept the argument with regard to maintenance in respect of which claw-back relief is available. I should have thought that Members would have been interested in seeing people being attracted to returning to live in the inner city. That is the purpose of the scheme. I am surprised if that is not acceptable. However, I will take any reasonable suggestion on board, as I have done on the question of maintenance. I could not accept the 200-year-old criterion at this stage. However, I will examine it between now and Report Stage but I do foresee a lot of pitfalls in it.

I know we have been critical of the proposal as set out in the amendment. Primarily that criticism emanates from the fact that this is a prime example of something which should have been published a week or two ago, allowing some time for public reaction, enabling Members some opportunity of examining the circumstances for which they are legislating, affording them an opportunity to consider its implications.

It was discussed last year in the course of the debate on the Finance Bill when there was much to-ing and fro-ing, correspondence and representation with regard to it; it is not something I dreamt up overnight.

I am just saying that it is news to me; this morning was the first time I have ever seen it. While the Minister says there is the claw-back provision in 4 (b) that is also where the Commissioners of Public Works decide to revoke their earlier determination——

For example, if one changes the character of a Georgian house and turns in into flats——

What I am interested in is the proposition that I buy a house in, say, North Great Georges Street. I refurbish it at considerable expense to myself and get 50 per cent relief over five years. Surely then I am in a position to apply to Dublin Corporation for permission to turn it into offices? If I get that permission and say it is too big for me to live in, that by 1991 I will not even be able to repay the running costs; if I receive permission from An Bord Pleanála to restore it to its former state I can sell it as a principal private dwelling — that is, if I do not get planning permission for it — getting relief for capital gains tax purposes. In the meantime I have also received income tax relief on the expenditure incurred to make that capital gain. Alternatively, I can convert the building into offices and be recouped my investment expenditure out of my income. Perhaps the second point is not such a good one. Perhaps if I owned the property and was going to convert it into offices I would not be bothered with the residence stipulation since there are so many other concessions available.

I am not happy with the provisions of the scheme because it would appear to me they will apply to so few people. Perhaps it would have been wiser for the Minister to say that residential property tax would not apply to these houses. Would the Minister think about exempting those houses from residential property tax? For example, I saw a gentleman buying a house in Saint Stephen's Green the other day for £800,000. If he is liable to £12,000 residential property tax thereon, that is an awful lot of money.

That is not a "designated area" though.

I know. But if one were to buy a large Georgian house in a designated area and expose oneself to that kind of tax, this kind of incentive would not be of very much use.

Additionally, if there is to be a tax subsidy for expenditure on refurbishment, if one decides that is to be done on the basis of the aesthetic value of the house to start with, it would seem to me that one should at least get some value for money in terms of ensuring, for the community, that the expenditure actually improved the house, rendering it more aesthetic rather than less so. That is the one apsect that worried me. How can the Commissioners of Public Works go to a house in, say, Henrietta Street which I have bought and am busily converting — installing facilities such as saunas, jacuzzis in the middle of large rooms — and say it has ceased to be of architectural significance from the outside? It would be of architectural significance but I am free to put bars or discos into it; I am free to change the whole thing into a kind of high class boudoir, or bordello, nobody can criticise my taste or anything, and I have got tax relief for all of that. At the end of the operation I have ruined a good house at the expense of the taxpayer. It is an extraordinary proposition but, if the Minister were happy with it, I could go ahead.

I have accepted the Deputy's point in relation to maintenance. I endeavoured to amalgamate bits and pieces of reliefs in response to attracting people to return to live in the inner city area. If there are any reasonable suggestions as to how this scheme can be improved, I shall be quite open to them between now and Report Stage. I believe in the scheme; the claw-backs and protections are there. We should be doing everything possible to attract people to resume living in the inner city area. That is the main purpose of the scheme.

I will examine the question of the 200-year old criterion between now and Report Stage. I have already given my initial reactions to its inherent problems but I am open to reasonable suggestions between now and Report Stage.

That is fair enough.

Amendment put and agreed to.
Amendment No. 20 not moved.
SECTION 4.

We come now to amendment No. 21 in the name of Deputy Michael Noonan (Limerick East). Amendment No. 22 is related. Therefore, I suggest we discuss amendments Nos. 21 and 22 together if that is satisfactory. Agreed.

I move amendment No. 21:

In page 12, line 5, to delete "10" and substitute "8".

These amendments relate to the rate of interest which is charged on preferential loans. We feel that the rate of 8 per cent at which people are taxed in respect of the benefit they receive from these preferential loans is the more reasonable basis on which to tax the people than 10 per cent. I would feel it is more in line with market conditions generally. I would ask the Minister if he would be prepared to accept these amendments.

The benefit of what I am doing is in relation to the 10 per cent. One must take into consideration the additional benefits that arise that these people do not have to pay PRSI, the 1 per cent levy, health contributions, etc. When it is computed out they are still doing very well at 10 per cent. I think it would be inequitable to agree to the amendment and consequently I would not accept it.

Amendment, by leave, withdrawn.
Amendment No. 22 not moved.
Section 4 agreed to.

As it is now 7 o'clock I am required to put the following question in accordance with an Order of the Dáil of this day: "That sections 5 and 6 are hereby agreed to."

Question put and agreed to.
Progress reported; Committee to sit again.