The most important section of this Bill is section 9 which exempts local authorities from paying income tax on investment income. Because this measure could save local authorities millions of pounds, particularly for the period 1974 to 1983, ratepayers and residents in each local authority area could also save substantial amounts of money. Until 1983 many local authorities had substantial sums of money in capital accounts. This money was lodged in investment accounts because it could only be used for very specific purposes outlined by the Minister for the Environment. The interest earned on those accounts at that time would have been quite substantial. I am aware, for instance, that relatively small local authorities in various parts of the country had been served with income tax assessments and threats of court action in respect of sums running into hundreds of thousands of pounds. If this section had not been included in the Bill and if local authorities had to meet these demands there would be a huge increase in rates on commercial properties or service charges or a combination of both.
I thank the Minister for including this section in the Bill because I have been conscious of this problem for a number of years and have made representations on the matter. I approached the Minister's predecessor about this matter and referred to it in a debate on a previous Finance Bill. I am pleased that my representations have borne fruit. I wish to pay tribute to the Minister for seeing the logic of the argument that the system as it existed penalised thrifty local authorities and acted as a discouragement to proper investment by them. It was also ludicrous that the Department of the Environment on the one hand were paying money to local authorities in the form of block grants, road grants and various other grants while another arm of the State was taking it back in this manner.
I welcome the move because it is an indication of the influence backbench Deputies can have on Government policy. By and large the work they do, particularly the work of a Government backbencher, is ignored. However, the inclusion of this section in the Finance Bill underlines the fact that any Member of this House can and does influence the shape of legislation. The tax amnesty of a few years ago was also suggested by a backbench Member.
Having thanked the Minister, let me push my luck and suggest that the exemption should be extended to cover the DIRT. This is specifically excluded under section 9. While I realise this would have revenue implications, the same principle applies to both income tax and the DIRT, one arm of the State gives money out to a local authority while another takes it from them. In the case of the DIRT, the local authorities would be happy to have this apply from 1990 with no retrospection, unlike this provision which is back-dated. This would be a most welcome move and would encourage better investment by local authorities.
During a debate on the Finance Bill our minds are focused on the specific measures being introduced, changes in taxation and the general changes in the method of collecting and assessing taxes but we do not tend to look at the revenue collection system and the role of the Revenue Commissioners. It is only fair to give credit where it is due. Therefore let me say that changes have been made during the past few years which have improved our system of tax collection, but the general feeling among practitioners, tax officials and the general public is that the system simply does not work well. We can collect and are collecting taxes from compliant taxpayers but we do not seem to have a system which gets at the black economy.
Of all the amnesties introduced in the past, only one has really worked and that was the last one which realised a total of abour £700 million; the Revenue Commissioners estimated that it would only raise about £30 million. We all know what happened and now it is being hailed as a great move. Some estimates indicate that only about 5 per cent of that £700 million came from the black economy, the rest coming from taxpayers who had fallen behind and who had been charged larger sums in interest. If that figure of 5 per cent is correct, and it has been quoted to me by a number of sources, it is a very small amount and shows just how far we have to go before we have a proper system of tax collection and targeting of those who avoid and evade paying tax.
The perception many people have is that the morale in tax offices is not very high and personnel feel they do not have enough manpower or the necessary resources or leadership to do the job well. A certain amount of this is rhetoric. I do not know any Government Department or semi-State organisation who will say they have too many personnel. Therefore, we have to take some of that with a grain of salt but there is evidence of dissatisfaction and low morale. An indication of this is the number of high quality staff leaving the tax area to set up in private practice or to return to private business. Given this problem — some may call it a crisis of morale within the Revenue Commissioners — I ask the Minister to consider recommending the appointment of a Minister or Minister of State with sole responsibility for revenue and taxation. If a Minister were appointed in this area, it would give the taxation and revenue area a voice at the Cabinet table. It would raise the status and morale of tax officers and those working in the tax system and would give direction and leadership to many of the fine people we have working there. In addition, it would give the Revenue authorities a much tighter department and the commissioners would have tighter control and better liaision with the various sectors under their control. I cite particularly Customs and Excise and the areas of stamp duty and capital taxes. There seems to be little or no cross-reference between the Customs and Excise service and the income tax people. In the area of capital taxes not everyone who purchases a property has to account for where he or she got the money. That applies particularly to sales of property valued at under £50,000. It strikes me as strange that that stipulation about making returns would not apply to property under £50,000.
A revenue department with sole responsibility for collecting taxes would be better able to organise itself, offer incentives to staff or recruit more staff if necessary to meet specific targets set by the revenue annually. It is no longer justifiable to have an embargo in this area of the public service. Would it not be more productive all around if they were in a position to bargain for more staff in exchange for greater productivity? That way everybody would gain.
Finally on this point, it is fair to say that among practitioners there is a feeling that although the Revenue Commissioners have improved administration considerably there are still serious administrative difficulties which cause delays, foul ups, evasions and avoidance. There is a simple one which affects the taxpayer seriously at the moment. That is the large backlog of income tax repayments due for the year 1988-89. The Revenue Commissioners have acknowledged this and are trying to tackle it and it has arisen basically as a result of the change over to the self assessment system. I accept what the Revenue Commissioners say in relation to the difficulties that this has caused but surely this should have been anticipated before they introduced the system. We all know the audit programme for self assessment has been very slow to get off the ground and that the number of audits carried out was as low as 85 in the first year. That again is an area that could and should be tackled. If the revenue were to be reorganised in the manner I am suggesting, or even if the administrative structure remains the same, there are several improvements that could be made. For example, in New Zealand, they have a tax education office with a manager, technical and secretarial staff and a board, all of whom are drawn from the private sector. This tax education office publishes newsletters, organises seminars, disseminates tax information and gives general advice to tax payers on their tax affairs. Alternatively, instead of setting up such an office local taxation units could be set up to concentrate on dealing with people who may find themselves in difficulties meeting tax requirements. I believe that such a move, either one, would prevent another build up to a tax amnesty situation which, I believe, is growing again with huge backlogs to be cleared.
A second suggestion I would make in this area is that the Revenue Commissioners should publish details of all the non-statutory practices and procedures they have. Everybody knows that there are various practices of a non-statutory nature that have grown up over a period. If these were all published everyone would know the approach being adopted and this would cut out a lot of unnecessary paperwork, correspondence and investigation by accountants and so on to elicit information and it would expedite things.
A third area we should consider is setting targets for the revenue each year. Again this would be desirable, particularly in years when new systems are introduced like the one this year in the Finance Bill, the change to current year tax proposals. Targets should be set for the collection of revenue from this particular system in the year and should be published so that we will be able to judge the performance in relation to the objectives that were set. A lot of the red tape could also be cut out if rulings were issued in advance of proposed business transactions by the Revenue Commissioners. In New Zealand and Canada it is the practice to make such rulings but they are not necessarily binding. They do, however, give business people an idea of what tax régime they will be under and cuts out a lot of unnecessary paperwork later.
Let me turn now to the question of the sub-contractors' authorisation. This is contained in section 17 of the Finance Act, 1970. I mentioned on a previous Finance Bill that it has become increasingly difficult to obtain a certificate of authorisation while the scope of what is termed construction operations has widened. Anyone who has not got a fixed place of business, like an office or a workshop, will not be given the certificate. Somebody who operates from a house-cum-office, and many smaller contractors do this, must at least own the house before he will be granted a certificate. If he is renting the house there must be a formal lease for inspection by the Revenue. An example that I came across was of an individual who was carrying out a lot of plumbing for the county council. He needed an employee and had to meet a wage bill every week. He had his own van, his own equipment. He was single and lived at home. When he went looking for the certificate it was refused on the basis that he had not got a fixed place of business. After a lot of hassle they agreed to issue the certificate provided a formal lease was drawn up between himself and his father for the use of part of the house. If that individual had not obtained the certificate he could not have carried on his business and could not have maintained employment for the employee because his cash flow would not have allowed it with the deductions that are made. In cases where a large amount of materials has to be supplied by a sub-contractor a certificate is vital and that was so in this case. Even if a person is passed on this fixed place of business rule the legislation states that his tax affairs must be in order for the three year period prior to his application.
Another case I came across was where a taxpayer was refused a certificate on the grounds that everything was not up to date during the entire three year period in question. That means that if everybody in the CIF adopts this attitude anybody who is even one day late in a three year period in lodging any type of tax form could be refused a certificate.
A further point on this aspect of the legislation is that it allows no right of appeal in the event of a refusal. I believe this is wrong and unconstitutional and I cannot understand why it has not been challenged. It is certainly against the spirit of the charter of rights issued by the Revenue Commissioners in the past few months which states that a taxpayer has a right to object to a charge to tax or duty if he thinks the law has been applied incorrectly and to ask for the case to be reviewed. If the matter cannot be resolved by the Revenue officials to the satisfaction of the taxpayer, he should have the right in law to an independent review. This is not the case.
I will cite another anomaly in the taxation systen. The rate of tax applicable to deductions on non-registered sub-contractors is 35 per cent, but this was introduced when the standard rate of tax was 35 per cent and I think this should now be reduced in line with the recent reductions in the standard rate of withholding tax on professional fees and the DIRT. I cannot understand why the rate of tax in this case has not been reduced. It seems to be extremely harsh to be deducting tax at the rate of 35 per cent from the VAT inclusive figure billed by the sub-contractor. This contrasts with the deduction of withholding tax, which is deducted from the professional fees paid by Government Departments, where the rate of tax deducted is calculated on the amount before VAT is added. If we do a bit of arithmetic, we see that on a bill of £10,000, there is a difference of £1,375 between the amount paid to a sub-contractor and that paid to an accountant or solicitor. I do not think it is fair that sub-contractors, who are expected to pay VAT on their overheads, have to wait a long time for the repayment of 35 per cent tax. I know this is causing severe cashflow problems. I am confident that the Minister will do something about this as a matter of urgency.
I would like to deal very briefly with the matter of the taxation of elderly people. As I have said before when speaking on social welfare Bills, I am a great believer in making life as easy as possible for our senior citizens, as indeed is everybody else in this House. I believe that our tax system could show a little more regard for them, particularly those who have given life-long service to the State in either the public or the private sector. I have noticed that, because of the substantial increases in social welfare over the past number of years, those in receipt of a private pension in addition to a State pension are now in receipt of a much smaller tax-free allowance because their social welfare pension has been taken into account. While the income exemption limits are very substantial for a married couple over 75 years of age, I think they could be increased a little more for the single widowed person and I would particularly like to see the exemption limits increased for the old aged single person.
There has been quite an amount of discussion of the Government's measures to tackle poverty in the Finance Bill and assertions that the budget did nothing to tackle poverty. The Conference of Major Religious Superiors outlined their three major criticisms of the budget: first, despite appearances social welfare was not given the priority it deserved in the budget; second, there was no commitment to implementing the recommendations of the Commission on Social Welfare; third, the budget was anti-family. I have heard those criticisms repeated in this House by members of the Opposition. I cannot let that go unchallenged. I am very surprised that a body as responsible as the Conference of Major Religious Superiors could lend their weight to such inaccurate and misleading views. I am not happy with them. This Government, more so than most, have accorded the highest priority to social welfare, as can be seen from the substantial increases in the levels of payments as compared with those obtaining in 1986. Long-term unemployment assistance has increased by 42 per cent; the long-term rates for married persons with children have increased by 30 per cent. The cost of the increases implemented over the past few years has been in excess of £175 million.
I do not think anybody could claim that they are the actions of a Government which do not give a high priority to social welfare and to the poor. In his budget speech, the Minister for Finance devoted 12 pages to social welfare, the elderly, the disadvantaged, which comprised 20 per cent of his budget speech. I dare say that is a record in this House and shows the Government's commitment in this area. It is possible to misuse statistics to show that the proportion of the total budget allocated to social welfare has declined in 1990, but it is ludicrous to suggest that this indicates that the Government are not committed to improving the lot of the poorer sections in the community. The truth is that the Government have made great strides in reducing unemployment and improving the delivery of social welfare, which have freed resources which now have been used to give substantial additional benefits to social welfare recipients without imposing additional burdens on the taxpayer.
With regard to the Conference of Major Religious Superiors' second point, the Government have made substantial progress in implementing the recommendations of the Commission on Social Welfare. In addition to improving benefit levels within the scope afforded by the Government's finances, many changes and improvements have been made to the social welfare system as recommended by the commission. These include improvements in the basic level of payments, improved child income support, broadening the insurance base, improvement in the delivery of the service. In this Finance Bill, the introduction of a carer's allowance and the setting up of a new appeals system are in line with the commission's recommendations. The criticism is ill-informed when one considers that the commission's report states quite clearly that their recommendations on the priorities should be implemented over time. The Conference of Major Religious Superiors stated there was no commitment to implementing the recommendations in the Commission on Social Welfare's report but I would ask if they have read the report, when they make a statement like that? There are 65 recommendations and four areas of priority listed in the report and I do not think anybody could argue but that the four priority areas are being followed by the Government at this point in time. In addition 40 of the 65 recommendations have been already fully or partially introduced by the Government, indeed many of them can be introduced only on a gradual basis. Among the recommendations which have not been implemented as yet are the phasing out of the living alone and age allowances, the taxation of short-term benefits, the removal of the ceiling on PRSI contributions and the abolition of the PRSI-tax allowance. I would ask the Conference of Major Religious Superiors if they are advocating that these changes should take place immediately?
Their third criticism was that the budget was anti-family but I can list the increase in the child dependant payments, which have increased substantially over the last three years; child benefit has increased, a new carer's allowance has been introduced and a clothing allowance will be introduced in September. There have been increases for adult dependants and the age limit for child dependants in full-time education has been increased. The free fuel scheme and the free travel scheme have been extended. There have been substantial income tax changes and major improvements in the family income supplement. If that is anti-family, I think many people would be asking for more. As I said, the criticism is unjustified and very unfair.
While I am on the subject of poverty and wealth I would suggest that the introduction of a charitable donations covenant might be a good method of using the tax system to redistribute wealth. This could operate in the same manner as the present education covenant scheme, in other words, a firm or individual could make a formal covenant with a charitable organisation and could claim tax relief on that. We are one of a few countries in Europe that does not have such a system in operation. Such a scheme would have advantages for the taxpayer but it would also benefit many charitable organisations and the people for whom they work. At a time when many charities complain that the national lottery, which is basically a State organisation, is affecting their fund raising efforts, the introduction of such a scheme would be of enormous advantage.
This Finance Bill furthers the economic policies of this and the previous Government, which have proved so successful since 1987. In his speech the Minister referred to the Programme for National Recovery and the benefit that has accrued from it. To have a consensus approach has been of enormous benefit. The role of unions and employers should be recognised and praised. The Government have definitely kept their side of the bargain in relation to tax and pay. They have tackled the national debt and they have looked after the less well off through the social welfare system. The workers have also kept their side of the bargain, sticking by the moderate pay agreement that was reached at that time, but I am not 100 per cent convinced about the employers. They probably have kept the letter of the Programme for National Recovery, but I am not sure about the spirit. Their profits have increased more substantially than the employment they are giving and I would like to see an improvement in employment in the coming year.