The Deputy wants to introduce a PAYE-PRSI allowance for farmers. However, I will explain to the House so the Deputies will understand exactly what I am talking about. This was not cobbled together in a hurry. Deputy Dukes in 1983 was the first to announce the introduction of a current year assessment. I do not know what happened in the meantime. Perhaps, as Deputy Mitchell said earlier, that Government could not get the Department of Finance to fall in with their wishes.
The purpose of the amendment is to extend the PAYE-PRSI allowance, where the full self-employed contribution is paid, to those taxpayers now on a current year basis of assessment. I would like to make it clear that the PAYE allowance is — and always has been — viewed as an allowance for employed taxpayers, those who pay weekly, fortnightly or monthly, and who, generally speaking, discharge their entire tax liability within the year of assessment. The primary reason for the introduction of the allowance was to improve the tax progression for PAYE taxpayers. Notwithstanding the change to a current year basis, it is my view that this consideration is still valid.
The figures for the average tax payments made by the PAYE sector, farmers and other Schedule D sectors in 1980 — the year in which the PAYE allowance was introduced — indicate that the income tax system still bears more heavily on PAYE taxpayers than other sectors. I already referred to the figures in the debate tonight and I will repeat them. In 1980 the average PAYE taxpayer paid about £1,130 and in 1989-90 that figure rose to £3,080. In 1980 farmers paid an average of £597 per head and in 1989-90 the figure rose to £714. In 1980 the other Schedule D people paid £889, a figure which rose to £2,786 in 1989-90. It is quite clear that you cannot differentiate between one area of self-employed and another although some people seem to think I should do so. Somebody raised the question about its constitutionality. The best legal advice has been taken in this regard and the Government have no worries in that regard.
The major beneficiaries of the extension of the PAYE allowance proposed in the amendment are self-employed taxpayers. However, as I stated during the Second Stage debate in the Dáil, notwithstanding the change to a current year basis for the self-employed and certain other taxpayers, important differences will still remain between the income tax regime for PAYE and self-employed taxpayers. It is worthwhile to identify at this stage the main differences.
The self-employed will in general still not be taxed on a current year basis, unlike taxpayers on PAYE. They will be taxed on the profits of their accounts ending in the current tax year. Those who have accounting periods ending early in the tax year will effectively remain on a preceding year tax basis. The tax payment arrangements will continue to be different. Persons on PAYE will satisfy their full tax liability for the year by the end of the tax year.
By contrast, under the new arrangements, self-employed taxpayers need only pay at the end of the tax year either 90 per cent of their current liability or the full amount of their liability for the previous year. The balance will not be due until close to the end of the following tax year.
Farmers have further advantages, including the right to stock relief, which is not available to the PAYE sector. A case could be made for other categories of income now being placed on a current year basis, mainly investment and rental income. Regarding investment income, over the years the income tax code has felt it appropriate to distinguish between the taxation regimes applicable to earned and unearned incomes. Moreover, the tax allowance does not apply to investment income already chargeable on a current year basis. With regard to the recipients of rental income, it should be noted that these taxpayers enjoy the same liberal expenses regime as self-employed taxpayers who are taxed under Case I or II of Schedule D.
I know that most people who spoke do not want to hear the cost of the extension of the PAYE allowance. This allowance could not be confined to the self-employed; it would have to be granted to proprietary directors who, although on PAYE, are not entitled to the allowance. In these circumstances the full year cost to the Exchequer would be almost £85 million. The overall effect would be a major reduction in the tax burden of the self-employed and farmers. In this regard, it was useful to draw the attention of the Deputies — as I did earlier today — to the various percentages paid by different categories.
With regard to the PRSI allowance, the switch to a current year basis does not affect the PRSI rate levied on the self-employer, the employee element of which is well below that paid by the full rate PAYE workers. The employee element in the self-employed contribution rate is 1.8 per cent for 1990-91 which compares to the employee main rate of 5.5 per cent to which the PRSI allowance relates. I should point out in this context that other groups, such as public servants, who do not pay the full employee rate, do not qualify for the PRSI allowance. When we talk about one category we must also look at others. The cost of granting the PRSI allowance in a full year would be approximately £33 million.
I discussed this current year basis with various bodies including the Institute of Taxation and accountants with farming organisations have made representations to me. I also met members of the ICMSA in my own county and we are certainly not unaware of the arguments being made. The treatment of the farming community in this year's budget cannot be ignored. Last year there was a decent increase in the refund of VAT — up to 2 per cent — and this year it is up to 2.3 per cent. There was a problem in restocking in relation to disease eradication and there was a clawback of stock relief which I extended to two years. I have always been pragamatic in my dealings with the farming community but it must be noted that they can avail of stock relief and averaging their income. If we want to talk about equity, are the self-employed prepared to give up their liberal regime in relation to writing off expenses, stock relief and averaging of accounts? That is the only way we will achieve equity. Deputy Connaughton may shake his head but that is the reality.
