Finance Bill, 1990: Committee Stage.

SECTION 1.

Amendment No. 1 is in the names of Deputies Noonan (Limerick East), Rabbitte, Garland and Taylor. Deputy Noonan will move the amendment.

(Limerick East): I move amendment No. 1:

NEW SECTION.

In page 1, before section 1, to insert the following new section:

"1.—Section 6 of the Finance Act, 1987 and section 7 of the Finance Act, 1989 shall not have effect as respects the year 1990-91 and subsequent years assessment."

This amendment seeks to remove section 6 of the Finance Act, 1987 and section 7 of the Finance Act, 1987 with effect from this tax year, 1990-91. In layman's terms the amendment seeks to restore full mortgage interest relief. When the present Commissioner MacSharry was Minister for Finance mortgage interest relief in the Finance Act, 1987 was reduced from 100 per cent to 90 per cent and last year the present Minister for Finance, in section 7 of last year's Finance Act, reduced mortgage interest relief by a further 10 per cent to 80 per cent. When the Minister, Deputy Reynolds, introduced section 7 last year he justified the reduction by pointing out that interest rates had gone down during the course of 1988 and the early part of 1989. Since that section was enacted interest rates have gone up by 4 per cent. That 4 per cent increase has been a very severe imposition on people with large mortgages especially young couples buying their first house and taking out the average mortgage of about £35,000. In simple terms, it means an additional £100 per month for a young couple with the average mortgage. That £1,200 per annum extra must be found after tax and the effect of it is to wipe out gross salary in excess of £2,000 and, depending on one's tax rate, that figure could be £2,500. That is a huge additional sum of money for a young couple to pay back on a mortgage.

I accept that the Minister for Finance does not have full control over interest rates. Statutorily, the fixing of interest rates is a matter for the Central Bank but, of course, they make their decisions against the background of Government policy. The Central Bank have pointed out that they believe a differential of 4 per cent between our rates and West German rates, even though we are tied into the same currency basket, is justified because of the policies being pursued. The Governor of the Central Bank pointed out in the early spring that because our national debt was so high, at more than £25 billion, because the last budget set the minimum acceptable target for Exchequer borrowing requirement in the opinion of the Governor of the Central Bank, because the medium-term target of reducing the national debt to have it equal to the gross national product by 1993 also considered by the Governor to be a soft target — and because, traditionally, inflation rates here have been higher than in the other narrow band EMS countries, that 4 per cent differential between ourselves and German rates will remain.

I would like to see the Minister for Finance firming up on his intent on debt control to see if further interest rate increases in West Germany can be ignored here in the sense that we need not follow on and that the differential can be narrowed. It is difficult to predict interest rates but there is a lot of uncertainty around. Certainly, nobody can guarantee that there will not be a further rise in interest rates by the end of the year with more bad news for mortgage holders. While the Minister has options open to him in terms of macro-economic policies he can relieve some of the burden on mortgage holders by accepting our amendment. It seems to me he can act in two ways. First, he can change some of his policies or firm up on some of them. Secondly, he can also treat the symptom and give some relief to those in need.

This raises other issues such as the whole issue of housing policy here. We have the highest home ownership anywhere in Europe — it is about 85 per cent — and if young couples are not in a position to obtain home loans and meet the repayments on them they will, naturally, go on the public housing list. I am sure the Minister will tell us what our amendment will cost but, in doing the sum, the Minister should tell us the full story. It is false economy if people, as a result of Government policy, are not in a position to buy or build their own houses and must apply to local authorities for housing. The cost of local authority houses is very high; comparatively speaking it is higher than that provided in the private sector.

Another point in regard to housing policy is that, quite frequently, in the long term people do not want to live in locations where local authorities decide to put them. In Dublin, Cork and Limerick many large housing estates are very unpopular, especially if the people relocated to them are from inner city parishes. We should actively pursue a policy of enabling as many people as possible to buy their own homes, and a policy which runs counter to that is neither financially nor socially desirable.

This matter obviously raises a wider issue of taxation policy. It is fashionable at the moment — particularly since the Progressive Democrats outlined their views on taxation — to run with the theory that allowances should be abolished, that the total amount of tax paid is not the issue but whether your marginal rate is 25 per cent, 30 per cent, 40 per cent or 48 per cent. A great debate is now taking place between the Minister for Finance, Deputy Reynolds, and the Minister for Industry and Commerce, Deputy O'Malley, as to whether the top rate should be 40 per cent or 48 per cent. However, the key issue for most taxpayers is the amount they pay and not the rate at which they pay it. In taking into account the amount they pay, the question of allowances must arise. I do not hold with the theory regarding taxation that says if we abolished all the allowances and brought in a much lower rate, everybody would be happier. Nobody seems to take into account that the whole taxpaying community would not be paying any less tax. For some reason, there is an expectation in certain political circles that people would be happier if they paid tax under a different scheme and that we should continue to argue about rates instead of allowances.

Let us examine this matter. There was a proposal by the Progresive Democrats in their Yellow Paper — which preceded their Green Paper before they produced the White Paper — to abolish mortgage interest relief. However, the fright they got from their own supporters knocked that one on the head. However, it is still at the back of the minds of their spokesmen who are not present here today. What will happen if we abolish mortgage interest and life assurance relief? It simply means that there will be a transfer from people who own houses to those who do not. To a large extent, that will mean a transfer from the married person to the single person. The kind of taxation policy which recommends abolishing or reducing mortgage interest relief is really saying that families should pay more tax than single people. They use all sorts of arguments about incentives in the workplace to justify this stance.

Young people in high-earning jobs have some disposable income and they are certainly not as hard up as married couples with children. They tend to spend money on imported consumer goods, and if there are proposals to increase taxation on married couples by abolishing their allowance and reducing the rate to apply to all taxpayers, single people will gain. Their extra disposable income will go on holidays abroad and, to a large extent, on imported goods. It is very hard to quantify these things but we all have enough commonsense to realise that I am speaking the truth. Has the implication of that proposal been considered by the Progressive Democrats who argued for lower rates? A fiscal policy which encourages the importation of consumer goods is not in the national interest. It might sound very old-fashioned to the modern gurus of tax reform to say that only the marginal rate need be considered in terms of economic impact. Before the Minister goes down the road advocated by Progressive Democrat theorists I urge him to look long and hard at the present system of allowances because it did not arise casually.

People were encouraged to provide themselves with their own houses to give them a sense of independence and security and to ensure that they would not be a burden on the State. They were encouraged to save, to insure their lives, and were given tax relief in that regard. It meant that if the earner in the household died his widow and children would not be a burden on the State. People were also given an allowance in respect of pension funds, where up to 15 per cent of gross earnings would be tax free. Again, these people were being prudent and provident so that their dependants would not be a burden on the State. They were also given an allowance so that they could insure themselves against ill health and their VHI payments could be claimed against income tax. There is a wider issue here than that of mortgage interest and it also arises in section 4 where the Minister makes reductions in the relief on insurance. We should have a thorough debate on the merits of the allowance system, because the fashionable economists and commentators regard people who support allowances as some kind of rural dodderers who are not really into the latest fashion tax reform. There is an extremely strong case to be made for the allowance system.

I should like to hear Deputy Rabbitte's argument for having all these allowances at the standard rate because I understand from the Revenue and the Department of Finance that this might not be technically possible unless all allowances were put on a tax credit system at the standard rate. I should also like to hear the Minister's views on that issue.

We need to open up the debate on tax reform because we are not really benefiting people if we simply lower the rate at which they pay taxes and abolish their allowances which really means that some of them pay more tax. Any transfer in that regard goes from those with heavy family expense — life assurance, pension schemes, health insurance or mortgage interest — to the younger segment of the population. This could be single people or the improvident section who make up provision to secure their own futures and you give them the tax break at the expense of the people to whom I referred. I strongly advocate that the Minister accept this amendment. It is true that the great buzz in the house property market has ceased. What I have heard from estate agents over the past six weeks or so is that they are now finding it difficult to sell houses, that they have many on their books and that this trend is related directly to rising interest rates. If the Minister accepted this amendment I predict that houses would be sold quite rapidly again. Last year's figures were improved enormously by the additional stamp duty revenue which accrued to the Exchequer through the boom in the house property market, particularly in Dublin.

I know that this mortgage interest relief becomes more expensive as interest rates rise. I am sure the figure the Minister will give us now will be much higher than it would have been even, say, a year ago. Obviously, as interest rates rise, more and more people get more relief. The Minister should examine this. When replying to Second Stage I think the Minister quibbled with my contention that this might carry a 40 per cent buoyancy. Mortgage relief does carry a very high buoyancy. I contend that what people do not spend on their mortgages will not be put into savings and will be spent very quickly; but if the Minister has a more precise buoyancy figure I will accept that. I do not want to exaggerate or reduce its cost at all.

Basically that is the case I wanted to make. Interest rates are very high with people experiencing greater difficulty in meeting their mortgage repayments. There are some signs that people are going into arrears and that early legal process for repossession has commenced in a number of cases brought to my attention. Then I want to put my argument in the wider context, where do we go with the allowances? Are we going to stand idly by and allow a small group of theorists to claim that the only thing that matters is the percentage at which one pays tax, that the amount does not matter very much, that all these allowances constituted some form of foolishness on the part of our predecessors, that really modern people would not have any interest in granting people allowances to protect themselves from ill health, enable them buy their homes, insure themselves against death and provide pension schemes for their retirement?

Later I should like to join the debate Deputy Noonan has kicked off on the question of allowances. Probably the correct juncture to do so would be on my amendment No. 5.

Deputy Noonan has ranged widely on the amendment with which we are dealing here. I support a great deal of what he said. In approaching this Bill it would be naive to come into the House with a range of amendments expecting they would be taken on board by the Minister, but one can avail of this opportunity to raise certain principles of reform hoping to have a serious debate on them.

On Second Stage I said that my main objection to this section was that it meant the Minister was continuing his policy of going for some tax improvements as distinct from tax reform. I have a straightforward view of my objective. I agree with Deputy Noonan's criticism of the position that has become associated with the Progressive Democrats. In commenting on that I am very conscious how popular that position was at least for a fleeting period of time. People who are burdened by taxation see tremendous attractiveness in people canvassing for a 25 per cent standard rate of income tax. That is extremely attractive and, I believe, accounted for the rise out of nowhere of the Progressive Democrats in the 1987 elections. But, as Deputy Noonan said, when people had time to reflect on its impact on the revenue of the State, on the services and infrastructure that must be provided, on what it meant in terms of their net tax burden, they began to take a slightly more sophisticated view of what constitutes tax reform. While I think the Minister was nodding agreement with Deputy Noonan's analysis, there do seem to be signs that Fianna Fáil are going down the Progressive Democrat's hill heading for a 25 per cent standard rate of income tax as if that, of itself, constituted tax reform. Cosmetically it may appear to do so but, of itself, it is not tax reform.

My view is simple. The Minister is quite free to call it simplistic if he wishes. I will use the figures he gave us — I do not know whether this part of his script reached the Official Report in his reply on Second Stage — when he drew the attention of the House to the fact that the breakdown of the total expected income tax yield for 1990 under the existing system was as follows: PAYE 88.8 per cent; farmers, 1.9 per cent; other self-employed 9.3 per cent. That is where I begin my brief submission now in regard to a system of taxation that brought people in unprecedented numbers — 750,000 — onto the streets advocating tax reform ten years ago when I think the share of income tax borne by the PAYE sector was approximately 89 per cent. The fact that it still stands at 88.8 per cent is where I take up my present submission.

My proposition is that some of that burden must be shifted from the PAYE sector to other, wealth owning sectors and so on. We must remember that, when talking about mortgage interest relief, essentially we are talking about the same people, the people who, in the kind of society Deputy Noonan described as a home ownership one to a very great extent, who have struggled to put a roof over their heads, to go on hock to a building society, are the very same people who contribute that 88.8 per cent tax yield. I contend that any opportunity presented to us throughout the passage of this Bill to shift some of their burden on to others or to render their burden lighter should be availed of.

It is important to remember that in the amendment before us we are talking against the backdrop of circumstances in which there have been no fewer than four increases in interest rates since this Government assumed office, in fact four increases since June last. It is against that backdrop and the extremely onerous penalty it imposes on so many people we have sought the repeal of the relevant sections of the 1987 and 1989 Acts in order to restore mortgage interest relief to 100 per cent.

May I give an example of the type of circumstance to which Deputy Noonan referred in general. I have been receiving a number of letters on this issue, as I am sure has every other Member of the House. I took a particular letter out of a bundle this morning because it illustrates the kind of crisis being created for ordinary taxpayers. From its layout I suspect other Members have received a copy of it. Certainly I suspect that Deputy Taylor, who represents the constituency from which it emanated, will have received a copy. The pertinent paragraph reads as follows:

I am writing to you on the issue of re-instating the 100 per cent tax relief on mortgages. I feel more justified than ever before for calling for this extra relief as increases in the last year have amounted to 4 per cent, a 50 per cent rise in percentage rates and costing me an extra £120 a month. This major increase by all predictions in interest rates is not finished, as you can understand, by the past three years and was not predictable at all. Therefore I would suggest an interim measure during a period of high interest rates over and above a certain interest rate figure to enable a stepped interest rate to be provided ...

The writer goes on to specify a particular stepped interest rate relief. That letter is typical of the experience of a number of people in our constituency of Dublin South-West. It is also a good illustration of where the shoe pinches.

I understand amendment No. 2 has been ruled out of order. Whatever difficulties one may have had, and there were many, in coming to grips with the complexity of this Bill over a short period I should say I have not yet managed to grasp what is and is not permitted. What amendment will or will not be acceptable is arcane. What we are going for in tax reform does not reflect itself in the form of simplicity in the Finance Bill. I plead with the Minister to produce legislation next year which co-ordinates the existing legislation, as it is beyond my scope as spokesperson for my party; perhaps other spokespersons, who in any event need it less than I do, can avail of expert advice which is not available to me to trace the complexity, background and so on.

(Limerick East): There would be massive redundancies if it was simplified.

Amendment No. 2, which, as I say, has been ruled out of order, initially formed part of amendment No. 1, in other words there was a part (a) and part (b). The thinking behind the amendment was, having regard to the principle of equity, that there should be an attempt to be more egalitarian in dispensing mortgage interest relief to those who most need it. I toyed with a number of options. One of these options was to take an arbitrary interest rate of, say, 10 per cent and apply 100 per cent relief for as long as interest rates remained above 10 per cent. That is one possible construction but it might only introduce other complications.

The option The Workers' Party ultimately agreed on is the better one as it is in keeping with the wish to distribute the burden in such a way that there would be positive discrimination in favour of those on lower incomes. They went for a system where the existing limit of 80 per cent of £4,000 would not apply. The reality in the marketplace at present is that a £40,000 mortgage is not unusual. The latest figures from the Department of the Environment suggest that the average mortgage is £33,500 to £35,000. Therefore a £40,000 mortgage is no longer unusual. What I am arguing for is that interest relief should be applied up to that level of £40,000 at the standard rate, in other words, people on lower incomes would benefit disproportionately as a result of additional relief on mortgages being given.

One could do a range of calculations using this formula and one would find that the position of those at the marginal rates of tax would be slightly worse than it is under the present system, but for those not on the marginal rates of tax there would be a definite benefit to be gained. It is important so far as possible that the tax changes we introduce are progressive rather than regressive; in other words, they ought to help people on lower incomes rather than people on higher incomes. It is difficult to do this in practice and it raises the question which Deputy Noonan has referred to of tax allowances as compared to tax credits. That is a question we will deal with later but new mortgages for whom the mortgage limit I instance here is not unusual ought to be given full relief at the standard rate. I accept that the amendment has been ruled out of order and that we are dealing with amendment No. 1 but it is imperative that the Minister take on board the views being expressed.

Perhaps Deputy Noonan has less experience of this than I have but I am not saying this would lead to a reduction in the number of homes being repossessed. Deputy Noonan referred to this as an incipient phenomenon. The fact is that in my constituency this is an extremely serious social fact of life which I am sure Deputy Taylor will testify to in a few moments. Both Deputy Taylor and I are members of Dublin County Council. I do not know whether he has figures in front of him but at every council meeting during the past year and a half we have had to deal with no less than 25 requests to repossess homes and put them back on the market as a result of people being unable to meet repayments on their mortgages.

I have the greatest reservations about the HFA system. It is extremely punitive and many people took out loans in the belief that they could handle them but, to their sadness, they have become casualties and are unable to keep up their payments. The repossession of homes is an increasing phenomenon. I personally am mediating on behalf of six couples with the HFA and two building societies. I am not saying we will tackle that phenomenon by merely extending mortgage interest relief, as it is more complex than that, but nonetheless it shows the reality with people having difficulty in keeping up their repayments.

It is important that the Minister rethink his position and give relief to people in a particular category who are liable for every tax that comes their way and who get very little benefit of any kind. This would be, in effect, a progressive change.

The Labour Party support this amendment. I do not want to go over any of the ground covered by Deputy Noonan and Deputy Rabbitte except to say that I agree with most of what they said. The amendment deals with the question of mortgage interest relief, which now stands at 80 per cent of a maximum figure. The reality for people living in average homes is that some are in danger of losing their homes, at the suit of local authorities and building societies; not a high proportion perhaps but to anybody hit by this it is a traumatic experience. There are many frightened people and families out there.

Apart from those who are put to the extremity of actually losing their homes there is a very much larger number whose living standards have been eaten away by this provision. The increases in their mortgage repayments have bitten deep into the nett family income and their everyday needs for food, clothing, education, transport and so on have been seriously prejudiced. There have been serious drops in living standards among many thousands of people up and down this country as a result and that is an indeniable fact. I am talking about unemployed people, people on low incomes and also people on middle incomes who have been very badly hit in this way. People on reasonably good incomes have been hammered as a result of these interest rate increases; their mortgage repayments have gone up by £20 to £25 a week in many cases and that has a very serious impact.

Part of the problem is that the relief is not given on 100 per cent of what is paid up to the overall maximum and part is the fact that the interest rates at present are far higher than they should be when the rate of inflation is taken into account. I know the old saying that interest rates are not the responsibility of the Minister for Finance and at times he puts the responsibility onto the back of the Central Bank. I know that theoretically the Central Bank gives the directives to alter interest rates. Everybody knows well enough, however, that it is the Minister's policies that dictate interest rates. The Minister conceded that himself to a large extent in his reply to the Second Stage of the Finance Bill when he said "there is no doubt that the fiscal and economic policies pursued since 1987 by the Government have exerted a major positive influence on interest rates". He is saying that it is his own economic policies that have produced the present position, and that it is a deliberate act of policy on the part of the Government to maintain those high interest rates. In the same reply he said the reason for this was to provide a high exchange rate for the punt. We know that is desirable in some respects but it has a down side for exporters. The other reason he gives for maintaining such unreasonably high interest rates is to maintain the position of the external reserves, currency movements and so on. Looking at the figures as they are at present it seems that the external reserves are healthy enough to warrant a reduction in interest rates. I am very sure that if the Minister gave the appropriate signal to the Central Bank they would be very happy to oblige. Such a reduction in interest rates would be a major boost to so many people whose living standards are being eaten away not only in the context of home loans but of obtaining finance to buy fridges, motor cars and so on. It would be a boon to traders and business people many of whom are trying to struggle with difficulties and maintain the employment they give in those industries.

The amendment itself is not in quite the format I would have wished. The issue should not be simply one of restoring the interest level. It should be tied in, as Deputy Rabbitte said, to an upper limit provision. I see no particular need to afford concessions to people who are involved in buying out homes costing anything from £100,000 to £200,000 and many homes in the country are going for such prices and higher. Anybody who can afford to buy a home in that price range can carry their own position so far as tax and allowances are concerned.

Likewise the question of whether the allowance should be at the standard rate or not arises. I understand and sympathise with the thinking behind Deputy Rabbitte's amendment which was ruled out of order. However, I would not have been supporting it had it not been ruled out of order in the present tax regime we have. If the tax regime was reformed and was on a more equitable basis that amendment would have been appropriate but in the present tax regime we have, unfortunately, to deal with this issue on a more simplistic basis. For that reason we will be supporting the amendment in the name of Deputy Noonan and others when it comes to be voted on.

Normally I would be calling Deputy McCreevy but the Chair feels an obligation to call, in the first instance, Deputies whose names are appended to this amendment. I will call the Deputy afterwards. I must now call on Deputy Roger Garland.

I will not detain the House long on this amendment because it has been adequately dealt with by the three previous speakers. I completely agree with the arguments put forward by all the speakers about the necessity to encourage home ownership so that the cost of providing homes does not fall on local authorities and thereby on the taxpayers. It is essential that this relief be given on 100 per cent of what is paid, bearing in mind the huge and frequent increases in interest rates.

Any relief will be costly and we must look at it in conjunction with the budget deficit which is substantial. It is admittedly considerably reduced from previous years but nevertheless is very serious matter. This deficit arises as a result, of course, of very bad housekeeping over a number of years by all the parties in this House with the exception of The Workers' Party. However, I do not want to stray too far down that road except to say that I totally agree with Deputy Rabbitte's amendment which has been ruled out of order. It was proposing that this relief be at the standard rate. The reason I have not put down an amendment on that is that I would like to have all the allowances at the standard rate but, as in the case of Deputy Rabbitte's amendment, my amendment to that effect has been ruled out of order. This is a result of the arcane procedures of this House. If mortgage interest relief were given up to 100 per cent, which ought to be the case, subject to the statutory limit already in force and if the allowance were at the standard rate only, there would probably be no cost to the Exchequer. That is a very serious matter. Neither Deputy Noonan nor Deputy Taylor has said anything about how much this relief will cost or how it will be paid for. We must have a sense of responsibility. There is an obligation on Opposition speakers to make it quite clear how they think concessions are to be paid for.

I agree with Deputy Rabbitte about the complexity of the present Finance Bill. There has been no Finance Consolidation Act since 1967 and that matter has been brought up at Question Time on a number of occasions in my period in the Dáil. There have been Finance Bills every year since then — in some years there were two Finance Bills. This Finance Bill is a monstrous piece of legislation. The Revenue Commissioners issue pages of amendments to the Finance Consolidation Act but it would take an Einstein, with all the Acts that have been passed in the meantime — the wealth tax was abolished, changes were made in the capital gains tax and so on — to understand the whole matter. The more time that passes the more difficult it will be to draft another consolidation Bill.

I know the people in the Department of Finance and the Revenue Commissioners have a lot of work to do but I would appeal to the Minister to do something in this regard and to start working on it now because it will take at least three years to complete such a job. This Finance Bill is probably the biggest for a number of years. As I said, it is impossible to follow the Finance Consolidation Act because so many changes have been made. If the Minister would introduce another such Bill he would be congratulated by all tax practitioners, accountants and the general public. The Revenue Commissioners or the Department of Finance do not seem to have the staff, the time or the inclination to do this but perhaps extra people could be taken on to do the job.

Everybody seems to be in favour of amendment No. 1. We would all like to receive as many allowances as possible and to pay as little tax as possible. However, I would like to address the question of tax reform which was raised by Deputy Rabbitte. I have spoken on this subject on many occasions in the past two years. Political parties on all sides of this House speak about tax reform but basically what we talk about are tax reductions, which is not tax reform. Of course, the reason for this is that it is electorally attractive.

The party now in Government have had many good ideas and should be complimented on them but some years ago they produced a policy of very low rates of taxation. The country's finances were chronic at the time and we could not see the tunnel, never mind the light at the end of it. This party proposed a system of tax reform to reduce the tax rates to 25 or 20 per cent and 40 per cent. At the time I said why not do away with tax altogether? The danger in introducing such policies is that all the other political parties have to respond to that type of nonsense.

My own party should have learned from the 1977 experience that tax reductions do nothing but lead us into a terrible mess downstream. They are electorally attractive only to the people who are working. They are not attractive to the unemployed who do not pay car tax, income tax or benefit from reduced income tax rates.

When changes were made in car tax in 1977 they were of no benefit to people without cars. Likewise, reducing income tax from, say, 35 per cent to 30 per cent, 20 per cent or even 10 per cent, will not benefit people who are not working because they do not pay income tax, but it is very attractive to the middle class and those who are working.

What I am saying now is not electorally attractive but there must be a little common sense in this whole area. Reducing tax rates is dangerous because as sure as night follows day when it comes to an election Fine Gael will have to respond with something better, then Fianna Fáil will reply with something better again and The Workers' Party and Labour will have to do even better. If we learned anything in the last 13 years it should be that to reduce tax is dangerous. I hope the Minister for Finance, despite pressure from within the Cabinet or anywhere else, will have enough gumption — which he has proved to have so far — not to go down that road.

I am, and have been for a number of years, in favour of giving people incentives to work and of having tax rates as low as possible but we cannot do everything overnight. There are two reasons for having tax rates: firstly to redistribute wealth, which I am sure Deputy Rabbitte would favour, and secondly, to keep the machinery of the State in motion. I am also in favour of the State keeping out of things as much as possible and I would disagree with Labour and The Workers Party in that regard. If we reduced the cost of running the country, we could reduce the tax rates but the budget deficit that built up in the seventies still exists. We have not reached the promised land in terms of the public finances. It would be a big mistake if we did not keep on the brakes in 1990 and 1991 as we did in 1987, 1988 and 1989. It would be a mistake to say that the financial problem is solved and to start reducing tax. That would cause as much confusion in two years' time as there was in the eighties.

Has any debate taken place in the public arena about what is so sacrosanct in having a 48 per cent tax rate? The only reason for suggesting such a reduction is that it is electorally attractive for all parties. When tax rates are greater than 50 per cent it is a disincentive because people are taking home less than half of their earnings. I would like a debate about what is so great in having a 40 per cent rate of tax, as has been mentioned by some politicians in this House — I am not referring to those on my left. We should get the public finances in order, reduce borrowing and restore stability. We should try to eliminate the current budget deficit because there is no merit in it. The original idea of a current budget deficit in the early seventies was to stimulate the economy, but it has become an endemic part of Irish financial life. It should be the aim of the Government in the next budget to eliminate the current budget deficit but it would not be possible to eliminate borrowing in the next budget. If the Government continue to reduce tax rates as a result of pressure or whatever, we will end up in a financial mess again.

It has been proved that people will not allow you to give something and then take it back. Therefore, politicians try not to attempt anything of that kind but the Minister for Finance, despite the pressure that may be brought to bear on him, should introduce a programme to eliminate the current budget deficit even if that means not further reducing tax rates. He would be remembered for many years afterwards for doing the responsible thing. The Minister would not benefit from doing the popular thing but he would be blamed in the years to come if the State's finances were to go off the rails.

I am one of the Members who was in favour of the Government policy since 1987. I was long preaching it in fact since 1980 when it was against the views of members in my own party. As the public finances are now in some sort of order, surely extra services and tax relief should go to the people who have suffered most, the people in Tallaght, the people who have no jobs, the people who receive a bad health service or the people who have been affected by cuts in social welfare. Surely it is commonsense to do that.

I remember when all interest payments were allowable against income tax and that was not too many years ago, but they have been progressively restricted over the years. In the early eighties ordinary interest payments, for example, interest on overdrafts, ceased to be allowed against income tax. Later the Government tampered with the interest relief on mortgage payments. I think there are two roads that any Minister can go down with regard to mortgage interest relief — he looks at the proposals of the Commission on Taxation and abolishes reliefs of all kinds and then has very low tax rates. In Australia they have done that: they have abolished most allowances but they have low tax rates. That is really what the Commission on Taxation suggested — the abolition of relief on VHI payments, mortgage interest etc., combined with low taxes. On the other hand, we have built up a system of allowances for mortgage interest payments, VHI and life assurance and people have entered into commitments based on these allowances but now we are starting to restrict them.

The upper ceiling of £4,000 on mortgage interest relief has been set for a number of years but two years ago it was reduced to 90 per cent of £4,000 and last year to 80 per cent of £4,000. It is quite true, as other Members have said, that people are in serious difficulties because of the high interest rates and they now face the possibility of their homes being repossessed. The Minister for the Environment will have to deal with this problem.

Parts of my constituency closely resemble some Dublin constituencies and Kildare County Council, acting as agent for the Housing Finance Agency are bogged down sending out eviction orders and repossession orders. The unfortunate thing about the housing finance scheme — it may have been a Minister on our side of the House or perhaps it was an Opposition Member who had very grave doubts about this scheme — is that the idea was very good, but there were doubts as to whether people would get into difficulties. That has now happened and unfortunately the local authority, acting as agent for the Housing Finance Agency, have no discretion to make arrangements to take the people out of their houses and rehouse them in a local authority house. This is a great problem in my constituency.

I would love to see mortgage interest relief on a £4,000 minimum. I know this would involve extra cost and that is the reason the Minister cannot go along with the idea. I believe that mortgage interest relief should be allowed on interest payments of £4,000 at the higher rate or unrestricted mortgage interest at the standard rate.

I do not agree with what Deputy Rabbitte proposed in amendment No. 2, which was ruled out of order, that is, that restricting mortgage interest relief to the standard rate of tax on mortgages up to £40,000, will help the low income taxpayer, because that person would not be able to get a mortgage of £40,000 in any event. In effect, his amendment would help very few people. I do not agree that mortgage interest relief should be restricted to the standard rate of tax. I see no merit in that suggestion and I think it is a false premise to say that it will help the lower paid.

Over the years Government policy has been to encourage home ownership. Local authority tenants can avail of a tenant purchase scheme after they have been in their house for a number of years. We have the highest ratio of home ownership in Europe. It is an Irish trait that people want to own their own home. I think that is a good thing. I am in favour of giving interest relief on at least £4,000 and if possible I would prefer to see it unrestricted, but I realise that there is a cost involved.

With rising interest rates over the past year, I am sure the Minister and others are aware that many people face difficulties in meeting their mortgage repayments. Has anyone ever noticed the level of aggression at the doorsteps when canvassing the new middle class homes at election time? The places I dread canvassing at election time are the new middle class houses, and we have a great many of them in the north and middle of Kildare. I would prefer to go to what people might term as rougher areas but where the people have been settled for a number of years. You can have a camaraderie with them and have great crack even though they experience other social problems. However, I have noticed over the years that you meet a level of aggression at the doorsteps in new middle class estates, they just want to fight with someone and you happen to come along. I have always put this down to the pressure they face due to meeting repayments in the early years of their marriage. If you go back to those same houses in eight or ten years time, the estates have become more settled and the level of aggression has diminished. They still may not wish to vote for you, but that is beside the point, but they do not eat you.

With the rise in interest rates last year there are thousands of people under considerable pressure. Interest rates have gone up at least four times in the past year. I believe there is some merit in restoring mortgage interest relief to 100 per cent over the next couple of years. I can see the trend in the Department of Finance. They reduced the relief on mortgage interest to 90 per cent of £4,000 and then they reduced it to 80 per cent of £4,000 with the idea of gradually getting rid of it altogether. It is obvious to me that this is the thinking in the Department of Finance and whether Deputy Reynolds, Deputy Noonan, or Deputy Rabbitte is Minister for Finance that will be the way the Department think because that is the way the Department will continue no matter what party are in power.

Interest rates are very high and I look forward to the day when there will be unlimited competition in the financial market from all the European banks or banks from any other country. I believe that what is operating, and what has always operated despite the protestations of some years ago, is a cartel. There is supposed to be free and open competition but I believe the cartel operates because the differential between the lending rate and the deposit rate is too great. However, this is a matter for debate for another day.

The Chair has given a lot of latitude in respect of this amendment for a variety of reasons, primarily because there is a time limit and the Chair takes the view that Members are the best judges as to how to utilise their time. I must dissuade Members from embarking on Second Stage speeches.

I thank you, Sir for your indulgence. I am in sympathy with the amendment tabled by Deputy Noonan and others. However, I know the Minister and the Department will not be able to agree to it because of the cost involved. It would not surprise me if income tax revenue was down from the projected figure this year. This is my personal opinion. I know we will not be agreeing to the amendment, but I see a lot of merit in it. I wish to thank the Ceann Comhairle for allowing me to go on at some length with what may have seemed like a Second Stage speech but I was not here for that Stage.

I thank all the Deputies who have made constructive contributions in relation to this amendment and in relation to the whole income tax area generally. I know we will be coming to it in more detail later but various points were raised and it is no harm to respond to some of these at this stage. I will deal with the various comments but I want to assure the House, and Deputy McCreevy, in particular, that I have no intention of throwing away the common sense approach that has stuck with me for a number of years in relation to how I deal with any particular matter. I have no intention of changing direction in relation to this matter either. I have said repeatedly that I will not follow the Nigel Lawson line of drastically reducing income tax rates to create a boom in consumption that consequently puts back up interest rates and makes people much worse off at the end of the day than they were before. The Irish economy is not in that position and, even if it were, I would not contemplate taking that route. It should be emphasised again that our problems are not behind us. We are starting to solve them but we have a long way to go. Regardless of what Government are in office there is no question of making the kind of wild promises that were made in the past. There is no Utopia and anyone who thinks there is had better think again.

What is happening in relation to this amendment and, indeed, to the debate generally about mortgage interest rates — I will come to the details later — is that people are looking only at part of the problem. The kinds of difficulties referred to by Deputy Noonan and others would not be resolved by a restoration of mortgage interest relief to its previous 100 per cent level.

It would be a help.

It is only a small part of the problem. The Deputy must not have been listening to Deputy Garland when he talked about responsibility in the House. Nobody has said where we would get the £55 million which restoration of the relief to its original level would cost in a year. Most of the extra money people are paying in mortgage repayments is as a result of the interest rate increases last year. That is the nub of the problem. Deputy Taylor quoted selectively, as usual, from the Second Stage response. He spoke on the lines that the Minister likes to pass the problem over to the Central Bank, that he does not have responsibility for interest rates. That is not my choice. The House has given the statutory power to the Central Bank to regulate the monetary policy of this country. I have no power — and this House has never given power to any Minister for Finance — to direct the Central Bank to either bring down interest rates or to increase them.

That is what the Minister said in his speech.

The effect of Government policy on the level of interest rates is the important thing. That is the reason this Government, as was the case of the previous Fianna Fáil Government, have been following a policy of creating an environment in which interest rates could come down. We got them down to a very low level. I do not think anybody believed that in the volatile world we live in, they would remain so. Interest rates increased four times last year and that is what has created the problem for the people represented by Deputy Noonan, Deputy Rabbitte, Deputy Taylor, Deputy Garland and Deputy McCreevy. The solution does not lie in what the Deputies have proposed here.

We all know that interest rates used to be the instrument for bringing down inflation; now it is used for a different purpose, to stop flows of capital from one country to another. Because of 1992 — the achievement of the Single Market and the full release of capital movements — it may well be that in future interest rates will be used more and more in that regard or it may be that, when there is a free flow of capital, when our largest single trading partner, the UK, is a participant in the ERM and the EMS, there will be less volatility. I have no intention of looking into the crystal ball and trying to project what will happen. There are many commentators trying to give views on what may or may not happen interest rates in the future. I will give the detail as I see it now.

I would like to respond briefly to some of the arguments made in relation to tax reform. We will be coming to that later and it may give some people something to chew on. For many years there has been much talk of tax reform but no action. In three short years we have implemented significant reforms centred on major reductions in income tax. Deputy McCreevy and others are right in saying that many people have talked over a number of years in relation to tax reform but in effect what they are really talking about are tax reductions. When one tries to do something with tax reform everybody cries foul, asking for restoration and so on. Everybody wants tax reductions but nobody wants to engage themselves in tax reform. As Deputy McCreevy rightly said, once something that has existed is reduced or removed, the electorate and Opposition Deputies from whatever party will always cry, during the course of a Finance Bill or a budget debate, to have it restored. The reasons being given for restoration of the concession in the case in question are different from what they were when the concession was being granted originally, that was, to reduce the income tax burden while also bringing about a reduction in interest rates.

I want to recall the situation that existed in 1987. The Government who came to power in that year found the financial situation so bleak that no income tax relief could be provided. This was not just the view of the incoming Government: it was also the view of the outgoing Government, as was shown by their budget proposals of January 1987 which contained no provision for income tax relief.

I also want to recall to Deputies the principal features of the income tax structure obtaining in 1987. The exemption limit for a married couple then was £5,300, regardless of the number of children they had. The standard rate was 35 per cent and it stood at that that figure for 20 years. The standard rate band was £4,700 for a single person and £9,400 for a married couple. The top rate of tax was 58 per cent. In 1987-88 only about 56 per cent of taxpayers were paying at the standard rate. In short, we had an income tax system without special provision for the low paid, with a high standard rate being paid by less than 60 per cent of all taxpayers and well over 40 per cent on even higher rates of tax.

The Government set out to tackle the problem by taking determined and rigorous action. The first target was public finances; by getting these under control it was possible to consider doing something about our income tax system.

In the autumn of 1987 we negotiated the Programme for National Recovery which has been the cornerstone of our economic progress over the past three years. A feature of the programme was the commitment to introduce income tax reliefs worth £225 million on a cumulative basis over the three years of the programme and, within that provision, to make significant progress towards having two-thirds of taxpayers taxed at no more than the standard rate. Significant progress has been made since then and not just in relation to the number paying tax at the standard rate.

Progress began in the 1988 budget which provided reliefs worth some £400 million over the period of the programme and increased to 63 per cent the percentage of taxpayers paying tax at no more than the standard rate. The 1989 budget introduced a number of new elements. The process of cutting tax rates was begun. For the first time in 20 years the tax rate was reduced in the 1989 budget from 35 per cent to 32 per cent. That, as I said then, was the first step in cutting the personal rates of tax which all of us agreed were too high, which are still too high, but we have to be realistic and use common sense in our approach to this question. As the House is aware, we have continued along that road again this year. In addition, special measures were introduced in the 1989 budget to help the low paid. I increased the general exemption limit by £500 for a married couple and introduced a child allowance of £200 in conjunction with the exemption limits. The standard rate band was extended by £400 for a single person and £800 for a married couple, amounts sufficient to maintain at least 63 per cent of the number of taxpayers at the standard rate.

This year I carried the process of reform a stage further. I again increased the exemption limit for a married couple by £400, bringing it to £6,500; I also increased the child addition to £300 per child. The percentage of taxpayers paying at no more than the standard rate was maintained at 63 per cent. Finally, of course, the top tax rate was reduced to 53 per cent and the standard rate cut to 30 per cent.

What these figures mean is that, within a short space of time, a great deal has been done to transform the income tax structure inherited in 1987. Special measures have been introduced to help low paid taxpayers, especially those with children. The standard tax rate has been reduced to 30 per cent. The top rate of tax has also been reduced. Progressively tax has been moderated and now not far from two-thirds of taxpayers pay at the standard rate. Over the past three budgets over £800 million worth of income tax reliefs on a cumulative basis have been introduced compared with the £225 million commitment contained in the Programme for National Recovery.

Of course the Government do not propose to stop there. Substantial progress has been made on income tax but more is needed. The income tax system is still acting as a disincentive to effort and income tax rates are too high. The Programme for Government recognises these difficulties and commits the Government to further reducing the standard rate to 25 per cent by 1993 and to moving towards a single higher rate of tax. Deputy McCreevy asked what was sacrosanct about any of the top rates. Nothing is sacrosanct about them. I think everybody in this House would like to see them being as low as possible so that there would be a greater incentive to work. I can say to the House what I have always said, that we have to be consistent, and whatever rates the economy can afford, those are the rates any responsible Minister for Finance will bring in in his annual budget.

The changes I have mentioned are the objective of the present Government and will be continued and brought about in the same way as changes heretofore have been brought about, by sustained and concentrated action. They will result in an income tax system substantially better than the one we have now and transformed out of all recognition from the system inherited in 1987. The Government are firmly committed to this process and will carry it out just as effectively as we have carried out substantial improvements in recent years. I do not mind getting proposals from anybody: as long as they are not wild statements, are properly costed and show where the money is coming from, I will look at them. I do not care whether they are from people inside or outside this House, but I will not make the mistakes made by a former Finance Minister across the water who got their economy into such deep trouble as it is in now and will take some time to get out of. I have no intention of doing that and will resist any moves to do so.

A few figures are worth dwelling on. Deputy Rabbitte rightly quotes the figures I gave in response to questions on Second Stage about the numbers of PAYE people and the percentage of tax they are paying. The figures he quoted are accurate. It is important to dissect those figures and see what we are talking about. We will take them approximately. There are 100,000 people between farmers and self-employed. There are 846,000 taxpayers in total. Take 100,000 from that and we are talking about an 8:1 ratio of PAYE versus self-employed, including farmers. That is the relativity and is going to be maintained. If you have seven or eight more PAYE taxpayers, inevitably they are going to pay more, so it is foolish to try to say——

They are not relative in wealth terms.

I am coming to the second part of the statistics and the Deputy can think about that.

I have thought about it.

It is not the one-way traffic the Deputy might think it is. I do not believe in the way these figures have been produced. I am trying to get them changed so that we will get a better view of who is paying what.

Even taking it pro rata the proportion of PAYE——

The Deputies will have their chance.

The Deputy is talking about relativity. I will give the average, taking the numbers and the total paid. The average paid by a PAYE taxpayer in 1990 will be £3,080. The average for those under schedule D, the self-employed, will be £2,786 and the average for the farmer in between is £714. That gives a better insight into the real figures. We will come back to that later, but it is no harm to present the figures. Irrespective of how you want to toss out figures, the relativity on numbers will be there. The amount of money paid by PAYE taxpayers will always be a high proportion of the total tax because of the numbers. What distorts the figures and does not give us the proper information is that many people are self-employed and directors in small companies are in the PAYE net anyway and are not separated out of it. It is not really the true figure because you do not have a breakdown of the proportion of self-employed people, directors of small companies, proprietary directors and so on, who are on PAYE. The proportionality and relativity are worth looking at. Unfortunately, we do not have the statistics that could give us a total, but at least it is no harm to look at it.

I might as well give the House some information on another input into the debate, that is the likely impact on taxpayers of the tax credit system that has been discussed and debated from time to time. The main argument put forward over that period in favour of tax credit is that the tax credit 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 it would provide relief for those on lower 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 the 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 the higher rates. If the present system were replaced by a tax credit system, and if there was no compensating increase in the amounts of the personal allowance given in the form of tax credits or adjustments of the rate bands, some 63 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 allowance or deductions are converted from deductions at his marginal rate of tax through 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 allowance, but it could not be justified in the context of the tax rate structure which imposes the higher rates on a person having less than an average wage. Change over to tax credits would bear relatively more heavily on those with modest and middle incomes than the better off, precisely because of the problem of the bands and the low amount of money on which people come into the various tax nets. The Deputy need not shake his head. I know there was a commitment in Fine Gael to tax credits, I know it was given by various Governments, but they found when they went into Government it just did not work the way they were trying to tell people it was going to work. There is the problem. Perhaps I could leave this till later on, but if the Deputy wants me to I will go on. It will focus the debate on the administrative nightmare of that.

(Limerick East): I would like to hear it now.

The administrative nightmare is another aspect that nobody thought seriously about when they put forward this system. The switch to tax credits, even on a limited basis in respect, say, of the main personal allowance — that is for single, widowed and married — would impose a very heavy administrative burden on employers and on the Revenue Commissioners, as it could not be drafted onto an existing income tax system without great complication — mind you, it is complicated enough as we discuss it here today. For operational purposes, under the present computer based PAYE system, the credits would have to be converted back into allowances at each taxpayer's marginal rate, and employers would be required to operate additional PAYE tables. The existing rate structure has six PAYE tables. To provide the same coverage under a tax credit system in respect of the main personal allowances for single, widowed and married would require nine tables. A mixed system involving allowances and tax credits in respect of more than the main personal allowances would result in a proliferation of tax tables. For example, if tax credits were substituted for the PAYE and PRSI allowances in addition to the main personal allowances it would require 36 tax tables to cater for the permutations of the availability and non-availability of these allowances. If non-standard deductions such as mortgage interest relief were given as tax credits, the number of tax tables would be further multiplied. It would not be possible to increase the number of tax tables from the present six to anything like the number required without introducing substantial changes to the whole revenue administration, in particular to its computer system and without considerably advanced planning by employers.

In their payroll systems employers use either tax deduction cards supplied by the Revenue Commissioners or various forms for commercially designed clerical, electronic and computer systems. The provision of a large number of alternative tax tables would be excessively demanding on the designers of all such systems. There are now on record in the region of 7,600 employers catering for over 830,000 in employment using some form of commercial design system, which gives some indication of the implications of the complexity associated with that multiplicity of tax tables that I have talked about. The operation in practice of so many options would undoubtedly be prone to error, generate large-scale demands for end of year reviews and lead to substantial losses of revenue. Apart from the practical problems, it would be well-nigh impossible for either employers or Revenue junior staff to understand the reasoning behind such a variety of tables and allowances and differing ceilings of taxable incomes at each rate. Already it is confusing enough for taxpayers — a view expressed by some Members — when they see the changes in tax-free allowances which vary with alterations in their earnings and marginal tax rates. That gives some insight into the complexities involved.

Deputies Rabbitte and McCreevy referred to the question of consolidation. I am sure other Members do not disagree with the views put forward by them but, again, we must be realistic and keep our feet on the ground. It is fair to argue that the time is not opportune to consider consolidation given the major changes that are taking place in our tax codes. The Finance Act, 1988, introduced new arrangements with regard to returns, assessments, tax payments and appeals. Those measures, which have been described as constituting the most radical improvement in the administrative system since the introduction of PAYE will have on ongoing impact on the taxation system for a number of years to come. Provisions were extended to companies last year — the self-assessment — and this year we are providing for a move to a current year basis of assessment for incomes which up to now have been assessed on a preceding year basis.

There will, hopefully, be further developments of the system in future years. For example, I have already signalled my belief that the self-assessment system should be mandatory when circumstances permit. To consolidate tax law in the light of these ongoing radical changes would not make any real sense. In the circumstances there is no alternative in the medium term to leaving the tax law in its present unwieldy form, as admitted by all. When the system settles down, having acquired a structure that is likely to prove reasonably long-term, the question of consolidation can then be addressed. With the major changes taking place in the system, and resources being transferred from one area to another, this is not the time to engage in that exercise.

The purpose of the amendment is to secure that the restrictions on mortgage interest relief imposed by section 6 of the Finance Act, 1987, and section 7 of the Finance Act, 1989, currently standing at 80 per cent of the amount which would otherwise be allowable, will not apply for 1990-91 and subsequent years of assessment. In other word, the amendment seeks the restoration of mortgage interest relief to its pre-1987 level. To restore mortgage interest relief to the levels which obtained prior to the introduction of the restrictions would cost an additional £31 million in 1990 and £55 million in a full year. I have already explained on Second Stage why I do not propose to restore the relief to its pre-1987 level but in view of the amendment now before us I would like to remind the House of my reasons for this.

The reduction of mortgage interest relief to 80 per cent must be seen in the context of the major progress made in reducing income tax in recent years. Taking the 1988, 1989 and 1990 budgets together, the general exemption limits have been increased from £2,650 to £3,250 for a single person and from £5,300 to £6,500 for a married couple. A child addition was introduced in conjunction with those limits and now stands at £300 per child: this innovation was aimed specifically at low income taxpayers with family responsibilities. The standard rate tax band has been widened by £1,800 for a single person and £3,600 for a married couple, so that 63 per cent of taxpayers are paying tax at the standard rate compared with less than 56 per cent in the 1987-88 tax year. Finally, of course, a substantial step has been taken in cutting tax rates; the top rate of tax has been cut from 58 per cent to 53 per cent, and the standard rate from 35 per cent to 30 per cent.

These reliefs have benefited every taxpayer, and it is against this background that the restriction of mortgage interest relief must be viewed. The Government's commitment in the Programme for National Recovery was to introduce income tax reliefs to the cumulative value of £225 million; in fact, the cumulative value of the reliefs introduced by the Government exceeds £800 million. There is also, of course, the commitment to further reduce the standard tax rate to 25 per cent by 1993, and to move towards a single higher rate.

The amendment is no doubt prompted by the rises in interest rates but it would not solve the problem. Many people were led to believe, when they heard calls for the full restoration of the relief, that this would solve the problem but, in effect, it is only a small contributor to the problem. The level of interest rates is the real problem and the only way we will get them down is to continue our tight management of the economy and control of public expenditure.

In addition, mortgage interest relief is already a very expensive tax relief and is estimated to cost some £220 million in the current tax year in terms of tax foregone. This represents a very substantial Exchequer subsidy for house purchase: restoring the relief to 100 per cent would add £55 million a year to its cost. The Deputies have not indicated how this cost should be met. Deputy Garland called for a show of responsibility in regard to this. If Members want to spend £55 million they must tell me where that money should come from. Members should bear in mind that we have a current budget deficit which we are trying to reduce and, eventually, eliminate. We are trying to reduce and eliminate our Exchequer borrowing requirement. Those are the hard facts that Members must face up to but they are not doing so.

The fact is that the cost of mortgage interest relief has already risen by some £50 million over the last year: in the 1989-90 tax year, mortgage interest relief cost an estimated £170 million, whereas this year it is estimated that its cost will be some £220 million. It should be remembered that I did not touch mortgage interest relief in the budget. The increase in interest rates also cost the Exchequer an additional £50 million. The overall figure demonstrates the commitment of the Government to those who own their own houses. The Government are concerned about those people who have to meet mortgage repayments.

The increase in interest rates has occurred mainly because of international factors over which we have little control. The role of the Government is to provide, by their domestic budgetary and other policies, the economic background conducive to maintaining interest rates which are as low as possible, and this is what we have been doing. I should add that domestic market conditions have shown considerable improvement in recent months and interbank interest rates have also eased considerably from their peak levels attained in early-March. Against this background, the Central Bank, the primary decider of interest rate levels, are more optimistic about the general trend of domestic interest rates than they were in their February monetary policy statement.

I should like to give another figure to the House which puts this matter into perspective. The cost of restoring the relief would be £55 million, the number to benefit from such a move would be 325,000 and the average benefit — this is interesting — would be £169 per annum. I accept that if Deputy Noonan takes an extreme case he will get a figure close to the one he quoted, but the average benefit that would result from the Government spending £55 million would be £169. That bears out the point I made at the outset, that the real problem here is high interest rates. The sooner we get those down the sooner the pressure on mortgage holders will be relieved.

The cost of the tax reliefs in the budgets of 1988, 1989 and 1990 amounted to £553 million and the number benfiting was 830,000 people. The average benefit to all taxpayers was £666. While the average loss in mortgage interest by a reduction from 100 per cent to 80 per cent was £169 the average benefit on the tax reliefs given was £666.

Did the Minister prepare any figures of the cost to the Exchequer at the standard rate?

I do not have those figures with me but I considered that question at some stage. It would not give the major relief the Deputy might think. The problem is that there are many people in the middle income group.

(Limerick East): Near enough to two-thirds?

That is correct.

(Limerick East): This matter has been very fully debated and I listened with interest to the contributions made by all Deputies. I should like to thank the Minister for a very full reply which ranged over various taxation themes far beyond the amendment. However, it is a good way to start as the sections dealing with income tax will be completed by 6 p.m. and I know that other Deputies will be anxious to discuss the amendments tabled in their names.

I will start by dealing with one of the Minister's comments which was inspired by Deputy Garland. One of the difficulties for Opposition Deputies in amending the Finance Bill is that we can show tax reductions but, if we attempt to propose an amendment which shows a tax increase, it is ruled out of order. Therefore, we cannot show, by way of amendment, how we cost our proposals which tends to place us in a false position. Amendment No. 2 in the name of Deputy Rabbitte was ruled out of order for that reason.

I appreciate the constitutional position of the Minister for Finance; only he can bring proposals before this House to raise taxes. However, any Deputy can bring proposals before this House to reduce taxes. As I always understood the ruling of the Ceann Comhairle in regard to this matter, we may propose amendments which impose a charge on the Exchequer but not on the public but if we try to impose an amendment which costs any taxpayer an extra £1 it is ruled out of order. Therefore, Deputy Rabbitte's proposal to reduce the relief to the standard rate of tax would cost several pounds to taxpayers who are already getting relief at the high rate and was ruled out of order. However, it means that we cannot show how our proposal will be costed.

I started a very strong public campaign on this matter several months ago and at least we have the satisfaction of knowing that the Department of Finance — which Deputy McCreevy described as the permanent Government — did not succeed in getting through the proposals in Cabinet to further reduce relief despite the fact that they had allies in the Government.

I am glad that the debate has widened because, when we talk about the disincentives in the taxation system, it has been fashionable over the last couple of years to think that disincentives are simply represented in terms of the rate at which one pays tax. The tax system is complicated and quite intelligent, numerate people do not understand the basis of their PAYE assessments. They are particularly confused by the table allowances and because there is a note on the bottom to the effect that tax will be deducted at the rate of 56 per cent there is a belief that they are paying 56 per cent on every pound they earn. They do not realise that the table allowance compensates them for moving from the standard rate to a higher one.

Political debate has always focused on the rate and that has been stimulated by the Progressive Democrats for electoral purposes. However, the incentive is not at the rate one pays, it is at the bottom line. A man or woman coming out of a plant on a Friday evening is anxious to know how much money they are taking home and what deductions have been made——

We could argue that for years and years.

(Limerick East): That is the incentive. A man does not go home to his wife all excited because he is paying £20 more tax in a certain month but that she should appreciate what the Minister has done because he is only paying it at the 30 per cent standard rate. That is not the way it works but the Progressive Democrats have kidnapped the debate on taxation——

As long as they do not kidnap the Minister.

(Limerick East):——and have made it appear as if the rate is everything.

Deputy Noonan is very hung-up on the Progresive Democrats and their temporary little arrangement.

The Progressive Democrats are guests in power.

(Limerick East): They have carried the tax debate forward and, as recently as last weekend, made an extravagant claim that they have this Minister in an armlock——

The Minister's arms are protected under the Constitution by the presentation of the budget. Deputy Noonan knows that.

(Limerick East): It is in order to refer to the input of the Progressive Democrats to the tax debate. However, their ideas border on unreality. I was very interested in the Minister's remarks about tax credits. It is an enormously complex change and it is not possible to move from allowance towards a tax credit. The old argument in relation to the former child allowance was that if you brought it back at £100 per child it meant that the child of the high taxpayer was valued at £53 and that the child of the standard rate taxpayer was valued at £30. It is very hard to support that kind of system and if such a resource was available it would be better to give it through child benefit and pay it to the mother. Of course that creates poverty trap disincentives because it applies across the board and unemployed people would be getting the allowance under the child dependant allowance in the social welfare code and in the post office book. That creates great difficulties and we had a debate about poverty traps previously.

Theoretically there is a great merit in moving from allowances to tax credits but I appreciate the complexities and I do not believe it is feasible to attempt to apply certain reliefs as credits and others as allowances. I do not believe it is impossible — or too complicated — to move everything to a tax credit basis.

I also appreciate that if you do a direct conversion many people who are now paying at the standard rate will move to the high rate but nobody is talking about direct conversion. We are saying that a certain amount of tax is foregone to the Exchequer in terms of allowances; if you take that in total and pitch your credit to use it all so that the revenue position remains neutral after the changes have been made it is a more progressive tax code if the reliefs in terms of credits are worth the same to everybody. We would have to ensure that the high taxpayer would not get more than the lower taxpayer for every £100 allowance. It is very difficult to justify circumstances in which a £100 allowance is worth £30 to one householder and £53 to another. I appreciate the complexity and I agree with the Minister that a partial change to tax credits is not feasible. However, I again ask him to look at the overall picture to see if a total change to tax credits would be feasible, not on the direct conversion basis to which he referred here — which would result in impossible consequences — but by doing the sum on the lines I suggested.

In regard to mortgage interest relief, I presume the Minister's estimate of £55 million is the gross cost. The rule of thumb in regard to giving back money to income taxpayers always specified about one-third; indeed, some of the reliefs were as high as 40 per cent. I do not know what calculation the Minister is making of that at present but the net cost of that £55 million is certainly £20 million lower than shown. Therefore, the Minister is looking at approximately £35 million or £36 million. The Minister's experts will give him an accurate figure; they have rule-of-thumb figures.

I cannot find the one about which the Deputy is talking. Anyway we will come back to this in the afternoon.

(Limerick East): There is a buoyancy effect——

It is at least one-third, possibly 50 per cent.

(Limerick East): They are very free spending in the Deputy's part of the town.

I might remind Deputies that progress is rather slow.

(Limerick East): We are moving along now; we are getting there. There is a major buoyancy effect and the net cost is about £35 million. I recall the Minister making a speech about Disneyland schemes in the middle of last summer. God knows we warned him sufficiently often here on the Order of Business about the tax foregone on the business expansion scheme which went totally off the rails. I asked him on the Order of Business whether he would introduce legislation and not await the Finance Bill. The tax foregone on the business expansion scheme must have amounted to £50 million to £60 million this year; at least that was the expectation. I know many schemes were not taken up. I do not know what would be the breakdown of that figure, but there is an enormous amount of tax foregone by way of abuse of that scheme. I might tell the Minister and Deputy Garland that there is no reluctance to advance proposals on where the money might come from. It seems to me that if it amounts to a choice between giving somebody relief to purchase or hold on to their home when the mortgage repayments rise, when the shoe begins to pinch, and some of the crazy outer space suggestions within the ambit of the business expansion scheme, then I go for the mortgage interest relief.

I will be making other suggestions as we go through this Bill but it is not in order to table them by way of amendment because, as soon as we table any amendment which would impose an extra penny tax on any member of the public, it is ruled out of order because only the Minister for Finance has the constitutional right to raise taxes. That is the difficulty we experience but we are bona fide in our discussions. I know the Minister will adhere to his budgetary figures but the issue is an important one.

I am glad the Minister gave the House a lot of information about tax credits because they need to be examined. I might reiterate that the other issue warranting examination is the merit of or justification for allowances. To read the comments of some fashionable commentators one would think that people who advocate allowances are advancing some kind of arcane, out-of-fashion religious theory. The case against the allowances has never been made while that for low marginal tax rates has been made. The Minister has been able to reduce the income tax bands over the last couple of years, but to a large extent that has been achieved because there was a buoyancy in revenue. At the Cabinet discussions on the budget, when the Minister decided to reduce the standard rate of income tax to 30 per cent, when he was ascertaining a way of funding that reduction, there was a certain amount of buoyancy obtaining, which was increased by not indexing the allowances.

We widened the bands.

(Limerick East): The Minister widened the bands but did not index the allowances. The normal expectation would be that allowances would be increased by, say, 4 per cent or 5 per cent last year in line with inflation.

We are proceeding from circumstances in which the general public feel the bite of taxation but do not understand the intricacies of the system. It is very easy for the Revenue to set various snares to catch more tax. One of the snares which will always catch more tax is not indexing allowances in line with inflation. That was not done at all. Therefore some of the leeway the Minister got to reduce the bands was got in that way. Secondly, the Minister got it by reducing the relief applicable to life assurance premiums which has been cut dramatically. It appears to me that the present thinking within the Department of Finance is to systematically rundown the allowances, either by holding them or not increasing them in line with inflation on the personal side and systematically removing others.

We should open up that debate. I am not sold on the idea. For example, if the recommendations of the Commission on Taxation were so great why did no political party get up and say: we will implement the recommendations of the Commission on Taxation? It is like a lot of these commissions, people who have never read their reports go around saying: all we have to do is implement the recommendations of the commission. When I was in the Department of Justice I set up the Whitaker commission. I hear people on all sides of the House now talking about implementation of the recommendations of the Whitaker commission. I am sure many of those people contending they should be implemented have never read those recommendations because, had they done so, they would not be calling so loudly for their implementation. There is a touch of that about the recommendations of the Commission on Taxation also.

People like the á la carte.

(Limerick East): Exactly, yes; I will give the Minister the menu and he can pick his meal from it. I am glad the debate has been opened up. I will be putting this to a vote. I appreciate the way the debate has gone and am particularly appreciative of the additional information the Minister has supplied.

I am very concerned at the cost of this relief which the Minister contends would be £55 million. I am also concerned that we endeavour to broaden the tax base as much as possible in so far as we have any form of income taxation of individuals at all, which is not the policy of the Green Party. It is too broad a subject to go into now. I referred to it on Second Stage. We are stuck with our present income tax system. Therefore it is a question of how best we can deal with it in terms of collecting sufficient revenue to pay our expenditure while ensuring reasonable equity between different categories of taxpayers. I contend the balance of advantage lies with my amendment. Consequently, I will not be withdrawing it.

As has been said, Opposition Deputies are very severely restricted in the nature of the amendments they can table to this Bill. It is high time that was changed, that more freedom was afforded Opposition Deputies to table whatever amendments they consider appropriate, whether or not they increase taxation, if we are to have a balanced approach to a Committee Stage debate on the Finance Bill. By reason of those restraints we are not in a position here to rewrite the budget. Consequently the criticism that we are not saying where the other funds would come from to make up the shortfall of £55 million is levelled at us.

I would have to say that a Labour Party budget, taken as a whole — as I am sure would apply to a budget of The Workers' Party — would have a totally different thrust, totally different objectives, totally different tax provisions from that brought forward by the present Minister for Finance. I do not believe that a budget introduced by a Fine Gael Minister for Finance would be all that much different from that of the present Minister; perhaps the dressing up might be somewhat different, the trimmings, a bit here or a bit there, but there is no material different in fiscal policy between Fianna Fáil and Fine Gael; their economic objectives would be fairly similar.

There will have to be a convergence from all sides of the House on this one.

If the Deputy will look at his party's amendments he will see there is no dramatic difference in them, that in fact many are contrived differences. I contend there would be no great difference in the thrust of policy between Fianna Fáil and Fine Gael. I have tried to figure out what a Green Party budget might be like but have to admit that I gave up on that one as I could not even begin to think what their budget would be like. The Minister has asked that if we were to find the £55 million required what would the thrust of our provisions be if this matter was to be dealt with. The amounts raised by way of capital taxation have been reduced during the years and will be reduced further as a result of the provisions of this Bill. The Minister is increasing the CAT allowances and reducing the charges on capital gains tax. Those are the provisions I am talking about. The amount being brought in, in relative terms, in capital taxation is derisory compared to the figure of ten years ago. When the old estate duty system was abolished we were told that this matter would be dealt with more sensibly and progressively under the CAT system. However the amounts being brought in under that system cannot be compared with the amounts brought in under the old estate duty system.

I accept there are differences in the Minister's and his party's concepts and political objectives and those of the Labour Party but we believe more substantial amounts should be brought in to the Exchequer in capital taxation, corporate taxation and farmer taxation. If one adds up the cost of the major manufacturing reliefs, Shannon relief, urban renewal relief and pension scheme relief and so on to the Exchequer, the amount we are talking about here is pretty insignificant. The Government support all these measures. They also support big businessmen and the wealthy, and the thrust of their taxation policy is directed towards helping that end of the scale and not the lower end. A careful analysis of the figures bears this out.

The Minister made the point that the average benefit which would accrue if this amendment were to be accepted would not be enormous, about £170 per year. I have no reason to dispute this figure. It would not solve anybody's problems but nonetheless it would be some help. It would also be a recognition of the difficulties experienced by so many families in meeting their mortgage repayments.

I also accept the Minister's point that this major problem arises out of the extraordinarily and unwarranted high level of interest rates. There have been four increases in interest rates during the past year alone. I do not know whether he is disclaiming or accepting responsibility for this but he appears to be wavering a little. I say he carries direct reponsibility. This position suits his economic and fiscal policy. I would further say that the interest rate, when compared with the rate of inflation, is totally unwarranted. The inflation rate, which at present stands at 3 per cent, has come down while interest rates have gone up. This is unacceptable. In the normal course they would run in tandem in that when inflation rates come down interest rates should also come down and vice versa. Under the present administration the two have parted company. At present the inflation rate stands at about 3 per cent while interest rates are running at between 11 per cent and 13 per cent plus. The differential therefore is either 8 per cent or 9 per cent and a person with money can get a rate of return of 8 per cent or 9 per cent over and above the rate of inflation. Such a differential is unwarranted and unnecessarily high. It may have resulted in large amounts of hot money being brought into the country but quite frankly the country gains very little overall, in that interest is paid at unnecessarily high rates with no tax being paid on it by the owners of the hot money who pass it in and move it around when it suits them.

House purchasers making high mortgage repayments will only benefit if interest rates come down. I appeal to the Minister to recognise that the real interest rate is unacceptably high, that he should take some steps to reduce it and give some relief. Perhaps there would then be some merit in his argument that it is not necessary to restore 100 per cent mortgage interest relief. There is no point saying that, on the one hand, that he does not accept responsibility for the increases and that the differential between interest rates and the rate of inflation is acceptable while at the same time saying that he is going to allow the present limit of 80 per cent to remain. The Minister cannot have it both ways.

I am beginning to panic at this stage. Having regard to the time limit on dealing with this section I think we are going to run out of time. I think the point has been adequately dealt with, that it is unfair of the Minister to suggest we are seeking reliefs in certain areas without stating how these will be paid for. It has been adequately explained in the context of the difficulties being experienced with the rules of the House.

Deputy Taylor made the point that the Minister has completely washed his hands of the responsibility for the increases in interest rates. I recall that on the first day this Dáil adjourned the Taoiseach in an exchange with the leader of The Workers' Party pointed out that the favourable circumstances obtaining at the time of the election in June 1989 — there have been four increases since — were brought about by careful and prudent housekeeping on the part of the Government, and anticipated that if things were to go wrong the leader of The Workers' Party would castigate him for this a year later. That is what has happened. Therefore the Minister must accept some responsibility.

The point that has to be made on this amendment is that thousands of people are hurting as a result of the four increases in interest rates since the Government came to power. The sum of £169 may not seem to be a great deal of money — this figure is distorted for the simple reason we are taking an average figure — but to some people 100 per cent relief on mortgage interest would make a difference and allow them avail of some of the essentials of life while at the same time repaying the building society to keep a roof over their heads. It is very sad in modern day Ireland to come across people, whose dream was to own their own house, who made certain calculations, and who were told the indicators were coming right, but who now find themselves having to scrounge and save and cheat on their children because they have to find between £100 and £120 per month extra to meet their mortgage repayments.

In the unlikely event that there would be a Labour Party/The Workers' Party Government this century I hope the Minister's officials using their marvellous brains, expertise and ingenuity, would equally diligently apply themselves to framing the kind of Finance Bill we would bring in. I am sorry they did not use the formula to work out what the figures would be at the standard rate.

(Limerick East): Does the Deputy's party not have a couple of fellows in Revenue?

We have a few and I wanted to see if their figures were reliable by comparing them with the official figures.

If you have, put it on the record of the House.

A fifth man.

Deputy Noonan very effectively dealt with the question of where the money would come from and instanced the tax foregone under the BES scheme. It boils down to a question of choice. It is very interesting that the BES discriminates yet again against the PAYE taxpayer. The people who have money to invest in BES schemes are predominantly self-employed. There is no ruse open to the PAYE workers to minimise their tax liability. This is a very good example of where tax can be foregone for a section of society that least needs it and it is impossible, according to the Minister, to provide it for people who really do need it.

I do not want anybody to detect a cosmic political shift in this statement, but I agree with much of what Deputy McCreevy had to say about hurtling down the hill after the Progressive Democrat hare that they have set to run on changing the minimum standard of tax. Before the Progressive Democrats were ever heard of, The Workers' Party published, and were particularly associated with publishing, a number of programmes on taxation. I do not accept that the total tax burden in this economy is necessarily too high. What is too high is the PAYE share of that tax burden. By comparison with any developed economy in the OECD, taxation generally is not necessarily too high here. The Minister said that the PAYE share was 88.1 per cent. That is true, but I do not accept the breakdown given by the Minister or that the average figures advanced by the Minister prove that the PAYE sector are not being penalised disproportionately.

The self-employed and farmers and so on are largely wealth owning sections of our society unlike the PAYE people who have absolutely nothing but their earned income. I do not think it can be claimed that the average contribution from farmers of £714 as compared with £3,080 from the PAYE sector is a fair breakdown. I cannot believe people who, by historical accident, are sitting on valuable assets should be paying an average of just £714. One thing which has remained constant from the time of the Fir Bolg to the Progressive Democrats is the attitude of farmers to taxation and it is their aim to minimise their liability for taxation. We are not comparing like with like. The share of the burden borne by the PAYE sector is still disproportionate.

This amendment was merely to try to get some relief for the PAYE people who are hit for everything and are bearing the lion's share of taxation. This would have given them some relief.

This amendment is aimed at restoring mortgage interest relief which has been reduced by the Government over the last couple of years. One reason for doing this is that Government expenditure on housing which is highly inefficient needs close scrutiny. The effect of high mortgage interest rates and the added impact of reducing mortgage interest relief is to push more and more people on to the housing waiting lists of local authorities and this is leading to a crisis. In case the Minister for Finance does not know, the average weekly Exchequer subvention per local authority dwelling has been as high as £90 a week in the past number of years; I believe it is somewhere around £70 at the moment — the Minister might like to confirm what is the weekly Exchequer subvention per local authority dwelling for this year — yet no tenant is getting anything like the benefit of £70, £75 or £80 a week. We would be better off making a gift of the houses or the dwellings to local authority tenants and giving them £40 a week to spend on them. This way we would save Exchequer money.

This is the sort of fiasco that the Department of Finance have been presiding over for the last several years. Is this because it has not been pointed out to them? Why is this policy being continued? When the report of the Commission on Taxation was made and when the planning report was submitted by the three wise men to the Government of which I was a member, in which they advocated the abolition of mortgage interest relief, they were cross-examined by members of the then Government, including me. It was manifestly clear that these so called experts had not a clue what the net effects of the proposals they were making would be. They had not a clue what it would cost, how the local authority housing market worked, how people were taken out of the local authority housing market or pushed into it. One thing is clear. By reducing mortgage interest relief over the past number of years the Government have succeeded in pushing more people back into the local authority waiting list and they have trapped more and more local authority tenants in their existing houses who would otherwise have been able to buy houses.

The Minister ought to consider this amendment very carefully. He mentioned a gross figure of £55 million as the cost of restoring the old concessions. We are not asking that he bring in some great new concession, just that he restore concessions that he and his Government have taken away. He cites a gross cost of £55 million and that is to be reduced by whatever the buoyancy effect is. An estimate has been given here that the buoyancy effect is £20 million which will give a net cost of £35 million. I believe that buoyancy figure is too low but we will accept that figure for the sake of this discussion. The tax revenue effect of this proposal would be £35 million. Unfortunately that is the way the Department of Finance look at things. As somebody said the Department of Finance is a much maligned Department but not without reason.

The Minister for the Environment is not allowed by the Department of Finance to approve inner city housing projects because the housing unit cost is twice at the outer city housing unit cost. What the Department of Finance do not take into account is the other costs that arise in the outer city that do not arise in the inner city, like the fact that extra health centres, Garda stations, water services, schools, etc., have to be built. They do not take the total cost into account, nor does the Minister in approaching this amendment.

To go back to the nett figure of £35 million if this concession is granted, by how much should this be reduced if, as a result, 2,000 local authority houses can be thrown up? I would ask the Minister, between now and Report Stage, to take a comprehensive view of the housing market and the ultimate effect of existing housing policy on the Exchequer, and not just to look at it within the narrow confines of tax revenue.

I ask the Minister that between now and Report Stage he take a broader view of the housing market and the ultimate effect of existing housing policy on the Exchequer and not to confine himself to the narrow parameters of tax revenue. Indeed, I will go further. The subsidy on local authority housing is extraordinarily high and it averages out at something in the region of £70 to £80 per dwelling per week — this includes one room dwellings, one bedroom, two bedroom, three bedroom or four bedroom dwellings. The present policy of building large local authority housing estates——

There are not many being built at present.

Deputy Taylor is absolutely right, there are very few being built at present but they have been built. The policy of solving our housing problems in that way concentrates a great deal of unemployment and a great many social problems in the same place. This is not the sum total of the problems but there is a very severe compound effect on the community. Deputies Taylor, Rabbitte and Lawlor like myself understand this because we represent these areas in the outer city. We have created, at enormous cost, very grave social problems and we do not seem to have learned from experience.

The provisions of the amendment before us, if looked at narrowly, can be said to cost £35 million, but if we look at the matter sensibly, we will see that in reality it will cost much less; it could even be contended that it would save us money. In that context, I ask the Minister to look at it between now and Report Stage.

Deputy Noonan's amendment has the support of all the parties on this side of the House, including the Labour Party, The Workers' Party and the Green Party, and I ask the Minister to consider it in the light that it should be supported by his side as well.

I will respond briefly to the points made. Deputy Mitchell's points on what we should be doing with regard to housing are more applicable to a debate on an Estimate for the Department of the Environment. He tied this point in with mortgage interest relief, he accused the Department of Finance of having a heavy hand and said that when he was in Government he had been advocating this, and if the Government of which he was a member were unable to have their own policies implemented, I do not think he should complain to us about that.

That is not a good point.

Will the Deputy please let me finish? The Government have taken the first positive step in relation to this in that my colleague, Deputy Flynn, has allowed local authorities to sell off local authority housing and to keep the receipts for repairs and renewals, which one can only describe as a very positive step. As different parties we are entitled to have different views in Government. I take a totally different view on the Opposition's policy while in Government to give people a £5,000 grant to move out of local authority houses into the private sector houses. The better off people, the leaders of their communities, left and I believe that when the best people left there were major problems. When we came into Government we took a different view. In Government you are entitled to take your own view, to stand over your own policies and to take responsibility for them. Deputy Taylor asked why the Minister for Finance does not accept his responsibilities in relation to interest rates. In reply I must say that I do not have a statutory responsibility for interest rates but I fully accept responsibility for Government policy to create an environment that will bring down interest rates.

The Minister has not been very successful.

When interest rates were low he was claiming the credit.

I cannot understand how Deputies can make the case that we set interest rates. Do Deputies Mitchell, Noonan or any other Deputy believe that interest rates will remain static, because that is the basis of their arguments. If interest rates go up they want relief to go up, but they said nothing about interest rates going down. We are in a new era. We have seen the volatility of exchange rates.

We should have elections to the Bundestag and reduce this to a local authority.

That is not the solution either. First, how we manage our affairs will have an impact on interest rates. Second, the question of what the instrument of interest rates is now used for is different from long ago in that, as Deputy Taylor quite rightly said, low inflation brough low interest rates. This was the case ten, 15 or 20 years ago when everybody believed that but now we are told that interest rates have a different use altogether and that the rate is used by central banks to stop the flow of capital leaving one country and flowing into another. What happened in Ireland in the latter part of 1988 was that capital moved out of the country and that is why the Central Bank took the decision to increase interest rates.

If the exchange rate controls had not been relaxed quite so readily substantial sums of money would not have moved.

That brings us to the wider argument to whether one wants to be part of the EC because free movement of capital has been accepted by all member states, to be completed in our case by the end of 1992——

It is a sound policy.

The Deputy is entitled to his own view as to whether we should be in the EMS. He may be making the point to leave the EMS but I do not think that is his party's view.

As to what will happen to interest rates in the future, it must be said first that we do not and cannot control international events. They change every day. For example, three weeks ago the yen was weakening and it went down by 20 per cent, but in the past few days it has gone up again.

There are different forecasts of what will happen in the EMS as a result of the unification of the monetary system of the two Germanys. The Deputy can have his view and I have mine, and over the past three or four months I have consistently stuck to my view as to what will happen to interest rates, and so far I happen to have been right although I could have been wrong. I believed we would see money flowing into the country and this has continued since March and as a result we are now in a much stronger position. You can see from looking at the money market that the rate was hovering around 12 per cent, a very precarious point a couple of months ago but during the last couple of days the short-term rate was down to 11.38 per cent, and that has taken off the pressure. If we get it down to 11 per cent and it stays there for four of the five days in a week it will trigger off a reduction in interest rates. We are now in a much stronger position than we were but the events that triggered the rise in interest rates were outside our control. As I have said, we are doing our best by pursuing the right policy. There is confidence in the market and the money is coming back into the country. As I said four months ago, by the second half of the year the pressure will be easing; however things can happen to change that.

What is the Minister saying to the people whose living standards have been reduced by increases in mortgage interest rates?

Deputies have had the opportunity to make unrestricted and uninterrupted contributions and we should allow the Minister the same courtesy. The Minister to continue without interruption.

I repeat, the cost of the restoration of mortgage interest relief to 100 per cent on £4,000 would be £55 million and it would benefit 325,000 people with an average benefit of £169 per annum. Deputy Rabbitte quite rightly made the point that £169 might not seem a lot to some of us but to people in Tallaght or elsewhere struggling to meet their mortgage repayments, it would mean an extra £3 a week. Just as Deputies have asked me to look at the totality of the argument, I have to look at the totality of income in the household and ask what action was taken in the budget to help people make up the loss of £3 per week. The VAT reduction from 25 per cent to 23 per cent affects household goods of all descriptions. Do not let anyone try to suggest to me that that is not a benefit to those households, of course it is. We have also reduced the personal tax rates, and that is of benefit. We have widened the tax bands to make sure that people would not be worse off because of the width of the bands, and at the same time we reduced the standard and the high rates of tax, and of course this was of benefit. When Deputies ask about the totality of the argument, I reply that they should look at the totality of the household budget and see what that household budget is at the end of the day. That is the basic argument. What the Deputies want to continue to ignore is that the major problem for the people for whom they make a case in here, and rightly so — I have sympathy with them — is that the interest rates increased four times last year. The real pressure on those households that are in trouble comes from the increase in interest rates and not from the 20 per cent reduction in mortgage interest relief. As I have said, even if I was to restore that relief, it would only benefit people by on average about £169. I suggest as I suggested at the start, that the solution to that problem is to continue with the right Government policies to lower interest rates. That would be the basis of relief for those people. I do not think anybody should be as irresponsible as to try to convince people, as has happened in the last three or four months, that interest rates when they come down, will stay down and interest rates when they go up will stay up. That is not the reality of the world we live in.

Deputy McCreevy made a strong case similar to the point made by Deputy Taylor about the level of real interest rates and how it has changed. Deputy McCreevy said that the way to solve that problem is through competition in the banks, and he wondered when we might see the day when there would be open competition in this country in relation to banks. I would say to him and to the House that with the Single Market in 1992 there will be free movement of capital, goods, people and services throughout the 12 member states. After 1992 if a bank gets a licence from the Central Bank they will have the freedom to set up business in any of the other 11 member states without having to get clearance from that country. If a bank in Germany or Italy wants to set up in Ireland or vice versa, as long as they get clearance in their own country under their own regulatory powers they can set up here. Let us hope that competition will improve the position but, as I have said, the real answer is to reduce interest rates and promote the policies that will reduce them.

I have been accused of repetition but I want to refer again to the benefit from the full restoration of the mortgage interest relief. The total relief given in taxes over the last three budgets was on average £666 per person, and one can argue that individual cases would benefit to a greater or lesser degree, but the average benefit of the restoration of the mortgage interest relief would be £169.

In relation to the question raised by Deputy Rabbitte on the standard rate of tax, the restriction to the standard rate could have a substantial impact on taxpayers on the higher rates of tax not because they are highly paid but because the standard band is not wide enough. This would of course be particularly true of single and widowed taxpayers but it would also apply to young married couples in the early stages of a mortgage. In other words the taxpayer group that would be affected most by applying a standard rate band would be the people in the middle income group, those on the 48 per cent band.

We have gone into this matter in detail and have argued the pros and cons. I do not expect people on all sides of the House to agree with my policy or my philosophy. Deputy Taylor has said that my budgets are no different from any other budget from whatever Government but I would like to think they are different. I would like to think that I am pursuing a philosophy of trying to give relief to the low paid people who have been hardest hit and to restore an incentive to work, recognising that I cannot do it all on the first day. We have made very significant progress in the last couple of budgets. I took the first step in 20 years to reduce the standard rate of tax from 35 to 32 per cent and also reduced the higher rate. That is the road forward and I will not be deflected away from it or enticed by wild schemes suggested by people from either inside or outside the House who do not face up to the responsibility of where we will get the money. Even if it was available to me and if all the economic ills in relation to this economy were over, I would not pursue the Nigel Lawson route of causing major problems to the economy. That is the way I see the position and that is the way I will continue to approach it.

The Minister has obscured more than he has clarified and he is deceiving only himself. Firstly, he uses an average figure of £169 per year as the benefit of this proposal. You can obscure a lot by averages. We all know that many people with mortgages for 20 or 25 years are not affected by the crippling mortgage rates because their payments are very small, but it is those who bought houses in the last five or ten years who are really crippled with payments. If we ask the Minister to give an average benefit for people who bought houses in the last five years what would it be? The Minister went on to make an outrageous claim, that the real cause of the pain for those on mortgages is not the fact that he has reduced mortgage interest relief by 20 per cent but that interest rates went up by 4 per cent.

Precisely. That is the real argument.

The truth of the matter is that these people have been clobbered on the double, by interest rates which have gone up by 4 per cent under the Minister and by the reduction of 20 per cent in interest relief, a reduction brought about by the Minister. They have been clobbered on the double and the Minister does not care. It is very clear that the Minister does not understand——

That is the message that has come from the Minister's response to the House in the last few minutes. We have a major problem here and in the end it will cost the Exchequer more money by pushing more and more people on to the local authority housing lists. I appeal to the Minister to reconsider the restoration of the full mortgage interest relief which was in existence when Fianna Fáil came to office three years ago.

It seems we have extracted the essence of worthwhile contributions on these amendments. I would like to get the view of the House whether——

(Limerick East): I would like to make a few comments. The Minister has argued that the problem is not the level of mortgage interest relief but the fact that interest rates have risen four times in the past 12 months. He goes on to put the responsibility for rising interest rates, first on the Central Bank and secondly on the fact that the level of interest rates now is not so much inflation-related as an instrument of policy to prevent flows of money from one economy to another. That still leaves two questions unaddressed. Firstly, can the Minister explain why the differential between our rates and West German rates is almost 4 per cent——

When our inflation is the same.

(Limerick East):——when our inflation is the same and we are tied into the same basket of currencies and when the Minister has said time after time that there will be no change in our exchange rate policy and his views on that have been endorsed always from this side of the House? If there is consensus on anything it is the link——

Judgment in the Central Bank.

(Limerick East): The Central Bank have addressed this in the monetary statement at the beginning of the year and they argued that the 4 per cent differential would have to remain for the reasons I enumerated this morning. That brings it back to the Minister's area of responsibility. As he said, the Government have responsibility for providing the environment which would allow the bank to make decisions to reduce interest rates and part of that environment is the overall level of the debt, the medium-term target which the Minister has set and which the Central Bank regard as the minimum acceptable target.

You want to make it softer still.

(Limerick East): No, we want to make it harder and we are prepared to debate the matter. There is no suggestion that the money we are talking about here does not have to be recovered elsewhere. All of us have been around long enough to know what the wild promises of public expenditure and the wild promises of concessions lead to. It seems the Minister has a responsibility to address his overall targets to see if he can put the Central Bank in a position to cut the differential between German rates and Irish rates, because that is the key factor. I know the Minister has no control over the course of international interest rates — they will rise and fall — but he has control over domestic policy which brings about a situation in which the Governor of the Central Bank says emphatically that he cannot reduce the differential between our rates and the German rates because of the policies the Minister is following.

Progress reported; Committee to sit again.
Sitting suspended at 1.30 p.m. and resumed at 2.30 p.m.