Amendment No. 1 is in the name of Deputy Taylor. Amendments Nos. 20 and 24 are alternatives and I am suggesting, therefore, that we discuss together amendments Nos. 1, 20 and 24, by agreement. Agreed.
Finance Bill, 1990: Report Stage.
I move amendment No. 1:
In page 11, between lines 15 and 16, to insert the following:
"1.—(1) The Minister may make regulations under this section to provide for an additional special allowance for income tax purposes of an annual sum to be determined by the Revenue Commissioners not exceeding £15,000 in any one tax year in the case of a person who has sustained serious and permanent disablement.
(2) Regulations made under this section may provide for such consequential, supplementary and ancillary provisions, including provisions modifying any provision of the Income Tax Acts, as the Minister considers necessary or expedient.
(3) Where the Minister proposes to make regulations under this section a draft of the proposed regulations shall be laid before each House of the Oireachtas and the regulations shall not be made until a resolution approving the draft has been passed by each such House.".
I am delighted that the Minister has seen fit to accept the thrust of the amendments proposed on this issue by Deputy Rabbitte and me. The Minister's amendment No. 20 would appear to meet the type of case we have in mind. It is not confined to the Dunne case, although that case was a primary factor. In expressing my gratitude to the Minister I am sure I speak for very many people who deeply appreciate this humanitarian gesture by him.
Will the Minister's amendment apply to cases where compensation would have been made years ago to people who have been left permanently incapacitated either physically or mentally? I am aware of cases over the years where awards have been made resulting from very serious and permanent injuries. Are those cases also to be considered? Subject to the Minister's reply, I will be very happy to accept his amendment and withdraw mine.
I too wish to acknowledge with gratitude the generous and compassionate response of the Minister for Finance to this very cruel anomaly in the tax code as it has applied. As a result of his speedy and generous response the Minister will have the heartfelt gratitude not only of the Dunne family but of a significant number of parents — it may be no more than a couple of hundred — who are covered by the provisions of his amendment.
To avoid rising later, I would refer to amendment No. 16 raised by me last Wednesday which allowed this matter to be discussed. The latter part of the amendment refers to an amendment of the Finance Act, 1969. I sought in the amendment to raise the threshold for a housekeeper for an incapacitated person from £2,500 to £5,000.
I take it the House wishes to discuss the amendment referred to? It is agreed.
In an amendment distributed last night the Minister seems to have taken that on board. I would ask whether there is any change in the wording of the amendment I put forward and the amendment he has tabled for Report Stage. It seems to meet the situation. It should be said that since so little is taken on board from the Opposition benches it is gratifying to find on a matter which has such human effect that the Minister is responding in a humane fashion. It is all very well for us to talk in terms of exemption from tax of compensation settlements in the tragic kinds of cases we instanced but no money can compensate the parents of a severely handicapped child for the tragedy that has befallen them. They have to look after every need of the child concerned every day of the week. The Minister has earned the heartfelt gratitude of a great many parents.
In my amendment I sought to confine the exemption to wards of court. I do not know if the Minister wishes to comment on the construction of his amendment which seeks to go wider than that. I welcome the Minister's amendment as it seems to cover any settlement made in the circumstances described where the minor or person is not necesssarily a ward of court. It is wider than my amendment No. 24.
I welcome the Minister's initiative in this area and draw his attention to the situation of many others who do not have the benefit of awards from the courts — I refer to covenants of income made to persons who are disabled. Under the present arrangements when a covenant of income is made to a severely disabled child he loses his entitlement to disabled person's maintenance allowance and his entitlement to the special children's allowance for severely handicapped children under the tax provisions. In the past the Minister went out of his way to make special provisions for disabled children but the benefits of making covenants are brought to nought because of the two losses to which I refer, namely the loss of DPMA and the loss of the child tax allowance. I know it is too late to include such a provision in this Finance Bill but it is a serious anomaly related to the one with which he is dealing today. It would be well worth the Minister's while turning his attention to it to see if there could be some resolution to this problem.
On behalf of the Green Party, I should like to congratulate the Minister on bringing forward amendment No. 20. However, there is possibly some unfinished business in this area. If I read Deputy Taylor's amendment correctly, he is talking about an extra income tax allowance for those people who have sustained serious and permanent disablement. That is a very good proposal because many people who are permanently disabled cannot make any claim whatsoever. For example, a person who was driving home late at night, who fell asleep at the wheel and drove his car into a ditch may be permanently disabled for life but unfortunately he cannot make a claim for compensation unless he happens to have a personal accident insurance policy, which many drivers may not have. The income such a person receives from any source other than work will not receive any special treatment in the tax code. I suppose it is too late to include a provision for such people in this year's Finance Bill but perhaps the Minister will make a note of it and consider the matter between now and the introduction of the Finance Bill next year.
I will take note of the points raised by Deputy Bruton and Deputy Garland and will look into them between now and next year.
Amendment No. 20 is a repeat of a Committee Stage amendment and seeks an income tax allowance of up to £15,000 for persons who suffer from a serious or permanent disablement. The amendment would appear to be motivated by the recent publicity given to the Dunne baby case. A similar amendment put forward by Deputy Rabbitte on Committee Stage was similarly motivated. I undertook to have the matter looked at sympathetically before Report Stage and I have put down amendment No. 20 to deal with the matter.
(Limerick East): I welcome both the Minister's amendments. He responded very favourably to the debate on Committee Stage. I should like the Minister to explain in greater detail the scope of both amendments. Amendment No. 19 is self-evident and simply proposes increasing the allowance from £2,500 to £5,000 but the intent of amendment No. 20——
We have not come to that amendment yet.
The amendments are open to discussion now and separate decisions can be made on them when we reach amendments Nos. 16, 20 and 24.
(Limerick East): I understood we are discussing the amendments together.
That is right.
(Limerick East): I should like the Minister to explain the precise range of the amendments, particularly amendment No. 20, and how he envisages it working.
Perhaps the Minister will also deal with my query about awards which were made years ago.
In case of any misunderstanding, the Minister is entitled to intervene again.
Amendment No. 19 results from an undertaking I gave in the course of the Committee Stage debate to consider sympathetically the proposals to increase the allowance in respect of a person employed to look after an incapacitated taxpayer or his incapacitated spouse. As I informed the House on Committee Stage, this allowance was last increased in 1985. Having considered the matter, I now propose to increase the allowance from its present level of £2,500 to £5,000, as suggested in an amendment put forward by Deputy Rabbitte on Committee Stage. The cost of increasing the level from £2,500 to £5,000 will be £120,000 in 1990 and £200,000 in a full year and will affect about 200 taxpayers.
The Minister's amendment relating to persons employed to look after an incapacitated person is the same in all respects as the last line of my amendment No. 16. There is no significant difference in its construction and it provides for the same situation.
(Limerick East): It is a repeat.
Can we proceed to amendment No. 2 in the name of Deputy Michael Noonan?
The Minister did not deal with my question about when the scope of this——
Its scope will be from now on. The Deputy was talking about retrospectively——
My question related to an award which had been made to a person, say, five years ago in a case similar to the Dunne baby case and who is receiving income from that award now. Will the Minister's amendment cover the income of that person in the year 1990-91 and in future years of assessment?
It will apply irrespective of when the award was made but it will apply from 1991.
(Limerick East): May I——
I do not have to advise the House, as it will remember, that we are now on Report Stage. The Chair is anxious to facilitate the Deputies by way of eliciting important information but it must not forget that Members may speak once only on Report Stage.
(Limerick East): I realise that, but I asked the Minister to deal with amendment No. 20 also. I do not know whether you are ruling we should wait until we come to amendment No. 20 before the Minister replies to that part of my question or whether he should reply now.
The House will be happy to facilitate the Minister if he wishes to intervene now.
Amendment No. 20 arises from the discussion on Committee Stage last week of the tax treatment of income of incapacitated taxpayers from the investment of lump sums received in court awards or out-of-court settlements in personal injury claims. The argument was made that such investment income should not be the subject of income tax. I indicated at the time that I was sympathetic to the case being made and amendment No. 20 is the result of my consideration of the matter. The amendment exempts from income tax the income arising to permanently and totally incapacitated taxpayers from the investment of their court awards or out-of-court settlements.
The section applies where the income in question forms the sole or main income of the taxpayer. Lump sum awards in such cases are, of course, already tax free. The amendment meets the many arguments made that the investment income arising from them should not be the subject of tax. I understand that Deputies on all sides of the House were anxious to see an improvement in the tax treatment of the investment income of such taxpayers and that the introduction of such an amendment would be welcome to the House.
(Limerick East): Will this apply to DIRT tax and, if so——
If people are not liable to income tax they are entitled to a refund of DIRT.
(Limerick East): Is there a need for a provision to reclaim DIRT?
No. If any DIRT is charged it will be refunded the same as in the case of a low paid taxpayer or pensioner.
(Limerick East): A low paid taxpayer does not get a rebate of DIRT; they will only get a rebate if they are over 65.
If people are not liable to tax, the DIRT is refunded.
(Limerick East): No, it is not. That is one of the problems with the DIRT.
I am talking about pensioners.
(Limerick East): A low paid worker of 30 years of age does not get a DIRT rebate, even if he has no tax liability.
Non-pensioners can get a refund to the extent that they are not otherwise liable for tax. That is the form in which it is being operated.
Amendment, by leave, withdrawn.
(Limerick East): I move amendment No. 2:
In page 11, between lines 15 and 16, to insert the following:
"1.—As respects the year 1990-91 and subsequent years of assessment, section 6 of the Finance Act, 1987 and section 7 of the Finance Act, 1989 shall not apply to loans where the annual interest rate exceeds 10 per cent.".
On Committee Stage, I raised the issue of the heavy imposition of mortgage interest on many householders and I put down an amendment which proposed that full mortgage interest relief should be restored by the non-application of section 6 of the Finance Act, 1987, and section 7 of the Finance Act, 1989.
I am not dealing with the same issue but with a different type of amendment. since the original Committee Stage amendment was rejected I am now proposing, in circumstances where interest rates would go above 10 per cent, that full relief would be restored.
When the present Minister reduced mortgage interest relief in the Finance Act, 1989, he argued that he was justified in doing so because interest rates had fallen and they had but, as we all know, they have gone up four times in the last 12 months. The future is uncertain. That increase of 4 per cent over 12 months has meant that those on the average mortgage of £35,000 are paying in excess of £100 per month more. That figure must be found after tax. If one looks at the overall effect on the budget of a household one will see that the Minister is wiping out a tranche of salary of between £2,000 and £3,000, depending on the tax rate of those involved. The person on the top rate of tax will have to find £1,200 net per annum and, obviously, the amount of salary dedicated to mortgage repayments will be higher than that. It will be an extremely heavy imposition.
The Minister sought to justify the reduction by arguing that interest rates had gone down and it follows that now that they have gone back up, the interest relief should be restored. I have in mind the introduction of some type of trigger mechanism so that when interest rates reach a certain level mortgage relief will be brought back for home loans. Mortgage interest relief is given a year in retrospect although it can be given by the Revenue on an estimate. In my view it is possible to decide at the year end what the average rate over the year was. Obviously, I do not want the Revenue to have to look at the mortgage interest rate applying each day, but it would not be difficult to work out a system taking the rate for six months or three months. If the rates go below 10 per cent that should trigger in sections 6 and 7 of the respective Acts and the mortgage holder would be paying a lot less in interest. The loss of the relief could be absorbed.
I would prefer if mortgage interest relief was fully restored but in the uncertain circumstances of interest rates something needs to be done. On Committee Stage the Minister pointed out that until recently interest rates were used as a means of controlling inflation in terms of fiscal management. He made the point strongly that interest rates are increased now to stop money flowing from one economy to another. If that is so we are in a great uncertainty about interest rates with events in other countries by and large declining our interest rates. In that event we will not have great control over the absolute levels of interst rates although we might have control over the differentials that will exist between our rates and those of other countries.
The Minister should address this issue, particularly in relation to the discussions we have had about tax reform. The conventional wisdom is that all that matters is the rate at which one pays the tax. I met many people who thought they would get tax reductions following the last budget but were surprised when their April cheques came through in the first week in May. As far as they are concerned they are paying more tax than last year. The Minister has brought down the standard and higher rates of tax but he did not index the allowances. By not indexing the allowances he has left a type of fiscal drag under which he is pulling more out of people's pockets.
Mortgage interest relief is down to 80 per cent of what it was in 1987 and in section 4 of the Bill as published he is halving the relief on insurance. The income tax sections of the budget were presented very well and it looked as if something serious was being done about income tax. However, the table at the back page of the Principle Features of the Budget containing the Estimates from the Department of Finance showed that, to use Deputy Rabbitte's phrase, in the heel of the reel Irish income taxpayers in 1990 would be paying £100 million more than they paid in 1989. What magic did the Minister use to cut the rates and at the same time collect £100 million more from income taxpayers?
The Minister will collect that amount because there is buoyancy in the system. Secondly, interest rates have gone up dramatically and because of that the take from DIRT has gone up dramatically. That take comes under the income tax figures. However, by not indexing the allowances for inflation, reducing the life assurance allowance and maintaining the reduction in mortgage interest relief the Minister has brought about a situation where those who thought they would gain a lot gained very little. There is great disappointment among income taxpayers. The best way to judge the income tax effects of a budget is to meet workers leaving a factory in the second week in April. As they looked at their pay packets this year they remarked, "he told us we would be paying a lot less this year but we are paying more".
I accept that the Minister, like all Ministers for Finance, faces another problem in connection with the budget. The PRSI contributions are taken over ten months rather than 12 months and in February the PRSI holiday comes in. In April people pay the full whack of PRSI and even if the Minister on budget day gave a serious tax reduction the cheque people received that month would give the impression that what the Minister said on budget day was untrue. That impression is created because the take in April is bigger than the take in February and March, even if one includes the concessions in the budget. I accept that there are technical problems involved but if PRSI was stopped on a 12-month basis it would benefit everybody. It would do other things about absenteeism in the early months of the year also. The Minister should look at this and not just for reasons of presentation.
There has been a lot of talk about tax reform and we are reaching the stage where there is not a high credibility among taxpayers that either the Minister or the House is serious about reforming the tax system. People greeted the first reduction in rates, particularly in the standard rate, with a certain degree of excitement. The commitment to continue to reduce the standard rate to 25 per cent was seen as a serious commitment by the Government but there is a realisation now that it does not mean that much in take home pay. If the allowances are not increased in line with inflation, and mortgage interest relief, life assurance relief and, maybe, VHI relief are to be watered down, the ordinary taxpayer who may be paying at a lower rate or at the higher rate will be paying the same amount of tax and, sometimes, more tax.
The steam is going out of tax reform and the public are quite sceptical about it. I should like to have a serious debate on the place of allowances — life assurance, mortgage interest and VHI payments — in the tax code. It is all about choices and if you go for lower standard rates — which is now the fashion in relation to tax reform — and if you pay for that rate by not indexing allowances and by reducing the special allowance you collect the same amount of tax but there is a difference in who pays it.
I hesitate to interrupt Deputy Noonan but it is quite clear that he is ranging wide of his amendment and going into the whole area of tax reform, which is hardly appropriate.
(Limerick East): I accept your advice, A Cheann Comhairle. People with mortgages have been particularly affected by rises in interest rates and are really feeling the pinch. They are paying significantly more than they expected — or were paying — 12 months ago. The Minister will tell me that the average person with a home loan is not bearing a heavy imposition but, of course, averages always disguise more than they reveal because when you talk about averages you are talking about people in the last year of a mortgage which they took out 24 years ago and who owe £500 or £600.
The people who are really hit are first time mortgage holders and, quite frequently, they are also high taxpayers with the result that it takes both spouses to service the mortgage. I recommend this amendment to the Minister, he will say there are technical problems but they can be overcome either by changing the amendment or by regulation.
Although I will be parting company with Deputy Noonan later as we deal with the corporate tax area, I support this amendment. I also had an amendment down on this important matter on Committee Stage. Indeed, during the course of moving that amendment I read a letter to the House from what I suggested was a typical, hard pressed mortgagee who recommended that a stepped interest relief scheme was probably the best that he and people like him could hope for.
Deputy Noonan has now put forward something along those lines by saying that when interest rates rise above 10 per cent, mortgagees should qualify for full relief. The reason I support it is that basically my approach to this question has been characterised by two objectives. One was to lift people in the poverty trap out of the tax net and the second was to try to shift some of the burden of the PAYE sector to other sections of society who can afford to pay a greater share. In talking about mortgages in the sense that Deputy Noonan outlined here is to talk predominantly about the PAYE sector.
Of course there are some people in that category who can well afford to survive the difference between 80 per cent relief on the interest and 100 per cent. As the House will recall, I tried on Committee Stage to provide for that by suggesting that relief would obtain at the standard rate and that, accordingly, some benefit would be given to those most in need compared to people who could well afford to pay. The Minister did not find that acceptable and we are now discussing this very important matter with a different amendment which seeks to give relief for the period that interest rates are higher than 10 per cent.
There is real hardship among mortgagees. On the last occasion we dealt with the accelerating phenomenon of repossessing homes and the question of interest relief on mortgages. While there may not be a connection between the two things, a great many people fear the inevitability of their home being repossessed because of the apparent inevitable spiral of interest rates. The difference for them between being able to hold on to their house in the situation of the limited mortgage relief at present and the 100 per cent could very well be the making of a very hard choice between holding on to their home in which they have made a major investment decision and denying their children and themselves some of the essentials of life.
In the letter I read to the House on the last occasion the mortgagee had a mortgage of less than £30,000 — the typical mortgage is about £33,500 — and he said that it would cost him £130 per month more than when this Government came to power. There have been four increases in interest rates since last June. A sum of £130 in the bracket of average industrial earnings is a very significant amount, relatively speaking, and it can make the difference between people being able to provide their children with the essentials and keeping a roof over their heads. For that reason, it is an important element of the tax debate this year because I do not think the same situation applied last year. At that time we had experienced a continued decline in interest rates but a rise four times since then is a very heavy burden. The Minister should have taken the thrust of what was said on board and given relief to people who are caught in the terrible dilemma of the prospect of losing their homes. More and more people are fearful and apprehensive in this regard.
I also support Deputy Noonan's amendment. The Labour Party also had an amendment down on Committee Stage dealing with the question of mortgage interest relief. As has been said, some families are in danger of losing their homes — and indeed will lose them — as a result of the increases in mortgage interest rates which have taken place over the past year, coupled with the reduction in the interest relief to 80 per cent.
A far wider category exists, those whose living standards have been eaten away by the escalation of interest rates over the last year. That is an undeniable fact and a very widespread phenomenon. People's living standards, their basic needs by way of food, clothing, education and so on, have been eaten away by having to meet substantially increased payments to building societies, local authorities, banks, financial institutions and so on. It would have been better had there been a general reform of the taxation system; I do not mean piecemeal reductions here that suit some better than others but a reform across the whole tax spectrum. One might then not look at mortgage interest in isolation. But when we do deal with these items piecemeal, as unfortunately we do here, then we must ascertain how it affects the average working family living in average or working-class-type houses. The fact is that they are put at risk.
The first priority of any family has to be the preservation of their home, and other things suffer. I have spoken to many people, people who are in low paid or even not so low paid employment, who have felt the chill of these increasing building society and other repayments over the past year. It has hit them. Their living standards have been reduced over the past year. The tax concessions granted in this budget have not affected their position in that respect to any appreciable extent.
It would have been better had the objective which Deputies Noonan, Rabbitte and I sought on Committee Stage been limited to those who need it, so that very expensive houses and people in receipt of very high incomes could have been excluded from any benefit. That does not apply in the case of the amendment before the House. In that respect the amendment is lacking somewhat in that it applies equally to a person in receipt of a very high income as another in receipt of a very low income; it benefits both equally. That is not equitable but it is the best proposition at present before us. In the interests of equity, of endeavouring to preserve the living standards of people who have been adversely affected, we will be supporting Deputy Noonan's amendment, it being the best available at present.
Like the Deputies who have spoken already I had an amendment tabled on Committee Stage similar to theirs. I will be supporting Deputy Noonan's amendment although I would have grave reservations about it. As the Minister has not reconsidered his position we have no choice but to settle for some kind of second-class solution. Like Deputy Taylor I am conscious of the fact that perhaps some people who could well afford such payments will also benefit from this proposal. Had the Minister taken my suggestion on board that this relief, like all allowances, should be granted at the standard rate only, that would have catered for the circumstances. On balance I contend this amendment is worthy of support.
Perhaps I may add my voice to those of others in asking the Minister to reconsider the whole matter of mortgage interest relief. Since the prevailing mortgage interest rate is around the 11.95 per cent to 12.95 per cent mark on houses, it is obvious that the property market in the Dublin area is slowing down considerably. There is no doubt that people find it extremely difficult to meet these increased interest rates.
In this country we are lacking a proper overall housing policy. Most people must either place their name on a local authority housing list, when the State must fund the total cost of construction of a house when they are eventually allocated one or, alternatively, resort to the private sector in order to purchase their own home. It is not commonplace here for people to rent private accommodation with a proper lease, but it is an acceptable part of the lifestyle in other European countries. In my view it is much better to encourage people to buy their homes, thereby relieving the State of the obligation of funding the overall cost of building houses for them. But, if we want them to do so, we must provide them with some incentive.
I have listened to certain economists maintain that the whole concept of providing mortgage interest relief is not a good one; were we to use the money saved by its abolition in reducing tax rates, it would be more beneficial to the ordinary individual. An economist might think that way but I, as a politician, do not think that way. That amounts to saying to somebody with family responsibilities — who is endeavouring to do the best for their family by way of providing good accommodation for them: we will take tax relief from you; we will do so by reducing tax rates spread among people who do not provide for themselves, people who do not accept the same level of responsibility in terms of providing a home for their family.
That may be the best solution in the minds of economists but we must take into account the advice we receive from professionals, listen to the people we represent and ensure that a balance is struck. I am in favour of supporting the individual who provides a home for his family and would encourage them even more so. If we persist in making it unattractive for people to take on this responsibility then the State will find that people will be living in bad housing conditions with knock-on effects — such as children endeavouring to study in the evening without any proper accommodation and so on. I would invite any Member to examine some of our flat accommodation and ask themselves: if I were studying for my leaving certificate, endeavouring to acquire 26 points, would I go home to some of these places and endeavour to find a corner in which to study? Then, it will be clearly seen that there is a downstream effect by way of damage to young people and their futures. Ultimately it places a greater responsibility on the State to provide more local authority housing.
I do not think that is wise and is certainly not in the interests of the people we represent. The Minister should think long and hard before taking the advice being given, not in any malicious manner, by our economist friends who tell us it would be much better to utilise this money in reducing tax rates. That may be the case for some people but, by and large, not for those we represent. The more liability one places on the shoulders of those who must provide a home for their families the more it will reflect, in the longer term, in the level of wage demands when it comes to the next phase of the national wage agreement which I fully support. Obviously the more I lose from my wage packet weekly or monthly the more I will need in terms of wage increases to compensate me. Were I a member of a trade union and found that my monthly income had been reduced by, say, £100 or £150 as a result of increased mortgage interest rates, then I would be endeavouring to have my union demand a higher wage increase to compensate me for that loss in order just to maintain the status quo. It is important that the State examine the overall position in regard to the provision of tax incentives to people to take out mortgages. We must remember it is not a question merely of benefit to the individual. We must also take into account its social effects in terms of proper housing, the type of family circumstances it will create and so on.
At our clinics we have to listen to people looking for local authority housing describe the horrible housing conditions in which they live and can see in the faces of those unfortunate people the strain being put on their marriages. There is no doubt in my mind that bad housing conditions ultimately lead to broken marriages and instability in the family set-up which in turn has consequences for the economy and the type of society in which we live. As I said, they also lead to demands for higher wage increases which, if granted, will affect the rate of inflation which, in turn, will affect the economy. I ask the Minister to consider accepting the reasonable amendment tabled by my colleague, Deputy Noonan, on this issue. I sincerely hope he will listen carefully to what is being said on all sides of the House on this matter.
I welcome the opportunity to comment on this amendment. Obviously I will be supporting it and wish to give my reasons for doing so. I imagine the conditions prevailing in rural Ireland are very different from those in towns. One of the great traditions in rural Ireland is that people supply their own houses. It is my experience that many young people build small dwellings because a grant is available for such a dwelling, and this helps to reduce the cost and the overall financial considerations.
In my constituency, because of an over-supply of labour, wage levels have been suppressed. It took some time for this to have an effect but it is remarkable that in recent years the market has responded. Having regard to the fact that wage levels are suppressed and interest rates are very high at present many families are under extreme pressure repaying their mortgages. That is my experience.
The greatest demand for local authority housing is from single parents. I have come across many cases where families have broken up and it would seem from the investigations I have carried out that the problems arose out of an inability to control finances and repay mortgages. It is clear from my discussions with the local authorities in my area that the greatest demand for housing is from single parent families and their problems seem to arise from the difficulties they encounter in trying to repay their mortgages.
If the level of mortgage interest relief is not increased we will be handing over this problem, which could easily be dealt with in this Bill, to the local authorities. It is clear that the amount expended on the provision and maintenance of housing in future years will be far greater than it would be if the Minister decides to amend the Bill now. The Government seem very anxious that the local authorities should become less involved in the provision of housing. If that is the case the Minister would be wise to look at this amendment. I give my full support to this amendment and hope the Minister will listen to the case being made and will respond to it.
I, too, support the amendment. We are very conscious of the fact that the level of mortgage interest relief has been kept at 80 per cent but this will have disastrous consequences for those buying their own houses. The House may recall that in his Budget Statement last year the Minister indicated he was reducing the level of mortgage interest relief because of the low rates of interest prevailing. However I can quote several instances where mortgage repayments have increased by £100 per month since last year's budget. The Minister can remedy this matter and restore mortgage interest relief to the pre-1987 level for those people who provide their own houses.
In my county of Westmeath, there are 240 families on the local authority housing list but this year the county council are only going to build ten houses. If the public sector are not going to provide houses, then the onus will rest on the individual to supply his own house. I ask the Minister to consider this amendment and to restore mortgage interest relief to the level needed to encourage people to buy their own houses. As the Government are not in a position to supply houses, I ask the Minister to look at this amendment which presents him with an opportunity to restore mortgage interest relief for the full amount.
The purpose of this amendment is to set aside the restrictions on mortgage interest relief imposed by section 6 of the Finance Act, 1987, and section 7 of the Finance Act, 1989 — the relief currently stands at 80 per cent of the amount which would otherwise be allowable — where the rate of interest is greater than 10 per cent per annum. I have already outlined why I do not propose to restore the relief to its pre-1987 level, given the major progress made in reducing income tax in recent years. I have listened attentively to the debate and it is well worth putting some figures on the record at this stage so that Deputies will appreciate what exactly is happening.
There have been calls for full indexation. This does not necessarily mean that this is the way I should be going in tax reform rather than reducing the rates. One of the problems is the width of the bands in that one reaches the higher rates of tax too soon. Personal allowances have been left untouched. Full indexation in 1990 would cost £40.6 million. My budget scheme will cost £120.4 million. The cost of indexation in a full year would be £67.7 million. The cost of the 1990 budget scheme in a full year is £200.7 million. The Deputies have quite rightly said that it does not matter in which way interest relief is given as long as we give more. It is clear that if I had stuck with indexation I could have gone a long way towards reducing the budget deficit but I did not. We have gone far beyond it.
(Limerick East): The Minister did not stick to it because he did not do it. One cannot use one side of the argument only. I know it is a good political argument at the moment because interest rates are high. I recognise the problems. I recognise that people, maybe, miscalculated the position and felt that low interest rates would be there for all time when they took out a loan to buy a house. That is not the reality of life and will not be in the future. The more we go into monetary integration in Europe the more volatile the situation may become. We may or may not get stability with Britain joining the EMS. It is not a solid argument to say that, because people bought houses and took out mortgages at a low interest rate and maybe misjudged their own capacity to service that sort of loan, the Government should step in and do something about it. We know there has been a patch of high interest rates. We also know there has been a significant improvement in the reserves in recent months. Indeed when we look at the continent we see that certain interest rates there have begun to come down.
We see signs of interest rates coming down in the United States and undoubtedly there is stability at the moment, and if that stability continues, then the downward pressure on interest rates will, hopefully, continue. That, however, is a matter for the Central Bank and undoubtedly they recognise the requirements of the economy too and they will make their prudent decision in good time.
To come back to the specific suggestion by Deputy Noonan, to allow relief at different levels depending on the rate of interest payable would lead to enormous administrative difficulties both for the Revenue Commissioners and taxpayers. Every time the allowance went up to 100 per cent or back down to 80 per cent 325,000 cases would have to be revised to correct the interest allowance. Taxpayers would query the Revenue's calculation leading to further administrative difficulties and the amendment would also cause problems for self-assessment where taxpayers would be unsure as to their exact entitlements to any relief in a particular year where the amendment might or might not take effect. It is quite clear what it would do to the self-assessment that we introduced and which everybody accepts is the way to go.
To come back to what the budget has done, we have gone over this ground before and there is no doubt that this debate will continue. Everybody wants to put mortgage interest relief back up at a cost of £55 million. Nobody says what other priorities I might throw out the window if we brought back 100 per cent relief as of now. I do not think it is realistic and the figures I have given clearly demonstrate that the amount of money given out as against indexation, across bands and so on, is far superior to the amounts of money that would be given out if it were on indexation only.
Second, as to the views on tax reform and the direction that should go, I know that Deputy Noonan and his party are committed to a 25 per cent tax rate and a 40 per cent or 45 per cent higher tax band. If there is total commitment to bands, personal allowances and so on, then that is a different set of sums. On the question of personal allowances, I know from reading various debates on this that Deputy Noonan's view one time, in 1988, was that we should leave personal allowances alone and go the other road. He may have decided, for his own good reasons, to change his policy in relation to it. It would appear from listening to the debate now that he is pointing the finger more at personal allowances than at the reduction of rates of tax.
Let us face the fact that there is a level of money required to do everything together and that sort of money is not available and will not be available no matter who the Minister for Finance is. One must take into account that one has to provide for the approximation of taxes at whatever level they will be. We only know part of the story yet and the other part of it is what will be the long-term future of the DIRT tax which is a big revenue earner to which Deputy Noonan referred in the course of the debate. It is on the table, but no more than that, for an approximation between member states. As we know it was introduced by the Community and it was thrown out by the Governments generally and consequently it lies dormant. If I were asked for a personal view, I do not see it coming back, certainly in the form in which it was there. There seems to be a reluctance on the part of many member states to involve themselves in a harmonised tax on savings. If that is to be the reality there is another tax bill to be met.
I do not think it is wise to give the impression that there is a big bundle of money to be given out and that we can take into consideration every aspect of tax that we would like, bearing in mind the approximation bills that have to be met and the insecure future of the DIRT tax. As far as the Government are concerned, we committed ourselves to a 25 per cent rate. We started to bring down the rates last year and we repeated that in this year's budget. We are committed to a 25 per cent rate by 1993 and the achievement of one single higher tax rate. We continued along that road by reducing the standard rate to 30 per cent, the first time that was reduced in 20 years, and the top rate to 53 per cent. At the same time we have kept 67 per cent or thereabouts of taxpayers on the standard rate. That is a fair achievement. Mortgage interest relief was a very small contribution to that.
If one looks at the contribution that was taken in providing some revenue towards the cost of that very expensive package in the budget this year, one finds no more than an adjustment on life assurance tax. Everything else is given except when we come to the corporate side where we do not get the benefit until further down the line. The taxpayer has done as well as he could possibly have done. Certainly there is a problem with high interest rates and high mortgage rates. Let us hope that the pressures that were there towards the end of 1989 and early 1990 will continue to ease and we can look forward to the day when interest rates come down again. That is the real answer to this problem.
Maybe an unintended side effect of consideration of such an amendment as we have here could well be that the lending institutions would not be under any moral pressure to bring down interest rates either and we could find that they might be happy to continue with high interest rates.
I am sure the Minister would not allow that to happen.
It is the Central Bank that controls interest rates. Our views in relation to Government policy are well known and the requirements of this economy are well known but there is a decision to make and they make it. I want to reiterate here the concern of the Government for those who are paying mortgages and to emphasise that the increased interest rates that have occurred in 1989 occurred mainly because of international factors over which we have little control.
The role of the Government is to provide, by its domestic, budgetary and other policies, the economic background conductive 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 mid-March. Against this background, the Central Bank is more optimistic about the general trend of domestic interest rates than it was in its February monetary policy statement.
In all the circumstances, I cannot accept this amendment.
(Limerick East): I thank the Minister for his reply and the other Deputies representing their parties who have said they will support the amendment. I will press the amendment but I would like to comment briefly on the Minister's reply. The Minister said the cost of indexing allowances for 1990 would be approximately £40 million and about £60 million in a full year and that he had conceded far more than that in the budget. Of course he had, but if one does not index allowances one is simply taking more tax from people by stealth, and to arrive at first base one needs to index allowances. The point I was making was not that the Minister had not spent money in the budget but that he got £40 million of the money he used to reduce rates in 1990 by not indexing allowances and that the appearance of the budget was far more generous than its reality. The Minister also took another tranche of money by reducing the interest relief on insurance premiums. We will be coming to that section of the Bill shortly. At that point the Minister may tell us what he expects to gain from that in 1990. There is a cross over effect from that section to this section because endowment mortgages will be caught twice: not alone has the interest rate gone up and the Minister is maintaining the reduction in the mortgage interest relief but on the insurance element of the endowment mortgage, half of the relief will be lost as well. The person with the endowment mortgage gets kicked three times, first with rising interest rates; second, the reduction of mortgage interest relief and third, the reduction in insurance relief. It is a real issue.
Deputy Taylor made the case very well when he said that the essential issue is that people's living standards are going down. I know young couples, who are both working, who have bought a house and now the issue of going for a drink on a Saturday night or buying a couple of pairs of tights is an issue of household budgeting. Things are that tight. Young people who have just started off have gone to the very last pound, and perhaps the pound beyond it, when raising the mortgage and they do not have an extra £100 disposable income each month to pay the increase in the mortgage. If the household budget is at the point where every pound is allocated to a particular need, where do you get the extra £100? What happens is that people have to cut back to cut back on their living standards, which go down considerably.
Deputy McCreevy also made a very good point on Committee Stage when he talked about his experiences when canvessing. He said that very often the people who were most hostile and most aggressive to the political process in general are the people who have just bought their houses in the new estates. The reason is that their backs are up against the wall, and the repayments are a constant struggle. In those circumstances anything which tips the balance against their household budget — the balance has been tipped dramatically in the past 12 months by rising interest rates — puts them in serious difficulties. That is the present situation and I think the Minister should address it.
The Minister has said that he does not control interest rates. However, he controls the policies that give rise to high domestic interest rates. The Minister and his colleagues showed no reluctance in claiming credit when interest rates were going down. According to the Taoiseach it was a great achievement that interest rates had dropped four points when Fianna Fáil were only in Government two years. He said: "Fianna Fáil can do it, with or without the help of the people who thought they could not do it." But when it goes in the opposite direction——
They will not claim credit for that.
(Limerick East):——they say they have no control over interest rates and that it is a matter for the Central Bank. I congratulate them on their tremendous news management. The public relations machine is working very well indeed when you gain on the swings and you do not lose on the roundabouts. However, if they want to take credit for reducing interest rates I am afraid they will have to accept the blame when interest rates rise. I do not believe that the Central Bank operate without consulting with the Department of Finance. I do not know the state of the debate at present, but it seemed peculiar to me that at a time when some progress had been made in correcting the nation's finances, the Governor of the Central Bank felt obliged to make a public statement in the early months of the year admonishing the Minister about fiscal policies, his budgetary targets and his medium term targets. That seems to me to be a breakdown, be it marital or otherwise between the Central Bank and the Department of Finance.
I wonder what is happening to interest rates at present? I do not believe the assurance we are getting from German politicians on the implications of German unification. I do not know what will happen to interest rates but I am quite convinced that decisions are being taken in Germany for political reasons. The decision on the exchange rate between the Ost Mark and the Deutsche Mark was taken against the advice of the Bundesbank. In my opinion German politicians will give any commitment at present because they have the one policy objective of unifying the country. In our own situation if the unification of the country were a possibility, I believe that many politicians in this House would give any kind of commitment also, but I would not put too much faith on commitments in East Germany that unification can be achieved without inflationary pressures or rises in interest rates. You have to take these commitments in the light of, "they would, wouldn't they" and, "what else could they say?"
I hope the Minister is right and that interest rates steady down. There are certain signs at present that interest rates are coming down internationally and I hope that trend continues. I hope that we can bring down our interest rates. There is also inflationary pressure on mortgage interest rates. When the Minister goes to re-negotiate the national wage agreement he will find that the union negotiators have been reminded by their members of the cost of servicing home loans. This will be a problem and it could be a source of inflation.
I accept that there are technical problems with the amendment but they are not as extensive as the Minister suggests. The technical problems can certainly be overcome.
Amendment put.
The Dáil divided: Tá, 66; Níl, 72.
Tá
- Ahearn, Therese.
- Allen, Bernard.
- Barnes, Monica.
- Barrett, Seán.
- Bell, Michael.
- Belton, Louis J.
- Boylan, Andrew.
- Bradford, Paul.
- Browne, John (Carlow-Kilkenny).
- Bruton, Richard.
- Byrne, Eric.
- Connaughton, Paul.
- Connor, John.
- Cosgrave, Michael Joe.
- Cotter, Bill.
- Creed, Michael.
- Crowley, Frank.
- Currie, Austin.
- D'Arcy, Michael.
- Deasy, Austin.
- De Rossa, Proinsias.
- Doyle, Joe.
- Durkan, Bernard.
- Farrelly, John V.
- Fennell, Nuala.
- Ferris, Michael.
- FitzGerald, Garret.
- Flanagan, Charles.
- Garland, Roger.
- Ryan, Seán.
- Sheehan, Patrick J.
- Sherlock, Joe.
- Spring, Dick.
- Gregory, Tony.
- Harte, Paddy.
- Higgins, Jim.
- Higgins, Michael D.
- Hogan, Philip.
- Kavanagh, Liam.
- Kemmy, Jim.
- Kenny, Enda.
- Lowry, Michael.
- McCartan, Pat.
- McGahon, Brendan.
- McGinley, Dinny.
- Mac Giolla, Tomás.
- Mitchell, Gay.
- Mitchell, Jim.
- Moynihan, Michael.
- Nealon, Ted.
- Noonan, Michael J.
- (Limerick West).
- O'Brien, Fergus.
- O'Keeffe, Jim.
- O'Shea, Brian.
- O'Sullivan, Gerry.
- O'Sullivan, Toddy.
- Owen, Nora.
- Pattison, Séamus.
- Quinn, Ruairí.
- Rabbitte, Pat.
- Reynolds, Gerry.
- Stagg, Emmet.
- Taylor, Mervyn.
- Taylor-Quinn, Madeleine
- Timmins, Godfrey.
- Yates, Ivan.
Níl
- Ahern, Bertie.
- Ahern, Dermot.
- Ahern, Michael.
- Andrews, David.
- Aylward, Liam.
- Barrett, Michael.
- Brady, Gerard.
- Brady, Vincent.
- Brennan, Mattie.
- Briscoe, Ben.
- Browne, John (Wexford).
- Burke, Raphael P.
- Calleary, Seán.
- Callely, Ivor.
- Clohessy, Peadar.
- Connolly, Ger.
- Coughlan, Mary Theresa.
- Cowen, Brian.
- Cullimore, Séamus.
- Daly, Brendan.
- Davern, Noel.
- Dempsey, Noel.
- Dennehy, John.
- de Valera, Síle.
- Ellis, John.
- Fahey, Jackie.
- Fitzgerald, Liam Joseph.
- Fitzpatrick, Dermot.
- Flood, Chris.
- Gallagher, Pat the Cope.
- Harney, Mary.
- Haughey, Charles J.
- Hillery, Brian.
- Hilliard, Colm.
- Hyland, Liam.
- Jacob, Joe.
- Kelly, Laurence.
- Kenneally, Brendan.
- Kirk, Séamus.
- Kitt, Michael P.
- Kitt, Tom.
- Lawlor, Liam.
- Lenihan, Brian.
- Leonard, Jimmy.
- Lyons, Denis.
- Martin, Micheál.
- McCreevy, Charlie.
- McDaid, Jim.
- McEllistrim, Tom.
- Molloy, Robert.
- Morley, P.J.
- Nolan, M.J.
- O'Connell, John.
- O'Dea, Willie.
- O'Donoghue, John.
- O'Hanlon, Rory.
- O'Kennedy, Michael.
- O'Malley, Desmond J.
- O'Rourke, Mary.
- O'Toole, Martin Joe.
- Power, Seán.
- Quill, Máirín.
- Reynolds, Albert.
- Stafford, John.
- Treacy, Noel.
- Tunney, Jim.
- Wallace, Dan.
- Wallace, Mary.
- Walsh, Joe.
- Wilson, John P.
- Woods, Michael.
- Wyse, Pearse.
Tellers: Tá, Deputies J. Higgins and Boylan; Níl, Deputies V. Brady and Clohessy.
Amendment declared lost.
We now come to deal with amendment No. 3 in the name of Deputy Garland. Amendments Nos. 5 and 6 are related, amendments Nos. 4, 9 and 10 are consequential, amendments Nos. 7, 11 and 13 are consequential, amendments Nos. 8, 12 and 14 are consequential. Therefore, I am suggesting that we discuss amendments Nos. 3 to 14, inclusive, together by agreement. Is that satisfactory? Agreed.
I move amendment No. 3:
In page 11, line 22, to delete "£6,500" and substitute "£8,000".
I did not put down an amendment on this matter on Committee Stage. I made it clear in relation to my other amendments that I was approaching the matter from a different angle which was the increasing of the personal allowances and the introduction of earned income relief. As these proposals were not accepted, I feel that the exemption limit increases granted by the Minister are inadequate. We had an adequate debate on this matter on Committee Stage on Deputy Rabbitte's amendment which sought to increase the exemption limit for married couples to £10,000. Deputy Taylor put down a similar amendment seeking a smaller amount. At that stage I said that I thought the figure of £8,000 for a married couple or £4,000 for single persons would be a reasonable amount to deal with this problem, bearing in mind that we must not incur a huge loss of revenue this year in view of our substantial budget deficit. The balance of equity lies with the figures of £4,000 and £8,000.
I would like to refer briefly to amendments Nos. 54 and 6 which deal with allowances for those people over the ages of 65 and 75 respectively. While the Minister has granted increases in the exemption limits I feel they are inadequate. People over the ages of 65 and 75 have to pay increased medical expenses.
The House is well aware of the failure by the Voluntary Health Insurance Board to reimburse legitimate hospital expenses and also claims for routine medical expenses under the home carer's scheme. I had occasion to discuss this issue with one of my constituents recently. I discovered and there is a very serious lack of reimbursement by the VHI in respect of anaesthetists' fees which, apparently, have not been increased since 1977. This is outrageous. When this factor is taken into consideration I consider that these amended figures are reasonable in the context of the present budget.
I support amendment No. 3 which is the substantive amendment. It seeks to deal with the level at which people are exempted from income tax. As the House is aware I put down a significant amendment on Committee Stage on this matter which is the area where the taxation system can be used as an instrument to tackle poverty. It has become fashionable for various commentators to debunk the statistics on poverty and so on, but the fact remains that we have a very serious problem of poverty endemic in our society. Whether it is true that one third of our people are living at or below the poverty line, the dimensions of the problem are very serious. It is important to put on the record again that the problem of poverty is not confined to social welfare recipients. There are people on low pay who, for a range of reasons partially related to entitlements that they might otherwise have as social welfare recipients and are now denied as a result of the fact that they are PAYE earners, are similarly caught in the poverty trap. Essentially, the purpose of Deputy Garland's amendment is to lift these people out of the poverty trap by using the taxation system.
In my submission last week on this issue I instanced a number of areas of research that bears out the argument. I will not go over it again except merely to refer to the ESRI study which was commissioned — I think — by the Conference of Major Religious Superiors. In any event a paper abstracted from that research was presented to the Conference of Major Religious Superiors on this issue. It showed that somewhere between 11 per cent and 18 per cent of people in the poverty trap were liable for both PAYE and PRSI. It is absurd that people in that circumstance ought to be required to pay tax and PRSI.
In my amendment I suggested that £100 per week was a reasonable threshold below which one ought not be expected to pay tax. Put that into the perspective of your own life and it is difficult to understand how anybody can eke out an existence on less than that and be liable for income tax. Deputy Garland's amendment proposes to reduce that to about £80 per week, which seems to be the absolute minimum. The level fixed by the Commission on Social Welfare, for example, would be about £66. When you reconcile that with the entitlements of social welfare recipients and the liability for PRSI and PAYE, the figure of about £80 is very reasonable indeed.
The Minister ought to take on board the thrust of our arguments. We are trying to target the tax relief on the poor in this area. That is important. We have all agreed that resources are finite, choices must be made and where there is some scope it ought to be targeted on the least well off in our society. As we go through the rest of the Bill we will come to areas dealing with the corporate sector, capital acquisition tax, various tax avoidance measures to enable industry to minimise or avoid paying tax and so on; all these measures seem possible, but they are not possible when it comes to helping the people most in need. It is a great pity the Minister has not made at least some gesture in this area.
I refer, in passing, to the argument we had on Committee Stage about the relative merits of a tax credit system compared to tax allowances. We must focus our minds on this area in future. It is clear that tax allowances disproportionately help the better off — that goes without saying — whereas tax credits would be a boost to the people at the bottom of the ladder. I cannot remember the phrase the Minister used in refutation but it was to the effect that if we were to convert the existing tax allowances into tax credits the improvement would be minimal. The system is more complex than that. Nobody was suggesting the exact conversion the Minister hung his refutation on. I stand over the position that a system of tax credits would assist in particular the people caught at the bottom of the ladder.
There is literature which proves beyond doubt that a substantial number of people living in poverty are liable for, and are paying, PAYE and PRSI. That is wrong. To take a figure of £80, as is now being postulated, against the average industrial earnings, which are now about £220 per week, seems reasonable. The social partners, to whom the Minister referred during this debate, have agreed on a figure of £140 per week as the cut-off point and anything below that must be considered low pay. To take a cut-off point of £80 a week or thereabouts is eminently reasonable. I ask the Minister to consider the arguments being made.
We debated the thrust of the principles involved here at considerable length on Committee Stage and I do not intend to go over that ground again. I support the series of amendments tabled by Deputy Garland. He has taken a figure between those submitted by Deputy Rabbitte and myself on Committee Stage, but the general thrust of what he seeks to achieve is fair, equitable and just. It proposes that people on very low incomes should be taken out of the tax net altogether.
Nobody should speak in support of any amendment that involves a cost to the Exchequer without indicating where the shortfall should be made up, and I have no hesitation in doing so on this occasion. The Minister has a very wide range to make up the cost, whatever it would be, of meeting Deputy Garland's amendment. For example, he could leave corporation tax where it was; he could leave capital gains tax where it was; he could leave the higher rate of income tax where it was; and he could introduce a wealth tax of even a nominal amount that would more than cover the thrust of the amendments. It is not that the money is not there, that it cannot be got. Adjustments along the lines I have mentioned, even on the fringes of them, would more than cover the money that would be needed to meet the costs of this amendment. It is a question of the will to do it and what the political objectives of the Government are.
The political objectives of the Government are to look after the well-to-do and the whole thrust of the budget is to that end. If one analyses it one will see that the wealthier one is, the higher one's income, the better and bigger one's resources, the better one does under the budget. The corporate sector, people making capital gains, people sitting on large quantities of wealth, are not charged wealth tax, because we do not have one. Those people got the lion's share of what was given away in the budget. Money was given away in the budget but the question is, where did it go? It went to the wealthy sectors and the wealthier you were the more you got. There can be no equity in the taxation system unless the issue of capital taxation in one form or another is adequately dealt with.
The Minister has conceded in our debates over the last few days that the proportion drawn from capital taxation sources is minuscule in comparison to that taken from income sources and the PAYE sector in particular, but he has done nothing to reverse that trend or to tackle it in a meaningful way in his budget or the Finance Bill. Of course, we know the Fianna Fáil Party do not believe in dealing with capital taxation or having reasonable, fair, adequate or just capital taxation. That is entirely contrary to their political philosophy and to those who back them up and down the country. That is not new, it always has been their position. One can recall the wealth tax introduced by a previous Coalition Government. It was a modest tax and produced only modest amounts of capital taxation, but it was never really given a chance to operate properly, to get off the ground. It was only beginning to have the effect for which it was designed by the Coalition Government, and when Fianna Fáil came back to Government in 1977 one of the first things they did was to abolish that most equitable of taxes which the Coalition Government had begun to introduce on the road to equity in taxation. I was not a Member of the House at that time but I recall the report that there was a roar of cheering from the Fianna Fáil benches when the then Fianna Fáil Minister announced that he was abolishing the wealth tax. That sums up their philosophy on this issue.
There is no point in the Minister's shedding crocodile tears, saying he has no choice and the money is not there. The money is there. There are many extremely wealthy companies and corporations making very large amounts of money here and paying little or no tax. Meat processing, for example, would be fair game for a bit of reasonable taxation but there is no way that can be achieved. The meat barons who are making millions from one of the main raw materials of this country pay little or no tax.
The Minister goes along with that, but when it comes to people who are living in poverty, the people we were trying to help in our Committee Stage amendments in order to bring them above subsistence level through the tax code, no money can be found. There is no way the Minister will provide a wealth tax or adequate company taxation to provide for that. He allows the whole system, riddled with allowances, the 10 per cent, the company allowances, the pension funds etc., to continue merrily on their way costing the Exchequer hundreds of millions of pounds. A mere drop in the ocean out of those funds would more than cover what we are seeking to achieve.
That is where the political divide is. The people have to recognise that fact and deal with it when elections are held. They have their chance time and time again and they get the Government and the policies they vote for. It is a tragedy; it is unfair and unjust. The Minister has a chance even at the eleventh hour to make some gesture towards those on the lowest end of the scale. I join with other Deputies in appealing to him to do so.
The purpose of these amendments is to increase the general income tax exemption limits and the exemption limits for aged persons proposed in the Bill. Amendments Nos. 3 and 4 propose to increase the general exemption limit, as set out in the Bill, by £1,500 for married couples and by £750 for single and widowed persons. Acceptance of these amendments would result in an additional cost to the Exchequer of £39.8 million in 1990 and £66.4 million in a full year and would exempt some 69,500 persons for tax liability.
Amendments Nos. 5 and 7 propose to increase the age exemption limits set out in the Bill by £500 for married couples and by £250 for single and widowed persons, aged 65 years or over but under 75 years. Acceptance of these amendments would result in an additional cost to the Exchequer of approximately £2.9 million in a full year.
Amendments Nos. 6 and 8 propose to increase the age exemption limits set out in the Bill by £500 for married couples and by £250 for single and widowed persons aged 75 years or over. Acceptance of these amendments would result in an additional cost to the Exchequer of £0.7 million in a full year. The total cost to the Exchequer of amendments Nos. 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13 and 14 combined would be £41.7 million in 1990 and £70 million in a full year.
Section 1 of the Bill already provides for very generous increases in the exemption limits: £500 in the case of a married couple under 65 years of age or £250 in the case of a single or widowed person in this age category; £700 in the case of a married couple where either spouse is aged 65 years or over but under 75 years or £350 in the case of a single or widowed person in this age category; and £700 in the case of a married couple where either spouse is 75 years or over or £350 for a single or widowed person in this age bracket.
In addition, in recognition of the difficulties faced by low income families, the special addition of £200 per dependent child which was introduced last year is being increased by £100 to £300 per child. This child element is intended to target relief at a group which has been identified as particularly in need of State support and, together with the increase in the basic exemption limits, will go a long way towards alleviating the tax burden on low income families. The increases provided by section 1 and the associated marginal relief will cost the Exchequer about £23.7 million in a full year and will exempt 30,900 persons with 58,100 children from liability to income tax. A further 65,000 taxpayers with 123,100 children will have reduced liability because of the operation of marginal relief as a consequence of the increases.
The increases in the exemption limits provided for in section 1 of the Bill are the most generous that can be afforded at this time, especially as other significant reliefs — i.e. the reduction in both the standard and top rate of tax, the increases in the rate bands and the renewal of the PRSI allowance — are provided for in the Bill.
With regard to exemption limits, Deputy Rabbitte made the point that £140 was the cut-off point and it was felt that anyone earning below that should not be liable for tax. I do not know whether he is talking about single people or married couples. A married couple with three children are free from tax at £143 a week. If they have four children the exemption is higher. The figure in respect of a married couple aged 65 and under 75 is £144 per week and the figure over the age of 75 is £167 a week. All those carry an extension of £6 per child per week. This is the first move to focus on low paid people. No matter what distance one goes there will always be people who think one should go further. There are choices to be made and when I make those choices I must deliver. It is easier to make choices when one does not have to deliver.
Deputy Garland raised a question about unreimbursed health expenses. Income tax relief is available under section 12 of the Income Tax Act, 1967. Unreimbursed health expenses may be claimed under that section.
We embarked last year on tackling the problem of the low paid. We have gone a long distance and we intend to go further as circumstances permit in future budgets. An increase of 35 per cent over two budgets for a married couple with three children cannot be regarded as miserly. For a couple with four children the increase is 40 per cent. These are substantial increases in an area which needs more care and attention. At least a good start has been made.
The overall point being made that the less well off are not being looked after in this budget must be rejected out of hand. This budget produced a package costing £235 million for welfare recipients, the disadvantaged and the elderly. It is the largest ever package for this sector. I reject any criticism that the budget was unbalanced in that it did not look after the least well off. We have targeted the low paid and those less able to look after themselves. When one examines the full facts, one sees they have clearly got the best package possible.
The best response to poverty in many areas is more economic activity and the creation of more enterprises which will provide more jobs. I believe a lack of jobs is the biggest single factor contributing to poverty. As I have said, progress in this area has been slow to date but it is beginning to accelerate and we want it to accelerate further from here on in.
No matter what choices we make it is the ritual every year to expect more and more amendments. That is what debate and politics are all about. I respect the views of the people opposite — they are entitled to their views as I am entitled to mine — but we have to make the choices at the end of the day and stand over them. I do not think the people outside who responded very favourably to the budget see it in the same light as that put forward by the Deputies here today.
(Limerick East): The argument about exemption limits arises first from the desire for people below the poverty line, however we define it, not to be actually caught in the tax net. It does not make much sense to take tax off people and than attempt, through the family income supplement or other devices, to restore that money. It is pretty daft to take money out of one pocket and put it back into the other.
The other argument is that low paid people who are taxed are caught in a poverty trap and are probably better off staying on social welfare than going back to work. I want to refer to the figure for exemption limits given by the Minister and which he claimed as the pinnacle of his success. He said that a married couple with three children on £143 per week where the husband is working will be exempt from income tax. However, a married couple with three children on social welfare will get about £110 per week.
It will be somewhere around that.
(Limerick East): A man earning £143 per week will have to pay £11 per week in PRSI. PRSI is a very heavy imposition on the low paid because it is paid on every pound and there is no exemption limit. PRSI is a bigger drag into the poverty trap for the low paid than is income tax. This will bring the income of a working man down to £132 per week while a man on social welfare will receive £110. The working man will also have to get to work which may cost him £1 per day on bus fares, thus pulling another £7 from his wages and reducing his income to £125 as against £110 for a person on social welfare. If the working man lives in a local authority house, and on the level of income we are talking of that is likely, there will be a change in his differential rent and he will pay an extra £4 or £5 per week in that respect. This means there will be an income differential of only £10 between the working man and the man on social welfare.
Are we seriously suggesting that somebody on social welfare will work a 40 hour week, five days a week for £10 extra? I have not calculated the full expenses but he will also have to pay union dues and will lose his medical card because he will be just above the exemption limit. He will either have to go on VHI or take a risk. If any of his children get sick he will have to pay £10 per day for ten days in a public ward. Even though he will be an insured worker under PRSI and entitled to free health services he will still have to pay £10 per day in hospital charges. This is the essence of the poverty trap argument.
Do not exclude the family income supplement.
(Limerick East): He would be eligible for the family income supplement in such circumstances but why organise a system where one arm of the State is taking money off this man while another is giving him back money to compensate him for the money which was taken from him in the first instance? The point I am making is that PRSI must be taken into the arithmetic. Otherwise tax exemptions alone will not solve the problem.
Deputy Rabbitte gave an example which leads to the same conclusion. He suggested that £100 per week should be the exemption limit for a single person. That would mean that somebody on an annual wage of £5,200 would be exempt from tax. At present a person on an annual wage of £5,200 pays about £600 in income tax and £400 in PRSI. Even if this person is exempted from income tax he will still have to pay £400 a year, or £8 per week, in PRSI. The Minister may say I am out shillings and pennies but I am not far out in the actual figures. I believe an approach to low paid workers which does not take tax exemption limits plus PRSI in tandem will not succeed. During the last election we put forward a simple proposition, which I also put forward in this House, that is, the first £3,000 of salary should be exempted from PRSI.
Alternately, the tax credit system could be co-ordinated.
(Limerick East): We can cut the slice wherever we like but I believe the first £3,000 of salary should be exempted from PRSI. This will cost a significant amount of money but it could be recovered by removing the ceiling at the other side. In reply to a Parliamentary Question, the Minister told me that the gain to the Exchequer by removing the ceiling would be exactly the same in the case of the million pounds as the exclusion of the first £3,000 of income from PRSI. These types of measures where we target people on low pay and put them in the situation where they at least do not lose money by returning to work are the ones we should follow. People in low paid jobs stay in them even though they would be better off on social welfare because it is their lifestyle to work and they could not bear to have to fool around all day with nothing to do. It is not so much that people give up their jobs to go on social welfare but if people lose their jobs and are out of work it is almost impossible for them to go back into low paid jobs.
The problem is magnified in proportion to the number of children in a family. A person with four children will have to receive an average industrial wage before he can afford to go back to work. Obviously my arguments do not apply to the same extent in the case of a single person on unemployment assistance of £40 per week taking up a job which pays £140 or £150 per week because the differential in that case is big enough to encourage the single person to go back to work. The trap really closes when a person has three, four or five children. This is a very serious problem which must be looked at because it has two effects. First, it keeps people on the live register whom I do not believe would be on it otherwise. I do not believe in the theory that there is a set quantum of work, that regardless of what people are paid there are only so many jobs in the economy and if a fellow leaves social welfare and takes up a job all that happens is that somebody is knocked out of a job and has to go on social welfare. I believe the number of jobs in a country expands and contracts relative to wage levels. There is plenty of work available at £100 per week but people cannot afford to take it up. If we could target many of our energies towards the elimination of poverty traps it would make a big difference.
We are going to go through the nineties with the demographics much the same as they have been and we will be looking at fairly high levels of unemployment, even with the most optimistic view of the economy. According to the ESRI it is very difficult to see how there will be fewer than 170,000 on the live register by the year 1997-98. Perhaps they are being pessimistic but normally they are optimistic. There is a demographic problem. It may not be the same people who are on the live register because there would be movement in and out. However, if we cannot provide jobs for all our people we should at least attempt to have all our people employable. A person out of work for a significant period of time is not employable. That person cannot stand the discipline of a job and may not have the skills of the labour force anymore.
In the large local authority housing estates in our principal cities and towns the level of male unemployment is more than 80 per cent. I accept that the national figure is 17 per cent but that disguises the global figure. In the middle class housing estates unemployment can be from 2 per cent to 4 per cent but in the working class housing estates it can be very high. In small villages where there are 50 council houses it is quite common to have 35 of the men living in those houses unemployed. One gets a clear picture when one goes around the country. One can see husbands collecting children from school or will meet the husbands when handing out literature. This is serious and if it continues not only will that generation of men be unemployable but their children will repeat the process. We do not pay half enough attention to the problem of poverty traps. In so far as Deputy Garland's amendment addresses the poverty trap, I support it.
I appeal to the Minister, when he is looking at this next year, to address the problem in relation to PRSI. I do not think anything serious can be done without looking at PRSI. I should like to ask the Minister to consider giving the benefits on net pay rather than on gross pay. Social welfare is always net but pay is always gross. One receives a medical card on the basis of the net social welfare payment but if one has the same amount of money thrown up by a gross wage one could lose the medical card, pay a higher differential rent or lose benefits such as free school transport.
The Minister should consider eliminating the low paid from the exemption limits, eliminate PRSI on the first tranche of income and pay for it on the other side. The Minister should look at the anomalies in the family income supplement scheme. He should award the benefits on a net income basis rather than on gross income, and graduate them. One experiences problems when one approaches a health board with a hardship case and is told that the person concerned is £10 above the limit. At different levels of income it should be possible to graduate benefits, and that is important. If we produced such a package we might be making a serious attack on the poverty traps. They are keeping the live register artifically high, are making people unemployable and building up a welfare culture in certain communities. Unemployment is so high in specific communities that children growing up see unemployment as the normal pattern of life in their community. They do not think along alternative lines.
I am pleased that Deputies Rabbitte, Taylor and Noonan supported my amendment. I agree with Deputy Taylor that it would be highly irresponsible of me, or any Deputy, in view of our budget deficit to be calling for a reduction in the tax take, but, as Deputy Taylor said, there is ample scope when dealing with the corporate sector and capital taxes. Amendments in my name have been turned down because I sought to increase the tax take from those sectors to compensate for the extra allowances I was proposing for the lower paid. That is a bad way to operate. I should like to give one simple example. A £4,000 exemption limit applies to married couples before they are liable for capital gains tax. For many upper middle class people, particularly those inclined to dabble on the Stock Exchange for the purpose of making capital profits, that gives them effectively an extra allowance of £4,000 each year. Has the Minister costed that? I would be interested to know how much extra revenue we would gain by the elimination or reduction of that limit.
I agree with Deputy Noonan's views on PRSI. There should be a cut-off point. It is absurd that people on low wages must pay PRSI. I agree with him about the poverty traps but they would not be eliminated if the House adopted my amendment. The only way to eliminate those traps is to introduce a basic income scheme for everybody. That policy is well known to Fine Gael and The Workers' Party, and it disappoints me that in a debate like this I am the only Member to refer to it.
Question put: "That the figure proposed to be deleted stand."
The Dáil divided: Tá, 71; Níl, 63.
Tá
- Ahern, Bertie.
- Ahern, Dermot.
- Ahern, Michael.
- Andrews, David.
- Aylward, Liam.
- Barrett, Michael.
- Brady, Gerard.
- Brady, Vincent.
- Brennan, Mattie.
- Briscoe, Ben.
- Browne, John (Wexford).
- Burke, Raphael P.
- Calleary, Seán.
- Callely, Ivor.
- Clohessy, Peadar.
- Connolly, Ger.
- Coughlan, Mary Theresa.
- Cowen, Brian.
- Cullimore, Séamus.
- Daly, Brendan.
- Davern, Noel.
- Dempsey, Noel.
- Dennehy, John.
- de Valera, Síle.
- Ellis, John.
- Fahey, Jackie.
- Fitzgerald, Liam Joseph.
- Fitzpatrick, Dermot.
- Flood, Chris.
- Gallagher, Pat the Cope.
- Harney, Mary.
- Haughey, Charles J.
- Hillery, Brian.
- Hyland, Liam.
- Jacob, Joe.
- Kelly, Laurence.
- Kenneally, Brendan.
- Kirk, Séamus.
- Kitt, Michael P.
- Kitt, Tom.
- Lawlor, Liam.
- Leonard, Jimmy.
- Lyons, Denis.
- Martin, Micheál.
- McCreevy, Charlie.
- McDaid, Jim.
- McEllistrim, Tom.
- Molloy, Robert.
- Morley, P.J.
- Nolan, M.J.
- Noonan, Michael J.
- (Limerick West).
- O'Connell, John.
- O'Dea, Willie.
- O'Donoghue, John.
- O'Hanlon, Rory.
- O'Leary, John.
- O'Malley, Desmond J.
- O'Rourke, Mary.
- O'Toole, Martin Joe.
- Power, Seán.
- Quill, Máirín.
- Reynolds, Albert.
- Stafford, John.
- Treacy, Noel.
- Tunney, Jim.
- Wallace, Dan.
- Wallace, Mary.
- Walsh, Joe.
- Wilson, John P.
- Woods, Michael.
- Wyse, Pearse.
Níl
- Ahearn, Therese.
- Allen, Bernard.
- Barnes, Monica.
- Barry, Peter.
- Bell, Michael.
- Boylan, Andrew.
- Bradford, Paul.
- Browne, John (Carlow-Kilkenny).
- Bruton, John.
- Bruton, Richard.
- Byrne, Eric.
- Connaughton, Paul.
- Connor, John.
- Cosgrave, Michael Joe.
- Cotter, Bill.
- Creed, Michael.
- Crowley, Frank.
- D'Arcy, Michael.
- Deasy, Austin.
- De Rossa, Proinsias.
- Doyle, Joe.
- Durkan, Bernard.
- Moynihan, Michael.
- Noonan, Michael.
- (Limerick East).
- O'Brien, Fergus.
- O'Keeffe, Jim.
- O'Sullivan, Gerry.
- O'Sullivan, Toddy.
- Owen, Nora.
- Pattison, Séamus.
- Rabbitte, Pat.
- Farrelly, John V.
- Fennell, Nuala.
- Ferris, Michael.
- FitzGerald, Garret.
- Flanagan, Charles.
- Foxe, Tom.
- Garland, Roger.
- Gregory, Tony.
- Harte, Paddy.
- Higgins, Jim.
- Higgins, Michael D.
- Hogan, Philip.
- Kavanagh, Liam.
- Kemmy, Jim.
- Kenny, Enda.
- Lowry, Michael.
- McCartan, Pat.
- McGahon, Brendan.
- McGinley, Dinny.
- Mac Giolla, Tomás.
- Mitchell, Gay.
- Mitchell, Jim.
- Reynolds, Gerry.
- Ryan, Seán.
- Sheehan, Patrick J.
- Sherlock, Joe.
- Spring, Dick.
- Stagg, Emmet.
- Taylor, Mervyn.
- Taylor-Quinn, Madeleine
- Timmins, Godfrey.
- Yates, Ivan.
Tellers: Tá, Deputies V. Brady and Clohessy; Níl, Deputies J. Higgins and Boylan.
Question declared carried.
Amendment declared lost.
Since amendment No. 3 has been negatived, amendments Nos. 4, 9 and 10 cannot be moved.
Amendments Nos. 4 to 14, inclusive, not moved.
I move amendment No. 15:
In page 13, between lines 2 and 3, to insert the following:
"(2) Notwithstanding anything contained in the Tax Acts, Part II of the Table to section 2 of the Finance Act, 1984, (inserted by this section) shall apply to persons with dependents who are widows, widowers or single parents.".
I am somewhat disappointed the Minister did not return on Report Stage with a proposal in this area. On Committee Stage he had indicated he was sympathetic to the arguments advanced. I should like to remind the House that the amendment about which I am speaking essentially seeks equality of treatment under the tax code for widows, widowers and single parents. All sides of the House, including Deputy Ahern and I think somebody else from the Government benches, expressed their support for the content of the amendment on Committee Stage.
Under the present tax code there is one of the most cruel anomalies. Nobody in the House, including the Minister, has tried to advance any argument to justify why there ought to be this discrimination against widows, widowers or single parents. Whatever about the inequities in the tax code as a whole, there is no doubt that this group of people are the most discriminated against within the entire tax system. How it is proposed that somebody ought to lose the benefit, whether in terms of the tax bands or tax allowances because the misfortune of being widowed is visited on them, is beyond me. Essentially we are talking about circumstances in which somebody, prior to such a tragedy befalling their family, benefits from the double rate bands, the commensurate allowances or whatever. Suddenly that family loses a parent. In the case of an average-sized Irish family, whichever spouse it is who dies, it means that, on top of that personal tragedy — as the law stands — they lose the entitlement that was theirs prior to that tragedy befalling them. Normally what happens is that if the person is in employment — which is obviously what is envisaged here — they will have to employ somebody to look after the children, a child minder, housekeeper or whoever. Yet apparently we do not find it acceptable to extend the double rate bands to such people.
There really is no defence for discriminating against the group of people referred to in this amendment, and the Minister has not advanced any. In fact he has said he is very sympathetic to the argument being advanced. His own backbenchers as well as the other Opposition parties in this House supported the amendment on Committee Stage. I am not saying that the Minister gave a hard commitment but, looking at the record, he did say he was sympathetic, that if he could he would do something. He said the matter was complex but that he would ascertain what he could do for Report Stage. I do not accept that the argument is as complex as the Minister or his advisers would have us believe. I know some questions do arise about the effect of such a decision on other sections of the workforce if the provisions of this amendment were to be implemented, but those implications are exaggerated. Where there is a will to tackle a grievance like this it can be tackled. In this case it is not a matter of cost. If my calculations are correct — and I do not think the Minister challenged this on the last occasion — we are talking about an extension of the double rate bands to the categories mentioned here costing approximately £3 million in a full year. I cannot accept that that type of cost is prohibitive.
Debate adjourned.
Sitting suspended at 1.30 p.m. and resumed at 2.30 p.m.