Finance Bill, 1991: Committee Stage.

By agreement, it is proposed that in the case of the Finance Bill, 1991, in Committee, the procedures in Part I, Chapters I to III, inclusive, shall be brought to a conclusion at 10.30 p.m. tonight by one question which shall be put from the Chair and which shall in relation to amendments include only amendments set down by the Minister for Finance.

Is that agreed? Agreed.

NEW SECTIONS.

(Limerick East): I move amendment No. 1

In page 10, before section 1, to insert the following new section:

"1.—If the Consumer Price Index for the month of December preceding the year of assessment for income tax is higher than it was for the previous December then, unless the Dáil otherwise determines, all income tax allowances, income tax bands and income tax exemption limits pertaining on the enactment of this Act, will be increased by the same percentage increase as the percentage increase in the Consumer Price Index, and, if the result is not a multiple of £200, rounding it up to the nearest amount which is a multiple.".

This amendment proposes to increase bands, allowances and exemption limits in the income tax code every year by the amount which the consumer price index has increased over a 12-month period. In other words, this amendment would make it mandatory on the Minister for Finance — indeed this would follow automatically — to index-link all allowances, bands and exemption limits. This is a very necessary amendment as our income tax code is particularly complex and when the Minister announces changes on budget day there are always winners and losers. The very complexity of the code quite frequently makes it impossible for people to know the net effect on their income tax affairs.

It has been the practice of Ministers for Finance in all Governments in recent years to seek to magnify the good news in their budget and to conceal the bad news. That process of presentation makes life difficult for the ordinary taxpayer. This year, for example, in the table which followed the Minister's very lengthy speech, the net effect of the income tax measures was that the generality of income tax payers were £53 million better off just on the changes announced by the Minister on budget day. Of course, they were not necessarily £53 million better off because there is another figure in the total figures which the Minister has included for buoyancy of revenue and a lot of that buoyancy would come from income taxpayers as well.

I put down a question to the Minister for Finance late in 1990 asking him what it would cost to index bands and allowances, and he told me that each 1 per cent of indexation would cost £15.5 million, which is fair enough. I did not ask him what it would cost to index the PAYE allowance and the personal allowance but I am sure the Minister's officials have that figure there. It is probably £3.5 or £4 million so the cost of each 1 per cent indexation would be £17 or £18 million. At an inflation rate of 3 per cent this turns out at about £52 million. The net effect of the Minister's measures on budget day on his own figures was £53 million. It was presented as a major tax reform budget with massive gains for people paying income tax and in particular on the PAYE sector but in fact the Minister either indexed the take or probably left the generality of income taxpayers slightly short. As long as we have a situation where the kind of fiscal drag of rising prices ensures that a greater and greater proportion of people's real income is taxed at the higher rates then there will be great unhappiness and scepticism about any claims that the tax system is being reformed.

I put down another question to the Minister last year also on the percentage of taxpayers paying tax at the standard rate. In 1990, 63 per cent of taxpayers paid tax at the standard rate only and that means 37 per cent paid tax at 48 per cent or 53 per cent. I remember having a debate with the Minister prior to the 1987 election where the only commitment made by Fianna Fáil on that occasion was that at the end of their period in office at least two-thirds of income tax payers would pay tax at the standard rate. That minor enough promise has not been fulfilled and the Minister's intention and that of his colleagues in Fianna Fáil was diluted by the massive tax proposals of the Progressive Democrats when they entered into Government with them.

Now we have the combined tax reforming resources of Fianna Fáil and their erstwhile colleagues now back in the fold, the Progressive Democrats, and the net effect of what they have done, after one allows for buoyancy, is to introduce a series of measures the total effect of which on budget day made the generality of taxpayers £53 million better off which, on my calculation, is slightly less than the rate of inflation. Mind you, £53 million is a lot of money if one is talking about private income, or even corporate income. However, when one looks at the total tax take as presented by the Minister, it is very small beer indeed.

The Minister estimates that all taxes will raise in excess of £8.3 billion in 1991, so £53 million out of that is very small indeed. However, I am not going into the merits or demerits of what the Minister did on budget day. What I want to point out is that as long as a situation is maintained where a Minister may pretend to give concessions while not indexing bands and allowances, then that Minister is engaged in a delusion, because when the real value of taxes and allowances is not maintained, people end up paying more tax on the real value of the same incomes.

I believe that taxation measures should be transparent. As far as possible on budget day the Minister should take the mystery out of it, take the illusion out of it, take the conjuring tricks out of it, and let people see what is actually happening. Fundamental to this process is automatic indexation of all bands and allowances. That does not tie the Minister because my amendment also says that if the Minister, for some reason, in some particular set of circumstances decides he is not in a position to index, he can come before the House on the Finance Bill and, in that particular year, say he is not indexing and propose the alternative quite clearly. Then that proposal will be a departure from the norm and it will be clear to everybody what is involved.

This year the Minister increased personal allowances by something less than 2½ per cent. I suppose at the time the rate of inflation was something less than 3 per cent. The Minister extended the range of the standard band by around the rate of inflation. The Minister did not do anything with the range of the 48 per cent band and he left the PRSI allowance and the PAYE allowance untouched. By not increasing allowances as they should be increased to maintain their value, the Minister generated some extra revenue which he was able to dispose of and he disposed of it by reducing the standard rate by one point and by doing some other things also.

I remember in Cabinet sometimes people thought they had done a good job when they brought their tax proposals forward on the budget. One would notice quite frequently that budgets, on budget day or the week after, are greeted with approval by PAYE people. That happens frequently because the presentation is good. One will nearly always find that by the time the Finance Bill comes and one is into the first and second week of May when the first monthly salary and pay cheques of the next tax year are coming in, the sounds from the factory floor are quite frequently sounds of derision. People look at the bottom line and see that despite the fact that they were told in the budget that there would be big reductions, they end up paying the same or more. Much of this sense of disenchantment, of frustration, of having been conned, which is common now amoung taxpayers, arise from the fact that the intention of a Minister for Finance on budget day with regard to income tax measures is frequently disguised and the Minister tends to disguise what he is doing in presentation of the budget.

To clarify the matter this simple amendment will require a Minister to index these allowances, bands and exemption limits. However, circumstances will arise when the fiscal position is so tight that the Minister in his wisdom will decide he cannot afford to do this. This amendment will also allow him not to index in particular years but his decision will be transparent. It will have to be put on the table. It will have to be shown clearly that this is a departure from the automatic norm of indexation.

The amendment deals with the technicalities of that procedures. I am proposing the bands, allowances and exemption limits be increased by the increase in the CPI between 1 December and the following December. Rather than have allowances and bands being denominated in odd amounts of money, I am also proposing a rounding up effect to the nearest £200, but if the Minister accepts my amendments and says to the nearest £100 allows him greater flexibility, that does not bother me. I do not think it appropriate that one should have odd numbers for purposes of calculations varying from year to year; we should end up dealing with hundreds of pounds.

This is novel here but it is the norm in the UK. This has been part of the income tax code in the UK for years. The late John Kelly, a former Deputy if he was here would be on his feet saying we do not have to imitate everything they do in the UK and asking why our policy is based on initiatives taken in the UK. However, we can always learn from our neighbours and, in the movement towards harmonisation in Europe on indirect taxes we are increasingly looking at the tax codes both direct and indirect in other member states.

One of the features of the income tax code in the UK is this system of indexation. It certainly will reduce the flexibility of a Minister for Finance in the future, but it will make very clear on budget day what is happening. Taxpayers will know if the full value of their allowances, and the range of the bands, is not maintained in real terms. Adverse budgetary decisions in respect of income tax which upset taxpayers so much will be more difficult in future for a Minister for Finance to present as benefits when they are running counter to the interests of taxpayers.

I notice Deputies Rabbitte and Quinn in pages of amendments increased the amounts of allowances. Deputy Rabbitte is using a 3 per cent indexer, if I may use the term, right across the range of allowances. He is approaching the same problem in a different way but achieves exactly the same result for 1991. I am not seeking to change the Minister's arithmetic for 1991. I am trying to establish that it would be part of our tax code from December 1991 for the next tax year, and subsequent years, to have an automatic indexation method based on the CPI at December. I know from what Deputies in the other main parties have put down that they agree with my approach and I ask them to support my amendment.

It is worth saying at the start of a debate on a Finance Bill that all of us in politics are general practitioners. We do not claim great accountancy expertise, apart from my colleague Deputy Gay Mitchell.

Even I do not claim that.

(Limerick East): Certainly I do not claim drafting expertise. As Ministers do frequently, the Minister may criticise the manner in which an amendment is drafted but the intent of the amendment is absolutely clear and I ask the Minister to accept it. It will be a bigger contribution to tax reform than any of the ideas being put forward by the Minister's lesser partners in Government because it will be real and substantial and something the ordinary overburdened PAYE person can readily understand.

I support the thrust of Deputy Noonan's amendment which, essentially, seeks to index bands, allowances and exemption limits by whatever is the CPI for that year. I was just glancing at the Second Stage speech of the Minister who inter alia claimed that this year's measure “will exempt some 18,000 taxpayers with 23,000 children from tax altogether”. That belongs to the Tommy Cooper school of fiscal reform.

Just like that?

With the effect of fiscal drag a couple of percentage points under the PESP, no longer are that many people taken out of the income tax net and that, of course, is a fundamental point of reform. The Progressive Democrats can cry all the way between various hiccoughs and crises in the Government about reducing the standard rate to 25 per cent, but the fundamental issue for so many tens of thousands of our people is how quickly they become liable for tax. It is observed that so many people become liable for tax at a rate of pay theoretically of less than £70 a week. Therefore, it is not tenable for the Minister to project that X thousand in any given year will be taken out of the tax net as a result of the changes he has made. As soon as the first phase of the pay agreement is implemented or as soon as the effects of the new tax year bite on the pay cheque that is no longer the situation, and so on up the ladder. The real level of tax liability is not being compared like with like. Having adopted the policy over recent years of going for tax reduction rather than tax reform, at least if we are to be consistent, we must and ought to have regard to the CPI. The minimum reliefs, such as they are, ought to be at least maintained in real terms.

I do not wish to go over the arguments Deputy Noonan advanced. The policy of indexation is good. Deputy Noonan identifies the fact that in the various amendments under this section I have taken our amendments of last year and roughly increased them by 3 per cent right across the board for the various allowances and so on. The idea was essentially the same. That is why I support the thrust of the amendment.

I support this excellent amendment in the name of Deputy Noonan. A person who would have found himself in the higher income tax bracket, even at the lower end of the income scale because the PRSI ceiling for health contributions was raised, finds that instead of having the rate of contribution cut from 53 per cent to 52 per cent, he — or she — is now contributing at the rate of 54 per cent. This indexation will make the sleight of hand which took place in the budget transparent. It is all very well to inform this House on budget day that tax rates are being reduced by 1 per cent but tax from the same pay packet on the same day was increased by raising the upper limit on the health contribution.

If we were to do what Deputy Noonan is suggesting by indexing the bands and the allowances, any such — I will not use the term "misleading"— sleight of hand would be immediately transparent and could be laughed out of this House for what it is. It borders on the absurd to tell somebody who has a contribution to the Collector General of PRSI and PAYE coming out of his pay cheque or wage packet each week that the Minister has given them a reduction in the upper band of tax rates by 1 per cent while at the same time he is taking more from them in PRSI. It is hard to convince them there has been a real advance in reducing the tax take. In fact, the whole tax take, particularly from those in the higher bands who are supposed to have done so well, is the same whether you call it PRSI or PAYE. It is absurd to reduce the tax bands and at the same time increase the level of income which is liable to PRSI contributions and call that reform or advance. It comes out of the same pay cheque, it goes into the same Exchequer and is used by the Minister to fund State services. There is no difference; it is simply a book entry and it is codding nobody. Deputy Noonan is right when he says that people on budget day think they are doing quite well but on 6 April when they receive their new tax free allowance certificate, or a month or two weeks later when they receive their pay packet, they find they are not significantly better off and sometimes they are worse off.

If we are to inform the country at budget time that advances are being made in tax reform, that tax bands are being widened and that tax rates are being reduced, let that information be factual and let it stand on its own. The information given on budget day does not meet these criteria. It is clear that when you add the PRSI and PAYE rates together, the total tax take has increased for a very significant number of tax contributors. I ask the House to accept this amendment in the name of Deputy Noonan.

Lest the House be misled inadvertently, while I accept that what Deputy Noonan is trying to do in this amendment is to give a similar effect to the specific amendments in my name and in the names of other Deputies, I rise to query whether we should be supporting a policy of indexation. If we have learned anything from the late seventies and early eighties it is that we have to get off the inflationary escalator of indexation and I will put down a very severe reservation. I know the amendment is specifically confined to income tax allowances and related income tax provisions, but indexation is not a policy I would like to see this House starting to support. We have to learn from the immediate experience of the past. Getting inflation under control has been a very painful process.

In his reply the Minister will have an opportunity to indicate what is his thinking in relation to the policy of indexation. We can achieve similar objectives in a more pointed manner by specific allowances rather than a catch all amendment. If we are to be consistent, it would have to go the whole way, that is, if inflation falls to a certain point allowances would be reduced by that amount. This is a no lose type of amendment where, if inflation were to fall, allowances would remain the same and there would be a net windfall beneficiary and this only comes into effect when inflation rises.

When the Administration of which Deputy Noonan and I were members took office inflation was at 22 per cent. None of us wants to go back to that situation again nor do we want to send signals to anybody that there is a climate of opinion — certainly not in the Labour Party — that we welcome that kind of attitude. Lessons have been painfully learned by people on fixed incomes. We can do the sort of things Deputy Noonan seeks to do in a number of different ways but, as Deputy Rabbitte said, this is a policy of indexation in principle which he supports. I would like to hear the Minister's response.

First, the purpose of this amendment is clear; we will not talk about the drafting, as Deputy Noonan suggested, we will just leave that aside and deal with the spirit and intent of the resolution.

The purpose of the amendment is to provide for statutory increases in income tax allowances, tax bands and exemption limits, by reference to annual increases in the consumer price index, unless the Dáil should determine otherwise. The amendment would, therefore, establish a principle of automatic entitlement to indexed increases unless the Dáil made other arrangements — either for a lesser or greater increase.

The implication in the amendment may be that it would result in taxpayers being better off than they are under the measures introduced in the current budget. The opposite is, however, the case. If instead of the budget scheme, the basic income tax structure consisting of the main personal allowances, exemption limits and rate bands had been indexed for 1991-91, in line with an increase of 2.7 per cent in the consumer price index, i.e. the increase in the 12 months to November 1990 — the index is not published to end-December — the cost to the Exchequer would have been £30 million in 1991 and £50 million in a full year. Similarly, indexing the PAYE and PRSI allowances would bring the total cost of indexation up to £35 million in 1991 and £58 million in a full year, which is lower by some £44.5 million in 1991 and £74.4 million in a full year than the cost of the budget concessions of £79.5 million in 1991 and £132.4 million in a full year. Clearly, the taxpayers' were much better off as a result of the budget than by indexation.

The cost of the budget concessions on tax rates, exemption limits, personal and PAYE allowances over the last four budgets was in the region of £500 million greater than would have been the case if the relief given in those budgets had been confined to indexation of the tax rates, exemption limits, personal, PAYE and PRSI allowances on the lines suggested by the amendment. Furthermore, under indexation there would now be an additional 30,000 low income individuals paying tax than is the case under the current system, and some 48 per cent of taxpayers would now be liable to tax at the higher rates compared with the current figure of 39 per cent.

For the benefit of Deputy Mitchell and Deputy Rabbitte, in talking about the recent budget as against indexation, I might give a few examples of how the budget compares with indexation. For a single person taxed under PAYE and on the higher rate of PRSI of £6,500 in 1991, who got a pay rise in line with inflation, the budget scheme is better than indexation as the following figures will show. Without any budget change the figure would be 15.9 per cent of the income, with full indexation it would be 15.3 per cent and with the budget scheme it would be 15.20 per cent. Perhaps I will now take an example at the other end of the scale. If a taxpayer had an income of £15,000 in 1991 and got a pay rise in line with inflation the result would be, without any budget change, 31.56 per cent, with full indexation 30.92 per cent and with the budget scheme 30.5 per cent. There are many examples one can give throughout the system which clearly shows that taxpayers were better off under the budget than they would be under indexation. For example, a single person on PAYE and on the high rate of PRSI, on an income of £7,000 in, say, 1985-86, was paying 29.57 per cent and in 1991-92 will be paying 25.80 per cent of income. This shows the graph and the direction in which it is going. A person on £10,000 in 1985-86 would have paid 37.28 per cent of the total, including PRSI, in 1991-92 he would be paying 32.51 per cent. Again, a person in receipt of £15,000 in 1985-86, total tax plus PRSI as a percentage would be 47.04 per cent as against 41.36 per cent in 1991-92. I do not think there is any need to give any more examples.

In addition, automatic indexation would greatly reduce budgetary flexibility and deprive the Minister for Finance of the day of an important discretion regarding budget decisions in any particular year and conflict with intended measures on other fronts. For example, the House will be aware that the Government have made a firm commitment to reduce the standard rate to 25 per cent and move to a single rate of tax over the next two years, if budgetary circumstances permit. It might also give unrealistic expectations to taxpayers at times of difficult budgetary circumstances. The amendment is probably based on the fact that a number of OECD countries have in the past introduced indexation provisions and that the United Kingdom has a similar provision to that proposed. However, some of the countries involved subsequently discontinued the provision and the United Kingdom has not always adhered strictly to theirs. As Deputy Noonan rightly says, if Deputy Kelly were alive, he would tell us to do our own business and not to look across the water. In 1981 for instance, Parliament decided otherwise and no increases were given. This illustrates the problems inherent in making decisions in advance of the relevant budget on questions of indexation.

I have given Deputies some idea of the net cost, but in case there is any misunderstanding as to the comparison with figures in the explanatory table in the budget, I would point out that the cost in 1991 of the budget concessions is given in that table as £53.1 million in income tax. The House may be under the impression that this figure can be compared with the cost of indexation, but that is not correct. The cost figure of £53.1 million takes account not only of the income tax reliefs consisting of reduced tax rates, increased personal allowances, and an expanded standard rate band but it also takes account of Exchequer savings from the budgetary measures reducing life assurance relief and restrictions in the BES. That figure does not include the cost of the increase granted in the exemption limits — a further £8.6 million in 1991 and £14.3 million in a full year. The cost of the specific budgetary concessions in the area of tax rates, personal allowances, excluding the renewal of the PRSI allowance, wage bands and exemption limits is estimated at £79.5 million in 1991 or £132.4 million in a full year. Indexation would normally be confined to these basic aspects of the tax system, and it is against these costs that the cost of indexation is to be compared. For those reasons I will oppose the amendment.

(Limerick East): That was an interesting reply but most of it did not deal with the amendment. The Minister replied as if I was proposing an alternative to a series of Ministerial decisions on budget day. The Minister based his argument on the fact that we would not have income tax announcements on budget day because if this goes into our tax code we would have automatic indexation. I do not propose that at all. I proposed that this would happen automatically and that the Minister would from year to year judge income tax on its merits against the fiscal background and he would make his decisions in the light of events in a particular year. There is no question of putting this forward as an alternative and for the Minister to reply to my amendment as if I had proposed an alternative is to misunderstand or to attempt to mislead the House as to my intentions. I am surprised. I thought I would have had a better answer to a serious amendment.

The Minister's reply is an attempt to misconstrue what I said and to mislead the House and the public about my intentions. I would like the Minister to reply again and to defend his decision on its merits. Allowances and bands and exemption limits lose their value as prices go up. A £100 allowance will be worth less next year if prices go up by 3 per cent. If we are to be honest with the tax paying public we should make it easy for them to understand the system under which they are taxed. They should maintain the value of their allowances and bands unless the Minister can bring forward some reason to show why they should not.

The Minister in the first part of his reply to my amendment acts as if this would be mandatory on the Minister. The amendment is framed to suggest that this would be the norm but it is all conditional on "unless the Dáil otherwise determines". The Dáil can otherwise determine on budget night or on the Finance Bill and the Minister would then have to stand up and explain why he was not indexing and why he had not the scope to index. He would have to show what additional measures he was taking so that we would not have this sort of fiscal fudge which is called tax reform at the moment, where everything is swirled around in a budget and presented to the public as some great new recipe, and is not sustained over the succeeding months.

As Deputy Mitchell pointed out, when the first pay cheque came in after 6 April, the start of the tax year, there was a fundamental lack of confidence in the politicians' commitment to reform of the income tax code or to reduce income tax. The general public are convinced that what happens on budget night is an exercise in seeking to deliberately delude the public to make them think they are actually getting more benefits than they are getting. When there is non-indexation what are not real benefits can be presented as benefits. The Minister did not index on this occasion. He did not touch the PRSI allowance, the PAYE allowance or the 48 per cent band. The personal allowance is slightly under the rate of inflation. Let us be clear about what I am proposing. The Minister did not take on my proposition when he replied. He pretended he thought I was proposing something else. When the Minister called out the figures it seemed that he included indirect taxation figures when giving the total benefits. It seemed also that the VAT figures were rolled in as well when the Minister came up with a figure of £76 million net as the benefit to income taxpayers.

The Minister also said in his reply that Ministers would be deprived of flexibility on budget day. They would not. My amendment says "unless the Dáil otherwise determines". The Minister would be deprived of flexibility to con the taxpaying public. He would not be deprived of the flexibility to make any decision he liked, to put it to the Dáil and have it carried by a majority vote, which is the way we do business here.

Deputy Quinn talked about difficulties which might arise from automatic indexation and referred to the time when we went into Government when inflation was at 22 per cent following a Fianna Fáil Administration. Inflation was high but the argument which Deputy Quinn produced applies more to the indexation of wages than to the indexation of tax relief. One could argue that if one indexes tax allowances and bands the tax paying public end up paying less and that that would be a counter-inflation measure rather than an inflationary measure. I argue that the non-indexation of bands and allowances is inflationary because real income goes down and spending power goes down, putting extra pressure on wage demands. I agree with Deputy Quinn if one applies indexation to wage rounds; someone must break the spiral and it has to be broken. There must be increases less than the rate of inflation so that the consumer price index will follow wages down, rather than following wages up. I argue strongly that the contrary is true and we talk about indexation of allowances and bands. Any such measure would be anti-inflationary. The amendment stands on its merits. What is proposed is the practice in other OECD countries and it has the benefits to which I have already alluded. I shall ask at the appropriate time that the amendment be put.

Deputy Noonan made a very good argument for indexation in relation to income tax. Indeed, the reason The Workers' Party are supporting his amendment is that if the Minister made no change in the budget in this respect the PAYE worker would lose out. Deputy Noonan made that very clear. It is open to the Minister to make any alterations he wishes in the tax code while this indexation goes ahead automatically.

After making such a cogent argument as to how the taxpayer would lose out if there were no such indexation, it was very interesting that Deputy Noonan went on to say that such indexation should not exist in relation to wages because it is inflationary, in other words, that the wage earner was not losing out at all by the lack of indexation but that the taxpayer was losing out. There is no argument there.

Deputy Quinn raised the issue of inflation, but I do not think he was correct in his remarks. The principle of cost of living increases in relation to wage levels and indexation would be at least 50 years old. It has also been accepted in the social welfare code, though, unfortunately, Ministers seem to be confining increases to cost of living increases rather than to fundamental increases in Social Welfare payments. The tax code is the one area in which no allowance is made for inflation, where no indexation exists. Unless the Minister were to disagree fundamentally the increase would be automatic and the Minister's alterations, allowances, or bands would be additional.

I tried to respond in a general way to points made by Deputy Mitchell and others which appeared to give the impression that indexation was better than what had been implemented in previous budgets which is, of course, not the case. I went on to quote figures not only from the previous budget and other budgets but also on the percentages taken out of pay packets, which is what is important. Over a period it has been shown clearly that the tax policy pursued by the Government is indeed beneficial to the taxpayer rather than leaving him or her worse off, as seemed to be suggested by Opposition Members.

I am also well aware that workers may not be paying PRSI in the final couple of months of the tax year and that consequently the impact of that at the beginning of the new tax year could give the impression that they were worse off. Government Members would all like to do more.

I think Deputy Quinn wanted to hear what the real feeling is about indexation as a policy instrument. First, it ties the Government's hand. The suggestion to index tax allowances and exemption limits by reference to the CPI assumes straight away that the present position is the correct position, that otherwise matters could be made worse for some people and better for others.

(Limerick East): It could be changed on budget day.

The Member cannot have both sides of the argument. He must say either that indexation is better than what has been done in the last budget or that it is not. What is the Deputy saying? If he is saying that indexation is better, and so on, then he is making a different argument. The argument then goes back to the amount of money that is available to be spent at a particular time and the best use to be made of it. There should not be automatic right to indexing right across the board.

If the Government were to have taken that principle in bad times or in the tough couple of years that have gone by, we would not have been able to have done what we have for the low paid with the exemption limits. How many times above the inflation rate were some of those adjustments, adjustments that we needed, and further adjustment is needed? To suggest, as did Deputy Mitchell, that it was a better proposition for the taxpayer to go down that road is to make the easy assumption that there is plenty more to add. I have to live in the real world. In a time of high inflation there may be a better argument for the proposition but there is no argument for it now. I have given some of my reasons for that belief.

We have all been lectured so many times about what is wrong in the income tax system, about the international consensus on tax, and that Ireland should try to bring down the rates and try to be as competitive as other countries. The Government know of the rates that exist in the United Kingdom, which, to a large degree, is a common labour pool. Ireland has to try to become as competitive as the United Kingdom.

For all of the reasons I have given and the fact that Ireland now has low inflation, there is less need for the kind of amendment proposed than there was at the time Deputy Noonan and Deputy Quinn talked about, the early eighties. The issue is all about setting out objectives, and the Government's objectives are set out. I remain of the view that the taxpayer has done better than if we had done as is proposed here. There is only a small amount of money available and the road towards automatic right to all of the allowances would be the wrong one to take.

I am not sure that I understand the Minister's difficulty.

It is about money.

For example, the notion of the CPI being taken into account annually would have the merit of establishing a system that would protect the taxpayer under whatever are the inflationary pressures of the time. What, one may well ask, prevents the Minister, when framing his budget, from having regard to the fact that he has implemented the CPI in respect of the various bands and allowances? If he were so minded he could take that into account when permitting increased allowances in the following year's budget.

The Minister is opposed to the amendment because it would deprive him of the cosmetics of reform. The Minister can now come to the House on budget day and say that he has made additional allowances of a certain order to 700 taxpayers, that he has taken 18,000 entirely out of tax net, and that he has made specific changes. Until the first pay cheque of the new tax year arrives such statements give the impression of serious tax reductions, if not tax reform. In many cases that is illusory.

There is an argument in principle for the indexation of allowances, bands and exemption limits. If the Government of the day considered that to be a sufficiently generous move to have made for the following income tax year — and I am not making any comment one way or the other on the merits of that — so be it. However, that would deprive the Minister of the day from coming to the House to tell people what he was going to give them, because people would already be entitled to the increases under an index-related system.

(Carlow-Kilkenny): I rise with a certain amount of hesitation because I shall repeat what has been said already. I cannot figure out whether the sextuplets on the right gave a script to the Minister that he read out without giving it consideration. The Minister's argument is illogical, and it would be wrong for me not to express that view. If one wanted to give 15 per cent to anyone——

I wish I could.

(Carlow-Kilkenny): The Minister now says that he wishes he could do so, but he has already said that he has made many increases. There is nothing wrong with telling people that they will get a 3.5 per cent increase to compensate for inflation and the rest as an increase. That argument has been made from the word go. When the Minister started his speech I decided that he had missed the point. His argument is based on a very false foundation, and if he does not get out of it quickly, he will sink up to his ears in it.

I will repeat what I said. For any Minister for Finance in this situation it is a question of priorities and the Government have decided on a policy of reducing rates. We certainly have not ignored other areas but our priority is to reduce rates and to do as much as we can after that. Fine Gael tax policies also seem to be heading in that direction as they mentioned a rate of 25 per cent and 45 per cent. I am not sure of the exact amount but their policy in relation to rates is roughly the same as ours. These policies have been recommended by the Commission on Taxation and indeed it is an international trend. Of course, if we had all the money in the world we would do everything but when choices are limited because of the amount of revenue available we must have priorities. One cannot argue with the fact that there have been percentage reductions in tax rates in relation to people working. Perhaps it adds up in the Tommy Cooper school of economics to which Deputy Browne seemed to refer but the facts are there. We made our choice and, in the end, the Deputy's choice would not be different.

(Limerick East): The Minister put forward a thesis which seems to suggest that this amendment is an alternative to reducing rates but I am not saying that. I object to the Minister finding the wherewithal to reduce rates by not indexing; it is a con job because the value of allowances goes down, the range of the bands remains narrow when it should be widened and the Minister is finding the resources to reduce the standard rate by not giving people the real value of their allowances. That is the con job which is upsetting more and more people because they now see through it and I do not believe that the Minister will get away with self-financing rate cuts by refusing to index. That is the point I am making and I do not put them forward as alternatives.

In terms of how it will work in practice, the Minister said he does not have a CPI figure for December but that he does have one for November; November is just as good as December in this regard because the indexation could be put in the Government's estimate of receipts and expenditure early in the year. Indeed, it might also be possible to put in a figure for the indexation of social welfare because, in the last three or four budgets, social welfare was indexed from some time in the middle of the year.

If the Minister wants to vary that particular set of policies he should announce changes on budget day. He could then explain how the estimates of expenditure and receipts have been altered, which would be a much clearer and more satisfactory way of doing business.

Amendment put.
The Committee divided: Tá, 61; Níl, 70.

  • Ahearn, Therese.
  • Allen, Bernard.
  • Barrett, Seán.
  • Barry, Peter.
  • 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.
  • Deenihan, Jimmy.
  • De Rossa, Proinsias.
  • Dukes, Alan.
  • Durkan, Bernard.
  • Farrelly, John V.
  • Fennell, Nuala.
  • Ferris, Michael.
  • Flanagan, Charles.
  • Garland, Roger.
  • Gilmore, Eamon.
  • Harte, Paddy.
  • Higgins, Jim.
  • Howlin, Brendan.
  • Kenny, Enda.
  • Lowry, Michael.
  • McCartan, Pat.
  • McCormack, Pádraic.
  • Mac Giolla, Tomás.
  • McGrath, Paul.
  • Mitchell, Gay.
  • Mitchell, Jim.
  • Moynihan, Michael.
  • Nealon, Ted.
  • Noonan, Michael.
  • (Limerick East).
  • O'Brien, Fergus.
  • O'Keeffe, Jim.
  • O'Shea, Brian.
  • O'Sullivan, Gerry.
  • O'Sullivan, Toddy.
  • Owen, Nora.
  • Quinn, Ruairí.
  • Rabbitte, Pat.
  • Reynolds, Gerry.
  • Shatter, Alan.
  • Sheehan, Patrick J.
  • Sherlock, Joe.
  • Spring, Dick.
  • Stagg, Emmet.
  • Taylor, Mervyn.
  • Taylor-Quinn, Madeleine.
  • Timmins, Godfrey.
  • Yates, Ivan.

Níl

  • Ahern, Bertie.
  • Ahern, Dermot.
  • Ahern, Michael.
  • Aylward, Liam.
  • Barrett, Michael.
  • Brady, Gerard.
  • Brady, Vincent.
  • Brennan, Mattie.
  • Brennan, Séamus.
  • 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.
  • Flynn, Pádraig.
  • Geoghegan-Quinn, Máire.
  • Harney, Mary.
  • Haughey, Charles J.
  • Hillery, Brian.
  • Hilliard, Colm.
  • Hyland, Liam.
  • Jacob, Joe.
  • Kelly, Laurence.
  • Kenneally, Brendan.
  • Kitt, Michael P.
  • Lenihan, Brian.
  • Leyden, Terry.
  • Martin, Micheál.
  • 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.
  • Roche, Dick.
  • Smith, Michael.
  • Stafford, John.
  • Treacy, Noel.
  • Tunney, Jim.
  • Wallace, Dan.
  • Wallace, Mary.
  • Walsh, Joe.
  • Wilson, John P.
  • Woods, Michael.
  • Wyse, Pearse.
Tellers: Tá, Deputies Flanagan and Boylan; Níl, Deputies V. Brady and Clohessy.
Amendment declared lost.

(Limerick East): I move amendment No. 2:

In page 10, before section 1, to insert the following new section:

"1. —Payments in respect of fees paid to recognised third level colleges, together with payments made in respect of the maintenance of students attending recognised third level colleges will be allowed against income tax:

Provided that no amount greater than the full amount allowed for maintenance under the Higher Education Grant Scheme to eligible applicants, will be allowable against income tax to any taxpayer. No claim will be allowed in respect of any fee or portion of fee, or any maintenance grant or portion of maintenance grant, already paid by a Local Authority under the Higher Education Scheme.".

The intention of the amendment is to enable taxpayers who pay fees to third level colleges in respect of their children or indeed relatives, to claim against income tax those fees and also expenses incurred in maintaining their children who are attending third level colleges, subject to certain conditions. Obviously, in circumstances where a student is in receipt of a third level higher education allowance a claim could not be made against income tax because the fees would be paid and a grant in respect of maintenance would be paid by the local authority. My amendment would be of benefit to those who are funding their children through third level education. As we know, some people are in receipt of partial grants and I have drafted my amendment in such a way as to confine the tax relief to the portion of costs, either fees or maintenance, above the amount the student receives from the local authority, and that the ceiling would apply to the student in either category, that is, a student living within 15 miles of the college or somebody who has to go away to college, who will benefit.

This should be looked at very seriously. In my view, the third level education grant scheme is one of the greatest scandals in this country. It operates totally against the interests of the PAYE sector. The way it discriminates against the PAYE sector and in favour of the Schedule D taxpayer has reached such scandalous proportions that local authorities are refusing to publish the names of the recipients of the grants because of the uproar the last publication caused in some areas. This is an absolute disgrace. The grant scheme will have to be reformed in toto. My amendment is only an instalment on the way to a full reform of the higher education grant scheme.

In order to qualify for a grant, the applicant has to jump two hurdles: first he has to get a certain academic qualification — with modifications, four Cs on honours papers — and second he has to pass the means test. The means test applies to income only. The income of the PAYE taxpayer is obvious; the parent produces the P60 and that is the end of story. The gross income of the PAYE taxpayer is taken into account and many people on very modest incomes are ruled out completely and people on quite low incomes are ruled out partially. On the other hand, the children of the self-employed will be awarded a higher education grant if their parents can get a tax clearance certificate which shows that their income falls within the ambit of the means test scheme. Fair enough, but we all know there are advantages in the way the self-employed pay their taxes. However, I will not go into that.

The real problem with the means test is that families are assessed only on their income. Families with assets and with wealth — indeed, sometimes with very substantial assets — do not have their assets taken into account when their income is being assessed for higher education grants. I would go so far as to say that certain persons are deflating their income artificially over certain years to ensure that their children will qualify for higher education grants.

They would not do that.

(Limerick East): I would go so far as to say that it has been known that people transfer income into wealth, in terms of assets so that their income will fall within the means test limit. This is absolutely discriminatory. I know public servants on very modest incomes were ruled out completely for higher education grants and I know also that one of the major inducements to take early retirement in the public service was that their children would qualify for higher education grants when they were out on pension. One of the trigger factors across the Civil Service and the teaching profession is that on pension their children would qualify under the means test for third level grants, that device is not available to people in the PAYE sector, but there is a multiplicity of devices available to people who are taxed in other ways.

I am not saying that people on self-assessment, or people on Schedule D, do not pay their proper tax; I have no information whatsoever that they are not paying their proper amount of tax.

A suspicion?

(Limerick East): I am not even expressing a suspicion. The nub of the problem is that if means are assessed on income only and assets and everything else are not assessed, then we have a situation which is artificially slanted in favour of one sector against another.

It is also interesting to note what is happening in the wider area of funding third level education. The regional technical colleges, for example, are now funded by the EC Social Fund. Funds are provided for students doing certificate and diploma courses. There is no means test involved. Only those students in regional technical colleges following degree courses are not funded from the Social Fund. Approximately 95 per cent of the students at regional technical colleges are funded from the EC Social Fund and these payments are not subject to a means test. The fees are covered and students also get a weekly allowance.

Second, about 35 per cent of university students, as narrowly defined and traditionally known, are in receipt of higher education grants in one form or another. A new scheme called the higher skills scheme was introduced for post-graduate students and people following one year diploma courses in practically everything except Arts, in the sciences, engineering and business subjects have their fees paid by the EC Social Fund, which again is not subject to a means test. The fees for the famous Accounting Diploma course in UCD, which is very much desired and to which queues of aspirant accountants apply, are paid from the EC Social Fund, even though the accountancy companies, who desire their students to enter these courses, pick up the fees anyway — but that is another day's work.

What I am getting at is that the parents of a small cohort of third level students in the universities, as narrowly defined, have to pay full fees and maintenance. This is grossly unfair. This amendment is a modest proposal to alleviate some of the burden on the PAYE sector. I am putting it forward as a modest proposal because I know what is really needed is for the Minister for Education to carry out a major reform of the higher education grant scheme.

It would help if the parents who must pay their children's university fees could claim them against their marginal rate of tax. It would be helpful if the parents who have to maintain their children whether at home or away from home while attending university could claim the equivalent of the amounts paid in maintenance under the higher education grant scheme against their income tax. I know there is some provision already through covenanting in respect of students at university, but there are two problems with covenanting: first, one can only covenant a maximum of 5 per cent of gross taxable income — whether one has one, two, or three children at university, the 5 per cent limit holds for all. In other words, one cannot covenant 5 per cent to each of the children at university. This discriminates against families who are probably more in need than others because of having more than one child at university.

If a parent or grandparent covenants, the 5 per cent barrier applies but if somebody other than the parent or grandparent covenants there is no limit. This is grossly unfair. I have come across cases where, with a shake hands, people coven-and each other's children and the 5 per cent barrier does not apply. Tax schemes which encourage that kind of activity among respectable, honest people who are pressed into a corner to provide funds for their children who are at university are not good tax schemes.

What I am saying quite bluntly is that the higher education grant scheme is grossly unfair and will have to be reformed quickly. If the lists of the names of the recipients of the higher education grant scheme were published in every local authority area I have no doubt that there would be absolute bedlam. Locals know other locals, they know deserving cases and they know cases which are not deserving. There are persons in receipt of higher education grants whose parents have a lifestyle which seems to be more extravagant than that of the run of PAYE people who are refused grants, and I will not put it any stronger than that.

I am sure this amendment will be open to the criticism that it is inadequately drafted, but, I do not pretend to be a draftsman. I think the intention of my amendment is very clear and I ask the Minister to accept it.

The Labour Party support the spirit of this amendment. There are 78 amendments left before we complete this section of the Bill and we only have three and a half hours to do this. I merely want to draw the attention of the House to that observation.

(Carlow-Kilkenny): Aontaím leis an leasú seo mar ba chóir go mbeadh cothrom na Féinne ag gach éinne.

This is one aspect of life in Ireland where cothrom na Féinne is not received by everyone. I agree with what my colleague, Deputy Noonan, has said about this matter. PAYE people may be only £5 over the limit but once they produce their P60 they are deemed to be over the limit. It is absurd that this system is so black and white. While the proposal in Deputy Noonan's amendment might be only a gesture, it would at least help hard pressed parents who are just over the limit.

I referred previously in the House to a student who had gained four A's in his leaving certificate but who, because his parents were £50 over the limit, could not get a third level grant. It is absurd that this kind of embargo can be imposed on people while others who produce accounts and are over the limit can get a grant. Obviously there are two standards for assessing the income of people. It is grossly unfair that parents should have to make a choice about which children should go to university. Perhaps the first two children will receive a third level education while the third will not because his parents cannot afford to pay.

Two out of three is not bad.

(Carlow-Kilkenny): It is possible because these parents are prepared to make sacrifices. I do not know if Deputy Mac Giolla, a city Deputy, will appreciate this but many parents who live in the country believe the only thing they can give their children is education. These parents who have to pay high interest rates to the banks in addition to their income tax see other children getting free education at their expense: they have to pay for their own children's education and contribute to the education of other children. Despite what Deputy Mac Giolla says about them in a rather belittling way, I would defend to the last parents who have to make such sacrifices. I know parents who have deprived themselves of many of the enjoyments of life simply because they want to educate their children. We should applaud such parents.

I know from what has happened in my locality what the reaction of people can be to the disclosure of information on who exactly has got third level grants. Nobody begrudges grants to people who deserve them but at times people's patience can run out. I know of nothing in the education area which can cause as much bitterness as the circumstances in which some people can get grants while others cannot. I welcome this amendment and hope that the Minister will accept it.

We have heard a dissertation by the Deputies across the Floor about the merits and demerits of the higher education grant system. If they are so concerned about this scheme one wonders why they did not do something about it while they were in Government. I suspect the reason for this, to which the Minister will probably refer in his reply, is the cost involved.

Deputy Noonan said that the higher education grant scheme discriminates against the PAYE sector. I suggest that his amendment would discriminate in favour of the self-employed and the better off in our society. I do not think this proposal has been very well thought out. The reason I say this is that many years ago people who could afford it, that is, many of the self-employed and the better off, took out life assurance schemes or used other means to enable them to provide third level education for their children. They got tax relief on the money they saved at that time. Deputy Noonan is now proposing that these people should be given tax relief again. This seems unfair and, consequently, his amendment is flawed.

I support this amendment even though it will only partially solve the problem of funding in the third level area. There are different inequities in this area. The first inequity which comes to mind — this was referred to by Deputy Noonan — is that students who attend regional colleges do not have to go through a means test system in order to get a grant whereas those who attend HEA colleges do. I know students who have been offered places in university but could not accept them as they would not get a grant. Consequently, they were forced to take up courses in regional colleges. This inequity must be cleared up. Any child who is offered a place in a HEA college should not be denied that place because of inequities in the funding system.

The present grant system is totally unacceptable. We have to put this into context in order to realise just how inefficient and unrealistic it is. Under the present system a family with three children and an income of £13,700 a year will get no maintenance and will receive only quarter fees. Yet that family, if they are on PAYE, and pay pension contributions, PRSI and income tax, really only have £193 a week disposable income. Out of that they are expected to pay maintenance fees which are estimated at £1,300, and a quarter of their college fees estimated at around £1,200. That is totally impossible. To take it a step further, a family with three children with an income of £15,000 after tax get no maintenance support and no fees. The maximum grant for fees and maintenance is £3,068. How could anybody on £15,000 afford to set aside £3,068 towards funding one member of their family in college? In those figures I have not taken into account any mortgage payment. It is just not possible for parents to meet those demands. Because of the thresholds as they stand at present there are people who have achieved a place in college on their academic standards but who cannot take the place offered because the State does not provide adequate assistance. That does not demonstrate what we are supposed to believe in, equality of opportunity for all children.

The system gives no recognition to the family with two or three children in college. Any child, whether the first, second or third child in a family, should have equal opportunity to fulfil their full potential. I know of families who, because they are struggling to keep their first child in college, had to decide that their second child would have to either defer taking up a place offered to them or decline the place altogether. The system must be sensitive to families who have more than one child in college. If a student is offered a place he should be able to accept it and not be denied it because of lack of funding.

Deputy Ahearn, I am reluctant to interrupt but the Deputy will appreciate that what is here is a specific amendment referring to financial matters. It would not be in order for us to use that as an opportunity to debate educational grants which are the responsibility of the Department of Education in co-operation with local authorities. Let us confine ourselves to this rather than debating educational grants, which is not the purpose of this amendment.

Every point I have made relates to the amendment because the problems I have pointed out can be solved by giving tax relief. The people I am talking about are taxpayers. The people who are not taxpayers would be able to get the HEA grant as it stands. I dwell on those cases because the only way to give relief at the moment is by supporting this amendment and giving them recognition in the form of tax relief for funding students through college. It is an important amendment. It is sad to see parents having to remortgage their houses and struggle on insufficient money even for everyday living to try to give their children the opportunity to accept a place that they achieved by hard work. It is important to remedy the enormous inequities between the third level colleges. There must also be a realistic threshold for higher education grants. Because we do not have them we have to rely on the amendment proposed by Deputy Noonan and resort to tax reliefs.

Because it is such a crucial issue to so many parents, I urge the Minister to think seriously on it. It is one means of trying to relieve the enormous burden on parents who are barely over the threshold and who cannot finance their children through college. Tax relief is just one step towards remedying such inequities. I support the amendment.

A Leas-Cheann Comhairle, like yourself I am amazed at this major debate on educational grants taking place on the Finance Bill. As Deputy Quinn pointed out, we have very little time left. I totally agree with the arguments made by Deputy Noonan in regard to inequality such as this, but there is no point in everybody going through them again.

I am not too sure, however, about the procedure for overcoming this. I am worried that further allowances against income tax would create further opportunities for tax fiddlers to fiddle. I wonder if there is not a better way than that to cure the problem which we all know exists.

Is this the best way? There would be no difference between the self-employed and PAYE workers. They could all use the allowances against their income tax. They would all gain and there would be no equalisation. The purpose is to have equality of access. The only comment I made throughout — and it upset everybody on the Fine Gael side — was that two out of three was not bad. I can assure Fine Gael Deputies that in families I know where there are none out of three going to college, two out of three would be considered not bad. I make no apologies for saying that. By all means the third child should be in with a chance as well, but so should thousands of other children.

I do not see that this is the answer. The arguments were not made from the financial end but in regard to inequality in the education grants scheme. We all recognise that that is so, but I am afraid I have not been persuaded as yet that this is the best way to overcome it. They should try to get rid of tax allowances and have a different system of credits. Every tax allowance is an opportunity for a fiddler and the self-employed already employ accountants and have a better opportunity than the PAYE worker of adapting this allowance to get more out of it. I am not convinced that this is the best way of overcoming the problem.

Deputy Kenny has been waiting patiently. I know that he will demonstrate his capacity for initiative and not repetition.

I regard this as a testing ground for the Minister for Finance. I note that he has nodded in reply to Deputy Mac Giolla's argument that a tax allowance is another opportunity for fiddling. We have never cherished the children of the nation equally in accordance with the aspirations of our Constitution, and this has been a sore point with a whole generation of young people. In the drawing up of the Programme for Economic and Social Progress I am quite sure the Minister for Finance was enthusiastic about the investment in the future for our youth. I am sure Deputy Noonan will support the Minister if he can demonstrate a better method of ensuring equality of opportunity of access for our students to third level education than exists at present. The arguments have been made.

The Deputy will appreciate that was the responsibility of the Minister's colleague in Government.

In deference to your ability in this House and in your co-chairmanship of the British Irish Parliamentary Association where you handled equally sensitive matters, I shall defer to your ruling.

I have immunity to this mental messaging. Would you proceed now to relevant matters?

I strongly support the amendment. The arguments have been made. If the Minister really wants to strike a blow for the youth of Ireland then he should accept the amendment or demonstrate to the House that there is a better method of ensuring equality of entry to third level education. I would be very interested in the Minister's reply.

I would like to support the amendment and agree with what previous speakers have said about it. It takes over £20,000 to keep a student at college over four years. In some cases students work during the summer and make up the £1,000, so one could say £17,000. A family, with three children, who earn over £15,400 will get no relief on that £17,000 and they will get no grant aid, whereas a similar family in Northern Ireland will get £3,700 a year in similar circumstances. As previous speakers said, the burden on parents of middle income families at this stage is intolerable and people are forced to remortgage their houses, take out loans or forfeit their life earnings to keep children at college. That is grossly unfair. Deputy Ahearn said parents of students are forced to send their children to regional colleges and forego places in university for which they would be suitable. As a result they are raising the standard in regional colleges and keeping places from students who did not receive sufficient qualifications for third level. In Northern Ireland entitlement to grants is assessed on——

The Deputy might apply himself to those ills we have and not others we know not of. We are not going to sort out Northern Ireland. Greater men than we are failing in that.

(Interruptions.)

We have already compared our system with that in England. Even the Minister mentioned England on a number of occasions. Let me ask the Minister to consider this maybe next year. In Northern Ireland eligibility is assessed on residual income whereas it is assessed here on reckonable income. Residual income is what remains after mortgage, insurance and so forth are deducted. That would be a start.

I am sorry if I have again to remind the House before the Minister replies that this House has agreed to take 82 sections. I know that when we come towards the end of the night there will be sore heads and disappointment, so let us exercise maximum brevity without taking from the debate.

I am conscious of and sympathetic to the case made for some children who do not have the opportunity of getting to third level because of the way the grants system is structured. An excellent case was made for an overhaul of the scheme, a total review which my colleague, the Minister for Education, is carrying out at this time. I would not disagree with much of what Deputy Noonan and other Fine Gael speakers said in relation to inequity. We are all aware of the way the system can work in favour of professional people, people with companies or whatever. Deputy Noonan's suggestion of local newspaper advertisements might draw better results. However, I am not going into the area of education — I will leave that for my colleague — except to say that now we have demonstrated that the scheme is inequitable and has all the shortcomings we are talking about here, surely the way to go is not to throw more money into it to be exploited by those who are exploiting it already and not targeting the people we want to help. This is talking about it the wrong way round. Apart from the cost and the money aspect, it would not be targeting the right people. It would be taken up by those who are exploiting the scheme. I will relay Deputy Deenihan's suggestions to my colleague, the Minister for Education, for her review of the scheme and the question of income and means. As Deputy Noonan suggested, we all know the problems.

The purpose of the amendment is to give more tax relief. Most speakers here have said who the people getting the most benefit out of it are and they have asked if we are going to give more to them. I do not agree with that. Consequently I am not in favour of this amendment. The cost of implementing the amendment would be £12 million this year and £20 million in a full year, with no mention of where that money is to come from or what it is to replace. That is the freedom of Opposition. They do not have to provide the money for such amendments but this is one of the Fine Gael amendments that add in total about £156 million.

At a time when most politicians from opposite sides and many commentators are saying we will find it extremely difficult to reach targets this year, surely the provision of £20 million in an area we know is being exploited is not the best use of scarce resources. The cost of the income tax changes alone in a full year represents £183.9 million and they are a considerable step in the process of implementing the Government's commitment to introduce tax reliefs in the lifetime of the present programme which, as we all know, will add up to £400 million. Deputy Kenny referred to the programme. Obviously he has read it and he will see quite clearly this Government's strong commitment to education and to young people. However, providing additional tax relief is not the way to achieve what is required.

Deputy Kenneally said some people have already made plans for this in advance through life assurance and other schemes and have already picked up tax reliefs in those areas as well. Is that the way to go? The total tax cost of the covenants at the moment is £22.4 million, the bulk representing payments for educational purposes. The cost of the reliefs is already substantial in the Bill; it will be £20 million for a full year.

I have sympathy with Deputy Browne. I have met such cases as he mentioned and I suppose no representative here has not met some PAYE taxpayer who is £5 over the limit. It does not matter whether it is £5, £50 or £500, the result is the same. Irrespective of where you pitch the limit, you will always have people saying they are on the wrong side. If you introduce a new grants system someone will ask why you did not introduce it a day earlier so that some person would have qualified. Unfortunately, those are the realities of life. It is impossible to accommodate everybody.

I believe the scheme needs an overhaul, an in depth review such as the Minister for Education is carrying out. Let us hope that out of that will come a better focus, a better targeting of resources. As we all know this is costing the taxpayer a significant amount. We have 66,000 third level students and as Deputies opposite have said, many of them are not means tested because of the ESF. I am glad this area is being reviewed. Let us hope it will be much more equitable for the parents who are finding it extremely difficult on small salaries or wages to get their children through third level.

Is Deputy Noonan satisfied, having ventilated the scandalous inequity in the higher education grants system, to have brought moral pressure on the Minister for Education to take this into account in her review? He is going to put the rest of us in a difficult position because he chose not to exclude Schedule D taxpayers.

If the amendment was for the benefit of the PAYE sector only I could see a great deal more merit in it. The £20 million the Minister referred to would be better used, it seems to me, if he gave it to the Minister for Education to get more grants for working class children rather than spending it in this fashion. The amendment has highlighted one gross inequity. In this society nothing transmits privilege as much as education. Deputy Noonan has highlighted something very important and I hope he is satisfied to have made his case.

(Limerick East): I thank Deputy Rabbitte for his intervention and I thank the Minister for his very sympathetic response, even though he did not agree to accept my amendment. I thank him for the costing. The £12 million and £20 million are significant sums. He talked about people like myself exercising the freedom of Opposition to put down amendments which cost a great deal of money without specifying where the money would come from. A Leas-Cheann Comhairle, if I put down an amendment saying where the money will come from, your senior partner upstairs will rule it out of order because only the Minister can put forward amendments which involve a charge.

We would not refuse the advice.

(Limerick East): I would be ruled out of order. On several occasions I put down amendments where not only was the expenditure side shown but the other side to gather in the revenue was shown also, and I got polite letters from the Ceann Comhairle saying: “This amendment is out of order. Only the Minister for Finance, under the Constitution, can make proposals in the House which levy taxes on the public.” It is not a fair argument to throw it back at me and say we are exercising the freedom of Opposition when we are barred under the Constitution from proceeding as you suggest we should.

In relation to the amendment, I take the point made by a number of Deputies that there would be a possibility, if it was not very carefully framed, that it might benefit people who are already benefiting unduly from a scheme which is operating inequitably. I have framed it in such a way that there would be no double counting. If someone is in receipt of a higher education grant already, they would not be eligible for the benefit of this amendment because it would not be their parents or guardians who would be paying the money, it would be the local authority. If somebody was in receipt of a partial grant they could benefit only from the amount which would be necessary to bring that partial grant up to the £3,068 to which Deputy T. Ahearn referred. If a Schedule D taxpayer has an income which keeps him within the parameters of this scheme, his child is already receiving the higher education grant and this would be of no benefit to him. On the other hand, if a Schedule D taxpayer is not getting the grant and has a taxable income which takes him outside the parameters of this scheme, he probably has the same difficulties as PAYE people. I know it is a rough and ready instrument, but in the absence of any other, it is a move in the right direction — it is more than a gesture in the right direction because it is a fairly strong proposal.

Finally, with so many of our very bright, well educated young people emigrating, especially to Europe, a strong case can be made for the Social Fund to be applied not only to regional technical colleges and to the higher skills scheme, which is now effectively the first year of an MA or the first year of an MBA as organised in the universities, but for going back to the Community and saying: "we have a number of young people in this country and we want to increase participation rates in colleges up to the European average. Many of our young people are emigrating and developing your economies. One of the best transfers you could give us is the freedom to apply the ESF funding not only in the regional colleges but also in the universities as traditionally defined."

I have the highest respect for the regional colleges. I do not want to use a term which suggests that one third level system is better than another, that is not what I have in mind. They do a very good job and we are very fortunate to have such a range of colleges which provide excellent courses.

I think the Deputy is coming back to his first love.

(Limerick East): It seems to be a spurious distinction to have a student in a regional technical college following a two year diploma course in engineering where his fees are paid out of the Social Fund, and he is receiving a weekly allowance, when somebody else is doing a four year electrical engineering, mechanical engineering or civil engineering course in one of the traditional universities and is not in receipt of EC funding. That does not make sense. I believe there are distinctions in European colleges which are being applied here which are not necessarily applicable.

The Minister has talked about the cost of change. There are opportunities, through the Social Fund, which might help the Minister for Education in her wider review. I am particularly annoyed about the higher education grant scheme as it operates at present. Many times we put down amendments here for the purpose of debating issues. I put down this amendment not only for the purpose of debate but because of a sense of commitment. My colleagues are of the same view and we will be pushing for reform. To show the strength of our intent, we are putting this to a vote.

Amendment put.
The Committee divided: Tá, 65; Níl, 71.

  • Ahearn, Therese.
  • Allen, Bernard.
  • Barnes, Monica.
  • Barrett, Seán.
  • Barry, Peter.
  • 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.
  • Deenihan, Jimmy.
  • De Rossa, Proinsias.
  • Dukes, Alan.
  • Durkan, Bernard.
  • Farrelly, John V.
  • Ferris, Michael.
  • Flaherty, Mary.
  • Flanagan, Charles.
  • Foxe, Tom.
  • Garland, Roger.
  • Gilmore, Eamon.
  • Gregory, Tony.
  • Harte, Paddy.
  • Higgins, Jim.
  • Hogan, Philip.
  • Howlin, Brendan.
  • Kenny, Enda.
  • Lowry, Michael.
  • McCartan, Pat.
  • McCormack, Pádraic.
  • Mac Giolla, Tomás.
  • McGrath, Paul.
  • Mitchell, Gay.
  • Mitchell, Jim.
  • Moynihan, Michael.
  • Noonan, Michael
  • (Limerick East).
  • O'Brien, Fergus.
  • O'Keeffe, Jim.
  • O'Shea, Brian.
  • O'Sullivan, Gerry.
  • O'Sullivan, Toddy.
  • Owen, Nora.
  • Quinn, Ruairí.
  • Rabbitte, Pat.
  • Reynolds, Gerry.
  • Ryan, Seán.
  • Shatter, Alan.
  • Sheehan, Patrick J.
  • Sherlock, Joe.
  • Spring, Dick.
  • Stagg, Emmet.
  • Taylor, Mervyn.
  • Taylor-Quinn, Madeleine.
  • Timmins, Godfrey.
  • Yates, Ivan.

Níl

  • Ahern, Bertie.
  • Ahern, Dermot.
  • Ahern, Michael.
  • Aylward, Liam.
  • Brennan, Séamus.
  • Briscoe, Ben.
  • Browne, John (Wexford).
  • Burke, Raphael P.
  • Calleary, Seán.
  • Callely, Ivor.
  • Clohessy, Peadar.
  • Collins, Gerard.
  • Connolly, Ger.
  • Coughlan, Mary Theresa.
  • Cowen, Brian.
  • Cullimore, Séamus.
  • Daly, Brendan.
  • Davern, Noel.
  • Dempsey, Noel.
  • Dennehy, John.
  • de Valera, Síle.
  • Ellis, John.
  • Fahey, Frank.
  • Fahey, Jackie.
  • Fitzgerald, Liam Joseph.
  • Fitzpatrick, Dermot.
  • Flynn, Pádraig.
  • Geoghegan-Quinn, Máire.
  • Harney, Mary.
  • Hillery, Brian.
  • Hilliard, Colm.
  • Hyland, Liam.
  • Jacob, Joe.
  • Kelly, Laurence.
  • Kenneally, Brendan.
  • Kirk, Séamus.
  • Barrett, Michael.
  • Brady, Gerard.
  • Brady, Vincent.
  • Brennan, Mattie.
  • Kitt, Michael P.
  • Lawlor, Liam.
  • Lenihan, Brian.
  • Leyden, Terry.
  • Martin, Micheál.
  • McDaid, Jim.
  • McEllistrim, Tom.
  • Morley, P.J.
  • Nolan, M.J.
  • Noonan, Michael J.
  • (Limerick West).
  • O'Connell, John.
  • O'Dea, Willie.
  • O'Donoghue, John.
  • O'Leary, John.
  • O'Malley, Desmond J.
  • O'Rourke, Mary.
  • O'Toole, Martin Joe.
  • Power, Seán.
  • Quill, Máirín.
  • Reynolds, Albert.
  • Roche, Dick.
  • Smith, Michael.
  • Stafford, John.
  • Treacy, Noel.
  • Tunney, Jim.
  • Wallace, Dan.
  • Wallace, Mary.
  • Walsh, Joe.
  • Wilson, John P.
  • Woods, Michael.
  • Wyse, Pearse.
Tellers: Tá, Deputies Boylan and Flanagan; Níl, Deputies V. Brady and Clohessy.
Amendment declared lost.

We will proceed now to amendment No. 3 in the name of Deputy Noonan (Limerick East). I observe that amendments Nos. 4 and 6 are alternatives. I suggest, therefore, that we discuss amendments No. 3, 4 and 6 together. Is that satisfactory? Agreed.

(Limerick East): I move amendment No. 3:

In page 10, 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 1991/1992 and subsequent years of assessment.".

The purpose of alternative amendment No. 3 is to restore full mortgage interest relief. We know that one of the major expenses on households is repaying a mortgage and that when interest rates are high this is a particular burden. It is particularly a burden for those who took out mortgages when interest rates were low.

Over the years various changes have been made in the treatment of mortgage interest for tax purposes and tax allowances purposes. There is a cap on the amount which can be claimed and then, through several budgets, the percentage of the total amount eligible was reduced to 90 per cent under the Finance Act, 1987 and, was later reduced to 80 per cent under the Finance Act, 1989. Simply by removing section 6 of the Finance Act, 1987 and section 7 of the Finance Act, 1989, the amendment would restore full mortgage interest relief for the 1991-92 tax year.

At the moment mortgage and interest rates are very high. Members have often talked before in the House about interest rates. It is difficult to predict what the rest of the year holds, but it seems there will not be any great downward movement even though a 0.5 per cent reduction was made some weeks ago and was communicated to certain mortgage holders this week. That reduction was welcome.

Mortgage interest rates are extremely high and place an onerous burden on young couples in particular. We know of the difficulties faced by young couples in first putting together a deposit for a home and then in meeting mortgage repayments. Usually the couple are working, which is a satisfactory method of financing the repayments for a while, but when the first child comes along particular pressure is put on them.

Young married women with children have a particularly tough life when they have to go out to work to provide a second income for the house, usually to pay off the mortgage on the home. Sometimes one wonders whether they get very much out of all of the effort they put into it. The House should be sympathetic towards the needs of young couples.

Most people in Ireland aspire to house ownership, and the mortgage interest relief scheme was a good one in that it enabled people to purchase their own houses. The most recent figure provided by the Minister for the Environment suggests that about 86 per cent of Irish people own their homes. That is a very high proportion of home ownership, being very much the highest in Europe. One of the reasons that such a high proportion own their home is the existence of mortgage interest relief. The capping of the mortgage interest relief scheme, and the reduction of the limit to 80 per cent, has taken away some of the benefit that was available to taxpayers and has made it harder for certain taxpayers to meet their repayments.

I have previously put down amendments to suggest that mortgage interest relief should fluctuate as interest rates fluctuate, but this year I table a straightforward amendment seeking to restore the relief in full because mortgage rates have been high for a long time and there is no great expectation of a reduction.

When replying to a previous amendment, the Minister suggested that the modern European trend is towards the abolition of allowances and lower rates. That would certainly be the argument of the chairman of the other party in coalition with the Minister. He has made his views on the subject known loudly and clearly. I note that he never specifies which allowances he would drop. He is very careful not to say that he is after the mortgage interest relief and intends to add on rates. We know from the subtext that that is what that person has in mind, but he never actually comes out and admits it.

It is time we had a real debate about allowances. I know that the fiscal economists and the tax experts we all have to listen to from time to time regard these allowances as being no longer fashionable. However, it seems to me that it is very good to have allowances that encourage people to buy their own homes in order to house their families. It is very good to have an allowance that encourages people to insure themselves against ill health. In my previous amendment I tried to introduce in the tax code an allowance that encouraged people to send their children to university and to help pay for that education.

A good tax system encourages people to do things that are good for them. What could be better for people than to have their own house, to maintain their own health and that of their families, and to educate their children? Why are tax allowances so unfashionable all of a sudden? They are highly unfashionable at the moment, especially among the Progressive Democrats. Whom do the Progressive Democrats really represent? The Progressive Democrats started out by proclaiming themselves as God's gift to the middle classes and as representing middle-class views. I cannot understand a party with their background threatening to abolish all allowances and saying that mortgage interest relief in particular should be scrapped and that consideration should be given to a property tax.

Apart from saying that mortgage interest relief should be restored in full, I ask the Minister to explain not only the position of his party in Government but also that of his partners in Government, who certainly seem to want to reduce the rates of tax even though the price of such reduction is the abolition of all allowances.

The Minister himself told me in the House about two weeks ago in reply to a question that the cost of the proposals of Mr. McDowell, was just less than £1.3 billion. The top rate of tax would be reduced to 40 per cent, but that would also include PRSI. The rate would not be 40 per cent plus 7.75 per cent — not at all. He suggested PRSI and tax should be amalgamated, that there should be a standard rate of 25 per cent, but that that would include the higher rate of PRSI and all levies. The cost of the proposals would be almost £1.3 billion and there is no way to implement such proposals unless all allowances are abolished. There is no hope of even getting into the ball park without abolishing all of the allowances.

The party who want to clean up local government should first clean up their act and tell the people before the June elections whether they intend to do away with mortgage interest relief, whether they intend to do away with VHI relief, whether they intend to bring back rates and where they stand on all of those issues. We have listened to propaganda for long enough and it is time to hear some straight answers. The parties are in Government, and the responsibility is on the Minister for Finance to explain the position of all of his colleagues in Government.

A Cheann Comhairle, is it in order for me to move my amendment, amendment No. 4, so that I can refer to it?

No, the Deputy may address his amendment but only one amendment can be before the House at any given time. The amendment before the House is No. 3.

I support amendment No. 3. From here on the House will be involved in the very difficult business of having to take individual aspects of the tax code and try to make relatively minor improvements. That is a very undesirable way to approach tax reform. It is obvious that comprehensive tax reform is required. Without comprehensive tax reform, one inevitably ends up making special pleadings for sections of the community adversely affected by the existing code. The House has just dealt with a very substantial section of society who have been so unfairly treated under the higher education grant scheme. Members are now dealing with a different matter, the preponderant number of householders who are also PAYE earners and who pay the lion's share of taxation. Last year the Minister, from memory, said that 88.1 per cent of the tax take was contributed by PAYE earners, as compared to more than 1 per cent by farmers and more than 9 per cent by the remainder of the self-employed sector. I do not know the up to date figures but I do not think they have changed greatly.

Because the purpose of my approach to tax reform is to try to broaden the base and lift some of the burden from the PAYE sector, and because householders, in the main, happen to be the same PAYE sector, it is important to support this amendment in seeking to have extended to them the full 100 per cent mortgage interest relief.

Progress reported, Committee to sit again.