Dáil Éireann debate -
Tuesday, 21 May 1991

Vol. 408 No. 7

Finance Bill, 1991: Committee Stage (Resumed).

Debate resumed on 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.".

—(Deputy Noonan,Limerick East).

Mr. Rabbitte

We were dealing with amendments from Deputy Noonan and myself concerning the question of mortgage interest relief. I was explaining the thrust of my party's argument on the basis that, since there appears to be a very unfair proportion of tax paid by the PAYE sector — and that, preponderantly, since these are the same people who are adversely affected by high interest rates — it would be appropriate that the total interest relief of 100 per cent would apply to home owners in the category we are addressing here.

The function of interest rates has changed in recent times; there was a time when they were used as an instrument to control inflation but it would appear now that interest rates are used to attempt to stem the outflow of funds from the economy. Despite the level at which interest rates are pitched with the purpose of doing that, the extent of outflow of capital is still extremely worrying. The outflows, of course, are made up of a number of things, including repatriation of profits, which is a vast drain on the economy. Nonetheless, the fact remains that interest rates are exceptionally high; when we were taking this Bill last year we could instance four separate increases of 1 per cent during that year and, give or take variations since then, they remain at that level and are likely to continue to do so. Our relationship with the German economy, through the monetary system, is likely to ensure that they will stay since the German approach seems to be to tackle their particular problems exclusively on a monetary basis rather than on the basis of any fiscal changes which should be taken on board having regard to their wider responsibilities.

In those circumstances, people are being unfairly penalised in the home ownership bracket, especially new borrowers. Of course there is the additional matter of the rash of home possessions which is now under way and which has been for some time, by building societies and local authorities through the HFA system. I am not arguing that 100 per cent mortgage interest relief would prevent the level of home repossessions which, sadly, are going on at the moment, but it would certainly help a great many people who are struggling to make ends meet; it would greatly assist them if the 100 per cent mortgage interest relief was restored.

I know it can be argued that this is not a very progressive amendment against the background of our general discussion about allowances, reliefs and so on but, in the context of overall lack of reform, we are reduced to this kind of special pleading. I have attempted, in the subsequent amendment which I had intended to have taken with this as part (a) and part (b) to temper that and to try to introduce a note of progressivity to the intent behind it, inasmuch as it would be biased in favour of those on lower incomes, but I am happy to support amendment No. 3.

Mr. Garland

I have an identical amendment to that tabled by Deputies Noonan and Rabbitte but, although they are the same, they are printed separately. I have a mortgage on my house so, if this amendment was accepted, it would help to reduce my tax somewhat; perhaps other Members are also in that position.

Our party very strongly believe in real tax reform, not the kind that is bandied about the House, particularly by the Progressive Democrats. Be that as it may, we are dealing with a situation where the Finance Bill, as usual, tinkers with the tax system. The reason I put down this amendment is a recognition of the reality that we are stuck with the tax system we have had for a number of years. Obvious improvements, such as a system of tax credits, which would grant allowances at the standard rate only would, of course, be of considerable assistance and a form of progressive taxation which would help the medium sized income earners as opposed to the large income earners.

Mortgage interest relief can, for certain categories of taxpayers, be a bit of a rip-off; there has been a tendency over the last few years to trade up, people are trading up, making large profits on the sale of their homes, moving into bigger homes and getting larger mortgages. This is recognised and that is why there is an upper limit on mortgage interest relief. I do not disagree with that — I do not think anybody would disagree with it, but the effect of reducing the allowance from 100 per cent to 80 per cent across the board is that it hits the poor and relatively poor just as much as it hits the rich; it is a very blunt instrument and it amazes me that mortgage interest relief cannot be looked at in this light. Let us penalise the people who borrow large sums and who are trading up and give 100 per cent relief to middle and working class people who are struggling to pay off mortgages.

As Deputy Noonan said several times in his contribution, interest rates are extraordinarily high at the moment and are very hard on people with mortgages. I appreciate that we must try as far as possible to broaden the tax base but the effort in this regard brought in by the Minister some years ago has created tremendous hardship for many middle and working class people struggling to own their homes. I ask the Minister to accept this amendment to relieve the inequity on people in these circumstances.

Minister for Finance (Mr. A. Reynolds)

This amendment seeks to remove the restrictions on mortgage interest relief imposed by section 6 of the Finance Act, 1987, and section 7 of the Finance Act, 1989. If I were to accept the amendment, it would cost the Exchequer £34 million in 1991 and £56 million in a full year. I do not, therefore, propose to accept the amendment and would like to take this opportunity to outline my reasons for not doing so.

As I have indicated to the House on a number of occasions, the modest restriction of mortgage interest relief must be seen in the context of the major progress made in reducing the income tax burden on individuals in recent years. Looking at budgets over the period from 1988 to 1991 the general exemption limits have been increased from £2,650 to £3,400 for a single person and from £5,300 to £6,800 for a married couple. In 1989, a child addition was introduced in conjunction with those limits and now stands at £300 for each of the first two children and £500 for the third and each subsequent child: this innovation was aimed specifically at low-income taxpayers with family responsibilities. The standard rate tax band has been widened by £2,000 for a single person and £4,000 for a married couple — an increase of 40 per cent. This contrasts with the maximum restriction in the mortgage interest relief of £400 for a single person and £800 for a married couple. Substantial steps have also been taken in cutting tax rates; as we are all aware, the standard rate is down from 35 per cent to 29 per cent and the top rate of tax has been cut from 56 per cent to 52 per cent. In other words, the past few years have seen very substantial improvements in the three focal points of income tax policy — exemption limits, tax rates and tax bands. These reliefs which have been costly and which must be funded from existing Exchequer resources have benefited every taxpayer, and it is against this background that the modest restriction of mortgage interest relief must be viewed.

Substantial progress was made under the Programme for National Recovery in improving the efficiency and equity of the tax system. The burden of personal income tax was considerably alleviated and, while the Government's commitment in that programme was to introduce income tax reliefs to the cumulative value of £225 million, in fact the cumulative value of the reliefs introduced by the Government over the life of the programme exceeded £800 million, or more than three times the programme's commitment. The gains from the mortgage interest relief restrictions are being used to pay a small part of the cost to the Exchequer of these major improvements.

I recognise, of course, that more needs to be done and the Government have undertaken, in the Programme for Economic and Social Progress, to make further improvements in income tax, according as budgetary and economic circumstances permit, over the coming three years. In particular, our aim is to get the standard rate down to 25 per cent by 1993 while moving towards a single higher rate.

The House will not need reminding that mortgage interest relief is already a very expensive tax relief and is estimated to cost some £223 million in the current tax year in terms of tax foregone. This represents a very substantial Exchequer subsidy for house purchase. Restoring the relief to 100 per cent would add £56 million a year to its cost. No one has indicated to me how this cost should be met.

The Government are, of course, concerned about those paying mortgages and are striving by their domestic budgetary and other policies to provide the economic background conducive to maintaining interest rates which are as low as possible. This is what we have been doing and will continue to do. A justification put forward at times for removing the mortgage interest restrictions is the upward trend of interest rates. The House will, no doubt, be aware that the trend in recent months has been downward and the indications are for further decreases in the coming months. In all the circumstances, I must, as I have said, oppose the amendment.

Mr. Noonan

(Limerick East): I would be inclined to accept what the Minister has said if he could convince us he has any policy on interest rates or real evidence to show that the trend in interest rates is downwards. It seems we are in a period where interest rates will continue to fluctuate quite a bit but tend to stay high rather than low. Deputy Rabbitte spoke about the changing role of interest rates in fiscal and monetary management. I do not know whether he is correct — I suspect he is not — but it seems that the tying of most of the currencies in western Europe to the Deutsche Mark has led to an increase in interest rates. Before the reunification of Germany it was a tenable economic argument on the exchange rate that the market was under-valued but because the other EMS partners would not agree to a revaluation of the Deutsche Mark the Germans had to look at other methods to achieve their economic ends. I believe it was an instrument of policy in Germany to increase interest rates. I think they used interest rates to fight inflation in the traditional fashion that Deputy Rabbitte seems to think they have departed from. There was an added twist to the drama but that is where it ended up.

I think the German Central Bank, led by the renowned gentleman who retired last week, took a deliberate decision to have high interest rates to dampen down demand in other European countries, a demand boosted by the fact that their currencies which were tied to the Deutsche Mark were probably overvalued right across the board. We might have been better off if we had let the Germans increase their rates on their own if everybody else decided to keep their rates down. I am not saying we had much control over this as a small economy, but the price of remaining in tandem 18 months ago was a deliberate decision in Germany to raise interest rates.

Coincidentally, political events in eastern Europe and in Germany reinforced the trend of high interest rates. We read quite frequently now in feature articles in the daily newspapers as well as in the commentaries in the economic magazines that the cost of reunification of Germany was higher than anticipated when the arrangements were put in place.

Mr. Quinn

Only on the part of the Christian Democrats; my friends were correct.

Mr. Noonan

(Limerick East): That may be so.

Mr. Quinn

Your friends got it wrong for the right political reasons.

Mr. Noonan

(Limerick East): It is nice to know we are coming to the point in the House where we can line up on German domestic policies. That is a degree of European unity in the House——

Mr. Quinn

Do not give this man a hard time; speak about your colleague, Chancellor Kohl. It was he who screwed it up.

Mr. Noonan

(Limerick East): And Comrade Pohl as well. What is happening is that high interest rates are being underpinned by a series of political and economic decisions taken in Germany since reunification. I agree with Deputy Quinn to some degree because the first decision taken in the election which led to the reunification of Germany was that taxes would not be increased. If one cannot increase taxes to fund the reconstruction of an underdeveloped part of a country, given that it is policy to redevelop it, one must look to some other method of funding. The alternative to raising taxes is always borrowing and to borrow sufficient funds German interest rates have to remain high. If one is going to fund the reconstruction of what was East Germany using Germany Federal bonds, the interest rate has to be high enough to attract the money. What started as a result of an exchange rate policy, where the other partners in Europe were to blame rather than the West Germans, was overtaken by events following reunification. This tends to underpin high interest rates.

Since then there has been a reversal of policy in Germany and the commitments given by the two partners in Government that taxes would not be increased have not been kept. Taxes have been increased and the major increase in takes has been put forward as a temporary measure but that was probably done too late. Reunification of the two economies, in particular the reunification of their currencies on a one-to-one basis, has brought about a situation where there is massive unemployment in what was East Germany which will lead inevitably to social tensions. A combination of an increase in taxes and high interest rates will be required to fund the reconstruction of the former East Germany. After aspiring for freedom on the wrong side of the Wall for years, it is not politically acceptable anywhere in Europe that 20 million Germans should become disillusioned quickly.

The price, which I believe will be paid to ensure no disillusionment, will be an old fashioned Keynesian attitude to the former East German economy. A great many other things will be happening as well but in my view the initial policy will be an injection of investment in what was East Germany, some of which will come from the increased taxes on the German taxpayer but a great deal more will come from borrowings. The borrowing will be on German paper which I believe will keep interest rates high. We will be tied in as a surrogate currency for the Deutsche Mark. There may not be a huge differential between us but in the heel of the hunt it will need a differential to attract investment in Dublin rather than in Frankfurt. The only thing that will reverse that policy will be a weakening in the German economy. If there is a weakening in the German economy to the extent that interest rates here are lower than in Germany because our investment market is more attractive, I suggest that the German economy will have gone into a degree of recession where it will no longer be the engine of Europe and the latter situation will be worse than the first. While we might have a temporary decrease in interest rates I think the forward situation would be worse.

We have just listened to a very interesting debate on unemployment. Unemployment is certainly the number one social and economic issue and it will probably become the number one political issue over the next couple of years. We all know of the social problems that arise directly from unemployment. We have a catastrophically high rate of unemployment. It is worth trying to measure the effect of high interest rates on unemployment. The productivity of the Irish workforce is increasing somewhere in the order of 2.5 per cent, but growth rates of 2.5 per cent to 3 per cent are not sufficient to increase jobs and are probably sufficient only to maintain existing jobs. To get the level of growth the Minister and the Government require to crack the jobs problem would be very difficult at the present level of interest rates. I have put this point to the Minister previously.

This morning, or perhaps it was the afternoon, the Minister spoke of our inflation rate of 2.7 per cent, let us say 2.75 per cent, but the ordinary overdraft rate is 15.75 per cent so that if you subtract the inflation rate of 2.75 per cent from that you are left with 13 per cent, so 13 per cent is the real interest rate for a great many people now. Can anyone tell me where you can invest money in Ireland at present to get a return of 13 per cent? That is the opening position, unless you can get a return of 13 per cent on the money invested, the value of your investment will have gone down by the following year. There has to be a direct connection between that kind of investment climate, economic growth and the creation of jobs. The other alternative, of course, is that one would invest that money somewhere else, preferably in an area where it is lying fairly idle and one is getting a reasonable return. Risking paying out 13 per cent on borrowed money in order to stand still or the alternative of investing in Government paper, where one gets a return of 10 per cent or 10.5 per cent is not feasible in this investment climate. The question of interest rates has to be addressed directly. We know how interest rates affect the living standards of people with very high mortgages. However, a Leas-Cheann Comhairle, I wonder if the Minister is aware of what is happening in the garage trade.

Mr. Quinn

I wonder if Deputy Noonan would allow me to intervene at this stage. We have moved from East Germany and the Deputy is now about to attack the problems in relation to garages. Perhaps the Deputy would attack the amendments, of which there are 77 left to be dealt with between now and 10.30 p.m.

Mr. Noonan

(Limerick East): A Cheann Comhairle, is the Deputy applying for your job?

Mr. Quinn

I would like to discuss the amendments tabled by the various Deputies.

Mr. Noonan

(Limerick East): I was not the Deputy who drifted into the discussion on interest rates, but once the issue was raised by other Deputies, it was important to talk about it in this context. I am making the point that this amendment would meet the problems of people paying very high mortgage interest but there are other areas where interest rates are fanning very serious problems. These problems are cutting right across the economy. At present there are cars worth between £1 million and £1.5 million sitting in the forecourts of garages while the garage proprietors are on the verge of being called in by the bank manager and being closed down. That is what is happening and I am sure the Minister is aware of it.

Mr. A. Reynolds

Yes.

Mr. Noonan

(Limerick East): I am not exaggerating the position, and I could name names. Builders are telling me that when they finish the present scheme of 25 to 30 houses they will stop building because they do not know what the future holds. When the people employed in indigenous activity, when motor mechanics are out of work and people in the building industry are being made redundant and the building industry is winding down again, it is very important to look at measures such as this not only from the point of view of benefit to the mortgage holder but for the impact it might have on the building industry, which is now going into recession. I talked to a builder last night who told me that this time last year he employed 75 people but that he has only two employed today. He does not know what the future holds and he will do nothing for the next six months. I am sure Deputy Quinn knows about this as well.

I am not putting forward this measure solely for relief for the hard pressed mortgage holder paying high mortgage interest but I am coming back to the issue of whether this Government have the initiative any more either on the tax or fiscal side that will actually encourage job creation. Are we going to proceed until unemployment reaches 300,000 over the next 18 months because as sure as we are here — Deputy Quinn said it very recently — that is where it is going to, 300,000 and more? I do not intend to take up the time of the House but this is a very important issue.

Mr. Rabbitte

May I indicate, a Cheann Comhairle, that I wish to withdraw amendment No. 5 and that in the interests of getting on to the other areas of income tax, I am quite happy to proceed now. I do not know what Deputy Noonan wishes to do as regards amendment No. 3, which I fully support.

An Ceann Comhairle

I have to tell the Deputy that amendment No. 5 has been deemed by me to be out of order. Were you not aware of that Deputy?

Mr. Rabbitte

No.

Mr. A. Reynolds

A lot of play has been made of what would be needed to restore the mortgage interest relief to its former level and I would like to point out a few facts for the benefit of the House. As I have said, the cost of restoring mortgage relief would be £56 million and 325,000 people would benefit by an average of £172 per annum. We started in 1988 by removing 10 per cent of the mortgage interest relief but the cost of tax relief in the budgets in 1988, 1989, 1990 and 1991 is £674 million. The number benefiting was 869,000 at an average benefit of £776. It is quite clear where the benefit lies. There is no question about it. I know that Deputy Garland among others has suggested restoring it in order to relieve hardship. We have to make up our minds, either we are widening the tax base or we are not. If we are widening the base let us stick with that.

Mr. Quinn

Absolutely, it is not going to be easy.

Mr. A. Reynolds

That is what it boils down to, we cannot have our loaf and eat it. We must decide on what we are doing.

On the question of interest rates, it is well known that the pressure is downward on interest rates in America. It is quite clear that the message emanating from America and many other countries, including Spain, where the rate came down by 0.75 per cent at the start of this week, is for pressure for reduced interest rates. However, in Germany there are more tax increases to come in June — whatever level they are going to be, and I do not think anybody can prejudge that situation. Whether we talk about G7 or G24 there is an appreciation that lower interest rates are required to kick start the world economy out of the recession it is in at present. We are dependent on that whether we like it or not in that we export goods to the value of £2 out of every £3 we produce. Consequently when there is such a bad recession in the United Kindgom and the US and other countries inevitably it backs up here.

We have made good progress in the past couple of years both in terms of our competitiveness and interest rates. We have narrowed the margin between the punt and the Deutsche Mark to 1 per cent from 9 per cent in 1987. The unit wage cost has benefited quite significantly. It has improved by 18 per cent in common currency terms. The OECD forecast that of all OECD countries Ireland will have the lowest unit wage cost increases in the business sector in the period 1991-92. As I have said, we are well positioned to take advantage of the recovery when it comes. We all know the effect real interest rates have on investment. However, this is a worldwide factor and we cannot press the button and hope to get something different.

I should like to point out to Deputy Rabbitte that we are not having outflows from the economy. For sometime we had outflows when people thought the margin was not sufficient. This was tested last October or November and the margin is being narrowed all the time towards equality with the Deutsche Mark. I suspect that in the next 12 or 18 months the margin will be even closer, if not equalised.

That is the background against which we are talking. As I said, we have to either widen or narrow the base. We have to take our pick; we cannot have an each way bet. Even though the mortgage interest relief was reduced from 100 per cent to 80 per cent, I believe taxpayers have benefited by £776 on average by way of additional tax reliefs. This is an indication that the taxpayer is winning which, as I see it, is my job.

Mr. Garland

The Minister addressed his points about widening the tax base to me in particular. Obviously this is very good in theory but I put it to the Minister that he is not at all keen on widening the tax base when it comes to the corporate sector — section 84, the bank levy, section 23, the very low rates of corporation tax and various write-offs for companies. This is all one way business — individuals, small traders and professional people are the victims of the racket while large businesses and firms are gaining. I do not accept the Minister's arguments in this regard.

Mr. A. Reynolds

I do not think Deputy Garland is familiar with what is happening in the Irish taxation system. The corporate contribution has gone up substantially from about £257 million to approximately £500 million, section 84s are being phased out and the greatest tax allowance available to the corporate sector, accelerated capital allowances, has been eliminated since 1 April this year. If the Deputy did his sums instead of making statements off the top of the head, he would see that the reality is totally different.

Mr. Garland

I am well aware of that——

Mr. A. Reynolds

I am glad the Deputy recognises that.

Mr. Garland

——but a lot more could be done.

Mr. A. Reynolds

That is not to say that nothing is being done.

Amendment, by leave, withdrawn.

Amendments Nos. 4 to 6, inclusive, not moved.

SECTION 1.

An Ceann Comhairle

We now proceed to amendment No. 7 in the name of Deputy Ruairí Quinn. I observe that amendments Nos. 8 and 9 are alternatives, amendment No. 10 is related, amendments Nos. 11 and 12 are alternatives to amendment No. 10, amendments Nos. 23, 24 and 25 are consequential on amendments Nos. 7, 8 and 9, respectively, and amendments Nos. 26, 27 and 28 are consequential on amendments Nos. 10, 11 and 12, respectively. I suggest, therefore, that we discuss amendments Nos. 7 to 12, inclusive, and amendments Nos. 23 to 28, inclusive, together, by agreement. It seems a bit involved but I trust the Deputy will agree to the proposal.

Mr. Quinn

I was going to ask you to repeat it as I did not catch it all.

An Ceann Comhairle

I certainly can, Deputy.

Mr. Quinn

No time is precious enough.

An Ceann Comhairle

I understand this grouping was already submitted to Members and that we had your tacit approval.

Mr. Quinn

You have my explicit approval.

An Ceann Comhairle

Thank you, Deputy.

Mr. Quinn

I move amendment No. 7:

In page 10, paragraph (a) (ii), line 23, to delete "£6,800" and substitute "£7,500".

We have been guillotined into a very tight time frame and we have agreed to try to order our business so that we complete Chapter III tonight as we will have to get through a lot tomorrow, and then there is Report Stage, if we reach that heady height.

This amendment is essentially a rose by another name. We have already dispensed with the primary arguments in regard to indexation in Deputy Noonan's amendment which basically proposed that the allowances should be increased. I am not going to take up the time of the House as I am more concerned with other amendments in my name. The Minister and his officials are well aware of the full implications of the amendments in my name and the amendments in the names of other Deputies, all of which propose to index in varying marginal degrees the extent of the allowances which are provided for.

The Minister has clearly indicated in the House that faced with the choice of reducing the nominal rate of taxation, the percentage at which the take occurs, or alternatively the allowance threshold at which it impacts, and having regard to the overall constraints on the Government's perception of the amount of money they need to raise by way of taxation, in effect, he has decided to freeze allowances and to start to systematically reduce rates over the next year or so in accordance with the programme.

I should like the Minister to confirm that that is a correct and reasonably factual observation of his position — there will be no movement on allowances. Effectively what this country has on option this year through the Coalition Government is a factual reduction in the percentage rates at which taxation will impact and a freezing of the allowance threshold level at which they will occur or some other variation which will have the same revenue effect, and there is no possibility of both. If, having regard to his extensive reply to Deputy Noonan's contributions on section 1, that is the Minister's position, I should like him to clarify it for the record.

Mr. Garland

My amendments Nos. 9 and 12 deal with exemption limits. While I welcome the small increase in exemption limits given by the Government this year, this is probably the most important way we can give recognition to the ridiculous situation where people on small incomes have to pay income tax. The Minister is proposing an exemption limit of £3,400 for a single person, about £64 or £65 per week. This is a very small amount and anything over this amount will be taxed.

Like the Deputy Quinn I believe the first priority of the Government should be to take these people out of the tax net. The same applies to married couples who earn up to £6,800 a year. It probably costs more to collect these small amounts of PAYE than is actually taken from such people. These people also have to pay PRSI contributions. The Minister should be generous to them. Deputy Bryne wants to increase the limits even further. Perhaps he is going a little too far while Deputy Quinn is not going far enough. My figures of £4,000 and £8,000 seem to be right, and perhaps the Minister can take them on board.

Mr. Byrne

I was not quite prepared. It is just as well I arrived in time or the debate might have collapsed. I understand that amendments Nos. 7 to 12 are being taken together and that I can speak on any of them.

I want to argue in favour of Deputy Rabbitte's amendment No. 8 calling for the limit of £6,800 to be substituted by £10,000. I am in favour of amendment No. 11 too which calls for the substitution of £3,400 with £5,000. Everybody is now agreed that rising tides do not raise all boats. It is very sad that people such as the elderly, old age pensioners, widows and certain categories of retired workers with small incomes by way of pension from the companies they worked for and who are also drawing old age pensions are taxed when one considers the amount of tax evasion that takes place here and when one looks at the £500 million debacle concerning Goodman. It is difficult to reconcile the fact that these people who worked hard all their lives and have earned a miserable pension from the companies for whom they worked are taxed while others are evading their tax. Under no circumstances should couples in receipt of £10,000 a year be considered to be wealthy. They should not be taxed. Various reports have shown that many of the disadvantaged poor in our society are actually paying tax. Like previous speakers I appeal to the Minister, to recognise that people on the poverty line are being forced into the tax net, and to take our amendments on board.

Mr. A. Reynolds

With the permission of the Ceann Comhairle, these amendments by Deputies Quinn, Rabbitte and Garland which propose increases in the general exemption limits will be discussed together.

Deputy Quinn proposes to increase the limits as set out in the Bill, by £700 for married couples and by £350 for single and widowed persons, the cost of which is £14.6 million in 1991 and £24.3 million in a full year and would exempt some 29,600 persons from tax liability.

Deputy Rabbitte proposes to increase the limits as set out in the Bill, by £3,200 for married couples and by £1,600 for single and widowed persons, the cost of which is £109.8 million in 1991 and £183 million in a full year and would exempt some 130,000 persons from tax liability.

Mr. Byrne

If the Minister caught all the tax dodgers he would have the money to pay it.

Mr. A. Reynolds

I did not interrupt Deputy Byrne. Let him listen to the hard facts of life. It is very easy to sit over there and propose a throw-away £200 million. If that were to be done it would have to be taken from some other taxpayers.

Mr. Quinn

I would not be too ready to rush in in regard to responsibility on this side of the House. The record is not great as far as the Minister's party are concerned.

Mr. A. Reynolds

It is not great in this area as far as Deputy Quinn's party are concerned.

Mr. Quinn

Let us not go down that road. It does not suit the Minister or me.

Mr. A. Reynolds

I will go down the road to this extent. I specifically attacked this area since I came into this job, in case the Deputy does not recollect.

Mr. Quinn

I was referring to the Minister's party.

Mr. A. Reynolds

In 1988 the limit for single and widowed persons was £2,750. It is now £3,400, an increase of 24 per cent. I would love to make it 124 per cent but balances have to be struck. The limit for a married couple with no children was £5,500 in 1988 and is now £6,800, an increase of £1,300. The limit for married couples with three children has been increased from £5,500 to £7,900, an increase of £2,400 or 44 per cent. Those are areas where there are real poverty. A married couple with four children had the limit increased from £5,500 to £8,400, an increase of £2,900 or 53 per cent. The limit for a married couple with five children was increased from £5,500 to £8,900, an increase of £3,400 or 62 per cent and the limit for a married couple with six children was increased from £5,500 to £9,400, an increase of £3,900 or 71 per cent. There stands my record in this area. I would like to do more and will continue to do more but we have to put the record straight. Certain people seem to think that nothing was done in this area.

Section 1 of the Bill already provides for generous increases in the general exemption limits of £300 in the case of married couples and £150 in the case of single and widowed persons.

In addition, in recognition of the difficulties faced by low income families, the special addition of £300 per dependent child is being increased for each third and subsequent child to £500 per child. This child element, and especially the increase for each third and subsequent child, is intended to target relief at a group which has been identified as particularly in need of State support — low income married couples with large families — and, together with the increases in the basic exemption limits, will go a long way towards alleviating the tax burden on such low income families.

The increases provided by section 1 and the associated marginal relief will cost the Exchequer £8.6 million in 1991 and £14.3 million in a full year and will exempt 17,900 persons — with 22,500 children — from liability to income tax. A further 26,300 taxpayers — with 35,500 children — will have reduced liability because of the operation of marginal relief as a consequence of the increases in the exemption limit and the reduction in the marginal relief rate.

The increases in the exemption limits provided for in section I 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 rates of tax, the increases in the standard rate band — section 2 — and the personal allowances — section 3 — and the renewal of the PRSI allowance — section 9 — costing some £106.9 million in 1991 and £176.3 million in a full year, are provided for in the Bill. Accordingly, the amendments must be opposed.

Our tax policy is clear cut. We are not, under any circumstances, freezing all allowances and just going after rates on their own. We are doing a combination of other things as circumstances permit.

Mr. Byrne

I might have been slightly out of order interrupting the Minister and for that I apologise but it struck me when he was speaking that since self-assessment was brought in a substantial amount of evasion has been taking place particularly by the self-employed. Added to that, the Combat Poverty Agency held a conference only yesterday which highlighted the stark reality of Irish life today, that one in five of our population are living on or below the poverty line and many people in low paid employment are equally trapped. When the ESRI carried out a survey in 1987 they found that 66 per cent of those living in poverty and paying tax would move above the poverty line if their tax burdens were removed. There are enough bodies out there among the caring agencies, not least of which is the Combat Poverty Agency, who argue that we should remove those on lower incomes from the tax net. On that basis we were seeking to increase the exemption limits substantially. Of course we are conscious it costs money. There was no doubt in our minds that it was in the full knowledge of that that we called not just glibly but sincerely for an increase in the exemption limits. A two-tier society seems to be developing. The rising economic fortunes Fianna Fáil Ministers speak about so proudly are fine in that people benefit from them, but the sad reality is that huge and ever-increasing numbers are not benefiting. The Minister for Labour at the combat poverty conference yesterday at least recognised that the rising tide is not lifting all boats. We are developing more and more rapidly into a very destructive, divisive, two-tier structured society. The degree of resentment is understandable when, for example, old age pensioners are forced into the tax net with miserable small company pensions coupled with social insurance pensions. I leave that point for the Minister to bear in mind.

Mr. A. Reynolds

On the figures I mentioned earlier, the rise in the cost of living from February 1988 to date was 10 per cent. I say to Deputy Byrne that we would all like to do more. I know there are problems and we are moving along at the best pace possible. When we talk about increases ranging from 24 per cent to 71 per cent in a period when the cost of living rose by 10 per cent that indicates the Government's record in tackling this problem which was highlighted by the ESRI report some three years ago.

Question: "That the words proposed to be deleted stand" put and declared carried.

Amendment declared lost.

Amendments Nos. 8 to 12, inclusive, not moved.

An Ceann Comhairle

We move now to amendment No. 13. Amendment No. 22 is related and I suggest we discuss amendments Nos. 13 and 22 together.

Mr. Noonan

(Limerick East): I move amendment No. 13:

In page 10, paragraph (a), between lines 25 and 26, to insert the following:

"(iii) by the insertion in paragraph (a) of subsection (2) (inserted by the Finance Act, 1989) of 'or 138A' and 138 (a)',".

I would like the Minister's view on this amendment.

Mr. A. Reynolds

I have noted Deputy Gay Mitchell's amendment to give the married exemption limits to widowed and single parents. The House will be aware that there is already provision in the income tax code for the position of widowed and single parents in that widowed and single parent allowances bring their basic allowances up to the same level as those of a married couple. In addition widowed and single parents who are taxpayers will have benefited from the general income tax reliefs introduced in recent years, including increases in the personal allowances, reduction of the standard rate to 29 per cent and extension of the standard band by £2,000 over recent years.

The fact that widowed and single parents have personal allowances equivalent to the married personal allowances means their basic allowances significantly exceed the single exemption limit. If they qualify for PAYE and PRSI allowances, as is often the case, their allowances would substantially exceed the single limit.

I would not be in favour of allowing such taxpayers the married exemption limits. The reason married couples receive the double exemption limit is quite simple; it is because there are two adults to support. This is not the case with widowed and single parents where there is only one adult to support.

Moreover, as Deputies will be aware, in recent years I introduced a child addition in conjunction with the exemption limits. The Deputy's amendment would mean that this would apply in conjunction with the married limits for widowed and single parents. This would mean double recognition of children for such taxpayers, once in being granted the married exemption limits and again in benefiting from the child addition. This would be in sharp contrast to the position of married couples who do not generally receive recognition for their children in the tax code but where they do, by means of the child addition, they receive such recognition only once. Accordingly, if the double limits were granted to widowed and single parents in conjunction with the child addition we would have a situation where one household was getting the same exemption as another despite having just one adult fewer.

I should also mention the cost of implementing this amendment would be over £3 million a year. In view of all these factors I could not agree to accept Deputy Mitchell's amendment.

Amendment, by leave, withdrawn.

An Ceann Comhairle

We come now to amendment No. 14 in the name of Deputy Quinn. I observe that amendments Nos. 16, 18 and 20 are related and amendments Nos. 15, 17, 19 and 21 are alternatives to amendments Nos. 14, 16, 18 and 20 respectively and amendments Nos. 29 to 36, inclusive, are consequential. I am suggesting, therefore, that we discuss amendments Nos. 14 to 21, inclusive, and amendments Nos. 29 to 36, inclusive, together if that is satisfactory.

Mr. Quinn

I move amendment No. 14:

In page 11, paragraph (b) (ii) (1), line 12, to delete "£7,800" and substitute "£8,500".

In view of the time constraints on us I propose to formally withdraw the amendment in my name.

Amendment, by leave, withdrawn.

Amendments Nos. 15 to 36, inclusive, not moved.

Mr. Garland

I move amendment No. 37:

In page 12, lines 2 and 3, to insert the following subsection:

"(2) As regards 1991-92 and subsequent years of assessment, relief in respect of children shall be allowed at £300 per child.".

This amendment proposes to re-introduce child income tax allowance at £300 per child. I raised this matter last year during the course of the Finance Bill. I did not expect that the Minister would pay attention to it because his sums and figures were done, but I had hoped he would take it on board in 1991. He has not done so and I dare say I will be here this time next year proposing the same amendment. Since then one could make a case for increasing this amount to £500. The reason I selected £300 was that this is the exemption limits the Minister introduced in the 1990 Finance Act. He clearly indicated that for a low-income married couple with children the exemption limit was not adequate and should, therefore, be increased by £300 per child. I would welcome that. In this year's Finance Bill he has increased that amount to £500 per child. In spite of that he has still not reintroduced children's allowance for the average taxpayer.

There are many taxpayers who are just over the exemption limit and, furthermore, are just over the limit where marginal relief would apply. This is a new kind of poverty trap. When a person with four or five children gets beyond the exemption limit and the marginal relief they are in trouble because they are no longer in receipt of the child allowance. It can be argued that parents receive child benefit, and this is very good but it is by no means sufficiently high. Had the Minister's colleague in the Department of Social Welfare been more generous, this amendment might not be necessary. The fact is that the level of child benefit is not adequate, hence we must recognise the real financial burden on parents with children; that is something not reflected in the income tax code.

I would remind Members of the House that the child allowance used to extend to children at third level provided they were receiving full-time education. Already today Deputy Noonan, who tabled amendment No. 2, endeavoured to obtain some relief for parents who had children at third level colleges. While I had some reservations about that amendment, I felt it was on the right lines in the sense that it was a recognition of the extra costs to be met by people with children. I do not suppose this amendment will get support from anyone else in the House because no one else has tabled an amendment in that respect, but perhaps there will be some contribution from the Opposition Deputies on that issue.

Mr. Noonan

(Limerick East): I have a lot of sympathy with Deputy Garland's arguments. I would approach it from a different perspective and it is this: the whole poverty trap is preventing certain people from ever taking part in the workforce. If a man with, say, four children is in receipt of unemployment assistance, he will get child dependant allowance for the four children and the children's allowance will be paid to his wife. What was normally called children's allowance will be paid to the family, and through the social welfare code an allowance in respect of each child will also be paid. If the same man returns to work he will get child benefit but there is no longer a child tax relief. I am aware that that relief was abolished when we were in Government but that particular consequence was not foreseen. There is no doubt that it was one of the key factors in magnifying the effect of the poverty trap.

I am very much in sympathy with removing a clause which in effect means that a married man with four children cannot go back to work unless he gets a wage of about £230 per week, because otherwise his finances will work out at about the same when everything is included. That has been confirmed by a question from the leader of the Labour Party and by statements in the House by the Minister for Labour, Deputy B. Ahern. There is no longer any argument about the nature of the problem. Some of us may say the problem is more severe for a person in receipt of £180, others would argue that the income is higher, and there would be a debate about what should be a factor in relation to deductions. Much of the difficulty arises directly from the fact that there is a double benefit in respect of children of the unemployed. That is fair enough, they need it, but it is paid in two ways. When the same person returns to work, only the child benefit is paid and there is no allowance under the tax code. If the person concerned is single there is no problem; if the person is married with one child, the problem is small, but when it comes to a family of four children in receipt of benefit there is a real aggravation of the poverty trap.

To try to give extra income to needy families through the tax code — unless tax credits are provided — means that the person at the higher marginal rate is getting more than the person at the lower marginal rate. In other words, a £100 worth of children's allowance to somebody paying tax at the rate of 53 per cent is worth £53, whereas to somebody paying tax at the standard rate it is worth only £29. That is regressive because the person who has a much higher income receives twice as much. That is the problem we cannot overcome. When we abolished that allowance in Government we use all that money to increase child benefit. Because child benefit can be targeted, the mother receives the same allowance in respect of each child, whereas if the same money is used through the tax system it is skewed towards the better off because the allowance is applied at the marginal rate. I do not have a solution to the original problem I outlined, the poverty trap, which is so evident in the system. I would like to hear the Minister's views on it. It seems to me that consideration must be given to the possibility of one integrated child allowance in respect of children whose parents work or whose parents are unemployed. While our solution was intended as a more equitable system, it produced this unforeseen result of a poverty trap which we had not identified when we made the decision. If we accepted the Deputy's amendment we would return to the old problem of the tax allowance going to the better off families rather than to the average or poorer families.

I would like to see a further study on the possibility of having one integrated child allowance, whether it is under the social welfare code, the child benefit scheme, under the tax allowance or whether it would follow from progressively increasing the exemption limits which the Minister introduced in respect of children two years ago. I would like the Minister's views on it. There is room for a further study on it and action in that respect.

Mr. A. Reynolds

My colleague, Deputy Woods, is studying the area the Deputy has talked about here. This amendment seeks to reintroduce the child tax allowance of £300 in respect of each child which was withdrawn in the 1986-87 period with the introduction of the new social welfare child benefit to which Deputy Noonan referred. In accordance with the Government's decision to consolidate secondary tax allowances with social welfare payments, it was felt, because of the different rates of tax, that the child tax allowance applied unequally and child benefit got over the problem. This amendment must be viewed against the background of the progress that has been made in introducing substantial income tax reliefs in recent years, progress which has significantly benfited all taxpayers, including those with families. This year's budget provided for an increase in the social welfare child benefit of £7.10 for the fourth and subsequent child, bringing the new rate up to £22.90 per month. The increase applies from October this year. For each of the first three children the monthly rate is £15.80.

The amendment before us, if accepted, would mean that people paying the standard rate of tax would get less than those on the higher rates, which is a problem already referred to. This is not the best way to distribute scarce resources. It will not get to the people who need it most. Again this year, I have targeted the lower rate taxpayers with children for relief under the tax code and that is why I moved along that road a couple of years ago — to try to target money where it is needed, to the people on lower incomes with large families. The amendment proposed by Deputy Garland would cost £42 million in 1991 and £70 million in a full year. In the light of the general reliefs in this year's budget and the particular emphasis that this and previous years, budgets have placed on helping lower paid families, I cannot accept the amendment. It would not be the right way to target the money. I have taken on board some of the comments of Deputy Noonan. We have removed quite a few of the problems in that area but there is still a margin to be got at. We will continue to work towards eliminating that margin.

Mr. Garland

In one of my earlier amendments I referred to the question of introducing a system of tax credits. Deputy Noonan referred to this as well. Will the Minister comment briefly on whether he is prepared to give serious consideration between now and the next budget to looking at the question of a system of tax credits? This would possibly satisfy Deputy Noonan. I agree with Deputy Noonan that, as my amendment stands, it will benefit higher rate taxpayers. That is not my intention, but all allowances at the moment benefit higher rate taxpayers unduly, whereas a system of tax credits would not do so.

Mr. A. Reynolds

Tax credits can be progressive, but anything one wants to do with tax credits can be achieved by allowances. One does not have to upend the whole system to get a specific objective. The allowances can be used to get there if one has the money. Deputy Quinn said quite a lot that was out of order in this area.

Amendment, by leave, withdrawn.

Section 1 agreed to.

NEW SECTION.

Mr. Quinn

I move amendment No. 38:

In page 12, before section 2, to insert the following new section:

"2.—Section 2 of the Finance Act, 1984 is amended as respects the years 1991-92, 1992-93, 1993-94 and subsequent years of assessment through the deletion of the Table in that section and its replacement by the following Tables, A (1991-92), B (1992-93) and C (1993-94) respectively, to this section.

`TABLE A (1991-92)

PART I

Part of Taxable income (1)	Rate of Tax (2)	Description of rate (3)
The first £7,500	29 per cent.	the standard rate
The next £3,100	48 per cent	the higher rates
The remainder	52 per cent

PART II

Part of taxable income (1)	Rate of tax (2)	Description of rate (3)
The first £15,000	29 per cent.	the standard rate
The next £6,200	48 per cent.	the higher rates
The remainder	52 per cent.

TABLE B (1992-93)

PART I

Part of taxable income (1)	Rate of tax (2)	Description of rate (3)
The first £8,750	29 per cent.	the standard rate
The next £3,750	48 per cent.	the higher rates
The remainder	52 per cent.

PART II

Part of taxable income (1)	Rate of tax (2)	Description of rate (3)
The first £17,500	29 per cent.	the standard rate
The next £7,500	48 per cent.	the higher rates.
The remainder	52 per cent.

TABLE C (1993-94)

PART I

Part of taxable (1)	Rate of tax (2)	Description of rate (3)
The first £10,000	29 per cent.	the standard rate
The next £9,000	48 per cent.	the higher rates
The remainder	52 per cent.

Part of taxable income (1)	Rate of tax (2)	Description of rate (3)
The first £20,400	29 per cent.	the standard rate
The next £9,000	48 per cent.	the higher rates
The remainder	52 per cent.

'.".

This is an attempt to write in over a three year period the full extent of what the Labour Party would like to see implemented by way of a range of tax allowances and tax rates. The scheduled Table A (1991-92) speaks for itself and I have nothing further to add in view of the extended discussion we had on the whole question of income tax allowances today. I will be interested to hear the Minister's reply.

Mr. A. Reynolds

The purpose of this amendment is to put in place now an income tax rate structure that would apply for the years 1991-92, 1992-93 and 1993-94 and subsequent years of assessment. While the rate of tax proposed are constant, at 29, 48 and 52 per cent, the scheme envisages a widening of the standard rate tax band in each year and also a broadening of the 48 per cent tax band for the years 1992-93 and 1993-94 and subsequent years.

For 1991-92 the amendment proposes to widen the standard rate band beyond what is proposed in the Bill from £6,700 to £7,500, an increase of £800 for single and widowed persons, and from £13,400 to £15,000, an increase of £1,600 for married couples.

For 1992-93 the amendment proposed to widen the standard rate band beyond what is proposed in the Bill from £6,700 to £8,750, an increase of £2,050 for single and widowed persons, and from £13,400 to £17,500, an increase of £4,100 for married couples and to increase the 48 per cent rate band from £3,100 to £3,750 an increase of £650 for single and widowed persons, and from £6,200 to £7,500, and increase of £1,300, for married couples.

For 1993-94 and subsequent years of assessment the amendment proposes to widen the standard rate band, beyond what is proposed in the Bill from £6,700 to £10,000, an increase of £3,300, for single and widowed persons, from £13,400 to £20,000, an increase of £6,000 for married couples; and to increase the 48 per cent rate band, from £3,100 to £4,600, an increase of £1,500 for single and widowed persons, and from £6,200 to £9,200, an increase of £3,000 for married couples.

The cost of the proposed changes to the Bill in 1991-92 terms is estimated at £43.9 million in the first year and £73.1 million in a full year in respect of the 1991-92 proposals; £57.1 million in the first year and £95.2 million in a full year for the 1991-93 proposals, and £43.0 million in the first year and £71.7 million in a full year in the case of the 1993-94 proposals.

Cumulatively, the proposed changes will cost £250 million over the three year period provided for in this amendment.

The measures already incorporated in the Bill propose that the standard rate of tax be reduced from 30 per cent to 29 per cent and that the band of income chargeable at that rate be widened from £6,500 to £6,700 for single and widowed persons and from £13,000 to £13,400 for married couples. In addition, the top rate of tax is being reduced from 53 per cent to 52 per cent. These changes are estimated to cost £57.3 million in 1991 and £95.5 million in a full year. About 770,000 taxpayers will benefit from these changes. Moreover, the cost of all the main income tax changes provided for in the Bill is estimated at £183.9 million in a full year.

As the House will be aware, the Government are committed in the Programme for Economic and Social Progress to further reduce the standard rate to 25 per cent by 1993 and to move towards a single higher rate. These and other commitments to income tax improvements over the next three years contained in the programme will cost up to £400 million in a full year. The measures contained in this year's Bill represent a significant first step in the process of implementing the programme. The steps whereby the programme's undertaking is achieved and the bands of income to which the reduced rates are to apply will, of course, have to be determined in the context of the budgetary conditions that will prevail in the coming years. It would be inappropriate that we should be attempting to map out the income tax structure on the basis proposed in the amendment at this stage. There must be sufficient room for manoeuvre in the framing of future budgets, room which would be severely curtailed by the acceptance of this amendment.

The changes in the rate structure already provided for in the Bill are substantial and are the maximum that can be afforded this year. In all the circumstances, I must oppose the amendment.

Mr. Quinn

I was curious to hear the Minister's response to a three year proposal on tax. Surely the intellectual validity of that approach is written in tablets of stone by the Programme for Economic and Social Progress? If it is unacceptable to so do in legislation for which the signatories are directly accountable to the public, it is no less unacceptable for the Programme for Economic and Social Progress to so do and then bring it to the House. There is a certain disingenuity in the Minister's response. Why is it wrong to have a three year planned programme if the explicit commitment from the Government, the explicit commitment from the Programme for Economic and Social Progress, and the repeated assertions of Government Ministers — particularly the Minister himself and the Taoiseach — is to meet in a commitment over a period of three years? Why can we not go to the next stage now and plan? Nothing in amendment No. 38 prevents the Minister, in the event of some unforeseen circumstance arising in the next year, from coming in with an amendment next year, just as such a provision exists within the Programme for Economic and Social Progress itself. The small print of the Programme for Economic and Social Progress provides that everything is conditional upon the overall movement in economic growth being maintained.

I shall not go into the Minister's specific arguments. I thank the Minister for his contribution and his officials — the staff of the Revenue Commissioners and the Department of Finance — for their co-operation in enabling Members to do our own costing. That helps the quality of intellectual honesty and debate — in that order — in the House, and we are all, as citizens, — the beneficiaries of that. I thank the Minister for the costings. Why is it acceptable to have in the Programme for Economic and Social Progress and elsewhere a three year programme but not acceptable as a table set out in section 2?

Mr. A. Reynolds

The matter is very simple. Deputy Quinn must know that our commitment to the rates is enshrined in the Programme for Economic and Social Progress. He has chosen a different way to distribute the money that is in it. Basically, we are talking about different choices and different priorities.

Mr. Quinn

May I take it, that if the rates were strictly in alignment with what is written down in the Programme for Economic and Social Progress the Minister would accept such an amendment?

Mr. A. Reynolds

No, there is always a condition in the Programme for Economic and Social Progress and everywhere else about budgetary circumstances permitting such things to happen. In the first programme, a commitment was made for only £225 million but we delivered about £800 million. The first year of the present programme is a more difficult year, but who is to say that 1992 or 1993 will not be better? We would all like to do better, but we are all clear about what the commitments in the programme are. Those are our objectives, that is Government policy, and we strive to achieve them.

Mr. Quinn

The Minister knows the position of the Labour Party on the idea of programmes. The tide will not always be in for whoever occupies the hot seat at present occupied by the Minister. Would the Minister not agree that in order to give some sense of validity and underpinning, the commitments have to be underwritten in the House, and not behind closed doors in the winter palace across the way? Would he also agree that they have to be underwritten by people who are themselves accountable to the electorate to provide for the circumstance of a failure, irrespective of the table of numbers? I am quite prepared to accept that properly speaking from the Minister's point of view the programme commits itself to a different schedule of figures.

At 9.55 p.m. on this Tuesday night I want to record clearly the Minister's formal political reluctance to write into legislation something that he and his colleagues have frequently trumpeted about when talking about the programme. The Minister should say whether it is a promise or a commitment. If it is a promise, the Minister can make that promise outside the House; if it is a commitment, it should be made law.

Mr. A. Reynolds

We all know what the programme is; it is the coming together of a set of objectives and programmes. We all know it is subject to the economic circumstances permitting at the time.

Mr. Quinn

So would this be.

Mr. A. Reynolds

We all know that it is based on the growth rates of this year, next year, and every other year. Everyone knows exactly what the framework is and the signatories to it understand what the framework is. I do not need to go any further than that.

Mr. Quinn

I rest my case.

Mr. Byrne

I support the sentiments that have already been expressed. The tables produced in our amendment head in the same general direction, but there is a substantial difference. The Workers' Party really do believe that the higher earning brackets should have the higher rates of taxation, substantially higher than those already listed. For example, in an attempt to alleviate the tax burden that has fallen on the groups at the lower end of the income scale, our figures propose a 29 per cent rate of tax from the first £7,550.

Amendment, by leave, withdrawn.

Amendment No. 39 not moved.

NEW SECTION.

Mr. Byrne

I move amendment No. 40:

In page 12, before section 2, to insert the following new section:

"2.—For the purposes of income tax assessment married persons shall mean—

(a) a man and woman who are married to each other, or

(b) a man and woman who are not married to each other but are cohabiting as man and wife.".

It is incredible that in this country, a country that prohibits divorce by the democratic decision of the people——

Mr. Quinn

On a point of order, a Leas-Cheann Comhairle, I presume that as amendment No. 157 is linked to amendment No. 40, they can be debated together since the same net point is involved.

An Leas-Cheann Comhairle

Amendment No. 157 will not be reached this evening. The information I have is that there is no linkage. The procedure of the House provides that if it is thought reasonable and if Members agree, that could be decided now.

Mr. Quinn

I suggest that they are linked and should be taken together.

Mr. Byrne

That would be all right.

Mr. Quinn

I thank Deputy Byrne for his co-operation.

An Leas-Cheann Comhairle

I wish to clarify the position. Amendment No. 40 has been moved, and we are agreeing to discuss——

Mr. Quinn

I am suggesting, with the agreement of the House, that amendment No. 157 is linked and that should amendment No. 40 not be accepted then amendment No. 157 would follow.

An Leas-Cheann Comhairle

No, I am sorry, but I am advised that different taxes are involved.

Mr. Quinn

It is a similar issue.

An Leas-Cheann Comhairle

But different taxes.

Mr. Quinn

I want to talk about the issue, not the tax.

An Leas-Cheann Comhairle

Apparently the taxes take priority over the issue.

Mr. A. Reynolds

Is the Deputy afraid that the Committee will not reach that amendment tomorrow?

Mr. Quinn

Yes. Should I be optimistic?

Mr. A. Reynolds

They are different taxes. I do not have a brief on it, but I know what the Deputy is talking about. It is capital taxation.

Mr. Byrne

The people had decided that there should be a prohibition on divorce; I do not think that that prohibition will last for very much longer if the present Coalition Government have the wherewithal to recognise the thinking of the people. I consider it to be an inevitability that within a relatively short period of time the State will recognise that marriages are not staying the course for large numbers of people and that it will eventually regularise the dissolution of marriage.

Not so long ago the Minister for Social Welfare introduced a regulation in social welfare legislation that gave recognition to cohabiting couples as being the spouse of one another. The decision was progressive although I think it was intended to cut the amount of benefit which cohabiting couples were receiving. However, now that it is on record that a Minister recognises cohabiting couples as spouses of one another, it should mean that cohabiting couples should be recognised as being married. The amendment says that for the purpose of income assessment married persons shall mean (a) a man and women who are married to each other, or (b) a man and woman who are not married to each other but are cohabiting as man and wife. FLAC might also have something to say in this regard.

In regard to social welfare payments or benefits there is no point in recognising a relationship in relation to cohabiting where the State recognises them as a spouse of one another and reduces their welfare accordingly but, for tax purposes, it takes a diametrically and opposing position. I will be fascinated to hear the Minister's decision on this amendment; I should like to think he would see merit in supporting it.

An Leas-Cheann Comhairle

From inquiries I made, I should like to advise the House that, in its special co-operative mood, we may debate amendment No. 157.

Mr. Quinn

Thank you, I appreciate that. My question is essentially the same as that of Deputy Byrne in relation to the treatment of couples.

Mr. Noonan

(Limerick East): We had a similar amendment tabled last year and the Minister said that he did not feel obliged to process tax laws in advance of normal civil law. I hope he will not come up with the same answer this time——

Mr. A. Reynolds

It is slightly different.

Mr. Noonan

(Limerick East): The case in this regard was made very strongly last year and this year. If cohabiting couples are discriminated against in the social welfare code, then they should be on the other code and get the allowances, which would be fair.

Mr. A. Reynolds

The amendment proposes to treat cohabiting couples on the same basis as married couples for tax purposes. As the Deputy will be aware, in making any changes to the income tax code, there is a necessity to adhere to the precepts of the Constitution in framing such changes. The Constitution binds the State to safeguard the institution of marriage — a requirement which the court found to be applicable in tax law in the case of Murphy v. Attorney General.

If I were to introduce a provision to allow for the assimilation of treatment under the Income Tax Acts to parties outside the legal marriage contract, it could face similar constitutional difficulties. In these circumstances it would not be desirable to make any special provision in the Income Tax Acts in respect of voluntary arrangements such as those identified in the amendment. Provisions regarding the status of parties to a non-marital relationship should be contained in the general law relating to marriage which would then be reflected in relevant income tax legislation.

As the House will be aware, a White Paper on Marital Breakdown is currently under preparation by the Department of Justice. In these circumstances, it would be preferable to await the report before making any change in the tax code which, as I have said, reflects the general law relating to marriage.

In relation to Deputy Byrne's point about social welfare, I noted what has been said about the treatment in this regard of cohabiting couples. However, the treatment is aimed at ensuring that in the social welfare code cohabiting couples are not treated better than married couples. There is no necessary connection between that treatment and the income tax treatment of cohabiting couples. In the income tax code married treatment is confined to married couples. This treatment reflects the general law in relation to marriage and I do not have any plans to change it.

It is not the function of income tax law to move ahead of general marriage law. Provisions regarding the status of parties to a non-marital relationship should, if considered desirable, be contained in the general law relating to marriage which would then be reflected in relevant tax legislation. We await the publication of the White Paper and we will take the debate from there. Accordingly, I do not propose to accept this amendment.

Mr. Byrne

The Government have twisted and turned in regard to this hot potato given the constitutional ban on divorce. Many marriages have irretrievably broken down, through no fault of the people concerned but the State does not afford them civil, legal divorce so that they may rebuild their lives and relationships with other partners. The Minister said he cannot treat cohabiting people more favourably because of the constitutional safeguard of the institution of marriage. He also said he can only give tax entitlements to people who are legally married. I wish that this matter could be challenged by an organisation like FLAC because there is hypocrisy in relation to those trying to rebuild their lives in second relationships.

Nothing in the Finance Bill recognises their position, not even on the same basis as they have been recognised as cohabiting spouses by the Department of Social Welfare. The bare minimum from the Government in this regard would be to recognise, for tax purposes, that they are, to all intents and purposes, married. Their treatment is mean, cruel and petty and the Minister is hiding behind the Constitution which was not intended to be interpreted to discriminate against cohabiting couples.

Mr. Quinn

I have a personal interest in this matter because I am in a second legal marriage which is not recognised in the State. In relation to the points which the Minister made about tax, I do not need to remind him of the famous — or infamous — Murphy decision, depending on which side of the Revenue collection point of view you are. I caution him — perhaps the Minister may wish to come back on Report Stage — in relation to receiving legal advice. Has he sought legal advice, from a general point of view, on whether the principles enunciated in the adjudication on the Murphy case vis-à-vis married people living together, seeking the same treatment as two single people living together or separately, might have for the purposes of income tax? If two people on social welfare took a case in regard to benefits to which they were legally entitled, as distinct from an allowance for which there was an element of insurance contribution, it might result in a judgment not dissimilar to that of the Murphy judgment. If the Minister got that advice and then did his calculations, he might find it would be much cheaper to concede some points here than to reverse the attempts at reform which the Minister for Social Welfare made.

It is a complex area and nobody has a simple solution. There are genuine constitutional constraints, this House can propose changes in the Constitution but the electorate have the final say. As a democrat I accept that without reservation although I may not like it. I understand the constraints but I should like to know if the arguments which the Minister put forward take into account the logic of the conclusions of the Murphy case. If they do not — I am not a lawyer — it is possible that the validity of the recent changes made by the Minister for Social Welfare in that respect for some, but not all, social welfare cases could be invalidated. From an overall Revenue point of view, that might be far more expensive.

Mr. A. Reynolds

Between now and Report Stage I will look at the points raised by Deputy Quinn. I do not see any immediate way out. I am not a lawyer either and I do not propose to go into each Article in the Constitution and how it impacts on this area. I am glad that Deputy Quinn, as a democrat, accepts the position. Deputy Byrne does not seem to accept that that is the position. The people have voted on the matter. Like the Deputy, I am well aware of the problems facing people whose marriages have broken down irretrievably but he will not gain anything by pointing the finger at me as if I was a free agent to make changes just because somebody makes a case. I am not a free agent. Deputy Quinn has been quite open and fair, in saying that this matter affects him. That is no reason it should not be changed, if it is safe to do so. The Government will publish a White Paper later this year which will address this problem but, at the end of the day, it is the people of the country, not me or anyone else, who will decide whether the constitutional ban should be removed. Like everybody else, I only have a role to play.

An Leas-Cheann Comhairle

Is the amendment being pressed?

Mr. Rabbitte

I apologise for my absence. I was doing my best to represent the views of the Minister at a large public meeting in Tallaght on the abandonment of the Tallaght Hospital project.

Mr. Quinn

Did they understand the reason why?

An Leas-Cheann Comhairle

The Deputy does not have to explain himself. He was ably represented in his absence.

Mr. Byrne

It was in safe hands.

Mr. Noonan

(Limerick East): He was not missed at all.

Mr. Rabbitte

I am disappointed at the part of the Minister's response I heard. I am not sure I can understand the reason the State can treat a couple in one fashion for social welfare purposes and in a different fashion for taxation purposes. Clearly, the Exchequer saves money in the social welfare area by treating them in one way but when one puts a similar proposition in respect of income tax apparently a different set of rules apply.

I cannot readily see a constitutional obstacle or impediment in the way of the Minister taking on board the spirit of the resolution. Surely, it ought to be possible to frame an amendment which is perfectly consistent with the aspiration in the Constitution to protect the family. We are talking here about common law marriages, about fixed and stable relationships between two adults and I cannot for the life of me see how enshrining the amendment in the Finance Bill, 1991 would run counter to the aspiration in the Constitution to protect the family. We are not asking the House to approve an amendment that would be enshrined in the Constitution or that would be the subject of a referendum to change the Constitution. We are merely seeking to highlight the factual position. Having regard to the precedent referred to by Deputy Quinn, and the situation outlined by the Minister for Social Welfare, Deputy Woods, I beg the Minister's indulgence and patience and ask him to explain again why he considers there is a constitutional impediment in the way of him accepting the fiscal change proposed here. I cannot readily see it. We are perfectly free to make this change and it is consistent with the aspiration to protect the family. I do not see any conflict because that is precisely what we are doing here. Two adults, in the circumstances envisaged by the amendment, are just as concerned to protect their family as somebody in a relationship which is acknowledged under the laws of the State.

An Leas-Cheann Comhairle

I am sorry, Deputy but your invitation to the Minister to repeat what he has already said is not in order.

Mr. A. Reynolds

The point Deputy Rabbitte has overlooked is that the Constitution seeks to safeguard marriage, not the family.

Mr. Rabbitte

The Constitution also sets out to protect the family. I cannot see how we would undermine the institution of marriage if we were to permit, for tax computation purposes, what is envisaged in the amendment. Whatever objections there may be to taking the spirit of the amendment on board I cannot accept that there is a constitutional argument that we would undermine marriage if cohabiting couples were treated as if they were married; in other words, that there would be a rush of unofficial liaisons throughout the country for tax purposes. This is nonsense. There is no tax advantage to be gained in leaving one's spouse or in being thrown out by one's spouse. That simply does not add up. At best, one would be no worse off than when one was in a relationship recognised by both the Constitution and the laws of the State. How it could be considered to be an inducement to undermine the concept of marriage is beyond me. I honestly think the Minister is trying it on to reject it purely on the basis of a constitutional argument.

Mr. Noonan

(Limerick East): Is the Minister giving us the advice he received from the Attorney General or is he giving us the advice he received from the Revenue Commissioners?

Mr. A. Reynolds

It is a mixture of both. We are all clear on the point that the Constitution binds the State to safeguard the institution of marriage. That is the point Deputy Rabbitte seems to have missed. That is the advice of the Attorney General.

Mr. Byrne

Will the Minister explain how the institution of marriage will be threatened if those whose marriages have collapsed, and who are now involved in a new relationship which might be termed a marriage if there was divorce here but who must be considered to be cohabiting in the absence of divorce are treated as if they were man and wife for tax purposes? I ask the Minister to go into more detail on the reasons he feels this would run counter to the Constitution. Indeed, the argument could be made that instead of damaging or destroying the institution of marriage couples might be brought closer together.

Mr. A. Reynolds

I have nothing further to add. The point raised by Deputy Byrne is a legal one.

Mr. Quinn

There is the Murphy dimension to this matter that we are not clear on. We might get a more considered view on Report Stage.

Mr. A. Reynolds

I am not so sure if we will have the details by Thursday but, if not, I will come back to the Deputy.

Mr. Quinn

It will not go away.

Mr. Rabbitte

As the Minister has given an undertaking to come back on Report Stage I will not call a vote at this stage.

Amendment, by leave, withdrawn.

Mr. Rabbitte

I move amendment No. 41:

In page 12, between the Table and line 31, to insert the following subsection:

"(4) 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 dependants who are widows, widowers or single parents.".

The purpose of this amendment is to have dependants who are widows, widowers or single parents included. I look forward to the Minister's reply.

Mr. A. Reynolds

This amendment proposes to extend the double rate bands which apply to married persons to single and widowed parents.

The basic problems which give rise to requests to extend double rate bands to lone parents are the high rates of direct taxation and the low levels of income at which the higher tax rates apply. If the vast bulk of taxpayers paid tax at the standard rate only, the distinction between the double rate bands and the single rate bands would become largely irrelevant.

It is the Government's objective as set out in the Programme for Economic and Social Progress to further reduce the standard rate of income tax to 25 per cent by 1993 and to implement further movement towards a single higher rate of tax. This year progress has been made towards achieving that objective.

General reductions in the rates benefit all taxpayers and reduce the disincentive effects of high tax rates. This, undoubtedly, is the correct way forward. In contrast, providing special rate structures for selected groups no matter how deserving, serves only to impede the progress towards lower tax rates and, therefore, runs counter to Government policy. Attainment of the Government's objectives in the taxation field will lead to the elimination of most of the anomalies of concern to Deputies and will result in a better and more acceptable tax system for all taxpayers.

The cost of extending the double rate bands to one-parent families would be about £4 million in 1991 and £6.5 million in a full year. If the married entitlement to mortgage interest and life assurance relief were also extended to single parent families, as should logically be the case, costs would be even greater.

The income tax code already provides some help for widowed and single parents. Widowed persons have a widowed personal allowance which stands at £3,600 compared with the single person's allowance of £2,100. Both widowed and single parents benefit from lone parent allowances which, combined with their basic personal allowance, give such parents effectively the same personal allowance as a married couple, that is, £4,200. While the Government appreciate that lone parents may have particular difficulties, there are very serious practical objections to giving the double rate bands to them.

Double rate bands are given to married couples because there are two adults to support. This is not the position with lone parents whose present tax treatment falls between that of a single person and a married couple — such treatment is not unreasonable given that there is only one adult to support. Double rate bands would be of value only to lone parents taxed at the higher rates, at present, about 30 per cent of them are on the higher rates. Any concession would, therefore, be one for the better off lone parents. If a concession was made for lone parents because they have children there would be immediate calls for a concession for such parents with lower incomes who could not benefit from a doubling of the bands and also from married couples with children. As a concession would have already been made for higher rate lone parents, such calls would be virtually impossible to resist.

However, the root of the problem is, I have to repeat, the burdensome nature of our income tax structure which we are committed to improving in coming years. Consequently, I will be opposing the amendment.

Mr. Rabbitte

One of the difficulties with taxation is that the entire system is in need of consolidation. I do not think there has been a tax consolidation Act since 1967 and, consequently, we have to deal with reform on a piecemeal basis, such as the amendment in my name which relates to the position of widows, widowers or single parent families. What strikes one immediately about the Minister's response is the ad hoc nature of his reply when one contrasts it with the debate we have just had about the family and marriage and two adults cohabiting. When it is convenient, we get the very opposite logic to the response to the circumstances envisaged in my amendment, that of a widow, widower or single parents and their dependants.

The constitutional aspirations and concerns for the family and for the institution of marriage can be turned on their head when presented with another fact of Irish life, the many single parents striving in very difficult circumstances to make ends meet. The Minister referred to some minimal improvements that have been made, they are precisely that, minimal, and the difference he adverted to in the case of widows is virtually negligible. The Minister would agree that the difference is minimal. It would seem to me that somebody who finds herself in a position of being a lone parent and, predominantly, single parents tend to be women — finds it a great burden and arguably there is a greater burden on her than on the conventional family where there are two adults. The demands made on the single parent, usually a woman, who is forced to go out to work and does go out to work because she does not want any hand-outs from the State, are enormous and it would be fair that the double benefits would be given to her, as envisaged by this amendment.

I would have thought that the Minister would have addressed this in the debate last year. It would be a progressive move. It would be an incentive to keep people at work who find themselves in this category. From time to time the extreme right-wing fringe of Irish politics rant and rave that young girls become pregnant merely to benefit from the State allowance and live on the State and it is suspected that they cohabit. In this amendment we are dealing with a category of single parents who for whatever reason are in the workforce and want to stay in the workforce and who have dependants to raise and we should give them assistance.

Mr. A. Reynolds

Let me repeat that double rate bands are provided to support two adults. In this situation we are talking about one adult, and only 30 per cent of this group of widows, widowers and lone parents are in the high income group and only they would benefit from this amendment. I do not think that is what Deputy Rabbitte wished to do when pushing the case of this group.

An Leas-Cheann Comhairle

Is Deputy Rabbitte pressing his amendment?

Mr. Rabbitte

No.

Amendment, by leave, withdrawn.

Section 2 agreed to.

NEW SECTION.

Amendment No. 42 not moved.

Mr. Rabbitte

I move amendment No. 43:

In page 12, before section 3, to insert the following new section:

"3. —(1) Where a deduction falls to be made from the total income of an individual for the year 1991-92 or any subsequent year of assessment in respect of relief to which the individual is entitled under a provision mentioned in column (1) of the Table to this subsection and the amount of the deduction would, but for this section, be an amount specified in column (2) of the said Table, the amount of the deduction shall, in lieu of being the amount specified in the said column (2), be the amount specified in column (3) of the said Table opposite the mention of the amount in the said column (2).

TABLE

Statutory provision	Amount to be deducted from total income for 1990-91	Amount to be deducted from total income for 1991-92 and subsequent years
(1)	(2)	(3)
	£	£
Income Tax Act, 1967:
Section 138
(married man)	4,100	4,500
(widowed person)	2,550	2,800
(widow bereaved in the year of assessment)	4,100	4,500
(widower bereaved in the year of assessment)	4,100	4,500
(single person)	2,050	2,250
Section 138A
(additional allowance for widows and others in respect of children)
(widowed person)	1,550	1,700
(others)	2,050	2,275
Section 138B
(employee allowance)	800	1,050

(2) Section 3 of the Finance Act, 1986, shall have effect subject to the provisions of this section.".

Amendment, by leave, withdrawn.

Section 3 agreed to.

Mr. Quinn

Because of the allocation of time motion, may I ask, Sir if the Minister will take note that some amendments in my name will not be moved and, in particular, will he have regard to amendment No. 63 and give an undertaking to come back to me on Report Stage on the research and development provision. If I do not refer to his point at this stage, Sir, it may not necessarily be referred to on Report Stage.

SECTION 4.

Amendments Nos. 44 and 45 not moved.

Mr. Noonan

(Limerick East): I move amendment No. 46.

In page 13, subsection (1) (a), line 7, to delete "1990-91" and substitute "1988-89".

I understand the Minister may be well disposed towards this amendment.

Mr. A. Reynolds

This amendment in the name of Deputy Cotter has been moved by Deputy Noonan and if I understand it correctly his intention is to give a widowed parent whose spouse died in 1988-89 or 1989-90, the benefit of a new bereavement allowance which I introduced in the budget this year, in so far as they are still within the cycle of the three years following the bereavement. That is the situation as I understand it.

I am sympathetic to this suggestion. I had been considering the point myself and I will circulate an amendment which will provide for this on Report Stage.

Section 4 agreed to.

An Leas-Cheann Comhairle

It is now 10.30 p.m. and, accordingly, I am required to put the following question: "That the amendments set down by the Minister for Finance to Chapters I, II and III of Part I of the Bill and not disposed of are hereby made to the Bill and in respect of each of the sections undisposed of in the said Chapters, other than section 17, that the section or, as appropriate, the section, as amended, is hereby agreed to."

Question put.

The Committee divided: Tá, 70; Níl, 56.

Tá

• 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.
• Nolan, M.J.
• Noonan, Michael J.
• (Limerick West).
• O'Connell, John.
• O'Dea, Willie.
• O'Donoghue, John.
• O'Leary, John.
• O'Rourke, Mary.
• O'Toole, Martin Joe.
• Power, Seán.
• Quill, Máirín.
• 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.
• Kitt, Michael P.
• Lawlor, Liam.
• Lenihan, Brian.
• Leyden, Terry.
• Martin, Micheál.
• McDaid, Jim.
• McEllistrim, Tom.
• Molloy, Robert.
• Morley, P.J.
• 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.

Níl

• Ahearn, Therese.
• Allen, Bernard.
• Barnes, Monica.
• Barrett, Seán.
• Barry, Peter.
• Belton, Louis J.
• 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.
• Deenihan, Jimmy.
• De Rossa, Proinsias.
• Doyle, Joe.
• Dukes, Alan.
• Durkan, Bernard.
• Fennell, Nuala.
• Ferris, Michael.
• Flaherty, Mary.
• Flanagan, Charles.
• Garland, Roger.
• Gregory, Tony.
• Harte, Paddy.
• Higgins, Jim.
• Hogan, Philip.
• Lee, Pat.
• Lowry, Michael.
• McCartan, Pat.
• McCormack, Pádraic.
• McGrath, Paul.
• Mitchell, Gay.
• Mitchell, Jim.
• Moynihan, Michael.
• Noonan, Michael
• (Limerick East).
• O'Brien, Fergus.
• O'Keeffe, Jim.
• O'Sullivan, Gerry.
• Owen, Nora.
• Quinn, Ruairí.
• Rabbitte, Pat.
• Reynolds, Gerry.
• Sheehan, Patrick J.
• Sherlock, Joe.
• Taylor, Mervyn.
• Taylor-Quinn, Madeleine.
• Timmins, Godfrey.
• Yates, Ivan.

Tellers: Tá, Deputies V. Brady and Clohessy; Níl, Deputies Flanagan and Ferris.

Question declared carried.