Finance Bill, 1991: Report Stage.

Amendment No. 1 in the name of Deputy Rabbitte. Amendment No. 2 is an alternative. I am proposing therefore that amendments Nos. 1 and 2 be discussed together. Is that satisfactory? Agreed.

I move amendment No. 1:

In page 11, between lines 15 and 16, to insert the following:

"1.—Section 6 of the Finance Act, 1987 and section 7 of the Finance Act, 1989 shall not have effect in relation to the year 1991-1992 and subsequent years of assessment.".

Given that interest rates continue to be very high, the amendment seeks to acknowledge that many home owners are finding it difficult to meet their mortgage repayments and that we are living in a climate where homes are being repossessed both by the conventional building societies and financial institutions as well as by the Housing Finance Agency through the local authorities. The amendment seeks to acknowledge also that the people who pay the lion's share of taxation in the form of PAYE are the same people most affected by interest rates remaining high. Accordingly, I urge the Minister to restore 100 per cent mortgage relief for those affected in this manner.

My amendment No. 2 is identical. I would like to formally move it.

The Deputy may refer to his amendment but we have alread a motion before us in respect of amendment No. 1.

I beg your pardon, a Cheann Comhairle. We had a very adequate debate on this matter on Committee Stage on Tuesday. I am disappointed that the Minister will not accept this amendment. However, I must make the point that it is absurd and ridiculous that there was not a decent interval between Committee and Report Stages. Surely the whole purpose of the way this House works is that a reasonable period is allowed — I suggest at least a week — between the end of a Committee Stage debate and the beginning of Report Stage. The purpose of the way we do business is to give the Minister an opportunity to give mature consideration to the amendments put forward by the Opposition. The Opposition put forward many amendments, and with the greatest respect to the Minister who is not a superman, there was no possible way he could have assimilated the arguments put forward in the debate over the past two days. This is just another very bad facet of the way this House works.

I do not think I need repeat the arguments I put forward on Tuesday in support of my amendment. People on relatively low fixed incomes, and small business people, are very much disadvantaged and, even at this late stage, the Minister should consider these amendments.

We are hearing a repeat of the points raised on Committee Stage. I appreciate that the Minister, and his officials, have had little time to consider these matters. Will the Minister, in response, to this amendment which he is clearly going to reject, outline the Government's thinking on mortgage interest relief having regard to two factors? First, every taxation report published, particularly the report of the Commission on Taxation, recommended the elimination in a phased orderly manner of all tax allowances, and in particular mortgage interest relief. The second factor is that the OECD recently recommended that we should have some kind of property tax having regard to the present imbalance in our tax base, which will be further squeezed during the process of harmonisation in 1992. I am positive the Minister must be getting advice from officials in his Department that he is going too slow in reducing this tax allowance because the cost is quite substantial. The figures the Minister gave yesterday were substantial and it would be no harm if he repeated them in his reply.

The argument is being made for those people who are experiencing problems with their mortgage repayments and those who are having difficulties getting into the housing market in the first place. I do not think that a blanket income tax relief for mortgage holders is the way to deal with the problem, having regard to our overall fiscal problems. I am sure every Member agrees that there is a fixed amount of money we can take from the economy in taxation. In fact, the amount of money we take in taxation is, broadly speaking, within the mid-European average, approximately 43 per cent of GDP. However, for a variety of reasons our tax base is very badly skewed, partly by design and partly by legal interpretation — for example, the High Court's judgment on agricultural rates which was an enormous windfall for farmers who have a very vocal array of advocates as we saw late last night. They fail to recognise that since that High Court decision they have been paying no rates and yet they benefit immensely from local government services.

We have a whole raft of amendments on PAYE and income tax allowances which I support. In all honesty we cannot have it both ways. That the tax base be broadened, that the tax take should remain relatively constant and the economy should grow are the basic objectives shared by everybody in the political environment. That is the considered view of an array of economists, irrespective of their ideological disposition or personal prejudice. For these reasons it would be no harm if the Minister outlined his thinking on this. People trying to get on the housing train for the first time need specific help. What has happened is that the value of any help, other than the grant to first time house buyers has been eroded. If memory serves me correctly, the new house grant for first time buyers is £2,000 while the average cost of a house in the Dublin region — as per the figures published in the past week or so, and I am speaking from memory — is £67,000. When house prices were of the order of £10,000 the grant was of the order of £500 to £1,000. The help for first time house buyers has been dramatically reduced.

I benefit from the mortgage interest relief, as indeed do people who have a mortgage. I am not suggesting that we should disrupt mortgage interest relief in an unconstructive way. We should not be giving a broad-based subsidy to people, many of whom are trading up through three or four houses, without recognising that it is getting increasingly more difficult for people to get into the housing market for the first time. I would like to hear the Minister's considered response, if he is in a position to give it, to those points. Will he restate for the record the total cost to the Exchequer of mortgage interest relief?

(Limerick East): I support Deputy Rabbitte's amendment. A similar amendment was tabled in my name on Committee Stage and was disposed of. I am glad Deputy Rabbitte has re-entered his amendment so that we can have a second chance to express our views. This is a very important matter. Interest rates are high and it looks as if they will remain high. We spoke about them yesterday and the views expressed by this side of the House were confirmed by an EC Commissioner who said in a newspaper report that it was very unlikely that interest rates in Europe will come down for the remainder of the year. He said there might be a reduction here and there for a limited period but that the average interest rate is likely to stay very high.

The second reason I would like the Minister to give this amendment serious consideration is that not only are interest rates high but the Minister's actions in this Finance Bill and in last year's Finance Act have made it more difficult for certain classes of mortgage holders to meet their repayments — I am talking about those with endowment mortgages. In his budget speech this year the Minister said he was leaving mortgage interest relief alone. That was strictly correct but it was not the full picture. Over the last number of years the agencies, particularly the banks who are increasingly involved in the mortgage business, have been pushing endowment mortgages very hard.

Many people have taken out endowment mortgages on the basis of the arguments made to them by the lending agencies that not only will they get mortgage relief on the interest but they will be able to claim life assurance relief on the capital repayments. The Minister has reduced the relief on insurance last year and this year. Consequently, a person with an endowment mortgage can only claim 12.5 per cent, or one eighth of the premiums which are being paid in mortgage relief. It has got to the stage where the benefits of endowment mortgages seem to be exaggerated out of all proportion by the lending agencies. I should like the Minister to pay some attention to this matter.

People who now approach the banks for a house loan are being pushed in the direction of an endowment mortgage. I suggest that they are being pushed in this direction in the interests of the lending agency but not necessarily in the interests of the borrower.

Absolutely.

(Limerick East): This is happening because banks are in the business of selling financial services. A person interested in setting up a small business which will give employment to three or four people can no longer get venture capital from the banks. They will give a person a house loan if it is backed up by an asset. However, not alone are they getting the interest on the mortgage but they are also getting the premium for selling the insurance policy. They will then sell him a second policy, a mortgage protection policy. The banks are the only ones who will win if they can sell a person an endowment mortgage; they will get three cuts from it.

Banks are exaggerating the benefits of endowment mortgages to persons who do not fully understand the implications of what is involved and who certainly do not understand the changes which were introduced by the Minister for Finance in both last year's and this year's Finance Bills in regard to life assurance relief which reduced the benefits of endowment mortgages to the point where there is now very little tax advantage, whatever about any other advantages. Because the Minister is reducing the advantages of endowment mortgages, there is a further case to be made for restoring full mortgage interest relief.

It is very hard to predict interest rates and all we can do is go along with what seems to be the majority view, which is that interest rates will remain high. This category of borrowers are experiencing increasing difficulties. Their choices are very limited and, to use an old phrase, their hands are in the dog's mouth when they go looking for a mortgage to buy a house. These people do not have a great choice and when they are offered an endowment mortgage by the bank they have to either take it or leave it. The bank will get the interest and two sets of commission from the arrangement. I do not believe this is a fair way of doing things and I should like the Minister to look at this arrangement. I should also like him to look at the associated area because increasingly the lending institutions are going into a safe asset-backed type of lending which is not in the interest of job creation.

I should like the Minister to look at a third area. Those of us who have experience of local authorities had great respect for the old SDA loans which enabled many people to buy houses at fixed interest. This system was particularly suitable for people in rural Ireland who frequently got a site from their parents, a neighbour or a relative at less than the economic cost and sometimes at no cost. The combination of a cheap site and the old SDA loan was one of the main factors which reduced the demand for local authority houses, especially in county councils as distinct from the corporation areas. I should like the Minister in any review of housing policy, which now seems to be inevitable as we are again in the first stages of a major housing crisis, to reexamine the role played in the past by local authorities in this area.

The present arrangement where people must have a pocketful of refusals from lending institutions before a local authority will look at their applications is not satisfactory and is of benefit to no one. Even when a person has a pocketful of refusals the income limit is so low that it is of very little benefit. We are drifting into the wider context of housing policy. There is a housing crisis and it will have to be solved by public policy, private incentives and people accommodating themselves. The measure we are advocating here will help people to buy their homes and enable them to continue to pay for the mortgages they have taken out. The other measures to which we have referred should also be looked at by the Minister. As we have seen before, there is a kind of cycle in regard to housing problems. In view of the number of emigrants returning home and the fact that virtually no local authority houses have been built over the past three years, we are facing an imminent major housing crisis, with all the social problems this will lead to. Action must be taken now in this area both by the private and public sectors.

I support this amendment. Indeed I would go further and suggest that the mortgage income tax allowance should be restored to what it was. This amount is being reduced at a time when house prices are escalating. As Deputy Noonan rightly said, those of us who are involved in local authorities are aware of the existing housing crisis. As public representatives, we are trying to encourage more people to purchase their houses because we know the State can no longer provide the required number of local authority houses to house them. These people must be housed somewhere and this proposal will give these people an incentive to house themselves.

Wearing my councillor's hat, I agree with the points made by Deputy Noonan in regard to local authority loans. People have to be refused a loan by a bank or building society before they are entertained by the council as being eligible for a loan. This is a very humiliating process for people who are trying to house themselves. It is extremely important in the context of mortgage interest relief that we recognise that people are prepared to house themselves. If the State cannot provide houses they should be given incentives to house themselves. Mortgage interest relief is one incentive. Having regard to what this relief cost the State in the past and what it costs now, I believe the State is getting very good value in terms of this allowance.

I have no desire to get into a debate on housing policy on the Report Stage of the Finance Bill except to say that my colleague, the Minister for the Environment, Deputy Flynn, has included many provisions in the new housing policy which will help people to purchase their own houses.

The Minister cannot be serious about this.

One of the main objectives of most Irish people is to purchase their own house and this has been acknowledged by the Government by giving mortgage interest relief. Deputy Quinn put his finger on the problem — you cannot have your cake and eat it; you cannot have each way bets. We are preached to day in and day out about the need to widen the tax base. Yet now that I have proposed a minor widening of the tax base every Member of the Opposition, with the exception of Deputy Quinn, has said that we should make up our minds about which road we are travelling. This is a very expensive relief — it costs £223 million at present. If we were to restore it to where it was, it would cost £56 million. The numbers who would benefit from the restoration would be 325,000 persons and the average benefit would be £172 each per annum. The budget concessions of £674 million in the past four years, of which this was only a minor contribution, benefited 869,000 people and the average benefit was £776 per annum. It is quite clear where the balance of advantage lies — it lies with the minor adjustment I have made in widening the tax base and will be of benefit to more people.

Deputy Quinn raised a question about property tax. This is not on the agenda for the Government.

Is that the advice of Mrs. Thatcher?

Is she in a consultancy role now, or what? The whole question of mortgage interest relief is being dealt with in different ways in different countries. In 1990 the OECD produced a discussion document from which I will quote for the benefit of Members of the House:

The deductibility of interest on mortgages is in most countries the most single costly expense-related relief.

Here it costs £226 million.

Many commentators have argued that this treatment subsidises home ownership and distorts savings decisions. This view appears to have been influential in a number of countries. Thus Australia, Denmark, Ireland, Norway and the United States are among countries that now provide a less favourable treatment of home-ownership——

albeit in our case not very much less favourable,

than was previously the case ....

Of the other nine countries, eight (including Ireland) applied ceilings to the relief. The OECD reported that the remaining country, Germany, abolished this relief in 1988 and, according to information available from the OECD, unrestricted mortgage interest relief was available only in Denmark and the Netherlands. We are talking about trends. We cannot be dishonest in the debate and say that we want this and that, that we do not want the widening of the tax base, but we want tax reductions to continue and tax reform to continue.

On the question of distortion of savings, the reduction in interest relief for premiums of life assurance is another case of where to go about widening the tax base. Any honest commentators would agree that that relief is a distortion in the savings market where we try to create a level playing pitch for the savings market. Everybody knows exactly where that has been going over recent years. In contrast to what Deputy Noonan says, it is interesting that although this relief for life assurance was abolished altogether in the UK in 1984, it appears to have no effect whatever on the take up of endowment mortgages.

(Limerick East): The bankers keep pushing them.

The customer does not have to buy what the bank tells him. There is a wide range of competition out there.

(Limerick East): The customer is vulnerable if he has not got a mortgage and that is the only way he can get it.

Everybody wants competition in the financial services market. We are getting open competition.

It is a buyer's market.

Exactly. It is a buyer's market and it is up to the building societies to compete on the other aspects of their business that have been threatened by the banking institutions. I have said it time and again that they have to look at where their future lies post-1992 in a competitive world. They asked for the changes in legislation in this House. They got those changes and it is up to them to compete. There is no point in them saying that they cannot compete with the banks, that the banks are taking their business. It is a competitive market, it is a buyer's market and that is what competition is all about. The customer has the choice and it is up to him or her to make that choice. It may well be that endowment mortgages are pushed very hard in advertising and every other way but in the end it is up to the customer to decide, and that is the sort of direction in which everybody would like to see us travel.

In the whole area of taxation I have made it clear that we cannot have our loaf and eat it. There is no point arguing one side of the coin on one occasion and another side of the coin on a different day. In regard to the actions and policies pursued not alone in this financial year but in the last financial years, in the last few days one would have seen the OECD and the ESRI say what they believe is the direction our economy should be going in, the policies that should be pursued and the projections that are made.

I know what Deputy Noonan takes up what the EC Commission are saying about the European economy but I would remind him that the Irish economy has out-performed the EC economy over the last number of years in average growth and in many other aspects, and consequently I think we are managing the worldwide recession well. We are suffering from it because, naturally, we cannot insulate ourselves when over 60 per cent of our output goes into the export markets. If export markets are down, inevitably we catch cold.

Nevertheless we have been able to manage the economy through this difficult year of 1991 with low growth in comparison to other countries which have minus growth, recessions and so on. It is beginning to be realised that we are doing the job pretty well and managing very prudently. In fact, it is a long time since anyone would have expected to see editorials in The Guardian newspaper, as appeared yesterday, saying how much they would like to have their economy in the shape the Irish economy is in. That is a turn up for the books anyway. Indeed the Financial Times were not so far behind either.

(Limerick East): It is better than what was in The Economist a fortnight ago.

We all know how ill-founded The Economist writers have been where the Irish economy is concerned in recent years. I do not think any of us would disagree on that.

I thought the Government took no notice of such broadcasts and articles.

One would expect a Minister for Finance to read the Financial Times or at least keep an eye on it and one would expect him also to read the OECD and ESRI reports. I also read the other commentators a month ago saying that I was living in fantasy land. Well, at least somebody is going to live in fantasy land with me at this stage apparently.

This is the situation. I want to reiterate the Government's concern for those paying mortgages. The problem with the tax structure — and the mortgage interest rate is part of that structure — is that the rates are too high and the bands are too narrow. It is as simple as that. Quite clearly I have the utmost sympathy with people paying mortgages. I do not accept what Deputy Noonan says, that it is all upward trend on the interest rates market.

I accept the difficulties in the German market. It would be interesting to see how the other member states react to the situation because what is good for Germany at the moment is not necessarily good for the other 11 states of the EMS. There is a big push worldwide by the Americans and others to try to bring down interest rates to stimulate the world economy again. We have to wait for that. I do not accept the trend is upwards. At worst it is static and hopefully the downward pressure will continue.

Despite what Deputy Rabbitte might think, money has not been flowing out of the country in recent days or weeks. We had a period when the margin looked too narrow to those investing money here which has a major effect on interest rates, and I would subscribe to some of the views expressed here that for many years back interest rates were the instrument for bringing inflation. Now that we have low inflation it is not needed for that here, but it is now the instrument for stopping money from flowing from one economy into another. Of course, with the full liberalisation of capital movements at the end of 1992, we will be subject to a changing situation every day of every week where money can flow freely through the 12 member states of the Community. We will have to adjust to a different way of thinking as to how we are to deal with that post-1992.

It is the policies the Government pursue that will determine how others see us and the level of interest rates that will operate here. We do not have independent choice in that regard. We would hope that the downward trend would continue. There will be no change in Government policy to make matters much worse. The reduction in the reliefs that did take place — and it was not touched this year — were there to make their contribution to a six point drop in the standard rate of income tax from 35 per cent to 29 per cent, a cut in the top rate again by four points from 56 per cent to 52 per cent, a 40 per cent expansion in the standard rate and the generous increases to the lower paid by exemption limits and child additions. That is what the contribution was made for, a small contribution when one considers what the end-of-the-road benefit was for the greater number of taxpayers. Those achievements are impressive. We hope to continue and to reach our tax targets of 25 per cent standard rate in 1993 and a single higher rate as low as economic circumstances permit at the time.

I do not see much point in pressing this amendment to a vote, having regard to the debate we have just had and the decision we took yesterday. However, I must say I regret enormously the fact that the Minister continues to argue that what he is doing here is a minor adjustment to widen the tax base. The whole thrust of this amendment is that the Minister's provision does nothing of the kind. The fact remains that it is the PAYE sector who bear the brunt of taxation. Nothing really has changed over the last ten years. This was the issue that brought three quarters of a million people on to the streets because of the unfairness of the tax code. The people who have two-up, two-down houses in the suburbs and small towns and who are in hock to financial institutions and building societies and are suffering in the higher mortgage repayments area at the moment are the very people who are paying the bulk of taxation. Therefore there is nothing in the measure that constitutes a widening of tax base. It is merely catching the same people again. The people who are already paying almost 90 per cent of the tax are home owners because of our uniquely high level of home ownership. It is plainly wrong for the Minister to say that what he is doing here is a minor adjustment towards widening the tax base. That is patently not what he is doing.

Interest rates are high at the moment. There is no point in going back on the debate we had about interest rates, but whatever about this downward trend that the Minister detects, interest rates are high at the moment and likely to remain high. Whereas the Minister concedes that what is in the best interests of Germany at the moment may not be in the best interests of the other members of the EMS, our link with the DM through the EMS means we are likely to suffer the pressures that are on interest rates in Germany at the moment. Thus I cannot see why there is any expectation of interest rates coming down here, and mortgagees will continue to have high repayments to make.

I am sorry the Minister decided to adduce the social housing policy of his colleague the Minister for the Environment as some kind of contribution towards the dilemma we are discussing here.

He dropped his normal standards of debate when making that reference.

I did not raise the matter. It was raised here. I said I was not entering into that debate.

I can understand why. Anybody who reads the policy on social housing——

Fine Gael raised the housing policy.

It is not the responsibility of the Minister in possession.

I accept that, but I want to make the point that it contributes nothing to the problem we are trying to address here.

In reference to the distortion of savings policy raised by Deputy Noonan and replied to by the Minister, it never ceases to amaze me that the financial institutions in this country at the moment are permitted to accumulate the hard earned savings of people who work in this country and to fritter them away in the US or wherever and we all fold our arms and accept it with equanimity. It is disgraceful. Because it is a buyer's market and the policies are biased in favour of the lending agencies as distinct from the borrower, they can do that. We had a question to the Minister for Finance yesterday showing that the gap between the lending and borrowing levels established by the building societies has not been wider for a very long time than it is at the moment. That is not surprising in the circumstances.

I regret that the Minister cannot make some concession to the spirit of this amendment. It is not confined to the financial institutions alone. The Housing Finance Agency mortgage terms are extremely stringent particularly on a section of the home-owning population who can least afford that. This device of income-related mortgage repayments is extremely punitive and in my certain knowledge has led to cases of homes being repossessed. People have not been able to maintain the repayments on an income-related basis because of the rate at which they are spiralling at the moment, and that can be accelerated in any given year for any windfall reason, special overtime payments, special pay increases or whatever.

Amendment, by leave, withdrawn.
Amendment No. 2 not moved.

Before Deputy Rabbitte moves Amendment No. 3 let me say that amendments Nos. 9 and 10 which we will be taking with this amendment No. 3, should relate to line 34 of page 12 rather than to line 35 as stated in the amendment list. Similarly, amendments Nos. 11 and 12 in the names of Deputy Pat Rabbitte and Deputy Roger Garland respectively should relate to line 35 of page 12 rather than line 36. These typographical errors are regretted. Amendment No. 4 is an alternative to amendment No. 3; amendment No. 5 is related, and amendment No. 6 is an alternative to amendment No. 5. Amendments Nos. 9, 10, 11 and 12 are consequential on amendments Nos. 3, 4, 5 and 6, respectively. I suggest, therefore, that we debate amendments Nos. 3 to 6, inclusive, and Nos. 9 to 12, inclusive, together. Shall we agree on that? Agreed.

I move amendment No. 3:

In page 11, line 23, to delete "£6,800" and substitute "£10,000".

The group of amendments may be straightforward enough for those who have been dealing with this. We have dealt in the last couple of days with a great many amendments to this Finance Bill and I think we all as Opposition spokespersons would agree that some of them have been advanced as an opportunity to ventilate certain arguments and to discuss certain aspects of fiscal policy. On this lead amendment I want to say that I regard this with more conviction than any other single amendment on the amendment list. It seeks to address the question of the threshold at which people ought to become liable for tax. Effectively it seeks to address through the method of the Finance Bill the question of poverty and the alleviation of poverty in this society. The view is abroad that poverty is merely due to unemployment. Of course that is not the situation. Poverty is also due to low pay and a great many people on low pay find themselves amazingly in the tax net. A recent survey on this matter by the Economic and Social Research Institute established that somewhere between 11 and 18 per cent of those living in poverty contradictorily are liable for income tax and PRSI. In addition to that, they showed that the actual amount of tax paid by these people is significant in the context of their total income, many of them paying more than 20p per week. It is unconscionable in my view that people who are earning less than £70 per week are theoretically liable to income tax. This amendment seeks to establish a threshold of £100 per week or £200 for a couple. I do not think there is anybody out there, even the most right-wing ideological economist, who could argue that it is proper or fair or equitable that anybody earning less than £100 should be liable to income tax. Quite frankly, I cannot see what sense it makes in any event. Why do we have family income supplement? Why do we have to use a different mechanism to claw back some of the money and pay it to people who are in desperate need? This is the kind of measure we must introduce because of the level at which income tax bites.

It is important for this House to recall — and the Minister's colleague, the Minister for Labour will bear this out with elaborate figures — that a great many people in our society are on low pay and that the structure of the economy nowadays means there will likely be a great deal more people on low pay, and that the incidence of part-time work is increasing. A number of people must go into part-time work because either they are the options that are available to them or they want to go into part-time work. Whatever the reason the fact is that the problem of low pay is likely to accelerate rather than diminish. In that context we have to address whether it is right that people on such minimal subsistence incomes have a liability for income tax.

We have had discussions on what constitutes tax reform during the course of the debate on this Bill. The Minister has just confirmed that it is his intention to bring the standard rate down to 25 per cent. This is the argument being advanced so frequently and so noisily by the junior partner in Government as if it somehow magically constituted tax reform. The real issue is how quickly somebody comes into the tax net, not whether one is paying 25 per cent or 29 per cent. It is untenable that people become liable for income tax at the levels proposed in the Bill. I refer to an article in The Irish Times of 29 September 1987 by Cliff Taylor at a conference on poverty and taxation policy. He referred to the fact that many low-income families end up below the poverty line because of the impact of income tax and PRSI on their spending powers, according to a paper presented to ESRI economists. He went on to make the point that the ESRI researchers said that between 56 and 66 per cent of those living in poverty and paying tax would move above the poverty line if their tax burden was removed.

Surely that is the sensible way to tackle poverty, at least in so far as it relates to people who are at work. People who are unemployed are a different category. We cannot deal with that under this amendment. It has been a favourite hobby horse of the fringe right wing of Irish politics for many years to talk about people being too lazy to go to work and being shirkers and so on, but we have to accept that there is an element of employment disincentive here, not because of shirking but because people simply cannot afford to take up low income jobs having regard to the structure of the tax code.

I hesitate to interrupt the Deputy but I must dissuade him from making what the Chair regards as a Second Reading speech, especially in view of the time factor involved in dealing with Report Stage. If he would confine his remarks more closely to the amendments before us it would be much appreciated by the House generally.

I accept your intervention, a Cheann Comhairle. I want to underline the point that even as compared to the social welfare code if we do not tackle this question of the threshold for tax liability the head of a family, whether it is the woman or the man, cannot afford to avail of low income employment as compared to their situation on social welfare. That is an additional argument for accepting this amendment.

Finally, I refer to the report by the Combat Poverty Agency entitled Tackling Poverty in the Nineties. That organisation recommends that we should reduce the tax burden of those on the lowest incomes with further increases in general exemption limits and increase additional exemptions for those with children. Much thought and consideration has gone into the formulation of that recommendation. It is a sensible, coherent, logical approach, and nobody in Irish society can challenge the basis in equity of such a recommendation, that we look at the threshold and the exemption limits.

I concede the Minister's argument that there was an element of special pleading in the case made by the Opposition on my last amendment. However, having regard to how endemic the poverty trap is in part of my own constituency and in several parts of urban Ireland, and indeed in rural areas, although in those areas it is probably not because of being in paid employment in most instances, it is imperative that, rather than hurtling headlong after the Progressive Democrats and their very special well heeled constituency, the Minister give some concession to the people who are struggling to make ends meet and stay in the workforce and who do not want to be a burden on the Exchequer. It is disgraceful that they ought to be liable for income tax as is provided for in this Bill.

I agree with the sentiments behind Deputy Rabbitte's amendment. I, too, wish that the exemption limits were higher. The initiative to exempt people below a certain level of income from income tax was introduced here three years ago by the present Minister for Finance. When Deputy Rabbitte urges the Minister to have some consideration for the less well off he seems to ignore the fact that this Minister has shown great consideration in practice, and that he has introduced necessary reforms and initiatives into the tax system to cater for the less well off. As Deputy Rabbitte will be aware people earning somewhat in excess of the limits are entitled to marginal relief.

The Minister has to be congratulated on his initiative three years ago in introducing exemption limits in legislation which The Workers' Party opposed. While we would all like to see exemption limits increased we cannot just come in here and make suggestions to solve all our problems without taking into account surrounding economic circumstances. The series of amendments proposed by Deputy Rabbitte would cost £109 million in 1991 and £183 million in a full year. Deputy Mac Giolla was upset last night about a miniscule change in the capital acquisitions tax system which will probably cost the Exchequer about £15,000 next year and suggested that we should not make that change in order to allow us to make more concessions on the PAYE front. If Deputy Mac Giolla has any suggestions in relation to capital acquisitions tax which would allow us to make real concessions on the PAYE front, I would like to hear them.

In relation to the cost of this amendment, surely the last thing we would want to do is to plunge the country back into the vortex of borrowing and rising national debt which we experienced between 1982 and 1987.

Let us be fair.

I know Deputy Quinn is embarrassed because he was part of the Government that doubled the national debt.

It started in 1973.

(Interruptions.)

Gabh mo leithscéal, we have had a very impressive debate. Deputy Willie O'Dea is making his point, and presently I will give Deputy Quinn the opportunity to rebuff him in his characteristic way rather than by shouting across at Deputy O'Dea.

I have allowed Deputy Quinn to make his point. I will not interrupt him, and I hope he will afford the same courtesy to me.

I apologise.

If we move too quickly on the income tax front we will have a loss of revenue in the short term which will plunge the country back into that vortex of borrowing and increasing national debt. The result of going down that road would be that interest rates would rise and the burden of taxation would rise. A grip of the public finances would have to be taken again at some stage.

Deputy Rabbitte made an interesting point about the family income supplement. We all admit that there were teething difficulties with the FIS, but I compliment the Minister for Finance on the increased allocation for the FIS in this year's Estimates. Due to a good advertising campaign people have been becoming more aware of their rights and there is now a 60 per cent to 70 per cent uptake of the FIS. I regret that the takeup is not yet 100 per cent. I do not know whether there is a mechanism whereby we can calculate in advance who would be entitled to FIS for a year. Deputy Stagg during the debate on the Social Welfare Bill suggested that he could devise a computer programme to predict who would be entitled to FIS for a coming year so that they would be automatically paid. If Deputy Stagg can devise a computer programme to tell the future he can become a very rich man.

Deputy Rabbitte made the point that we can combat the poverty trap by focusing on the taxation exemption limits alone. For many years the poverty trap has been a problem. Successive Governments have found that the taxation system on its own cannot solve the problem.

I agree with that.

The FIS was introduced some years ago. It is not perfect, but some combination of that, tax exemption limits and other measures will have to be introduced to tackle the poverty trap. I agree that it is a real problem and that there is a disincentive to work among certain sectors of the population. It will cost some people money to go to work or else the reward for doing so is so miniscule that it is not a feasible option. The introduction of exemption limits was a radical, good initiative and it has worked in practice. I compliment the Minister on that and on the real increases in taxation exemption limits introduced in the last three budgets. There is no doubt that the Minister increased the exemption limits in real terms in every budget he introduced despite financial constraints.

I agree with the sentiments behind Deputy Rabbitte's amendment. The Minister has gone a certain way along the road and he will go further as he has a special interest in this area which he has proved in practice. But, to try to move too quickly at a prohibitive cost to the Exchequer is not a feasible option. Ultimately it will increase interest rates and the burden of taxation which we all will wish to see reduced.

With the permission of the Chair I would like to enter into a history lesson for the benefit of the House, strictly in accordance with the provisions of Report Stage debating practice.

That qualification makes it easier for the Chair to accept the Deputy's request.

In relation to this measure, the House should maintain the standards of open honesty that have been the hall mark of this debate since Second Stage. This country lost the run of itself somewhere in the mid seventies in the wake of the first oil crisis. The borrowing which successive generations will have to carry will be with us for a long time. If we disregard the lessons of that time we will double that burden. It does not help the belief in politics or in the democratic system in the school children in the Public Gallery from time to time, if we fool ourselves and say that the problem started in 1982 or in 1977. History shows that it started in 1973. The crisis was nearly overcome in 1976 but because the Government of the day dug too deep in trying to apply classic Keynesian economics when we were coming out of a recession and the political climate was soured for non-economic reasons, we made a dreadful mistake in 1977. I sat on these benches and heard the array of Fianna Fáil Deputies, the greatest majority ever, and perhaps the worst Government ever, cheer loudly when the late Deputy George Colley announced at the end of the budget speech that the total amount of borrowing amounted exactly to 13 per cent GNP. That is how far removed from reality we all were in those days. It does this House no good to forget that lesson. The long hard road of getting back to any sort of sensible taxation will not be easy, no matter who is in Government. Perhaps some day Deputy O'Dea will sit on the Government benches and I hope he gets the same degree of constructive opposition Fianna Fáil have always got from this side of the House but which Fianna Fáil have never given to a non-Fianna Fáil Government.

I support the amendment very strongly. The raising of the allowances is critical to making the kind of impact on the thresholds that members from The Labour Party, The Workers' Party and, I believe, Deputy Garland from the Green Party want. The nominal rates, which have great rhetorical appeal to the chairman of the Progressive Democrats, and others, would be eroded without the effective and substantial indexing of the bands and the thresholds at which they start to impact.

Like Deputy Rabbitte I have a frequent procession of people coming to see me at my clinics. The people who concern me most are those who were in occupations in which, in addition to paying full PRSI, they contributed towards a small industrial pension. By small I mean a pension that perhaps would give them a pension of about £10, £15, or £20 a week. In some cases they are retired people who not only pay income tax on that income but are also, by virtue of receiving that income, debarred from the effective marginal benefits available to people who are on social welfare benefits exclusively. I am talking about people on low incomes who could in socio-economic terms be described as working class or lower middle class. I am concerned for that category of person, who is today working or who is in some cases retired and has to pay tax. I have attempted to signal to the Minister the constraints he has to operate under in relation to the overall tax base, but to focus on the bands exclusively — which is a political commitment, admittedly, and one set out in the PESP — will not solve the problem. The Minister should allow for some changes in the bands even at this stage.

On Committee Stage, Opposition Deputies tried to set out an alternative schedule that indicated what could be achieved over three years. We did not persuade the Minister of the acceptability of that, even though at the time he was able to say that the commitment had been made in the Programme for Economic and Social Progress and did not have to be written into law. I do not accept that view. The validity of the programme, and the approach of the social partners to consensus, will take on real strength only if it is given some kind of democratic underpinning that it does not possess at present. In the absence of that three year schedule for income tax rates and allowances being built into this year's Bill, because it is not acceptable to the Minister, I find myself, on behalf of the Labour Party, supporting this amendment.

My amendment No. 4 is similar to Deputy Rabbitte's, except that I suggested figures of £8,000 for married couples and £4,000 for single people. Deputy Rabbitte wants to be a little more generous and suggested figures of £10,000 and £5,000. I wish to take up a point made by Deputy O'Dea, which is a very good one. Deputy Rabbitte, well intentioned as he is, is being a little overgenerous. Members have to be concerned about the level of Government borrowing and about the budget deficit. It is highly irresponsible of any party to encourage a higher budget deficit than already exists; God knows it is high enough. In spite of the Minister's best efforts, the country is still facing a very high budget deficit this year.

By pitching in at my figures I do not want to increase the budget deficit. On Committee Stage when discussing any of my amendments that would increase the budget deficit I made it clear, and I wish to make it clear now, that there was ample scope for collecting the extra revenue required from the corporate sector. I am not going to spell out for the Minister exactly from where that should come. I have already referred to section 84 schemes, section 23 schemes, the BES scheme and the low rate of corporation tax. I know the Minister has made moves to broaden the corporate tax base and I accept that the percentage of tax paid by the corporate sector has increased in the past two or three years, which we all welcome. However, the Minister has gone nowhere near far enough. My amendment could be accepted without any increase in the budget deficit.

Deputy O'Dea referred to the poverty trap, of course, there is a very serious poverty trap. I put it to the Deputy, to the Minister, and to every Member that there is only one way to eliminate the poverty trap, by introducing a system of basic income for all citizens. That policy is espoused by the Fine Gael Party and by The Workers' Party but, for some reason best known to themselves — perhaps Members from those parties might tell us a little more today — they never mention it. It is as if the policy is one of those unmentionables stuck away in their manifestos because the parties are half afraid or half ashamed of it. I do not understand that. I seem to be the only Deputy to make a coherent case for basic income on all occasions.

As I said on Committee Stage the top priority in the income tax system — in so far as there should be an income tax system, and the Green Party feel that there should not be — should not be the reduction of the standard rate to 25 per cent, it should be to increase exemption limits and allowances to those who are in special categories or who have special problems. We must all agree that the underprivileged, the handicapped and those who are long term physically disabled or sick have to be targeted. To an extent they are targeted, but we must continue to be vigilant to make sure that they are cared for adequately.

Consideration also has to be given to the very high cost of administration. The keeping of PAYE records is a major burden for the small employer. The raising of exemption limits, thus taking lower paid people out of the tax net, may eliminate all such paperwork for a person who employs two, three or four workers. Apart from such a measure being of benefit to the employees concerned, it would be of immense advantage to small employers. Ireland will become increasingly dependent on small employers for job creation as more and more multinational companies fold their tents and disappear in the night, an example of which is being experienced in Clonmel with the pulling out of Digital International. Every day of the week multinational companies come and go——

Deputy Garland, I hate to interrupt in this way, but Deputies have to realise that there are many more amendments to get through, unless the House feels that this is the only amendment that should be dealt with. It seems that we are trawling far and wide, much wider than is permissible on Report Stage. Deputy Garland said, "Now I will come to the amendment", having addressed the House for nearly five minutes. He should speak to the amendment at all times. I ask the Deputy and other Members to confine the debate to what is in the amendment. Deputies should avoid the temptation to repeat over and over matters that occurred in the past, or other matters. That would enable the House to follow a more perfect kind of business, which we all desire.

A Leas-Cheann Comhairle, I thank you for your intervention. I am afraid I got a little carried away. Other Members received admonitions from the Chair, and rightly so. I have made my point adequately. While I support the amendment of Deputy Rabbitte, my amendment would represent a more moderate approach, and I commend it to the House.

I support this amendment. It is the first time I have been present for a debate on the Finance Bill and I have been impressed by the constructive Opposition approach. However, it was unfortunate that Deputy O'Dea considered it necessary to give us a history lesson this morning in relation to certain periods. He was selective because I remember in 1977 when road tax was abolished every young man with a Honda rushed out to vote for Fianna Fáil; we all know that we have paid the price for the mistakes of that time. However, I will not go into history because it would not be in keeping with the spirit of the debate over the last few days.

It would not suit the Deputy to do so.

In relation to the exemption limit of £6,800, of course we appreciate developments in that direction but I also support the amendment on the basis that it is the only way forward in relation to eliminating the poverty trap which has been spoken about on many occasions. It would also create an attractive differential between working and not working. When we refer to a figure of £6,800, we are talking about an income of £136 per week. The way forward is to increase the exemption limit and it is a positive amendment in that direction. It would be worthwhile to do something like this because, although the average industrial wage is supposed to be about £230, I am aware of unionised companies in my constituency who pay something between £145 to £160 per week. It is not attractive for many people to work, it is more advantageous to be unemployed because of the benefits. Many people have to make a positive commitment to work in those circumstances. Therefore, I support an increase in the exemption limits to widen the gap and to increase the innovative spirit in people to look for work.

The amendment proposes to increase the limits set out in the Bill by £3,200 for married couples and by £1,600 for single and widowed persons. This would cost £109.8 million in 1991 and £183 million in a full year, which would mean exempting about 130,000 people from the tax net. However, if the amendment was accepted it would substantially increase the current budget deficit which is already under considerable pressure because of the increase in the numbers out of work and other aspects. However, I hope that throughout the year we may be able to recover. The amendment would also mean an increase in borrowing which is not what Deputies want, judging from the various contributions. We cannot have our loaf and eat it, we must face up to reality and I know that Deputy Garland is less generous with his proposal; nevertheless his proposal would mean a cost of £28.4 million in 1991 and £47.4 million in a full year.

I have already set out on Committee Stage that the Bill provides for generous increases because of the tax 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 sum of £300 per dependent child is being increased for each third and subsequent child to £500 per child. This child element, especially the increase for each third and subsequent child, is intended to focus and target relief specifically at a group which has been identified as being particularly in need of State support — low income married couples with large families. With the increase in the basic exemption limits, this will go a long way towards alleviating the tax burden on low income families. The child addition to the exemption amount is intended to top up the general exemption limits by adding a sum of £300 per child for the first two children and £500 for the third and subsequent children. The addition gives an effective tax exemption limit for married couples with children significantly greater than the general exemption limit. For example, a married couple with four children have an effective exemption rate of £8,400 or over £160 per week. The married couple with six children have an effective rate of £9,400 or over £180 per week.

Over the last three budgets general exemption limits for married couples have been substantially increased. For instance, a general exemption limit for a married person with two children has increased from £5,500 in 1988 to £7,400 in 1991, an increase of 35 per cent. In the case of a married person with four children the increase was from £5,500 to £8,400, a 53 per cent increase. This, however, is not the end of the matter; it would obviously be unfair to subject a person whose income is only a little more than the exemption limit to the normal taxation rules. Accordingly, there is a transitional stage — marginal relief — spanning the gap from total exemption to full liability to tax. All taxpayers on marginal relief pay less tax than they would under the normal taxation provisions. Marginal relief was mentioned in this debate and it is worth imparting more information in relation to it.

Persons with income not exceeding the new limits will not be liable for income tax and the new basic exemption limits are: under 65 years of age for single or widowed persons, £3,400; from 65 to 74 years of age, £3,900; and 75 years of age and over, £4,500. The amount relating to married couples under 65 years of age is £6,800, for those aged 65 to 74 years of age the figure is £7,800 while for those aged 75 years and over the figure is £9,000. That area has been a source of dicontent for a long time for older people on pension who had to pay tax, having worked very hard throughout their lives rearing a family and making a contribution to the economy.

The basic exemption limit has been increased by the figures I just mentioned and indexation does not come into the argument or debate in dealing with exemption limits. The best way to illustrate it is by saying that the lowest percentage increase which I have given over the last three budgets has been 24 per cent; it ranges from that up to 71 per cent at a time when the cost of living over the same period increased by 10 per cent. I do not consider the question of indexation relevant in this area because it would make no impression, good bad or indifferent on it. Very generous increases have been given. Everybody has done very well.

Clearly, when you talk about exemption, you come to the marginal relief area which has caused problems. It became clear, as the system was introduced, that it would be unfair to subject a person whose income is only a little more than the exemption limits to the normal taxation rules. Accordingly, there is a transitional stage spanning the gap from total exemption from tax to full liability. It is commonly called the marginal relief system which means that if a taxpayer's income is in excess of the appropriate exemption limits for his or her circumstances, the maximum liability to income tax will be set at 52 per cent of the difference between the income and the appropriate exemption limit.

All taxpayers on marginal relief pay less than they would under the normal taxation provisions. Marginal relief can be quite significant depending on the taxpayer's circumstances. For example, a married man with three children who earns £9,000 a year, pays tax under PAYE and is subject to the normal rate of PRSI, will be £505 better off as a result of the application of the marginal relief system. Needless to say, marginal relief will expire at the lower level where entitlement to other allowances such as mortgage interest relief exists. Such additional allowances have the effect of easing the tax burden under the allowance based system, thus providing that the advantage of being taxed under the marginal relief system will expire at a lower level of income than would otherwise be the case. Effectively, the more allowances a taxpayer is entitled to the quicker the advantage of marginal relief will expire.

Deputy Rabbitte referred to poverty traps against the background of the ESRI report published in 1987. However a considerable number of improvements have been made since then. The ESRI highlighted the problems in this regard and I have addressed them. As mentioned by Deputy Garland, the exemption limits and child additions have been extended to small shopkeepers and farmers. Anyone who finds themselves in that income bracket can opt to be taxed under that system.

The first point I would make with regard to the poverty trap is that we are really talking about the position of those in employment and what happens to them as their incomes increase. We have concentrated a significant level of resources in recent years on an earlier point on the scale, that is, those on low incomes and we have improved significantly their net income position by substantially improving the family income supplement and the exemption limits and introducing a child addition to the exemption limits.

That leads me to the second point which is that, given that resources are limited, there must come a point at which benefits are withdrawn and taxation commences. There are always likely to be tensions at this point of interface. Nevertheless, it is important not to exaggerate their impact. They arise only in a narrow range of income and only for a small number of people. For example, as regards the family income supplement, only about 2,000 family income supplement beneficiaries pay tax. In addition, where a person successfully applies of family income supplement it is not immediately withdrawn if his income rises. Once a person qualifies for family income supplement it is continued for 12 months and only then is his entitlement removed. Overall, there will always be tensions at the point of interface. Although these are neither as sharp nor as widespread as has been portrayed by Deputy Rabbitte in this debate, nevertheless this is an area which merits continuous attention. I can assure the House that is being kept under review. We are continuing to ease the problems through a combination of the family income supplement and the exemption limits.

I would remind the House that this topic was also considered in the first report of the Commission on Taxation. They described such an income tax system as consisting of two parts: those with incomes more than the sum of exemptions plus allowances would pay a positive income tax and those earning less than this or with no income would receive a negative income tax, in other words, an income supplement. This would allow a more integrated system of personal taxation and welfare schemes. The objectives of negative income tax schemes were cited as follows: (1) to achieve administrative savings by simplifying the tax and income maintenance systems; (2) to remove poverty traps which face taxpayers in certain income ranges, which occur when a rise in income is associated with the withdrawal of certain benefits and an additional payment of tax; and (3) to increase the redistribution of income by providing a supplement to the income of the lower paid. The commission concluded that any attempt to solve the problem of poverty with a single comprehensive system of income maintenance which was integrated with the income tax system would be very costly. That was also the conclusion in the Report of the Commission on Social Welfare. In Chapter 8 they examined the area of negative income tax.

The problem with negative income tax schemes as identified by both commissions is that the level of personal allowances or credits must be fixed at a high enough level to provide at least a subsistence level of income. These must be extended to everybody. Hence the benefits of a neater more rational tax benefits system at the lower end of the income scale would still be offset by implicit disincentives and a steeper progressivity at most income levels. The Commission on Social Welfare made the further point that integrated systems of income tax and income maintenance are by their nature inflexible in the way they cope with income needs. Income maintenance needs are varied and complex often requiring flexible and immediate attention and would coexist uneasily with a system primarily designed to collect tax. Both commissions recommended that the direct tax and income maintenance systems should continue to be separate.

I think we all agree that this area merits continuous attention. As I said earlier, the amendments proposed would impose a charge which would add considerably to the current budget deficit and lead to an increase in borrowing. I have also dealt with the suggestion made by Deputy Garland that the money could be raised from the corporate sector very comprehensively. I do not want to go back over the same arguments again. I have continuously adjusted section 84 which provides relief to the corporate sector. In addition, the amount raised in taxation from the corporate sector has increased from approximately £250 million to over £537 million in 1991. No Minister for Finance will be able to solve all the problems but, on balance considerable progress has been made in improving the position of the low paid and I will continue to do so in the future.

I thank the Minister for taking the trouble to give a detailed reply to the House. I also acknowledge that the officials have caught me out with regard to the date on which the conference on taxation and poverty was held. I would not expect anything less from The Guardian readers. I would advise the Minister to be alert so that they do not catch him out on some matter.

Normally, we refrain from complimenting or referring in any way to our esteemed officials.

Just like children, they are heard and not seen.

Wherever they are, they are not to be spoken about.

I did not say anything which was not praiseworthy. They are the unsung heroes of this unwatched marathon. Politics at the end of the day is about choice. If the political will was there we could focus our attention on this group who are caught in the poverty trap, who are trying to stay in employment and rear their families.

I always listen to Deputy O'Dea's interventions with interest. I do not often agree with what he says, but his interventions are worth listening to. For some reason I associated him with my old college colleague, the Minister, Deputy Seamus Brennan, and consider that his ideological and economic view of the world is similar to that of the Progressive Democrats rather than the more Keynesian approach which the Minister for Finance espoused before he was——

If Deputy Rabbitte has nothing better to do on this amendment than discuss political pedigrees, he cannot continue. Please confine yourself to what is before us.

The point I am making is that because of his Keynesian instincts the Minister would like to respond to this because it is a real area of need and vulnerability in our society. If we are talking about tax reform we should be able to focus on this group. I have put forward other amendments but the rules of the House governing the Finance Bill make it very difficult to have them debated because there is a possible financial implication. For example, I proposed a very minimalist amendment to the Wealth Tax Act, 1975, which would simply revive section 2 of that Act and would cause a wealth tax to be levied at 1 per cent as provided for within that Act. Is anybody seriously saying that that would cause an outbreak of poverty in the country, if those who are sufficiently wealthy to be encompassed by that Act were to be levied to the extent of 1 per cent or if the banks were to be levied on some reasonable proportion of their profits, or if we were to look at the whole area of levies on property in its widest possible definition. If there was any real distribution of wealth or progressive notion behind the reform of the income tax code there are areas where we could find some alleviation for people who are attempting to stay in the workforce but who are being punished by taxation.

With the changing structure of the workforce and the concentration on employment in the services industry, much of which is relatively lowly paid, it is important that people ought not to become liable for tax at the level they do at present. These should be hell for people who by general consensus are caught in the poverty trap, living on subsistence pay while trying to make ends meet and rear their family; with no prospect of access to third level education on an equal basis or anything like that, because education still transmits privilege. Should we not try at least to use this Finance Bill to give them some measure of alleviation? I agree with Deputy O'Dea. I am not saying that one can tackle this element of the poverty trap entirely through the income tax code. I accept that cannot be done but we could at least bring about some improvement, if the political will were there. The Minister referred to the point of interface where benefits must be withdrawn the taxation must commence. I take his point that such a point must be reached, but the level at which it is reached at present is unfairly punitive on the most vulnerable section of people in our society who are trying to stay in the workforce.

Question put: "That the figure proposed to be deleted stand."
The Dáil divided: Tá, 66; Níl, 39.

  • Ahern, Dermot.
  • Ahern, Michael.
  • Andrews, David.
  • Aylward, Liam.
  • Barrett, Michael.
  • Brady, Gerard.
  • Brady, Vincent.
  • Brennan, Mattie.
  • Brennan, Séamus.
  • Browne, John (Wexford).
  • Burke, Raphael P.
  • Calleary, Seán.
  • Callely, Ivor.
  • Clohessy, Peadar.
  • Connolly, Ger.
  • Coughlan, Mary Theresa.
  • Cowen, Brian.
  • Cullimore, Séamus.
  • Daly, Brendan.
  • Dempsey, Noel.
  • Dennehy, John.
  • de Valera, Síle.
  • Ellis, John.
  • Fahey, Frank.
  • Fahey, Jackie.
  • Fitzgerald, Liam Joseph.
  • Fitzpatrick, Dermot.
  • Flynn, Pádraig.
  • Harney, Mary.
  • Hillery, Brian.
  • Stafford, John.
  • Treacy, Noel.
  • Tunney, Jim.
  • Hilliard, Colm.
  • Hyland, Liam.
  • Jacob, Joe.
  • Kelly, Laurence.
  • Kenneally, Brendan.
  • Kirk, Séamus.
  • Kitt, Michael P.
  • Kitt, Tom.
  • Lenihan, Brian.
  • Leonard, Jimmy.
  • Martin, Micheál.
  • McDaid, Jim.
  • McEllistrim, Tom.
  • Morley, P.J.
  • Nolan, M.J.
  • Noonan, Michael J.
  • (Limerick West).
  • O'Connell, John.
  • O'Dea, Willie.
  • O'Donoghue, John.
  • O'Hanlon, Rory.
  • O'Keeffe, Ned.
  • O'Leary, John.
  • O'Malley, Desmond J.
  • O'Rourke, Mary.
  • O'Toole, Martin Joe.
  • Power, Séan.
  • Reynolds, Albert.
  • Roche, Dick.
  • Smith, Michael.
  • Wallace, Dan.
  • Wallace, Mary.
  • Woods, Michael.
  • Wyse, Pearse.

Níl

  • Barry, Peter.
  • Bell, Michael.
  • Belton, Louis J.
  • Browne, John (Carlow-Kilkenny).
  • Byrne, Eric.
  • Connor, John.
  • Cosgrave, Michael Joe.
  • Crowley, Frank.
  • Currie, Austin.
  • D'Arcy, Michael.
  • Deasy, Austin.
  • De Rossa, Proinsias.
  • Doyle, Joe.
  • Durkan, Bernard.
  • Enright, Thomas W.
  • Finucane, Michael.
  • Garland, Roger.
  • Gilmore, Eamon.
  • Gregory, Tony.
  • Harte, Paddy.
  • Howlin, Brendan.
  • Kavanagh, Liam.
  • Kemmy, Jim.
  • Kenny, Enda.
  • Lowry, Michael.
  • McCartan, Pat.
  • McGahon, Brendan.
  • Mac Giolla, Tomás.
  • Nealon, Ted.
  • O'Brien, Fergus.
  • O'Shea, Brian.
  • O'Sullivan, Gerry.
  • O'Sullivan, Toddy.
  • Owen Nora.
  • Quinn, Ruairí.
  • Rabbitte, Pat.
  • Ryan, Seán.
  • Spring, Dick.
  • Stagg, Emmet.
Tellers: Tá, Deputies V. Brady and Clohessy; Níl, Deputies McCartan and Byrne.
Question declared carried.
Amendment declared lost.
Amendments Nos. 4 to 6, inclusive, not moved.

Amendment No. 7. Amendment No. 8 is related and I propose that these two amendments be taken le chéile.

I move amendment No. 7:

In page 11, 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' after `138 (a)',".

The purpose of these amendments, which are repeats of amendments put down by Deputy Mitchell on Committee Stage, is to extend the general and age exemption limits appropriate to married couples to widowed and other single persons with responsibility for children.

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 the 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, the reduction in rates and extension of the standard rate band by 40 per cent.

The fact that widowed and single parents have personal allowances equivalent to the married personal allowance means that their basic allowances significantly exceed the single exemption limit. If they qualify for the PAYE and PRSI allowances, as is often the case, their allowances would substantially exceed the single exemption limit. I would not be in favour of allowing such taxpayers the married exemption limits. The reason married couples receive the double exemption limits is simply because there are two adults to support while in the case of widowed and single parents there is only one adult to support.

Amendment, by leave, withdrawn.
Amendments Nos. 8 to 12, inclusive, not moved.

I move amendment No. 13:

In page 13, between lines 3 and 4, to insert the following:

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

This was already discussed on Committee Stage and the Minister's response was very discouraging. I brought this up last year and it looks as if I will have to bring it up again next year. I do not wish to repeat the whole debate we had the last time. This amendment is about reintroducing the child allowance in the tax code at £300. The child allowance extended to those children in third level education. The position of married couples having to maintain children is not adequately covered by child benefit. In addition to child benefit it is appropriate to reintroduce children's allowances in this budget. I would ask the Minister once again to consider this proposition.

I do not want to waste the time of the House by repeating what I said on Committee Stage. This amendment is looking for a reintroduction to the income tax code of the child tax allowance which was taken out in 1986 and was incorporated in an overall child benefit. It is a very extensive road to travel. The general improvement in the tax area is the way we are travelling. It is a matter of choice. As Deputy Rabbitte said earlier it is a political choice to go for rates and bands. We have taken on rates and whatever we can manage in regard to bands and when rates are down to what would be internationally acceptable as competitive, we hope to attack some of the other systems in the income tax code. This amendment will cost about £42 million in 1991 and £70 million in the first year. In the light of the arguments we pursued already about the huge cost of amendments being proposed here, this again would increase the current budget deficit and borrowing, to which all parties in this House are opposed.

Amendment put and declared lost.

I move amendment No. 14:

In page 13, between lines 3 and 4, to insert the following:

"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.".

On Committee Stage the Minister was sympathetic to the motivation behind this amendment and the reality that lies behind it. The facts are that this kind of liaison is likely to be an increasing factor in Irish society until such time as the right to remarry is sponsored by Fianna Fáil, because only Fianna Fáil can cause such an amendment to the Constitution to be carried. We have learned that. Whether that will be done during the reign of the current Taoiseach on when the present Minister for Finance accedes, I am not sure. I would like to think it would be done sooner rather than later. When it is sponsored by Fianna Fáil it will unquestionably be carried, because it has the support of the other parties in the House. So until that day we have here an injustice that we can go some way towards remedying and acknowledging by way of the amendment that is put forward here.

I find it difficult to believe that the Minister can rely on the argument he advanced on Committee Stage that it is the putative constitutional impropriety of it that prevents him taking on board if not the letter of the amendment at least the essence of the amendment. This facility should be extended to mature consenting adults who, through no fault of their own, are denied the right to remarry and have stable and lasting relationships. Indeed, there probably is a constitutional argument about the rights of the individual as much as there is an argument about undermining the recognition that the Constitution affords to marriage. As I said on Committee Stage, there also is a recognition of the role of the family and in this case there are many very responsible law abiding citizens trying to rear their families in this type of liaison and I cannot see any reason they should be discriminated against.

Deputy Quinn referred to the decision of the then junior Minister for Social Welfare, Deputy Frank Cluskey, to introduce allowances for unmarried or single parents. That has become a permanent feature now of the social welfare code. Is that somehow to be taken as undermining the same concept of marriage? It is accepted in the social welfare code. I cannot see the difference in the social obligations that caused the late Frank Cluskey to bring forward that measure being any different from the circumstances that confront us here. I cannot see why Deputy Woods, the present Minister for Social Welfare, brought in a Social Welfare Bill that recognises this reality of Irish life for social welfare recipients. If it is good enough for social welfare purposes, why is it not good enough for revenue purposes? I really think it is a bit fantastic to suggest that it would lead to the widespread breakdown of marriage. The facts are that marriages do break down in this country. It is a growing phenomenon and until we rectify it legally and constitutionally the Ministers should in the interim, having regard to the Murphy case to which we adverted on Committee Stage, and if he is not happy with the wording of this amendment, at least give a commitment that he intends to take the essence of it on board.

I can see a certain amount of logic in Deputy Rabbitt's amendment and I have to say that I have some sympathy with it. In the context of capital acquisitions tax where two people are cohabiting, there would be no capital acquisitions tax if they were married, but in the case of two people cohabiting if property transfers from one to the other the donee is treated as a stranger in blood and very considerable capital acquisitions tax could result. In the case of any child of that relationship if the child is the child of the donor there will be no problem regarding income tax. If both parties are working each will be treated as a single person, each will get the single allowance and each will get the benefits of the various bands.

I do not understand Deputy Rabbitte's point about the unmarried mother's allowance. I do not think the case he makes about it is analagous to or on all fours with this. I have not studied the constitutional aspect but the problem is an Article in the Constitution which obliges the Government to take special care to protect the institution of marriage. It seems to me if two people living together were in a better tax bracket because they were married than if they were cohabiting, to bring up the cohabiting people and put them on a level with the married people could be taken by the courts as some sort of attack on the institution of marriage. I take Deputy Rabbitte's point. I see no wide implications if that were done, but that is the way it could be interpreted.

The amendment is designed to cover a situation which is going to prove temporary. As Deputy Rabbitte said, we have a growing problem of marital breakdown. Deputies will be aware that the matter is being studied, and that a White Paper is imminent. We will have to take this on board and do something about it. I believe — I am not speaking for my party — the only way this can be resolved is by providing for the right to remarry, and I hope that happens in the short term rather than in the long term. If that happens then the amendment will be dealing with a temporary situation.

I know the Minister is sympathetic to the spirit of the amendment. He got advice from the Attorney General, whose office presumably studied the constitutional judgments of the Supreme Court, to the effect that it would not be constitutionally feasible to introduce this amendment into our tax legislation. I know the Minister will confirm that he is sympathetic and if some way can be found to circumvent the constitutional difficulty he will be willing to examine it.

Deputy Rabbitte's amendment seeks to have the same tax treatment applied to unmarried cohabiting couples as applied to married couples. I opposed the amendment on Committee Stage and we had a very good discussion on it then. I am opposing it today again. I believe the treatment reflects the general law in relation to marriage, and that is not the function of income tax laws to lead the whole area of general law. Provisions regarding the status of parties to a non-marital relationship would, if considered desirable, be contained in general law relating to marriage which would then be reflected in relevant tax legislation.

I do not want to repeat what other Deputies have said. We are all aware that a White Paper is being prepared by the Government in the latter half of this year and, in the circumstances, I believe it would be preferable to wait for the White Paper before making a change in the tax code in this area. I have listened to the case made by Deputy Rabbitte but I do not think it falls to Fianna Fáil totally. I never knew we enjoyed 63 per cent of the electorate, which was about the figure that voted against the introduction of divorce in the referendum. Though we are not doing too badly in the polls, I did not think we had risen to such heights. It was the people, not us, who decided and the people will decide the issue again when the opportunity arises.

I want to refer to a point Deputy Quinn on Tuesday and Deputy Rabbitte raised today — Deputy O'Dea referred to the general principle — regarding the treatment of married and cohabiting couples under the social assistance and other schemes. I am informed these changes were enacted following the decision of the Supreme Court in the Hyland case in 1989. In reaching their decision the court explicitly applied the principles of the Murphy case. In effect the court found it was unconstitutional for the social welfare provisions in question in the Hyland case to benefit a married couple living together less favourably than an unmarried cohabiting couple. Following this ruling the Oireachtas in the Social Welfare (No. 2) Act, 1989 extended to cohabiting couples the same restrictive treatment as applied to married couples. This is a follow through of the recognition in the Constitution of marriage and the family. This year's Social Welfare Act included similar provisions as regards other social welfare schemes.

I live in the real world and I am well aware of the increasing problems. Marriages break down despite the best intentions of the couples concerned. I am aware of the hardships, problems and tribulations and, inevitably, society will have to face up to them. I am also very aware of the serious problems, tribulations and pressures that are exerted as outlined by Deputies Rabbitte and O'Dea. I indicated on Committee Stage that I was sympathetic to these problems. I undertook to have this matter thoroughly examined to see if a solution can be found. Deputies will appreciate that many complex issues will need to be examined carefully. Naturally, any solution must ensure proper control and administration and we must ensure it is not open to large scale abuse. Nevertheless, I am sympathetic on the point raised by Deputies Rabbitte, O'Dea and Quinn. I will have it carefully examined and work will start on it right away.

The Taoiseach confirmed today that the Government White Paper is on target to be produced later in the year. Then marital breakdown will have relevance to this issue. Work will start on looking at all the possibilities and trying to find a solution within the parameters of the Murphy and other relevant cases. I am not saying whether a solution can be found but the matter will be approached positively by my officials straight away.

The Minister has said that as he sees it it is not the task of income tax laws to lead in this area. Generally speaking, we all agree with that, but social mores and customs are leading the legislators at the moment and we are away behind the posse. I do not want to reopen the question of my hopes for the role of Fianna Fáil in this, but it is not fair of the Minister to say: the people decided it, we had nothing to do with it. The Minister himself may have had nothing to do with it but I know a great many of his colleagues who had more than a little impact on the outcome.

People have to mark the ballot for another day.

The Hyland case has been adverted to by the Minister. The people concerned were constituents of mine at that time. My understanding of that case was that the import of the decision was that they could not be treated any less favourably than two people living together. That is not quite the same as saying that in this circumstance extending the benefit we are addressing in this amendment to two cohabiting people would mean that they would be treated more favourably than a married couple. There is no advantage in what the amendment seeks to do as compared to a couple who are married. The least one could say is that it reduces it to a matter of interpretation but I do not think it necessarily the case that if the Minister were to accede to this that there would be an automatic cause for action that would find disfavour in the courts.

I thank the Minister for the care he has taken with this amendment. He is undertaking to examine it immediately in terms of whether a suitable amendment can be framed to acknowledge the phenomenon of the breakdown of marriage in Irish society and the fact that a great many people are living in second relationships consciously and responsibly. While it is not a matter for the income tax laws to lead, it is equitable and just that we should recognise the problem in the income tax laws. To underline the point, because I feel strongly on this matter, I wish to press the amendment.

Amendment put.
The Dáil divided: Tá, 16; Níl, 66.

  • Bell, Michael.
  • Byrne, Eric.
  • De Rossa, Proinsias.
  • Gilmore, Eamon.
  • Gregory, Tony.
  • Kavanagh, Liam.
  • Kemmy, Jim.
  • McCartan, Pat.
  • Mac Giolla, Tomás.
  • O'Shea, Brian.
  • O'Sullivan, Gerry.
  • O'Sullivan, Toddy.
  • Quinn, Ruairí.
  • Rabbitte, Pat.
  • Ryan, Seán.
  • Stagg, Emmet.

Níl

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

I move amendment No. 15:

In page 13, between the Table and line 32, to insert the following:

"(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.".

I do not want to make a meal out of this amendment. We already discussed it on Committee Stage. Since we are talking about the Constitution, the protection of marriage and the family, this is what lies behind this amendment. People who for one reason or another end up as single parents ought to be entitled to the same protection as a family unit and the benefit of the double tax bands ought to be extended to them. It is not a very expensive decision for the Exchequer. It is a reform that will be greatly welcomed by people struggling to rear a family in circumstances that may well have arisen through some tragedy in their lives. I would like to hear the Minister on it again.

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

As I indicated in the course of our consideration of this amendment in Committee, 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.

One step along this road is the Government's objective as set out in the Programme for Economic and Social Progress to get the standard rate of income tax down to 25 per cent by 1993 and to implement further movement towards a single higher rate of tax. The measures in this Finance Bill signal progress towards achieving that objective.

It goes without saying that general reductions in the rates benefit all taxpayers and reduce the disincentive effects of high tax rates. This, undoubtedly, is the correct way forward. On the other hand, 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 disappearance of most of the anomalies of concern to Deputies and will result in a better and more acceptable tax system for every taxpayer.

The cost of extending the doubled 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.

It is worth pointing out again for the benefit of the House that the income tax code provides some help for widowed and single parents. Widowed persons have a widowed personal allowance which stands at £2,600 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. There is no denying that lone parents may have particular difficulties but there are very serious practical objections to giving the double rate bands to them. I outlined those on Committee Stage and I will just mention them briefly here.

Double rate bands would be of value only to lone parents taxed at the higher rates, and at present, only about 30 per cent of them are on the higher rates. Any concession would, therefore, be one for the better off lone parents while doubling the bands for the rest would be a meaningless exercise. Double rate bands are given to married couples because there are two adults to support. In this situation there is only one. If a concession were made for lone parents because they had children there would be immediate cause, of course, for concessions for parents on lower incomes who could not benefit from a doubling of the bands. As I said, that applies to only 30 per cent, and those who are better off. The Government would then have to withstand the same argument being made in other directions. I must repeat that the basic problem is the burdensome nature of our income tax structure. The Government are committed to improving the structure in time. As Deputy Rabbitte said, the choices are there and have to be made. The Government have chosen to reduce the rates first of all and then to try to improve the bands as we go along. As we reach our objectives by 1993 the other anomalies will be dealt with then.

The Minister rightly says that the matter has been debated on Committee Stage. I should like to merely pick up the point made by the Minister that in terms of relief we are talking about a section of lone parents who are on higher incomes or are better off, as the Minister put it. "Better off" is, of course, a relative term. One does not have to be too much better off to be subjected to marginal income tax rates. Lone parents in those circumstances are likely to have heavy commitments for their dependants, with education and so on. The case is meritorious, but, having regard to what the Minister said, I shall not press the amendment.

Amendment, by leave, withdrawn.

Amendment No. 16 is in the name of the Minister. Amendment No. 17 is related to that amendment, so we shall take both amendments together.

I move amendment No. 16:

In page 14, line 9, to delete "1990-91" and substitute "1988-89".

I promised the House on Committee Stage that I would introduce a Report Stage amendment to section 4 of the Bill, which section presently provides for the introduction of a special allowance, for the three years immediately following the year of bereavement, for widowed parents whose spouses have died since 6 April 1990.

The amendments now being moved secure that in so far as widowed parents whose spouses have died in the tax years 1988-89 and 1989-90 are still within the three year post-bereavement period they will be given allowances for the unexpired portion of that period at the appropriate level. For example, a widowed parent whose spouse died in 1988-89 will get an allowance of £500 for the year 1991-92, while such a parent whose spouse died in 1989-90 will get an allowance of £1,000 for the year 1991-92 and an allowance of £500 for 1992-93. This is in response to an amendment put down by Deputy Cotter, and I was sympathetic towards the issue anyway.

I compliment the Minister on the amendment, which is extremely important. We all know that it is a very vulnerable time for a widow or widower. I regard the provision as progressive.

I compliment the Minister on the further evidence of his humane approach in this area. Would the Minister undertake to ask the Revenue Commissioners to deal expeditiously with applications for adjustment of tax-free allowance certificates which will arise from the amendment?

I appreciate the sentiments being expressed. It is a vulnerable stage for any family when one spouse dies and children are still at a very expensive age. It is in recognition of that and in response to requests made in the House that I have introduced the amendment. Every help in that direction will be appreciated by people who are unfortunate enough to have experienced such traumatic happenings within their family. I will certainly convey Deputy O'Dea's request to the Revenue Commissioners.

I thank the Minister.

Amendment agreed to.

I move amendment No. 17:

In page 15, between lines 7 and 8, to insert the following:

"(4) This section shall apply and have effect as respects the year 1991-92 and subsequent years of assessment.".

Amendment agreed to.

Acting Chairman

Amendment No. 18 stands in the name of Deputy Garland. Amendments Nos. 19 to 22, inclusive, are optional amendments, so I propose that amendments Nos. 18 to 22, inclusive, be discussed together.

I move amendment No. 18:

In page 16, lines 11 to 15, to delete all words from and including "means—" in line 11, down to and including "£1,000" in line 15 and substitute "means the sum of £2,000.'.".

The amendment relates to the position of elderly tenants in houses that are no longer rent controlled. The concept of this relief was introduced in the Finance Act, 1982, as a result of the move to decontrol rent, which left many elderly couples having to pay the full economic rent for their flat or house. The principle behind the amendment is clearly recognisable and is a very good one. Last year I put down an amendment seeking to increase this relief, and I am pleased that the Minister has made at least a partial response to my request. However, I feel that the Minister does not go far enough.

The point I was trying to make last year, which the Minister has not taken on board fully, is that in rare cases the relief provided to a single person, a widow, or a widower should be the same as that provided to a married couple. The substance of my amendment would be to give an allowance of £2,000 whether a person was married, single, or widowed; it would be a household allowance. I know that the Minister has approached the issue from another direction, by allowing £1,000 to a single person, £1,500 to a widowed person and £2,000 to a married couple.

The arguments I made last year still hold this year. Certainly with regard to widowed people the situation is that invariably those affected are elderly and the flats or houses in which they live were originally designed for two people; one of those people has died, the rent and other outgoings remain the same, but the allowance is reduced. I do feel that that is a very important point. I am sure that the Minister could tell us the cost of implementing the amendment—it would be very small. It behoves the House to seek out these people, however small in number they may be, and to try to introduce a caring income tax system in so far as that is possible. I commend my amendment to the Minister.

I am very pleased to support the amendment promoted by Deputy Garland. I have myself put down an amendment very similar in intent. The case made by the Deputy is a very fair one, and the House should not forget that it is a diminishing number of elderly tenants who are caught in this problem.

It is ironic to come back to the distinction between widowed and single persons as compared to married couples, because the liability in this instance is the same whether or not one is widowed. As Deputy Garland has said, the experience now is that those tenants are liable for the full economic rent. The tenants are inevitably pushed over the present limits of tax relief, and it is a rather restricted area. Those involved are predominantly elderly, their number is declining, and it cannot be too expensive to the Exchequer to implement this provision. It is not fair to distinguish in this instance between a couple and a widowed person as elsewhere in the legislation. I ask the Minister to acknowledge the fact that we have argued this year after year; organisations like Threshold have done a good deal of research to identify the hardship caused to senior citizens in this bracket. Will the Minister give a sympathetic response to the arguments?

My colleague, Deputy Noonan, tabled two amendments in relation to this matter. I fully agree with the two previous speakers in relation to rent allowance for people over 55 years of age. As Deputy Rabbitte said, they do not constitute a significant number and sometimes the rents charged are excessive. They are a vulnerable sector who, in many cases, do not qualify for local authority housing and indeed may not have the financial means to buy a house of their own. One can be sure that the landlords are not giving any largesse in relation to rentals they charge. Therefore, I fully support the amendment.

I went some way towards alleviating the problems of this section of the community but, when I move a certain distance, it is to be expected that the Opposition expect me to go twice as far.

The new ceilings are £2,000, up from £1,500 for a married couple and £1,500 for a widowed person, increased from £750. This is a new ceiling as, previously, widowed persons were treated the same as those who were single. There is a sum of £1,000 for a single person, increased from £750. Whatever way one looks at this, it is obvious that there have been substantial increases. Although I understand the Opposition looking for larger increases, I have responded well in a difficult year. However, I will bear their strong pleadings in mind for next year, when I will give it priority.

Amendment, by leave, withdrawn.
Amendments Nos. 19 to 22, inclusive, not moved.

I move amendment No. 23:

In page 16, line 21, to delete "£286" and substitute"£500".

In my lone crusade on behalf of the hard-pressed PAYE worker I, unashamedly, again take up the cudgels in relation to any opening presented on behalf of that section. The history of the amendment will be very well known to the Minister, if my memory serves me correctly it emerged as a concession to the widespread public outcry against the unfairness of the tax system after the street protests over a decade ago. At that stage —I cannot recall for sure — it was probably pitched at £500 but it has been eroded since then, not only in real terms, but in figures, to the level provided for in this Bill.

I will always highlight the fact that relief should be given to people who do not have any opportunity to avail of the various allowances, reliefs and escape hatches available to other sections of the community. It is the duty of the Opposition to exploit an opportunity to talk about the burden on the PAYE workers' shoulders and to support this amendment.

One could make a great many arguments in support of the amendment, apart from the tax code. The fact that we all pay social insurance — those of us who have it stopped from their wages — does not necessarily mean that we get social insurance when we need it and to the extent that we need it. A large proportion of the population do not want to be in the VHI but for a great many people it is essential, for the protection of their families, that they should join it.

As I said, it is unashamed pleading on behalf of the PAYE sector as this is an opportunity to give them additional relief. On Committee Stage we spent a great deal of time going through specialist corporation and tax areas where those who can afford to buy skilled expertise and advice can minimise their tax bill. The people who have disposable incomes and who can avail of the expertise have a number of avenues open to them to diminish their tax liability but, by and large, that does not apply to the people encompassed by this amendment. I ask the Minister to restore it to the £500 level.

I cannot recall when it was at £500, I do not think it ever was. The special PRSI allowance for higher rates through social insurance was first introduced in 1982 to offset the decline in disposable incomes caused by the increases in the high rates of PRSI and the imposition of the 1 per cent youth employment levy. The amount of the allowance was then set at £312 and was not available to public servants and others who contributed at a lower rate of PRSI. The relief was confined to 1982-83 and since then the allowance has never been treated as a permanent one and requires renewal on an annual basis.

The relief, nonetheless, was reintroduced in 1983-84 at a rate of £286 and has remained at that rate. The allowance is now being retained for the year 1991-92 at the rate of £286 at an estimated cost of £36 million and £58.2 million in a full year. The cost of the additional increase of £500 would be £26 million in 1991 and £41.5 million in a full year. It is another area which we can continue to debate but, when one adds up the cost of all the amendments, we are talking about a figure in excess of £1.5 billion, which is unrealistic in a year in which the budget deficit will be under pressure. It is not a year in which any Minister for Finance with a sense of responsibility could extend the problems of the budget although, we hope, in the second half of the year, to correct some of the imbalances.

When the Minister puts forward the total cost of these amendments it looks very impressive. However, I am reminded of the answer that the late Peadar O'Donnell gave to the late Mr. de Valera when they had a discussion about the low point of emigration in the fifties. Mr. de Valera said to Mr. Peadar O'Donnell "if you were in power the same number of people would be leaving the country" to which Mr. Peadar O'Donnell replied "They might but they would not be the same people." That is the attitude I adopt in a tax debate. I would apportion the burden in a different way and would make other people carry some of the burden carried by PAYE earners at present. We have no choice but to deal with the Bill as presented within the rules of the House and take it amendment by amendment. It is very difficult to deal with it, in terms of trying to levy revenue. I have listened to what the Minister had to say and I will not be pressing the amendment.

Amendment, by leave withdrawn.

I move amendment No. 24:

In page 16, between lines 22 and 23, to insert the following:

"(2) Notwithstanding anything in the Income Tax Acts, provisions of this section shall apply to all tax payers who are liable to pay PRSI at the full rate and/or are chargeable to income tax for the year 1991-92 and subsequent years of assessment under Chapter II of the Act.".

The purpose of my amendment is to extend PAYE and PRSI allowances to all professional and business people. Unlike The Workers' Party, the Green Party are a broad church and represent PAYE workers, small business people professionals, and small farmers. Their size is more important than how they are categorised under the income tax system. Members will recall that the PAYE allowance was introduced many years ago to correct a perceived advantage which was really illusory to employers in the deferment in the payment of income tax. In the meantime, that perception is gone. However this is no longer the case since the introduction of self-assessment and current year assessment. Given that employees and Schedule D taxpayers are now taxed on the same basis, if the PRSI and PAYE allowances are to continue, they should be extended to everyone in receipt of earned income.

I am aware that my amendment is somewhat flawed and I had hoped that had it been discussed on Committee Stage it could have been tidied up. I would like to have the principle accepted that all those in receipt of earned income should be treated equally.

The House will be aware that section 9 of the Bill already provides for the granting of the PRSI allowance for those taxpayers who contribute to pay related social insurance at the higher rates. The amendment refers to Chapter II of the Bill but Chapter II of this Bill relates to the relief for investment in corporate trades. The amendment probably refers to Chapter II of the 1990 Finance Act. The purpose of the amendment is to extend the PRSI allowance to the self-employed. The cost of that proposal would be £4.7 million in 1991 and £7.8 million in a full year.

I have already dealt with the background to the introduction of this allowance which was to compensate employees in insurable employment for the substantial increase in social insurance contributions and the introduction of the youth employment levy in 1982. It was confined to those employees liable at the higher rates of social insurance. To that extent there is no justification for granting the allowance to the self-employed by reference to the fact that the basis of assessment of their liability to income tax was changed to a current year basis. In so far as liability to social insurance is concerned, the position is that the self-employed are charged to social insurance for the year 1991-92 at 5 per cent. This 5 per cent rate covers both an employer and employee element.

The employee element is approximately 1.8 per cent compared to the normal rate of 5.5 per cent paid by employees. The self-employed, therefore, cannot be said to be paying social insurance in respect of the employee element at the higher rates. In the circumstances there is no justification for granting them the PRSI allowance and I am, accordingly, opposed to the amendment.

Amendment, by leave, withdrawn.

I move amendment No. 25:

In page 17, between lines 12 and 13, to insert the following:

"(2) Section 39 of the Finance Act, 1986, is hereby amended by the substitution of the following subsection for subsections (2) and (3):

`(2) Where, in the year 1991-92 or any subsequent year of assessment (hereafter in this section referred to as "the relevant year"), the total income of an individual includes any relevant interest and, apart from section 35 (1) (b), the individual would be entitled to repayment of the whole or any part of the appropriate tax deducted from the relevant interest, then not-withstanding section 35 (1) (b), the repayment to which the individual would be so entitled may be made to him on the making by him to the inspector, not earlier than the end of the relevant year, of a claim in that behalf.'.".

The purpose of this amendment is to have the refund paid much earlier than have a person wait until the end of the tax year.

The purpose of the amendment is to provide for the repayment of deposit interest retention tax, better known as DIRT, to people who are exempt from tax. It will be recalled that when introduced the DIRT tax was intended to be a non-refundable tax deduction with few exceptions. However, to avoid undue hardship to the most deserving of cases, the legislation makes provision for the refund of tax deducted to certain categories of taxpayers, including incapacitated persons and individuals whose spouses are aged 65 or over during the relevant tax year and who would otherwise not be liable for the full amount of DIRT deducted from their interest. This covers at least some of those people at whom the amendment is directed.

On the general question I should point out that there are a number of savings options open to which DIRT does not apply. These include interest on Government securities, interest from credit unions and interest and bonuses from the three small savers schemes operated by An Post — savings bonds, saving certificates and national instalment savings. By switching to one or a combination of these it is possible to minimise the impact of the retention tax on interest income.

The Revenue Commissioners introduced a series of measures to ensure that refunds of retention tax are made with the minimum of delay. First, a special simplified return was introduced in respect of such refunds in 1986. Second, the commissioners conducted a successful advertising campaign in the press and on radio last year to draw attention to the circumstances in which an individual is entitled to a refund. Finally, since 1990 the Revenue Commissioners have been maintaining a computerised record of all taxpayers who qualify for a refund of DIRT so that these taxpayers will be issued automatically with a claim form in order to facilitate the following years' claim. I understand that the procedures for refunds are working satisfactorily and that there are no undue delays in processing claims for such refunds, which is as it should be.

I have considered exempting non-liable persons from DIRT but have not done so for the simple reason that it would cost a considerable amount of money, money which I cannot afford to do without given the many demands on the Exchequer. Apart from the cost which is very difficult to gauge but which could be considerable, a refund system along the lines proposed in the amendment would absorb revenue resources on a large scale in administration and the checking of claims, etc. and thus divert them from the real job of tax collection to tax repayment.

A refund system would also leave scope for abuse by means of account-splitting, used by tax liable persons, of bank accounts in the names of non-liable persons. It was to prevent such abuses which were taking place on a wide scale that DIRT was introduced in the first place in 1986. The position is kept under review and this will continue to be the case. As of now, I see no prospect of movement in this regard at least in the short term until other major problems have been sorted out.

The Minister's response is similar to the response I recently received from the Minister of State, Deputy Brady, in reply to a matter raised under the grievance procedure. I have been concerned for some time about the way the DIRT system applies to old age pensioners and the mechanism under which they may reclaim it on completion of the appropriate documentation at the end of a specific tax year. I understand that approximately £15.3 million was reclaimed at the end of 1990 and that in excess of 20,000 claims were made, the majority by old age pensioners. It has been brought to my attention by accountants among others that older people are not resorting to the mechanism of trying to claim back their DIRT tax. Whether we like it or not older people have their own fears and concerns about paper work. DIRT is probably inhibiting savings despite the alternative saving institutions which the Minister mentioned in his response and many older people are retaining cash in their homes and are probably having the attendant problems which are associated with keeping cash around.

When we were discussing a previous Finance Bill I made those observations which I am making again today. I ask the Minister and his officials to study the feasibility of a system similar to the system that exists in England where older people do not have to resort to waiting until the end of the tax year to claim back the refund of deposit interest retention tax. They have a simple procedure which seems to operate successfully and people are not burdened with having to go through the system. I would appreciate it if the Minister would review the situation which prevails in the UK.

Is Deputy Finucane pressing his amendment?

No, but perhaps I could hear the Minister's response.

Ní Féidir leis. On Report Stage the Minister may respond only once on the amendment but perhaps later on he will refer to it in passing.

Amendment, by leave, withdrawn.

I move amendment No. 26:

In page 18, between lines 10 and 11, to insert the following:

"14.—An individual who makes, in the manner prescribed by the Income Tax Act, 1967, a claim in that behalf and makes a return in the prescribed form of his total income shall, for the purposes of ascertaining the amount of his assessable income for the purposes of income tax be allowed a deduction from the amount of his earned income as estimated in accordance with this Act of a sum equal to one-fourth of that income, but not exceeding, in the case of any individual, the sum of £1,500.".

I tabled a similar amendment last year to which I did not get an adequate response from the Minister. This amendment would reinstate earned income relief into the income tax code from which it was removed some years ago as part of a package of tax reform or so-called simplication of the tax code. The reasons given at the time were most unconvincing and they remain the same.

For those who remember it, and some of the younger Deputies in the House — I do not see any here at the moment——

Surely Deputy Finucane qualifies.

——would not remember it, clearly built into the tax code on earned income relief was a recognition of the two types of income, earned income, such as salary, wages, business profits, professional fees and so on, and unearned income in the form of dividends, rents and so forth. I think this was a very good and worthwhile distinction. Surely everybody in this House would agree that income earned by the sweat of one's brow, whether as an employee or employer is intrinsically of more value than income derived from investments or rents which in many cases were not earned by the person benefiting but perhaps went back a number of generations. Under the rules of the House I am not allowed to propose any increased charge to the taxpayer so it is not in order for me to propose an amendment that would eliminate the reliefs in respect of PAYE and PRSI allowances. However, I would see such a move going hand in hand with the implementation of the proposal before the House. Once again I ask the Minister to reconsider the position and to give serious consideration to my suggestion of earned income relief.

I appreciate that it is not possible to introduce such a major reform in the 1991 Finance Bill but perhaps the Minister would seriously consider doing so in 1992 if he is still Minister for Finance.

The distinction between earned and unearned income was abolished in the Finance Act, 1974, which introduced a new, unified system of personal income taxation and abolished surtax. Earned income relief, in consequence, disappeared under the new scheme. To compensate taxpayers for the abolition of the relief substantial increases in personal allowances were granted. For example, the allowance for a married person went up from £474 in 1973-74, the last year of the old system to £800 in 1974-75. These allowances have, of course, been greatly increased in the intervening years so that now, for example, the married persons allowance is £4,200.

Given that earned income as a concept no longer exists and that its removal was compensated for by increased personal allowances, as I have just outlined, the introduction of a relief based on that concept would be totally inappropriate.

The proposed amendment would cost in the region of £478 million in a full year and that answers the real question but it might not answer it as far as Deputy Garland is concerned.

I am well aware that there was compensation for the elimination of this relief in 1974 and that personal allowances were increased, nevertheless there were no convincing reasons given at the time, nor has the Minister for Finance given any convincing reason, that the differentiation between these two types of income was discontinued. I will, however, withdraw my amendment.

Amendment, by leave, withdrawn.

I move amendment No. 27:

In page 18, between lines 10 and 11, to insert the following:

"14.—Sections 13 to 21 inclusive of the Finance Act, 1987, are hereby repealed.".

Again this is similar to an amendment I tabled last year and it deals with this most iniquitous withholding tax on professional fees. I have recieved many representations in the past couple of years from various professional organisations on this matter. Withholding tax was brought in under the Finance Act, 1987. It was a cynical attempt by the Government to provide a once and for all additional cash flow to the Exchequer. It is probably unconstitutional and I think it should be challenged.

It is a very cynical exercise which impinges very much on professional people and I would remind the Minister that not all professional people are earning large sums of money. Indeed a great many professional people have very high outgoings which all have to be paid and on top of that they have to pay withholding tax. It is a very long time later before they get the inevitable refunds to which they are entitled. Professional people are busy people who are serving the public and they should not have to put up with this extra degree of bureaucracy. The position is now considerably worse in that we now have a system of current year self-assessment so in effect what the Minister is doing is singling out certain taxpayers in certain categories and saying that perhaps it is thought they are earning too much money or they are evading tax — I have seen arguments such as "doctors are fine, they are always evading tax". I do not accept that argument for one minute. Some doctors may be evading tax and human nature being what it is, there are, but I suggest they are a very small minority and the income tax code should not be turned upside down as has been done in this case to deal with the occasional evasion of tax. The laws are there to be enforced. If doctors or any other professional people are evading tax they should be dealt with under the existing laws. They should not be subject to this kind of draconian legislation which is clearly discriminatory. I call on the Minister once again to consider seriously removing these offending sections.

Apart from doing away with the scheme for the withholding of tax from payments for certain professional services, the immediate effect of Deputy Garland's amendment, if passed, would be to freeze all withholding tax now in hands for all time; credit could not be given for withholding tax deducted last year nor could interim refunds be made from now on. I am sure this is not what the Deputy had in mind.

However, even if the amendment was altered to allow credit and interim refunds in respect of tax deducted up to now, it would have a very critical effect on the budget arithmetic. It would reduce the tax yield for the year 1991 by £23 million.

Furthermore, the anti-evasion element in the withholding tax scheme would be removed. It is well recognised — in fact, it has been advocated by the Commission on Taxation — that withholding tax schemes are a very effective means of curbing evasion of tax through the non-declaration of receipts.

It is fair to say that in 1987-88, the year in which the withholding tax system was established, the cash flow position of some taxpayers was adversely affected. However, the withholding tax scheme has now settled down and taxpayers are able to reduce their normal tax bills by the amount of withholding tax paid and not refunded in the previous year.

The existing legislation contains provisions which allow for interim refunds where the tax withheld exceeds the amount of the tax correctly payable. The amount of the tax repaid is that excess, the balance being held as a credit against the tax liability of the following tax year. These refund provisions are operating satisfactorily and claims for interim refunds are given priority so that the turnaround time for claims is kept to the absolute minimum.

It was recognised that the interim refund procedure might not be sufficient, in certain cases, to mitigate the particular hardship suffered in such cases. Provision is, therefore, made for these cases by giving the Revenue Commissioners power to waive the ordinary interim refund conditions in those circumstances.

Last year, in response to the debate I asked the Revenue Commissioners to issue, for the information of the public, a set of guidelines covering the more commonly met circumstances of particular hardship. In December 1990 the commissioners issued a statement of practice outlining a number of situations where they might agree to the waiving of some of the requirements for an interim refund, such as in circumstances in which the ordinary rules relating to an interim refund would operate in such a way as to be unreasonably harsh on a taxpayer. In all the circumstances, I see no reason for accepting the amendment.

Is Deputy Garland as happy as he can be?

Yes. Obviously, I am beating my head against a brick wall and I will withdraw my amendment.

We would not wish a continuation of that exercise on the Deputy.

Amendment, by leave, withdrawn.

Is it agreed to take amendments Nos. 28 and 29 together? Agreed.

I move amendment No. 28:

In page 18, between lines 12 and 13, to insert the following:

"14.—The Finance Act, 1986 is hereby amended—

(a) in section 18—

(i) by the substitution in subsection (2) of `four years' for `five years',

(ii) by the substitution for subsection (3) of the following subsection:

`(3) the relief in respect of the amount subscribed by an individual for any eligible shares shall be given as a tax credit equal to 40 per cent of the amount and references in this Chapter to the amount of relief are references to the amount of that credit. Where the relief cannot be claimed in a year of assessment it may be carried forward to the subsequent year of assessment subject to a maximum carry forward of three years.",

(iii) by the deletion of subsection (4).

(iv) by the substitution for subsection (5) of the following subsection:

`(5) No claim for the relief shall be allowed before the 1st day of July, 1995.',

(v) by the deletion of subsection (6),

(vi) by the substitution of the following subparagraph for subparagraph (i) of paragraph (a) of subsection (7):

`(i) as respect sections 20 and 25 the period beginning on the incorporation of the qualifying sponsoring company on behalf of which the research and development company carries out or intends to carry out the qualifying research and development project and ending on the later of the following dates that is to say (i) the date which is four years after the issue of the shares, and',

(vii) by the deletion of subsection (8), and

(viii) by the substitution for subsection (11) of the following subsection:

`(11) This section only applies where the shares concerned are issued in the year 1991 and any of the three years of assessment following that year.',

(b) in section 19, by the substitution in subsection (1) of £500' for `£200',

(c) in section 20, by the substitution in subsection (3) of `four years' for `five years',

(d) in section 21, by the substitution in subsection (7) of `any of' for `more than 49 per cent, of',

(e) in section 25, by the substitution in subsection (1) for paragraph (b) of the following paragraph:

`(b) in any other case the amount of relief to which he is entitled in respect of those shares shall be reduced by 0.4 times the proportion of the number of shares sold to the total number of shares times the amount invested.',

(f) in section 27, by the deletion of subsection (1), and

(g) in section 30, by the deletion of subsections (1) to (4), inclusive.".

I will desist from the previous speaker's exercise. I tabled this amendment on Committee Stage but, because of the guillotine motion, we did not reach it. It is a fairly substantial amendment and has to be read with Chapter III of the Finance Act, 1986. The object of it was to make risk investment capital available for research and development and to provide a tax concession in relation to it. The perception at the time was that there was not enough research and development moneys in the Irish economy. This matter has been well researched and reported elsewhere and, having regard to the time limit today, I do not propose to go into it in any substantial sense.

If we exclude the multinational Irish companies and some of the bigger indigenous Irish companies, particularly co-operatives, the amount of research and development being undertaken in Ireland is extremely small. In response to a parliamentary question yesterday, the Minister indicated that a substantial amount of direct grant money was being made available for research and development. I put it to the Minister that that is not what I am talking about and in many cases the grants are conditional on the agency in question being satisfied that the project in question is worthy of grant support. This introduces a level of intellectual and organisational prejudices on behalf of the grant lending agency.

If we want to have the benefits of a market system which can produce a spark of an idea which, if it attracts risk capital, can be turned into something practical then we cannot exclusively depend upon State agencies being the determinant factor as to what constitutes the future development of technology. Any person who looks at the curve of technological innovation in State controlled economies will see how restrictive that has been that it has had to the subsequent collapse of those State controlled economies in Central and Eastern Europe. This related in part to the monopolisation of intellectual ideas. If we give all grant giving or investment powers to State agencies a different set of values, prejudices and constraints will be unnecessarily imposed upon our system.

I am trying to refute the point made yesterday by the Minister that there is sufficient investment capital around for research and development. The existence of grants per se is not sufficient and the way in which the grants are administered is fraught with many difficulties, some of which I have alluded to. On top of that, there is the question of the availability of risk capital in the broadest sense — I will refer to this point in greater detail on another occasion. The combination of the curtailment of the business expansion scheme, the effective abolition of NADCORP and the current practice of the banks in relation to any kind of investment which is not asset-backed, has virtually dried up all sources of risk or venture capital in this economy at a time we need to promote growth.

The perception among many customers of the two main banks, AIB and the Bank of Ireland — I do not in any way wish to cause offence to the Ulster Bank — is that the squeeze on their liquidity, particularly if they are small or medium sized enterprises, is caused in part because of the unfavourable experiences both banks have had in markets outside the domestic economy. Indeed, the annual reports of those two banks indicate that the domestic market is fairly buoyant and that the difficulties being experienced by them arise elsewhere. The banks will be at pains to say that this is not the case, they are not squeezing the domestic market to subsidise or cross-subsidise unfavourable experience elsewhere, but the perception by their customers and prospective borrowers of risk capital which is not asset-backed is that this is precisely the case. I put to the Minister, and his advisers in the Department of Finance, that notwithstanding the existence of grants through the mechanism of Eolas, and other finance granting research and development agencies, there is a shortage of venture capital. That shortage of venture capital has been compounded and made more acute as a result of the merger of NADCORP and the curtailment of the business expansion scheme.

Against this background, there is more than ever a need for a system which will allow for venture capital to be attracted into research and development. The Minister may say that the experience with the 1986 Act was not one he was happy with and that it demonstrated that there was very little evidence or demand for this kind of provision. I presume the statistics on the number of people who qualified for this capital are available to the Minister and are probably in single figures. This is probably a very good reason for not going to the source that drafted the first section of the Finance Bill. I am not purporting to rewrite Chapter III in its entirety but, perhaps, we should look at it in a less restrictive way.

The system currently in existence, and which will lapse this year, is one where a person can go into a bookies shop with their investment bet and claim tax relief before the race starts. The system I am proposing is one where a person can go into a bookies shop with their investment and if the horse wins that person can claim tax relief on the winnings. In other words, it is success-led rather than insurance-led. If, for example, Members felt that someone had a great idea and we were prepared to invest £500 each out of our income and we subsequently made £1,000 profit we could not claim tax relief on that investment until such time as the profits had been made. The call-down would not take place until 1995 at the earliest. This, by definition, is a system whereby the Exchequer basically cannot lose. The only person who can lose is the investor who invests in an idea that does not work. If it does not work no profits are generated and if there are no profits generated it cannot be collected. It is success led, success driven, rather than insurance driven.

The proposal has been put to me by people who work in the area of research and development, of trying to promote new technologies, of trying to apply them to areas of product development in the Irish economy and who are responding to all the exhortations that we frequently hear from Minister of State for Technology and Science, from Ministers for Finance and Ministers for Industry and Commerce, people who are not in the risk area of enterprise. These people are exhorting people in that area to be more creative, more inventive and who apply brains and technology to Irish natural resources so that new products can be created and the wealth that will flow from that will be subsequently generated.

The one that is most frequently referred to as being the classic dream story of technology applied to natural resources creating worldwide profits and worldwide markets is Baileys Irish Cream which had its origins in a laboratory somewhere in the middle of London and was rescued just as it was about to be transferred to Ireland, and the rest, as they say, is history. However, for a lot of the creameries around Ireland with the increasing impact of the CAP and the increasing impact of reductions on the traditional use to which milk is put, Baileys Irish Cream or that kind of product has been a lifesaver. That came from a research and development idea.

Regard must be had to investment into research and development. The present economic climate is such that other than the very small number of people who are investing in it and from which the benefits will not flow naturally into the Irish economy, we only have this provision in the 1986 tax code and its general experience has not been satisfactory. I can understand why the Minister for Finance is allowing it to lapse and has no plans to renew it. I concede that it has not been successful in its present form. One might ask, if something that is insurance-led rather than success-led has not succeeded, why should something that is even more risky such as what I am proposing be likely to be more successful. I do not really know. I think the provision should be in there. There is not necessarily any cost to the Exchequer from what is implicit in this. There is absolutely no charge on revenue for the next four years and any charge that might be on revenue would be implicitly a charge that would bring additional revenue to the Exchequer in its wake. The internal sections of the amendment which proceed to reduce the period of relief from five years to four years to raise the threshold minimum amount investment from £200 to £500 are all consequential and self-explanatory. The essence of the scheme is an appeal to the Minister to leave in the Finance Act some provision for tax relief for investment in research and development but to back-load it rather than front-load it which is the way the present system works.

Both these amendments seek a renewal of the scheme of tax relief for investment in research and development, commonly know as the R & D scheme. As the House knows, this scheme expired on 5 April last. Deputy Noonan's amendment now seeks a renewal of the scheme for a period of two years. Deputy Quinn's amendment seeks a renewal of the scheme for a period of three years with certain modifications to the terms of the relief. Briefly, the main elements of his suggested modifications to the scheme are: a reduction in the holding period for shares from five years to four years; relief to be given as a tax credit instead of a deduction from total income, the tax credit to be equivalent to 40 per cent of the amount invested; an increase in the minimum amount that can be invested in any one company from £200 to £500; removal of the facility for withdrawing relief in certain circumstances; the sponsoring company to be precluded from acquiring any share capital of the R & D company; an easement in the clawback provisions where shares are disposed of within the holding period for tax relief; and removal of the special capital gains tax treatment on disposal of shares.

The Deputy's amendment also proposes that no claim for relief will be allowed before July 1995. I am not sure whether that is his intention but, if it is, I doubt very much whether many taxpayers would invest in 1991 to get relief in 1995. Any experience of tax incentive schemes in the last while shows the Irish investors, especially those who are trying to get into the risk area — and I agree with the Deputy's sentiments in relation to risk capital — tend to want to go into areas which are bricks and mortar or asset-backed, and the same philosphy, unfortunately, has permeated the Irish banking system for far too long. They are unlikely to go into a scheme that is even more risky than the one that expired on 5 April.

The scheme that expired on 5 April was wide open for all sorts of tax hedging, tax evasion and tax avoidance and, unfortunately, it had a poor record of take-up. The whole take-up of that scheme from the time it was introduced in the Finance Act 1986 has been extremely small. The total investment to date up to 5 April was £160,000 by 30 investors in six companies.

The attractiveness of the scheme really came into focus when the restrictions in the BES were put in place. Then we saw one scheme that did qualify being advertised as a better scheme to avoid tax than the BES was. Here is a scheme that was on the books from 1986 to 5 April 1991 and that was the only attraction it had. The chances of attracting with a less attractive scheme as is proposed in these amendments is, in my view, extremely poor.

However, there has been a major increase in the whole area of IDA investment in R & D. In 1987, for instance, the Government allocated £3 million to a budget for science and technology. That budget now stands at £25 million and it is involved in quite a number of areas of research and development both at institutional level and at industrial level. We have those two areas of direct help and grant aid to people in R & D. I subscribe to the sentiments of Deputy Quinn about the need for producing new products in Ireland for the future because of the changing market place. However, there has always been extreme reluctance, despite the attractive schemes that were there. Also in the BES scheme, which has been remodelled, there is an activity that qualifies for tax relief in that companies can raise £500,000 for research and development. Judging by the amount of investment that went into the old scheme that expired on 5 April which is the subject of these amendments — only £160,000 over a five year period — it would seem that in all the areas I have mentioned, the IDA, the science and technology budgets and the BES scheme, the matter is well and truly catered for.

We have had the experience where people who wanted to invest, first of all ploughed their money into areas where there were guarantees of one kind or another, where the risk was taken out and there was asset-backing of one kind or another. That is not in the best interests of the economy and consequently I took the actions I did in relation to the BES. The BES scheme provides more than adequate facilities for the level of assistance that was being looked for. To go back to the scheme that was there would run contrary to what we are trying to do in taking out the worst abuses of the scheme. The Deputy's points are well and truly catered for under the existing structure both in the grants area and in the areas of the BES itself.

(Limerick East): I notice that the Minister spoke to my amendment No. 29 as well. If it facilitates the House we will take them together.

That has been agreed.

(Limerick East): For some time a difficulty has obtained regarding the provision of venture capital. A number of efforts were made to solve the problem and the National Development Corporation, NADCORP, were set up to fill a gap in the provision of venture capital for worthy enterprises who would not get venture capital from commercial sources. The Minister for Industry and Commerce has now taken a decision to merge NADCORP and their functions with the IDA, and it remains to be seen whether in the much larger organisation they will have any clout, whether their function is being progressed or whether they will be a strong department of the IDA actively involved in the provision of venture capital. Sometimes if one wants to abolish an agency it is politically easier to do it by merging them with a bigger one. I am not sure what the intention is or whether NADCORP will carry out any significant function in future.

The importance of research and development is recognised by all. Any modern industrial economy must have R & D and it has been industrial policy for many years now when attracting multi-nationals to this country to favour particularly and grant aid to a greater degree those multinationals who put in R & D facilities in association with assembly plants which tend to be the majority activity in the country. I have no quarrel with Deputy Quinn's proposal or the Minister's reply in so far as we are all agreed on the need for the provision of venture capital for R & D whether that is being done by indigenous companies or by companies coming into the State.

The banks have changed policy. I was talking to a bank manager last Wednesday and he said it was the policy of the bank now as far as possible to develop their property portfolio and the mortgage end. He put it very simply. He said: "If we got somebody in, a teacher, civil servant, garda, somebody in a permanent job, we arrange the mortgage terms and the contract runs for 20 or 25 years. We get the interest for 20 or 25 years, we have the asset backing of the house which is the first security, but the security on the repayment is the fact that the person is in a permanent pensionable job, and can meet the payments. We have the first call on the asset and we have the first call on the person's income." He went on to say that if they succeeded in giving the person the kind of mortgage we were talking about this morning there would be an insurance premium as well, then there would be the mortgage protection policy and they would get a little from that. He put it bluntly; he said the bank wins because it is getting income from three sources. Then he suggested I contrast that with somebody who wants to set up a small business employing himself, maybe a member of the family and two more people and is looking for £30,000, a sum roughly equivalent to the mortgage he can afford. He told me that was a nuisance, they would have to have somebody sitting on top of that for the five, six or seven years watching all the time to see if the repayments were coming in, whether the cash flow was there to service that loan or whether the enterprise would collapse. He said the monitoring for the amount of money lent for that purpose is not worth while when it is contrasted with the ease of repayment on a mortgage once it is set up. The other side is if that enterprise fails the person attempting it is going to be blacklisted everywhere and will never get another loan. He said we could not have employment in the country or develop the indigenous base for industry unless there is away which allows venture capital to be delivered to genuine investors in the face of the risk that they will go under. In other investment policy cultures, particularly in the US and within the US particularly along the west coast, failure was never stigmatised in the way it is stigmatised here. Many of the case studies of leading entrepreneurs in places like Silicon Valley reveal that the first business set up maybe in a garage, usually went under, went into liquidation and the entrepreneur lost money, but the stigmatisation and blacklisting across the financial institutions does not take place.

There is a serious problem in this country in the provision of venture capital. It is very hard to get a bank in the first instance to lend small amounts on the basis of a good business idea and, secondly, it is very hard to get them to sustain their support over the period of set-up and marketing of the new product. Thirdly, it is virtually impossible for anybody who fails to get a second chance not only from the bank involved but from any of the other institutions all of whom — despite data protection legislation we passed here in the Dáil — seem to have automatic access to the way each credit rate their customers. It is a problem. The Minister may be right. His reply on this provision was not taken up to any great extent with anything which seemed to create jobs and there seems to be an incipient movement to abuse the provision for purposes for which it was never intended. Probably my solution to extend it for a further two years does not solve the problem I have just outlined.

Let me say in a totally non-contentious manner and a non-political way, there is a problem in this area and I am not too sure what the solution is. People in this House know that if we were to line up on the basis of who is in favour of privatisation and who is not, I would be one of the people tending towards privatisation and I would have nominated the Industrial Credit Corporation as one of the prime candidates for privatisation after the Sugar Company and Irish Life. I am beginning to have second thoughts now because it is effectively the only State bank and it seems to me that it may have a role in the provision of venture capital. As we emphasise job creation it is well worth looking at an alternative way of refocusing, say, ICC.

Fóir Teoranta have gone and they were a rescue bank. NADCORP have gone. They used to provide venture capital and their role, their policy function has been transferred to the IDA and it remains to be seen whether they will keep it. They had the right historically to take out shares anyway and they did not do it. This provision is now gone. The banks' policy has changed, and they make no secret of it. They tell you quite clearly that if they can develop their mortgage market in Ireland they will do it because it carries more advantage and less risk than lending into risky business.

I appreciate what the Minister has said. When the budget for R and D was brought in under the new Minister of State at the Department of Industry and Commerce in 1987 it stated at £3 million and has risen now to £25 million. That is very welcome. I think we can distinguish between different types of research. There is a type of blue sky research where people explore the outer regions of science and that research is very hard to quantify in economic pay off. Blue sky research is better left to the third level institutions and to the academies because it has no place anywhere near the factory floor.

Another type of research which I might call applied research is the industrial application of the fruits of other people's discoveries to the development of new products. That kind of research should be encouraged. Across the spectrum of industrial policies which we apply there is a gap and it is not being filled by the grant schemes available through the Department of Industry and Commerce and the agencies.

I will not be pushing the amendment because I accept what the Minister said. I am advocating another solution to the problem I have outlined, but I would like him to acknowledge that there is a problem and to look at it with the resources available to him. Something is missing from our industrial development policy and it is very important to put it in place.

I appreciate the Minister's response and his assertion that the BES effectively is an alternative route or source for potential funding. The Minister should recognise at this stage that the BES, for whatever reason, has been tainted with an asset backed culture. The changes proposed in the BES are attempting to remove that but, quite frankly, what we are witnessing is the slow death of the BES as a possible source of investment.

The number of people in this economy who are capable of making substantial investments in BES type ventures is limited. The number of people who have that amount of disposable income, according to the PAYE statistics provided by the Revenue Commissioners, is very small. Most of those who were able to raise money in the last two to three years have probably done so and the ceiling that has been built into the Bill before us means that the BES as an attractive new area for financial activity, has substantially peaked and will probably decline. It was perceived and unashamedly touted as an asset backed system for investment.

I accept that we will not renew the research and development provisions because they did not work, that the amount attracted for investment was miniscule and that the record is not good. To rely exclusively on the research and development grant from the Minister of State with responsibility for Science and Technology and to say investment opportunities are available under the BES is simply not enough.

The Minister claims he has no responsibility as Minister for Finance for industrial policy, but the Government have, and this is just taking away another component of it. If you remove any kind of explicit provision for tax incentives for research and development in the Irish economy and do not put anything in its place, other than a well intentioned reference to the BES by the Minister for Finance, then we are going backwards. The charge that can and will be made politically is that this Government have no coherent industrial policy. I do not for one moment suggest that Chapter III of the 1986 Act was a satisfactory one, that is the reason I propose to change it. I have no illusions about the amount of capital that is waiting to be invested in this area; it is actually very limited. The approach was made to me by people within my own party who are in this area. They drew to my attention the fact that this is closing in and that this is limited territory.

We agree there is a need for an innovative industrial policy. There is nobody out there who will give us a living. The late Seán Lemass used to say that nobody owed us a living, we would have to earn it ourselves. I will not press the point but I put the Minister and the relevant Departments on notice that because this provision has lapsed and because of the Minister's refusal to take on board any kind of re-enactment or amended form of it, it sends out a very serious signal. This is not the last the Minister will have heard of this issue. From an industrial policy point of view, the Government will have to respond to it. As he was Minister for Industry and Commerce, the Minister for Finance, Deputy Reynolds, is much more familiar with that territory than I. I can understand why he might have reservations about it but reliance exclusively on the BES per se is not sufficient or satisfactory.

Amendment, by leave, withdrawn.
Amendment No. 29 not moved.

I move amendment No. 30:

In page 18, between lines 12 and 13, to insert the following:

"14—(1) In this section `tax' means income tax or corporation tax as the case may be.

(2) (a) This section applies to a gift of money which, on or after 6th April, 1991, is made to the Minister for the benefit of the youth service and is not deductible in computing for the purpose of tax the profits or gains of a trade or profession or is not income to which the provisions of section 439 of the Income Tax Act, 1967, apply.

(b) The Revenue Commissioners may consult with the Minister in relation to any question which may arise in connection with paragraph (a).

(3) Where a person proves that he has made a gift to which this section applies and claims relief from tax by reference thereto, the provisions of subsection (4) or, as the case may be, subsection (5) shall apply:

Provided that, in determining the net amount of the gift for the purposes of those subsections, the amount or value of any consideration received by the said person as a result of making the gift, whether received directly or indirectly from the youth service or any other person, shall be deducted from the amount of the gift.

(4) For the purposes of income tax for the year of assessment in which a person makes a gift to which this section applies, the net amount thereof shall, subject to subsection (5), be deducted from or set off against any income of the person chargeable to income tax for that year and tax shall, where necessary, be discharged or repaid accordingly; and the total income of the person, or where the person is a wife whose husband is assessed to income tax in accordance with the provisions of section 194 (inserted by the Finance Act, 1980) of the Income Tax Act, 1967, the total income of the husband shall be calculated accordingly:

Provided that the relief under this section shall not be given to a person for a year of assessment—

(a) if the net amount of the gift (or the aggregate of the net amount of gifts) made by him in that year, being a gift or gifts, as the case may be, to which this section applies does not exceed £100, or

(b) the extent to which the net amount of the gift (or the aggregate of the net amounts of gifts) made by him in that year, being a gift or gifts, as the case may be, to which this section applies, exceeds £10,000.

(5) Where a gift to which this section applies is made by a company—

(a) the net amount thereof shall, for the purposes of corporation tax, be deemed to be a loss incurred by the company in a separate trade in the accounting period of the company in which the gift is made, and

(b) the reference in the provision to subsection (4) to a year of assessment shall be construed as a reference to an accounting period of the company.

(6) This section, in so far as it relates to income tax and corporation tax, shall be construed together with the Income Tax Acts and the Corporation Tax Acts, respectively.".

The intention of this amendment is to provide extra funding for youth services and to encourage the public at large to make contributions towards youth services. This year youth service funding has been drastically reduced. A number of organisations will have to let staff go. Already, 35 staff have been let go by a number of organisations and by the end of the year it is expected that 50 will be let go because of reduced funding. Very important programmes which were developed over the past three years will now have to be curtailed and in some cases abandoned altogether. The Minister will be aware that youth services fill the gap where our education system fails and provide very important social and physical education for a large number of children.

As I have said youth services are starved of funding. If this amendment is accepted it would result in very little cost to the State. It should be seen as an investment in children's future, not as a cost; it would encourage people to invest and take an interest in youth activities where their children could be involved and it would combat the shortage of funds because of the cutbacks by the Government and the Department of Education. I earnestly request the Minister to consider this amendment favourably. A similar provision was introduced in the budget by John Major in England and it has worked very successfully. A large amount of revenue for youth services has been provided in this way.

As regards costing, a similar provision was included in the 1986 Act as regards grants for sports and organisations but, I understand, it was never fully taken up or exploited. This amendment would be warmly welcomed by youth organisations. If accepted, it will not be abused but will be used very profitably for the development of so many of our young people.

I accept the sentiments of this amendment. There seems to be a contradition in Deputy Deenihan's argument: on the one hand he said it will cost the Exchequer very little and on the other he said it would generate considerable revenue for youth services. If it generates considerable revenue for the youth services it will cost the Exchequer a large amount of money because many people will claim the deduction.

Not really.

The actual cost will depend on how many people avail of it. If, as Deputy Deenihan predicts — and I think he is correct — a large number of people avail of it, then the cost to the Exchequer would be considerable.

In subsection (3) of the amendment there is a proviso to prevent tax avoidance. Time does not allow me to go into this in detail but I would advise Deputy Deenihan — and I hope he will accept my advice as bona fide — that there is substantial room for tax avoidance within that proviso; it is by no means watertight. If the youth service is to be supported the proper way to do so is by direct Exchequer funding. At present we use the system of tax deductions to direct money into particular areas of the economy. The best way to deal with youth services is by direct Exchequer funding rather than tax deductions. If we are to use the system of tax allowances and tax deductions to fund such activities I can think of many more deserving cases than the youth service.

They will love to hear that.

I am not afraid, that is my view.

Debate adjourned.