Finance Bill, 1992: Report Stage.

Mr. Noonan

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

In page 17, between lines 15 and 16, to insert the following:

"(1) As respects the year of assessment 1994-95 and subsequent years not more than 20 per cent. of all taxpayers shall pay tax at the higher rate."

This amendment requires the Minister for Finance to take steps in the next budget to ensure that from the fiscal year 1994-95, and subsequent years, not more than 20 per cent of taxpayers would pay tax at the higher rate of tax; in other words, that 80 per cent of taxpayers would pay tax at the standard rate or at a lower rate.

I made this point previously on Committee Stage and have re-submitted the amendment to give the Minister an opportunity to respond today in the House.

There has been an over-concentration of Government time and attention on the rates of tax. For a long time now an almost indeological position has been advanced by the Government, particularly since the Progressive Democrats became part of the Administration in 1989, resulting in an over-concentration on amending the rates of tax, disregarding the amount of tax which taxpayers pay and the income on which they pay tax at varying rates.

I would like the Minister, if he is still around for next year's budget, to refocus his attention away from the marginal rates of tax to the amount of tax being paid and the level of income at which it is paid. At present in relation to personal allowances for individuals a single person becomes liable for income tax at something over £60 while, if we look at the exemption limits, a person becomes liable for tax at £70. The point at which people enter the tax net is far too low. We have the ludicrous situation where married couples who are well below the poverty line and qualify for family income supplement from the Department of Social Welfare are paying tax on their income to the Revenue Commissioners.

Another major problem in the tax system is that people on low incomes move very quickly to a rate of 27 per cent plus full PRSI. Therefore the effective rate is 34.75 per cent for a single person with an income of £70 or more. Not only is the entry point in relation to income too low but also the rate at which one enters the tax code is far too high. I have tabled a second amendment, to which I will refer in passing, which suggests that there should be an introductory rate of tax of 15 per cent, initially for a small tranche of income, say, £500 for a single person and £1,000 for a married person with a view to lowering this hurdle. If a person enters the tax net at a low level of income they should also enter at a low rate of tax. A low introductory rate of 15 per cent would be quite helpful. The Minister will recall that in the recent budget in the United Kingdom, just before the election, the Chancellor of the Exchequer, Mr. Norman Lamont, introduced an introductory rate of tax of 20 per cent.

My third objection to the present income tax system, and the third area that I would like the Minister to examine between now and the next budget, is that people on moderate incomes jump from the standard rate to the higher rate of tax, now 48 per cent. While this is onerous for single persons, it is also onerous for married couples who are able to avail of double allowances and double band allocations. According to the Minister's own figures 37.5 per cent of all taxpayers now pay tax at the higher rate.

Originally when income tax was introduced it was levied at a low percentage — in effect, there was a flat rate of tax. The concept of a higher rate of tax was introduced to impose a surtax on the wealthy so that those on high incomes would pay something in addition but it was always intended that the high rate of tax would act as a kind of equaliser so that the enormously wealthy would not pay a small amount of tax on huge incomes. It was never intended that the high rate of tax would apply for the generality of taxpayers.

I am not sure what percentage of taxpayers should be liable to the higher rate; some people would argue that it should be as low as 5 per cent but that the high rate should be as high as 60 per cent. There are arguments that one could make but as an initial step, up to the mid-nineties, if only 20 per cent of taxpayers paid tax at rates about the standard rate we would be making progress. The central point I am making is that the focus of attention of the Government must be moved from an over-concentration on the rates of tax towards the actual amounts of tax paid by people and the pressure points to which I have referred. Three of these can be easily identified.

The second major point that I would like to make on this issue is that Government spokespersons, in particular members of the smaller party, the Progressive Democrats, have made extravagant claims that there is a major connection between the marginal rates of tax and the level of jobs in the country. They talk about the tax wedge as if it were the only problem in the labour market. They have deliberately put forward the argument that if one could only narrow the tax wedge jobs would be created, literally by the thousand, but when they talk about the tax wedge they tend to ignore many of the factors which contribute to the tax wedge and simply say that it is the marginal rates of tax which are the main plank which causes the large tax wedge. Not only is the point being made incorrect but it is also propagandistic. Some propaganda is harmless but this is harmful because it has convinced many people that there is a quick fix to unemployment, that if we can get the rates of tax down to a certain level, hey presto, everything will be all right.

I would ask the House to recall that in 1981 when Deputy Garret FitzGerald's first Administration took power the high rate of income tax was 65 per cent. When we left power this had dropped nine points to 56 per cent. Since 1987 it has dropped a further eight points to 48 per cent. Therefore the top rate of tax has been brought down by 17 points during the past ten years. The other phenomenon is that the past ten years has been the decade of the unemployed and we have reached a situation where unemployment is at its highest since the foundation of the State.

There is no identifiable connection between the top rate of tax and the level of employment, furthermore the advocates of low marginal rates of tax seem to have forgotten that during our time in office the top rate was brought down nine points while during the term of office of Fianna Fáil and the Progressive Democrats it has come down another eight points with the result that there has been a drop of 17 points. I have been driven to the conclusion that many of the people who are arguing that there is a connection between the top rate of tax and employment are not being sincere, that they are putting a respectable cloak around a greedy demand and do not have the neck to get up and say that they have wealthy supporters and want them to pay tax at a low rate. They are cloaking it in this respectable garment and saying, "this is not just for the people involved at all; this is going to have a major effect on the economy and everybody will go back to work".

In relation to the standard rate of tax, something similar has happened. In 1987, the standard rate of tax was 35 per cent but it is now 27 per cent, a drop of eight points. Yet, look at what has happened since 1987 in relation to employment and the labour force; if there is a connection between the standard rate of tax and the creation of jobs it is minor, while many of the claims being made are extravagant. I know that the Minister agrees with many of my arguments and perhaps he will put my next argument to some of his colleagues in Government. If the marginal rate of tax is to provide the quick fix which its advocates demand, how in the name of reason does one expect it will only happen when the destination is reached? If dropping the top rate by 17 per cent and the standard rate by 8 per cent has not had an identifiable effect on the rate of job creation, how can anyone argue if it is dropped to 25 per cent on the standard rate and 44 per cent on the higher rate in next year's budget that suddenly a magic button will be pressed and jobs will flow? What is so special about 25 per cent and 44 per cent? This theory of so-called tax reform, by concentrating on the marginal rates, does not stand up to any serious analysis. The problems in regard to income tax are as I outlined. First, people pay too much and there is little scope to relieve their burden unless the base of taxation is extended, because 85 per cent of all income tax services the national debt. The country is being run on the proceeds of VAT, excise duty, corporation tax and other levies.

We know the commitments which have been made in connection with the Maastricht Treaty and we know what the Government will have to do when it is passed on 18 June. I sincerely hope it will be passed with a large majority. We know there is a commitment to reduce the debt as a percentage of GNP, which is an easier thing to understand, down to 60 per cent. The national debt is over £27 billion at present; it must come down as it is 107 per cent of GNP. Over the next six years it will have to be reduced to 60 per cent, which is a tall order. The attempt to do that, even against the background of strong growth through the decade, will necessitate a series of deflationary type budgets. There is very little room for expansion in fiscal policies when faced with that commitment by the Government.

The Government could do something to relieve the pressure; they could outline a programme for the decade of the sale of State assets and the dedication of those assets to the reduction of the debt. They would do a service to State companies who have done so much for this country in terms of economic growth, expansion and employment. They would do them a favour because the Government must come clean with State companies and tell them that they will not in a position to provide them with the capital necessary for their expansion as they have made commitments in Europe which will not allow them to give them the necessary capital injections. We must be straight with State companies and tell them that if they need large tranches of capital — and companies like Aer Lingus certainly do — it will have to be found in the private market. There will have to be a restructing of companies so that they can avail of that and an offer of shares of the public to provide extra capital. That would take some of the pressure off the Government. If we proceed as we are and fulfil the commitment of the Government for a balanced current budget and over the next four years bring the debt as a percentage of GNP down to 60 per cent, it will mean a very tight fiscal position and presages deflationary budgets with very little scope to relieve the overall burden of taxation. As I have said, this can only come about as a result of the widening of the base or a reduction in the debt, with a consequent reduction on servicing costs.

Poor people who cannot afford to live are in the tax net and they should be taken out of it. That is the first priority. I do not make any apology for standing up for the poorest and the lowest paid. That is where the first money should be put if the Government have any leeway. Help the needy, not the greedy. I cannot understand why people should have to pay tax and at the same time be in receipt of family income supplement from the Department of Social Welfare. The second point is that the rate at which people enter the tax net is far too high. I suggest an introductory rate as is the case in the United Kingdom. As the late John Kelly said, we are not apeing the British, because this proposal was made 12 months ago by the Fine Gael Party before it was announced by the Chancellor of the Exchequer in the United Kingdom in his last budget. The third point is that there should be an extension of the standard rate of tax so that the higher rate applies only to those on higher incomes and not to those earning modest salaries.

These amendments show the priorities of my party in relation to income tax. I know that I have aired all these views in the special committee but I wanted an opportunity to air them in this House.

Mr. Quinn

I do not propose to take as much time as Deputy Noonan in respect of this amendment. However, I invite the Minister in his response to set out clearly his and the Government's view in fiscal terms over the next few years in regard to taxation. If our economy is to move in this difficult period with any degree of success we will have to eliminate in so far as we can the areas of uncertainty and doubt over which we as a nation, have some control. As Deputy Noonan indicated, the Government have already committed themselves to quite a number of macro constraints and objectives, all of which curtail room for manoeuvre. I do not have a problem with some or the constraints built into the Maastricht Treaty in terms of European Monetary Union, they are necessary, and if we can maintain the discipline imposed on us we will be in a position to reap considerable rewards, which we have not been able to do since 1922. That is the prospect, but it will be difficult and there will undoubtedly be people who will need some degree of support in regional and economic terms.

From a business perspective a number of people have said to me over the last few weeks in relation to the Finance Bill that the Government are compounding the difficulties of business by introducing a degree of uncertainty or creating a climate within which people feel they cannot trust the Government to be consistent from one year to another. Therefore, the Government would not be showing their hand or abdicating their responsibility by indicating their policy in the general area of taxation. Simply saying that the Government's taxation policy is to reduce the rate to 40 per cent and 25 per cent respectively is simplistic and does not address many of the problems which have already been identified. There is now a growing body of economic analysis which shows that lowering the personal income tax rate per se will not generate employment or address our labour market problem, which will continue for the rest of this decade. From the point of view of planning generally there is an opportunity — and indeed an obligation — for the Government to outline what they would like to do in terms of income tax policy.

I am not asking the Government to say what they are going to do, because obviously what they will do will be determined by developments that unfold from year to year. The Government should be able to give some indication of an overall objective that goes beyond the simplistic figures laid down by the Progressive Democrats in the Programme for Government and they should do so for reasons stated by Deputy Noonan and very clearly articulated and argued by a large number of economists.

In response to this first amendment I shall repeat the point I made at the special committee. Everybody should pay some form of income tax. Of course, everyone who purchases any commodity in this country at the moment pays tax. To create areas that are exempt from the payment of tax is to reinforce the culture of a black economy. I know the Minister's arguments because he has stated them before, that a low introductory tax rate is a very costly provision when it is taken right through the bands. I accept that, and compensation has to be made accordingly. The end result may very well be a slightly higher top band to compensate for the fact that the entry of a lower band affects the total income take.

If we want to create more jobs for semi-skilled people on low incomes — and that is where a lot of the problem exists at present, and all of the labour market forecasts continue to project that the problem will be compounded in the short to medium term over the next five years — we have to make it attractive for those people to want to work and to take up the kind of employment that will be available. The threshold for coming off social welfare payments, with all of the additional concessions associated with unemployment, and moving into a tax regime must be lowered. On entry into the tax regime at present one is not taxed at 27 per cent but effectively pays tax at a rate in the mid-thirties when the PRSI deductions are added. In order to lower the threshold a reduced band of introductory income tax should be introduced.

The Minister would do himself and the country a great service if he were to outline today, Tuesday or as early as possible an income tax strategy and thus reintroduce a degree of certainty that has, unfortunately, been lost. I do not fully understand the reasons for the lack of certainty; perhaps the internal political turmoil of the past nine months within the Coalition Government has caused Government members to change their minds. Elements in the Finance Bill have needlessly caused a great deal of concern and uncertainty. I am glad that that uncertainty has been removed by some of the amendments tabled by the Minister. The House will deal with those amendments later on so it would not be in order for me to refer to them now.

Increasingly we will have little or no control over the macro factors of our economy because of the move towards the Single Market. We all recognise that. We also recognise that we will receive enormous benefit from moving into the Single Market. One of the areas over which we have control is forward planning. Frankly, I do not consider that the Government have taken the best opportunity available to reassure decision-makers, both private and corporate. On the contrary, that, as a result the political instability within the Coalition Government has been compounded. The amendment now being debated and the strategy proposed behind it would reintroduce a degree of certainty that is very necessary.

Mr. Rabbitte

A good deal has been said in private about the success of the special committee experiment. Generally speaking, it was an interesting innovation and was probably worthwhile. However, I feel that we failed singularly to make any impression on the Minister in terms of the direction of tax reform and in terms of the kind of structure that would be consistent with genuine reform. I presume that the reasons for that are political — that the Minister finds himself tied into an arrangement with the Progressive Democrats that compels him to move in a direction in which I personally think he does not wish to move.

The net result is that the direction of tax reform at the moment disproportionately benefits the high income earner. There is no doubt about that. Deputy Noonan dealt with that point at some length but he did not refer to any of the academic research to which he could have drawn attention. Research carried out by academics shows very clearly that the thrust of the reform has been to the benefit of high income earners. Recently Deputy Dr. Garret FitzGerald wrote an article in which he stated that the high income earners were piggybacking on the low income group. That is effectively what is happening.

At the special committee I gave the example of a couple who earned an income of £10,000 and benefited to the tune of £100 as compared to the couple who earned £75,000 and benefited to the tune of £2,600. They are really not the only benefits. At the end of the day the obsession with tax rates has little enough to do with genuine tax reform.

I have some reservations about Deputy Noonan's amendment. It is my view that to take a particular figure and say that that is the number of people who will pay tax at the marginal rate is a very arbitrary measure. I should prefer the construction of a tax structure from the bottom up. That would be better than deciding that for ever more only 20 per cent of taxpayers would pay at the marginal rate. There is a compelling argument for moving in the direction I suggest.

The view that Irish tax rates are completely out of line is not, of course, correct, as is the case with so many other discoveries made and dealt with at the special committee. To illustrate my point, I shall compare the top tax rate in Ireland with that of some of our European neighbours. In Denmark the top tax rate is 68 per cent; in Holland, 60 per cent; in Finland, 59 per cent; in Norway, 58 per cent; France, 56 per cent; Belgium, 55 per cent; Sweden, 54 per cent; Germany, 53 per cent; Luxembourg, 53 per cent; Ireland, 52 per cent. Before the Finance Bill Ireland ranked at tenth place in that table.

Mr. Hilliard

What are the band rates in each country? I think that is very relevant to the figures that the Deputy has quoted.

Mr. Rabbitte

It is.

An Ceann Comhairle

For the record of the House, perhaps the Deputy might give the source of his quotation.

Mr. Rabbitte

The table I quoted was taken from an article that appeared in The Irish Times of 13 December 1991, which article referred to the publication by PA Consultants about international pay levels.

Mr. Hilliard

Does the article quote the bands prior to going into the——

An Ceann Comhairle

Deputy Hilliard will have his opportunity to intervene in the debate. In the meantime let us hear Deputy Rabbitte without interruption.

Mr. Rabbitte

The detail of the report gives that kind of information and gives information about reliefs, allowances and so on, which differ. The point I am making is that in the table giving top tax rates from which I quoted, Ireland stood at tenth place and it now takes fourteenth place.

In indirect reply to the question asked by Deputy Hilliard, it is true that one has to be on the following incomes before becoming liable for the marginal rate in the countries mentioned: In Germany, for example, the relevant income would be £41,000, in Finland, £38,000, in the United Kingdom, £23,700 and in Denmark, £19,751.

Deputy Noonan has suggested essentially a three-tier structure, an introductory tax rate of 15 per cent and so on. I argued at Special Committee for a three-tier structure but a three-tier structure that was somewhat different. I put figures on the tax rates. Quite frankly, I do not believe that the figures are as crucial as are other considerations, for example, the level of exemption before one becomes liable to tax and the width of the rate bands about which Deputy Hilliard talks. How long should one pay the standard rate of income tax before becoming liable to the marginal rate? In that case I suggested there ought to be tax exemption in the case of any person earning less than £100 per week. I contend that is very reasonable. When Deputy Noonan talks about taking the poor out of the tax net — notwithstanding the existence of allowances — I contend that anybody with an income of less than £100 is caught in that low income poverty trap and there is a compelling argument to be advanced for their being removed from it.

I then argued for a 25 per cent rate — quite frankly I do not care whether it is 27 per cent of 28 per cent — on the next £8,500 of income and the next band of £13,000. In other words, before becoming liable to the top rate of income tax a single person would be in receipt of £28,500. In addition, they would have their tax-free allowance of £2,050, their PAYE allowance of £800, bringing the figure up to £30,350. I consider that compares very well with the league table I have just read out. I do not apologise to anybody paying a top rate of income tax of the order of 55 per cent, 60 per cent, or whatever, if they are earning in excess of that figure. It is perfectly equitable. I do not think anybody can come into this House arguing for tax relief for the poor or middle earners — who are especially crucified under the Progressive Democrats' approach — and not say where the money will be found. Anybody who is in that league of earning ought to be liable to income tax of the order of 55 per cent to 60 per cent; a few percentage points do not matter one way or the other. I do not make any apologies for it.

Therefore, my difference with the amendment is that I consider the structure should be built from the bottom up. But we cannot continue with this "mantraesque" repetition of: we must get two tax rates of 25 per cent and 40 per cent. As Deputy Noonan pointed out, that is a populist catchcry as far as the people out there are concerned. All of a sudden people become convinced and believe that our tax rates have some integral relationship to the question of job creation.

I do not want to cover the ground already covered but experience over the last decade has shown that there may indeed be a relationship, but it is not the kind of dynamic relationship being argued for by people who have this obsession with 25 per cent and 40 per cent. Of course it is true that this benefits the rich. I have some reservations about the Fine Gael Finance spokesperson going to his annual conference tonight with an old slogan of The Workers' Party of the early eighties: "Tax the greedy and not the needy", but we will talk about that after the conference. He is right: the Progressive Democrats were not founded merely because of the internal difficulties in Fianna Fáil. They were founded also because there was a band of professionals, especially in this city, who had been arguing for a very long time that we must get the tax rates down, that they are a disincentive to employment and so on and, as a result, there is a band of high earners across this city and country doing exceptionally well from the drift in tax reform as constituted by those two bands. They are doing exceptionally well from it. As Deputy Garret FitzGerald put it, the high income earners are being piggy-backed by the middle and low income earners in order to pay for it. I do not think that is tax reform.

I have given the Minister due recognition for the broadening of the tax base, and for closing off certain reliefs and shelters which should not have been there but which were incorporated in this Bill as initiated. Neither proposal is as far as I would like to go. Certainly I admit that there were not insignificant concessions to that demand from the tax lobby for a very long time. I read into the record of the Special Committee some comment on this, that it is extraordinary that more than ten years after the tax uprising we have made such little progress. There were Government backbenchers at that committee — Deputy Martin for one comes to mind — who expressed amazement at some of the things they learned during the course of that Select Committee's consideration of this Bill. For example, Deputy Martin was amazed to find that certain areas of economic activity had been free from income tax or, effectively, any kind of tax over that decade.

On Second Stage the Minister said he did not know how any Minister for Finance could defend what was going on and that he would not defend it. But it has been a feature of our hidden subsidisation, for example, of the corporate sector over the last 15 years and it cannot be justified any longer. If we are going to have to live with — as the opinion polls would suggest we are — a post-Maastricht scenario of the financial disciplines being imposed, the big one for us is the relationship of the national debt to gross national product. If we are to meet that 60 per cent target, then it seems to me we are heading into hairshirt circumstances for the next five or six years. There will be stringent disciplines in terms of public spending and in terms of the impact that cuts in public spending will have on the poorer sections of the community. At least let us put in place a tax code that is equitable, fair and that has regard to capacity to pay.

The Minister has committed himself to requiring tax to be paid on all income irrespective of its source. That principle is crucial to this. I do not believe that the provisions of this Bill, when enacted, will necessarily bring that about, but there are certainly reforming elements of the Bill which should be welcomed. In the personal tax code, we must get off this obsession with the twin rates of 25 per cent and 40 per cent as if they per se constituted tax reform and ought to be welcomed. They are not to be welcomed of themselves.

Dr. G. FitzGerald

I want to start by making myself thoroughly unpopular by pointing out that there are no press present here and that the Committee Stage of this Bill, which has been of great importance, has had virtually no coverage from the press. The valuable — I will not say "experiment"— change in practice in taking the Bill elsewhere, so as to improve the work of this House, has led to the minimal publicity usually given to a Committee Stage of a Bill by the press disappearing altogether. There was a brief report the first day which said, in two paragraphs, what the Minister has said and nothing else. We have seen nothing since, even in a paper of record like The Irish Times, for which I have the highest regard. It is a matter of concern that, when issues of this kind are discussed, there is total silence. There was page after page, much of it totally repetitive, about Bishop Casey and total silence on the crucial issues that effect the future of this country being debated in this House on this Finance Bill which contain very important material indeed. I want to protest about that.

I want now to deal with the issues before us and remark that the press are not the only absentees here. The people responsible for the mess of our income tax code are also absent, the Progressive Democrats; I do not know what they did at the Special Committee but they are not here at present. A debate without them on this issue is like Hamlet without the Prince.

I am now addressing the Minister. If I might put it this way, I believe that perhaps the Minister is more sympathetic to the views now being expressed than was his predecessor in office. Indeed it is one of the great paradoxes of recent Irish politics that the present Taoiseach, the man who seemed to want to take on the Progressive Democrats, who regarded them as an enemy — involved in a temporary little experiment — was the man who caved in totally to them over a number of years on their tax proposals, with all the damage this has done to the balance of social justice in this State.

The Minister for Finance may adopt a different approach when he flexes his muscles. We are encouraging him to do that next year; apparently he has not been able to do it this year. As Deputy Noonan rightly said, we are dealing here with the consequences of self-serving right wing propaganda.

I wish to refer to the origins of the problems with which we are faced. When we went into Government ten years ago the country was in an appalling mess because the previous Government had increased public spending in volume terms by 50 per cent. We had to take drastic action to rectify this. This involved cutting capital and current spending and raising taxes. To avoid causing excessive damage to the economy, and various aspects of the public services, we bridged some of the gaps left by the previous Government with increased taxes. In doing this, we sought to achieve as just a balance as possible and we increased the top rate of tax from 60 per cent to 65 per cent. We found that that level of tax, and the level of tax in Britain, would lead to problems with outflows of capital. We had to make a slight adjustment and the rate was brought down to 58 per cent. The position seemed to be tolerable at that level as regards capital flows. That was the most we could do at the top level without causing serious damage in terms of capital flows. Therefore, the brunt of the damage and hurt of the policies pursued by Fianna Fáil from 1977-82 had to be borne by the ordinary taxpayer. We had to push up taxes to a level which by any standards was unjust and intolerable in normal circumstances. We are now dealing with the heritage of what had to be done then to deal with that crisis.

When that crisis began to abate and things were brought under control, and the level of borrowing was reduced by half between 1982-87 and it was left to Fianna Fáil to carry on that job afterwards which they did, the first priority should not have been to reduce the top tax rate further but to deal with the inequities we had to create by virtue of the crisis we faced. However, Fianna Fáil did not at that stage take up the issue of achieving the right balance between the top tax rate and other tax rates. The steps taken by Fianna Fáil over the past three years since the Progressive Democrats joined them in Government have been far worse than their failures in previous years. At the beginning one could almost forgive their failure to avail of the opportunity to adjust the tax level in a more equitable way because they were under great pressure at the time and did not have much leeway. Even though more leeway emerged in 1989 — I do not know what the Government's inclinations were — the consequence of having the two parties in Government was a sharp deterioration in any kind of social equity and virtually all the resources which have become available through tax reform have gone into reducing the top tax rate from 58 per cent to 48 per cent, a reduction of ten percentage points.

At the other end of the scale, the average single industrial worker who does not even receive 90 per cent of the average industrial wage is now paying a tax rate the same as that paid by a millionaire except that, unlike the millionaire, he has to pay 7.75 per cent PRSI while the millionaire pays 2.25 per cent. So far as I am aware, this is the only country in the world — I would be glad if the Minister could give me some other examples — where today or any time in the past a worker who receives less than the average industrial wage has to pay a higher marginal tax rate, including social insurance, than a millionaire. I hope the Minister in his reply will refer to other countries where this has been the case either now or at any time during this half of the century.

That is the consequence of the policies pursued by this Government. It is intolerable that we have reached that point. There is a revolt and a unity on this side of the House against such policies. This is a very meaningful unity because today the divisions lie between those concerned about equity and social justice and those on the other side of the House who have other fish to fry and those who go along with them for reasons of political expediency. That is the real division in politics at present.

The effect of such policies has been perverse in other ways also. The pressure from the Progressive Democrats to reduce the top tax rate for the benefit of a relatively small number of people in this State has diverted the Government into taking courses of action on other forms of taxation, not all of which are beneficial. Because they were not willing to do the unpopular things such as introducing a property tax or tackling the mortgage tax relief, they have had to scrape around to find the money elsewhere to pay off their partners in Government. Where has this money come from? Some of it came from well justified and merited tightening up of abuses of the tax system, but more of it came from changes in the tax system which are damaging to enterprise, business and the whole process of encouraging wider shareholding. One of the ways the money was to be got was by attacking the provisions we made in 1986 to encourage shareholdings by workers.

The consequences of these measures have been not merely to release resources for the rich while doing nothing for the less well off, but they have also put the wrong kind of pressure on corporate taxation. The effect of this is that businesses are dangerously disillusioned with the Government. This happened in the past. When we were in Government we were accused of talking measures which disillusioned business. Some of the measures we took had that effect. But some of these measures were necessary and right in the particular circumstances when we had to find the money somewhere. But for a Government not under this pressure to adopt policies damaging to enterprise, discouraging business and have a negative effect on business attitudes is unwise and is the result of pressure from a group who are not concerned with improving enterprise but who are concerned with reducing the top tax rate for people on high incomes. They are two totally different things, and to pretend that they are the same is a dishonest approach which has demeaned politics here in recent years.

I ask the Minister to confirm whether, if the £400 million in the Joint Programme for Government has been applied to the purpose of eliminating the 48 per cent tax rate, it would have been possible to get rid of that rate altogether and move everybody now on the 48 per cent tax rate to a 27 per cent rate. Am I correct in calculating from the data available to me that that could have happened? Would that not have been a better thing to do? I am not saying it is the only course of action or that it is the right balance of tax measures because other adjustments might be necessary in terms of exemptions and so on. Nevertheless, it is an example of what could have been done if this right wing pressure had not been there. I ask the Minister to confirm in his reply whether the £400 million they set aside over two years for this purpose would have been sufficient to produce a tax code of 52 per cent for people at the top of the scale and 27 per cent for everyone else, including all those paying 48 per cent today. The fact that this is almost certainly the case — in my calculations there would even be a few pounds in hand — shows the failure of the Government and what could and might have been done if they had more concern for social justice and less for staying in power with the help of the Progressive Democrats.

Deputy Rabbitte referred to the top tax rates. I have no difficulty with a top tax rate of 60-65 per cent in the abstract. But I recognise, as we had to recognise in Government, that with a Thatcherite regime in Britain and the top tax rate in other countries coming down, we cannot have a top tax rate which is too much higher than elsewhere — we might wish to have it and feel it is right in principle — but if it leads to excessive out flows of capital, unfortunately we have to cut our cloth according to the measure of our neighbours. If we have a 52 per cent tax rate here while there is a 40 per cent tax rate in Britain we will have problems. I hope that more balanced and just tax policies in Britain and other countries will enable us to get out of the bind of having to reduce top tax rates to such a low level. But realistically, today it would be unwise to go over a 52 per cent rate. However, I see nothing wrong in principle with a 52 per cent and 27 per cent tax system and getting rid of the 48 per cent band. The fact is that £200 million of the £400 million has been spent already on reducing the top tax rates. My calculations suggest that that is the amount already used up out of the £400 million. Perhaps the Minister will confirm whether I am correct.

The Opposition are united on this issue. I hope the Minister agrees with us in his heart. If he can free himself a bit from the constraints which have been on him, I hope he will forget in the next budget about further reducing the top tax rate to 44 per cent, which is not justified even by the lower level of taxation in Britain, and concentrate on giving relief to those who have received none so far. We need to return as soon as possible to the position which obtained in 1982 where a single person on the lower tax rate with an income of, for example, one and one third of the average industrial wage on the lower tax rate is not pushed onto the higher tax rate. I appeal to the Minister to proceed along those lines next year.

Mr. Hilliard

No speaker on the opposite side has mentioned that this Government have brought in generous exemption limits which did not exist in the past for single people and married people on low income. People speak about reducing the tax band in order to help these people, but we have been helping them. The Minister for Finance has indicated his desire to increase the bands so that more people will be included at the lower levels.

I commend the Minister on the budget. He was not long in office when he brought it forward. I am confident that when he introduces the 1993 Budget it will contain many reforms.

Mr. S. Barrett

I will not go back to 1924 and the shilling off the old age pension.

Mr. Belton

Fianna Fáil were in office long enough and they never brought down the qualifying age from 70 to 66. The great caring party.

Mr. S. Barrett

Fianna Fáil are running out of excuses and keep referring to the days of the Coalition Government as if that were yesterday. My former Leader, Deputy FitzGerald, made a number of the points I should like to make. I do not have any hang-ups about tax rates. They must be related to the state of the economy. If we were living in a very rich country without a national debt, with full employment and no serious economic problems, nobody should have a hang-up about the top rate of tax. We must look at the type of society developing here. The tax system plays a major part in shaping the society we will have in the future. We are approaching our problems from the wrong end. Nobody will hand back money to the Revenue Commissioners, but when we have 300,000 people unemployed and we are looking for ways and means of creating jobs there are many other things that should be looked at prior to a reduction in tax rates.

We have a system which encourages people in receipt of social welfare benefits to stay on the dole because it is not profitable for them to take on a low paid job. That is not a very attractive society for the present or future generations. We have a system where the business community are told to engage in a share ownership scheme to enable workers to participate in the wealth of the company and encourage them to work harder for the development of that company and the creation of further jobs. Then suddenly the Minister for Finance decides to scrap the scheme. We have a system where a Government introduced a business expansion scheme to encourage venture capital investment in the manufacturing industry. Then because the lobby groups succeeded in having the scheme extended it was abused and the Minister says he will scrap it. What sort of society are we trying to shape or develop? If we know what way we are going we can plan for the future. The business community are told one thing and then two years later everything is changed. That is the worst that can possibly happen.

I do not have any hang-ups about tax rates. I look at the circumstances of the time. We are abandoning good ideas, like the share ownership scheme and the business expansion scheme, in order to fulfil a political promise to bring down the top rate of tax. This makes no sense. Some people may be well off in the short term as a result, but the bigger the dole queues become the greater the burden will be on those who are at work. Those of us who are in employment will have a greater liability to support the growing numbers out of work. Even from a selfish point of view, I am in a better position if we have a Government who are directing the economy in a certain way and providing jobs, because there is a lesser liability on me to support those who are less fortunate and do not have employment. It is a totally false theory that a reduction in the top rate of tax will encourage the wealth generators and bring about a general upturn. That is not the case. We have to abandon good ideas like the share ownership scheme and the BES in order to pay for this political promise.

We are making the problem worse. All of us should learn from what we saw in Los Angles on our televisions. When those who are downtrodden eventually got an opportunity they expressed their anger in a way that none of us could stand over. It is possible that up to 500,000 people here will begin and end their lives without a job. They will spend their lives walking the streets, waiting to see what form of benefit this House will vote for the next year or the year after, or what they can get from the community welfare officer towards the payments of their ESB bill. There is no way that society will continue under a democratic system. We should learn the lesson from what we saw recently on television and from the increase of 8 per cent last year in our crime figures. People cannot walk the streets in safety in case their wallets or handbags are stolen. Even at home a criminal can walk into the kitchen, knock people on the head and steal from them. People do not see any role for themselves in this society. They consider that nobody cares about them and ask why should they care about anybody else.

We must look at the state of the economy and take action to create jobs. I jump up and down when I hear people talk about tax equity. A salesman who must travel through the 26 counties and whose job depends on being able to sell goods is now to be caught for benefit-in-kind. The executive who receives a car as a perk and leaves it parked outside his office all day is in a different position from the salesman whose car is essential in the carrying out of his job. Both are to be taxed on their cars in the interests of tax equity. What about job security? If a salesman fails to sell his company's products he is let go. One could argue that those who have permanent positions enjoy more benefits-in-kind than such an unfortunate individual.

I am concerned about the direction in which the taxation system appears to be heading. I would hate to think the Minister for Finance would be forced to walk in here next year and abolish some other important wealth and job creation incentives in order to fulfil a political promise. I would love to see the standard rate of income tax at 15 per cent, everybody employed and everybody having the opportunity to go on to third level education. I would also love if we had a full and proper health service for everybody and if everybody was entitled to a full old age or widows pension. However, we are not in a position to provide that and in present circumstances we have to tailor the package to meet the needs of society. We have to ask ourselves what type of society we want to create, and whether we sincerly want to tackle the problem of unemployment. We must also ask whether we want to introduce incentives to create jobs and wealth. If so, we cannot go hopping from one measure to another, introducing incentives this year and scrapping them the following year. Businesses could not plan and we could not run an economy that way.

In conclusion, I appeal to the Minister to take an overall view of our society before he makes further changes.

An Leas-Cheann Comhairle

I do not want to pre-empt what Deputies Garland, Dennehy or Cotter may say but it strikes me the House is availing of the amendment in the name of Deputy Michael Noonan to indulge in far-reaching contributions which extend beyond the spirit of the amendment.

Mr. Quinn

That was the purpose of the amendment.

An Leas-Cheann Comhairle

If that was the purpose of the amendment——

Minister for Finance (Mr. B. Ahern)

It proved effective.

Mr. Quinn

I am the only one who spoke to it.

An Leas-Cheann Comhairle

We all appreciate that there are other amendments to which we must attend. It may appear to Deputies that the Chair is being difficult but I hope they appreciate that Standing Orders requires that we address ourselves to what is in the amendment.

Mr. Quinn

The Chair is absolutely right.

An Leas-Cheann Comhairle

I now call Deputy Garland, who will give the good example.

It does not appear that this amendment is feasible — I am sure the Minister will say this and, perhaps, he said so on Committee Stage. It is a vague, aspirational amendment but, if accepted, how will it be enacted into law? One could argue that it is an abuse of the House to table an amendment of this nature as it is Second Stage material and there is no way it could be enacted into law. If Deputy Noonan is appointed Minister for Finance in the morning I challenge him to include this amendment in his Finance Bill; it simply does not add up.

There was a considerable debate on the exemption limits, which are closely connected, but I was not at all impressed by Deputy Noonan's or Dr. G. FitzGerald's apparent espousal in their contributions of the cause of the poor. Deputy Noonan's remark that we should "tax the greedy and not the needy" comes very poorly from a member of a party who did nothing when in office to facilitate the poor and the needy. Fine Gael, Fianna Fáil and the Progressive Democrats are in the pockets of big business. That is what it is all about. I agree completely with Deputy Rabbitte on the question of exemption limits but I might not be quite as generous as he, and I have tabled a series of amendments on this. If we want to introduce tax equity and do something for the poor and underprivileged, or at least those poor and under-privileged people who have jobs — there are many poor and under-privileged people with no jobs, as we all know — we should raise the exemption limits to somewhere in the region of £4,500-£5,000 per annum for a single person and pro-rata for a married couple. This is the way forward. There is no magic tax rate, no magic figure. That is commendable. In reality we find that Deputy Noonan tabled an amendment on Committee Stage to oppose section 4 of this Bill, which abolishes a small amount of life assurance relief which had been allowed hitherto. I agree completely with the Minister that this section should be included because life assurance relief has been used very largely as a method of tax avoidance for a number of years; yet Deputy Noonan wants that tax allowance to remain and in the name breath he talks about widening the tax base. That is not realistic.

Finally, I should say that I have always had major difficulties in dealing with the income tax section of the Finance Bill, because the Green Party, Comhaontas Glas, would in the long run like to see income tax phased out and replaced by a different method of taxation, site value tax, resource tax and energy tax, but perhaps that is another day's work.

Mr. Dennehy

I should like to refer to something which may appear, to a large extent, to be an historical item which will affect the rates of tax paid next year and the following year but was referred to by Deputy Barrett as something that appeared to have happened yesterday. He said the Fianna Fáil party come in here and refer to the Coalition as though it had happened yesterday. It did not happen yesterday, but the fact is that we are paying for it and it will be the most important factor in deciding on the amount of income tax that will have to be paid next year and the following year. We are aware that a minimum of 50 per cent of all tax collected will go to service the debt. It is not good enough to come in here and make a glib statement and say Fianna Fáil were responsible, as though it were yesterday. The tax situation is being affected directly and that should be put on the record.

Deputy Barrett, Deputy Noonan and a number of their colleagues stated they have no particular hang-up with the rates of taxation. It is easy not to have a hang-up at this stage about the rates in existence because they have been reduced to a level which is almost acceptable. In the past four or five years they have been brought down to a level that has meant a reduction in excess of 20 per cent on all the rates. It is very easy to get up and say "I have no hang-up about the percentage of income tax to be paid" now that the rates have been taken care of. This is a matter to which I have had to draw attention at each level because I felt it was being forgotten. When there is a reduction of 10 percentage points in the rate of taxation it must have a major effect on everybody who is paying tax within that band. It is not acceptable to say it does not matter and that we should ignore it. The major factor we faced in 1987 was a reduction in the rates, which at that time were intolerable. People will argue whether one should have given preference to the higher, the standard or the lower rate, but I think we have taken the correct course of action. To a large extent this year's budget and Finance Bill are formed and even though we still have to vote this into law the Minister's proposals will be carried. The rates of reduction are quite substantial but really we are looking at the taxation position for next year.

I am not happy with two aspects relating to the standard rate: the parameters for the tax band allowances and the actual rate itself. If there is to be a concentration anywhere I would like to see it on the standard rate. We are gearing ourselves towards next year. I am sure the Minister will be listening very carefully to the views of people from all sides with a view to preparing next year's budget and Finance Bill. At some stage we will have to say we have done enough.

There are three major deciding factors to be considered in arriving at the amount of tax to be paid by anybody, one of which is the number of tax rates. We have got to the point where the Minister has been able to reduce the number of tax rates to two. This will be less complicated and will make it easier for general taxpayers to figure out liability at the start of the year.

Deputy Noonan put down an amendment on Committee Stage seeking to introduce a 15 per cent rate for people going on lower wages. I disagree totally with that approach. I have campaigned to get away from that approach and I have tried instead to have two rates. I agree with the Minister's approach and I would encourage him to concentrate on the standard rate next year.

The third factor relates to existing exemptions. I would like to have these examined with a view to helping the less well off and the needy. I would not like to call anybody in this country "the greedy" because we are a small nation and nobody deserves to be described in that way. We should concentrate as much as possible on the lower paid and give these as much assistance as possible. This is something we have been doing by virtue of the reduction in the rates of taxation and by an extension of the bands. Phenomenal progress has been made in this area. People may say we are fidding with tax reform and so on but that is not correct because we are talking about 700 or 800 taxpayers being affected by the changes which this year will cost £260 million. Now that we have got to this stage and have done much in the area of tax reform, we are being attacked on any modifications the Minister has made, despite the fact that every non politically aligned grouping — the commission on tax reform, the National Economic and Social Council and the industrial policy review group — were unanimous in saying we should get rid of the tax concessions, the tax shelters etc. Yet when the Minister is attempting to do this, with a view to helping to fund the tax rate reductions and the less well off, there is an attack on him. This is playing both sides of the fence.

There has been a general push to get rid of tax shelters, which helped a small select group of people in many cases, and the Minister has tackled that problem. He has levied taxation on co-operatives and small groupings who benefited. There was a call for equity, simplicity and consistent reasons for our move and I think the Minister has adhered to these. Many of us said there are a number of tax shelters we want protected — for example, mortgage interest relief and VHI. These affect the person in the middle group who gets no third level grants. Usually you will find a group of people who are benefiting to some extent. Even though it may sound like a contradiction, I defend the treatment of those people and the concessions because they are paying their way, and a lot more most of the time.

It is not good enough to come in here and make a glib statement. Deputy Garland appears to have some expertise here and said it was an abuse of the House to table this amendment. I was told earlier that it was a means of being the first speaker on the Finance Bill. While it will give us an opportunity to review the situation, it is just too glib. It would certainly tie the hands of the Minister and his successors.

We have achieved certain objectives. The primary objective was to simplify things by having two single rates. The second was to cut the percentage of tax being paid by people. Now that we have achieved these objectives we can concentrate next year on the tax bands, which will very much decide the amount of tax one pays. I have no hang-up about fighting for another cut in the higher rate, but in regard to the standard rate and the tax bands one can be very selective and pinpoint the people who are most in need and facilitate them if there is a positive approach from all sides.

I think the amendment is totally impracticable and would agree with wiser heads than I that it was just a method of getting in first on the debate on Report Stage.

An Leas-Cheann Comhairle

Deputy Cotter will forgive me if I say that I am still convinced that the House seems to think that this amendment should be influenced by that most profound statement that we pass this way but once. We seem to be discussing matters that range far beyond this amendment and there are many other amendments. I would appeal to the House to concentrate on this amendment, bearing in mind that there are ample other amendments to which the Deputies can address their comments.

Mr. Cotter

I will only take about three or four minutes. I want to make a few comments based on the wording of amendment No. 1. We have been talking about 1927 and we have been reviewing the past 14 years from various perspectives. I suppose we will have to wait for the history books, if we are still around to read them, to see how they deal with that period and find out what the real perspective is. They may well be talking about the Book of Estimates of 1981, which I am sure Deputy Dennehy remembers well and which proved entirely inadequate even for six months of that year.

Mr. Quinn

A great work of fiction, political fiction.

Mr. Cotter

I am sure they will also dwell on the huge increase in employment in the public service around 1979, which was, I suppose, a response to the growth in unemployment at that time and the huge cost of maintaining those people at work through the difficult eighties. I am sure Deputy Dennehy will be able to calculate fairly quickly what sort of impact that irrational decision would have made on the national debt over the five to six years following that. I would imagine it was very significant. The history books will perhaps focus on the huge inflation rate we had around 1981 as well, where our punt became more and more like confetti and less like currency. It would be as well to wait to have some sort of proper perspective put on that unwholesome period we had to live through and for which as Deputy Dennehy says, we are still paying, and for which it seems our children will have to pay as well.

This House has no doubt done many wonderful things over the years. Governments have done great deeds, I have no doubt. One of the things we have done is to set up a new and perverse arithmetic. The generality of people in the country would say that 11 is greater than three. That is true in the number system; it is one of the bases on which mathematics is built. However, in this House under the tax code 11 is less than three. It is generally agreed that somebody earning £11,000 from whatever source is worse off and has less disposable income than a person earning £3,000. The higher middle income people are in an even more invidious position than that. Some body on, say, £16,000 paying tax and PRSI and with an average mortgage of £30,000, which is a small mortgage these days, will have less disposable income when he nets out the family income than that given to social welfare recipients as the amount necessary to keep a family unit. That is really what Deputy Noonan is addressing when he is talking about not having more than 20 per cent of taxpayers paying tax at the higher rate.

I am not an expert in economics except in so far as I listen to others who are, and thus I learn a little bit now and then. But when State pensioners come into my clinic and tell me that they are now paying tax at the higher rate, I learn a little bit about how the system works and I am perturbed. As Deputy Dr. FitzGerald said, many people on low incomes are paying tax at the same rate as the super rich. That is a fact of life today and it is a perversion of the system that that should be the case. People on pensions should not be paying tax at the same rate as people on huge incomes.

Somebody over there mentioned the taking of a shilling from the pensioners. There are many ways of taking a shilling off a pension and people who are taxed at the higher rate while on pension are losing far more than a shilling. That is one of the shocking problems we have to deal with, along with the lack of reward for people who are earning middle and lower incomes, and that is not addressed in this year's budget. We meet people every day who say that they would be far better off opting out of society, now that their children are ready to go to third level, renting an old cottage down the country and drawing the dole. They would have more disposable income. It seems to be true. Everybody is saying it. When we do the figures we know that it is the case. Would it not be far better for the Minister to home in on that massive inequity in the system rather than toying around with the top rate of tax and trying to assuage a very small number of people on very large incomes. It would be far more equitable that he should look at the people on middle or low incomes who are in a very simple poverty trap. We do not need to produce any statistics in relation to it. None of us in this House has to refer to statistics to discover the difficulties facing our constituents. The point at issue is the lack of reward in the economy for the ordinary individual and the Minister did not address that matter in the budget.

Even though various proposals have been put to him I suppose it is far too late for him to take heed of them at this stage. If people are to feel comfortable with politics and if we are to have an equitable system we must show that we mean business and that there will be equity throughout the system not just for 5 per cent or 10 per cent of taxpayers but for everybody. We must be seen to achieve this. No attempt is being made to achieve equity for the vast majority of people this year. That is one of the difficulties with the budget.

If people feel they are being ill-treated they tend to adopt a peculiar approach and take a peculiar view. They also lose respect for authority and law makers and quite often become law breakers. That is one of the difficulties we have to deal with.

I have to register my disapproval of the budget. I should say that I used to be a mathematics teacher when 11 was always greater than three and 16 was always greater than 7.5 but the Government have created a new arithmetic where three is greater than 11 and 7.5 is greater than 16. Therein lies a wonderful story and the Minister continues to write it.

Minister for Finance (Mr. B. Ahern)

I take it that I am replying to the first 20 amendments because we have debated them at great length this morning. Deputy Quinn asked one of the few relevant questions in relation to the amendment we were meant to be discussing. He asked me to outline my policy and priorities.

Mr. Rabbitte

We all asked the Minister that question; that is what the debate on the motion is all about.

Mr. B. Ahern

In response to Deputy Quinn, I think the standard rate is too high and the standard band too narrow. The exemption limits will have to be continually looked at and widened, where possible. In addition, the personal allowances require attention.

While all income, from whatever source, should be taxed we must try to ensure that people do not move into the higher rates of tax at a relatively low income. We commenced this process in this year's budget. The review of the Programme for Government does not claim that lower tax rates lead to the creation of jobs immediately. We have had an opportunity during the past few days to argue this point and if it is true I do not think anyone has proved it. I for one have not attempted to prove it. What I have said many times is that they will act as an incentive for enterprise because one of the arguments made during the years is that if a person works an extra hour the tax rates are too high.

Furthermore, tax reductions are being implemented in conjunction with wage moderation under the Programme for Economic and Social Progress, which is aimed at improving our competitiveness internationally. I have worked hard on this issue during the past five years in relation to the Programme for National Recovery and the Programme for Economic and Social Progress. The Government are not concentrating exclusively on a reduction in tax rates. In recent years the standard band has been extended substantially. Since 1987 it has been extended by £2,775 for a single person and by £5,550 for a married person or nearly 60 per cent.

I agree with what Deputy Noonan has had to say in the course of the debate during the past three weeks that it is not just a question of the rates system. I thought that this was so and I think Deputy Noonan would accept that he also thought this. At one stage he spoke about the need to have two rates of tax, 25 per cent and 40 per cent. However both of us have changed our view. Indeed he was gracious enough to admit during the week that at one stage Fine Gael increased the rate of 25 per cent in 1984 — I argued this point the other day — as they believed the exemption limits were probably more effective. I take his point but perhaps we could look further at this. I am not going to argue whether or not that is the best way as I think Deputy Quinn also has a point of view on the matter.

It is a good idea to get people used to paying something, regardless of income. This is not a million miles away from my own philosophy that all incomes should be taxed. In relation to those who are trapped the exemption limits offer a good way of getting them out immediately because once we begin to move the rates around there will be a knock-on effect with the result that the person on an income of £100,000 will pay at the rate of, say, 15 per cent in respect of a slice of their income. We would also need to adjust the allowances and the bands to catch them. I am a great believer in simple systems and I would need a lecture in mathematics from Deputy Cotter to work out the basis of the system. It would be far better to keep it simple. We are therefore trying to have single rates so that people can understand them easily.

No matter who is in Government during the coming years they will have to reduce the tax rates, considerably widen the standard band and increase personal allowances. They will also have to judge, in the context of budgetary constraints, what changes they will be able to make each year. In addition they will have to bear in mind the objectives of the Programme for Economic and Social Progress, one of which is that there be a standard rate of 25 per cent. They will also have to be conscious of the need to widen the standard band. I will bear this in mind and wish to give an assurance in relation to low pay. It is the firm intention of the Government, and will be as long as I am in the Department of Finance, to endeavour to achieve that standard rate taking all matters into account, particularly low pay.

I wish to reiterate that in 1987-88 44 per cent of taxpayers paid tax at the higher rate, whereas the figure now stands at 37.5 per cent. Deputy FitzGerald took us through the last ten years and, as always, made a lot of sense. I would only take issue with him on one or two points. To respond to his question, if we were to reduce the standard rate of 27 per cent and have a top rate of 52 per cent and adjust the standard band so as to absorb the 48 per cent band, this would cost about £380 million in a full year.

This year the top rate was cut from 52 per cent to 48 per cent at a cost of about £60 million in a full year. In addition, the exemption limits have been increased, the standard rate has been reduced to 27 per cent, while the standard band has been extended by £775 for a single person and £1,550 for a married person. It will cost 280 million in a full year to implement this remaining part of the income tax package.

The aim in cutting the standard rate is to help the ordinary taxpayer who pays tax at the standard rate while we will help the 37.5 per cent of taxpayers who pay tax at the higher rate by extending the standard band. We have to look at both features in relation to tax policy each year.

Deputy FitzGerald highlighted the horrendous difficulties the economy faced between the years 1982 and 1987. I acknowledge that they had a job to do and that his Government worked very hard but I should say that we extended the standard tax band by £1,000 for a single person and £2,000 for a married person in the budget of 1988. That increase was greater than any of the increases granted in the previous five years. The band has been widened each year since then.

Debate adjourned.

Sitting suspended at 12.30 p.m. and resumed at 1.30 p.m.

Mr. B. Ahern

Before the House adjourned I was asked for a breakdown of the sum of £180 million. The exemption limits and marginal reliefs cost £11 million and the cost of reducing the 29 per cent rate to 27 per cent cost £133 million. The cut in the standard band rate cost £76 million and the cut in the top rate cost £60 million.

I know the business expansion scheme is not included in this section but in 1991-92 a total of 182 small manufacturing companies received £20 million under that scheme. I have covered most of the other points and I will leave it at that unless Deputies want me to go into detail on the section.

Mr. Noonan

(Limerick East): The Minister gave a very full reply on Committee Stage to similar amendments so we will dispose of this amendment fairly quickly. I thank all the Deputies who contributed because it was, in effect, a minor debate on this very important aspect of taxation. If it has the effect of redirecting the focus of Government policy on rates of tax to the burden of tax and the level of income on which tax liability arises at each point on the bands, we will have done a good day's work.

The Minister referred to the business expansion scheme, which has now been radically altered. The maximum amount which can be invested in a qualifying company is still too low — £500,000 — and perhaps when the Minister introduces the second Bill in the autumn he will be in a position to look at this scheme so that adequate notice will be given to those who want to invest next spring. The scope of the scheme need not necessarily be widened but the ceiling in respect of the activities which come within its remit at present, high risk investments, might be extended. The maximum amount of relief available in the business expansion scheme is £75,000 over a person's lifetime and the pool of investors is small. It is hard enough to get venture capital from private individuals, a pool of people is subscribing but they are pushing towards their limit.

If the current annual limit for each individual of £25,000 was reduced the lifetime sum of £75,000 could be increased. The lifetime limit would be reached in three years and there is merit in changing the figure, perhaps to a maximum of £15,000 per year and removing the ceiling of £75,000. A great many potential investee companies are at an early stage of development and it is vital that they should be able to plan for three or four years. The present business expansion scheme runs until 5 April 1993. The Minister should indicate at an early date that he will extend it and the extension should not be less than three years. There were abuses of this scheme after its extension to the tourist industry, but they have all gone and it is now quite a restrictive scheme. I do not expect the Minister to reply now, but because he raised the matter I ask him to examine the points I made. Perhaps he will do something in the autumn along the lines I suggested in the second Finance Bill which would give the companies involved a good long lead-in time to prepare for the spring of 1993.

The amendment fulfilled its objective in having a good, focussed debate on an aspect of tax policy which the Government should change. I am not pressing my amendment.

Amendment, by leave, withdrawn.

An Ceann Comhairle

We now come to amendment No. 2 in the name of Deputy Rabbitte. I observe that amendments Nos. 3,4,5,6,7,8 and 9 are related and I suggest that they be discussed together, by agreement. Is that agreed? Agreed.

Mr. Rabbitte

I move amendment No. 2:

In page 17, line 23, to delete "£7,000" and substitute "£10,000".

I will be brief because the previous debate covered this ground. This series of amendments relates to the question of tax exemptions and they highlight one of the most inequitable anomalies in the tax code whereby people living in poverty in Dublin are liable for tax and PRSI. A report commissioned a couple of years ago - and the ESRI illustrate that the proportional situation has not changed since then — showed that between 11 per cent and 18 per cent of those living in poverty were paying PAYE and PRSI. That cannot be defended.

The annual ritualistic claim made by the Minister for Finance of the day that the minamalist changes to the tax rates or the tax bands take X thousand workers out of the tax net entirely is rarely valid for longer than budget day itself, because as soon as the few per cent increase payable under the Programme for Economic and Social Progress becomes due a great many of those few thousand exempted under the budget face a tax liability once again. What economists call “fiscal drag” has the same effect. In fact, the gain made is a very short-lived triumph for a very small number of people. Whatever one's designation of the poverty line — and there is argument about that — in effect there are still people who are caught in the low income trap. People who actually go out to work for a low income and seek not to be a burden on the State find themselves subjected to the payment of PAYE and PRSI. It is grossly inequitable that people who make a conscious decision to stay in the workforce at a low wage find themselves liable for the payment of PAYE.

This amendment is a blatant and unashamed appeal for the poor. I make no applogies for pleading the cause of those who are on very low incomes and spend a disproportionate share of that income on the essentials of life — food, clothing and so on. It is entirely wrong that they should be liable for tax at all.

In this amendment I have fixed the arbitrary earnings figure of £100 per week before a worker would theoretically come into the tax net. There is nothing sacrosanct about that figure; I am open to argument and debate on it. If we are talking about tax relief, this is where it should start. Our friends practising at the Bar, our chartered accountants — with all due respect to Deputy Garland's profession — and other professional groups have got very considerable relief during the past ten years.

I recommend the amendment to the House.

Mr. Garland

My amendment No. 3 is similar to the amendments tabled by Deputy Rabbitte in that it proposes to increase the present exemption limits from £3,500 to £4,500 for a single person and from £7,000 to £9,000 for a married person. As with the figure proposed by Deputy Rabbitte, the figures I have suggested are open to debate and perhaps the single person's exemption limit could be £4,500, £5,000, £5,500 or even more.

I agree absolutely with everything Deputy Rabbitte said. I think we are completely ad unum on this issue. I appeal to the Fine Gael Party and the Labour Party to support one or other of these amendments, or perhaps even a compromise between the two of them. For a long time this morning Deputy Noonan talked about the need to facilitate the needy and not the greedy. I ask him to put his money where his mouth is so far as this amendment is concerned. Deputy Noonan did not table an amendment of his own in this regard, not even an amendment designed to increase the limits by £100, as a token gesture. I find that very surprising. I do not want to spend the afternoon making party political points, but I express my amazement that the Labour Party have not tabled an amendment either.

During this debate last year Deputy Taylor, who was the Labour Party spokesman on Finance at the time, tabled amendments in this regard. He went for lower figures than my own; my figures were in the middle and Deputy Rabbitte proposed higher figures. We had a lively debate. At the end of the day the former Minister for Finance, the present Taoiseach, in his wisdom decided to stay with the exemption limits that he proposed in the Bill. However, between the three of us we made a very good case. I should be very interested to hear what Deputy Quinn has to say at this stage. I should like to hear his explanation for not tabling an amendment of his own. Having said that, I should welcome Deputy Quinn's support, even at this late stage.

We must all remember the origins of income tax back in the nineteenth century. Income tax was essentially a tax on the rich to pay for whatever minimal Government expenditure was incurred at the time. It was never envisaged that the average, let alone the below average, wage or salary earner should be subject to tax.

While I do not wish to repeat the comments made by Deputy Rabbitte, it is absolute nonsense that people earning £70 a week are paying income tax. Surely the Minister will agree that it would be much better to spend the little amount we have to give away on tax reliefs rather than on reducing rates, whether the higher or the lower rates. Apart from anything else, an increase in exemption limits would reduce bureaucracy and would reduce work in the pay offices of firms, which would have one employee fewer to deal with as regards PAYE processing. Such a measure would simplify procedures and would at the same time introduce equity to the tax system.

Mr. Noonan

(Limerick East): I agree with the spirit of Deputy Rabbitte's amendments. I do not know whether the acceptable figure should be £90, £100, £110 or what the Minister could afford; but the amendments certainly underline the fact that people are coming into the tax net at too low a level of income. This is particularly true of single people.

However, I do not feel that it is possible to proceed indefinitely by this method without altering the personal allowances. There must be a relationship between tax liability as one computes personal allowances and tax liability on exemption limits. If the exemption limit goes too far beyond the sum of the allowances another difficulty arises.

In this Finance Bill the Minister has reduced the rate of clawback to 48 per cent. Forty-eight per cent is a very serious clawback. What that means in practical terms is that a youngster working in a chipper pays no tax before earning £70 but has 48p taken off the first pound earned over £70 and has another 7.75p taken off for PRSI. The effective clawback is 55.75 per cent. The youngster would be paying PRSI on every pound anyway because he or she was earning more than £60. The PRSI exemption is confined to those who earn only £60. A person who earns £61 does not pay PRSI on the extra £1 alone but on the full £61. The clawback provision is very serious. Many single people, especially single young people, with an income of approximately £80, are convinced they are paying tax at the top rate. They were convinced three years ago that they were paying tax at 56 per cent because the clawback was greater than the higher rate of tax and last year they were convinced they were paying tax at 52 per cent.

There is an enormous psychological problem in convincing persons on a low income that they are not losing out when their notice of determination of tax free allowances shows that the effective rate of deduction is 48 per cent, the top rate. I do not think it is possible to continue on this basis indefinitely although the Minister said, on Committee Stage, there was still some scope in it. At present the personal allowance is £2,100, the PAYE allowance, £800, making £2,900 and the PRSI allowance is £286. If one computes it on that basis one arrives at a total of £3,186 and the exemption limit is £3,500. Therefore, there is £314 to be clawed back. This means a young person will be taxed at 48 per cent on every pound until £314 has been clawed back and at that point only their effective rate goes down to 27 per cent. The same applies to married people.

If one increases the exemption limit by £100 then the computed allowances will be £3,186, the exemption limit will be £5,000 and the effective rate of tax over that tranche of income — £1,814 of income — will be the top rate. It is nearly impossible to explain to somebody that they are not being discriminated against, that on very low pay they are paying 48 per cent. Indeed, it is very hard to find anyone who thinks they are paying the standard rate. For example, the people who are above the limit for the standard rate are convinced they are paying 48 per cent or, as it was, 52 per cent, on every pound because they are getting a table allowance to compensate for the standard rate. None of their documents refers to the standard rate; rather they refer to the table allowance and, at the bottom it is stated: tax to be deducted at 48 per cent. They are convinced they are paying 48 per cent on everything after deduction of their personal allowances.

Then there are the people on exemption limits. It is not a case of youngsters working in the chipper who come into the tax net for the first time who are under this misapprehension. I have met many pensioners who, with a combination of a contributory State pension and a pension from their job, end up somewhere around the exemption limit for a married couple. Their notice of determination of tax free allowances show that tax is to be deducted at 48 per cent on the clawback. For example, married couples with an income just over £7,000 — where the earning spouse has gone on pension — are convinced they are being taxed at the top rate. That is the only problem I have. I do not think it is possible to widen that gap, as Deputy Rabbitte advocates, without lifting the personal allowances.

Deputy Garland referred to me on a number of occasions. I seem to have upset him. I will not put on ideological clothes tailored for me by any other party. If I stand up for the poor it is because that has been the tradition of my party. I will not oblige any Member by taking up some right wing position in which I do not believe because it upsets people if I do not fall into that mould. The principles I have outlined are the principles of the vast majority of my party.

Mr. Kirk

Will the Minister put on record the numbers falling into the different categories within the low income exemption? It would be of benefit to Members if the Minister informed us of the numbers on low incomes and those above a certain age limit.

Mr. B. Ahern

I will first deal with amendments Nos. 2, 4, 6 and 8, tabled by Deputy Rabbitte, which propose to increase the general exemption limits over and above those set out in section 1 by £1,500 for a single person and £3,000 for a married couple. I might point out to Deputy Rabbitte that the 1989 ESRI report on low pay tax was based on a survey undertaken in 1977. Since then we have substantially increased the exemption limits and introduced a child addition to focus relief in the area where it is most needed, for taxpayers with families, which was the case advanced by most people. This has improved substantially the position of low income earners paying tax.

Deputy Garland's amendments Nos. 3, 5,7 and 9, propose to increase the general exemption limits over and above those in the Bill by £1,000 for a single person and £2,000 for a married couple. We dealt extensively with that on Committee Stage, but, in fairness to Deputy Garland, I realise the rules and procedures of the House precluded him from having any say in those Special Committee discussions. For his benefit I should say that section 1 provides for an increase of £100 for a single person and £200 for a married couple. These increases must be seen in the light of the substantial increases in the exemption limits implemented over the past five years. For example, in 1987, the general exemption limits stood at £2,650 for a single person and £5,300 for a married couple. Following this year's budget they now stand at £3,500 for a single person and £7,000 for a married couple, constituting an increase of 32 per cent. In addition, in order to improve the position of low-paid taxpayers with families, a child addition was introduced in conjunction with the exemption limits and now stands at £300 per child for the first two children and £500 per child thereafter. This means that, for a married couple with two children, the exemption limit has been increased by over 43 per cent in the past five years; in the case of a married couple with three children the limit has been increased by nearly 53 per cent and, for a married couple with four children, the limit has been increased by over 62 per cent. The result has been to focus resources on low-paid taxpayers with children, a group identified as particularly in need of assistance.

In addition, I might point out that acceptance of Deputy Rabbitte's amendments would involve a cost of some £100 million in 1992 and £168 million in a full year while the cost of accepting Deputy Garland's amendments would be of the order of £57 million in 1992 and £95 million in a full year.

In regard to the figures Deputy Kirk sought I should say that 96,900 taxpayers with 169,000 children will not pay tax in this tax year due to the operation of the exemption. In addition 90,000 other taxpayers will benefit from the marginal relief. The personal allowances relief will exempt an additional 196,000 taxpayers from liability. Marginal relief applies in the case of taxpayers whose incomes are somewhat above the relevant exemption threshold and will provide them with a measure of relief ensuring that they will pay less than they would under the normal tax provisions. The Revenue Commissioners are aware that this can lead to a certain amount of confusion. They have targeted taxpayers most likely to be affected, furnishing them with a simple leaflet, highlighting the benefit of marginal relief, using examples, to show that tax savings arise even though the marginal tax rate of 48 per cent applies. In reply to Deputy Noonan I should say I know it is something on which we must work since we will all have experienced the same difficulty.

Mr. Noonan

(Limerick East): Will the Minister provide Deputies with copies of that leaflet? It would be very helpful, because it is nearly impossible to explain.

Mr. B. Ahern

I will.

Mr. Rabbitte

We have had a reasonable debate on this question of exemptions over the week. One can prove almost anything by the use of statistics.

The purpose of my amendment was to highlight the fact that, nothwithstanding that things have changed somewhat — proportionately not a great deal — since 1989, people on low incomes are still penalised by tax. My only additional comment is that it always amazes me how, in the view of some people, paying tax at the marginal rate so early constitutes a disincentive to work. Somehow, however, the opposite is the case for the low paid. Some unemployed people who are offered a job to which a low rate of pay is attached have to seriously consider whether they can afford to take up that job because of the way the PAYE-PRSI code is structured. For example, people who are out of work and get help with their mortgage who qualify for fuel vouchers, medical card, etc, lose some or all of these benefits when they join the workforce. This is a disincentive to employment and, in any event, is grossly unfair and inequitable. I hope the Minister in framing future budgts will have due regard to this point.

Deputy Garland rose.

An Ceann Comhairle

I cannot hear the Deputy now as Deputy Rabbitte has replied to the debate on his amendment.

Amendment, by leave, withdrawn.

Amendments Nos. 3 to 9, inclusive, not moved.

An Ceann Comhairle

We now come to amendment No. 10 in the name of Deputy Michael Noonan. I observe that amendment No. 11 is related. I suggest that we discuss amendments Nos. 10 and 11 together. Is that satisfactory? Agreed.

Mr. Noonan

(Limerick East): I move amendment No. 10:

In page 18, in Part I of the Table, before the entry relating to "The first £7,475" to insert the following row:

"The first £500 15 per cent. the lower rate.".

As the Ceann Comhairle very courteously allowed me to refer to this amendment earlier. I am not pressing it.

Amendment, by leave, withdrawn.

Amendment No. 11 not moved.

Mr. Rabbitte

I move amendment No. 12:

In page 19, between lines 5 and 6, to insert the following:

"(2) Notwithstanding anything contained in the Tax Acts, Part II of the Table to section 2 of the Finance Act, 1984, (inserted by this section), shall apply to persons with dependants who are widows, widowers or single parents."

I found the cold statistical rebuttal of this amendment on Committee Stage both insensitive and unsatisfactory. The argument that there is only one adult to sustain in these circumstances is not a fair summary of the situation in which a widow or widower find themselves. Basically I am seeking in my amendment to give the benefit of double rate bands to widows or widowers with dependants. Stresses and strains beyond entirely the financial, but including the financial, are placed on people who find themselves in that position. In terms of equity, it would be a desirable change.

Mr. B. Ahern

I explained my position on this amendment on Committee Stage. However, I should not like the Deputy to think I was being insensitive. The point I was making is that as we improve the tax system everyone will benefit, including these people. I do not think anyone is arguing the merits of some people over others but the general consensus in this morning's debate was that we should give more consideration to people in need. Apart from the issue of how quickly this can be done, there is no objection to this point. I put forward detailed arguments, which are on the record, including the costs involved, for not accepting this amendment and I do not think there is any need to repeat them. In the context of exemption limits, personal allowances, etc, I will continue, within budgetary constraints, to do whatever I can to help the less well off.

Amendment, by leave, withdrawn.

Mr. Rabbitte

I move amendment No. 13:

In page 19, between lines 19 and 20, to insert the following:

"3.—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.".

I should like to hear the Minister's views on this amendment. He indicated on Committee Stage that after the publication of the White Paper on marriage breakdown and before the next Finance Bill is framed some positive progress might be made on this issue. The point I am making is that marriage breakdown is a widespread phenomenon in modern Irish society and common law relationships are usual and customary. The State already regards cohabiting couples in the circumstances envisaged by my amendment as being married for the purposes of social welfare, yet regards them as single persons for the contribution they make to the State by way of taxes. This compounds an already crazy situation which exists: it is a peculiarly Irish solution to an Irish problem. I do not think the State can regard cohabiting couples as being single for the purposes of tax and regard them as a married couple if they become unemployed and have to resort to social welfare. This is a pressing problem in Irish society. I accept that the tax law cannot run ahead of the civil law but at the same time it is a fact of Irish life and if one Government Minister can deal with it in one way for social welfare purposes I do not see why the Minister responsible for taxation and fiscal matters cannot deal with it in a similar way.

Mr. Quinn

In view of the progress we are making today on amendments, may I suggest that we take amendments Nos. 93 and 94 with amendment No. 13 as they deal with the same issue? After five hours debate we are only on amendment No. 13.

An Ceann Comhairle

Is that satisfactory? Agreed.

Mr. Quinn

The net point in these amendments is the same as that made by Deputy Rabbitte. Having had the opportunity to hear the Minister speak at length about this issue I have to say he is hiding behind a very transparent fig leaf. It has been argued that the Government cannot introduce legislation in the Finance Bill which is ahead of social legislation. Such legislation would not be materially changed by the publication of the White Paper because the White Paper will not, of itself, necessarily be legislation. Given the Government's record in respect of family planning legislation and the laws in relation to homosexuality, to say nothing of marriage breakdown, I do not think any of us should hold our breath in respect of the speed with which the White Paper will be published and implemented. In my considered opinion, it will not happen this side of a general election.

The practice and convention cited by the Minister and his predecessor in the past on good advice is no more than a convention; so far as I am aware there is no legal or constitutional provision which can stop a determined Government from introducing such legislation. As Deputy Rabbitte said, they can do what they have done in the Social Welfare Act, albeit the terms of reference might be slightly different because of the giving out of money on a means tested basis and an assessment of need. It is probably fortuitous that those of us on this side argue that they have used the phraseology, which Deputy Rabbitte cleverly and carefully purports to reinsert into the Bill, of the then Minister for Social Welfare, Deputy Woods. I do not believe — I am open to challenge on this — that there is any legal prohibition on the Minister in this regard and, therefore, it is a question of political will. I have no doubt about the political will of the present Minister or some of his colleagues. However, there is an underlying conservatism within the Fianna Fáil Party, ably represented around the Cabinet table and strongly represented in the backbenches, that enough is enough and we do not need to take on anything more.

It is interesting that in countries such as ours with a Catholic tradition, including Spain and Italy, the ultimate straw that broke the camel's back in terms of clerical opposition to divorce legislation was not the ethos of the sanctity of marriage but the essential component of what marriage law is all about, that is the orderly transfer of property from one generation to another. Unless we deal with this matter very soon all sorts of complications will arise in relation to property transfers from one generation to another and property entitlements such as pension rights and so on.

When civil divorce was finally introduced in Italy and Spain the vast number of common law, second relationships were simply regularised and the divorce rate did not increase at all. The laws of marriage are designed not to make couples live more happily together but simply to regulate their property affairs. This is now essentially a property matter and is seriously out of line with social practice. If the Minister wishes to enhance the liberal vote for the Fianna Fáil Party he could do no better than deal with this matter very quickly. It is a matter that affects everyone in society and I am on record as saying that I am affected by it. The only beneficiaries are the insurance companies because people like myself who are in second marriages have to take out special policies to insure against the extra cost implicit in capital acquisitions tax which results from the way the law is interpreted at present.

I recognise the practice, and I believe it is the correct convention, that finance legislation reflects social law. In this instance the scale of the problem is increasing by the day. While the political will to rectify the main law may exist it is not sufficiently strong and it would take at least two to three years to do so considering that a general election is fairly imminent and that a referendum would be required in relation to civil law. For those reasons, to hide behind the transparent fig leaf of the White Paper on marriage breakdown is no longer sufficient. I invite the Minister to repeat what his predecessor said to me in the House this time last year, that he recognised — as does the Minister — the validity of the argument and would undertake to do something about it in the following 12 months. Perhaps he thought that the White Paper might give him sufficient cover during that time.

All the political cover that this Minister or any Government need is in the extensive Report of the Committee on Marriage Breakdown, a committee established by a previous Oireachtas to deal with this matter. This whole aspect has been covered by the report of that committee, on which the Fianna Fáil Party were substantially represented.

Mr. Garland

I find myself in somewhat of a dilemma when considering these three amendments which are certainly related, as they are related to other aspects of the legislation. As regards amendment No. 13 in the name of Deputy Rabbitte, there is a problem — and the Deputy was quite right in highlighting it — in that cohabiting couples are treated differently in terms of social welfare and income tax. This is an extremely complex matter in that there is always the problem of what constitutes cohabiting. When this subject comes up in the social welfare context I am always vociferous in my condemnation of the attempts my social welfare officials to prove cohabitation. There is the "inspectors under the bed" syndrome or inspectors looking through keyholes and so on.

Rightly or wrongly there is no divorce legislation in this country. We all agree that there are many second or common law relationships, which were not as prevalent 20 or 30 years ago. The reason I am not inclined to support the amendment is that at the end of the day by and large it does not make much difference whether people are treated as two single people or as a married couple; if both parties are working there is no difference. We are, of course, straying into the area of possible divorce legislation. If and when divorce legislation is introduced, the next debate may be whether we should have civil marriage at all. Perhaps this is an area with which the State should not concern itself. Perhaps people should enter into marriage contracts, with couples having a religious ceremony if they so wish. However, that is another day's work.

I support the principle behind amendment No. 93 in the name of Deputy Quinn. There is a problem with the definition of living together as brother and sister as distinct from living together as husband and wife. Again we are straying into difficult territory. Amendment No. 94 in my name and that of Deputy Quinn is similar to amendment No. 13 but it is fundamentally different in that the present system clearly discriminates against people in common law relationships in respect of capital acquisitions tax. I have received representations from a couple of constituents who find themselves in this most unfortunate limbo. It is for those reasons that I put down this amendment. However, I am aware of the practical difficulties in establishing whether people are living together as man and wife.

Mr. Noonan

(Limerick East): I support the amendment moved by Deputy Quinn. When similar amendments were moved on Committee Stage there was some publicity in the papers. I made remarks about the number of unmarried mothers in the country but I do not think the point was taken. I refer to an article in The Economist which stated that 51 per cent of children born in Denmark are born to unmarried women. The point I made was that in Denmark and Sweden the number of people in common law relationships is now higher than the number in marriages. I was not just making a point about the incidence of children born to unmarried mothers. It is not only in Denmark and Sweden that young unmarried women have become pregnant for one reason or another. The important point is that the incidence of common law relationships is now higher than the incidence of marriage. That is increasingly the case in Europe. Denmark heads the list. In Sweden the rate is 49 per cent, in France about 30 per cent and in the UK 29 per cent. We are moving in the same direction here and the law must reflect that. We can argue forever about the rights of minorities and majorities but if a significant number of people in a population are being put outside the law, the law has to be changed.

Mr. B. Ahern

There are no proposals in the Bill to deal with the matter. It is an area involving complex and difficult issues and any potential solution would have to be subject to a thorough legal examination as to the constitutional aspects. This has not been undertaken. I do not necessarily disagree with the points made by Deputy Quinn over the past few years in debates on successive Finance Bills. A legal examination of the constitutional aspects will be undertaken. The House is aware that the White Paper on marriage breakdown is to be published fairly shortly. It would be putting the cart before the horse to attempt to tackle the taxation problems arising from marriage breakdown in advance of the publication of the White Paper and the ensuing debate. The ideal solution is that the tax law should follow, not lead, the general law relating to marriage. I assure the House that when the White Paper has been published there will be no unavoidable delays in devising a solution which will be consistent with the provisions of the Constitution. We will be in a far better position when we see the legal argument on the line put forward in the White Paper. This will allow the Revenue and Social Welfare to look at what is involved. I will not delay in getting to work on this issue once the White Paper is published.

Amendment, by leave, withdrawn.

An Ceann Comhairle

Amendment No. 14 is in the name of Deputy Rabbitte. Amendment No. 15 is an alternative and I suggest therefore that we discuss amendments Nos. 14 and 15 together, by agreement.

Mr. Rabbitte

I move amendment No. 14:

In page 19, between lines 19 and 20, to insert the following:

"3.—(1) Where a deduction falls to be made from the total income and an individual for the year 1992-93 or any subsequent year of assessment in respect of relief to which the individual is entitled under a provision mentioned in column (1) of the Table to this subsection and the amount of the deduction would, but for this section, be an amount specified in column (2) of the said Table, the amount of the deduction shall, in lieu of being the amount specified in the said column (2), be the amount specified in column (3) of the said Table opposite the mention of the amount in the said column (2).

TABLE

Statutory provision	Amount to be deducted from total income for 1991-92	Amount to be deducted from total income for 1992-93 and subsequent years
(1)	(2)	(3)
	£	£
Income Tax Act, 1967:
Section 138
(married man)	4,100	4,500
(widowed person)	2,550	2,800
(widow bereaved in the year of assessment)	4,100	4,500
(widower bereaved in the year of assess- ment)	4,100	4,500
(single person)	2,050	2,250
Section 138A
(additional allowance for widows and others in respect of children)
(widowed person)	1,550	1,700
(others)	2,050	2,275
Section 138B
(employee allowance)	800	1,050

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

The issue here is the tax allowances which have not been improved by the Minister. In every budget and Finance Bill the Minister is seen to give with one hand and take back with the other. In a year when, depending on the sector of the economy you are in, you can have an expectation of an average pay increase of about 5 per cent, inevitably a greater slice of your income will become liable for tax. Deputy Noonan, in commenting on an earlier amendment of mine, said that it is difficult to address this matter in isolation and that one has to take into account, as well as exemption limits, personal allowances and so on. I accept that but unfortunately we are required in the processing of this Bill to deal with matters item by item. Notwithstanding the strictures of the Chair before lunch, the general discussion was one of value. I take the point that we have to look at the "totality of relationships", to use the words of a former Tánaiste. The point remains that personal allowances have not been increased and this is a factor to be considered in the context of wage increases and so on.

Mr. Garland

My amendment No. 15 is identical to Deputy Rabbitte's, except in one respect. He proposes to increase the employee allowance from £800 to £1,050, a proposal with which I do not agree.

I did not get an opportunity to reply to the debate on my amendments on raising the exemption limits. Deputy Noonan is right in pointing out that there is a problem with regard to marginal relief where allowances get out of line with exemption limits. I take that point. The effect of my two lots of amendments, one dealing with exemption limits and the other with personal allowances, would reduce the area where marginal relief applies. The two must be taken together.

I would contend that personal allowances are far too low. Without the benefit of exemption relief people would be paying tax at a very low income. We had to introduce exemption relief with all the consequent problems of marginal relief to bridge the gap between the total of personal allowances and the exemption relief. That could all be resolved if we could accept the concept of tax credits, that is, if personal allowances could be relieved at the standard rate rather than the marginal rate. The effect of increasing personal allowances by £1,000 is to put another £480 in the pockets of the rich, the people earning £100,000, £200,000 or perhaps £500,000 a year. The person on the average industrial wage or the person barely in the tax net benefits to the extent of only £280 a year. The more personal allowances are increased the more benefit there is to the really wealthy, which I am sure nobody in this Houses wishes — at least I hope not.

We have this dilemma every year with the Finance Bill. I never received any coherent answer from the Minister's predecessor as to why this idea cannot be accepted. We have this argument every year when we deal with mortgage interest relief. Some say it is a form of tax avoidance which benefits the rich. That to an extent is true but it also benefits the ordinary person struggling to buy a house. There is no ideological argument about this. It is plain common sense. Obviously the new Minister for Finance will not introduce these changes this year because it would require a re-writing of the whole budget. The very least I would ask would be to do me the credit of saying that he will give the matter serious consideration before the next budget.

Mr. B. Ahern

The amendments put down by both Deputies Rabbitte and Garland propose increases in the main personal income tax allowances. In addition, Deputy Rabbitte proposes to increase the PAYE allowance. The effect of the amendments would be to increase the married personal allowance by £300, from £4,200 to £4,500; the widow's personal allowance by £200, from £2,600 to £2,800; and a single person's allowance by £150, from £2,100 to £2,250. There would, of course be consequential increases in the lone parent's allowance. Under Deputy Rabbitte's amendment, the PAYE allowance would be increased by £250.

I dealt with most of these points earlier but for the record, if the allowances were increased in line with Deputy Rabbitte's amendment the cost is estimated to be approximately £82.1 million this year and £133.1 million in a full year. It is estimated that the cost of implementing Deputy Garland's amendment is £38.6 million this year and £61.3 million in a full year. The income tax changes already incorporated in the Bill are estimated to cost £168 million, and as I have said several times during the week, this is a substantial figure by any standards and is all we can afford in the present budgetary circumstances.

On Committee Stage I said I would look at the personal allowances as a matter of priority. As the Deputy quite rightly said the increase in personal allowances over the past number of years has been very small. However increases in allowances will have to be looked at in the context of budgetary priorities. I gave a commitment on Monday night, however, to look at the question of personal allowances.

An Ceann Comhairle

Does the Deputy wish to press his amendment?

Mr. Rabbitte

No.

Amendment, by leave, withdrawn.

Amendment No. 15 not moved.

Mr. Rabbitte

I move amendment No. 16:

In page 19, line 25, to delete "£286" and substitute "£500".

I tabled this amendment to take account of the sizeable social insurance deductions from the pay packet. Cognisance was taken of this more than a decade ago and a special relief was given to PAYE workers paying social insurance. The actual relief introduced then has been further diminished since and I think if it is anything less than £500, as I propose in my amendment, it is not meaningful. This relief distinguishes this section of the workforce from the rest. As it is approximately a decade since the figure was fixed at this level, the Minister should address this question.

Mr. Garland

While I accept what Deputy Rabbitte has said, the question of the PAYE and PRSI allowances has to be looked at. I raised this matter last year and may I remind Members that the history of these allowances goes back to the time when PAYE, which was not a new form of taxation but merely a method of collecting income tax, was introduced. Sometimes we forget that it is just another form of income tax. In effect everyone is on PAYE. Indeed we have a very complex situation for those earning fees from State or semi-State bodies — however I will deal with this later.

The problem arises from the abolition 18 years ago of earned income relief. That was done allegedly in the interests of simplifying the tax code. What is so complicated about computing earned income relief, which was simply 20 per cent or 25 per cent of the person's earnings whether from professional fees, employment or self-employment, as opposed to investment income? There was a clear differentiation between the income people earned from working, whether for themselves or others and the income they derived from property or investments which they may have inherited from previous generations.

The self-employed and professional people were perceived to be enjoying a tax advantage because they were taxed in arrears. They were never at an advantage in reality, and the Minister knows this full well. This was always an imaginary advantage because of the way the rules of commencement apply to earnings from a trade or profession whereby the income in the first year of trading is the basis of assessment for the first two years of income tax. Self-employed people pay tax in arrears and the perception is that they thus have the advantage of having an interest free loan of the tax payable for a year. This was never the reality. The prevailing wisdom was that PAYE workers had to be compensated for this, and a PAYE allowance was introduced later followed by a PRSI allowance. I maintain the correct way to deal with this is effectively to allow the self-employed and professional people, who earn their bread just as much as salaried persons do — benefit from the PAYE and PRSI allowance because they pay income tax and PRSI just the same as the salaried employee. For that reason I regret I cannot support Deputy Rabbitte's amendment.

Mr. B. Ahern

Deputy Garland spoke mainly about the PAYE allowance, however, the amendment concerns the PRSI allowance, but I realise the Deputy was tracing the history of these allowances.

Mr. Garland

I should have brought up this point under the previous amendment.

Mr. B. Ahern

The purpose of the amendment is to increase from £286 to £500 the special allowance being granted to those individuals who contribute to the higher rates of PRSI in the year 1992-93. This increase would cost an additional £23 million this year and £38.9 million in a full year. It would benefit approximately 504,000 taxpayers, whose income is sufficient to benefit from the increase.

As I said earlier on Committee Stage in the circumstances I cannot accept the amendment.

Amendment, by leave, withdrawn.

An Leas Cheann-Comhairle

Amendment No. 17 has been ruled out of order.

Amendment No. 17 not moved.

Mr. Rabbitte

I move amendment No. 18:

In page 20, to delete lines 18 to 47 and in page 21, to delete lines 1 to 3.

My amendment relates to the question of pension refunds. I wish to ask the Minister a number of questions. I presume the tax refund does not apply to a person leaving a job and taking a refund of his payments in order to pay into another pension plan?

My second question relates to section 6 (b) which reads:

Provided that this paragraph shall not apply where the Revenue Commissioners are satisfied that an application for a repayment was made by or on behalf of an employee before the said 29th day of January, 1992,

What standard of evidence will give satisfaction to the Revenue Commissioners that such application was made? In the case of occupational pension schemes where somebody has contributed to it for whatever portion of their working lives, and who in an increasingly mobile labour market, moves on or in the case of redundancy, is obliged to move on and has no choice, the general hike from 10 per cent to 25 per cent is unfair. I cannot recall dealing with this point during Committee Stage but I have a feeling we did not reach it. I would like to hear the Minister defend poaching this particular area for whatever minimal yield it will give him. I would like to know the expected yield but I suggest it cannot be significant. It is not correct that public policy should discourage people from providing prudentially in pension schemes, such as this, for their retirement. This additional hike is a mean decision for somebody who has been subject to tax all their working lives.

First, can the Minister say what is the expected yield? Second, in a case where there is not portability from one pension scheme to another will the purchase of a new scheme mean that this section does not apply? Third, can the Minister inform the House of the standard of proof the Revenue Commissioners will be seeking when it comes to meeting the paragraph I have just quoted?

Mr. Noonan

(Limerick East): This is a particularly harsh measure and I would like to hear the thinking behind it. I should like to ask the Minister one particular question. He has exempted people who would have applied, either personally or through third parties. I am aware of people who became redundant before Christmas who had not made application but whose intention was to do so. Would the Minister consider a small amendment to the section to exclude people from the 25 per cent rate in favour of the 10 per cent rate in circumstances where they became redundant during the tax year 1991-92 but who had not applied? I know the Minister cannot open it completely but can he open it to that extent because there are genuine cases where people became redundant before Christmas and who did not have their applications submitted by budget day. They had intended to apply but they had not done so and neither had any third party. Now they are caught and it is unfair.

Mr. Rabbitte

I do not wish to bend the rules but we did not have an opportunity during the Special Committee debate to deal with this issue. In regard to the point raised by Deputy Noonan, is it not prima facie——

An Leas-Cheann Comhairle

Deputy Rabbitte will have an opportunity later on when he will be concluding. It is necessary to maintain the rules that govern Report Stage. I appreciate that the raison d'être is to arrive at the true position. I would ask Deputy Rabbitte to contain his thoughts until he is replying, after which we will allow the Minister to intervene a second time to reply to the points he has made.

Mr. Quinn

I was about to volunteer my slot on Report Stage to allow a second chance to Deputy Rabbitte.

Mr. Garland

It appears to me, and the Minister refers to it only briefly in his contribution, that the principle of taxing refunds of pension contributions is a valid one, so far as the contributions, when made by the taxpayer, were subject to 100 per cent tax relief at whatever rate was appropriate at the time. This is where it gets complicated because different tax rates applied at different periods. Subject to what the Minister has to say I feel that by fixing a rate of 25 per cent he is probably trying to get to a position where no taxpayer will be disadvantaged; in other words, no taxpayer will have to pay more tax on the refund than they would have received by way of relief when they made the pension contributions in the first place. I imagine that is what was intended by this legislation. I feel I cannot support this amendment. It is part of the syndrome of the Minister's efforts to widen the tax base. In so far as he has done so in this instance I support him.

I am very sympathetic to Deputy Noonan's comments. I do not know why we should have a specific cut-off point of 29 January. I do not see that the date of application for repayment is relevant. I would have thought the end of a tax year would be the cut-off point. Shortly after an employee ceases employment he or she applies to have their contributory pension refunded to them. I would urge the Minister to accede to Deputy Noonan's reasonable request and, perhaps, insert "5 April 1992." That, too, may be a little harsh because an employee who is made redundant at the end of March may not have his affairs sorted out so that, perhaps, 30 June 1992 may be a good date although, at that stage, one is getting into another tax year. The matter is quite complex but I do not understand the reason for a cut-off date of 29 January 1992.

Mr. Quinn

The only merit in relation to this measure is that it is putting a ringfence around people who retire involuntarily or who become redundant. I am aware of some cases where people can, on an early retirement package, maximise very considerably refunds from their pensions. On the assumption that tax relief is given at the rate of 100 per cent on contributions going into the fund and since we still have not reached a level of portability in relation to pensions across a very wide section, special provision should be made for people who are forced to cash in their pensions particularly people who become redundant.

I do not know whether the Minister is in a position to accept an amendment at this stage. If somebody becomes redundant and pension refunds are taxed it is an added blow. I suspect the yield from this measure will be miniscule in relation to the hurt it will cause. Having regard to the extraordinary high level of redundancies which, unfortunately, we are still experiencing, there will be no great loss to the Exchequer and a certain degree of social protection will be accorded to people at a time of great financial and, in many cases, emotional vulnerability. I do not think the Exchequer would lose much and we would be providing a certain degree of protection which I would strongly recommend to the Minister.

Mr. B. Ahern

This issue arose under two counts: first — as Deputy Garland said — the need to widen the tax base and, second, because of the manner in which it was abused. The practice of putting money into a fund before retiring and getting it back later at 10 per cent has been a growing abuse. The other side to it was that people could have been getting relief on these payments up to 58p in the pound and this was brought to the notice of the Revenue authorities. They did not pay tax on their contributions in the first place but were getting relief.

To answer the points made by Deputies Noonan and Rabbitte, the Revenue Commissioners will accept whatever the pension institution say is the date of application. I do not want to mislead the House by saying that this covers every case but it deals substantially with the problem. The figures are interesting. The tax charge is designed to improve in some measure the tax relief given on the contributions when they were made. Refunds of contributions have been running at about £20 million a year and that is what signalled the examination of it, particularly in the areas of highly mobile employment where one would not imagine people having large contributions. What was happening was that people were making additional voluntary contributions before they ceased employment in the knowledge that the contributions would be refunded. The pension institutions have to provide the necessary evidence to the Revenue authorities. I cannot say categorically that this resolves all cases but it resolves many.

Mr. Rabbitte

On a technical point, I did not say they were paying tax on the contributions they made to the pension fund.

Mr. B. Ahern

Accepted.

Mr. Rabbitte

I said they tended to be people who pay tax. Admittedly, I am thinking about it in the context of a job I did formerly. I am talking about the bulk of workers in pensions schemes, not the whiz kids envisaged in this ruse to which the Minister referred. I hold no brief for them and I have no problem with the Minister dealing with that.

I still argue that there should be some way of distinguishing between the person who is abusing the system and the average worker who contributed all his working life to a contributory pension scheme and finds himself, for whatever reason, out of work. It is grossly unfair that instead of paying 10 per cent on their pension refunds they will now be paying 25 per cent. There is a major loss here. The Revenue Commissioners, with all due respect to them, do not seem to have taken this point into account.

In other countries one gets the employer's contribution or a portion of same back. However, in this situation one forfeits the employer's contribution and all one gets back is one's own contribution. It is, therefore, a very significant diminution of one's circumstances and there is no way one could purchase a new plan that would be any way commensurate with the scheme one was already on. One does not have to be an actuary to work that out. If a worker who has spent 20 or 25 years in a job moves to another job there is no conceivable way that a mere refund of their contributions would enable them to get back to the status quo. This is a mean bite at workers in these circumstances, and I am sorry we did not have time to tease it out at the Special Committee.

I do not accept that in chasing tax dodgers, and other hooks who have been getting away with this over the past 15 to 20 years, the employees I speak of should fall into that category. It is regrettable. The time limit caught us out at the Special Committee but, like Deputy Noonan, I had a number of representations I meant to deal with. I know of people in circumstances he described who were made redundant coming up to the budget. I also know of people who were negotiating their redundancy and severance terms at the time of the budget who rushed in to try to sort it out so that it would fall on the right side of 29 January.

I should like to ask the Minister to concentrate for a moment on the following. Surely this is straightforward in the sense that what we are doing is making new law so that in future, whether it is fair or not — and we can look at that in the future — workers will be subject to 25 per cent tax on their pension refunds. What we are talking about is a transitional problem. Deputy Noonan, and others, made a case, for example, in regard to holiday cottages. We have heard similar cases made in regard to tax reliefs and tax shelters for construction work and so on. How is it that we manage to protect people who entered into contracts but in this situation, because it is an individual with no organised muscle, we do not provide for any transitional phase? That is not fair.

Will the Minister consider the case of the PAYE worker in an employment where he is contributing to an occupational pension scheme? When that relationship is severed, is there not an automatic expectation that he is an applicant for a refund of his pension contributions? Surely it is not posited that he intended to leave the refunds with the pension company? In the case Deputy Noonan instanced of people who left employment before Christmas, or the case I instanced of people negotiating while the Minister was reading his speech on budget day, is it not the normal expectation that they would not leave their pension refunds after them, that they would be applying for them and that they would be considered to be an applicant?

Mr. B. Ahern

As the Deputy is aware, the aim of the Pensions Act, 1990, and the trade unions is to encourage workers to leave their contributions in the scheme to preserve their pension rights. That is the concept nowadays.

Mr. Rabbitte

While I accept that that is the concept I am saying to the Minister——

Mr. B. Ahern

That is what is happening.

Mr. Rabbitte

Mr. Rabbitte

While I am not convinced, I am not going to detain every other Member of the House.

An Leas-Cheann Comhairle

While the Chair might have a greater personal interest in pensions than either the Deputy or the Minister, we must proceed.

An Leas Cheann Comhairle

Amendment No. 20 in the name of Deputy Garland. Amendment No. 21 is consequential and they may be discussed together. Is that agreed? Agreed.

Mr. Garland

I move amendment No. 20:

In page 21, to delete lines 24 and 25.

This amendment was tabled on Committee Stage by Deputy Noonan but he does not seem to have tabled it on Report Stage. However, that is his privilege if he does not want to have the matter debated again.

Mr. Noonan

(Limerick East): I did enter it and I do not know why it has not appeared on the list. It must have been lost in transit from my office.

Mr. Garland

I am sure I can reply in support of the Deputy. It may sound peculiar coming from someone representing the Green Party, Comhaontas Glas, to hold a brief for the car lobby who, undoubtedly, benefit from commercial travellers, as they used to call them in the old days; they are now called company representatives.

The most important aspect of the tax system is to provide equity between taxpayers and this point has been referred to in the debate today. As Deputy Rabbitte said, we need to very clearly distinguish between a managing director, who probably lives within 50 yards of a DART station in Killiney, who has a company car and free car parking at his or her office and the ordinary company representative. Instead of using public transport, which is readily available, the managing director chooses to travel to work by car at the taxpayers' expense; the car is parked at the office all day, the managing director leaves at 5.30 p.m. and joins the traffic jam. We certainly do not want to facilitate that kind of person in any way.

However, the Minister seeks to penalise the ordinary company representative. Of course we would love to see company representatives using trains and buses instead of cars. That is fine if you want to sell something in Cork and do not have to carry the goods with you. It is easy in that event to go up and down by train and many company representatives do. However, the reality is that the representative travelling to Cork probably makes calls in other towns along the way and it is just not practical to use public transport. The car is a tool in the same way as a saw is the carpenter's tool.

Everyone accepts that there is a degree of benefit-in-kind in relation to a car but it is a question of balance between the taxpayer and the Revenue in this matter. A reasonable balance has been struck over the years and the increase in the business mileage from 10,000 to 15,000 is unwarranted; 10,000 business miles per year is quite a substantial figure and I do not think the Minister made a case for increasing it to 15,000 miles.

Mr. Quinn

Are we taking the other amendments related to benefit-in-kind?

An Leas-Cheann Comhairle

We are dealing with amendments Nos. 20 and 21.

Mr. Noonan

(Limerick East): We should also take amendment No. 22 as it would help us to make progress.

An Leas-Cheann Comhairle

Is it agreed to discuss amendment No. 22 with amendments Nos. 20 and 21? Agreed.

Mr. Quinn

I understand what the Minister is trying to do. We spoke about it at some length on Second Stage although it was not discussed on Committee Stage, which is obvious from the comments now being made. Clearly a car is part of a remuneration package for a large number of people and, consequently, it should be taxed as benefit-in-kind. However, a clear distinction must be made between people whose primary job it is to use a car during the course of their work and others who do not. Some officials in the Department indicated that if a person leaves the car with the company at weekends or overnight they would not have benefit-in-kind. However, that is not practical because, in many cases, even commercial vehicles with the name of the company emblazoned on the side of the van or truck are frequently brought home by the driver because it is more convenient for the company. Having the use of the vehicle and parking at their place of residence overnight is not necessarily an exclusive convenience for the driver, in many cases it greatly facilitates the company in question. The Minister promised to introduce substantial legislation in relation to fringe benefits later in the year so we will have an opportunity to discuss this matter at some length.

A clear distinction should be made between people who use a car as part and parcel of their work. The level of tax on that benefit, albeit small, should be minuscule in relation to somebody who gets a company car which, invariably, is something between 1.6 and 2 litres and costing from £20,000 upwards. When you look at the severance payments made to people at the end of their employment, they frequently get the car at little or no cost. It is a benefit-in-kind, tantamount to a replacement of income and there is an element of tax evasion in it. I have received a large number of bona fide representations — as all Members have — from people who must use the car to do their work. As Deputy Garland said, the car is not only a tool in relation to transportation but also a container for the goods which are being displayed and sold.

I have one final point to make in relation to the formulation of legislation on benefit-in-kind and fringe benefits. If this country is to prosper to the level we need we will have to promote an attitude to sales and marketing that will involve company representatives in much more travel abroad and much more time spent away from home. Of course, that has its own social disruption cost, and some element of recognition of that, which is the other side of benefit-in-kind, must be written into the tax code.

Recently I was in the company of someone who gave up a job as a long distance lorry driver because of the disruption to his family. Even though his earnings, including overtime, and the perks of travel between Ireland and the Continent were attractive, his job carried a high social cost.

I made reference to this issue in the Second Stage debate and, at 3.20 p.m. on the first day of a two-day debate on Report Stage, I am not going to repeat it. However, I caution departmental officials to consider both sides of the equation when reviewing benefits-in-kind. Damage in kind is the other side of the equation as regards certain activities and jobs.

The long hours of political life bring about their own casualty rate, as one will realise if, for example, one compares the casualty rate of marriages of Department of Foreign Affairs staff with that of the staff of domestic Government Departments. That casualty rate is not peculiar to Ireland, it is similar in most European countries. The nature of overseas work imposes its own stresses. If one were to say that diplomats, for example, received benefits-in-kind in that they had expense accounts, were able to live abroad and so on, one would also have to recognise that there are costs attached to their employment. This issue requires balance and it should be approached with that in mind.

I strongly support the amendment tabled by Deputy Noonan. I agree that there are problems of definition for which there will have to be clarification and agreement, otherwise everybody within a company would become a commercial traveller. I accept that the definition is open to abuse and work needs to be done on it. Such definitions are not easy to arrive at, another aspect I recognise. The principle should be very clear; we have to become much more sales oriented and we have to make it easy for people to take up employment in sales. It is important to understand that sales will increasingly involve much more travel and more time spent away from home, with all of the costs incurred in that regard.

Mr. Noonan

(Limerick East): I support the case made by previous Deputies. The Minister was particularly hard on those who genuinely use company cars five days a week in the course of employment. I understand the Minister's reason for wanting to tax those who got a car as part of a remuneration package. In fairness, none of us would object to that. Even with the introduction of the new regime, those involved are doing better than if they had to go out and buy a car for themselves. We all know people who are in that position and I have no problem with the changes made to catch them in taxation terms. However, we have to recognise that there are people who use a car five days of the week and need that car as a tool of their trade; they cannot earn their living without it and they are required by their employers to use it. The Bill puts a harsh imposition on those people.

Tapering relief on a mileage basis does not solve the problem. In my town, in Cork and particularly in Dublin there are people who clock up very low mileage yet spend five days of the week in their cars. Often when they are not in their cars they are parked alongside the Ilac Centre while they tramp along every street going from shop to shop. While their cars may be parked, they are still necessary for their work. For those people their cars are their method of transport, their store for what they are carrying and their office. They may not ever clock up 10,000 miles a year on business but one cannot say that their cars are not used for work.

I hope the Minister will favourably consider my amendment, No. 22, which seeks to exclude by definition of job type certain persons from the stringency of this provision. My amendment reads that the section shall not apply to persons whose employment requires the full-time use of a car supplied by their employers. I know that that is too simple and too naive an amendment to be accepted by either the Department of Finance or the Revenue Commissioners but it contains the idea. Let the experts put that concept into the legal language necessary for tax law. It cannot be beyond the bounds of possibility to make an exclusion for people who genuinely use their cars full time. We must be able to provide for that in a way that ring-fences that category.

Those who need their cars for work are the only people I am concerned about. Those who get cars as part of a remuneration package — and it is now quite a widespread practice to provide a car as part of a remuneration package — do not need my sympathy. Many of them take the DART to work and leave their cars at home; very often they do not even use the car to go to and from work. None of us will shed any tears about the extra tax imposed on those people. That is simply fair and it counters avoidance and brings in extra revenue that can in turn be given out to PAYE workers. I strongly advocate the approach taken in my amendment No. 22.

There is not much that the Minister can do now, late in the evening on the Report Stage debate, but there is another Finance Bill due in the autumn and I ask the Minister to consider the measure again.

Mr. Rabbitte

I wish to be associated with people who use their cars as a tool of trade in the same way as a craftsman needs his or her tools. It is a pity that we have not been able to distinguish between the category of those who genuinely need a car in their employment and the executive category, for which a car is a perk rather than a necessity.

Mr. B. Ahern

I thank Deputies for their remarks.

Initially at least this issue generated a huge amount of controversy and protest. As I did on several other issues, I spent much time talking to company representatives about this issue.

At first the controversy focused on those who clocked up a high mileage. It was easy to understand the case of those who might drive out of Dublin, Cork or Limerick, travel throughout the country and then return late on a Friday night. We all know that the last thing company representatives want to see in the weekends is their cars — if they have to travel at all they will choose to walk. It seemed that it would be easy enough to try to identify the category of high mileage drivers and do something for them.

Two issues arose from discussions that were held.

One issue was made clear from budget day. People reckoned that there were perhaps 20,000 or 30,000 company cars in this country but it was determined that there are 94,500 company cars in Ireland. The international Financial Times Hyatt survey published around Christmas time showed that Ireland had the highest level of company cars of all OECD countries. Company representatives told me that their cars would amount to about 3,500 of that number — I think the most recent assessment they made took the figure to 3,800.

I do not wish to repeat the point made by Deputy Noonan, but the representatives also pointed out that there is another kind of representative, those who drive only a low mileage but who genuinely use their cars in their employment. The Department explored every possibility in an attempt to find some device that would distinguish the category who genuinely need their cars for employment. The representatives agree that there is a difficulty in that regard and they employed the services of a consultant, a very fine man who understood revenue law and was involved with the Revenue Commissioners, if not a practitioner of law on taxation. One weekend I spent a few hours talking to him. He then met officials of the Department and I met with him again. In the end, he conceded that even the device he had in mind would not work because it would mean that all of the 94,500 people who have company cars would become company representatives.

For example, the businessman who lived in Balbriggan and drove to the Financial Services Centre or some other location in the city every day would have been able to cover his ground by saying that he called off at the airport on the way home for his lunch. Therefore, it was not possible to find a definition that covered those circumstances. In the absence of that — at least in the case of the high mileage people — what I decided to do was to phase in the benefit-in-kind over a period. Just for the record I might say that there has been a great deal of talk outside the House that people with high mileages are being taxed. I should say that the charge on company cars has nothing whatsoever to do with their use during working hours. The proof of that is that, whenever an employee has the use of a company car solely during working hours, there is no tax charge. I know Members of the House understand that; I accept that fully. But people outside the House have been endeavouring to turn that argument around. What is being taxed is the availability of the car for private use outside of business hours, in the evenings, at weekends or on holiday; it is that which is taxed, not its use during working hours. It follows that the mileage driven during working hours is not, I suppose, really that relevant to the tax charge. But the high mileage people have advanced a particular argument in that regard.

Another argument that has been advanced from outside the House, which has not been made here, is the increase in assumed value of company cars for tax purposes to 30 per cent of the original market value. That is still low because the various studies undertaken on this demonstrate that the rate should be over 40 per cent. The representatives' figure taken for these purposes is 15,000 miles as distinct from company executives or others who have a high mileage. If one takes the depreciation of 15 per cent that makes a figure of £2,250; the interest on the loan to purchase the car is 15.75 per cent, bringing it to £2,360; insurance £600; road tax £150; petrol £1,000; repairs and servicing £300. Therefore, on the basis of those figures, the cost of a £15,000 car for a private motorist would be £6,800, about 45 per cent of the outlay. One can reduce or raise those figures but the fact is that the percentage remains reasonable. I should also like to put on the record — in order to alleviate the fears of general or high mileage representatives — that this does not constitute a step on that road, because they know these figures as well. For example, in the 1982 budget it was said that it would go up in the budget the following year but it did not. I have made it clear that I was not going to use this as a device to step it up either, because that would be unreasonable.

As I think Deputy Quinn said, unfortunately, it is a definition argument at this stage since we have not been able to draw a distinction. If anything, our discussions rendered that task more difficult because, in endeavouring to help the users of 3,500 cars out of approximately 20,000 I discovered there were approximately 94,500 cars involved, so it renders our task impossible. Unfortunately I cannot accept the amendment.

Mr. Garland

I am disappointed at the Minister's response. Of course I am aware that he did make a minor change in the Finance Bill compared with the budgetary provision. This phasing in over the five years is all very well but I sometimes wonder about provisions being phased in. Surely something is either right or wrong, is either fair or unfair. This amounts to almost a kind of bribe, a case of the Minister saying: you are really right but we have to raise the money where we can so, in order to soften the blow somewhat, we will phase it in over the five years. I still maintain that the balance of advantage and of equity lies with leaving the figures as they are. I am sure the amount of revenue foregone would be quite minimal.

Amendment, by leave, withdrawn.

Amendment No. 21 not moved.

Mr. Noonan

(Limerick East): I move amendment No. 22:

In page 22, between lines 23 and 24, to insert the following:

"(2) This section shall not apply to persons whose employment requires the fulltime use of a car supplied by their employers.".

Amendment put and declared lost.

Mr. Garland

I move amendment No. 23:

In page 22, to delete lines 24 and 54 and in page 23, to delete lines 1 to 6.

This amendment is in opposition to section 9. Originally this was Deputy Quinn's amendment tabled on Committee Stage which, for some reason or another, he does not appear to have retabled for Report Stage. Perhaps that is an indication that he was satisfied with the Minister's response.

Mr. Quinn

Unfortunately it was never debated.

Mr. Garland

I have taken a fresh look at this in relation to what Deputy Quinn thinks about it. Surely this Bill is sufficiently long, comprised of 265 pages or thereabouts, without our having to introduce these minor refinements? I sometimes think the amount of work and effort that goes into these things is disproportionate to the result. This new section purports to deal with the restriction of relief in respect of interest paid on certain loans, that is loans to employees of companies. We are talking about a benefit-in-kind which will arise for preferential loans. At present the rate is 10 per cent for house loans and 12 per cent in the case of other loans. I do not really see anything very much wrong with those figures. Yet the Minister sees fit to introduce a whole section in this Bill increasing the 10 per cent to 11 per cent and the 12 per cent to 15 per cent. In the case of an employee paying interest at 10 per cent and 12 per cent there is no effective benefit-in-kind or, if there is, it is minimal. I contend this is a "scraping of the bottom of the barrel" exercise. Do we really have to go into the small print like this? I really think the Minister should withdraw the section.

Mr. Quinn

It was an oversight that I did not re-enter the amendment in my name, as Deputy Garland correctly pointed out. I might address my comments deliberately to the public service, of which elected Members form part. The biggest benefit-in-kind we Deputies have is our pension entitlement. I would have to say that the most enormous benefit-in-kind people in the public service have is their non-contributory pension. There was a notional nonsense conceded by some Minister for the Public Service in the late seventies or early eighties — I cannot recall which — which was the presumption that civil servants were given a wage increase which did not materialise but it was etherised into a notional contribution towards pension.

When I once said to people in the public service that they did not contribute to pensions they replied: we do; it is written down in an agreement somewhere. It is really a word of caution in respect of benefit-in-kind to those people who live in very elaborate and delicate glasshouses. My comments on Second Stage were explicit and were confined to Deputies but they apply equally to people in the public service. It is a very elaborate glasshouse. We — I use that word advisedly — should proceed with due care and caution. I contend that section 9 is a mean section and it is. As Deputy Garland said, the motivation behind it is to broaden the base and scrape in money from all quarters. I will not repeat what I said in regard to motivation. Those who work in any kind of job have some kind of benefit-in-kind that goes with the job. It is reasonable to expect that if one works in a bank or finance house, one will get preferential rates of interest on loans, which is what they get. As Deputy Garland said, these benefits are taxed; there is an assumption built into the system and money is clawed back. With regard to the proposed increases of 1 per cent and 3 per cent, I do not think the Minister fully realises the depth of the slippery slope upon which he has taken the first step. This provision should be carefully thought out. We will have time to explore this point at some length in the debate on the Finance Bill which will be introduced in the autumn.

The question of motivation, commitment and job satisfaction is much wider and deeper than the level of remuneration per se and the consequent level of taxation. As the Minister did not say why this change is necessary during the Second Stage debate, I should like him to avail of the opportunity to do so now. My opposition to this increase stands and I should like to hear the Minister's views on it.

Mr. B. Ahern

A preferential loan given by an employer to an employee is either interest free or at a rate which is preferential; it is certainly better than the specified rates. The present specified rates of 10 per cent for mortgage loans and 12 per cent for other loans are lower than the commercial loans available to taxpayers in general and considerably lower in many instances. I admit that there may not be as big an outcry about this issue as there used to be. A few years ago ordinary taxpayers complained about preferential loans. Section 9 will increase the specified rates to bring them more into line with the normal building society and commercial bank rates which applied at the beginning of 1992.

As I said in my Budget Statement and Second Stage speech, I will review the specified rates each year at budget time to ensure they are not out of line with prevailing commercial rates. Alternatively, if the normal commercial rates change, the rates for preferential loans will have to be adjusted accordingly. This provision will do no more than keep the rates for preferential loans in line with the commercial rates. The loans can be substantial benefit to individuals, particularly young people who need mortgages. These kind of benefits cause great resentment among people and I am doing no more than trying to ensure that the system is equitable.

Mr. Garland

The Minister has not made a convincing case for these increases. Nevertheless, I will not press my amendment.

Amendment, by leave, withdrawn.

An Leas-Cheann Comhairle

We now move to amendment No. 24 in the name of Deputy Garland.

Mr. Garland

Would it be possible to take amendments Nos. 24 and 25 together as they deal with withholding tax?

An Leas-Cheann Comhairle

Is that agreed? Agreed.

Mr. Garland

I move amendment No. 24:

In page 23, to delete lines 7 to 31.

My amendment deals with the iniquitous withholding tax which clearly discriminates against professional people. The introduction of this tax in 1987 was, so to speak, a scraping of the barrel exercise; it was a ruse used by the Minister at that time to advance tax revenue.

Professional fees paid to doctors, lawyers, and so on are taxable income in the hands of the recipients. Everyone admits that this is the case. It is also admitted that, human nature being what it is, there is a certain amount of tax evasion among professional people. Nevertheless, there are laws covering this practice. If professional people evade paying their full tax liability they should be dealt with and pursued in the normal way.

Debate adjourned.

Dáil Éireann debate - Friday, 15 May 1992