I am grateful to the Chair for allowing me to raise this important issue.
Galway city is still reeling from the shock announcement made here last week by Minister Ruairí Quinn that manufacturing was to cease at the Digital plant in Galway with a loss of 780 jobs in the factory and a possible further loss of 1,500 jobs in other enterprises supplying Digital with goods and services.
The Galway economy has been dependent on Digital to an exceptional degree and the effect of the withdrawal of 780 jobs at the factory within the next 12 months will have calamitous consequences unless immediate measures are put in place to minimise the impact.
I welcome the IDA task force that has been set up under the chairmanship of Mr. Séamus Keating, a man with wide administrative and industrial knowledge and experience in the County Galway region. Galway will fight back, but it will be a hard struggle.
My immediate concern today is to ensure that the State does not contribute to the financial hardship facing the 780 workers who are about to lose their jobs by taking away in tax up to 50 per cent of the lump sum payments that the Digital Corporation are offering their workers in compensation for loss of their jobs.
Minister Quinn promised in the Dáil debate last week that the Government would give sympathetic consideration to any proposals that might alleviate the financial hardship confronting the Digital workers.
I request that regulations be made, under the existing tax code or else legislation introduced immediately, whichever is considered necessary, to grant exemption from income tax for all compensation lump sums paid on involuntary loss of employment. In the case of Digital, Galway, the company has agreed to pay six weeks' salary for every year employed and the average length of employment among the workforce is 11 years.
Under the terms of Section 10 of 1980 Finance Act only £10,000 can be deemed exempt from tax in these circumstances. In the United Kingdom the current exemption is £30,000. If the 1980 figures were indexed to inflation here since 1980, our exemption figure would also stand at £30,000.
In the Dáil debate on the 1980 Finance Act, the then Minister said
the effect of the 1980 Act was that there would be no tax charge on the lump sum compensation and any tax free superannuation benefits which did not exceed £10,000.
Unfortunately, it seems there has been no change in that figure over the past 13 years. I am asking that it be changed now.
I would suggest that the Minister could also deal with this matter by altering the formula for calculating standard capital superannuation benefit by dividing years of service by ten instead of 20 as at present. I understand the present formula to be: years of service over 20 multiplied by annual salary.
Another way the Minister could come to the aid of redundant workers in the Digital case would be to pay an agreed portion of lump sum direct to financial institutions to clear or reduce mortgage liability of workers. In this way it would not be assessed as part of workers' income.
Whatever action the Minister decides to take must have the effect of allowing the redundant workers retain the full amount of the compensatory lump sum.
It would be perverse to suggest, as I believe some officials have, that the granting of tax exemption would only result in the employer reducing the amount of the compensatory sum. The amount paid in compensation is something worked out in negotiations between workers and their employers. The cost to the employer is the same whether tax is charged or not.
It is the State that is denying the worker the full benefit of the amount being paid at full cost by the employer. I do not believe the State can morally justify what they are doing. In my personal view there is no moral justification for the State taking away in tax a substantial portion — in this case 50 per cent — of a lump sum paid by the employer for the loss of an income through involuntary loss of employment.
The tragedy for Digital workers will be twofold if as well as losing their jobs they also end up losing their homes because the State insists on stealing half their compensation. If something is not done about this whole question at the earliest opportunity it will indeed seem like the end of the world for most of the 780 employees at Digital, Galway — an end of their worlds, that they are not willingly going to accept.
Can the Minister please tell this House today that he will take action? Whether along the lines I have proposed or not is not important so long as the problem is adequately addressed. This situation is critical and the time for a decision is now.
