Ivan Yates
Question:24 Mr. Yates asked the Minister for Finance if he will give a commitment to abolish the 1 per cent income levy as a prerequisite to talks on any new successor to the Programme for Economic and Social Progress.
Ceisteanna—Questions. Oral Answers. - New Programme for Economic and Social Progress Negotiations.
Pat Cox
Question:25 Mr. Cox asked the Minister for Finance the Government's response to the pre-conditions set by the trade union movement for a renewal of the Programme for Economic and Social Progress and, in particular, to their demand for the abandonment of the 1 per cent income levy.
Ivan Yates
Question:26 Mr. Yates asked the Minister for Finance the Government's position in relation to any new Programme for Economic and Social Progress with regard to the level of pay increases the Government are offering in these negotiations.
Liz McManus
Question:33 Ms McManus asked the Minister for Finance if it is planned to abolish the 1 per cent income levy in the next budget; and if he will make a statement on the matter.
Eamon Gilmore
Question:35 Mr. Gilmore asked the Minister for Finance if the Government intends to enter negotiations with the social partners with a view to agreeing a new Programme for Economic and Social Progress; if his attention has been drawn to the conditions set by the ICTU for entering negotiations such as the abolition of the 1 per cent levy and the reversal of social welfare cuts; if the Government will meet these conditions; and if he will make a statement on the matter.
I propose to take Questions Nos. 24, 25, 26, 33 and 35 together.
Deputies will be aware that the Irish Congress of Trade Unions, the Irish Business and Employers Confederation and the Construction Industry Federation have decided to enter into discussions on a new national programme. The Government welcomes these decisions and would hope that discussions would get under way fairly soon.
I hope that the issues raised by Congress in relation to the income levy and social welfare can be addressed in a manner which will enable the programme discussions to proceed.
As regards the level of pay increases which might be the subject of discussion with the social partners, I have nothing to add to my reply to Question No. 8 tabled by Deputy Yates on 11 May 1993. Speculation on such issues would be wholly inappropriate at this juncture.
As regards the 1 per cent income levy, this measure was introduced in the 1993 budget to enable the Government maintain budgetary discipline, as an essential element in overall employment strategy, against the difficult background of the international recession and particularly high unemployment.
The levy was announced as a temporary measure. Despite the serious budgetary constraints facing the Government, it was decided not to increase tax rates as this would have involved reversing some of the major progress made in the income tax area in the last few years.
Much of the criticism of the levy has ignored the substantial exemptions from the levy and also the other general improvements in the income tax code announced in the budget.
Having said that, the Government is anxious to remove the levy at the earliest possible date, subject to the overall budgetary position. The future of the levy is, as I mentioned, one of the important issues to be addressed in the context of the discussions on the renewal of the Programme for Economic and Social Progress.
In regard to the 1 per cent income levy, will the Minister drop the ambiguity and give us a yes or no answer as to whether it will be abolished in 1994? Will he not agree that it is arbitrary, the fifth tax on employment, it adds to the tax wedge and is equivalent to a 2 per cent increase in the standard rate of tax for those who have to pay it? It is penal and unfair. Will the Minister give a commitment to the House, in order to commence discussions, that he will get rid of it?
I will not give such a commitment.
As I was all dressed up with nowhere to go today, I thought I might come into the House and talk to the Minister. From reports in the newspapers it appears that, in effect, the trade union movement made it a precondition of entering discussions on the new Programme for Economic and Social Progress that the income levy would be abandoned. Since ICTU, IBEC, CIF and so on are now prepared to enter such discussions, it would appear that they must have some tacit understanding with the Minister or his advisers, who are good at emitting signals even if they do not speak with the clarity we are seeking in this House.
Deputies will appreciate that the first meeting to discuss the pre-conditions outlined by the Irish Congress of Trade Unions and to seek clarification on the items they have tabled will take place tomorrow morning. At that meeting I will point out the Government's position. It would be nice to be able to say that we will drop the 1 per cent levy in early October at a cost of £150 million to the Exchequer, but I will not be in a position to do that either this afternoon or tomorrow morning. The 1 per cent levy is a means of seeking a contribution from all income earners who are in a position to bear such a burden and its introduction must be viewed against the background of our position last January. The Programme for Economic and Social Progress has brought about a significant improvement in people's real take-home pay. During the period of the Programme for Economic and Social Progress and the Programme for National Recovery take-home pay has increased by approximately 10 to 14 per cent, although it differs depending on marital status. Unemployment increased by 30,000 in the 1992-93 period and the Government believed that the 1 per cent levy was a fair means of clawing back money to maintain the sound budgetary stance that is necessary in all countries. I am sure Deputy Cox will acknowledge that I have stated I will consider the matter of the 1 per cent temporary levy in the context of the 1994 budget, but I am not in a position to do so now.
Will the Minister not sympathise with his negotiating partner, as he invited him to do so?
Deputy Cox does not need my sympathy as he is as young as I and will serve many more years in this House.
Yes Minister.
Will the Minister confirm that the cost of abolishing the levy during the 1994 tax year will result in a saving for taxpayers of £78 million and £130 million in a full year? Has the National Treasury Management Agency confirmed that the saving resulting from the lowering of interest rates internationally is between £80 million and £100 million, that measures that arose from the currency crisis, such as the market development fund, no longer apply and, within that ambit, there is scope for abolishing the levy?
The market development fund only provided resources up to 31 March.
Was the amount £18 million this year?
The money provided was spent. The National Treasury Management Agency is performing well. Its good performance is based on deals it concluded on maturing debts, the taking on of new debt and not only on lower interest rates internationally. The agency has brought extraordinary ingenuity to its work practices. I understand Deputy Yates called to the agency during the summer break and that was welcome. The agency is now beseiged by international treasury agencies who wish to learn about its work practices. I am hopeful that the figure will be in the order of £80 million to £100 million.
Hence the levy can go.
Unfortunately, other matters arise, for example, Aer Lingus which will result in expenditure of between £50 million and £75 million.
The Minister indicated that he is not in a position to abandon the levy in early October and he has given a signal that he will consider abandoning the levy in 1994. Does he accept that a nod is as good as a wink and that he has decided to abandon the levy next year because he will not get anywhere with the social partners if he does not do away with what was a folly and a disastrous decision in the first place?
Unlike the levies introduced in 1984 and 1986 that still apply I would like to remove the levy introduced in 1993 during the life of the Government. The earlier levies did not include thresholds or exemptions. While the 1993 levy included a £9,000 exemption limit and excluded medical card holders and employer's liability for medical card holders. It is a matter for phasing it out. I am sure Deputies Yates and Cox will acknowledge that the opportunity for a Government to obtain income of between £145 million and £150 million in one fell swoop, which is approximately 1.5 per cent on the standard rate and higher tax rate is difficult to achieve in one year. It is a great deal of money to take out of the system and that will not be easy to do.
On the new Programme for Economic and Social Progress, in view of the Minister's exhortations about pay moderation and competitiveness, would he consider reverting to the provisions of the Programme for National Recovery and integrate pay and tax? In order to secure a moderate pay deal we should focus on net pay by integrating tax reform into pay increases so that the take-home pay would be the critical factor. The Minister, given that the public sector pay bill is the largest element, is in the unique position to review the mistakes of the Programme for Economic and Social Progress and the benefits of the Programme for National Recovery and integrate the two.
I was involved in negotiating both programmes. I preferred the Programme for National Recovery but it was not possible in the last negotiations to follow the provisions in that programme. The Programme for National Recovery was more useful for many reasons. Apart from what is paid under the Programme for Economic and Social Progress we seem to have built into our system a 2 per cent wage drift in our economy. If the increase is 3 per cent we appear to pay 5 per cent and that appears to be the case across the private sector. Under the Programme for National Recovery the rate was fixed at 2.5 per cent for a fixed period and was non-index rated. The resources freed during that period were used to widen the standard band over a short period and to reduce corporation tax from 50 per cent to 40 per cent. It would be wiser to go that way because otherwise the available resources are eaten up for other purposes leaving no room to manoeuvre. If I give £150 million as a once off next year it will take away my ability to give cuts next year. That is the point I was making during the summer.