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Dáil Éireann debate -
Tuesday, 22 Mar 1994

Vol. 440 No. 4

Private Members' Business. - Tax Reform: Motion.

I move:

That Dáil Éireann condemns the Government policies that discriminate against home ownership, with particular reference to the budgetary changes curbing mortgage tax relief and the extension of the Residential Property Tax; and furthermore calls on the Government to adhere to the policy of successive Governments of supporting families in providing their own homes.

I wish to share my time with Deputy Durkan. The issues in the budget that provoked the greatest ire are those we wish to debate tonight. It is with regret that I move the motion. We debated the budget but we have yet to debate the Finance Bill. In the aftermath of the budget it quickly became clear that one of the aspects that upset people most was the proposed extension of the residential property tax net. We were told by the Tánaiste that there was no need to worry, everything would be all right when everyone received their revised tax free allowance for the new tax year 1994-95. We were assured all taxpayers would be better off under this budget. Unfortunately home owners with mortgages are significantly worse off due to the curtailment of mortgage relief and the widening of the residential property tax net.

What is beyond doubt is that the total income tax receipts estimated by the Minister for Finance on budget day will be £23 million higher than the revenue received from income tax last year — in excess of £3.7 billion. The Minister will take in more despite the fact that on income tax all his previous targets have been overshot.

In dealing with the twin issues of mortgage relief and residential property tax it is a matter of public record that both Fianna Fáil and Labour utterly reneged on the commitments given during the last election campaign. What we see are the same urban PAYE soft targets — round up the usual suspects — being hit in the fine print of the budget. The middle income sector are reeling from the effects of the last two budgets brought in by the Minister. Not only do we have home ownership changes but the most miserly and mean cut of all—doubling the threshold for medical allowances claimable by a family from £150 to £300 and on top of that, starting next year, phasing down VHI relief from 48 per cent to 27 per cent. Increasingly, the middle income sector is faced with the prospect of paying more and more and being entitled to less and less.

We have a very proud record of home ownership. Over 80 per cent of all homes are privately owned by the householder. It is one of the highest rates of home ownership in Europe and the world. Is this an accident or part of the Irish psyche? No, it is because successive Governments of all hues sought to assist people in providing their own homes. This was done through tax relief and grant aid. We saw it as beneficial to assist the construction industry because it is labour intensive. Last Friday on "News at One" on RTE the Minister came clean with his hidden agenda and said he wanted "less investment in bricks and mortar". The Government does not want people to invest in providing their own homes but it has no mandate for this change in policy. For the Minister to state that those opposing the residential property tax were an hysterical well heeled minority shows how out of touch Ministers become when they get the Mercs and perks of office.

I have a pile of letters from people complaining about their positions. The typical case is of people who married 20 years ago and bought a house for £20,000. It was the biggest investment they made. They reared and educated their family with little or no help from the State. Today their house is in the residential property tax net. They made sacrifices and worked hard and now they find that at the end of their days they have to hand over more tax to the Revenue Commissioners. The reduction in mortgage relief affects well in excess of 100,000 people yet the issue was barely highlighted.

Many people sent their tax free allowance certificates to me. One gentleman from Cork stated that his income relief last year was £3,048. This year, when we are told by the Tánaiste that he will be better off, that person's mortgage relief is £1,675. Despite the marginal changes in his personal allowances overall his allowances are down from £17,088 to £16,525. Another case is a teacher from County Westmeath. He was notified on 15 March 1993 that his interest relief was £3,400. This year it is £1,817. They are but two examples. I could refer ad nauseam to other cases. People are perplexed and in a mathematical maze. They ask Deputies if there has been an error but alas there has not been any. The fine print of this year's budget states three things about mortgage relief — first, the maximum one can claim is 80 per cent of mortgage expenses; second, the Revenue Commissioners because of the reduction in interest rates, were assessing mortgages being payable at 12 per cent and they are now assessing them at 8 per cent for the average mortgage; third, this year mortgage interest relief is allowable at the marginal rate of 42.75p in the pound and not 48 per cent, the rate at which people pay tax and ultimately they will be able to claim relief only at 27p in the pound. This is a triple whammy on mortgage holders before they have to deal with local service charges and the house tax.

People are crippled by the loss of mortgage interest relief. My figures, which I got in response to parliamentary questions, show that some 320,000 people claim mortgage interest relief. I hazard a guess that well in excess of 180,000 people are facing substantial losses in mortgage interest relief. Let me give two typical examples. A person with a typical mortgage of £40,000 — today it was confirmed by a prominent building society that this is the average mortgage in Dublin — would have had relief of £1,977 whereas this year the relief will be worth £1,008, a reduction of about £1,000 or £20 per week. For somebody with a mortgage of £50,000 the news is worse and they have to bear the loss of £1,200. Over the next three years as mortgage interest relief is lowered to the standard rate of tax, the PAYE sector principally will lose £55 million. People entered into long term commitments in good faith and took out mortgages over 20 years but now in the middle of the term they find that the rules have changed. There was no warning of this in the election.

They both accused each other of intending to do it.

Deputy Spring, Leader of the Labour Party, circularised a statement to every house in Dublin stating: "Fianna Fáil lies and distortions are dangerous"—as if there was a Government health warning on them. "They are knowingly spreading these lies about Labour policies to scare you away from change".

Was Fianna Fáil right?

The people who are propping them up are those who advocated change. To set the record straight Labour said: "Labour have no plans to introduce a new property or house tax; Labour will not reduce mortgage interest relief, in fact we will increase it; Labour will not reduce VHI relief".

That is consistency.

"Labour will not introduce a wealth tax. These points and many others are clearly set out in Labour's programme. You have been mislead and betrayed for long enough by Fianna Fáil." The killer punch is "Put trust back into politics. I am urging you to vote Labour". I am sorry for laughing but the public treat this with contempt. For brazen political somersaults, the Labour Party has no equal. We look forward to their Ethics in Government Bill to teach us how to behave. The overall effect of the new formula is that people are about £20 a week worse off and they will be at least £36 worse off at the top of the scale by the time the three year programme is put in place. They will lose an additional £7 a week relief on the VHI plans.

The effect on the construction industry cannot be overlooked. Output in the construction industry in 1992 dropped by a quarter on 1991 figures and significantly, on the lower base figure in 1992 it dropped by a quarter again in 1993. The industry is working at a little over 50 per cent of its capacity. Less investment in house construction can only depress the entire property market. A clever tactic of the spin doctors is to say it is only a small minority that are affected by the changes, the very wealthiest people, but we must remember that for every transaction at the upper end of the market there are ripple effects in every private housing estate in the country.

Residential property tax is not a property tax per se, it is a surtax on incomes. It is payable because of one's income and it is payable out of income. A taxpayer with a gross income of £25,000 after deductions of PAYE, PRSI, health contributions and other levies would have a net income of £15,000 and it is out of this income that the liability for residential property tax has to be met. The family home does not make an income and does not give one liquidity. One has to find the money in one's pay packet. Let us consider who is hit by this tax: 77 per cent of those who are liable for residential property tax reside in Dublin; 73 per cent of those who are liable for residential property tax are already discharging their full tax liability as paid up members of the PAYE club. Over seven out of ten people have one thing in common: they live in Dublin and they are in the PAYE net and they are the people who over-whelmingly voted for the Labour Party in the last election.

The changes announced by the Minister for Finance last Friday fall far short of what is required to deal with the basic injustice of this anomalous tax. The first basic injustice ignored by the Minister — it was voted down during the debate on the Finance Bill last year — is to have some relief for those with high mortgages. People have a debt of between £40,000 to £50,000 on an £80,000 house and they are being taxed on their debt. They are discharging the tax on behalf of the banks or building societies who own the principal equity and have the deeds of the house in their vaults. Nothing was done about mortgages last Friday.

Another anomaly is where Mr. and Mrs. Murphy have two houses, a house in Dublin worth £75,000 and a very nice holiday home which they inherited some years ago and is now worth £75,000. If they put them in joint names as the Minister for Equality and Law Reform Deputy Taylor would have them do, they will have a residential property tax bill of £1,150 whereas if they were to put them in individual names they would have no liability under the residential property tax. People in identical circumstances with identicals incomes with the same houses have different liabilities and that is totally unjustifiable.

In the vast majority of cases the Minister has not changed the principle that the combined incomes of everybody in the household is reckonable as income. This is most insidious because in some cases brothers and sisters do not like to disclose their private and personal affairs to other members of the family. In some cases they are hard set to give their mother a contribution towards house-keeping and fat chance they will pay the residential property tax. If we probe further into the definition of gross income we find that not only does it refer to the amount of the P60 but includes dividend income, bonuses, interest on savings in the bank before DIRT is paid — and there is no deduction for DIRT payments — and interest on post office savings which are advertised and promoted on the basis that they are free of tax but they are caught in the reckonable income for residential property tax, and covenant income, another tax dodge costing the Exchequer approximately £34 million. If a house owner's next of kin is in receipt of a social welfare payment he may find himself in the net. Benefits in kind, such as a company car, and notional income, such as rental income, are reckonable.

It has been suggested by a notable accountant — perhaps the Minister of State will deal with this point tomorrow night — that higher education grants and VHI refunds will also be reckonable as gross income in the year in question.

What about exempt artists?

Back pay could also be construed as reckonable income. As if we did not have enough problems it was reported in The Sunday Press that the Revenue Commissioners intend to seek information on the insurance value of the house. House owners will be required to include this information on the form. When I contacted my friendly insurance federation to obtain some statistics I was informed that the insurance industry reckons that on average insurance values are 15 per cent higher than market values because of replacement costs. At the stroke of a pen the Minister widened the net even further and in the process, breached the confidential relationship between the insurer and the insured.

The lead story in the Irish Independent on Saturday stated that there was going to be a clampdown. Does this mean that in surburban Dublin, which can be picked off very easily to ensure compliance with the tax, when people are doing the simplex crossword at night and the doorbell rings it will not be the television inspector but rather the property tax inspector calling to inquire if they have made a return and, if not, when are they going to do so?

A Bertie walk-about.

That is more likely; there are only ten people dealing with the property tax.

The man with the golden anorak.


If a hapless or hopeless Fianna Fáil or Labour Party canvasser rings the bell during the European election campaign I hope they will receive the appropriate answer.

The Deputy should not have raised that issue.

One of the reasons the residential property tax is so unjust is that it has an inbuilt anti-city bias. Relatively modest homes in suburban Dublin are in the net unlike luxury homes in other parts of the country. My party organised a number of public meetings to discuss this issue. At one of these meetings I was asked a question by an elderly gentleman retired civil servant with a hearing aid. He informed me that he was liable to pay £850 in residential property tax on the house he bought many years ago when he first came to Dublin. He could not understand how his nephew who owns a house in Letterkenny which has a conservatory, a sauna, a swimming pool and a tennis court is only liable to pay £240.

The fellow in Longford has another one.

While the owners of luxury homes in other parts of the country are exempt or are liable to pay a minimal amount the owners of modest homes in suburban Dublin are in the net and have to pay this penal tax because of higher land values and higher residential values. It is unjust that there is an inbuilt anti-city bias as it is not their fault — one third of the population live in the greater Dublin area — they have to reside there.

The market value of the house presents a further difficulty. I received a series of letters from compliant taxpayers. One householder has dutifully made a return each year since 1983. Last year when a neighbour decided to sell his house a publican and a solicitor bid against each other and it got out of control with the result that the house was sold for a phenomenal price. The Revenue Commissioners have advised the householder that he under-estimated the value of his house but they are not able to say whether he disclosed the correct amount on an annual basis. As a result people do not know where they stand and they will find themselves in difficulty if they try to sell their houses because of the requirement to provide a certificate.

If the owner of an old house takes out a mortgage of £30,000 to carry out repairs or renovations to eliminate dry rot the first thing the Revenue Commissioners will say that if he has taken out a mortgage of £30,000 to improve a house valued at £90,000 it is now worth £110,000 whereas all he is doing is maintaining its value. Many people realise that the changes in the tax are only the thin end of the wedge.

I now come to the policy of the Labour Party not when it was in Government with my party in 1983 but when in Opposition and it had time to reflect on what it would do if it got a hand on the levers of the tiller of power. On page 65 of that weighty tome "Agenda for the 1990s" it promised a residential property tax rate of 3 per cent on the houses with a value of £50,000 or more with an income limit of £20,000.

In his first budget in 1992 the Minister for Finance outlined his thoughts on the residential property tax. He said, as reported in columns 370-71 of the Official Report of 29 January:

I propose to reduce the thresholds to £90,000 and £27,500 for 1992-93. The thresholds will be indexed in future years in the usual manner, but using 1992-93 values as the base. The new levels of these thresholds will continue to ensure that only those properties which are at the upper end of the property market will be subject to the tax.

The people do not know what to believe when the Minister says he is sorry and that this will not happen again; they believe that this is the thin end of the wedge. The Minister cleverly asked Saachi and Saachi to produce an advertisement, a copy of which I have, during the last general election campaign which was carried in the Irish Independent under the heading “Check This”. It carried out a dummy check and indicated in relation to the residential property tax——

The Chair has always deprecated the presentation of documents of that kind. Quotations are in order but demonstrations are not.

I do not need the detailed evidence. Fianna Fáil was having a very bad general election campaign and was on the run——

Has Saachi and Saachi been paid? How was it paid? It has not been paid but it has been given lucrative contracts since, of which more later.

——the four letter "C" word was in vogue and it needed to hit the Labour Party with a counter punch as it was capitalising on the mood for change in the country. It claimed that if the Labour Party went into Government with Fine Gael people would have to pay £1,200 in residential property tax. They said correctly that Ireland needed strong Government. I agree but they added the immortal words "we can make it happen", and they did. When we take the message from Deputy Spring, with the threat of Labour getting into power, we see exactly the difficulties of home owners in Dublin.

The Irish Auctioneers and Valuers Institute and ACRA, the umbrella organisation for residents' groups who are encouraging the good people of Dublin not to vote for Labour and Fianna Fáil on 9 June, have articulated the detrimental features of the residential property tax. The tax officials' branch of IMPACT and the Mortgage Holders' Association have also criticised the tax. It has been said that people who are obliged to conform to this tax will now have to engage expensive auctioneers and accountants, resulting in high advance costs.

One of the aspects of this debate that I most resent is the argument that this is really about tax reform and that the Opposition parties do not believe in tax reform. That is not true. This measure will increase tax revenues by about £2.5 million in a year when total tax receipts are £10.371 billion. I do not see how £3 million could be in any way construed as serious tax reform. It is less than a halfpenny in the £1. The simple truth is that we need lower taxes. The failure of the Government to control spending has resulted in 44 per cent of GNP being absorbed in taxes when PRSI is included. Ireland has the highest taxes in Europe on income, motoring and alcohol and one of the highest standard rates of VAT at 21 per cent. This was labelled "Bertie's bonanza".

Bertie's banana.

It is Bertie's banana skin. One would have thought with the lower cost of servicing the debt, with growth bringing about substantial rises in revenue on a "do nothing" basis in the budget, that this was the year for some relief. The amnesty receipts were all put into extra expenditure rather than to reducing the debt. Now we see that tax reform means rifling the pockets of the overburdened taxpayer and tapping new sources of revenue in an attempt to widen the tax base.

There is no dispute that high taxes on income lead to higher labour costs and a loss of competitiveness. There is no doubt that the tax on labour is a disincentive to those at work and a disincentive to employers to take on more people. The way to reduce those taxes is to control spending. It will not be done with the £3 million from property tax.

I am surprised that reputable bodies like the NESC and, particularly the ESRI have involved themselves in this debate. I suppose they would have supported the poll tax in Great Britain despite its disastrous political repercussions for its proponents. The underlying assumption of many of these academic bodies pre-supposes a level of expenditure that is also a matter of political choice. Significantly Mr. Culliton, who chaired the task force, has been publicly critical of the RPT changes. An OECD table dating back to 1991 shows that, out of the total tax mix, our average for residential property tax is 4.6 per cent while the European Union average is 4.4 per cent. By the other yardstick of property tax as a percentage of GDP our average is 1.9 per cent and the EU average is 1.8 per cent. In both cases we are ahead of the European average, being in the top five out of 12.

We do not need more property tax, we need lower taxes. I do not accept that home ownership confers imputed unearned income that should be taxed. Conversely, people who provide their own accommodation should be assisted not to be a burden on the State or the local authority. Neither the Government's muzzling of Gay Byrne nor the technical amendments put forward by the Minister last week will avoid the fact that on 9 June next there will be an opportunity for householders to register their protest and disgust at the Government's onslaught on hone ownership. We have seen Government backbenchers Deputy Broughan and Deputy Callely — shed crocodile tears over the residential property tax and there are others sprinkled among all the parties. Even members of the timid 33 have spoken out about the property tax. I accuse them of speaking with forked tongues. Tomorrow night they will have a choice. They can stick with this high tax, high spend Government or they can vote for the householders who voted them into office. Then we will see their true colours.

I thank my colleague for sharing his time with me. It is virtually impossible to describe this system of taxation in the limited time available. What did the people do to deserve this? Where did they go wrong? They trusted both parties, and I want to know which party in Government is responsible for this. Did the Labour Party force this down the necks of Fianna Fáil or kick the Fianna Fáil Ministers under the table so hard that they were faced to bring in this inequitable tax to satisfy them?

What is the reason for the extension of this tax? Is it to pay the programme managers, the special advisers, the spin doctors, the assistants? I know all these people must be paid and that it costs money. I am sure nobody would want them to be badly paid or in any way disadvantaged. Did some sector of the community offend one or both of the Government parties or a member of either? Was there an insult to one of the Ministers to which the response was that the Government was out to get that sector and would take it on? It was obvious that the old age pensioners were not to be exempted. The Minister has belatedly decided to trim some of the rough edges of the proposal to make it more acceptable to the Labour Party. My colleague has rightly indicated this is an anti-city tax. It is an anti-people tax and part of an antiquated philosophy that people who provide their own houses should be penalised for doing so. I cannot understand that.

The Minister's indication that a certain number of people would be victims of this taxation system is understated. It will have a far wider impact than the Minister indicated. He recognises that now. Certainly people on this side of the House recognise it. Given the strong manifestations of integrity and honesty portrayed through the media the public, just over a year ago, placed their trust in the people they elected. We will ignore the accusations that were made by one side against the other in the lead up to the election but I feel sorry for the people because they have been let down badly. I do not know whether to blame the miserable attitude of members of the Labour Party or the attitude of the bigger and stronger party, Fianna Fáil, who allowed the Labour Party to do this to it.

I wish to share my time with Deputy Lawlor.

Is that agreed? Agreed.

I move amendment No. 1:

To delete all words after "That" and substitute the following:

"Dáil Éireann

—welcomes the progress in reform of the tax system which was continued in the 1994 Budget, particularly the major increases in the standard rate tax band and personal allowances

—recognises the Government's continuing major support for home owners and welcomes the significant increased support for first time buyers announced in the budget

—recognises the contribution made by the changes announced in the Budget in relation to mortgage interest relief and the Residential Property Tax in titling the balance in the tax code more in favour of productive investment, helping to create and safeguard employment and giving a greater measure of equity in the tax system and

—welcomes the adjustments to the Residential Property Tax announced by the Minister for Finance which preserve the essential features of the budget proposals while at the same time catering for the more deserving anomalies in the scheme".

Resolving our critical unemployment situation must be our overriding economic and social objective. This requires our efforts and policies to be firmly focused on maximising the number of sustainable jobs. Ensuring that taxation policy is pro-employment is therefore essential. This means that the process of tax reform, now under way for a number of years, which is aimed at increasing the rewards and incentives for work and reducing the cost of employing workers, must be continued.

It has been recognised by many national and international bodies, who have commented on the area of tax reform, that it is in the domain of personal income tax that taxation in Ireland impacts most negatively on enterprise, incentive and employment. Despite the considerable progress already made, this remains an aspect of our tax system most in need of positive reform. In this context, the Government is faced, on a daily basis, with urgings to reduce tax in this or that area. However, very few of those who seek tax reductions are willing to be specific as to which of the services from which they benefit they are willing to forgo. The plain fact is that tax reliefs cost money. This money must come from somewhere, whether from expenditure curbs or alternative modes of taxation. With our level of national debt, borrowing on any substantial scale for any purpose is not a realistic option. There is a clear onus on those who call for major tax cuts — be they in the area of income tax, PRSI or corporation tax — to cost such proposals and to specify from where they think the money to fund these costs should come.

I would ask the proposers not to play the tired and predictable game of "yes but...". This involves ardent declarations of support for the broad concept of tax reform, followed by the heartfelt denunciation of the particular changes that ensue from putting an effective tax reform package into place. The practical reality is that any revenue foregone in the process of tax reform must, for the most part, be recouped within the overall area of taxation. This means, in essence, increasing other taxes, imposing new forms of taxation or broadening the taxbase generally. There is no getting away from the fact that there is no such thing as a pain-free tax reform.

This year's budget had two definite focal points: first, to address the most acute problems in the area of personal income tax, and secondly, to improve the fiscal environment for business, with particular reference to the position of small and developing enterprises.

By any standards, the reliefs in this year's budget in mainstream income taxation are substantial. They reduce the overall take from income tax by almost £200 million in 1994 and by more than £330 million in a full year. These measures will reduce considerably the burden of taxation on low and middle income earners. Moreover, they will result, notwithstanding other changes, in more than 40,000 fewer taxpayers being on the top rate of tax. I should of course remind you that the top rate of tax is now 48 per cent compared with 58 per cent in 1987.

Finally, to help maintain and create employment, especially in labour intensive sectors, a differential employers PRSI contribution rate structure was introduced. In future, a reduced rate of 9 per cent will be levied on incomes up to £173 per week. The obligation for employers to pay the cost of the health and employment and training levies on behalf of employers with medical cards has also been removed.

The phasing in of standard rating over a four year period demonstrates the Government's commitment to a well thought out and consistent programme. Our commitment to redirecting the proceeds of standard rating towards broadening the standard rate band is clear evidence of our belief in long term and lasting solutions rather than quick fixes. It would be easy to muddle on from year to year thinkering with the system and conceding relief after relief to the various interest groups. That would of course do nothing to remove the disproportionate tax burden on employment. It would do nothing for the silent majority who earn. average incomes and pay the higher rate of tax on every extra pound they earn. This Government is not going to let the ordinary taxpayer down. We have grasped nettles in their interest and we will continue to do so.

What these reforms are about is the construction of a tax system that rewards work by easing the burden on the lower paid and taking as many people as possible out of the higher rate. I am sure the House will agree that a transparent, equitable and work-centred tax system is worth fighting for.

In the case of mortgage interest relief, the new provisions will ensure that the relief is of equal value to those on average and higher incomes and particular assistance is given to those who are getting into the housing market for the first time. If looked at objectively this system is far more sensible than a regime which is of greater benefit to those on the highest incomes.

It is important for taxpayers with mortgages to appreciate that the reduction in their allowances comes about mainly because their mortgage outlay has fallen very substantially compared with a year ago. This fall in interest rates is of course a reflection of general investor confidence in this Government's management of the economy. Taxpayers should look not just at their allowance for interest but also at the more important reduction in their mortgage payments over the past year. Overall, they will see that they are significantly better-off, because the net cost of the mortgages has declined, while their other tax allowances have risen significantly and the 1 per cent levy is no longer in the picture.

While first-time buyers' allowances will be affected by the adjustment for lower interest rates, they will now enjoy 100 per cent relief for the first five years of their mortgage and, from 1994-95, will no longer have the de minimis of £100 for a single person or £200 for a married person deducted from their allowable interest. Even taxpayers who first claimed mortgage interest relief as far back as 1990-91 will benefit for the coming year. This approach is a good example of this Government's attitude towards tax reliefs. Such reliefs should be carefully targeted so as to achieve clearly defined social objectives.

I want to emphasise that this Government is fully committed to the principle of owner occupation, and to giving reasonable assistance to families to acquire their own housing. The increase in the new house grant to £3,000 and the new mortgage interest relief concessions to first time buyers are tangible evidence of this commitment.

It should also be remembered that the tax reliefs on house purchase and mortgages are the equivalent of major Government expenditure. Mortgage interest relief will cost about £140 million in 1994-95 and the stamp duty exemption on new houses costs in the region of £30 million per year. The cost to the Department of the Environment in 1994 of new house grants is estimated at £16 million. This puts the combined annual cost of these pro-home ownership measures at about £186 million in 1994.

Even when standard rating of mortgage interest relief is fully implemented, there will still be very substantial assistance through the tax system — that is from the general body of taxpayers — to those people who borrow to buy a house.

The residential property tax as extended is both a modest measure of equity in the tax system and a contribution towards tilting the balance in the tax code more in favour of productive investment, which helps in creating and safeguarding employment. The present tax structure has tended to encourage more than necessary investment in housing. In particular, it has given rise to tax-driven trading-up, with an undue bias towards the purchase of dearer houses as investments, rather than homes. These views have been echoed in all major reports in the past 15 years including those from the Commission on Taxation, NESC, Culliton, the ESRI, the OECD and many independent bodies. The changes to the residential property tax announced in the budget constitute a modest element in the overall strategy for reducing the levels of income taxation and improving the equity of the tax system and for curtailing the relative tax advantages of investment in dearer residential property as compared with industrial and commercial investments.

The changes represent a very modest contribution to the income tax improvement package in the budget which I have already described and which will cost £330 million in a full year. The increased residential property tax charge in the vast bulk of cases will be far outweighed by income tax reliefs announced in the budget. For instance, a married couple with two children earning £30,000 will gain £630 from the mainstream income tax and levies reliefs. To put this in context, the residential property tax charge on a £100,000 house for that family will, following the adjustments I announced last week, be only £90, or less than £2 per week.

The fact that the increases in the residential property tax are modest should not be interpreted as being an indication that further increases are planned. I can confirm that there is no intention to reduce the thresholds further. While many economic reports have recommended the introduction of a comprehensive property tax, the changes in the long-standing and limited residential property tax are once-off and should not be interpreted as a first step on that road.

Why not? That does not tie in with what the Minister has been reading. He wants to have it both ways.

The Minister without interruption.

As Deputy McDowell is aware if we were to introduce a comprehensive tax it would not be introduced in the manner in which the residential property tax was introduced.

The Minister has made the arguments for that.

A modest tax has been introduced. I agree with the Deputy that there is no point in moving from £200,000 to £300,000 and killing the equity gap. The Deputy also supports mortgage interest relief and I am sure he agrees with my arguments.

It makes no sense, at a time when Government is actively seeking to encourage a flow of resources into job-creating investment in business and commercial ventures, to give signals through the tax system — both in interest relief and in exempting fully from the residential property tax many valuable residences — that the best repository for savings or borrowings is to acquire a dearer type of house. That has been the position for decades. That budget moves to redress the imbalance in tax treatment between investment in house property and areas which contribute directly to supporting employment, but in such a way as to maintain reasonable and equitable assistance towards owner-occupation and not imposing any property tax charge on people with average income or with houses not valued over £75,000.

The Government has identified a number of anomalies within the residential property tax scheme as it has existed until now which have caused hardship to certain specific categories of taxpayer and have adjusted the tax to deal with those anomalies. Those adjustments preserve the essential features of the budget proposal, particularly in terms of promoting employment; at the same time they cater for the more deserving anomalies in the scheme which have been highlighted in recent weeks.

The adjustments should eliminate possible hardship for elderly or incapacitated owner-occupiers of houses coming within the scope of the residential property tax. They cater for the situation where a houseowner needs to bring in a carer on account of his or her incapacity or, if widowed, on account of having dependent children. They also ensure that no household will be brought into charge to the RPT simply on account of caring for an elderly or incapacitated person. They further provide that no RPT charge will arise from alterations made to a property because one of the people living in the house is permanently incapacitated. A provision will also be introduced to give the Revenue Commissioners discretion to deal with possible hardship cases which are not covered by the various specific reliefs.

An important point, often overlooked, is that the child relief substantially reduces the actual charge for all families with dependent children. All residential property tax bills are reduced by 10 per cent for each eligible child in a household. Thus, where there are four children, the charge will be only three-fifths, or 60 per cent, of the full figure.

The income-related marginal relief serves to greatly reduce the actual residential property tax charge for people whose income is relatively close to the new income threshold of £25,000. Under the revised scheme marginal relief will be extended from £30,000 to £35,000 income. There will be a one-tenth reduction of the RPT charge for every £1,000 below £35,000. For example, where the household earnings are £30,000 the RPT charge will be reduced by 50 per cent. This means that all households with income between £25,000 and £35,000, including all those who benefited from marginal relief in 1993, will get income-related relief in 1994.

The Government has considered the argument that taxpayers should be allowed to set off an outstanding mortgage against the value of residential property. It has concluded that the existence of a mortgage is adequately recognised by the position that RPT does not apply to the first £75,000 of value and that interest on mortgages qualifies for income tax relief. At the same time, they are conscious that the RPT charge in respect of the larger family home increased quite sharply from the combined effect of the reduction in the value threshold and the increase in the rate to 2 per cent. The rate applying on the value between £100,000 and £150,000 will be reduced to 1½ per cent, the rate which applied prior to the budget, with the 2 per cent rate applying on the value in excess of £150,000. This will moderate by up to £250, the increase in the RPT charge on all properties valued in excess of £100,000. A phased payment system will be introduced as an option for those who would prefer not to pay in a single lump sum in October as is the present position.

The Government remains satisfied that the RPT as extended is fully justified as a modest contribution towards tilting the balance in the tax code more in favour of productive investment, which helps in creating and safeguarding employment, and also giving a greater measure of equity in the tax system. From the employment viewpoint, the relative tax advantages of investment in dearer housing can only be to the disadvantage of industrial and commercial investment which is essential for employment growth.

Neither the Fine Gael Party in general, nor its leader, Deputy John Bruton who tabled the motion, have any credibility in putting forward this motion.

In January 1982 Deputy John Bruton, as Minister for Finance, in the budget which was defeated in the Dáil decided at one fell swoop to limit to the standard rate mortgage interest relief for first time buyers.

For new mortgages only.

The higher rate was 60 per cent at the time, so the impact would have been a good deal more severe than what will now happen, phased over four years. Was that policy consistent or inconsistent with what the motion describes as "the policy of successive Governments of supporting families in providing their own homes"? In the course of his speech at that time Deputy Bruton said:

While there is a case for assisting the general house-purchaser, there is no case for saying that the better-off he is, the more he should be assisted, as in fact happens under present arrangements.

Has the equity of the situation changed? I agree with what Deputy Bruton said at that time but I disagree that the provision could have been introduced in one year. It is a good policy. He followed the recommendations of the NESC report and the ESRI report at that time which Deputy Yates has condemned this evening as being out of hand tonight. Perhaps Fine Gael would explain the contradictions between this motion and what was agreed in Government.

It is clear that if Fine Gael had found itself in Government after the last election, it would be pursuing the same policies it is now condemning. Deputy Yates condemned both parties in Government about what was said on the matter. In the Jobs Economy of May 1992, which was explicitly endorsed as a fuller policy statement in their election manifesto of November 1992. Fine Gael stated that "commitments to making jobs top priority does mean confronting some traditional tax shelters". They intended examining the question of raising more revenue from property taxes and defining more strictly the terms on which tax allowances are granted. The latter is a code word for the restriction of mortgage interest and VHI relief to the standard rate as has been known for 20 years.

This Minister is grasping at straws.

In short, Fine Gael have a bare-faced effrontery in putting forward a motion that has no political integrity in terms of their past policies. But as the Taoiseach has often said, Fine Gael policies are here today, gone tomorrow. There is no consistency, no coherence, and no one has the foggiest idea what policies they stand for any more.

That is good coming from the Minister.

I cannot help recalling what Deputy Bruton said in this House, after my first budget on 30 January in 1992, when he urged a once-off radical shift of the tax burden, saying that was something he hoped to do in Government.

At that time the Fianna Fáil-Progressive Democrats Government had taken a radical step and removed a large number of reliefs, a policy I support as I have stated in budget speeches. As reported at columns 575-6 of the Official Report of 30 January 1992 Deputy Bruton said:

any Government that has attempted or contemplated timely radical tax reform was always afraid that there would be obscurantist criticism from the other side of the House, exploiting the fears of individual special interest groups, and that the Government would lose short term popularity as a result.

I have not been afraid to undertake tax reform, but Deputy Bruton was spot-on, when he predicted obscurantist criticism from the Opposition and the exploitation of fears for short term political gain? Is that not exactly what this motion is all about and are not the fine sentiments of two years ago contrasted with Fine Gael behaviour today?

In conclusion, I would ask the Dáil to reaffirm its support for the Government's budgetary strategy and to support the amended motion.

I wish to share my time with Deputy Kenneally.

Is that agreed? Agreed.

After the initial reaction and high decibels of panic voiced that virtually all home owners would be affected by the property tax, the dust settled and the various independent bodies in the tax area and a number of correspondents in the national media assessed the residential property tax. It is very unedifying that Deputy Yates should make negative comments on the ESRI and NESC, bodies with representations from all walks of life, who for many years have been pushing politicians to introduce tax reform. When a modest step is made in this direction it becomes a political football.

There were anomalies in the tax as it was introduced and following detailed discussions with the Minister he announced modifications to correct them. The Minister clarified the position as regards elderly and incapacitated house owners, widows, householders with dependent children or elderly or incapacitated residents. It is hypocritical of Fine Gael to criticise this tax as when it first announced the introduction of such a tax there was concern in Castleknock in my constituency and speculation by small vested interests as to what was intended. Fine Gael's criticism of this tax is unacceptable as the modifications render it equitable.

Deputy Yates mentioned statistics and percentages, but he omitted to say that there has been a reduction in interest rates from 12 per cent to 4 per cent. There is no recognition of the removal of the 1 per cent levy.

Who introduced it?

Those on very high incomes are asked to make a modest contribution. In future this tax, with service charges, will be seen as an effort to put local government financing on a sound footing. If those who are fortunate enough to have a high income do not contribute to this tax, I do not know how any major step will be made in tax reform. This is only a small step but one in the right direction. Governments will only be as efficient in running the country as they are in collecting taxes.

Everybody agrees that tax rates are too high. Statistics about various aspects of our position on the European league table have been articulated in detail by Deputy Yates, but the reality is that this is a modest step towards tax reform. People will eventually realise that the effects of this tax are not as great as they thought. Those being asked to make a modest contribution are in a position to do so. I hope that the tax will lead to better financing of local government and that the money collected is spent in the communities.

I thank Deputy Lawlor for sharing his time with me. The Minister wondered how Deputy Bruton could explain the contradiction between this motion and the argument he made as a Minister. Fine Gael is consistent in being contradictory, and we only have to look back to the amnesty débâcle to realise that. One term mentioned over and over again in debates since the budget is "tax reform". Speaker after speaker from the Opposition spoke about the need for tax reform and decried the fact that we did not introduce it in the 1994 budget. The problem is that people equate tax reform with tax reduction. If we are to reduce income tax we must reduce public expenditure or find the money elsewhere. Fine Gael has failed to identify where the money necessary to run the country can be found.

One measure of tax reform is the residential property tax, which has excited much comment. This tax was recommended by the National Economic and Social Council. It is a true tax-reforming measure but it is designed to bring in only a small amount of money this year. Even though the Minister for Finance has taken a small step in the direction of reform, the amount of comment the measure has attracted has been incredible. The whole country is crying out for tax reform, but when something is done in this regard the Government is criticised. What would the Opposition benches say if a greater reforming measure had been introduced? Calls for reform are made in puppet fashion and, despite various statements by Opposition Deputies from time to time, it is obvious they are not serious about these requests.

I was glad balance was introduced to the debate on the residential property tax on a recent radio show. One of our top broadcasters, as is his wont, had been peddling one line since the introduction of the budget.

He was muzzled.

A financial journalist who was invited to comment on the various issues took a fair and balanced view of the tax.

A socialist view of the world.

Some of the reactions to this tax have been emotional and hysterical. For example, one person who had his house valued at £70,000 decided against building an extension, which would cost in the region of £10,000, lest he would be caught in the property tax net although he would be liable for only £25 per year. We must bear in mind that this same family probably saved £700 a year as a result of other measures in the budget.

I heard people outside the House, and Deputy Yates this evening, say that this tax is anti-Dublin. Perhaps the Deputy is suggesting that while residential tax is paid on houses valued £75,000 in Dublin, it should be paid on houses valued £50,000 or £60,000 in Wexford and other parts of the country in other words, that the threshold in respect of houses in areas outside Dublin should be different from that applying in Dublin.

Tonights's debate has been characterised by an amusing willingness on the part of the Minister for Finance to lecture this House on the need for tax reform and a jelly-like unwillingness to go down that road.

Standard rating.

The Minister for Finance has told the House that he believes in widening the tax base.

Standard rating.

I will come to that in a minute. The Minister should calm down — if he takes his criticism he will then get his plaudits.

The Minister told us why it is necessary to shift the burden of taxation from employment to other areas of the economy. However, he then said he may not do any more in this regard next year, this may be the end of the process. This is extraordinary. He believes in widening the tax base for one purpose, for castigating others, but in case he gives rise to a scare that the process might go one inch further he wants to reassure the voters in the European elections, the by-elections and local elections that he can also stand on the proposition that it may not go further; in other words, this process of tax reform which is so important to castigate some people with may not go one jot further and people should relax as there is no great danger in it.

I agree with the points made by the Minister about mortgage interest relief. I disagree fundamentally with Fine Gael on that issue. It may be unfortunate that there is not uniformity among the Opposition parties on this issue but the Progressive Democrats Party has stated at all times that there should be tax credits instead of tax allowances and all breaks should be equally valuable to the Joe Soap at the bottom of the ladder as they are to the person at the top of the ladder. I refuse in this House or anywhere else to say there is any moral justification for making mortgage interest a tax relief worth twice to the wealthy man what is it to the poor man. I defy any Member to indicate any moral or political basis on which such a statement is even remotely justifiable, save that our tax rates are so high and so anti-enterprise that those who are paying the top rate demand unjust treatment vis-à-vis those who are paying the bottom rate. It is a consequence of our unfair tax system that people will not allow tax allowances to be converted into tax credits. I stand for tax credits and I do not believe that there is any justifiable argument for retaining any further tax allowances.

When the Progressive Democrats Party was in Government with Fianna Fáil it made the arguments for tax credits. We were constantly told by the Department of Finance that it would be too difficult to do this. However, it has now set about doing this on mortgage interest relief over a four year period. There is no reason this should not apply to tax, personal allowances and so on. This could be done if there was an appetite for this radical change but there is not.

The extension of the residential property tax in the budget has caused a revolt among the middle income group. Deputy Lawlor is mistaken if he thinks he has got away with it. When he calls to the doors in the forthcoming elections he will be hammered on this issue for a number of reasons.

The Strawberry Beds.

It has been claimed by the Labour Party that there has been an unthinking, anti-tax, kneejerk reaction to this tax. This is not the case. I want to examine this tax which was introduced at the behest of the Labour Party when it was in Government with Fine Gael. It was not introduced as part of the present tax process. When Labour entered Government in 1973 less than 3 per cent of taxpayers paid tax above the standard rate but when it left Government in 1987, some 14 years later, it had managed, through its policies and ideological basis, to raise the number of taxpayers paying tax above the standard rate from 3 per cent to 43 per cent. Labour brought surtax to the masses and is now bringing an unfair property tax to those poor benighted middle class people who were so foolish to vote for that party in the last general election.

The residential property tax is an ideological wealth tax restricted to one form of asset, the family home. It was introduced as a tax which would not be paid by Labour Party supporters but rather as a tax which would, as the Minister's budget speech showed, be paid by a privileged few. Denied the possibility of a general wealth tax which had gone so disastrously wrong between 1973-77, the Tánaiste in a previous Coalition Government insisted on the imposition of a 1.5 per cent wealth tax on the value of the homes of a small minority whom he politically despised. When he lost office in 1987 he went back to the drawing board and when in Opposition in 1988 he called for the imposition of a property tax which, as Deputy Yates correctly pointed out, applied to 2 per cent of the value of houses in excess of £25,000 and 3 per cent on the value of houses in excess of £100,000. This would have meant a liability of £1,000 each year for a person who owned a £75,000 house and £4,500 each year for someone living in a £200,000 house. That is the Dick Spring agenda and let nobody mistake it.

Back in Government in 1994, he has persuaded his partners to introduce three rates of residential property tax, 1 per cent, 1.5 per cent and 2 per cent. He claims to be proud of this tax. We were told that the recently announced changes would reduce the anticipated annual yield of £5 million by 40 per cent and that the elderly, disabled and those on incomes between £25,000-£35,000 would get some relief. So what? In reality the tax is just as obnoxious, just as arbitrary, more bureaucratic and even less worthwhile collecting than it was before the Minister announced his recent concessions.

If the extension of the residential property tax was all about raising £5 million and we were assured there would be no further widening of the tax base in next year's budget, as the Minister has hinted, then the RPT never had anything to do with tax reform let alone radical tax reform. If any of the defensive rhetoric we have heard from the Minister tonight is in any way truthful then residential property tax was never designed to raise more than a couple of pence on a gallon of petrol. If that order of shift in the tax burden could produce radical pro-jobs tax reform it would have been done years ago.

The residential property tax was never intended, and never had the potential, to form part of the process of tax reform. The Labour Party proved this between 1982-87 when it massively increased taxes on work. The RPT was not introduced for the purpose of taking tax off work; it was part of the Labour Party's socialist ideology. This is why the Progressive Democrats Party has always opposed the residential property tax. We have been accused of doing a u-turn on this issue but this is most emphatically untrue. At our first national conference in the National Stadium on the South Circular Road in 1986 we committed ourselves to abolishing residential property tax. There was a motion from the floor which stated, "do that but remember something has to be done for local government". In 1988 we produced a document on widening the tax base which suggested, for example, converting all allowances into credits and a series of radical steps to eliminate employees PRSI and transform the tax system. There was a commitment in that document to abolish the residential property tax.

The reason we are against the residential property tax is that it is unfair. In 1986 and 1988 we accepted, as we do today, that the cost of local government should be taken off employment taxes and that it should be raised by charges imposed by local authorities for services given by them provided two conditions are met: first, that for every penny raised by local authorities there must be a corresponding cut in the central tax on work and, second, that local government must be radically transformed to make it efficient and to eliminate waste.

When we entered Government in 1989, as soon as we got our foot into the Cabinet room, we asked that the issue of transferring taxation from work to local government revenue raising be addressed. We insisted in the Programme for Government 1989-93 that a select all-party committee be established to report on local authority funding within one year. However, when we came before this House with that proposal the three Opposition parties boycotted the idea and nothing was done.

I have given the Minister plaudits for the changes in mortgage interest relief and I now want to make him a generous offer. The Progressive Democrats Party reiterates its willingness to participate on an all-party basis in a select committee of this House which would have as its terms of reference the examination of a substantial transfer of the cost of local government from centrally imposed employment taxes to locally raised charges by a radically transformed system of local government. We invite the Government to take us up on that offer. It will not face obscurantist criticism if it attempts to do it on an all-party basis. We offered that to the other parties when we were in Government with Fianna Fáil and now from an Opposition perspective we generously and uniquely offer to participate in the same process, even though it could be to our advantage to embarrass the Government and hoist it on its own petard.

In the meantime we repeat our radical and wholehearted opposition to the present unfair, arbitrary and unworkable system of residential property tax and we commit ourselves in this House and before the electorate yet again to its repeal. We identify the following unfair aspects of the tax: it does not go, as Deputy Lawlor pointed out, to local government. Indeed, it is used by the Exchequer to pay the equivalent of the cost to the Exchequer of the special advisers and the Government jet; it is anti-family in that it aggregates family income in an arbitrary way. Deputy Yates gave some examples of this earlier and I have one more to add to the myriad of examples that one could give. Four earning adults with a combined income of £40,000 and living in a house worth £150,000 will pay a substantial amount of residential property tax but if they divide into two households in houses worth £75,000 they pay nothing. Four people in a house, therefore, each earning well below the average industrial wage, can pay radically different tax bills depending on whether they live in one household or in two. If that is not arbitrary, unfair and anti-family, I do not know what is. Why do four people, depending on whether they share one house or two houses, have radically different tax bills even though the sum total of their incomes and assets is exactly the same?

This tax is exhorbitant. The 2 per cent rate, even though it is now moderated at 1.5 per cent is too much to ask people to pay. It is far too much to ask somebody who, for whatever reason, lives in a house worth £300,000 or £400,000 to come up with 2 per cent of the value of a significant proportion of that, especially out of after tax income. In many cases, even with the marginal relief the Minister has mentioned, and it must be remembered that on £34,000 one is paying 90 per cent of the tax one would otherwise pay, there are huge sums of money involved. As Deputy Yates has pointed out, what people get after the PAYE machine has mauled their income is not their income for the purposes of this tax. Other items are taken into account which are not the subject of net tax.

This tax is anti-Dublin and anti-urban. I do not accept Deputy Kenneally's mischievous point that those people who say that this tax is anti-Dublin must be, by implication, asking for some lower threshold to be applied in other parts of the country. It is anti-Dublin when people living in Dublin can pay twice as much residential property tax as people living in identical houses in other parts of the country. Most people do not choose to live in Dublin for the privilege of paying higher prices for their house. Most people who have to pay a higher price for their houses in order to live in Dublin deeply regret that. Most people want to live in a good home, bring up their children in reasonable circumstances and they bitterly resent the notion that people who live in identical circumstances in other areas are not liable whereas they are liable to a penal tax.

Residential property tax amounts to savage double taxation of income. The central Exchequer has come up with another way to attack income. As Deputy Yates said, it is not really a property tax at all; it is an income tax based on a type of lottery system of allowances. It is an aggregation of family incomes in order to tax people who happen to live together. All those characteristics render this tax extremely unfair, arbitrary and wrong and I defy anybody to contradict the proposition that this tax is unfair. It does not exist in other European countries. As Deputy Yates said, if the poll tax had been put forward, somebody in the ESRI might have had the brass neck to say it was defensible because it was a move towards widening the tax base but this is much more unfair, much more arbitrary and much less defensible than the poll tax which was a political millstone around the necks of its architects. This tax will be a tombstone around the necks of many politicians in this House who think they got away with a smart bit of manoeuvring in the past week.

If I had devised RPT I would be ashamed of it. If the ESRI examined a proposal to introduce a tax such as RPT I would expect it to show some basic understanding of the concepts of equity, fairness and tax efficiency. In its recent commentary on the subject it has shown nothing but blind prejudice.

Apart from all of this, residential property tax is unworkable. Self assessment — and this is another reason why it is unfair — in an area as subjective and as volatile as the value of houses, is at best unpredictable and at worst it turns residential property tax into a tax on honesty. It was shocking to hear the Minister suggest recently that one of the mitigating features of this tax is that people would tend to underestimate the value of their homes. That is true, but if that is the best defence the Minister can come up with for a tax, that people will unconscionably cheat the revenue, it is a poor lookout in terms of the fairness of the tax. That suggestion was a prime example of rewarding those with the brass necks; those with brass necks hold on to their brass. It is the same fiscal thuggery that gave us the tax amnesty.

As a tax, residential property tax is dead. As a reform measure, this year's budget gave tax reform a bad name. The Minister heralded this budget as a pro-jobs, tax reforming budget; the reality is turning out to be very different. Taxpayers are paying more this year in income tax than they did last year. The abolition of the 1 per cent levy, which all the Minister's backbench supporters tonight are heralding as an achievement, was introduced by the Minister who is coming in here looking for credit for abolishing it. As political brass neck that takes some beating.

Nine carat.

The cost to Guinness of paying PRSI in this year's budget is an additional £1.2 million on their payroll costs. Is that pro-jobs? When there are redundancies in St. James' Gate because it has to come up with an additional £1 million and decides to move its production——

It will hardly do that with profits of £100 million.

It will make more profits and will employ fewer people.

That has nothing to do with PRSI.

That is what it is all about. If the Minister increases payroll costs more machines will be brought into use; that is what profit is all about.

It will do it anyway, unfortunately.

The Progressive Democrats are unambiguously committed, to the earliest possible repeal of the residential property tax as part of a tax reform programme which will deal, as Deputy Lawlor says it must, with the reform of local government finances. We will not reintroduce rates which were arbitrary and unfair, but a radically transformed local government, having privatised many of its services, can raise a large portion of its revenue by a fair and transparent system of charges. We do not believe that a society with 300,000 people out of work can or ought to finance local government services by extra employment taxes and we have always said so. We are not opposed to all taxes on property. Indeed, Deputy O'Malley and I have pointed out that the slide, relatively speaking, between taxation on property and taxation in other areas is one of the major problems with our tax system, but we are opposed to an unworkable, unfair, arbitrary and discriminatory ideological tax of this kind.

I guarantee this tax will be repealed. The reason its extension in this year's budget caused such a furore was precisely because it is so unfair. It is interesting to note that in a recent telephone survey, 7 per cent of people voted for the residential property tax as it stands; 21 per cent voted in favour of modifying it, but 72 per cent voted in favour of paying a local government levy for services charged in an equitable manner. That is what the people will accept and it is that on which people want leadership. Deputy Lawlor had the savvy to know that when push comes to shove it is in that direction radical tax reform will take place. He said he hoped that, in the next year's budget, that will be achieved. I am telling him that, unless this Government has a change of heart now, and admits that residential property tax is for the birds, it will not have anything ready for next year. It will have the same old row at the Cabinet table, the same old ideologists who think by insisting on taxes of this kind they are doing something for socialism long after it has died everywhere else in Europe.

Debate adjourned.