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Dáil Éireann debate -
Thursday, 18 Apr 1996

Vol. 464 No. 2

Finance Bill, 1996: Second Stage (Resumed).

Question again proposed: "That the Bill be now read a Second Time."

With the Social Welfare Bill, this Bill will give effect to the changes announced in the budget last February. Since then Fianna Fáil has tried to square an individious circle of its own making. Its response can be summed up as follows: on the one hand, the Government is not spending enough, on the other, it is spending too much, and where will it all end?

I felt a slight twinge of nostalgia earlier this week when Deputy Charlie McCreevy pledged that Fianna Fáil would abolish residential property tax. This is the same party which, from the safety of the Opposition benches in 1985, stated that it was "totally opposed to the system of service charges and on return to office we will abolish those charges". The rest is history. When returned to the Government benches the charges remained largely unaltered until Democratic Left entered Government and obtained not alone tax relief measures, but legislation delimiting the powers of local authorities to arbitrarily disconnect householders for the nonpayment of service charges — so much for Fianna Fáil rhetoric. On ground rent, water charges and now residential property tax, the ambition of the grand abolitionists is matched only by their inaction when in office.

Democratic Left is not against property taxes. On the contrary, the taxation of property above a certain value is a legitimate source of State revenue. Handled properly, property taxes can be a far more effective and equitable method of raising revenue than the traditional system of taxing earned income and work. However, the residential property tax is not a tax on property but on the family home. In recent years the residential property tax saga has been handled with mind boggling incompetence, has militated against Dubliners and, with developments in the property market, it is likely to impact soon on residents in Cork and Limerick. I agree with my colleagues, be they Fianna Fáil, Progressive Democrats, Labour of Fine Gael Deputies, when they highlight the anti-Dublin bias inherent in the property tax as currently constituted. House prices in Dublin rose by 10 per cent in the past six months and by 15 per cent in the six months prior to that. Many modest three bedroom semi-detached houses in Dublin will soon be within the tax threshold.

I would like to see an immediate end to taxation of the family home. However, in proposing to abolish property tax, I note Deputy McCreevy shied away from exploring the need to tax other forms of property. I regret that the Minister did not seize the opportunity this year to subject property tax to radical surgery. I hope this issue will be addressed in next year's budget.

Deputy Cullen adopted a slightly different stance from his rediscovered Fianna Fáil colleagues. While he may have shaken off the Progressive Democrats Whip, like his erstwhile comrades he is unwilling to give Thatcherism a decent burial. Just like the twin ghosts of Christmases past, he and Deputy McDowell linger at the wake muttering wistfully about the good old days when right-wingers everywhere believed in rising tides, floating boats and cabbage patches. I envy Deputies McDowell and Cullen their touching faith in the old recipes. Looking at areas such as those in my constituency where thousands of people have found their boats are beached in the midst of an economic boom I only wish the Progressive Democrats recipe and dream had worked.

Deputy McDowell's contribution was yet another indication of his party's paucity of ideas. He acknowledged that there was nothing new about what he had to say. In refusing to acknowledge the real benefits this Government has brought to those living on social welfare or low pay he retreated into the Thatcherite womb. His message can be summarised as follows: cut taxes, cut spending and abandon the semi-State sector. Most would agree that creed of selfishness is not new. It was tried in America and in Tory Britain and resulted in spiralling poverty levels, reduced services and increased social divisions. Democratic Left is determined to ensure that the Progressive Democrats Party never has a chance to impose its "I'm all right Jack" philosophy on the people.

Unfortunately, in recent years Ireland has had to contend with the modern day phenomenon of "jobless growth". Record levels of jobs were created in 1995 but they tend to pass the long-term unemployed by. The measures promised in the budget and in the Social Welfare Bill and Finance Bill are unashamedly interventionist. We make no apology for that. Intervention is necessary to ensure that all share the benefits of economic growth equally and that the long-term unemployed are brought in from the economic and social margins. The elimination of tax anomalies and poverty traps is vital if people are to be encouraged not only to create jobs but to take up employment. The Social Welfare Bill dealt comprehensively with many of the poverty traps inherent in the social welfare system and the Minister, Deputy De Rossa, is to be congratulated on his innovative measures such as the retention of the child dependant allowance for a period after taking up work and the phased retention of other secondary benefits such as the medical card for those leaving the ranks of the long-term unemployed.

The increase in personal tax allowances and the adjustment in allowances for single parents compliment the measures in the Social Welfare Bill. Deputies opposite have been vocal in their concern, which I share, for the hard-pressed PAYE sector. It has been substantially addressed by the PAYE and PRSI changes in the Bill and by some of the changes made in the Social Welfare Bill. However, they are less vocal on the issue of the ongoing inequities between farmers, the self-employed and PAYE workers. The some Deputies who bemoan the anti-Dublin bias of the residential property tax have been strangely silent with regard to the ongoing feather bedding of this country's rich ranchers. It is an issue few politicians are prepared to tackle head on. Unlike the long-term unemployed eking out a precarious existence in urban blackspots, large farmers are effective, articulate, well-funded and politically well represented in this House.

Those Deputies seeking to make short-term political gain out of the PAYE sector may be interested in some facts. In 1994, income tax paid on farming profits amounted to 1.8 per cent of all income tax receipts. In 1995, the average tax payment made by PAYE workers amounted to a staggering £4,087, nearly three times the average tax take from farmers which stood at £1,031.

As a member of the Committee of Public Accounts I was intrigued to discover that last year 25 random audits were carried out on the self-employed, including farmers. Of these, five or 20 per cent, yielded an additional tax liability. It does not take great mathematical skills to extrapolate these figures for the tax paying population as a whole and to envisage the extra revenue which could be realised were farmers and the self-employed pursued more vigorously by the Revenue.

I welcome the measures in the Finance Bill to consolidate the tax system and to make the revenue collection maze slightly more penetrable for the ordinary citizen. I regret that the area of farm tax was not addressed more rigorously and, indeed, I get the impression that the Bill contains yet more sweeteners for large farmers. I have in mind section 10 which increases by one-third the exemption derived from certain leases of farmland and section 11 which enables stock to be transferred at book rather than market value for the purposes of the EU early retirement scheme. Chapter 11 of the Bill consolidated rather than revisited the myriad measures relating to stock relief.

Democratic Left will support any measures designed to improve living standards for the 23 per cent of farmers who, in 1987, struggled to subsist on household incomes of £5,000 or less. However, our tax system should not be used to further maximise the benefits already derived by large farmers from the plethora of featherbedding schemes.

This Bill, like its 1995 predecessor, represents a substantial improvement for those at the lower end of the income scale. However, it does not go far enough. It addresses some of the ills but not the central planks of our taxation system. A fair tax system should treat all income in the same way. Any exceptions to that should be aimed at securing a few clearly defined objectives: protecting those on lower incomes; redistributing income and encouraging productive enterprise. However, a careful cost benefit analysis of any exceptions should be carried out before they are implemented. A good tax system should strike a careful balance between four objectives which may often appear to be in conflict. It must be fair in the way it collects revenue — it must take similar amounts from people and corporate bodies with similar resources; it must redistribute income wealth and work; it must collect sufficient revenue for the Government to pay for things that are socially necessary and it must serve the economic objective of encouraging enterprise and job creation. Our taxation system falls far short of these objectives. I hope when the working group on the integration of tax and social welfare reports its recommendations will enable us to eliminate some of the present anomalies. Despite the welcome changes introduced in this year's budget, the dole is still more profitable for some people than going to work.

The budget presented this year is the second in a package of three. I am confident that when the Government comes to an end in 18 months' time the remaining poverty traps and disincentives will have been eliminated and the progress already made will have been consolidated.

I thank Deputies for their contribution to the debate. I hope in the time available to me to deal with a number of issues, otherwise I will deal with them on Committee Stage. Much comment was made on tax reform. This was a theme which was taken up in several interventions with calls for further, more extensive and radical reform. Some comments naturally sought to understate or minimise what has been achieved by this Government.

On the general tax improvements being enacted in this Bill, it is worth pointing out that the increase in personal allowances, exemption limits and the standard band at 5.5 per cent or more is twice the expected rate of inflation, and represents a significant real increase in tax relief. Over the past two budgets combined, for example, the standard income tax band has been widened by £1,200 in the case of a single person and by £2,400 for a married couple. This is an increase of close to 15 per cent, an amount which more than compensates for the reduction in mortgage interest and VHI reliefs. This year's budget continues the trend of reducing the tax and PRSI burden as a percentage of income, especially in the case of the lower paid.

This year I focused tax resources on the low paid through taxation changes but more especially through increasing the PRSI-free allowance from £50 per week to £80 per week for full rate contributions and by £10 to £20 per week for other categories of PRSI contributors. This has yielded further real increases in take home pay for persons on low incomes. If we look at the period of the Programme for Competitiveness and Work, the percentage increase in take home pay for a single industrial worker on £9,000 gross pay in 1993 has increased by 14.6 per cent when the tax changes and basic pay increases under the Programme for Competitiveness and Work are taken into account. In the case of a single person on the average industrial wage the percentage increase is much the same. For a family with one earner and two children the corresponding percentage increase at £9,000 is 16 per cent and at the average industrial wage it is just under 13 per cent. These increases are in all cases significantly ahead of inflation. For those further up the earnings scale the corresponding increases are not less than 12 per cent. The middle and higher income groups have also benefited from these tax and PRSI changes, though in terms of percentage of gross pay the benefits have been slightly lower.

Tax reform and reduction extends beyond personal taxation. Over the last two budgets, the Government has reduced the standard rate of corporation tax to 38 per cent and is introducing a new lower rate of 30 per cent on the first £50,000 of income taxed at the standard rate. There have also been reductions in the standard and lower rates of employers' PRSI and increases in the range of income to which the lower rates apply. Obviously, I would wish to do more and it will be my goal to continue to expand reliefs generally as resources allow, but it is not accurate to decry the absence of tax reform as some speakers did, and those Deputies are not here now to hear the reply.

A number of Deputies questioned the Government's commitment to controlling public expenditure. Deputy McCreevy referred to current unprecedented growth in public expenditure. I have been over this ground in the House many times but let me repeat that the Government remains firmly committed to the fiscal policy parameters set out in its programme, A Government of Renewal, which were developed specifically to guide our budgetary approach in the period up to 1997. The 2 per cent real ceiling on current supply services spending is a demanding target particularly when viewed against the much higher rates of real increase in such spending in recent years. The average annual real increase in gross current supply services spending between 1991 and 1994 was 6 per cent approximately. What has been achieved already is a more restrained and controlled growth in public expenditure. It is not out of control as some seek to portray.

Deputy McCreevy stated that under the present tax system more than 50 per cent of a single person's wages is taken by the State in tax and PRSI even though they earn less than the average industrial wage. In fact the average tax and PRSI take on these employees is much less — around 25 per cent, not 50 per cent. Deputy McCreevy also criticised the non-renewal of the annual £140 PRSI income tax allowance since this allowance benefited the lower paid. I remind the House that the non-renewal of this allowance forms part of a package which included the introduction of a new PRSI-free allowance. This PRSI-free allowance, which was introduced last year, now stands at £80 per week in the case of full rate PRSI contributors.

The measure, on its own, is worth up to £228.80 per annum, or £4.40 per week, to such workers. When combined with the non-renewal of the PRSI income tax allowance, it still results in significant net gains, especially for those on lower incomes. For example, low income workers exempted from income tax or on marginal relief enjoy the full relief of £228.80 as they did not benefit from the PRSI income tax allowance in the first place. The net gains can be up to £152 per annum, or £2.92 per week, for those on the standard income tax rate, and up to £92 per annum for those on the top tax rate.

The combined package clearly gives great relief to those on lower pay, which was not the case with the PRSI income tax allowance. It is a targeted tax relief to assist the exposed competitive sector of the economy who had come to me on a number of occasions asking for some form of relief to alleviate the difficulties they experienced with the upward valuation of the Irish pound vis-á-vis sterling. It gives that specific relief in a targeted way and also has the benefit of taking, in part, another burden off the low paid in the services sector, in the sheltered part of the economy.

Some Deputies referred to the interaction of the tax and social welfare systems and the difficulties this can throw up for those on lower incomes either moving into employment or seeking to improve their net take home pay while in work. I share the frustration with these problems and the difficulties in effectively remedying them. I would remind Deputies, however, that these problems did not arise overnight. They result from individual policies applied over the past 20 years or more — policies which are entirely supportable in themselves, such as improving out of work benefits and removing the low paid from the tax net altogether, but whose interaction can lead to the sort of results referred to. In my two budgets I have introduced a number of measures to help alleviate the problem. These measures included the general improvements in tax and PRSI and special provisions designed specifically to ease the transition from unemployment to work. The latter includes increases in the income limits applying to the family income supplement, the retention of child dependant allowances by the long-term unemployed for 13 weeks on taking up employment, and the retention of the medical card by the long-term unemployed for three years on returning to work. The retention of child dependant allowances is specifically designed to improve the take-up of FIS, thereby building a bridge between unemployment and employment. The problem is one we will have to work at solving over a period of time. The final report of the expert group on the integration of tax and social welfare, to which Deputy Byrne referred, is expected shortly. I hope the group can provide us with a strategy to tackle the problem within a reasonable timeframe, but it will not be easy as the matter is immensely complex.

Deputy McCreevy made a general point about who proposes Finance Act changes. I would have thought that for Deputy McCreevy who has experience of Cabinet and has been a member of a parliamentary party for the same length of time as I, certainly since 1977, such a question would have been entirely rhetorical, and no doubt it was. He referred in particular to the stamp duty provisions on CREST, tax relief for mail order operations in Shannon, qualification for CGT 27 per cent relief, tax relief for mining rehabilitation and the renewal of relief for Enterprise Trust Limited. There is nothing unusual or sinister about any of these changes. In the case of CREST, the changes are necessary to ensure that the stamp duty yield is maintained and that we can levy stamp duty on electronic transfers of shares. The same argument applies to the extra increase in ATM cards because of the fall off in the usage of personal cheques, which had a stamp duty. Such provisions were promoted by the Revenue. In that instance, we were happy to respond because it could measure the drop in the yield from the conventional form of stamp revenue.

In the case of mail order operations in Shannon, this was the result of trying to attract such operations to locate there with obvious employment benefits. In the case of CGT and mining reliefs, these are measures announced in the budget. The mining relief arises from last year's report of the National Minerals Policy Review Group. The relief for Enterprise Trust Limited is a rolling forward for a further year of relief first given in 1992.

I was glad to hear the welcome afforded to the proposed consolidation of the income tax, corporation tax and capital gains tax legislation next year. I am most anxious, as I indicated in my opening remarks, to ensure that the consolidation Bill, when published, is fully understood by the legislators who will have to consider it. There will be a special seminar and workshop on the Bill to be held by the Revenue later this year. In my opening speech, I gave an invitation to the Members opposite, and from all sides of the House, to attend that seminar. I also sought to ensure that sufficient notice of the preconsolidation changes in this year's Finance Bill would be brought to the attention of the Deputies by having the relevant sections published in full with a detailed explanatory memorandum on 5 March, nearly a month before the Finance Bill itself was published. When that consolidated legislation is in place, it can be updated each year. We can then proceed from this time next year with a continuously upgraded Finance Bill that will, in respect of those taxation measures, be an upgrading of the one finance legislation. This will make the value of the consolidation work extremely useful for practitioners and the general public.

I am aware that my proposals in the budget to come up with a better way to deal with pre-budget submissions has caused disappointment to some lobby groups. This is based largely on a misunderstanding and misapprehension of what was suggested. It was skilfully and politically exploited to the full by Deputies who have a well tuned and applied skill for doing this. However, it was mischief-making of the highest order and the Deputies who engaged in it knew exactly what they were doing.

The new arrangements I suggested, which involve the Select Committee on Finance and General Affairs hearing submissions, are not intended to isolate me from meeting interest groups. I am still available to meet the social partners, and do so on a current, regular and ongoing basis, but the proposals I have in mind will provide a full, open, transparent and constructive way in which to examine pre-budget submissions.

The numbers of pre-budget submissions have grown exponentially in recent years. The submission is sent into the Department and it is analysed by a number of staff at considerable length. These groups then have private meetings with the Minister seeking concessions on a raft of areas related to their particular lobby groups' interest. There is no way in which I, as Minister, can question why they should get such concessions. The dialogue is in private. it is a one way listening exercise because I cannot query what the taxpayer might get from these special concessions. Therefore, from the points of view of time, staff efficiency and, most importantly, democratic accountability, any lobby group seeking tax concessions and making a case for getting special treatment against the interests of the taxpayer should first be able to put their case in public and be heard to do so. More importantly, Deputies from all sides can, in the Select Committee on the Finance and General Affairs, put questions to that group, ask why these concessions should be granted and query their value to the overall benefit of the common good. I make no apology to anybody in putting that suggestion forward.

I will, of course — and I said this in my budget speech — continue to meet with the social partners and the major interests represented in the social partnership structure to ensure they have a clear intervention as far as pre-budget submissions are concerned. However, I meet such groups regularly throughout the year when aspects relating to expenditure and taxation are frequently the subject of conversation. While the way in which this issue was exploited by some Deputies might have been fair in the political process as practised in this Chamber, it was clearly and utterly misleading.

Deputy McCreevy made several observations on particular sections of the Bill and put down markers for certain amendments. I will be happy to take up these points on Committee Stage. However, he wondered why it was necessary to confirm the provisions implementing the second VAT simplification directive in primary law and asked if this meant that regulations already made or adopted were flawed. The provisions are being incorporated in the Bill on the advice of the parliamentary draftsman who feels that such statutory confirmation represents best legal practice. The regulations already in place implement only the strict requirements of the directive. The Bill confirms these provisions and, in addition, makes the necessary technical tidying up changes to the VAT Act itself.

Deputy Cullen asked why the seaside resort scheme is being restructured. In fact, the changes refer only to one aspect of the scheme relating to holiday cottages and apartments. The changes are designed to redress the balance in terms of relief for these types of developments as opposed to other types of project which would benefit seaside resorts, such as non-accommodation tourist amenities. It is not unusual to fine tune reliefs in any scheme over the course of its operation.

Not within 12 months.

I will be happy to discuss this in some detail on Committee Stage. It is a complex matter; we have nothing to hide. We are making these changes in the interests of equity and justice as well as trying to bring the operation of the law to the way in which we intended this time last year. However, we can discuss it in more detail under the relevant section on Committee Stage.

The Deputy also referred to restricting tax relief in the R & D area. However, the Bill contains measures to enhance R & D tax relief and in the case of restriction of patent relief, a special exception is being made where there is an ongoing programme of research and development. Others also questioned whether we needed to make changes in patent relief and what evidence was there of abuse. I can confirm that there have been abuses uncovered by the Revenue and that they were on the increase. What I am trying to do is to eliminate them to protect the Exchequer while preserving the essential object of the scheme, that is, to stimulate innovation.

Deputy Cullen referred to the recent performance of the Irish economy and suggested that Ireland's relative international performance was slipping backwards. This, of course, is not the case. The latest OECD economic outlook shows that Ireland had the best growth rate of any OECD country, except Turkey, for last year. More importantly, in the context of Deputy Cullen's comments, the OECD forecasts that Ireland will have the fastest economic growth rate, bar none, in the OECD for both 1996 and 1997. According to OECD forecasts, Ireland's growth rate will be more than twice the OECD and EU average for this year.

The Minister has been given the wrong information. I did not refer to our growth rates; I was talking about our slippage in the competitiveness league. I never referred to it in that context.

I am familiar with that comparison; it is of considerable worry.

I was specific.

If that was the point the Deputy was making, I will address it at a later stage. It is a matter of concern.

I made that specific point and the Minister can check the record.

Moreover, our export growth is projected to be well in excess of that of our total export markets over the next two years indicating a further increase in our relative share of world markets.

There was also a reference to the 31,000 net increase in employment which we expect this year and which the Deputy seemed to find disappointing in the context of our strong growth rate. I would point out, however, that the OECD predicts that employment growth in Ireland over the next two years will be faster than in any other European country, except Luxembourg and Turkey, and will be well over twice the OECD and European Union average.

I hesitate to interrupt the Minister but I must advise him and the House that the time has come to put the question.

Question put.
The Dáil divided: Tá, 68; Níl, 57.

  • Allen, Bernard.
  • Barry, Peter.
  • Bhamjee, Moosajee.
  • Boylan, Andrew.
  • Bradford, Paul.
  • Bree, Declan.
  • Broughan, Tommy.
  • Browne, John (Carlow-Kilkenny).
  • Bruton, Richard.
  • Burke, Liam.
  • Burton, Joan.
  • Byrne, Eric.
  • Carey, Donal.
  • Connaughton, Paul.
  • Connor, John.
  • Costello, Joe.
  • Coveney, Hugh.
  • Crawford, Seymour.
  • Crowley, Frank.
  • Kenny, Enda.
  • Kenny, Seán.
  • Lowry, Michael.
  • McCormack, Pádraic.
  • McDowell, Derek.
  • McGahon, Brendan.
  • McGinley, Dinny.
  • McGrath, Paul.
  • McManus, Liz.
  • Mitchell, Gay.
  • Mitchell, Jim.
  • Nealon, Ted.
  • Noonan, Michael (Limerick East).
  • O'Keeffe, Jim.
  • O'Shea, Brian.
  • Currie, Austin.
  • Deasy, Austin.
  • Deenihan, Jimmy.
  • De Rossa, Proinsias.
  • Doyle, Avril.
  • Dukes, Alan M.
  • Durkan, Bernard J.
  • Finucane, Michael.
  • Fitzgerald, Eithne.
  • Flaherty, Mary.
  • Flanagan, Charles.
  • Gallagher, Pat.
  • Gilmore, Eamon.
  • Higgins, Jim.
  • Higgins, Michael D.
  • Hogan, Philip.
  • Howlin, Brendan.
  • Kavanagh, Liam.
  • Kemmy, Jim.
  • Owen, Nora.
  • Pattison, Séamus.
  • Penrose, William.
  • Quinn, Ruairí.
  • Rabbitte, Pat.
  • Ring, Michael.
  • Ryan, John.
  • Ryan, Seán.
  • Shatter, Alan.
  • Sheehan, P.J.
  • Shortall, Róisín.
  • Stagg, Emmet.
  • Timmins, Godfrey.
  • Upton, Pat.
  • Walsh, Eamon.


  • Ahern, Bertie.
  • Ahern, Dermot.
  • Ahern, Michael.
  • Ahern, Noel.
  • Andrews, David.
  • Brennan, Matt.
  • Browne, John (Wexford).
  • Burke, Raphael P.
  • Byrne, Hugh.
  • Callely, Ivor.
  • Connolly, Ger.
  • Cowen, Brian.
  • Cullen, Martin.
  • Davern, Noel.
  • Dempsey, Noel.
  • de Valera, Síle.
  • Doherty, Seán.
  • Ellis, John.
  • Fitzgerald, Liam.
  • Flood, Chris.
  • Foley, Denis.
  • Fox, Mildred.
  • Geoghegan-Quinn, Máire.
  • Gregory, Tony.
  • Haughey, Seán.
  • Jacob, Joe.
  • Keaveney, Cecilia.
  • Kenneally, Brendan.
  • Killeen, Tony.
  • Kirk, Séamus.
  • Kitt, Michael P.
  • Kitt, Tom.
  • Lawlor, Liam.
  • Lenihan, Brian.
  • Martin, Micheál.
  • McCreevy, Charlie.
  • McDaid, James.
  • McDowell, Michael.
  • Moffatt, Tom.
  • Morley, P.J.
  • Moynihan, Donal.
  • O'Dea, Willie.
  • O'Donnell, Liz.
  • O'Donoghue, John.
  • O'Hanlon, Rory.
  • O'Keeffe, Ned.
  • O'Malley, Desmond J.
  • O'Rourke, Mary.
  • Power, Seán.
  • Ryan, Eoin.
  • Sargent, Trevor.
  • Smith, Brendan.
  • Smith, Michael.
  • Treacy, Noel.
  • Wallace, Dan.
  • Walsh, Joe.
  • Woods. Michael.
Tellers: Tá, Deputies J. Higgins and E. Walsh; Níl, Deputies D. Ahern and Callely.
Question declared carried.