Vol. 478 No. 5
Due to a printing error in the text of the Bill as amended in the Select Committee on Finance and General Affairs the following text should appear at the top of page 174:
"(2) For the purposes of subparagraph (1) the expenditure period is the period of 9 months beginning with the day determined as follows:".
The first line on page 193 should also be deleted.
I wish to advise the House that in addition to the amendments which have already been circulated I propose to circulate a number of additional amendments, including provisions dealing with tax relief on the construction of certain educational facilities and a change of implementation date for the capital gains tax racecourse relief. The legal text is being finalised and I ask the indulgence of the House in this regard. To the extent that these amendments involve recommittal, I am in the hands of the House.
Will the Minister indicate the purpose of the first amendment? There is no point in him saying he will do something later in the day when the debate is being guillotined. I would like to know about the educational provision before I agree to that kind of arrangement.
Let us not anticipate the debate.
This is a Finance Bill in a guillotined condition. The Minister is proposing to bring forward an amendment after Report Stage has begun. He would normally have to seek the permission of the House to do so. I am simply saying he could reduce the element of surprise if he indicated what he had in mind so that I could be thinking about it.
I am sure the Minister will be agreeable to that.
I fully accept that what I am doing in not in accordance with normal procedure and that I am in the hands of the House.
I am being co-operative. I simply want to know what the Minister is about to do.
We have had discussions for some time with the third level educational institutions on a system of tax relief which would inter alia enable them to construct capital infrastructure projects on their campuses. It has proven to be complex and difficult but I am happy to say we are in a position to bring forward a provision that will enable us to advance this matter. I thought I would have had to introduce this in my next Finance Bill but I am happy to do it in this Bill, subject to the agreement of the House. That is the subject matter of the amendment. We can debate the detail of it when we reach that stage.
I move amendment No. 1:
In page 13, to delete lines 16 to 32 and in page 14, to delete lines 1 to 20 and substitute the following:
1. —As respects the year of assessment 1997-98 and subsequent years of assessment, the Finance Act, 1980, is hereby amended—
(a) in section 1, by the substitution in subsection (2) (inserted by the Finance Act, 1989) of ‘£9,000' and ‘£4,500', respectively, for ‘£7,400' and ‘£3,700' (inserted by the Finance Act, 1995), and
(b) in section 2, by the substitution in subsection (6) (inserted by the Finance Act, 1989)—
(i) of ‘£10,000' and ‘£12,000', respectively for ‘£8,600' and ‘£9,800' (inserted by the Finance Act, 1995), in paragraph (a), and
(ii) of ‘£5,000' and ‘£7,000', respectively for ‘£4,300' and ‘£4,900' (inserted by the Finance Act, 1995), in paragraph (b),
and the said subsection (2) of the said section 1 and the said subsection (6) of the said section 2, as so amended, are set out in the Table to this section.
TABLE
(2) In this section ‘the specified amount' means, subject to subsection (3)—
(a) in a case where the individual would, apart from this section, be entitled to a deduction specified in section 138 (a) of the Income Tax Act, 1967, £9,000, and
(b) in any other case, £4,500.
(6) In this section ‘the specified amount' means, subject to subsection (3) of section 1—
(a) in a case where the individual would, apart from this section, be entitled to a deduction specified in section 138 (a) of the Income Tax Act, 1967, £10,000:
Provided that, if at any time during the year of assessment either the individual or his spouse was of the age of seventy-five years or upwards, ‘the specified amount' means £12,000 and
(b) in any other case £5,000:
Provided that, if at any time during the year of assessment the individual was of the age of seventy-five years or upwards, ‘the specified amount' means £7,000.".
This amendment is in relation to exemption of income tax, particularly of elderly people. It is a constant refrain on the doorsteps, when speaking to the elderly, that they feel they have paid enough tax in the course of their lives, and that the heavy taxation which applies to them is unfair and unduly burdensome. In this context I want to make a wider point while remaining relevant. Over the past number of years we have increased old age pensions approximately in line with the rate of inflation. That sounds sensible in one way because they are not declining in absolute value terms, but they are declining in relative terms to wages and earning power at a significant rate. As public and private sector pay increases in advance of the rate of inflation, the difference between the pension old age pensioners receive and the earning power of those in work is diverging rapidly.
A new policy is needed in relation to social welfare in particular. Both the contributory and non-contributory old age pension should be increased well in advance of the rate of inflation. If there is to be a real increase in social welfare expenditure at any given stage, it should be concentrated on those who are senior citizens and not, for instance, on those in receipt of unemployment benefit. We must ensure that those in receipt of and largely dependent upon pensions are given some measure of the growth in the economy through their pensions and not merely kept idling along with the rate of inflation while wages increase.
I listened carefully to the Minister on the radio this morning, following Deputy McCreevy. I note that such hauteur and gravitas has descended on the Minister that he will no longer engage in a head to head with other Opposition spokespersons.
I was not asked.
The Minister's press agent must have insisted on that.
Not at all. If Deputy McCreevy was in the studio, I would have been more than happy to talk to him. I would not like Deputy McDowell to mislead the House. I do not have access to the columns of the Sunday Independent on a weekly basis. I engage in debate if and whenever I am asked.
I did not come down in the second last shower either. I know RTE's preference is for a head to head and when I hear the Minister coming on the radio after the Opposition spokesman, I know what is happening.
On a point of order, the Deputy is making an assertion that I declined to engage in a head to head on the radio. That is simply not true.
I know it is not true. The Minister's press agent probably did it for him.
That is also not true. That kind of innuendo is below the Deputy's normal form.
We should not personalise matters to this extent. Let us deal with the subject matter before us.
It will be a great debate in Dublin South-East.
I was making a point in a good humoured way about the Minister's interview this morning. In the course of that interview the Minister dealt with the question of public sector pay and he indicated, in agreement with Deputy McCreevy, that a firmer stance could have been taken. It is well known that the Minister threatened to resign but that the Tánaiste forced him to back down on the issue. Pensioners do not have a Tánaiste on their side. The Minister never takes a stance in relation to pensioners or the elderly in our society. He keeps them ticking over at the rate of inflation and he allows public sector pay to increase, despite his threats to resign. The result in the long term, however, is that those dependent on pensions are losing out in the Celtic Tiger economy. The elderly are not getting any share of economic growth and that will cause a crisis in the long term because if public pensions in the form of contributory and non-contributory old age pensions are allowed to lag behind even further, in terms of their relationship to wages, more and more people will be plunged into a crisis when their employment life finishes and they are on pension.
The objective of this amendment is to relieve the tax burden for more elderly people in particular.That is one way of giving them some share in the economic growth. If today's ESRI report is true in substance, and allowing for the major caveats the authors of that report put into it, we must ask ourselves if the elderly will be part of this economic boom or will be left behind while the bigger snouts get to the trough through the social partnership negotiations. We must share the fruits of economic prosperity with the elderly because in large measure it was their working careers that created the circumstances in which younger workers today are enjoying such a comparatively improved economic situation. We must look to the tax and welfare systems to ensure the elderly get a fair share of economic growth which they are not currently getting but to which they are entitled. I am not talking about some kind of auction politics, but doing something concrete to give relief to those who are past employment, in terms of their working life, and in their retirement years. They should receive some benefit from the economic growth generally being experienced by others in the economy, although in different measure for different people.
I support Deputy McDowell's amendment. On Committee Stage I tabled an amendment to increase the exemption limits for aged persons. Over the years I have consistently argued that there should be a substantial increase in the exemption limits that apply to people when they reach a certain age. We had an interesting debate on this topic on Committee Stage ranging outside the normal debates of previous years which concentrated solely on the cost. I have given some thought to the Minister's line of argument, which was somewhat new to me, that at least in Ireland the position of pensioners vis-à-vis taxation was somewhat different to what it is in other countries, and I accept the Minister has a point. I said on Committee Stage that I was of the old-fashioned school who believe that people who have worked all of their lives providing for their families and who have paid their dues to society should, when they reach a certain age, be entitled to generous exemption from taxation.
There is no need to rehearse the arguments I put forward on Committee Stage, but I have a different view from the Minister's as outlined last week. Exemption limits should be increased dramatically. The Minister said what the cost of the amendments put forward by me and Deputy McDowell would be, but that would depend on the starting point. I have no hesitation in saying — and this line of thinking got me into some difficulty during my time as Minister for Social Welfare — there is a fundamental difference between a 20 year old single adult and a 70 year old single adult. I was pilloried by people of the socialist persuasion and their commentators in the media for making that point. There is a vast difference between a 20 year old single man and a 70 year old single pensioner in receipt of the same rate of unemployment assistance. The difference is that the 20 year old has his full life ahead of him. He has the opportunity to work at various jobs, and the fact that he is young gives him all the advantages.This was not a line of thinking that was appreciated by people of what I would loosely term "the socialist persuasion". However, I still believe that and anyone who says there is no difference between those two categories is not living in the same Ireland in which I live.
I also have the old-fashioned belief that children should look after their parents. Traditionally one member of a family, usually a daughter, was left at home to look after her parents in old age. That tradition is changing, but it is not necessarily a change for the good. From the Exchequer view-point it is extremely costly. The cost of providing health and care services for the aged will be beyond the capability of future Administrations, notwithstanding their good will.
I support Deputy McDowell's amendment. There should be exemptions for aged persons. I note what the Minister has done in the budget, but tinkering at the edges is not the proper way to go about it. The purpose of my amendment on Committee Stage was to increase the exemption limits by a particular amount. I have since given thought to tackling the matter in another fashion which officials in the Department of Finance might consider in order to have equity in the system for all pensioners. Not all pensioners are in receipt of a State old age pension. Many are wealthy people who have provided substantially for their own pensions, and I do not deny what the Minister said last week about that. As someone who takes on board what other people have to say, although I might not agree with it at the time, I have given further thought to what the Minister said. It is a point in favour of the current Minister for Finance that he also is willing to take on board ideas put from different perspectives, and I have acknowledged that on many occasions.
One way of getting over the problem of ensuring equity for all pensioners would be if, when the person has reached the age of 65 regardless of the source of income, exemptions could apply for amounts up to the equivalent of a State pension plus an adult dependent allowance in the case of a person with an adult dependant. That would create equity between all taxpayers of that age whether they were in receipt of a State pension only, not in receipt of a State pension or in receipt of a State pension and another pension or pensions. The Minister will be aware from representations made to him by his constituents that it is confusing for an individual in receipt of a State pension and perhaps a small pension from a former employment, more often than not semi-State employment, to have to comply with complicated tax rules at the end of the year. What I suggest would be a somewhat novel approach that might be considered by officials in the Department of Finance over the coming months because it would create equity between pensioners whose pensions come from different sources. It would also get over some of the difficulties outlined last week by the Minister regarding people who have substantial pension income but who do not receive a State pension.
I support the amendment put forward by Deputy McDowell. One of the failings of our tax system is that people come into the tax net too soon and pay tax on very low incomes. That is a general point, and the solution is probably to increase tax allowances although, if we were to do what some people would like, it would cost a fortune.A limited way of tackling the problem is to increase exemption limits. That has been done successfully and has benefited many people over the years by keeping those on relatively low incomes out of the tax net or, if they are over the exemption limit, charging them at the marginal rate.
There is a perception among the elderly that they have paid over the years for their pensions and that when they get the benefit it should come tax free. I am aware of the argument that all income should be taxable. However, in regard to unemployment benefit and disability benefit, the Department of Finance has rowed back and some of this should be tax free. My point specifically concerns elderly pensioners who are being charged at the marginal rate. This year in the budget married couples got an increase in their allowances of £500 and old age pensioner couples got an increase of £400. That was a total increase of £900 for people paying tax at the full rate. However, for those on the marginal rate, the exemption rates were increased by only £200 and there is much bitterness and disappointment that elderly people, just into the tax net, have been so harshly treated and discriminated against in a year when we were led to expect a bonanza budget from which everybody would gain.
For some reason 24,000 old age pensioners were singled out and treated in a very harsh way, and many of them have a lower tax free allowance this year than previously. What type of signal does that send out to our elderly? Surely the hallmark of any society is the way it treats its elderly.What are we achieving from our booming economy other than giving George Lee breakfast every morning when he appears on television? Surely we should pass on some of the benefits to the elderly who worked hard when times were not so good. I was disappointed at the way our 24,000 old age pensioners were treated in the budget. While the Minister may claim he is acting on the report of the Commission on Social Welfare, many of our elderly will be worse off as a result of the budget. They are a vulnerable group, many of whom do not enjoy great health and incur high heating costs and they believe the Government does not care about them.
On Committee Stage the Minister stated that age alone should not be a reason for giving higher tax allowances. This can be achieved by increasing exemption limits or the age allowances, but an increase of £400 is not sufficient. Many elderly people who were on the marginal rate cannot understand why they have been singled out for harsh treatment in a year when everybody else gained. People would agree to a 10 per cent tax increase if it were necessary and implemented fairly. However, in a year when everyone should be a winner, it is unacceptable that 24,000 old age pensioners should be singled out for harsh treatment.A more humane approach should have been adopted to achieve the targets set in the report of the Commission on Social Welfare. I support the amendment.
While I am not saying Deputy Ahern did not quote me accurately, I want to amend something I said last week. On reflection, some consideration should be given to age. The point I was trying to stress last week was that many elderly people have substantial incomes and people should not be automatically treated differently because they are old. However, I accept the principle enunciated by Deputy Ahern in that when everything else has been considered, age should be given special consideration. To that extent, I philosophically agree with the thrust of Deputy McDowell's comments in that compensation for inflation alone is not sufficient. Many of us have elderly parents. Notwithstanding their objectively sound position compared with some years ago, they worry excessively about paying tax and their ability to meet their obligations. That is part of the human condition as one gets older and it informs many of the concerns expressed by the elderly.
Our usual benchmark for comparison purposes is the United Kingdom. In terms of tax and social welfare, under successive Governments this country has treated its elderly better than many other countries. My mother-in-law, who lives next door to me, frequently compares her position with that of her sister who lives in Bedford in the United Kingdom. Anyone who is in a position to do so should make similar comparisons. Pensioners here are treated better than those in the United Kingdom.
Mr. Haughey should get some of the credit for that.
Mr. Haughey must be congratulated for his inspired move in providing free travel for the elderly. I have frequently paid tribute to him for that and his many other achievements for the elderly. Anyone who travels by train will be aware of the benefits the elderly derive from that provision. It enables them to make social intercourse with others, which otherwise would not be possible.
I contradict Deputy McDowell's assertion that benefits for pensioners have marched in tandem with the rate of inflation. For those in the fortunate position of having public service pensions——
The Minister would win the argument game, set and match in that regard.
The Deputy and I will qualify in that respect. I will confine my remarks to tax on this matter. The general exemption limits have increased substantially since 1988. All parties in the House can share the credit for this increase because it is not exclusive to one period. The limits for those aged between 65 and 75 years increased by 42 per cent and for those aged 75 years and over they increased by 37 per cent. The cost of living increase during the comparable period was approximately 26.5 per cent. Therefore, there is a significant variation in terms of the base increase in the rate of inflation.
The argument that the rate of increase for social welfare recipients not in the labour market should be different from those in the labour market is gathering strength. This is a valid argument considering what is happening in the labour market.I have not yet been able to persuade my colleagues of its validity, but I will continue to make the point.
The Minister will have great difficulty persuading them. If he changed parties he would have no difficulty with his colleagues.
The other aspects would then cause me considerable concern.
In regard to Deputy Ahern's comments, it is my understanding that people are better off as a result of the changes made this year. The Deputy stated that is not the case for people who moved from marginal relief to full income tax. That was not the intention and I would be happy to examine the details of specific cases at a later stage. I submitted a written reply on this matter to the Deputy on 25 March.
It could apply to someone who stays on the marginal relief.
On the basis of the information before me, that would not be the case. If couples are taxed on the marginal relief system their exemption limit will increase by £200 to £10,400.
If they are on full relief it would increase by £900.
Consequently, in this year's budget the number of couples exempted from tax has increased compared with the 1996-7 year, irrespective of whether the couple is being taxed under the normal tax system or the marginal relief system. As Deputy McDowell has stated frequently, there will always be shifts and changes as people move from one band to another. We have moved substantially over a number of budgets to address the question of exemption for the elderly.
This matter has been thrashed out. I welcome from the Minister a statement that there is in his view — although he has difficulty in persuading others of it — an unanswerable case for differentiating between potential and non-potential labour market participants in a welfare payments policy. It sounds like a right wing view, but it is not. It is a common sense view. If we do not fasten in on one point and keep on spending our social welfare resources right across the board, we will compound some problems and not address others.
Regarding the national pensions initiative, which is coming onstream, there are significant implications if we do not do the right thing by pensioners and by the elderly. We must deal with the question of pensioners. Possibly the fairest and best way to address that question would be to say to old aged pensioners that over the lifetime of the next Government — I do not think this is auction politics — we will make sure their pensions increases by £4 or £5 per annum so that they will know that is the increase to which they can look forward. The sense of psychological insecurity to which the Minister referred would be relieved to some extent by that approach. The sense that their increase always seems residual — seeing what is left and if the increase will be £2.80 or £2.90 — would be taken away. If we started our approach to welfare policy with a significant differentiation between those who are potentially in and those who are potentially out of the employment market and dealt with the elderly as a special case, we would go a good deal down the road towards establishing some sense of social justice and confidence and would give old aged pensioners and those who are largely dependent on State contributory and non-contributory pensions a sense that they are appreciated.
I appreciate that these proposals in the Bill do not apply to non-contributory old age pensioners but apply to contributory old age pensioners who feel they are being left behind in relative terms and are not sharing in the prosperity they managed, through their working lives, to create for this generation. That is an important point of which we should not lose sight.
I move amendment No. 2:
In page 14 to delete lines 21 to 36 and substitute the following:
2.—Section 2 of the Finance Act, 1991, is hereby amended—
(a) as respects the year of assessment 1997-98, by the substitution of the following Table for the Table to that section:
‘TABLE
Part I
|
Part of taxable income |
Rate of tax |
Description of rate |
|
(1) |
(3) |
|
|
The first £9,900 |
24 per cent. |
the standard rate |
|
The remainder |
45 per cent. |
the higher rate |
Part II
|
Part of taxable income |
Rate of tax |
Description of rate |
|
(1) |
(2) |
(3) |
|
The first £19,800 |
24 per cent. |
the standard rate |
|
The remainder |
45 per cent. |
the higher rate |
(b) as respects the year of assessment 1998-99, by the substitution of the following Table for the Table to that section:
‘TABLE
Part I
|
Part of taxable Income |
Rate of tax(2) |
Description of rate |
|
(1) |
(3) |
|
|
The first £10,500 |
22 per cent. |
the standard rate |
|
The remainder |
42 per cent. |
the higher rate |
Part II
|
Part of taxable income |
Rate of tax(2) |
Description of rate |
|
(1) |
(3) |
|
|
The first £21,000 |
22 per cent. |
the standard rate |
|
The remainder |
42 per cent. |
the higher rate |
(c) as respects the year of assessment 1999-2000, by the substitution of the following Table for the Table to that section:
‘TABLE
Part I
|
Part of taxable income |
Rate of tax |
Description of rate |
|
(1) |
(2) |
(3) |
|
The first £12,000 |
20 per cent. |
the standard rate |
|
The remainder |
40 per cent. |
the higher rate |
Part II
|
Part of taxable income |
Rate of tax |
Description of rate |
|
(1) |
(2) |
(3) |
|
The first £24,000 |
20 per cent. |
the standard rate |
|
The remainder |
40 per cent. |
the higher rate |
(d) as respects the year of assessment 2000-2001, by the substitution of the following Table for the Table to that section:
‘TABLE
Part I
|
Part of taxable income |
Rate of tax |
Description of rate |
|
(1) |
(2) |
(3) |
|
The first £14,000 |
20 per cent. |
the standard rate |
|
The remainder |
40 per cent. |
the higher rate |
Part II
|
Part of taxable income |
Rate of tax |
Description of rate |
|
(1) |
(2) |
(3) |
|
The first £28,000 |
20 per cent. |
the standard rate |
|
The remainder |
40 per cent. |
the higher rate |
(e) as respects the year of assessment 2001-2002, by the substitution of the following Table for the Table to that section:
‘TABLE
Part I
|
Part of taxable income |
Rate of tax |
Description of rate |
|
(1) |
(2) |
(3) |
|
The first £15,000 |
20 per cent. |
the standard rate |
|
The remainder |
40 per cent. |
the higher rate |
Part II
|
Part of taxable income |
Rate of tax |
Description of rate |
|
(1) |
(2) |
(3) |
|
The first £30,000 |
20 per cent. |
the standard rate |
|
The remainder |
40 per cent. |
the higher rate |
This amendment seeks to set in place in this Bill a framework for radical reform of the taxation system for the next five budgets. In relation to the personal taxation regime it sets out a plan to effect the rate of tax paid and the standard rate band over five budgets for married and single people. By setting out in tabular form a series of targets for reform of our taxation system, the amendment puts into sharp focus what would need to be done if we were to achieve a 20 per cent standard rate of tax in five years in the lifetime of the next Government and a 40 per cent top rate of tax during that period. It also puts in context the question of how much income should be taxed at the standard rate and how much at the upper rate.
We have had the benefit of a Committee Stage debate on this issue and I do not propose to go over all the matters dealt with there, but I propose to put on record what I recall I was told by the Minister, that the gross cost in today's prices of this set of changes would be £1.326 billion. The net cost would be less, on my calculations somewhere between £260 and £270 million per annum. We will deal in gross figures because one can engage in trick of the loop economics if one moves too far away from gross costs. It is worth noting the Partnership 2000 programme guarantees for each of its three years from 1997 to 1999 a £300 million reduction in taxation. The proposals set out in this amendment are well within the overall parameters of an annual kind set by the Partnership 2000 programme which was thrashed out by the social partners.
There is a widespread opinion that radical tax reform in the lifetime of one Government is not possible. It is if the political will is there. There is a view that the amounts involved are of such an order that it would involve some type of social upheaval or Exchequer disaster to attempt to do that on a consistent basis in the lifetime of one Government. It is well within our capacity to deliver a major revolution in personal taxation if we have the will to do so. It is not a matter merely of the desire to do so. The will to do so carries with it the determination to do it and to make other decisions which would make it possible.
Since the Committee Stage debate we have had the benefit of the ESRI report today. I am sure that the men in grey suits in Merrion Street have a slightly jaundiced view of that report and regard the newspaper reportage as a little upbeat for their taste.
They are of a mood similar to the Deputy's brother.
Yes. Leaving aside the question as to how such an upbeat report came to be published at this convenient time, I want to deal with its substance in so far as it is relevant to this amendment. It does seem to suggest, as I suspected, that if we keep our economic fundamentals right, if not over ten years certainly over five years, the prospects for employment are very good. It gives us some grounds to hope for one proposition, that we will see a downturn in unemployment if we keep our fundamentals correct. It says that as a society, which at present is labouring under an appallingly anti-work, anti-enterprise and anti-participation tax system, we could do a lot better if we reorganised our tax affairs to make it worthwhile for people to work and participate in the economy.
I understand my witticisms about the Minister's radio interviews were incorrect and that he would have been happy to have a head to head debate with Deputy McCreevy, but the problem was at Deputy McCreevy's end for domestic reasons. In that context the Minister should bear in mind that what he said this morning on radio about public sector pay is of major importance. The stance he attempted to take before Christmas was commendable.
It was the correct one.
It was a tragedy he was overruled and that Billy Attley got his way by sabre rattling down in Killarney. It was a tragedy that happened, because the wrong impression was created that here was a Government that would give in when put under a bit of pressure. I accept we are vulnerable walking into an election, and that even those who are soft of centre now could find their positions much hardened if they got a mandate for another five years.
However, by not setting ourselves real tax targets for reform — except general figures like £900 million over three years, which means something to some people but very little to many people — the expectation has been created that the right way to improve living standards is to get big gross pay increases by putting pressure on.
The Minister is probably in the happy electoral position that he does not have to go out and canvass like I do. I have been out canvassing and I know that all the voters of Dublin South East consider the Minister a safe shoe in.
The Deputy would encourage them to think like that — the joys of multi-seat constituencies.
Nonetheless, I was out canvassing last night and met a number of people who were directly or indirectly connected with public sector pay claims at the moment. I told them I was strictly enjoined by my parliamentary party to give no undertaking to them on public sector pay, in relation to anything over and above the Partnership 2000 programme. However, given the course of the conversations that followed, I have no doubt but that 80 per cent or 90 per cent of those now beginning to mobilise themselves for claims against the Minister for Finance could be persuaded to take a different point of view if something like this was put before them as a programme of tax reform.
We must set convincing targets so that a prison officer, occupational therapist or garda thinking of voting in a union ballot for a militant stance on pay will take a different view. The Government should put before those people a five year tax regime consequent on moderate wage claims within 1 or 2 per cent of the rate of inflation which will transform the situation from one where a worker at or below the average industrial wage pays roughly a third of their wages in tax — 28 to 33 per cent depending on various things — to one where workers will pay approximately 15 to 20 per cent tax. Since the standard rate of tax will be 20 per cent the State will not take more than 20p in the pound and the effective rate will be considerably less than that.
We must get the social partners to believe in the process of tax reform; not as a £900 million aggregate over three years but as something tangible like a statement on standard tax rates, personal tax allowances and the top rate of tax. This is where their prospects lie if they go along with wage moderation. If we could do that, the prospects for this country could be radically transformed and the tax wedge could be significantly reduced in five years time. The disadvantage of workers south of the Border compared to those north of the Border could be set aside. The difference between the post tax situation of somebody who works and somebody who is unemployed could be made significantly better and our wage rates and wage costs in the economy could remain remarkably competitive vis-á-vis other European states.
This amendment is practicable. It can be implemented for less gross cost than even the promises given in Partnership 2000. It is all the more practicable if one takes on board the fundamentals of what the ESRI is saying, which is that if we keep wages down and keep public expenditure on the straight and narrow, this country is in for a sustained period of economic growth with more employment and a corresponding decline in unemployment.
For every 10,000 people who leave the dole the State benefits to the extent of £35 million per annum. If they go into jobs the gross benefit to the State, after tax, is £100 million per annum. We stand on the edge of a major period of opportunity.I have used the term "a five year window of opportunity" and today the ESRI referred to a 25 year window of opportunity. We stand on the threshold of a dramatic period of change over the next five years, which could see this country become almost a second Switzerland in terms of its economic strength. I do not want to be a cuckoo clock fan and I am very wary of international comparisons——
Finland and Denmark are better.
It all depends. This country could be on the verge of a tremendous period of opportunity. If we increase public spending and give in to public sector pay demands — including special pay demands like prison officers saying they must have relativity to psychiatric nurses and the latter group claiming relativity with ordinary nurses — it is the road to economic disaster. It is not as if the country will fold up in the next five years, but at the end of five years we will be flabby, out of condition and in a poor state to benefit from post-EMU Europe. If we tell people that if they show moderation in wage demands we can introduce meaningful tax reform I am confident that at the end of the next five years when the next general election comes, whoever is contending for power will have a much healthier economy to argue about. They will be in a position to do much better things for the deprived in society, the marginalised, the excluded and those who have suffered so much in the past from economic deprivation.
The next five years will be crucial. I return to the proposition which I am also stating for Deputy McCreevy's benefit. Between 1989 and 1992 there was a significant change in our tax regime. If it had been accompanied, as the Minister has pointed out on radio, by a determination to deal with the tax bands as well, it would have been that much better. However, nobody under any circumstances proposes undoing what was done at that time. The key to that was that rates were the subject of a solemn political commitment.If the bands had been the subject of a solemn political commitment different decisions would have been made on public spending as well.
All parties in the House must take on board the fact that there was considerable foot dragging in the system in general — I will put it no stronger than that — about even doing what was done. It was only the embarrassment of having fixed targets that meant it was achieved. If the people believe the incoming Government's guarantee that this will be the tax regime and that all decisions will be made in the context of moderation, it will provide an opportunity to consolidate our economic success.
It has been said, although not by the Minister, that tax reform is a policy by the comfortable for the comfortable. However, it is not. I would be happy to see the introduction of tax credits. The present system of allowances is tilted in favour of the rich. Rich people buy section 23 apartments, invest in business expansion schemes, put £50,000 per head or £100,000 per couple in special savings accounts, open special investment accounts and take advantage of inner city urban renewal schemes for the purpose of reducing their tax load.
The people who suffer under the tax regime are the single workers who cannot break free from its vice grip and who do not have the money to put a deposit on a house. I met one such person last night. She said she would vote for me this time — she did not do so the last time — because she now realised that increasing house prices and crippling personal taxes meant she could not put her foot on the bottom rung of the housing ladder.She was annoyed that some of her colleagues, who made more prudent decisions a few years ago, had already availed of mortgage tax relief, yet she could not get a mortgage. We must work to ensure that these people do not suffer the burden of crippling taxation.
This amendment is not written in stone but it shows that the country has the capacity to change the tax system for £0.25 billion per annum over a five year programme of Government. The last table in the amendment shows that the first £15,000 of taxable income could be taxed at 20 per cent. If allowances were added to that — I did not mention increasing them in line with the rate of inflation — PAYE workers would pay 20 per cent tax on the first £18,000 or £19,000 and the effective rate of tax would be approximately 14 or 15 per cent. That would be the single most dramatic transformation for workers. If we could get away from the chaos which happened between 1973 and 1987 when tax went through the roof and establish a situation where a single worker could earn up to £18,000 gross and pay 14 or 15 per cent tax, it would be a dramatic change for whatever parties achieved it and it would improve our employment prospects. I am not hung up on the 2:1 ratio for married people but if we introduced this tax regime, we would be able to retire from politics knowing we had achieved something. The House should avail of this opportunity to change the tax system.
I thank the Minister for saying on Committee Stage that the arguments made by the Progressive Democrats in relation to low rates of tax on work had won the day. We now hear the siren voice of CORI which wants each employer to send more than half of every payroll to the Minister for Finance and it will arrange for everyone to get £60 or £70 a week as a basic income. It also wants a 45 per cent tax rate and a 12 per cent social responsibility tax. That idea will end in chaos, while ours will end in prosperity.
I tabled amendments on Committee Stage which the Minister also costed. Most politicians now accept there is a direct link between taxation, public sector pay and Government expenditure, although that may sound boring and old fashioned.
The Minister was unable to get his Cabinet colleagues to accept that the stand he attempted to take during the Partnership 2000 negotiations was the correct one. I cannot understand why they were not prepared to back him in relation to public sector pay increases. This morning's ESRI report strengthens the belief that prudence is the way forward. I fail, therefore, to understand why his Cabinet colleagues could not have seen the benefits of that proposal.
I said to the Minister on a television programme eight or ten weeks ago that no political party, including the Opposition parties, would be able to stand up to the lobby groups which would emerge in the run up to the general election. I have been proved correct in that regard. A number of politicians would have commented on Partnership 2000 but for the general election.
The social partnership approach initiated by a Fianna Fáil Government in 1987, which was referred to in the ESRI medium term review this morning——
We had national understandings before that.
National misunderstandings.
Those were just pay agreements.The unions had to negotiate new arrangements which were more in line with the concept of partnership. Despite opposition from numerous politicians at the time, they worked well and the Minister has recognised that. After a number of agreements were made, people began to forget the chaos which existed before the partnership approach was adopted. Credit must be given to the Fianna Fáil Government under Mr. Haughey for introducing that proposal and for convincing the trade unions, farmers, employers and others to become involved in the process. However, it would be naive not to believe that there was another key determinant at that time. Trade unionists of all persuasions, but particularly the trades union leadership, knew that the country would be ruined financially unless we did something.The country was banjaxed, to use a phrase not often heard in the better parts of Dublin 4. All sides recognised the economic reality.
It had nothing to do with the slogan "Health cuts hurt the old, the poor and the sick".
As the Minister will be aware, I subscribe to the Seán Lemass theory of electoral politics and if he read about Lemass, he will know what I mean.
In 1987 that reality had borne itself heavily on every group in the country, and particularly the leadership of the trades union and employers. It was evident to the Government and policy makers also. That led to the situation where there was a trade-off for low wage increases in the hope it might work. Nobody believed it would work as well as it did. Of course it was not so difficult to get the second programme under way because the first one had shown itself to be such a great success. The third programme was a little more difficult to agree and by the time we came to the present one people and politicians had forgotten the ruinous state of the economy ten years ago. The trades union leadership have not necessarily forgotten about it but their constituent organs have, and a number of employers and employers' organisations have also forgotten about it. It is not popular for politicians or political parties to call for control because everything is going fairly well.
People agreed to Partnership 2000, which is supposed to be an agreement for a number of years, but I do not see anybody abiding by the spirit and, more importantly, the explicit terms of that agreement. The ink is not dry on the national agreement and nearly every group in the country is making a special claim. One of the things about the 1997 agreement of Mr. Haughey's Government when Mr. MacSharry was Minister for Finance and the subsequent agreement when Deputy Reynolds was Minister for Finance was that public sector pay increases were deferred but it is written in stone that they would be paid eventually.Deputy Bertie Ahern had to pay them when he was Minister for Finance and I, with Deputy Quinn, was a member of that Cabinet which made an all out effort to sort out all the special claims by the end of 1994. That was achieved and it was one of the reasons expenditure looks a little high in those years, as the Minister and his officials will be aware. However, nobody is abiding by the spirit or terms of the agreement which has just been signed.
As the general election approaches every group in the country knows that the three party Government is in a weak position. If it was a single party Government, it would not be in a much stronger position because I know the exigencies of electoral politics as much as anybody. This is calamitous and it must be stated now. I read in yesterday's newspapers that IBEC is protesting at a letter which some unions have sent to their members to the effect that the wage rounds are to be taken as agreed and the extra is to be taken anyway but that they should not even talk about the extra until they get more.
Every trade union, particularly those in the public sector, is lining up to take on the Government and most of them are getting their way because the election is just around the corner. The nurses' dispute was to have been a special case which was supposed to be ring-fenced. Everybody in this House knew that when that case was given into, everybody else would follow. That is what has happened. Ten weeks ago I suggested that we should get the general election out of the way because common sense would come to rule again. I am sure the Minister for Finance and people close to him in his Department are wondering what they will do.
It does not make much sense to me that everybody who signed an agreement is breaking it willy nilly. It may not be politically popular to say this aloud but it is the plain truth. If Deputy McDowell or I make an agreement with somebody, I would expect it to be honoured. I can understand a person breaking an agreement after a year or two for specially stated reasons, but it would be a peculiar kind of agreement if a party was thinking of breaking it within four weeks for no good reason. At this stage it looks as if everybody who is tied to the agreement is afraid to state the obvious. Is this agreement not worth the paper on which it is written?
The Fianna Fáil Party is committed to implementing the terms of Partnership 2000 and Deputy McDowell's party is also committed to it.
We are the only people who are committed to it.
Exactly. We seem to be the only people who are committed to it. We now have a national partnership agreement in nominal terms but it is a free for all in reality. We might as well face up to these unvarnished truths because we should be clear about where we are going.
This morning's ESRI report gives a fair assessment of the reasons for the recent economic growth, it takes a long-term perspective on why this has come about, and how we are reaping the benefit of the demographic dividend. It also outlines the things which were done in the medium term to bring this about and emphasises heavily that fiscal prudence and wage moderation arising from the partnerships were the medium term factors which helped to achieve the present good state of the economy. The report further states that these are key determinants to that end if we are to enjoy the expectations and rates of growth which the ESRI is predicting until 2010.
The report comes down heavily on the danger of rising expectations. Having addressed the difficulties of the past ten years, there would always be a danger that rising expectations would be fuelled. Whatever about people standing on soap-boxes fuelling expectations and trades union leaders trying to encourage constituent members to get the best deal from the employers, I find it sickening that the Government is afraid to stand up and speak the truth just because there is an election around the corner. I would be more inclined to believe Ministers if they said that we cannot go on like this. The Minister for Finance must have a pain in his head from shouting at his Cabinet that unless they get the general election out of the way in the near future, they will ruin some of the recent great developments in the economy. If somebody does not stand up to say what everybody knows to be the truth because he or she is afraid of antagonising a few voters, the expectations laid out in the ESRI report will be at naught before the year 2000, not to mention 2010.
Deputy McDowell's amendment is achievable over a period of time. I tabled similar amendments on Committee Stage and the Minister outlined the costs involved. One must remember that the Minister has committed himself in Partnership 2000 to at least £900 million in PAYE concessions and £100 million on the employer-corporation tax side. The total cost of Deputy McDowell's amendment comes to £1,325 million over the period, which is not much more. There was a time when these things were not feasible but the ESRI report states that if we conduct ourselves reasonably, we will be able to achieve a great deal.
The Government has been responsible for running the economy for the past three years and, if increases in spending during that period had been limited to inflation plus 2 per cent, an additional £1.5 billion would have been available for further expenditure. Action could have been taken in the areas of tax concessions, crime, social welfare, etc., as a result. However, due to internal political pressure, it was decided to increase gross public spending by over 20 per cent during a period when cumulative inflation did not exceed 6 per cent.
Since the age of 18 I have read books by many economic commentators. It is not my opinion that one should alter one's initial view on economic matters after 20 years. However, things change and one must adapt to the prevailing circumstances.I can find no theoretician or exponent of the dismal art of economics who states that expenditure should be increased by almost four times the rate of inflation in a time of economic growth. If the mandarins in the Department of Finance, the ESRI, the NESC, etc., can provide a document which states that this is a proven theory for the operation of any type of economy, I will bow to the their greater knowledge. I have issued this challenge on previous occasions but, to date, no one has taken it up because such a theory does not exist. If it did, it would not work and would cause deprivation.
During the past two years, the Minister for Finance, Deputy McDowell and myself have had many discussions about economic and monetary union in this House and at the Select Committee on Finance and General Affairs, which were not adequately reported. The Minister is aware of my views on fluctuations in the exchange rate vis-á-vis the Irish punt, which lost 1p against sterling in early trading this morning. That is a major fluctuation.For the past year I have stated that this type of volatility will become increasingly prevalent in the run up to EMU. The Minister knows my views and has taken some of them on board. We have discussed this matter in a friendly way because we do not wish to see the economy damaged.With the advent of EMU, it is probable that Ireland will reach the average EU income and will receive smaller amounts of EU funding. However, public expenditure is being increased at an extraordinary rate and expectations are being raised, as stated in the document published by the ESRI this morning. I place the blame for the raising of such expectations at the Government's door.
Responsibility for defending Government economic policy and informing the public of the hard facts does not rest solely with the Minister for Finance; it also lies with the other members of the Government. I suspect the Minister for Finance has given up during the past months and decided to remain silent until after the general election. However, someone will have to dampen expectations in this regard. As stated earlier, if spending could have been limited to inflation plus 2 per cent during the past two years there would be adequate finance available to fund the programme suggested by Deputy McDowell in one year. The tax bands could have been reduced to 20 per cent and 40 per cent with no difficulty. This could have been achieved in a three year period.
I support the amendment tabled by Deputy McDowell. I suspect that the Minister for Finance does not need to be convinced in respect of the arguments I made in that regard. However, it is time that he and his Cabinet colleagues expressed those arguments. I doubt that this will happen because we are in the run up to an election and the silence on this issue has been deafening. It is time that people woke up to reality. Not only is it the responsibility of the Minister for Finance to express such arguments but employers and trade union leaders must also do so. However, some trade union leaders have been cowed. In a recent competition for the leadership of one of the unions an unknown person won a gigantic slice of the vote. This illustrates that the unions are not in tune with the expectations of their members in the lead up to Partnership 2000. It is time that someone called a halt and it is the responsibility of the Minister for Finance and trade union leaders to speak out.
I will try to respond as briefly as possible to the points made because I presume the House wishes to deal with other amendments. The present difficulties in respect of public sector pay relate to the existing PCW agreement which has yet to expire within the public service. Partnership 2000 came into effect on 1 January for the private sector. However, in so far as it applies to the public service, the Programme for Competitiveness and Work does not expire until the end of June.
If that is the case, surely it would have been appropriate to ringfence the end of the PCW before the launch of Partnership 2000?
The Chair does not wish to encourage long interruptions.
I have consistently stated that a deal is a deal and people have signed on for pay increases, including the 3 per cent special restructuring provision over the three years of the agreement.This has been expanded, on a pro rata basis, to 5.5 per cent over an extended period where genuine restructuring took place. People were given additional money to facilitate such restructuring. Regrettably, there appears to be a tendency by some groups to revert to making comparisons with other groups with which they had been traditionally linked. The thrust of the provisions to end special pay awards, to which agreement was reached in principle, was to remove those historical links which no longer bore any relevance to people's work.
There is a greater issue at stake to which I will refer in light of Fianna Fáil's involvement. Broadly speaking, during his term of office as Taoiseach, Deputy Reynolds initiated the strategic management initiative which is designed to address the fact that work practices at all levels in the public service must be modernised and dramatically changed, if only for the sanity of those working within the system. Working in the public service can be extraordinarily frustrating for some people. I worked as a junior architect for three years in Dublin Corporation and I have direct experience of the sense of bureaucracy, restraint and limitation people encounter. I am aware that this continues in many instances within the current hierarchical system, which bears no relation to people's educational qualifications or, in contrast to the position that existed between five and 15 years ago, the access, via technology, they have to information. That must be addressed and changed.
A great deal of the discontent which manifests itself as public service pay claims is a representation of people's discontent with being unable to carry out their work in a satisfactory manner. The SMI is attempting to address this issue. Developments in this regard include the introduction of performance-related pay whereby people will be rewarded for additional and special work on the basis of an agreed system of benchmarking and comparison. The three pillars of the national understanding — this extends to other issues with which I will later deal in respect of the recent vote in SIPTU — involve pay moderation and low wage increases in return for real reductions in income tax and the establishment of industrial peace to enhance the competitive position of the economy and bring about a low interest, low inflation regime, which, in turn, would lead to employment creation. On present performance that model formulated by different parties has delivered, when gauged by any comparative yardstick.That was because people were committed to the concept of endeavouring to create additional employment. In the late 1980s and early 1990s that was a critical objective. As we move further into that innovative area, having achieved more and more, to the extent that we are beginning to see labour market shortages in some areas and have a kind of institutional loss of memory to which Deputy McCreevy referred, people have forgotten just how difficult were the 1980s. I will never forget them, having been in Government at the time when every option available appeared worse than the next, when, with the exception of lone voices like that of Deputy McCreevy, there was collective amnesia and intellectual anarchy on the Fianna Fáil benches.
We can make reductions in income tax over the next two to three years, certainly within the context of Partnership 2000, provided all of its conditions and terms of partnership are adhered to. People cannot cherry-pick when it comes to the terms of Partnership 2000. That message, which I have been articulating fairly frequently, has to be heard by a wider audience, in which respect I support and welcome the comments of Deputies McCreevy and Michael McDowell.
Deputy McCreevy did not describe the entire picture when he spoke about public expenditure. On the overall increase in public service pay, to which different Governments signed up, if one takes it that in round figures, the running of this country costs approximately £13,000 billion, £3,000 billion of which is expended for central fund purposes, effectively paying the mortgage and a few other related functions, there remains a balance of £10,000 billion for the provision of all of the public services, £5.25 billion being expended on salaries for a larger number of people and the balance on such things as per capita payments for young people at school, supplies and services for hospitals, grants to the IDA and other commitments that do not represent a salary element. Therefore, any increase in the public service pay bill has an impact on that proportion of the total expenditure. In addition to that kind of spread, we have had a number of additional extras in recent years which we had no option but to pay, such as the equal treatment payments amounting to approximately £260 million——
We sold assets to pay for them.
Yes, but they are reckoned to be an increase in public expenditure which I financed in a very innovative, clever manner. I insisted on doing it in the manner I did, but it manifested itself in the Book of Estimated as increased expenditure.
We had to pay a fine of approximately £80 million to the European Union in respect of irregularities in the administration of our agricultural supports system, in which Deputy McCreevy's party had more than a passing interest.
The Minister and I should remember that.
On top of that there was the additional cost of compensatory payments for incidents of BSE, the costs associated with hepatitis C and the emerging costs with regard to deafness among some Army personnel, all of which were economic shocks, in some respects, of a kind much more severe than some about which people are worried in moving toward economic and monetary union. Furthermore, we have abolished third level fees, a measure of which I am very proud and which I consider was the right thing to do. The real cost was much less than the increase of approximately £60 million which appeared in the Book of Estimates because a very innovative and cleverly informed group of people increasingly abused the benefits of tax covenants to obtain substantial relief for their children's educational expenditure. From memory, a sum of approximately £42 million of tax foregone was lost on covenants entered into, principally for educational fees, from a base figure some five to seven years previously of approximately £5 million to £6 million. Those are approximate figures only and should be taken to illustrate orders of magnitude only.
On Committee Stage we closed off another more innovative form of the same kind of loophole, the direct scholarship scheme, along with the abolition of third level fees, leaving us in a position similar to that of every other member state of the European Union in regard to university fees, representing another increase in public expenditure.
I have not even begun to address the incessant demands from all sides of the House and the public at large for improved provision for child care following the unbelievable revelations of child abuse which have appalled everybody of sound and reasonable mind, not to mention extra resources for the Garda and our Prisons Service.
I do not accept the criticism that our expenditure has been massive and excessive — there are cogent reasons for it — but that is not to say we should lose the run of ourselves.
There always will be those demands.
The litany of increased expenditure I have read out is without precedent in recent times in terms of demands and we have dealt with them in a reasonable way.
Deputy Michael McDowell's proposal that over a period of time we should lay out a schedule of tax reduction has a very clear attraction but, as he correctly said, it is conditional on other components also being nailed down. Any attempt to enter into that kind of commitment in legislative form without specific legislative caps on expenditure in other areas would leave us open to the risk of not being able to implement the law. Deputy McDowell was quite open in respect of this — that is not to say there is a particular way in which one could signal such a policy, announce it over a period of three to four years and give it legislative effect in one year, although undoubtedly that has a certain attraction.
I accept the view, articulated by practically all of the parties, that reduction in personal income tax is a desirable objective in itself, that it complements the understanding of social partnership and addresses issues of low pay and the interface between the labour market and low pay.
On the last point made by Deputy McCreevy in regard to the trade unions and social partnership social partnership is about much more than just pay deals, it is about mutual recognition. Employers have done remarkably well out of social partnership, a view I enunciated at my party's conference and at a number of selection conventions including one I attended in Killarney recently, where a hotel had been closed down by a new owner who refused to recognise existing undertakings and contracts of engagement as a going concern, the property having been bought as a going concern. From their point of view one only has to look at the profits of many companies and the overall performance of our economy. They ignore at their peril the right of workers to organise themselves in trade unions and to request trade unions to negotiate on their behalf. They cannot have it both ways, they cannot have national moderation, national pay restraint and national responsibility delivered by the leadership of the trade unions at one level while, at the same time, local individual employers engage in a kind of two-way free ride bet. This leads to a scenario at national level, fuelled by social partnership and social responsibility and moderation which is urged by everybody while, at local level, individual employers refuse to recognise workers who want to be represented by a trade union.
What was expressed in part in that SIPTU vote was the frustration of many members in the private sector that their substantial contribution to the reconstruction of the Irish economy, envied by many other countries around the world, is not being recognised with the fundamental courtesy of representation by a trade union which would discuss matters of mutual concern. Nobody could say the Irish trade union movement, in the broadest sense, has not been responsible in economic terms. The partnership will be at risk if employers organisations at national level do not recognise they have an obligation to communicate to their members that they would not have been able to negotiate the agreements if there were not trade unions with whom to negotiate. The trade unions will not be able to negotiate at national level unless they have support at local level from their members. If trade unions can negotiate at national level, in time, they will be able to deliver on the commitments entered into if they have support throughout the country. That is a significant component of the developments we have seen recently.
All participants to the partnership have to recognise that an ongoing commitment to the deepening of the partnership at local level is essential if we are to achieve the prospects set out in the ESRI report. I am not in a position to accept the amendment as the Deputy will no doubt be aware because of the changes we have already made. I have nothing further to add.
This has been a far-reaching debate but it has not been irrelevant because all the prospects for radical tax reform in the lifetime of the next Government depend on political choices and the strength of the backbone of politicians in the short term and the medium term. I fully agree with what Deputy McCreevy has said about the Partnership 2000 programme — it is being torn up. It is amazing that he and I are the only two people in politics who seem to be absolutely committed to it. Everybody else has become the flexible friend, the political access card, the person who is willing to back down in the face of a demand.
I know from talking to workers involved in the current ongoing disputes that they see a society in which a number of people are doing very well and see themselves as excluded from that society. They have grasped the notion that this is a Government which will give in if they put in the boot. When the prison officers come on the horizon the Minister will see what they have in mind. The Minister said there is pressure for increased resources to be spent on the prison services. I suggest there is not; there is pressure for more prison space. Ireland should be the only country in the western world which has more prison warders than prisoners. It should not cost twice as much to keep a prisoner in an Irish jail as it does in an English jail. We should not have prison warders here who, although they have the highest manning ratios, also have colossal overtime ratios, some of whom the Comptroller and Auditor General has noted are earning up to £45,000 in overtime in a year on top of a salary based on a manning level which is not equalled anywhere in the world.
It is about time it was made clear they are not a special case and that any link they think they have with the psychiatric nurses cannot possibly justify setting the Partnership 2000 programme aside in their case. It cannot be done. I ask prison officers to compare the figures at the top left hand corner and the bottom right hand corner of their pay slips and support a party, a programme and a Government which will make those two figures come closer together. They should not think they can push the Government into forever increasing the difference between the figures at the top left hand corner and the bottom right hand corner on their pay slips because, in the last analysis, that is the road to ruin.
The Minister said the trade union movement has played a valuable role during the lifetime of these social partnership agreements. I accept that. Where in the private sector has there been the pressure we have experienced recently in the public sector and what is the difference? The perception is that the public sector employer viz. Government and through Government the taxpayer and the voter is a soft touch or a pushover in present circumstances. The Minister used some language which was reasonably tough but the bottom line message was fairly muted and none of his colleagues say "no".
In the period 1987-89 when I sat more or less where I am now and Mr. MacSharry was Minister for Finance I put forward various proposals to which he said the answer was "no". The word "no" appeared in the political vocabulary at that time when the first of the national partnerships was in existence. It does not seem now to be in the political vocabulary.
What he really meant was "not yet".
I would not have been that unkind to him. There is much rhetoric about what happened between 1989-92 but as the Minister well knows there was some deferment between 1987 and 1989. I am not complaining about that. The bottom line was that the foundations for economic recovery were set in that period. The Minister said this is a three-legged stool — wage moderation, tax reform and industrial peace — and if there is not industrial peace and wage moderation there will be no tax reform.
I start from a different perspective. The Government should say there will be tax reform and whatever decision has to follow will follow and anybody who does not understand that is getting it fundamentally wrong. The word should be "no" to excessive pay demands. If that was the message, it would register in the minds of ordinary trade unionists and they would not vote for "a nobody" to challenge for the leadership and pass resolutions antagonistic to social solidarity. They would get the message and accept it and the Minister would create a new consensus for radical tax reform.
We are coming to a crunch. One of the problems with the ESRI report this morning is that it suggests there will not be a crunch point. People in some of our leading financial institutions say if things go on as they are, the 1998 budget will not be a happy one.
The Minister mentioned some of the unpredictable events such as the equality payments, the beef fines, the hepatitis C and the Army deafness claims. About 18 months to two years ago I asked whether the Government proposed to establish a compensation tribunal for the Army deafness claim and said it would cost £0.25 billion if it was not set up. That evening I recall reading a comment to the effect that I had exaggerated the issue but the Government had it in hand.
The Deputy is more knowledgeable about legal fees than we are.
I did a few sums that day. I was not wrong. The cost is from £350 million.
I said that at the committee.
As I understand it £100 million is going into the hands of solicitors because of failure to face up to a situation that had arisen. That should have been dealt with by a Defence Forces tribunal and should have involved the payment of a phased sum. It should never have emerged as damages, individual claims and huge legal fees. I do not care what legal person is offended by what I am saying. It is outrageous that £100 million will go into lawyers' pockets, arising out of that mess. It is even more outrageous that the Government was not told two years ago of this horrendous mess and that it should act decisively to defuse the situation. It is more outrageous that the Minister and his colleagues who have presided for the past three years while this has built up will not have to come up with the £350 million. Somebody else will have to foot the bill. I am sure the next claim of this nature is on the way as well. We must get serious about civil litigation. I was glad to read in today's newspaper that the State has realised it is not a soft touch in pay negotiations and in litigation. Taxpayers' money is at stake.
In regard to social partnership and solidarity, the greatest poverty fighter is a job. Those who pursue public pay claims, the effect of which is to run up employment taxes, mean that remuneration for their jobs is more important than the prospect of other people having any type of job. There is a great deal of discussion on whether low paid jobs are acceptable. There is justice in the proposition that people should be paid a fair wage. However, the Minister only has to walk around Sandymount, Ranelagh or Donnybrook to see the advertisements for people to take up employment in businesses in our constituency. I do not understand how those advertisements can be seen at a time when 262,000 people are unemployed.
There is something systematically wrong when business owners are trying to take people on while other people are compensated by the State on a weekly basis because they cannot find work. These jobs do not require a degree or other qualification; they are to be found in pubs, stores, takeaways, etc. There must be a way to reconcile the demand of the employment market for workers in that area. Certain people say that increasing wage rates is the way around that problem but it is not because the Departments of Social Welfare and Finance are the biggest competitors for any small businesses in terms of filling jobs.
Last year's fuss about the dole queue and the removal of 20,000 fraudulent claimants has died down. We do not hear about it, for political reasons.
Wait until Friday.
What will happen on Friday?Are unemployment figures being published? Is the Minister saying more people have fled the dole queue?
The time has come for a rigorous approach to resolve the difference between labour force surveys and unemployment pay-outs. It requires effort, political courage and honesty. The Minister should not constantly use euphemisms. Candy floss terminology is used to disguise what is needed. A rigorous approach is required to work out whether people are unemployed because of economic considerations or the absence of jobs. As long as euphemisms are used to describe what we are doing because we are afraid of being politically incorrect, we will not do well.
This amendment sets out the framework for tax reform. Doubtless there are other amendments that could have achieved the same result but until ordinary Joe Soaps understand the Government has an agenda and is committed to it, they will say the only thing they can do for themselves that is certain to work is to make pay demands and back the militants in their unions who demand more. As long as the Government is vague, they will go for the definite option. People are sensible; they go for certainties rather than vaguenesses.The Minister asked if the amendment was made to the Bill what would happen in year two if there was a setback and revenues did not reach expectation. The Minister for Finance of the day would have to state in the budget speech that he or she will live up to targets, raise other taxes, widen the tax base or abandon them if necessary. If the bottom line were that the Minister faced the choice of amending the Finance Bill to the disadvantage of the taxpayer, there would be at least some pressure on him to achieve a target. That is why I favour fixing targets.
We are entering the era of multi-annual budgeting, why not enter the era of multi-annual tax reform? Why should a Minister for Finance not come into the House red faced and apologise for another deafness claim and say he or she cannot meet the targets and will have to change the amount of money at which the standard rate is available? I prefer to see that constraint on a Minister. If I was Minister for Finance, I would prefer to have that pressure on me so that I could sit at the Cabinet table and say to my colleagues that if they expected me to amend the Finance Bill and abandon targets, the answer was no. Tax reform is the ultimate political residual. One first decides on spending and makes concession to the Billy Attleys and others who queue up on the horizon. Then one takes account of what is left for tax reform. Workers who do not have the economic strength to flex their muscles and get what they want are shortchanged. I feel sorry for them.
I spoke to a business owner in the south east who employs sheet metal workers and he referred to the special pay claims of recent months. He said that his workers do not have incremental pay scales or a structured career path with advancement from being a sheet metal worker to a supervisor and so forth. They realise this is their job for the rest of their lives. There are no commissions for sheet metal workers to say one can become a super worker if one spends five years on the job and obtains a qualification. He said he dealt with ordinary people who were stuck in these jobs.
When it came to telling them that they had to pay 54 per cent tax on their marginal earnings to Ministers De Rossa and Quinn and they would have to continue to do so because concessions were made in Dublin to those who had more political leverage than them, they were disgusted. I do not blame them. They could go on strike and ruin that company.It could lose orders, etc., if they received significant increases in their wage claims. They were disgusted that the newspapers in Dublin stated there should be concessions on special claims but not to worry about Joe Soap doing a hard day's work. They have no commission, PR agencies, spin doctors or pickets outside the door. They could not take the day off to picket outside Leinster House because the firm would collapse. They are the real heroes in all of this, the people who are short-changed by a system which does not protect their rights. They are entitled to tax reform and a Government which says public sector pay, public expenditure and increases in public spending come second to it. If we had a Government which started from that position, we would transform this country. The word "no" must return to the political vocabulary before any of this can be done.
We now come to amendment No. 3. Amendment No. 4 is an alternative. Is it agreed that we discuss amendments Nos. 3 and 4 together? Agreed. One question should suffice on these amendments but if Members wish to have separate questions put that will be allowed.
I move amendment No. 3:
In page 15, between lines 31 and 32, to insert the following:
"4. —The Revenue Commissioners may, with the consent of the Minister for Finance, from time to time make regulations for the purpose of exempting persons resident within the State from liability to taxation and levies in respect of earnings from employment in Northern Ireland to such extent as, in the opinion of the Revenue Commissioners, is reasonably necessary to create equal treatment as between such persons and other persons resident in the State and liable to taxation and levies on similar incomes earned in the State.".
The question of cross-Border workers and their taxation treatment is one of elementary social justice.People who live in Donegal, Ravensdale and Scotstown and who work in, say, Derry, Newry and Forkhill, respectively, are in a very invidious position. Every day they go to work in Northern Ireland, sit at the factory bench with their workmates who reside in Northern Ireland and do the same hours as them. They come home in the evening to their wife and family or husband and family, as the case may be, and face at the end of the week or end of the year a tax treatment which is radically different. Why is there such a huge difference between the tax treatment of a worker who resides in Northern Ireland and a worker who resides in the Republic?
This matter would have been dealt with to a great extent if the last amendment in my name had been accepted. If taxation rates and taxation regimes South and North of the Border more or less approximated then there would be fewer arguments about cross-Border workers. However, they do not, and this amendment is based on the proposition that as long as they do not, something must be done for those unfortunate enough to work in the North and reside in the South, and pay taxes in the South on their northern earnings.
There are two aspects to this issue. The Minister conceded that not merely are higher tax rates applicable in the Republic, there are lower gross wage rates available in Northern Ireland. The Minister somewhat glibly announced that this was as a result of 18 years of Thatcherism in Northern Ireland, and perhaps there is some substance in that. I agree with the Minister, and I am glad Britain will have a Prime Minister who favours privatisation, a low rate of tax on workers, who will not increase tax above 40 per cent and who is committed to policies which the Irish Labour Party label as Thatcherite when they come out of my mouth. I am glad New Labour in England — or any party with the term "Labour" in its title — is in the business of winning elections and getting a majority by adopting centre ground policies.I recommend the same course of action for the Minister when he becomes Leader of the Labour Party. Perhaps he will be able to transform that party into one which believes in low tax on workers.
The Deputy should speak to the amendment, he is wandering. The debate must end at 6.45 p.m. There are a large number of amendments to be dealt with and I am anxious to facilitate Deputies.
I appreciate that. I was pleased to be reminded by the Minister of the huge differences between the Irish Labour Party and New Labour.
The Deputy should speak to the amendment.
They have been out of Government for the past 18 years.
I wanted to talk about workers' tax rates in Northern Ireland and in the South, the result of the Minister and his colleagues being in office for 15 of the last 25 years. Workers in Northern Ireland are taxed more heavily on lower earnings for similar work in the Republic. In other words, if they lived in the Republic they would be given more in gross wages out of which they would have to pay the severe anti-work taxes which apply here. This is a group of people who are being sorely tried by present laws. As Deputy Keaveney said on Committee Stage, many of them have either given up their work in Northern Ireland or given up residing in the Republic and gone across the Border to be nearer their jobs. That is the only way they can get justice. It is a sad day when Irish workers either have to give up work, north or south of the Border, because of the crippling burden, of taxation, or migrate to Northern Ireland to avoid the Republic's tax impositions on their northern earnings.
The proposal in my amendment is to allow a flexible regime in which the Revenue Commissioners can introduce, with the consent of the Minister for Finance, regulations for the equalisation of the tax burden. Deputy McCreevy's amendment takes a different approach but they are both aimed at achieving the same result, that the crippling burden of southern tax rates on northern earnings must be addressed in the short term. It is not good enough to say to a young man or woman trying to raise a family in the Republic, who is fortunate enough to find work in Northern Ireland, that they must wait until someone like myself and my colleagues produce a fairer tax regime in the Republic. They are entitled to some relief now from the effects of the tax and earnings cliff which exists between the Republic and Northern Ireland. This regime does not apply to everybody. Because of double taxation agreements some public sector workers in Northern Ireland are exempt from the effect of this regime. That is equally unfair because if people are to pay southern Irish tax on their earnings, it should not matter whether they are employed by the Northern Ireland state or in a Northern Ireland factory. That is another injustice.
I know other Deputies want to speak on this amendment. This is a basic question of justice to which this State must address itself. The issue has been around long enough for us to come to some basic conclusions about it. Doing nothing on the grounds of alleged difficulty is not an adequate response.
A number of Deputies from Border counties want to contribute to this debate. I moved a similar amendment to my amendment No. 4 on Committee Stage of the Finance Bill, 1995, the Finance Bill, 1996, and on Committee Stage of this Bill last week. As other Deputies will attest, this is a vexed question in areas along the Border. There is a very active cross-Border workers' group which has been protesting about this issue for some time. It has lobbied successfully and proven to be a considerable political force, but it is not sufficient reason to change tax law simply because one group protests more loudly than another. There must be a certain amount of consistency. If I oppose unjustified lobbying by groups regarding wage increases, it is equally fair that one group should not get an advantage over another in regard to tax increases, except when it is justified on equity grounds. There is an inequity regarding the taxation of cross-Border workers.
Since I became Opposition spokesperson on Finance I have read a great deal of material on this matter. Part of my education came about as a result of the Donegal North East by-election when I had the pleasurable experience of being seconded to the county for the duration of the campaign, as against being in the constituency of Dublin West. Deputy Keaveney was the successful candidate in that election. During that campaign.I met a number of cross-Border workers informally on the doorsteps and in more formal settings. To be truthful, I gave as good as I got at some of the meetings with them and did not concede to all their demands.
Arising from what I learned during that by-election, I carried out some study of the matter. In fairness to the Minister for Finance, in the 1995 budget he said he would set up a cross-party interdepartmental group to examine this matter. That group subsequently reported. The Department of Finance forgot to send me a copy of the report — that is not a criticism of the Department — but a copy became available to me. I read the document with some interest and came to the conclusion that some relief measures need to be implemented in that regard.
My amendment proposes to incorporate in the Finance Act, 1997 a principle we first enunciated in the Finance Act, 1994. As the Minister will be aware, as he was a member of the Cabinet at that time, we brought into law a principle which recognised the de facto position of workers who spend long periods of time outside the jurisdiction working for their companies. I supported that idea because, as Minister for Tourism and Trade, I met many of those companies during trade missions abroad. Many of those workers spend the best part of a year outside the State working for those companies, even though they are based in Ireland. The Finance Act, 1994, incorporated the principle of recognising time such workers spent in and out of the country.
I told the cross-Border workers' group, I said on Committee Stage, and I repeat now, that I do not want to incorporate a further anomaly into tax law in the context of two workers, one of whom works in the North and the other in the South, both of whom live side by side in the South and enjoy the same range of social services or lack of them, as the case may be. This would result in more serious anomalies and create uproar among workers in the Republic. My amendment will not alleviate all the problems of cross-Border workers but calculations we have done indicate that it could relieve hardship for 75 per cent or 80 per cent of the people so affected and would recognise the principle brought into the 1994 Finance Act.
There are many Border Deputies who wish to contribute and I will allow them to make their own case. This amendment has been carefully worded. It is a repeat of an amendment previously put forward and its purpose is to incorporate in cross-Border workers' taxation the principle already established in the 1994 Finance Act for workers who spend a considerable amount of time abroad.
Deputies McDowell and McCreevy have outlined in some detail the inequity that exists for people affected by cross-Border taxation measures. I thank the Minister for the meetings he afforded us as Members of the Oireachtas for the Border constituencies at which we had worthwhile discussions. At each of those meetings I outlined the serious difficulties faced by huge numbers of people living in west Cavan who travel to Fermanagh to take up gainful employment — were it not for the initiative and enterprise of some business people in County Fermanagh many people in west Cavan would have had to emigrate further afield in search of employment.
It is inequitable that people who are bringing in large sums of disposable income to this State should be penalised as they are under the present system. This needs to be addressed if substantial numbers of the people in question, particularly those in the younger age group, are not to leave their home county and set up home in County Fermanagh where the taxation system is more favourable. A sparsely populated area cannot afford to lose people who are in gainful employment and bringing disposable income into that county. The loss of population has effects in many other areas, resulting in the closure of schools, post offices and other rural services.
I appeal to the Minister to put in place, as quickly as possible, a system which will not penalise those people who take the initiative to seek employment elsewhere and who bring back disposable income to their native area.
The debate on amendment No. 3 affords representatives from the Border counties an opportunity to articulate the constituency pressures they are under in relation to this matter.We have a sizeable proportion of people who work in the North and live here, and that is replicated in all the counties along the Border. Deputy Smith's point is relevant. Under the present taxation arrangements the attraction of living in the North is obvious, but we should not be in the business of making it attractive for people to do that.
A number of questions are relevant to the debate and the Minister might deal with them in his response. One of them relates to the number of people who live in the Border counties and work in the North and who are directly affected by this provision. It would be interesting to look at the catagories and the numbers of people. I know quite a number of people in the education sector who live here and teach in the North, and it would be helpful if the Minister could give an estimate of the cost to the Exchequer of administering the double taxation arrangement because the laws of diminishing returns might become relevant in this case.
A factor that has not been referred to in the context of this debate is the question of people in low-paid employment. People employed in the North are generally on a lower salary scale than people in similar employment here. At the forum in Dublin Castle that point was borne out in a study by Dr. John Bradley of the ESRI on comparative cost competitiveness North and South. That report graphically illustrates that the level of wages in the North is much lower than here. Consequently it is much more profitable to operate, say, a service company in Newry than it would be to operate a similar company in Dundalk and this, in the main, is because of the level of payment to employees.
My last point refers to eligibility for family income supplement. Under the bilateral arrangement covering this area, if somebody in low-paid employment in the North fell below the threshold for family income supplement, would our Department of Social Welfare be obliged to make a payment to him?
I support the amendments. This issue was raised on the Finance Bill last year and at that stage we decided that, prior to the introduction of this year's Finance Bill, we would gather the Border Deputies together and discuss the issue so that this year we would be able to come up with a new solution. It was the beginning of March before we did that, but I am glad we had a meeting because it afforded us an opportunity for a useful exchange of views.
Last night there was a meeting of the cross-Border workers in Letterkenny of which all Deputies were informed. The meeting centred around one issue, the lack of progress in a year despite the highlighting of the matter last year. I was unable to attend the meeting due to the situation here in terms of legislation but I am aware there is a strong perception that nothing has happened since this time last year. Feelings are strong because the moratorium has ended and people are facing reality. The Minister made progress last year in certain directions. While this has been of some help, there is a long way to go.
On Committee Stage the Minister mentioned that these amendments make a special case of cross-Border workers. However, the fact that levies and health contributions have been removed has made a special case of them as it is, and they are entitled to be treated as a special case when one looks at their situation. The question is to what extent they should be treated as a special case because, obviously, we do not want to create further anomalies. However, we want to address their situation which is serious.
If the tax systems in both parts of the country were the same the problem would not be as great. However, the bottom line is the difference in wages. Somebody working in the North may be paid £12,500 but would be paid £18,000 in Donegal for the same job. Wages are not the same and people are further penalised because of the extra tax.
