Derek McDowell
Question:25 Mr. McDowell asked the Minister for Finance the prospective cost over two years of completing the individualisation of the standard rate income tax band as set out in his Budget Statement on 1 December 1999 [26900/99]
Priority Questions. - Income Tax Bands.
As I stated in my budget speech, one of the main problems with our income tax system is the low level of income at which single people become liable at the top rate of tax. Single persons currently pay the top rate of tax on earnings less than the average industrial wage. One of the main difficulties with the current band structure is that the single person's tax band is doubled for all married couples. Consequently, I propose to move to individualisation of the standard rate band over the current and next two budgets. This will ultimately involve each individual having his or her own standard rate band. The effect of this change upon completion will be to reduce the percentage of taxpayers on the top rate of income tax from 46% to 17% of taxpayers, or 12% when exempt cases are included. This is consistent with the Government's An Action Plan for the Millennium, which committed the Government to a target of at least 80% of taxpayers not paying tax at the higher rate.
As regards the costings sought by the Deputy, in my budget speech I stated that the full year cost of the first phase of individualisation, that is the widening of the band to a single band of £17,000, married one earner band of £28,000 and married two earner band of £34,000 with transferability between spouses up to a maximum band of £28,000 per annum for either spouse, will cost £310 million in a full year.
In relation to the costs in years two and three, the Deputy will be aware that I also pointed out in my speech that the Exchequer cost for each thousand pound widening of the band lessens as one goes up the income scales. This pyramid effect means the total cost of individualisation, if done in one move in the tax year 2000-1, would be £839 million, of which £310 million is for the first phase.
On current estimates, when full individualisation comes into effect, some 350,000 taxpayers will have been removed from the top tax rate and, as I indicated in my budget speech, the percentage on the top rate will have come down from 46% to 17%, or 12% when those on low incomes who are exempt from tax are taken into account. To put this another way, 83% of taxpayers will pay tax at the standard rate, or 88% of all taxpayers will be either paying tax at the standard rate or paying tax at marginal relief rates or will be completely exempt from tax. As I said in my announcement on 8 December, in light of the strong views expressed on the whole issue of individualisation, I propose to invite the social partners to consider the future development of the individualisation process in the course of the current talks on a successor agreement to Partnership 2000.
Does the Minister agree with the reported comments of the Taoiseach that his Budget Statement of 1 December lacked balance? Does he agree that the fact the Taoiseach made such comments within a few days of the Budget Statement in itself necessarily diminishes his authority as Minister? Does he agree that if he does not pursue the project of individualisation of the standard rate bands, as he stated on 1 December, his authority as Minister for Finance will be entirely shot?
Perhaps the Deputy can show me otherwise but I recall no place where the Taoiseach said the budget lacked balance.
I said the reported comments.
The Taoiseach said – I was in his presence when he said it at the Cairde ball on Thursday night – and repeated subsequently that, as the process of individualisation proceeds, it will be necessary to keep the balance right between the stay at home carer and the individual. That is what he said on the Thursday night after the budget. In light of that and as was always the intention, I brought forward to this year's Finance Bill a proposal which was in the Fianna Fáil manifesto of June 1997 of a then £2,000 standard rated allowance to the stay at home carer.
I agree it was not my intention to do so in this year's budget because I do not believe that the differential I created in this year's Finance Bill goes any way towards redressing the imbalance which persists between stay at home spouses and the double income family where both spouses go out to work. There was a perceived lack of balance and there was such an outcry about it that I brought this proposal forward. There would be an issue in terms of 2001-02 – that is what I referred to on many occasions since the budget and that is what the Taoiseach referred to on Thursday night. I recall no place where the Taoiseach said the budget lacked balance.
I take the Minister's response to mean that he does not believe his budget lacks balance. He told me today it would cost £839 million to move to complete individualisation, as set out by him on 1 December. It will cost roughly £0.5 billion to reduce the tax rates as set out in the Government's programme. Does the Minister agree that this leaves little scope for divergence from that strategy, that he is stuck with it for the next two years whatever might be agreed in the Partnership 2000 arrangements and that if he does not pursue this, his authority as Minister is greatly reduced?
I did not point to the £839 million today . It was spelled out clearly in my budget speech of 1 December and detailed notes were given in annexes B and C as one progresses to the tax year 6 April 2002. I would have thought it was a laudable objective to try to ensure that in two years and four months time, 88% of taxpayers would be paying tax at the standard rate which will then be 20%. I set out clearly what I was going to do. The Deputy is right in that I do not believe my budget of 1 December lacks balance, and I am still strongly of that view.
I also remind the Deputy that I cannot recall one trade union official from ICTU, SIPTU or any of the constituent organisations of ICTU complain about the individualisation concept because it has been on the agenda of trade union members for at least as long as I am in this House, but particularly since decisions in 1980 as a result of the Murphy judgment. If the Deputy can find a trade union leader who has spoken against individualisation, I will bow to his superior knowledge of the trade movement, but I am not aware of one.