Dáil Éireann debate -
Tuesday, 20 Feb 2001

Vol. 530 No. 6

Priority Questions. - Tax Code.

Jim Mitchell

Question:

36 Mr. J. Mitchell asked the Minister for Finance if he has given consideration to the proposal that in order to avoid adding to inflationary pressures and at the same time to share the national wealth with taxpayers, future income tax concessions should be given by way of issuing shares in a national investment fund, equal in value to, and in lieu of the proposed tax cut, which could not be cashed for a minimum period of years; and if he will make a statement on the matter. [4725/01]

Mr. McCreevy

Income tax policy for a particular year is decided on by Government as part of its consideration of the budget and the Finance Bill. In that context the Government will have regard to its ongoing programme, to the agreements contained in the Programme for Prosperity and Fairness and to the policies put before the electorate in 1997.

As regards the Deputy's suggestion regarding the issuing of shares in a national investment fund which could not be cashed for a number of years, he will now be aware of the proposal I announced last week on publication of the Finance Bill regarding a new incentive for individuals to save. My proposal, which has been widely welcomed, is a real incentive for people to lock away some of their disposable income for a five-year period. Effectively, what is on offer is a £1 contribution from the Exchequer for every £4 that an individual saves. Anyone over 18 can participate in the scheme so long as a minimum of £10 per month is saved and provided he or she is an Irish resident. Full details of the scheme were provided in the press release on the Finance Bill, 2001, published last Thursday.

The objective of the scheme is to encourage substantial regular savings by all. Additional savings will reduce demand in the economy and the scheme will encourage many new savers to provide for the rainy day.

Mr. J. Mitchell

Has the Minister considered a scheme along the lines suggested in the question?

Mr. McCreevy

Since last June or July I have received a number of representations regarding possible savings incentives, many of which I have considered. A proposal along the lines suggested was put forward by participants in the review of the PPF. However, the trade unions did not proceed with this suggestion in the negotiations.

The Department has examined each scheme. The scheme I announced last week is my best effort at innovation in savings and will be included in the Finance Bill. Other methods may be considered in the future.

Mr. J. Mitchell

The Minister has two objectives with which I agree, namely, to share the country's wealth with taxpayers by giving some tax rebates and to encourage savings. However, there are two problems with the savings scheme to which he referred in his reply. First, the cost to the Exchequer is unquantifiable and, second, the extent to which it will encourage savings is also unquantifiable

Mr. McCreevy

Yes, but the difficulty with the scheme suggested in the question is that it is more or less involuntary. One must take into account that we have commitments to the electorate and the partners in the PPF. Ideas such as that suggested by the Deputy were discussed by some of the social partners on the trade union side. However, other trade unions strongly held the view that there were commitments regarding wages and taxation and that individuals should be able to decide what to do with their money. All this must be borne in mind when deciding on tax changes in a budget.

I announced in the budget that I would bring forward ideas regarding savings and I have tried to allow individuals to decide for themselves as to the amount they put aside for a rainy day. I am not saying that I have exclusive rights to genius in this regard. The intention is to encourage people to get into the habit of saving again.

Mr. J. Mitchell

The difficulty with the Minister's two pronged proposal, namely, the tax concessions and his scheme to encourage savings, is that it is at cross purposes. One of the difficulties with the scheme is that it is aimed at stopping people from spending the tax concessions given in the budget. The other difficulty, as the Minister now acknowledges, is that neither the cost of the scheme nor the amount of savings likely to accrue from it is quantifiable.

Mr. McCreevy

It is not aimed at stopping people from spending their money but at encouraging people to save. If we went to the social partners and the workers and said we will give tax reductions but we will not give them now, I am sure many workers would rise up against that. That type of idea was floated about. I am not saying it does not have merits but we live in a free society where workers demand their share of the wealth and they should decide what to do with it. My scheme is endeavouring to encourage people to put money aside in the form of savings. It is an innovative way of doing it because it has exactly the same effect as giving people a £3,000 allowance at the standard tax rate. However, it is more attractive to put a maximum of £200 aside every month and for the Government to add another £600 to it. The commitments given in the PPF and in our election programme must be borne in mind. This is a voluntary act by the individual to put money aside.

Mr. J. Mitchell

I presume the Minister had some estimate of the cost of the scheme before he introduced it. Different options will give rise to different costs. What are those options and costs?

Mr. McCreevy

It is a difficult mathematical exercise to work out what the tax loss will be to the Exchequer if a certain amount of money is put aside by individuals over the year. We can guess the numbers of people who will be incentivised by this scheme. From the figures I have seen it seems the number of people saving regularly is not in proportion with their earnings. It depends on the numbers taking up the scheme, the different income strata of those taking it up and the amount of money they are willing to save.

We do not have any great empirical evidence in that regard. Our best estimate is £100 million in a full year. However, that is on the basis that £400 million will be put aside in these savings schemes. It depends on the uptake.

Mr. McDowell

Is that £100 million per year for the next five years?

Mr. McCreevy

It depends on the uptake. I would not like to be held to that figure.

Mr. J. Mitchell

We can have more discussion on it next week.

Mr. McCreevy

The more successful it is, the more costly it will be.