Order of Business. - Finance Bill, 2001: Report Stage (Resumed).

I move amendment No. 11:

In page 18, column (4), line 44, to delete "508" and substitute "914".

Question, "That the figure proposed to be deleted stand", put and declared carried.
Amendment declared lost.

Amendments Nos. 12 to 20, inclusive, are related and may be discussed together by agreement. Is that agreed? Agreed.

I move amendment No. 12:

In page 19, between lines 16 and 17, to insert the following:

The next £11,100

30 per cent

the middle rate

".

Amendments Nos. 12 to 20 seek to amend the Bill in such a way as to introduce a middle income tax rate of 30%. The Minister was good enough to acknowledge yesterday that I had tabled a number of parliamentary questions in advance of the budget, one of which sought to make comparisons between income tax rates here and in the United Kingdom. The Minister agreed yesterday that we still have a problem here in that those on middle incomes still pay more income tax than those on similar incomes in the United Kingdom. That is not the case at higher and lower rates of income tax.

The problem could be addressed in three ways. The first would be to increase bands at the lower rate to take some 90% of taxpayers off the top rate and the second would be to significantly reduce the top rate. Both options would prove very expensive and be regressive in the latter case. We are proposing a third way which would be the most effective and equitable way of achieving our goal, namely, the introduction of a 30% rate. The 30% rate should apply in the case of a single person for an additional £11,100 after the standard rate and for an additional £22,200 in the case of a married couple. This would make eminent sense and prove far less costly than the other two options to which I referred.

Our proposal would focus precisely on the group who still pay more income tax here than their counterparts in the United Kingdom. It would also focus on the earners we need to attract back to the country. There is a place for a third rate of income tax in order that those on middle incomes do not have to pay tax at the top rate of 42%, in addition to PRSI, relatively early, compared to other jurisdictions, in their income levels. I hope the Minister will accept the principle that there is a need for a third rate.

There is a certain inevitability about the direction in which taxes are going. The Minister reduced the capital gains tax rate to 20% and the Bill introduces a share options scheme whereby gains will be taxed at 20%. Unearned income such as rental income is taxed at 25%, yet we have the completely anomalous situation whereby middle income earners pay tax at 42% on earned income, in addition to PRSI. That is an untenable position. Not only is it untenable, it is unwise. It is one of the factors inhibiting skilled workers either returning or coming to this country, and they are badly needed. There are many newly-married people working in London, New York and Boston, highly-skilled workers, who wish to come home. There are two important factors which inhibit their choice to come home, their take-home pay would be a great deal less and the high cost of housing. This amendment seeks to address the first of those problems. I hope the Minister can at least accept the principle of the proposal.

These amendments deal effectively with the higher rate, the issues of individualisation, the reduction of the higher rate and the proposal from Fine Gael to introduce a middle rate. We debated the issue of individualisation at some length last evening and I do not intend to repeat it. This debate concerns a minority of taxpayers and the measure is to the advantage of a very small minority of taxpayers. As the National Economic and Social Forum report shows, individualisation benefited mainly those in the top two deciles of income earnings. If it were to be pursued further, individualisation would be concentrated in the top decile, the top one-tenth of income earners. Frankly, this is not a relevant issue for the majority of taxpayers and perhaps the level of interest it has attracted is in a sense disproportionate.

It would be useful to hear whether the Minister intends to pursue the individualisation project he launched with such fanfare last year. The pace of delivery has slowed dramatically. He announced his intention to implement this measure in three tranches, we presumed three equal tranches. If that were the case, he would have gone much further than he did this year. The indications from him on Committee Stage were that he sees it slowing down even further and perhaps not being completed at all. Perhaps the Minister could explain to the House how he intends to progress this project.

I have said all I wish to say about the middle rate of taxation. I note that Fine Gael policy on this matter has changed in the past few weeks. The previous policy of introducing a rate of 35% would have applied to all income up to £50,000 for a single person and £100,00 for a married couple. It would have caused a dramatic reduction in the higher rate. The refinement clearly makes a significant difference. It applies over a narrower tranche of income and it is at a lower rate. I suppose it is fairer to call it a middle rate because that is what it has become. It is not a priority for me or for my party. My personal view is that there should be an introductory rate of income tax introduced as a new third rate rather than a middle rate. However, if resources allow, I would not object to the notion of a middle rate.

Since this Minister became Minister for Finance, there has been an argument every year about the reduction in the higher rate of taxation and I do not think we are getting any nearer to consensus. It has always been my view that the reduction in the higher rate benefits only those who earn a substantial tranche of income which is subject to the higher rate. The Minister constantly and understandably from his own point of view deals with people who are just into the higher rate in terms of their marginal rate of tax. Those people do not benefit at all from reductions in the higher rate or else benefit very little. They benefit to the extent of £20 per £1,000 earned. The only serious benefit is for people earning numbers of thousands of pounds where tax is payable at the higher rate. Reductions in the higher rate are of significant benefit only to people on high pay. It was at best a mistake for the Minister to identify that as a priority for his tax policy.

Deputy Jim Mitchell makes the point about our tax rates being a significant feature in terms of encouraging Irish people to return to Ireland. That may have been the case in the recent past but I do not think it is the case any longer. The primary disincentive is that housing is not affordable. I do not believe our rates of taxation are the primary determinant any longer when people are making a decision to come to work here.

I support the motion. It is very important to consider the level of taxation and the rate of tax paid by middle income earners. If a single person earns more than £20,000 per annum, the 42% rate automatically applies. The major criticism from taxpayers is that the top rate of tax is reached very quickly. People in very modest jobs can now earn £20,000 quickly. Single people are caught in the trap whereby every little amount of overtime is liable for tax at 42% and PRSI at a further 4%. They are then taking home only 50% of their overtime earnings. This is a huge disincentive.

Our economy is doing well and many factories, particularly in the export area, have mandatory overtime. These workers are then tipped into the 42% bracket very quickly and this is resented by them. A middle rate would be far more appropriate whereby a rate of 30% tax would come first and then the 42% rate for top taxpayers.

The points made by Deputy Mitchell about returning emigrants are very important. Deputy McDowell said a major disincentive was the high cost of housing and the scarcity of housing near centres of employment. It was suggested to me recently that we are going to need 200,000 additional workers over the next four or five years. There are hundreds of thousands of Irish people abroad and many would love to return. In 1987, 45,000 young people left this country. We should now encourage those people to return. They would bring back skills acquired abroad and perhaps even some capital.

Housing and transportation costs are very high compared to other countries. A man with four adult children, three of whom work abroad and one at home, suggested that for every four years spent abroad, a returning worker should be given one year tax free. This would give them the opportunity to set up home and become re-established in Ireland. Perhaps the Minister could consider this suggestion. There may be difficulties with this suggestion because of EU regulations, but it should be considered. We need to make Ireland a more attractive place in which to work. At present there are problems with the higher rate of tax kicking in too quickly and the high cost of housing. Perhaps the Minister will take on board the concept of a middle rate of tax. If he will not do it in this budget, perhaps he will do so in the next one which he continually informs us he will introduce. Perhaps he will also explore for the long term the possibility of attracting some emigrants by means of tax incentives. Such incentives are given for many reasons, such as repairing old houses. The most valuable asset a country can have is its workforce. Why not give emigrants an incentive to return home and join it by taking up employment?

The amendments concern the income tax rates and bands structure to apply for the years 2001, 2002 and subsequent years of assessment. The amendments proposed by Deputies Jim Mitchell and McGrath envisage a structure containing a standard rate band of £14,800 for single persons, £17,131 for widowed parents and £29,600 for all married couples; introduce a new third – intermediate – rate of 30% which would apply to a tranche of taxable income above the standard rate band of £11,100 for single persons, £8,769 for widowed parents and £22,200 for married couples; and retain the standard and higher rates as proposed in the Bill, with the higher rate applying to taxable income of £25,900 in the case of single taxpayers and widowed parents and £51,800 in the case of married couples.

Deputy McDowell's amendment would, as he explained on Committee Stage, increase the standard rate band for married couples with one income from 36,823 to 38,000 in the year 2002.

The overall effect of these amendments would be to set aside the move to widening the standard rate band which I took last year and which I have continued this year. As I explained previously, one of the main difficulties with the current band structure, which the amendments seek to retain, is that the single person's standard rate band is doubled for all married couples, whether one or two incomes are involved.

When we discussed identical amendments on Committee Stage, I reminded the Select Committee that the Government is committed in its Action Programme for the Millennium to work towards having 80% of income earners taxed at the standard rate. The Government believes that the introduction of a single standard rate band for each individual taxpayer is essential to meet that commitment. The band-widening provided for in the Bill will mean that the percentage of income earners on the higher rate will fall to 23%, so that we are well on the way to achieving the programme target. With allowances converted into tax credits, the only way to reduce the numbers on the top tax rate is to widen the standard rate band. The most effective way to do that is to place it on an individual basis and tax people on what they earn as individuals, whether single or married. The first step in this direction was taken last year and we are continuing on this road in the Bill.

For tax reform to be meaningful, it must go beyond tinkering with the system. It must involve making radical change and that is what I have been engaged in since 1997. To put the income tax system on a sound foundation, I will not take on board any changes at this stage, apart from those signalled in the last general election campaign. My aim, at the end of the five budgets, is to have an income taxation system which, I hope, will be fair and equitable as well as being based on principles which are easy to understand. When such a system is in place, it should be relatively easy to make adjustments to it and to target changes towards specific groups. Ultimately, the approach to tax reform comes down to one's judgment and I will be happy to be judged on the combined effects of the five budgets which I will have brought forward by the time of the next general election. I believe in giving the electorate what it voted for at the last general election. Each of my budgets must be taken as part of a sequence. The tax strategy I have pursued has borne fruit in terms of higher take home pay and an increased incentive to work. I am confident the considered judgment of the electorate on this record will be favourable at the next general election.

I made radical reforms to the entire tax system in the four budgets for which I have been responsible since 1997. It is now inherently fairer as a result of the introduction of tax credits. Tax rates have been cut to improve the incentive to work and to contribute to the development of the economy. Substantial numbers of taxpayers have been taken off the top rate of tax. In its Action Programme for the Millennium, the Government highlighted the need to reduce the burden of personal taxation and to reward effort. Its answer to those needs has been to retain the two rate income tax system coupled with substantially reduced rates over the life of the Government. This is the programme in which we are engaged and whose targets are being achieved.

As regards the introduction of a third intermediate rate of income tax, I am on record as having said that I would have no objection to it in principle. However, I will be prepared to consider a third rate only when the radical overhaul of the tax code to which I referred is complete. The introduction at this stage of a 30% rate will mean an effective cut of 12 percentage points for higher rate taxpayers at a time when the Government is trying to assist lower income taxpayers by endeavouring to remove as many of them as possible from the tax net. In the circumstances, I cannot accept the amendments.

Deputies Mitchell and McGrath raised the issue of the effect the marginal tax rate has on the capacity of the State to attract home individuals to work or to attract people from outside the country to work here. I readily accept some of what Deputy McDowell said in this regard, that other considerations are probably borne in mind by such individuals and that tax may not be the only consideration. That said, the marginal tax rate has an effect on whether people are attracted to work in Ireland. They examine what their marginal tax rate will be. I refer to the marginal tax rate as the top rate of tax plus the employee PRSI contribution. Many people only take the marginal take-out into account. When we complete our programme in the next budget, the marginal take-out from a person's pay will be much less than when I took office. It has an effect on the attraction of Ireland as a location for people to return home to or to come here for the first time. I readily accept that there are other considerations, such as housing. People also like to have the choice. Many people who emigrated in the 1980s to America, for example, have decided that that is where they will stay for the rest of their days. That said, there are many who would like to return home and take up gainful employment and tax is definitely an issue with them, although it is less of a deciding factor than it was some years ago.

I am on record as saying I have no objection in principle to an intermediate rate of tax. When Deputy Noonan was the Fine Gael spokesperson on finance, he started off with a 35% intermediate rate and, each time I adjusted the top rate, he adjusted his rate to half way between the standard and top rates of tax. Deputy Mitchell must assume that I will reduce the top rate of tax from 42% to 40% next year because he has gone all the way and changed the intermediate rate to 30%. We will have to wait and see what will be in the next budget, but he is thinking ahead, has decided that is what I will do and has set the rate at 30% instead of half way between 20% and 42%, which is 31%. However, we will have to wait for the next budget.

As I have no objection in principle to the intermediate rate of tax, the logical question is why I have not introduced it before now. I have tried to explain this before. Economic circumstances definitely held back many Ministers for Finance from making radical changes to the taxation system and I accept that. However, even when they were in a position to make radical changes, such as moving to tax credits, having a single standard rate band or many other innovations, the difficulties were as follows. All commentators, pressure groups and lobbyists had become content with the system in place and, when the time for a budget approached, people wanted minor changes and some tinkering with the system. Successive Ministers for Finance made minor changes here and there with the result that we have the same old creaky system which has been in place since Adam was a small boy except for the fact that it has been tinkered with by politicians who made it much worse than it was ever intended to be. We have ended up with a crazy and ridiculous income tax system which has been developed over many years.

Every time there is a problem an adjustment is made. Politicians make finance policy decisions with the help of their advisers and the unfortu nate Revenue Commissioners then have to draft a particular section to pander to the stupidity of the politicians. The process gets so complicated that further adjustments are needed in following budgets and Finance Bills. This method has left us with a nonsensical system in many respects.

What I have tried to do is to act as if I was creating a tax system from scratch. I hope after the next budget to have a sound taxation system grounded on easy to understand principles. The temptation will always be there for politicians to make a mess of things. However, it will take them time to mess up the system after these changes as it will be a transparent system grounded on solid foundations. To get to that point will involve controversy, but that is something I have never had a difficulty with during my political life, and not only as a Minister in various Governments.

I have not tinkered with the idea of a new rate, as Deputy McGrath suggested, because if I did so it would dissipate resources. I would not be able to do what I want with the system. If I get to a satisfactory position it will be easy to introduce a new intermediate rate or to do what Deputy McDowell has suggested, and that is to introduce another rate altogether.

I do not have principled objections to either idea but I refuse to let either idea enter my brain at present. If I did so I might fall prey to mistakes similar to those that have hampered previous Administrations. I want to elude the effects of those mistakes. There is a finite amount of money available and many things must be balanced in the budget. If I change intermediate or other rates I will not be able to achieve what I want. However, I do not have a principled objection to these rates. Perhaps these are matters that will be dealt with by the next Administration.

Deputy McGrath raised the question of a one year tax holiday for employees coming back.

For returning emigrants.

There has been enough trouble with the European Commission without introducing such a tax holiday scheme. We would not create trouble between Ireland and Europe if we gave such a tax break to all taxpayers. However, to target such a relief at one section of workers would be seen by the Commission as distorting competition and as an unfair State aid.

There have been many debates in the House about tax rate bands and allowances. I have succeeded in giving the most favourable tax regime to low paid employees in Ireland compared to tax regimes in the EU and further afield. Before the last budget, I used the opportunity of a question from Deputy Jim Mitchell – who was not a Finance spokesperson at the time – to make a comment on this matter. I mentioned the EU position at that time.

I want to correct Deputy Mitchell on a point which he has misunderstood. He has said correctly that capital gains tax has reduced to 20%, capital acquisitions tax has effectively reduced to 20% also, and many other changes have been made. However, the Deputy complains that rental income is taxed at 25%. This is a confusion. Rental income is to be aggregated as part of an individual's total income. It will be taxed at an individual's marginal tax rate if total income is sufficient. There is a 25% tax rate on one aspect of rental income but this only applies to the non-trading income of companies. Trading income for companies is taxed at the single low corporation tax rate at 12.5%. Only non-trading or passive income, including rental income, attracts the higher rate of 25%, but this provision only applies to companies.

The debate on rates, bands and allowances will surely continue. The Government clearly outlined its policies in this area before the last election. The only surprise for some commentators is that we are doing what we said we would. When we get to the end-game in the next budget, most fair minded commentators will agree that the changes introduced make the system fundamentally fairer, more equitable, more transparent, easier to operate and easier to understand.

Deputy McDowell will have to wait until the next budget to find out what action I intend to take on the widening of the standard rate bands. We have had this debate—

The Minister told the House that he would have this done and dusted by the time of the next budget.

Have I ever disappointed the Deputy?

Do not ask us to answer that.

The Minister has raised many hares in his long reply and I will not chase any of them except to say that his claim to have made the system fairer is a lot of palaver. He has not made the system fairer. Instead, the tax changes have disproportionately favoured the wealthy. Those earning £100,000 plus, and those who benefit from capital gains and capital acquisitions taxes, are the real winners from the changes of recent years.

Many of those changes were justified as tax rates were penal and there were huge disincentives to economic activity, but the Minister cannot claim that the system is fair when those on minimum income are still paying tax. How can he claim the system is fair when those on modest incomes are paying at the higher rate of tax? To have those on middle incomes with high mortgage payments, whose disposable and discretionary income is very low, paying tax at an effective rate of 50% is not fair.

The Minister has presided over this system for four budgets. The claim that the system is now fairer is incorrect and that is the major difference of opinion between the Government and the Opposition. We want a fairer system and that does not mean penalising initiative or success. I agree that these must be rewarded and that initiative bring dividends for the overall good of society.

However, we cannot allow a situation where those on minimum income are paying tax, and where those on small disposable incomes are paying at the higher rate of tax or the same rate as those earning £250,000 or more. That is manifestly wrong. It is also counter-productive. The middle band, which is the subject of these amendments, is intended to alleviate the position of those on middle incomes who pay at the higher rate, without extending the concession to the very wealthy.

The proposed Government policy is costly and unfair. Why should those with enormous incomes benefit to the same extent as those on middle incomes? This is one matter the Minister has failed to grasp. I know that in principle the Minister accepts such action may be possible in the future but we have an urgent problem now. We need to attract more people into our society in these areas of income.

The Minister is at risk of beginning to believe some of his own propaganda, but I agree with him on one point. I did not think the higher rate of tax would be reduced to 42% or even 40%. I assumed that was there to keep the Progressive Democrats happy and I thought that when the ordinary, decent Fianna Fáil Party backbenchers realised the consequences of doing something so blatantly unfair, they would say "no". Sadly, we had not reckoned on the Minister really being a Progressive Democrats Deputy at heart. We should have guessed that at an early stage and I blame myself for not noticing it.

I produced the Fianna Fáil Party's tax document long before there was any talk of the Fianna Fáil Party and the Progressive Democrats being in Government together. That was a Fianna Fáil Party commitment.

I recall some negotiations between the two parties before the last general election.

Yes, but the pledges regarding the 20% and 40% rates were in the Fianna Fáil Party's document. They were copperfastened in the agreement during the campaign and after the election. However, they were in the Fianna Fáil Party's tax document long before the election was called.

I did not think the Minister would do it, so I accept I got that much wrong. However, the Minister should not start believing that he has a mandate for some of the other measures he introduced. He did not have a mandate for individualisation and he would not have received the support of his party for individualisation of the standard rate band if he had sought it. In addition, he would not have received the support of the average Fianna Fáil Party supporter for such a measure if he had sought it.

The Minister did not have a mandate for the reduction in capital gains tax and he did not seek a mandate for reducing tax on gains from 40% to 20%. He did not seek a mandate to reduce capital gains tax rate on development land to 20% and he would not have received such a mandate if he had sought it. The Minister's claim that he had a mandate for the various changes he made is not true. I accept there was a mandate to reduce the rates and that was done. Undoubtedly, the issue will be debated at length during the next general election campaign. There is little to be gained from prolonging this debate. As Deputy Mitchell said, there are fundamental differences between the approach on this side of the House and that taken by the Government. I do not accept there is a fairer system than if other measures had been taken.

In response to the claim that I have not looked after the lower paid, as a result of the budget, some 668,000 people will not pay tax at all and only 23% of people will pay tax at the higher rate. My commitment was to have 80% of workers paying tax at the standard rate. This commitment was contained in the Fianna Fáil Party's manifesto that was produced long before the last general election. The target was for 80% of people to pay tax at the standard rate and it said what the rate would be.

It did not say how the Minister would get there.

There is some validity in that comment, but I said I would get there and I am almost there already.

The Minister did not tell the Cabinet about it until the morning he did it.

Deputy Mitchell is a former member of Government and he will testify that taxation changes are not discussed by Cabinet until the morning of the budget. I have checked this matter with the current and former Cabinet Secretaries. Members of Deputy McDowell's party who have been members of Government will confirm that is the position. Therefore, my actions in that regard were not unusual; that has always been the practice.

I have also given a commitment that, after this budget, a single person earning up to £144 a week will not pay any tax. After the next budget, the commitment is that all those on the minimum wage will not pay tax. Deputy McDowell and others were surprised that we fulfilled our election promises, but everybody on the minimum wage will be removed from the tax net and less than 20% of workers will pay tax at the higher rate, which will be 42% and possibly 40% with the standard rate at 20%. Significant changes have been made and this is recognised.

Amendment put and declared lost.
Amendments Nos. 13 to 20, inclusive, not moved.

Amendment No. 21 is out of order as it involves a potential charge on the people.

Amendment No. 21 not moved.

I move amendment No. 22:

In page 20, between lines 13 and 14, to insert the following:

"(d) for the purposes of this section a married couple, both of whom have attained 65 years of age, shall be treated in like manner as a married couple where both spouses are in employment irrespective of whether one or both spouses are in fact in employment.”.

The relatively simple net point behind this amendment was brought to my attention by a colleague. The primary argument put forward by the Minister for individualisation of the standard rate band was to improve or increase the incentive to work. The amendment seeks to disapply individualisation to people over the age of 65 years, who typically are not in the work force. I accept this change would affect a relatively small number of people who are over the age of 65 and have an income of an amount that would benefit. However, as the primary rationale behind individualisation does not apply to such people, it is fair to remove them from the project.

I support the amendment. There has been some progress in relation to the taxation of elderly people and this process should be continued. Deputy McDowell's point that they should receive double allowances is worthwhile. While the Deputy's amendment applies to the age exemption limit, I wish to mention the small income exemption of £8,200 for a couple. This amount has not changed for many years and I do not understand why the Minister has not altered it.

It would be another way of taking people on relatively low incomes out of the tax net, particularly if they have families. For example, a couple with a family of four children can earn in excess of £200 without paying tax. However, if the small income exemption had been increased in recent years, it would have taken a large tranche of additional people out of the tax net. This would have been worthwhile. Perhaps the Minister could indicate why he decided not to change the small income exemption.

The aim of the amendment, which is intended to benefit married couples where both spouses are aged 65 years or over, is to exempt such persons from the band widening process so that they will retain full transferability of the standard rate band. It seeks to confer the benefit of the extended standard rate tax band which applies in the case of two income married couples in cases where only one spouse is in employment or has an income.

As I explained in response to an identical amendment on Committee Stage, the standard rate tax band in the case of one income couples will be £29,000 in the full tax year. In the case of two income married couples, the band may be extended by up to £11,000 to £40,000. However, if the income of the second spouse was less than £11,000, such as £7,000, the standard rate band would be extended to £36,000. There is, therefore, no set band for two income couples. It depends on the income of the individual spouses and can vary from case to case, depending on the respective incomes.

If only one spouse is in employment, the maximum standard band that can apply is £29,000. To attempt to extend this to equate with the position that might obtain if both spouses were in employment is not realistic in that there is no fixed measure of the amount by which it should be extended. To try to operate the amendment could lead to inequitable results. For example, a one income couple with an income of £36,000 would, under the amendment, enjoy a standard rate band covering the entire amount. A two income couple with the same total income comprising £32,000 plus £4,000 would benefit from a standard rate to a maximum of £33,000 – £29,000 plus £4,000 – with a top rate of tax applying to the balance of £3,000. It is obvious the amendment does not sit comfortably with the scheme of widening the standard band in the case of two income couples which I introduced last year and which I am continuing this year.

I appreciate the Deputy is anxious to direct an easing of the tax burden towards the over 65s. My preference, if further assistance was to be given to that segment of the taxpaying population, would be to do sovia the age exemption and the age tax credit avenues rather than by way of altering the rates structure. However, I have gone as far as can be reasonably expected in easing the tax burden this year and in the circumstances I cannot accept the amendment.

Deputy McDowell said that the main purpose in widening the standard rate band was to provide an incentive to work and that in view of this it should not apply here. While that is one of the effects of widening the band, the main reason is to provide for greater equity. Widening the standard rate band and having a single standard rate band for everybody is inherently more fair. It pertained until 1980-81, even at a time when Deputy McGrath and others believe people were far more conservative in their attitudes. None of those who complained last year said anything against what happened in that period.

The former Minister, Deputy O'Kennedy, introduced a change. As he explained on numer ous occasions at the time, his move was not in response to the Murphy case in the High Court. The cost of implementing the finding in the Murphy case would have amounted to approximately £30 million, whereas doubling the bands cost approximately £130 million. Those figures are subject to correction, but I frequently referred to them last year. The effect of the change was to make the system very unfair, especially to single taxpayers and couples where both people work. My move to widen the standard rate band and have a single standard rate band for everybody is more equitable.

I have done more to raise, by multiples, the exemption limits for the aged than any previous Minister. I have increased them further this year with the result that only a very small number over the age of 65 years are in the tax net. I intend to proceed in this manner.

On Committee Stage Deputy McGrath suggested amending the small income exemption limit. The effect of an exemption limit for all taxpayers was to create a poverty trap for many. For example, in 1997-98, the last tax year under the previous Administration, 108,145 taxpayers paid tax at the marginal rate. The effect of the exemption limit was to impose tax at the marginal rate for income above the limit. Most experts, sociologists and commentators advised that this created a major disincentive to those returning to the workforce. By increasing the personal allowances I have reduced the number who fall into this trap. After the budget there will only be 4,522 cases at the marginal rate, of which the probable majority will be over the age of 65 years. All the sociologists and those who do not subscribe to my views on economics or tax policy applaud these measures. They do not often trumpet my achievements in this regard on the radio, but have acknowledged them in private.

By increasing personal allowances I have eliminated what was a real problem in the tax system. In this regard Deputy McDowell would not agree with Deputy McGrath. The system as it applied imposed tax at the marginal rate for those with incomes above the exemption limits. This acted as a disincentive to those returning to work. In 1997-98, 7.24% of all tax cases would have been in the marginal band. This has been reduced to 4,522 cases or 0.26%, a significant change.

The Minister ignores the fact that at that stage the small income exemption limit was much bigger than the personal rate for a couple, but because he has increased the personal allowances for a couple where both paid tax at the marginal rate he has reduced the number paying tax at the marginal rate.

That would be welcomed by most.

The previous system benefited relatively large families of, say, four or five children.

The marginal band was introduced in the 1980s, but it was criticised for creating a real trap for those with children. Subsequent Ministers for Finance introduced an add-on for children where a person's income just exceeded the band and became eligible for tax. The system then became so crazy that further changes were needed. This has bedevilled the tax and PAYE system. I am trying to simplify it to the extent that anybody can understand it. I also hope to eliminate any remaining disincentives by the enactment of next year's Finance Bill. That is the reason I have not increased the small income exemption limit, but I have overcome the problem of the poverty trap by increasing personal allowances. This has been welcomed by some of my most strident political opponents, both inside and outside the House.

We have spent long enough on individualisation and there is little point in dwelling on it further. I will have more to say on the age exemption limit when we consider the next couple of amendments.

Amendment, by leave, withdrawn.

Amendment No. 24 is related to amendment No. 23 and they may be discussed together by agreement.

I move amendment No. 23:

In page 21, line 1, to delete "21,586" and substitute "25,000".

These amendments deal with the age exemption limits. Amendment No. 23 proposes to increase the limit for a married couple to 25,000 while amendment No. 24 proposes to increase it for single persons to 12,500. On this issue I agree with much of what the Minister said. The small income exemption limit was a very blunt way of dealing with a difficulty and perhaps created more problems than it solved. This is also true of several kinks that remain in the system. Another example is the levy in terms of the PRSI exemption limit. In both cases the levy is applied to all income above the limits provided. That creates a serious disincentive. When resources are available the matter should be addressed.

The Minister and I also agree on the general principle of seeking to exempt a significant part of the income of older people from tax. I am sure the Fine Gael Party also agrees with this. In previous Finance Bills I sought to have pension income as opposed to other income excluded from tax. The Revenue Commissioners have indicated it would be difficult to differentiate pension income from other income. I accept that in view of changes introduced in recent Finance Bills this issue is no longer as relevant as it was and that we can now deal with all income that accrues to pensioners.

There is some distance to travel. The social welfare pension has increased to approximately £107 per week, which, in terms of annual income, amounts to approximately £5,500. As we are aware from our constituency work, it causes enormous resentment when people pay tax on relatively small private pensions in addition to the social welfare pension, especially when they rightly take the view that they contributed to their social welfare pension. Every effort should be made to ensure those who are caught for what is in many cases a small amount of tax are removed from the tax net. That is the purpose of these amendments in seeking to increase the age exemption limits.

The Bill proposes an increase in the age exemption limits for persons aged 65 years or over by £1,000, from £7,500 to £8,500, for single taxpayers and by £2,000, from £15,000 to £17,000, for a married couple. Deputy McDowell's amendments propose an additional increase of approximately £1,300 for a single person and £2,600 for a married couple. The cost of the amendments is estimated to be £5.3 million in a full year.

The increase in the age exemption limits already provided in the Bill represent a substantial increase on the current exemption limits. Since I took office, I have increased the exemption limits for the aged by up to 85%. The increase in this year's Bill is in keeping with the Government's commitment to reduce taxation on the elderly and to remove as many elderly people as possible from the tax net. I am satisfied the increase proposed in the Bill is in keeping with the Government commitment to the elderly and is a fair and just increase. In the circumstances, I must reject the amendments. We touched on this in the last amendment when I said there were just 4,522 people on the marginal band rate. All these people are aged 65 or over.

Deputy McGrath raised the question of age and the single income. One would need to be under 65 years of age and have six or seven children to increase the figure to the £13,000 exemption limit, that is, the personal married allowance of £11,000, plus £2,000 PAYE allowance.

That is because the Minister has not kept pace with it.

Increasing the personal allowance is a more effective way of dealing with the issue. It is my intention to rationalise the PRSI levy system in the next budget. I promised this two budgets ago. I made a substantial change in this year's budget by abolishing the PRSI limit for employers' contributions, to which Deputy McGrath was opposed. I abolished the lower threshold for proprietary directors and self-employed but I adjusted the PRSI rate for them. People on high incomes will not benefit from the budget, something they will find out very soon. During my pre-budget analysis, I discovered there are substantial numbers of very high taxpayers in the country, including the self-employed, proprietary directors and so on who earn substantial incomes. There is a big gain from these people which will be compensated for by reducing the rate on others.

I accept there are anomalies in the PRSI levy system. It is my intention to rationalise further this aspect. Some of the changes in recent years have made the situation even worse. There are anomalies, including steps, ceilings, thresholds, cut-in points, cut-out points, no income limits for health levies, PRSI starts, stops and kick-ins. I hope to complete the process in next year's budget. I do not expect everyone to accept what I have said in this regard or to applaud me on the taxation system, but I believe the system will be easier to understand and more effective. It would be pointless having a good income tax system if the PRSI levy system was so complicated that no one could understand it bar the specialists. I intend to rationalise that aspect.

We have debated the issue as much as possible. If my party is in Government in a year's time, I am sure we will do something similar.

Is there any significance in the fact that the Minister said "hopefully" rather than "definitely"? Has there been a change?

Amendment, by leave, withdrawn.
Amendment No. 24 not moved.

I move amendment No. 25:

In page 22, before line 1, to insert the following:

"6.–Section 123 of the Taxes Consolidation Act, 1997, (which relates to the general tax treatment of payments on retirement or removal from office or employment), is hereby amended by the insertion of the following subsection after subsection (6):

‘(7) This section shall not apply, and it and section 114 of the Income Tax Act, 1967, shall be deemed never to have applied, to any payment made or to be made under the Irish Shipping Limited (Payments to Former Employees) Act, 1994.'.".

We touched on this issue during Committee Stage when I did not get an opportunity to move the amendment. This deals with the position of the former employees of Irish Shipping which was wound up, to all intents and purposes, by the Government in the 1980s. The Minister's response on Committee Stage suggested that the Revenue effectively treated the payments eventually made to Irish Shipping employees as redun dancy payments in the same way as any other redundancy payment. That is to ignore the reality of what happened. What happened is that for a period of almost ten years after the forced winding up of the company, a number of former employees of Irish Shipping initiated a case against the Minister seeking compensation for damages. Some ten years after the winding up of the company, agreement was eventually reached and payment was made on anex gratia basis to all the former employees of the company. It was not anticipated by those who made the arrangement at the time that they would be regarded as redundancy payments. All the circumstances suggest they are not ordinary redundancy payments. This is an anomaly going back to times past, but it is one which seriously affects a relatively small number of people. The Minister will be aware from representations that these people are still seeking redress. These people make a fair case, that is, that effectively the ex gratia payments to them by way of compensation should be regarded as tax free.

Deputy McDowell raised this amendment on Committee Stage two weeks ago. There is little more I can say on this matter beyond my response on that occasion.

This amendment proposes to specifically exempt in full from tax compensation payments made to former employees of Irish Shipping Limited. Under normal rules, these payments are chargeable to tax subject to the exemptions due in respect of redundancy payments. From 1993 the exemption was £6,000 plus £500 for each year of service. In 1999 the exemption was increased to £8,000 plus £600 for each year of service. This is a generous exemption.

While I have sympathy for those affected when Irish Shipping collapsed, I also have sympathy for any employee who loses a job and it would be inappropriate for me to make an exception in this case without applying it across the board to redundancy payments in all cases, and this is something I am not prepared to do. For that reason, I cannot accept the amendment.

In the recent past, I met a representative of the former employees of Irish Shipping. This man, who has pursued this issue for a number of years, made a good case to me. I do not want to create a precedent in this regard because several changes would then have to be made. I will seek to revisit the matter between now and next year's Finance Bill to see if I can come up with some alleviation measure. I take on board what the Deputy said. These people fought long and hard before the State relented and gave anex gratia payment in 1993. I do not want to make a specific commitment except to say I have not closed my mind to the issue.

I support the amendment. I welcome the indication by the Minister that he may consider the issue again. I should declare a special interest in the matter because, as the then Minister for Transport, I had the unpleasant duty of seeking the liquidation of Irish Shipping because of the unfortunate circumstances that arose at the time. The legal reality had to be faced that nothing could be done for several years afterwards until the statute of limitations had run out, otherwise the State would have been exposed to huge demands arising from unauthorised actions by certain individuals. Those unauthorised actions are the consequence of Irish Shipping having to be liquidated with very adverse consequences for the employees of the company who were a credit to this country. It would be an act of reparation if the Minister could see his way to meeting the overall intent of the amendment.

I welcome what the Minister has said. However, these people have been getting sympathy from the political establishment for a long time, much like the employees of the Hospital Sweepstakes. We eventually made a reasonable arrangement with the former Hospital Sweepstakes workers which received general acclaim and consensus approval in the House. It would be possible without much difficulty – to use that appalling phrase – to ringfence this particular payment to ensure we would not be setting a precedent. That would not be the case as the circumstances surrounding the winding up of Irish Shipping and the case taken and subsequently settled are distinct.

I am happy the Minister indicated that he has an open mind on the matter. In the circumstances, I withdraw the amendment.

Amendment, by leave, withdrawn.

Acting Chairman

Amendments Nos. 27 to 29, inclusive, are related to amendment No. 26 and may be discussed together by agreement.

I move amendment No. 26:

In page 24, line 11, to delete "2,540" and substitute "6,350".

These amendments seek to increase rent allowance for various categories to 6,350 for married couples under the age of 55 years, to 8,000 for married couples over the age of 55 years, to 3,175 for single persons under the age of 55 years and to 4,000 for single persons over the age of 55 years. I still do not understand the reason, when the allowance was introduced, such a major distinction was made between those under and above the age of 55 years. If the Minister has any insights, I would be interested in hearing them as I am not totally persuaded that the circumstances justify such a major discrimination against those under the age of 55 years. That, however, is not the specific point of the amendments, the purpose of which is to increase the allowance to ensure it is more or less at the level of benefit obtained by a person on the full rate of mortgage interest relief. They are intended to be tenure neutral.

The report on the private rented sector recommends that we take action of this kind. There is a long tradition of people wanting to own their own homes, but a considerable number choose not to and are obliged by circumstances – not least the price of houses – to rent. It is only equitable in the circumstances that those who rent, particularly those who rent long-term, receive the same measure of assistance and encouragement from the Exchequer as those who buy their own homes. That is the purpose of the amendments.

I support the amendment. Those living in private rented accommodation have received a raw deal under the tax code from this and previous Governments. In his Budget Statement the Minister announced an increase, from £750 to £1,000, in relief for single persons, in effect an increase of 70p per week. That was the improvement for which he provided for those living in private rented accommodation. The bonus, payback or tax break those living in private rented accommodation currently receive is £1,000 or £200 at the rate of 20%, a miserly £4 per week, to meet the large amount they must pay to rent an apartment or house. The weekly rates for rented accommodation are £70, £80, £100 and £120. Many have no choice, but to rent. I cannot understand the reason the Minister is not giving a more substantial tax break to those in private rented accommodation. Given the tax that could be clawed back from many of those who own private rented accommodation, it would surely be much more beneficial for the Minister to provide for a decent clawback to tenants to ensure they would be tempted to claim it and thereby indicate those who own the properties they rent. This would enable the Minister to note the names of all those who own rented accommodation and collect tax from them.

I cannot understand the reason the cut-off point of 55 years of age applies to the relief. Will the Minister explain the reasons for this?

In his Budget Statement the Minister said that the full year cost of such a measure would be £7 million. That was a gross exaggeration. The cost of the tax break he has given is only in excess of £3 million in a full year. I obtained this information from the reply to a parliamentary question tabled by me. I calculated the sums from the information given and spoke to an official in the Department who agreed that the figure of £7 million was very much over the top. Is there an explanation for this?

The amendments relate to the relief for rent paid by individuals in respect of private rented accommodation. The level of rent qualifying for relief is dependent on one's marital status and age, under or over 55 years of age. The amendments seek to increase the rent allowance available to taxpayers for the tax year 2002. Deputy McDowell proposes to amend the allowance available to married and widowed persons from 2,540, or £2,000, to 6,350, or £5,000, for those under 55 years of age and from 5,080, or £4,000, to 8,000, or £6,300, for those aged 55 years and over. In addition, he is proposing an increase in rent relief for single persons from 1,270, or £1,000, to 3,175, or £2,500, for those aged under 55 years and from 2,540 or £2,000, to 4,000, or £3,150, for those aged 55 years or over. I estimate that the cost of these amendments would be £33.7 million approximately in a full year.

Deputy McDowell also tabled amendments on rent relief on Committee Stage of last year's Finance Bill which he indicated were an attempt to align rent relief with mortgage interest relief. While I was not in a position to accept his amendments last year, I indicated that I would consider the matter again this year. In the Bill I am providing for an increase of one third in the relief available to under 55 year olds, on top of the 50% increase provided for last year. The relief for those aged 55 years and over remains the same as last year when it was doubled and is the same as that available generally for mortgage interest. The amendments would provide for the same level of rent relief for those under the age of 55 years as that available to first-time house purchasers and give greater relief to those aged 55 years and over. Obviously, this is not a proposition I could accept. No doubt I will consider the appropriate level of rent relief again prior to next year's budget. In the meantime, I am not prepared to accept the amendments.

Deputies asked the reason a cut-off point applies for those under and over the age of 55 years. While no one can remember the reason, we put it down to the usual excuse, the cost factor. The relief was introduced by my predecessor, Deputy Quinn. The ratio, in cost terms, as between those under the age of 55 years and those aged 55 years and over is in the order of approximately 20:1. One can understand the reason for this given the number of young people who rent accommodation.

Will the Minister spell out the cost?

The ratio is in the order of 20:1 in terms of cost.

Deputy McGrath raised a question on the basis of information he obtained in a reply to a parliamentary question. He received the historical figures. The budget costings were based on the numbers forecast for the 2001 tax year. The Deputy will be aware that the budget costings figure, say, at the 22% rate, is a good deal less generous than when the rate is reduced. That is another reason for a change in the figures. As tax rates are reduced, the tax system becomes much fairer and more are removed from the tax net or pay tax at the standard rate – the intention is that 668,000 will be removed from the tax net this year and that only 23% will pay tax at the top rate after this year's budget – the question arises as to whether reliefs should be given in a variety of areas.

A colleague of the Deputy proposed on Committee Stage that, as a result of the fall in tax rates that will apply to a particular relief, I should increase the tax break for that relief. I do not follow that logic, but people are inclined to pursue it. As people will have more money in their pockets due to lower taxation, the question will arise in time as to whether there should be a myriad of tax breaks in place. That is a legitimate topic for another day. As the standard tax rate has been reduced to 20% and the top rate to 42% – it will possibly fall to 40% after the next budget – Deputy Mitchell has proposed an intermediate rate of 30%. I do not have a principled objection to having intermediate rates after the process is completed. If tax rates are to be low, we can then raise the question of whether a whole myriad of tax breaks should be there at all. People will have more money to do what they want, so why give them a tax break unless one has policy reasons for so doing? Unfortunately, in this country – I am sure it is the same in other countries – when the basis for either a relief, a tax break or a grant has long gone and the reason for having it is no longer valid, we fail to take away either the relief or the grant because to do so would bring all kinds of political depredation down on top of the unfortunate Minister who would propose it. It is an unfortunate consequence of politics as much as anything else. As tax rates go down, the tax take reduces and as people have more money, undoubtedly a question for another day is whether many of the tax breaks should continue. I will not revisit that matter before the next election. I will do it as Minister for Finance after the next election.

The Minister has been talking in code for the past few minutes. I thought for a second he was at risk of accepting advice from people who, I think he termed in the past as "pinkos", "lefties", "communists" and goodness know what. Is the Minister to abolish mortgage interest relief?

Then the Minister has just been musing out loud for the past five minutes and we should discount anything else simply as ramblings. The Minister has not addressed the substantive point behind the amendment. He rightly pointed out that last year he entertained the amendment, said he would think about it and come back this year with proposals. I get the impression from listening to him that he still thinks there is some basic justice in aligning the level of relief given to people who are tenants as opposed to people buying their own houses. Do I take it from what the Minister said that he does not propose to revisit the matter further?

Not in the lifetime of this Administration.

Would it not be self-financing to increase the amount of relief available to tenants who will seek it to reduce their tax bill? Given the number of property owners who will be brought into the net as a result of that, does the Minister not think it would be worthwhile even from that point of view?

There is undoubtedly that angle to it. I am aware that a few years ago the Revenue Commissioners had a major campaign in Dublin to detect landlords who were not returning their taxes. Due to other issues they have had to examine in recent times, I do not know whether there has been a big push on that. Revenue made a big effort to register landlords in Dublin. Due to a number of changes which have been made in recent years, further landlords are registering. The level of tax evasion by landlords in 2001 is a great deal less than it was in 1990. Undoubtedly, the fact people can claim a tax break and must give the name of their landlord would have had an effect of regularising the tax position of a number of landlords in the city.

£10 per week.

There is a different culture in regard to tax regularisation now than in 1991. I cannot give precise figures of the effect of increasing the relief and whether that would lessen the grey economy activities of people in this area. Enforcement by the Revenue Commissioners is far better now than it was a few years ago. I cannot draw any figures from it in any event.

The Minister may be right that there is an improvement in tax observance by landlords, but it is not dramatic. It is still very evident in my constituency that there is widespread lack of observance of not only the tax laws, but of planning laws and housing and fire regulations. I am absolutely appalled by the lack of will in the authorities, central Departments as well as local authorities, to address this issue in a serious way.

I made a suggestion a couple of years ago which I will again make to the Minister. If we really want to tackle tax evasion among property owners, one way of doing it would be to require by statute the ESB to disclose to the Revenue Commissioners every dwelling that has more than one meter and to disclose the names of those renting those meters. That would be a simple way of knowing the dwellings in multi-occupation. It would not identify houses in single occupation but, at least, it would address those housing in multi-occupation. It could also be used to the benefit of local authorities because if they knew the houses in multi-occupation, they would know which had planning permission and which observe the fire and other housing regulations.

Likewise, it could be used to highlight the abuse of the rent subsidy. That is something which has grown exponentially in recent decades and there is widespread abuse of that as well. Rent subsidy at the moment is in excess of £100 million. It went up from £3 million seven or eight years ago. I am not against rent subsidy and I am very much for it for those who are entitled to it. Each week at my clinics I hear of people who are getting rent subsidy on the basis that they are of a certain status when they manifestly are not – for example, when there is a couple living in a house rather than a single person or where someone is working. The idea of requiring the ESB to disclose to the relevant authorities, including the Revenue Commissioners, where there is more than one meter in a dwelling is something that would be of great advantage in the prevention of evasion by landlords. It would also help the Minister to come up with a more focused policy in giving tax relief mainly to those paying very high rents and who need a tax break.

I will examine further the proposition made by Deputy Mitchell regarding electricity supply and how we could make some changes which would lead to greater regularisation of people's tax affairs by that method. I understand we would have to introduce a section to empower us to compel the ESB to give us that information, but it is something worth considering. In regard to the rent subsidy, when Deputy Mitchell was chairperson of the finance committee we spoke about it on many occasions. It has grown enormously. When I was Minister for Social Welfare it was growing and it has got bigger and better.

Bigger anyway.

We have made fortunes for landlords all over the country and put people into hovels. It has been an absolute disgrace. As far as taxation is concerned, there is provision for the health boards to supply the Revenue Commissions with the names of the landlords to whom the rent subsidy is paid. There has been a problem in some health board areas in regard to computerisation and giving that information. At least the power is there in that area to allow the health boards to give the relevant information to the Revenue Commissioners.

Some of the innovations put forward by Deputy Mitchell are well worth considering. If landlords were forced to get their tax affairs in order, they would automatically get other aspects in order, such as complying with all the fire and planning regulations. We have learned to our cost that when we start to apply the law in one area, people give up in that area. When we enforced the law in regard to child care regulations, we removed 4,000 child care places overnight. That was the downside of having very good regulations. It was very necessary to have the regulations but the downside was that we automatically removed 4,000 places out of what was scarce enough supply.

It comes back. The same happened with nursing homes.

Exactly. When people are taken out of the system initially, special regulations are introduced. More people then enter the system and are properly regulated but it takes time. The same is happening to an extent in the housing sector but these other ideas can also be considered.

This issue has been raised at the Committee of Public Accounts on several occasions. Health boards insist on ignoring the planning laws and fire regulations in granting rent subsidies. If we are looking towards a package in respect of this issue, the ESB and other authorities should be included and it could then be examined. It would be wise to avoid the problems which give rise to additional scarcity as people leave the system.

It is a short-term measure.

Yes, but if this were introduced along with more elaborate proposals for over the shop residences, a great deal could be done in the housing sector at once.

Amendment, by leave, withdrawn.
Amendments Nos. 27 to 29, inclusive, not moved.

I move amendment No. 30:

In page 27, line 41, to delete "130" and substitute "300".

We did not reach this amendment on Committee Stage because of the guillotines that had been agreed. It refers to the innovative allowance introduced by the Minister in the budget regarding trade union contributions. This issue has been part of the partnership discussions with the trade union movement for many years as the movement sought tax relief on the contributions of trade union members. The Minister accepted the principle in the budget but, having done so, he capped it at £100 per year, which means the financial benefit to any subscriber to a trade union is £20 per annum. This highlights all that is wrong with the relationship between Fianna Fáil and the trade union movement. It is very much a sop.

I am aware of the discussions about the principle. However, having accepted it, the principle could at least have been given some teeth so that it would be of benefit to those who subscribe to trade unions. There is no great rocket science behind the figure I picked, but the cap of £100 in terms of annual subscriptions is too low. I suggest a figure of 300, which is approximately £250, and it is more realistic and appropriate in terms of the subscriptions paid by individuals.

I support the amendment. I thought it was a funny joke that trade union subscriptions of up to £100 would be allowable for tax relief but only as a tax credit of 20%, which works out at £20 per year. Most union subscriptions are more than £100 per annum. The Minister's proposal is small. He could easily increase the level of subscription allowable.

There is also a clause in the provision of the tax allowance for trade union subscriptions whereby the information garnered by the Revenue Commissioners cannot be used for any other purpose. In other words, if one million people register as paying a trade union subscription the Minister cannot press a button on his computer to establish who they are and use the information for another purpose. I am informed by individuals in the tax business that it is most unusual for this clause to accompany such a measure. Why has it been provided? It is strange that this provision has been made. If I am a member of a trade union and, for example, I have two jobs but am registered for only one for tax purposes, the Revenue cannot approach me and say I am not paying tax on my second income. It is a strange measure from the point of view of tax consultants. Why has it been included in this provision? Has there been an agreement with the trade unions?

I very much support the amendment. We owe a great deal of debt to the trade union movement. It has been highly responsible and patriotic and not just over the past 15 years. That was equally true when I was the shadow Minister for Labour in the 1970s. The trade union movement has contributed enormously to Ireland's economic well-being. It has taken the overall interest of the country into account more than any other interest group, yet any support for the funding of trade unions by the State is minuscule. There is provision for funding to assist amalgamations and so on.

Would it be more apt if trade union contributions were treated similar to charitable donations? The trade unions would, therefore, get the same benefit as charities when they receive donations as has been provided for elsewhere in the legislation. It would be well justified and warranted support of the trade unions.

I announced in my budget speech last December my intention to introduce as a recognition of the role of trade unions an annual tax allowance at the standard rate of income tax for membership subscriptions to trade unions. The amount I propose is a flat £100 and the figure of 130 referred to in the section, which Deputy McDowell seeks to increase to 300, is the rounded up euro equivalent of £100. The new allowance will be available regardless of the amount of the subscription. I am satisfied the £100 is a reasonable amount, being roughly equivalent to what most trade union members pay each year. Apprentices and trainees pay less. The trade union movement did not make any representations for an increased figure and seems to be generally pleased with the introduction of the relief. I am not prepared to accept the amendment in those circumstances.

Deputy McDowell raised a number of questions. The subscriptions for SIPTU and Mandate, which provide the bulk of ICTU's membership, are less than £100 per year. There is a higher subscription for some white collar public service unions but these are in the minority. Deputy McGrath referred to a clause in the proposal. That is a standard clause for data protection purposes and trade union members sought it. It is also provided in the mortgage interest section for tax relief at source.

Deputy Mitchell asked why I do not treat subscriptions similar to charitable donations. The trade union movement does not regard itself as a charity. It was a significant step to grant this tax credit to trade union members. It is something they sought for many years. It was resisted by successive Ministers for Finance of different persuasions because it creates a new principle in the tax code. The general principle for employees is that they receive tax allowances only for the performance of their duties. Membership of a trade union does not relate to performance. That is one of the reasons successive Ministers would not provide such relief. Trade unions have sought it for a long time at the standard rate and they are happy with the cap of £100 at the standard rate.

I do not know what Deputy McDowell meant when he referred to the unique relationship between Fianna Fáil and the trade unions. I am reminded of the two individuals in County Kildare who were responsible for getting me into politics. They visited my home one Sunday and told me they had made me secretary of the local Fianna Fáil cumann some three weeks previously, without having told me there was a meeting. Those were the days when one could say everyone in one house was Fianna Fáil while everyone in another was Fine Gael or Labour. That is changing gradually in my county.

One of those men, Jim O'Grady, was a staunch trade unionist. He is now gone to his eternal reward but he prided himself on being a strong trade unionist and a die-hard supporter of Fianna Fáil. He influenced my thinking on trade union affairs.

That is why the Minister is such a left winger.

Deputy McDowell will be more than surprised by my attitude to trade unions. It would not be what is generally written about me, which is not what I think at all. If Jim O'Grady were alive today he would be pleased I have introduced this allowance.

The Minister is right about that. I always assumed he categorised trade unions with turbulent priests and the poverty lobby, but perhaps I am wrong.

No. I only ever spoke like that on the day I paid tribute to the late Deputy Joe Bermingham when I said he was a true member of the Labour Party. The Deputy will know how I feel about that.

I do not think we will go down that road.

I acknowledge the Minister has accepted the principle that trade union contributions should be tax deductible. Having established the principle it would have been a significant and important step to say that whatever contribution is made should be deductible without a cap. I do not understand why he has not done that as it seems unlikely this allowance would be abused. It is extremely unlikely that people would inflate their trade union contributions for the purpose of claiming what is, after all, a pretty small tax credit. Having accepted the principle he should have brought this in without a cap.

Amendment put and declared lost.

Acting Chairman

Amendments No. 31 arises out of Committee Stage proceedings and is consequential on amendment No. 33. Amendments Nos. 32, 34, 35, 36, 37 and 38 are related and amendment No. 36 is an alternative to amendment No. 35. Amendments Nos. 31 to 38, inclusive, are to be taken together by agreement. Is that agreed? Agreed.

I move amendment No. 31:

In page 36, line 11, to delete "7." and substitute "7.(1)".

Section 15 provides for a taxation system for share options granted to employees under schemes approved by the Revenue Commissioners. Under an approved share option scheme, employees, instead of being charged for income tax on part of the gain to them from the shares of the date of the exercise of the option and the capital gains tax on any further gain on the subsequent disposal of the shares, will be charged only the capital gains tax on the full gain. That is the difference between the amount paid for the shares and the amount received on disposal of the shares. To qualify for this favourable treatment there will be a requirement that the period between the date of the grant of the option and the date of any subsequent sale of the shares must be at least three years.

To qualify for approval by the Revenue Commissioners the schemes must provide that all employees and full-time directors are eligible to participate in the scheme on similar terms. Under the similar terms rule, the options may be granted by reference to remuneration, length of service or other similar factors. The option price must be stated at the time the option is granted and must not be less than the market value of the shares at that time. To assist companies in the retention of those employees who are vital to the company's success but who, because of their skills and experience are highly mobile, the scheme may, however, contain a key employee element, where options can be granted which do not meet the "similar terms" conditions, provided that at least 70% of the total number of shares over which rights are granted under the scheme in any year are made available to all employees or directors on similar terms.

When the section was discussed in Select Committee, I indicated I had received a number of representations about the scheme as published and that I would consider a number of amendments on Report Stage. The amendments I now propose are as follows. Amendments Nos. 32 and 33 are designed to allow former employees, who have been granted options by the company while in employment, to exercise those options after they have ceased employment with the company. Most companies allow former employees to exercise options within a stated period of leaving; the norm indicated by multinationals is in the region of 90 days while the Irish Association of Investment Managers guidelines suggest a period up to 12 months where the employee leaves at normal retirement age or dies and up to six months in other cases.

Amendment No. 32 is designed to allow part-time directors to participate, at the company's discretion, in an approved share option scheme. While most schemes do not admit part-time directors, some do. The amendment brings the new scheme into line with approved profit-sharing schemes where part-time directors may be admitted to such schemes at the discretion of the company. Amendment No. 34 is a technical amendment to copperfasten that at any time a company makes a grant of options, all eligible employees and directors must be entitled to receive grants at that time under the "similar terms" rule.

Amendment No. 35 elaborates on what "similar terms" means. Companies usually grant options once a year and in some instances new employees are entitled to the appropriate grant for the year in which they join, even if this is after the normal grant aid for that year. Also, in some schemes employees are not entitled to grants in the run-up to normal retirement. The IAIM guidelines, for example, suggest that options should not be granted in the two years prior to normal retirement. The amendment therefore provides that where new employees in their first year of employment receive options at a different time or on different terms from the generality of employees, or employees within a period of normal retirement fitted into the scheme are not granted options, the "similar terms" requirement will not be breached. The amendment also ensures that where, as provided for in amendment No. 32, a company allows part-time directors to participate in the scheme, they must also do so on similar terms.

Amendment No. 38 removes the condition that schemes must contain a rule that, if it subsequently transpires that options are not issued at least at market value on the day the option is granted, as required by the legislation, the price must be increased accordingly. Existing schemes may not have such an explicit rule and the condition is therefore being removed to avoid such schemes being without what basically would be a technicality. The condition will, however, remain an implicit requirement and failure to comply with it will result in withdrawal of approval.

I commend these amendments to the House.

While I support the idea that options may be exercised by those people who have retired at normal age or, in the case of a person who has died, his or her spouse or heir within a given period, is there a danger that this proposal will affect loyalty? I thought one of the ideas of a share option was to encourage loyalty and to encourage people to stay with a firm. Will the Minister clarify whether this will cut across that purpose?

The grant may be given to an employee but he or she may not have exercised it before retiring. This provision allows him or her to do so and not to breach the "similar terms" rule and other conditions.

Suppose a person reaches retirement age of 55 or 60—

It is only on retirement.

Only on retirement?

Many schemes do not allow one to do so but we inserted this clause. It would debar such schemes if we did not include it. I understand it is a standard under the guidelines of the Irish Association of Investment Managers. The purpose of most of these amendments is not to debar schemes which would have such conditions.

Sitting suspended at 1.30 p.m. and resumed at 2.30 p.m.