Vol. 576 No. 6
10 Ms Burton asked the Minister for Finance the number of taxpayers expected to pay tax at the higher rate in 2004; the percentage of taxpayers this represents; the equivalent figures for 2003 and each of the previous three years; his views on whether it is desirable that such a high proportion of taxpayers should pay at the higher rate; and if he will make a statement on the matter. [30247/03]
I assume the Deputy is seeking the number of higher rate taxpayers as a percentage of all income earners on the tax record. I am advised by the Revenue Commissioners that the information requested, which I will outline, is rounded to the nearest thousand. In 1999-2000, there were 543,000 higher rate taxpayers, comprising 32.6% of the total number of income earners. In 2000-01, there were 540,000 higher rate taxpayers, comprising 30.6% of the total number of income earners. In 2001, the short tax year, there were 516,000 higher rate taxpayers, comprising 28.3% of the total number of income earners. In 2002, there were 517,000 higher rate taxpayers, comprising 27.9% of the total number of income earners. In 2003, there were 570,000 higher rate taxpayers, comprising 30.5% of the total number of income earners. In 2004, it is estimated that there will be 632,000 higher rate taxpayers, comprising 33.4% of the total number of income earners. It should be noted that a married couple jointly assessed is counted as one tax unit.
The number of people exempt from tax increased from 459,000 to 669,000, or from 27.5% to 35.3% of income earners, between 1999 and 2003. Relating the numbers in each group to income earners gives a more balanced and meaningful figure as it takes account of all those on the tax file and makes clear that assessing the proportion of income earners on the higher rate must take account of the policy goal of increasing the numbers on low pay exempt from tax.
Additional information not given on the floor of the House.What matters to people is the net effect of tax changes on their take-home pay. Everybody in the PAYE sector will see their take-home pay rise as a result of this budget. Under the system of tax credits, the only way to move people off the top rate of tax is to widen the bands. Indexation in line with the CPI, which some people had called for in advance of the budget, would have delivered some widening. However, most categories of PAYE taxpayer have benefited to a greater extent than would have been the case had bands and credits been indexed by the expected rise in inflation for 2004 over 2003. Indexation of all bands and credits would have cost €214 million in a full year. The full year cost of the budget income tax package is €287 million, which is €73 million more than €214 million. The budget package delivers further progress on the key Government priority of moving towards exempting the minimum wage from taxation and focuses resources on those at the lower end of the income scale.
Will the Minister agree that the provisions of the budget will mean that over 33% of all workers will pay the higher rate of tax next year? This is a clear consequence of the figures he has read out. Some 52% of people who pay tax will do so at the top rate of 42% next year. Such people will also have to pay PRSI of 4% and a health levy of 2%. Their employers will pay PRSI of 10.75% on incomes up to about €42,000. The Minister and his friends in the Progressive Democrats Party have claimed that this is a low-tax economy, but the statistics I have outlined demonstrate that is not true.
The Minister has put in place the largest stealth tax of all by failing to index tax bands. The effective marginal rate of tax for 52% of Irish taxpayers is unbelievably high by European standards. Does the Minister share the Tánaiste's concern that the Government has got it wrong in this budget by introducing a very high effective marginal rate of tax? Does he share the view of various employers' associations that the Minister's failure to index tax bands represents an open invitation for the return of the black economy and under-the-counter payments? If a single person on a modest income of approximately €30,000 works a significant amount of overtime, he or she will face a marginal tax rate of 48% on extra earnings and the employer will face a further 10.75% in PRSI. Will the Minister predict the impact on individual employees and employers of his invitation to return to the black economy?
Not for the first time, I do not accept what Deputy Burton has said on this matter. I remind her that 35% of income earners will be exempt from tax, 32% will pay tax at the standard rate and 33% will pay tax at the higher rate. The Deputy is making a mockery of this matter. If it is not the case that she does not understand this area, I must conclude that she is playing a statistical game. The more people who are exempt from the tax code, the more people who will pay tax at the standard or higher rate. The number of persons who are exempt from paying tax – those who pay no tax – has increased from 380,400 to 668,700 since I became Minister for Finance. This represents an increase of over 75%.
Deputy Burton would like to interpret these statistics in a peculiar manner. Let us imagine that all bar 100 of the 1.8 million taxpayers were exempt from tax. Let us suppose that I had been so successful in recent years that I could afford to release everybody, except for 100 persons, from the tax net. If 95 of the 100 people paying tax did so at the higher rate and two did so at the standard rate, Deputy Burton would argue that 95% of taxpayers were paying tax at the higher rate. This is an example of the nonsense she has spoken in respect of this matter. I notice that the leader of her party has been fooled into examining this issue in the same manner. At least Deputy Richard Bruton knows that the approach is nonsense since the change in the tax system. Perhaps the tax credit system is not understood by sections of the Labour Party, although they may be deliberately misconstruing it. Since we adopted the tax credit system, the only way to keep people out of the higher band is to widen the band – there is no other way of doing it. It is totally different from the old tax allowance system.
I remind Deputy Burton that commentators from the EU, the IMF and the OECD have demonstrated beyond doubt that Ireland has the lowest tax take from workers of any OECD or EU country. We are far ahead of everybody else as a result of the changes I have made since 1997. I also remind Deputy Burton that the Labour Party opposed every reduction in the top rate of tax. It opposed the reductions from 48% to 46%, to 44% and to 42%. I would welcome any decision by the Labour Party to no longer favour tax increases. I remind Labour Members once more that their party opposed tax reductions tooth and nail.
I remind the Minister for Finance that the manifestos of Fianna Fáil and the Progressive Democrats promised that just 20% of taxpayers would pay tax at the highest rate. It is another broken promise. The Government has drifted from its manifesto promise by 13 points. It is no wonder the Tánaiste is worried.
Regarding the traps that the Minister set, he boasted of about 90% of people on low incomes being taken out of the tax net. However, the minimum wage will go up next February to €7 an hour so someone earning €280 a week, if he or she does ten hours' overtime at €10 an hour, will be caught in the Minister's PRSI trap. Should such people's weekly income go up to €356, which is not large, they will be caught in the health levy trap. What is more, their employers will be caught for 10.75%. Why is the Minister not concerned that his tax policy, the stealth tax that he has imposed in this budget, is the biggest rip-off since his predecessor, Mr. Haughey, in the 1970s and 1980s essentially gave carte blanche to the black economy in this country?
Will the Deputy ask a question?
Why has the Minister treated investors in car parks to an average tax relief of €100,000 a year—
We must proceed now.
—compared with crucifying someone who is single on an income of €30,000?
That concludes priority questions. We now move on to Question No. 11 in ordinary questions, and I remind the House—
On a point of order, when Deputy Ó Caoláin spoke, the Leas-Cheann Comhairle allowed him to do so at great length and then invited the Minister to reply.
I have allowed the Deputy two minutes over the time.
I am entitled to the same indulgence from the Leas-Cheann Comhairle.
I have allowed the Deputy two minutes over the time. The Deputy has received the same indulgence. We must proceed. The Deputy has received two minutes extra.
I am entitled to the same courtesy.
The Deputy received the same courtesy.
