Vol. 683 No. 4
Before I begin, I wish to bring to the attention of Members an error in the printed list of amendments. Amendment No. 8 should read: "In page 7, to delete lines 28 to 48 and in page 8, to delete lines 1 to 7." In other words, the proposed deletion includes the text from line 28 to the end of page 7 and the first seven lines on page 8.
Amendment No. 1, in the name of Deputy Morgan, is out of order. Amendments to the Title must reflect the content of the Bill.
Why is amendment No. 1 ruled out of order?
Amendments to the Title must reflect the content of the Bill and unfortunately it has been ruled that the Deputy's does not.
I move amendment No. 2:
In page 5, between lines 11 and 12, to insert the following:
"PART 1
TAXPAYERS' OMBUDSMAN OFFICE
1.—The Ombudsman shall include in her annual report a special report on the overpayment of tax by PAYE taxpayers, and on the take up of credits by such taxpayers, and the branch of her office dedicated to ensuring that the take up of credits is readily available to all taxpayers, and refunds made as rapidly as possible where this arises, as well as ensuring the availability of a ready mechanism for informing taxpayers (particularly pensioners) who are entitled to a refund of DIRT tax, shall be known as the taxpayers' ombudsman office.".
This amendment is on providing more information to taxpayers.
The Deputy's amendment is almost identical to one moved on Committee Stage. As I outlined on Committee Stage and as my predecessor outlined on previous occasions, the statutory remit of the Ombudsman already incorporates both roles proposed for a taxpayers' ombudsman office, namely, acting for taxpayers and investigating actions contrary to fair or sound administration. The Ombudsman should be left free to decide whom and how she should investigate. Imposing obligations in this regard on the Ombudsman could be seen as interfering with her freedom of action and could set an undesirable precedent.
Since the inception of the Office of the Ombudsman, significant numbers of taxpayers have exercised their right to make complaints to that office. The Ombudsman has carried out a number of special investigations in the area of taxation on her own initiative under the Ombudsman Act 1980, such as into the operation of schemes for disabled drivers and the repayment of tax to certain widows. When calls were previously made for the establishment of a taxpayer advocate, the then Ombudsman drew attention to the duplication of role and responsibilities that such a development would involve.
Apart from the statutory role and responsibility of the Ombudsman, other avenues are also open for taxpayers to make their complaints. They can lodge a customer service complaint about the standard of service received in their personal contact with the Revenue Commissioners by telephone, correspondence, fax, e-mail or in person to a Revenue public office. They can request a review by Revenue of any aspect of the way in which their tax affairs have been handled. Such reviews are undertaken by a senior Revenue official who was not involved in the original decision or, at the taxpayer's request, jointly by an external reviewer and a senior official. Taxpayers who are dissatisfied with specific treatments by Revenue can also make an appeal under the relevant statutory provisions. In recent years, the Revenue Commissions introduced a number of other initiatives to ensure taxpayers know about their entitlements.
I thank the Minister for his reply. A role for an independent ombudsman for taxpayers has been developed in a large number of other jurisdictions, including the United States. I have seen such offices in operation in other countries and was impressed. Primarily, such an office is to instil in taxpayers a sense of confidence that the taxation system is fair and that actions by the taxation authorities can be addressed impartially, such that the taxpayer can have a reasonable explanation as to what is happening.
I must acknowledge that since I introduced this idea a number of years ago in debates on Finance Bills, the Revenue Commissioners improved many of their information systems very substantially. They have been to the fore in developing new information mechanisms, such as texting and a range of on-line services, all of which are very welcome. Nonetheless, a confidence issue arises in respect of taxation in Ireland and it has never gone away. This issue concerns the fact that if one is wealthy and can afford to employ an accountant or taxation expert to file one's tax returns, compile claims for one and interact with the Revenue Commissioners on one's behalf, one will inevitably organise one's tax affairs far more favourably than one who cannot do so, either because he or she is in the PAYE sector or because he or she is a small business person who does not have the resources to invest in expensive advice on taxation.
The role of an office such as the one I propose is to build confidence in the fairness of the administration of the taxation system. The Minister is making a mistake in not acknowledging that the role of the Ombudsman's office in this regard is important. Tens of thousands of people in Ireland have invested in Irish banks. In many cases, they did so not simply to make a profit but out of a sense of patriotism. They invested in other Irish equities and, to be honest, many of those investments are shredded. The taxation implications of this for individuals are complex but very significant and important. There will be people seeking information on the consequences of the dramatic fall in the value of bank shares and the impact of this fall on their tax affairs. Significant investors with the resources to employ accountants and tax advisers will be in one position, while those with much more modest means will simply have to shrug their shoulders and take the hit. The same thing happened, as the Minister may recall, when Eircom was privatised. Many people wanted to invest some money for a period of time as a saving, rather than to make a profit, but because they did not short the stocks they lost money. Given that many of them did not invest in other shares, the losses they incurred went unrecognised for tax purposes. Of course tax law must be administered, but we have one situation for people who are well off and have a battery of advisers and another for ordinary taxpayers.
The greatest difficulties are being suffered not just by the shareholders who have lost much of their investment in banks — particularly those who were using the investment either as retirement funding or as a nest egg, for whom the Government's failure to regulate banking properly has led to catastrophic losses — but by the significant number of people who have been working in the construction industry on certificates for the last ten or more years. They have worked hard, are perhaps in their mid-30s, having gone into the building trade in their teens, and now find themselves without employment. Their tax affairs are to some extent in arrears, but when they make a social welfare claim or claim for other assistance they find it is an extremely complicated and lengthy process. In such cases a taxpayers' advocate, setting out clearly the ground rules, would be very helpful. Instead, people start at the social welfare office and are told that a social welfare application will not be entertained unless their tax affairs are in order. This is a fair point. However, it takes them some time to achieve this. They may then register with FÁS but, similarly, until they are in the social welfare system, nothing much more can happen for them.
The system is sclerotic and slow. We should be trying to move people who have lost employment into anything else that is available, or back into study and training, as rapidly as possible. However, at the moment, our systems are very slow. Many of the people who are find themselves in this position are well used to sorting things out online, but they find that in the maze of the social welfare and FÁS system — if they are interested in doing courses in insulation or similar — everything takes weeks, and before one knows it, one is out of work for several months, which turns into half a year. We must prevent people being caught in the trap of unemployment. The role of the Revenue Commissioners here is to ensure that people who were self-employed in the construction industry but are no longer actively employed in that trade are encouraged and that their tax affairs are sorted out as rapidly as possible so they can move on to whatever other opportunities are available.
The Office of the Revenue Commissioners has done much work in improving the information available, but it should come together with representatives of the social welfare system and FÁS to see how they can make it easier for people to quickly complete the required processes in order to move on to the next stage, whether it is a FÁS course, going back to college, going into other employment or receiving social welfare support. We are all talking to people on the doorsteps at the moment, and this issue comes up time and again. Having gone through the social welfare maze, people then find they must go to FÁS, and the response of FÁS varies considerably in different offices. It can be difficult. People are told to go to FÁS websites but when they do they find the courses are not in operation or are already full. Everybody has had that experience.
The purpose of a taxpayers' advocate would be to ensure, as part of an overall State effort, that the State assists people in becoming as active as possible in sorting out their tax affairs and getting fair treatment from the tax authorities. In situations of mass unemployment, it should help them sort out their tax affairs so they may move on to other things. We should remember that getting one's tax affairs in order is a preliminary to obtaining social welfare. When appropriately registered, one gains access to various entitlements under FÁS schemes. It is a domino effect. This is where we need an advocate's office which would review processes with an advocate's eye and consider how we can make them better. In this way we can help people who have become unemployed or are threatened with unemployment to find out their entitlements.
Last year I moved an amendment to the Finance Bill with regard to tax deductions on redundancy payments, which the Minister accepted. In this way part of the redundancy payment was used for specified educational courses. However, that has hardly been advertised and there is little information about it. It is difficult to explain who is entitled to this. Big companies, particularly multinationals, who bring in FÁS as part of the process of making redundancy deals are well versed in it, but the ordinary person is not. There is a significant role for a body that would provide information about how people becoming unemployed, particularly those who were self-employed, can interact rapidly with the tax system, sort out their liabilities and move on.
Another important issue at the moment is that of cashflow in business. The Office of the Revenue Commissioners is being quite understanding and I know it must walk a fine line between being understanding of genuine cases and being taken for a ride by people who might try to abuse the system. However, a source of information would be of significant help to people and allow them to be realistic about what they can do to manage their affairs as well as possible and, above all, to stay in employment or in business, if they are in small business.
I appreciate Deputy Burton's acknowledgement, as I am sure will the Revenue Commissioners, that there have been substantial improvements in the customer-friendly character of this body. The amendment seeks to change how the Ombudsman prepares her report, but I know Deputy Burton is anxious to broaden the subject to include a taxpayers' advocate. We can consider this first from the point of view of the Revenue Commissioners and its ongoing efforts to improve its services. I have put much material on the record of the House in this regard and I do not want to put more, although there is more. It is worth considering the fact that among PAYE taxpayers seeking reviews of their tax liabilities, the number of reviews processed in 2008 was 1.3 million, of which 864,000 related specifically to 2008, giving rise to repayments of €590 million. In contrast, in 2007 1.2 million reviews were undertaken. Clearly there is much work going on in the Revenue Commissioners.
The point Deputy Burton makes is that there must be a constant basis of consideration from the perspective of the taxpayer so that further improvements are made. In that context, I will arrange for the various practical issues she raised to be brought to the attention of the commissioners to see how they can be addressed within the system.
I remain unconvinced that there is merit in requiring the Ombudsman to include particular things in her report. The Ombudsman is independent, of course, but I am sure she would respect a representation to the effect that we should ensure that her capacity as a person of ultimate resort in taxation matters should be drawn to the attention of the public.
How stands the amendment?
I am pressing it.
I move amendment No. 3:
In page 5, between lines 11 and 12, to insert the following:
"PART 1
PAPERS OF COMMISSION ON TAXATION AND SPECIAL GROUP ON PUBLIC SERVICE NUMBERS AND EXPENDITURE PROGRAMMES
1.—The Minister shall as soon as practicable after the passing of this Act make arrangements to put into the public domain any policy papers or options papers setting out proposals being considered by the Commission on Taxation and the Special Group on Public Service Numbers and Expenditure Programmes.".
I moved this amendment on Committee Stage and have re-entered it here. It calls for the Minister to make arrangements to publish the policy papers and other work commissioned for the Commission on Taxation and the Special Group on Public Service Numbers and Expenditure Programmes, popularly known as an bord snip nua.
There have been suggestions in the media recently that have emanated from the commission. It is important to state that the Opposition got the terms of reference of the commission and Opposition spokesmen have had the opportunity to meet the chairman and secretary of the commission. I took that opportunity, as did others. That, however, is the sum total of the information we have about the commission.
The majority of the commission are professional tax advisers, accountants and lawyers who sell their services with a specific taxation content. There is only one member working in a personal capacity as a representative of trade unions, while the former chairman of the Revenue Commissioners is there as an experienced public servant with a wide knowledge of taxation to chair the commission. It is, however, mainly composed of those with a professional interest in tax and related matters who make their living advising wealthy people on how to manage their tax affairs.
The suggestions emanating from the commission follow two budgets of exceptional severity for ordinary working people and their families. The Institute of Taxation sent me its calculation of marginal rates of tax following the budget. I asked the Minister a question on these rates and his answer was similar to that of the institute.
A single person on an income of €40,000 to €75,000 is paying a marginal rate of tax of51%, inclusive of PRSI, health and other income levies. For a person on €80,000 to €170,000, it is calculated that the total marginal rate of tax inclusive of levies is 50%, while someone earning €175,000 to €250,000 is calculated to pay 52%. That is quite a high marginal rate of tax. The programme for Government that Fianna Fáil and the Progressive Democrats signed up to suggested that over five years it would reduce the marginal rate of tax to 40%.
For the self-employed person earning between €40,000 and €75,000, the marginal rate of tax is 50%. For those on €80,000 to €170,000, the marginal rate of tax is 53%, as calculated by the Institute of Taxation, and for those on €175,000 to €250,000, it is calculated as 55%.
I can make the table I received from the Institute of Taxation available to the Minister and the Revenue Commissioners if that would be of assistance. The Commission on Taxation is working at a time when marginal rates of tax have moved dramatically upwards. In answer to a parliamentary question, it was stated that a person on a modest income who is married with children has an average rate of tax of 36%, a very high figure.
The Commission on Taxation has a brief to look at carbon taxes, property taxes and areas of reform in the income tax system. There is a proposal that has been the subject of papers from various quarters allied to the Government, such as the Central Bank and the ESRI, in various reports, suggesting that there should be a property tax of €1,000 per house. How does the Minister propose that someone living in Hartstown or Huntstown who might have lost his mortgage interest relief and early childhood supplement, and who in addition faces significant increases in marginal taxation rates, will also find out of his after tax income an extra €1,000? Is it fair to suggest that it would be amended to reflect the size of a house?
There are profound arguments involved in reforming our tax system in a fair way that are highly contentious politically but that take into account the additional taxation being endured. The Minister said at the conference of credit unions in Killarney that he thinks Irish people are incredible for the pain they are taking and that they are the toast of the European Central Bank and the Council of Ministers for the level of pain they are willing to take.
I did not use the word "toast".
Remarks were attributed to the Minister where he stated that in other countries there would be protests and demonstrations.
I spoke to a young family man last night off the Navan Road. He has two children and he just found out this week that his take-home pay has fallen by €350 a month. He asked me if the Government is serious about a property tax of €1,000. He has a modest three or four-bedroom semi-detached house. I said that any such move would the subject of a lengthy debate but that man is paying tax at a marginal rate of approximately 53%. If he is to pay a €1,000 property tax, he must earn more than €2,000. Is the Government serious about doing this? If the Minister's Commission on Taxation has a mandate to bring this forward, why can we not get the papers published so we can see the pros and cons of it?
The Minister knows from our constituency that some people bought high on expensive mortgages. In the Dublin area people very frequently have mortgages well over €200,000, in some cases €350,000 and maybe even more. They are in negative equity in a serious way. Hopefully most of them do not have to move and can keep up their mortgage payments. Many of those people are also in managed complexes where there is a property management charge, again payable out of their after-tax income. The Minister knows from our constituency that even in a house those property management charges range from €350 to €1,200 or €1,400. For an apartment it starts at approximately €1,800 and goes up to €2,500 and is nearly hitting €3,000. Again that is paid out of people's after-tax income. There is no regulation of what the developers, who have control of these managed apartments and property management companies, charge people.
Why does the Minister not publish the papers so we can have a realistic debate on what his commission, mandated by him, is thinking about? Large numbers of families are very nervous. They are reeling from the hit Fianna Fáil has delivered to them. I say Fianna Fáil because I do not know if the Green Party Ministers were awake during the discussion of the budget.
No, they were not.
I wonder at times where they were. Were they out doing the organic garden? Maybe the Cabinet has an organic garden and they were out looking after the cauliflowers.
No such luck.
They were planting lettuces.
Or parsnips.
Maybe they were doing that. The credibility of politics in Ireland has suffered greatly. Everybody knows sacrifices are required but that young family man on the doorstep is reeling from the €350 he has lost this month and wants to know — and it is a reasonable question — what is the story on such taxes.
The Minister has said he will either tax, means test or reduce child benefit. That is probably more of a woman's argument in the sense of women being the majority of the caring parents to whom child benefit is paid, but it is a vital element of a large number of family budgets in the middle income range. I heard the Minister's colleague, the Minister of State, Deputy Kelleher say he has three small children, some of them qualified to get the early child care supplement, and he felt as a Deputy he should not be getting it. I do not know whether he discussed it with his wife or partner. Women in Ireland feel very strongly about this.
Children are not recognised in the tax code. In the 1950s and 1960s children were recognised in the tax code and men, who were the major people in employment then got tax allowances for children. The switch to child benefit meant it was paid to the caring parent in the home, and in those days that was almost always the mother. The Government is talking about changing that system fundamentally but not, apparently, recognising that a single person's income supports one person while the income of a married person with three children may support five individuals, or if both parents work their two incomes may support five people.
In the general, universal principles of tax fairness, one has to take into account the core number of people supported by whatever income is available to the taxpayer or married taxpayers, if one is talking about a couple. That is why we need to see the papers on child benefit. Otherwise this report will come out and the great and good and the commentariat will tell us what we will do. Meanwhile ordinary people are becoming more and more nervous because they have to organise their affairs. Do they have the finances to undertake a holiday this summer or to do up the house or kitchen? They have really hard decisions to make and unless the Commission on Taxation publishes some of the papers so we get some of the information we are not in a position as a society to make a judgment.
Maybe the Minister proposes to bring the overall marginal rates of tax down and transfer some of those marginal rates into property taxes, but I fear it will be very difficult to keep increasing the marginal rates. People in the public sector on average also lost 5% to 7% after tax. For public sector people, as a payment for recognising their pension contribution, their marginal rate after the last two budgets is up around the 58% to 59% mark. The Minister has explained to us the mess Fianna Fáil got the country into and how the country has to pay to get Fianna Fáil out of the mess.
It is not to get Fianna Fáil out of the mess.
It is not just about rescuing Fianna Fáil but the country. We need this information to see how we can put together a coherent, fair and just approach to taxation. We still have the people jetting in and out, who are privileged to have made great wealth and have probably created much employment in this country. Everybody says they are great people and good luck to their success. However because of their situation as tax exiles, they are in the happy position where they do not have to worry about the Minister's marginal rates of tax going up that much. It does not bother them. If there is a house tax, perhaps the devalued pad on Shrewsbury Road may be charged at only €1,000.
That brings us back to this conundrum in Ireland where the people in the middle bear a lot of tax. They are willing to do it for services up to a point. However they are not willing to be completely fleeced and if the Minister has a Commission on Taxation coming up with what seems like additional tax proposals, there is a very strong case to have it published. In the United States and other countries, including all the Scandinavian countries, all these papers would be published on-line as a matter of course to add to the public debate so we can reach a reasoned conclusion on how we genuinely reform tax in this country and make a just tax system.
Is there any reference in the Commission on Taxation terms of reference to the ongoing unfairness to women, mainly, who are home makers and look after their children? One of the Minister's predecessors decided to abolish the allowance that was available and strip these people of the recognition of the very valuable work they do on a daily basis. We try to substitute that by giving allowances for child care. There is no better person to look after a child than the mother. As long as I am here I will continue to campaign for the restoration of some recognition of equal treatment for the people who work in the home. We have heard child benefit will be taxed, and if so this is a further kick in the teeth for the stay at home parent.
Some years ago when this was introduced, I said politics is about politicians making decisions that reflect the type of society in which the people of this country want to live. I could not care tuppence what happens in other countries if people in those countries are happy to live under those conditions. The majority of people in this country recognise the role the parent who stays at home should have. They should be recognised by the tax system. I hope the Commission on Taxation report refers to the plight of these people and takes into account that if a tax on child benefit is introduced, these people will suffer more than anybody else. Perhaps the Minister might refer to that when replying.
Many commentators speak about the fact that we do not have a property tax. They should be informed. People like my children who bought houses in the past five or six years paid vast sums of advance property tax by way of substantial stamp duty. One should ask a young married couple who, after seven years, will lose tax relief on the interest on the huge mortgage they had to take out and who paid vast sums into the coffers, which are now suffering, by way of stamp duty about it. When talking about these types of taxes, I wish people would take into account all aspects of taxation.
We have a property tax called stamp duty. It brought in vast sums of money but, unfortunately, those who contributed the most are young couples struggling with high rates of personal tax and facing the prospect of child benefit being taxed and tax relief on mortgage interest disappearing after seven years. These people contributed vast sums to the Exchequer through stamp duty. I hope those who from time to time say it is crazy that this country does not have this type of tax take into account that we have stamp duty which is a property tax.
I support fully the thrust of the amendment. Like everybody else, I cannot wait for the report of the Commission on Taxation. I hope all the associated documentation will be published at the earliest possible opportunity.
A number of the measures in this budget have already made people significantly poorer. Deputy Barrett just referred to one, namely, mortgage interest relief. People took out huge mortgages because builders and developers were ripping them off with their grossly overpriced properties. At the same time, the banks were shovelling out money to them often out of line with proper lending conditions. The result is that many of these families now find themselves before the High Court with the prospect of losing their homes. We know the figures are increasing daily.
The abolition of mortgage interest relief will have a very negative impact on people who are already struggling. To make matters worse, the value of those people's properties has fallen substantially as a result of the bursting of the property bubble. I flagged the property bubble with the former Minister for Finance as far back as September-October 2006. I said that the bubble and the consumption were totally unsustainable and that we needed to concentrate on SMEs and try to generate a proper export base rather than the artificial income streams to Revenue then prevalent.
The announced abolition of the Christmas bonus to people on welfare, including pensioners, will hit them very hard. It is a very mean-spirited and unnecessary budgetary measure. There are other people with income who could better afford to take a hit than pensioners after whom the Minister should have gone. Will the Minister confirm that an announcement is pending, probably next week before the elections, that the Christmas bonus will not be abolished? If such an announcement is made, it will be recognised for what it is, namely, an election stunt or gimmick. I have no doubt that as soon as the elections are over the Government will revert to the position of withholding that bonus from the poorest in society.
The result of this budget has been to make people substantially poorer. It is interesting to contrast this with the discussion in recent days about the religious orders. The religious orders are being asked if they would not mind contributing something extra towards the compensation for the people they abused. It is substantially different from how pensioners are being treated with the Christmas bonus simply being taken away from them. It is quite telling in terms of the Government's outlook not only on fiscal matters, but on society generally.
I do not have major expectations about the report on the Commission on Taxation because the terms of reference are so narrow that it will find it difficult to come back with as comprehensive a report as many of us would have liked. That said, I do not want to be negative about the report. I await its publication and look forward to a discussion on it. I hope a consequence of its publication will be a significant overhaul of the taxation regime in this State because it is long overdue.
I support this amendment. Will the Minister indicate the dates on which he expects to receive the report of the Commission on Taxation and the completed report of the McCarthy group? Will he indicate whether he intends to publish these documents before the Government makes policy decisions in regard to their content? Will he publish the commission's report without comment and wait until the budget for any substantive elaboration of the Government position or will he make some response to the report indicating the Government's reaction to different elements of it? Will we see publication of the report of the McCarthy group after the Estimates are published or will we see the McCarthy deliberations ahead of the Estimates because it would make a big difference to the sort of debate which would take place?
The Government saying these issues can be debated but then sitting on its hands, not engaging in any debate and saying these are all budgetary matters, is not helpful or serious. If we want engagement on the 2010 budget, the Government must set out options and give some Government-backed analysis of the implications of those options in order that the House can reach some sort of assessment. The habit in which the Minister and his predecessors have indulged of asking the Opposition to state everything it would like to see done and saying nothing is supposed to be consultation and an exchange of views. However, one does not need to be very long around this House to know it is nonsense and purely a political ploy by Ministers to get us to come up with some hardship clause about which they will hound us forever more but which they will not implement. If we are to have more honest engagement about the choices, the Government cannot sit on its hands, say nothing and just listen.
It will be interesting to hear the order of publication and the nature of debates in which the Minister believes are worth engaging, if any.
I should start with Deputy Burton's amendment, but I want to deal with Deputy Bruton's points first.
It is envisaged that the Commission on Taxation will report at the end of July. As regards this particular amendment, the commission is not under my direction, but is independent. It exists to furnish us with an assessment of how the tax system can be reformed. It is looking at the issue raised by Deputy Barrett on individualisation. It has been requested to provide a report on the results of its examination and to make such recommendations, as it thinks fit, to the Minister.
As regards the publication of individual documents, reports and submissions made to the commission or internal papers or records emanating from its work, these are matters entirely for the commission at this stage. However, I believe there is merit in the point made by Deputy Bruton and in the spirit of the point made by Deputy Burton, that the widest possible information about the tax options is essential in advance of the budget to be submitted this year. For that reason I am prepared to examine what documents can be published on receipt of the report. Naturally, I shall have to discuss this with the chairman of the commission, and I cannot give a commitment at this stage, but I am disposed to publish the maximum possible amount of information on the work of the commission because I believe it will help informed debate about the options and choices that face us. Indeed, before the supplementary budget in April, Deputies Bruton, Burton and Morgan were given the opportunity of being briefed in detail by the Department of Finance about the options that were available. By convention, the content of those briefings and what passes between Deputies and the officials is not passed to me. I am not fully aware of what actually passed between the Deputies and my officials at that stage. To some extent I am aware, however, because the Deputies have told me.
While I did not seek to compel the Deputies to support the budget, I believed that providing more information on the available options was helpful for a more informed debate about the budget. For that reason I believe it is important that the maximum amount of information is furnished about the Commission on Taxation. However, I must emphasise as regards this amendment that my hands are tied in the sense that I cannot at this stage, nor should I, direct that the commission produce papers since it is an independent body. At the conclusion of its deliberations I will examine that issue, and I am disposed to the maximum possible disclosure.
The McCarthy group is referred to in Deputy Burton's amendment and Deputy Bruton has mentioned this, too. Again, no decision on publication has been taken yet in that regard. Fundamental decisions have to be made on expenditure, and again my disposition is to publish the maximum amount possible. However, the McCarthy commission is operating as part of the Department, so it is in a different position from that of the Commission on Taxation. It is not an independent body in that sense, but more in the nature of a collaborative exercise between my Department and those who have externally agreed to assist. There is no question, however, of my sub-contracting out my responsibility to prepare the Estimates. I just believed it was of value to my Department to have external assistance in assessing expenditure. Again, I will consider that, but neither the Government nor I has made a decision at this stage in that regard.
A wide range of issues was canvassed apart from that and I am not sure how much benefit can be derived from going back over them because I have spoken to the amendment. Clearly, it is important on the tax side that the various options under consideration are looked at very carefully. The ESRI is not allied to the Government. In fact, in its constitution and authority it has always been an independent source of economic and social advice and research. It does consultancy work, but is not a body which, on a full-time basis, advises private bodies. Unlike many analysts it is not working for a private firm and is not committed in that sense. It is of value to the State, however, to have an independent organisation looking at economic and social research. I find the ESRI's findings very valuable and informative, but it is not allied to the Government.
I am not sure how Deputy Burton might characterise the relationship between the Central Bank and the Government, but certainly the Government has given no consideration to any possible rate of property tax or any suggestion in principle in that regard to the effect that one should be introduced this year — or indeed to any suggestion that it should be fixed at the rate she mentioned. That has not come before the Government at this stage. We will examine what the tax commission has to report in that regard.
As regards the marginal rates, we may have an opportunity to speak to this when we talk about the levies. However, it is important to note, of course, that looking at marginal tax rates can be somewhat misleading. It is the effective rate of tax that matters. If we take one individual earning €36,400 and another earning €36,401, one has a marginal rate of 30% while the other has a marginal rate of 51%. However, they both have the same average tax rate of 19.2% and I can give many other examples. That, again, is known to Deputies, but it is a point worth making in the context of marginal rates.
In a broader sense I agree with Deputy Burton, and I made it clear in the budget speech that the limits for the extension of income tax have been reached. I welcome the fact that Deputy Burton, this morning, acknowledged that an adjustment is needed in the economy. The question, of course, is how this adjustment can be made in a fair way. I believe there are limits to the way in which taxation can be imposed or extended to meet that burden, and that inevitably means we have to focus on our expenditures.
I do not believe I was toasted by Europe regarding the four budgetary adjustments I had to implement in the last year. The European authorities' response was not a toast to me, but rather the Irish people, who have carried this heavy burden of adjustment and shown their capacity to adapt and be resilient. In fact, our unit labour costs this year will have improved 7% as against the rest of the eurozone countries. That is an enormous increase in competitiveness and it is a tribute to the adaptability of the Irish workforce. We know how educated and how adaptable it is. It is difficult for public servants to pay the pension levy, but that was introduced to fund what is a substantial State liability. Persons who wish to make these pension arrangements who are not public servants have to spend considerable sums of money doing it. All these facts should be taken into account in looking at our contemporary economic position.
I want to thank the Minister for his reply about being open to the notion of the papers being published. There is a degree of fiction there, however, as regards how independent the commission is from him. The commission, of course, once established is independent, but if he moved his little finger in this or that direction, it would immediately say, in effect, "how high or how far do you want us to jump?" That summarises the relationship of the Minister for Finance with the Commission on Taxation, particularly with all those people from the taxation and accountancy professions who are so eager to be on the commission. No matter what the Minister might ask them to do, they would turn cartwheels at the front of Leinster House, if necessary, were he to ask them.
I am glad the Deputy believes that, but it is not true.
Were he to suggest that papers were to be published and options discussed, I believe they would find a way of getting over their shock, coming to terms with it and doing it. That is my guess, from what I know.
For the record, in a reply which the Minister gave me on 12 May, just a few weeks ago, he said: "It is important to note that the tax rate is just one factor used in calculating the actual tax an individual pays and should not be viewed in isolation. When tax credits and bands are taken into account, a single individual earner on €80,000 will now have an effective average tax rate of 36%." The Minister's officials compiled that particular answer, and that is what the effective tax rate is, and a limited range is included there.
In respect of the house tax, the Minister and certainly Fianna Fáil is experienced enough at massaging the media and the commentariat——-
The Deputy is not bad at it herself.
When articles appear in a variety of publications and locations, all of which identify a €1,000 house tax——
The Deputy's two minutes are exhausted.
——they all came up with a suggested and magical figure of €1,000 in respect of a property tax. The Central Bank and Financial Services Authority of Ireland and various other institutions also used that figure in their commentaries. Perhaps secret meetings are taking place, funny handshakes are being exchanged and indications are given as to the likely shape policy will take. In any event, people are extremely concerned with regard to an additional tax of €1,000 being levied in respect of every house.
People have large mortgages but their incomes are shrinking. Many of them paid a great deal of stamp duty and are due to lose out on mortgage interest relief in the near future. If they are employees, their marginal tax rate will have risen to 51% and if they are self-employed, it will have increased to 52% or 53%. It will be a major imposition on these individuals if they are obliged to pay €1,000 from their disposable incomes while also taking the hit the Minister is proposing in respect of child care.
The director designate of NAMA informed the Joint Committee on Finance and the Public Service yesterday that he and his officials had met representatives of the Congress of Trade Unions and, under the auspices of the Construction Industry Federation, also the developers. The only place that does not receive information is the Dáil. Social partnership is fine and does many great things. However, the Dáil represents all citizens and its Members should be provided with the relevant information. The way matters operate at present, this is not happening. It is for this reason that the reports of an bord snip nua should be published in order that we might engage in a reasoned debated.
Several people have previously suggested that the Comptroller and Auditor General, Mr. John Buckley, should be involved in the review being carried out by the special group on public service numbers and expenditure programmes, which is chaired by Dr. McCarthy. I am surprised that the Comptroller and Auditor General is not a member of that group. Has any action been taken in the context of involving the Comptroller and Auditor General in the process? His office has access to information — historical and current — that is vital to this process. I am of the view that Mr. Buckley and his colleagues could bring something to the table in respect of assisting the review in examining budgeting processes.
What we are concerned with here is better use of taxpayers' money. I come from a business background and I find the budgetary process unusual. There is an incremental system under which standard annual increases are provided in respect of each heading. We should move to a system whereby a form of zero-based budgeting would apply. Under such a system, there would be a need to justify every item of expenditure. There would also be a need to introduce an entirely new budgetary process whereby all Members would be part of the system. This would be preferable to continuing with the current system of allocating standard increases across all headings. It is for this reason the Comptroller and Auditor General should be part of an bord snip nua's review process. Has the Minister taken action in respect of this suggestion, which was put to him on the last occasion on which parliamentary questions were put to him in the House?
Mr. Buckley, as Comptroller and Auditor General, and his staff do excellent work. However, the exercise being carried out in my Department comes under my direction as Minister for Finance. I do not believe it would be constitutionally proper for the Comptroller and Auditor General to be involved in that process. Under the Constitution, he is an independent officer who works for this House and he is not, in any sense, accountable or responsible to me in the context of formulating or suggesting improvements to policy. While I appreciate the spirit in which Deputy O'Donnell made his point, I do not believe the course he suggests is open to me. Those involved in the expenditure review within the Department can, however, draw on the expertise of Mr. Buckley and can also draw on the reports furnished by him and his predecessors.
The Deputy's intervention raises the wider question of whether a focused review of expenditure should be a permanent feature in respect of the expenditure side of my Department's activities. That is a matter I am considering in the context of the McCarthy operation.
The budgetary headings to which Deputy O'Donnell refers have been established for a long period. Like him, I have read many accounts in my lifetime and I was extremely puzzled by the way in which the public accounts are presented when I first encountered them.
The term "puzzled" is not one I would use.
The accounts have their own mysteries and the methods of analysis and presentation which apply in respect of them are very different from those used by auditors and accountants involved in compiling general business and personal accounts. However, there is a way to read them if one can master it.
The Deputy must give me some credit on being the first Minister for Finance for many years to have approached the public finances from the perspective of beginning from a zero-budget scenario. When he takes that perspective in respect of our finances, he will quickly discover that a great number of accrued liabilities relating to salaries and welfare payments must be discharged in any year. If one aggregates those sums — the cost of payroll and of welfare — one is left with a figure that accounts for two thirds of the entire volume of public expenditure in the State.
I accept the Minister's points and I welcome the fact that he will be encouraging Dr. McCarthy's review group to consult the Comptroller and Auditor General. As already stated, I would not use the term "puzzled" in respect of the way in which the public accounts are presented. Reviewing them is relatively straightforward. The issue which arises is that when one considers the various expense headings, in many instances one will see a standard percentage increase being provided.
As Deputy Bruton has stated on many previous occasions, the process relating to the budget should be far more interactive in the context of involving members in the production of figures. Effectively, we are presented with what is a fait accompli. I agree that there are items of expenditure that are fixed. However, there are other items of expenditure that are variable. Taxpayers’ money is a scarce resource and it must, taking account of value for money, be spent in the wisest way possible.
That is the perspective from which I am coming and I was not engaging in an interpretation of the public accounts. The officials in the Department of Finance do a very good job in the context of presentation. I am concerned about the process and how we should proceed in respect of it. I hope the Minister will take the points I have made on board.
I move amendment No. 4:
In page 5, between lines 11 and 12, to insert the following:
"PART 1
REPORT ON TAX EXILES
1.—The Minister shall as soon as practicable after the passing of this Act publish a report into the number, status and rights and liabilities of tax exiles, a comparison to other tax exile regimes, and the annual cost to the exchequer of such tax exiles.".
The purpose of this amendment is self-evident. It suggests that the Minister for Finance shall publish a report into the number, status and rights and liabilities of tax exiles, a comparison to other tax-exile regimes and the annual cost to the Exchequer of such tax exiles. As the Labour Party spokesperson on finance, I have sought, on behalf of people in the PAYE sector and of small and medium businesses, to introduce into this country the notion of tax justice and tax fairness. In other words, we must all pay our taxes and we must be encouraged and facilitated in doing so. In a democracy, the greatest encouragement to people paying their fair share of taxes is to keep taxes moderate, make the system easy to understand, fair and just and ensure that the wealthy and powerful contribute their fair share as well. The problem for Ireland is that we had a regime, primarily facilitated by successive Fianna Fáil taoisigh and Ministers for Finance, that said, in the words of F. Scott Fitzgerald, "the rich are different". Everyone in a republic is a citizen but the rich are different. The first stage in dealing with this is to have information on who are the tax exiles, the number of them and what their contribution would otherwise be in income tax and PAYE.
I am aware of the argument put forward by many who are tax exiles. They say they love their country, which I do not disagree with, they contribute much to charity and they contribute to employment ventures and continue to give employment. Some ask me why we ask them to pay income tax and whether they are doing enough. From the point of a family of multimillionaires, this is understandable. It is like in Jane Austen's novel, where the rich brother who inherited was going to give something to the poorer siblings but every time it came to giving he just could not bring himself to do it. Tax exiles are a little like that.
Some were to the fore when the Minister for Finance increased tax rates for those in the PAYE sector. They were particularly delirious with delight when the Minister lashed on the public service pay levy.
Does Deputy Burton know who these people are?
They are in the newspapers and I think the Minister knows them very well. Some thought it was good that the Minister was getting at the public service and were delighted the Minister was imposing the levy. In the halls of Versailles, people have been exclaiming how much punishment Irish people took. We are being feted throughout Europe for not demonstrating but taking it on the chin. I met several people, whom the Minister knows, coming from the credit union conference to which the Minister referred. Two people, whom the Minister and I know very well, are members of Fianna Fáil and several others are members of a credit union in their place of employment. They were between laughing hysterically and apoplectic with rage. They asked me if I would be impressed if they rioted. Of the three couples who were there, one couple lived in the constituency of the Minister and me.
Is this story about the amendment?
It is about the amendment. Ordinary people need to know what the Minister will do to introduce fairness and address the continuing anomaly of tax exiles. They were delighted to see the levy on the public service, with people on modest incomes in the Civil Service paying a large additional levy. What has happened to tax exiles? Nothing. The chairperson of the Revenue Commissioners reported to the Committee of Public Accounts that there are approximately 6,000 wealthy tax exiles, not including those moving in and out of the country for ordinary employment. I see people suggesting that this is not correct but that report is in the public domain. The purpose of the amendment is to get a report on this so that we can decide what to do about these people and how to encourage them to make a contribution. Making this country into a true republic involves all citizens carrying an equal value, recognising and respecting the flag and included in this recognition and respect is paying a fair share of tax. This does not mean an excessive or extraordinary amount of tax but a fair, moderate share.
One of the Minister's predecessors, Charlie McCreevy, said there was no pot of gold of unpaid taxes. In the past ten years, through the tribunals and various investigations carried out by the Revenue Commissioners into offshore tax schemes, tax exiles, non-resident deposit accounts, insurance policies and a plethora of other schemes largely availed of by people with significant resources, the collection of tax by the Revenue Commissioners amounted to many billions. There are pots of gold and, at a time when our health and education services are coming under increasing stress and strain, it is important we afford tax exiles an opportunity to contribute. If we have an open debate on this maybe we can recognise the contribution they are making. I acknowledge the contribution they make and good luck to them for doing so well.
In the United States, as a badge of citizenship, citizens are required to pay taxes. Most of these tax exiles have wives, children and grandchildren and are Irish citizens. They wear the Irish jersey and want to carry an Irish passport. Why can they not pay their Irish taxes? Let us have a report and a debate on what is happening. The Minister recognised the Cinderella situation last year where people were jetting off or leaving the country by helicopter at one minute to midnight. Many of those liquidating large interests in companies went offshore for three or four years to the south of Spain. This is the context of capital gains tax and other capital taxes being reduced to 20%, a significant but moderate rate of tax. People talk about it as if it was a nothing rate of tax but 20% of a capital gain is a significant but moderate amount. Even that was too much for most of these people. The Minister should move on this as part of bringing tax justice, tax fairness and a more open system of accountability for taxation contributions so that people can have confidence that the rich man in the big house is making a fair contribution. I acknowledge that many Irish people who have done very well have always paid all of their taxes and are happy to do so. They often give me great encouragement to go after those who find it difficult to pay a cent to the Revenue Commissioners voluntarily in income tax. Income tax is for the little people, not people like them. In a republic we must show that it is different.
Is it the Minister's understanding that the Commission on Taxation will examine the treatment of those who fail to make tax returns in Ireland? It is a source of considerable irritation that those who are well placed can manipulate returns, their presence in the country or how tax is presented. People believe that everyone must make a fair contribution.
A previous Minister for Finance used to tell us there is no pot of gold. Regardless of whether there is, people want to see fairness in how the tax code is applied. It would be good to have an objective assessment of this matter by the Commission on Taxation. A sense of unfairness pervades our community. People who had great opportunities given to them choose to treat their tax affairs in a way that does not reflect the opportunities given to them by our society.
It is a serious issue and we must develop a response that is fair and balanced. In his recent budget, the Minister has moved to try to tighten this and the effort must continue. There should be fairness and the notion that people will uproot and go is considerably exaggerated. A fair tax code must be applied.
I am interested to know whether the Minister's terms of reference will embrace this issue. Deputy Burton's amendment seeks a fair assessment of this matter each year so we could see that the reliefs, where given, are justified. We are giving reliefs in allowing people organise their tax affairs in certain ways and we should see that the relief is justified in terms of its social benefit to the community and that it is fair. We want such objective information on the record as best we can.
There has been much debate and in the absence of proper reporting with this issue, people see all sorts of issues. The best way to deal with the matter is by having the facts on the record and we could then deal with them. Is there a social benefit justifying these rules, what would that be and does it sustain scrutiny? Are the rules fair? We must have such information on the table so that outsiders considering how the Oireachtas handles this issue will see that proper and fair balance is brought to bear on this issue and there is not a golden circle which can evade its responsibilities.
I welcome this proposal as it is time we decided on the exact definition of a tax exile. There are many such definitions. Is a person a tax exile if he or she is a member of the European Union but decides to live in Germany having made money in Ireland? Free movement of people, goods and services is part and parcel of what we voted for in regard to the European Union. We had better make up our minds on what exactly we mean by the term "tax exile".
When does a person become a tax exile according to the taxation code? We are living in different circumstances and we are no longer just a little island off the west coast of Europe. Is a person a tax exile if he or she made money outside Ireland while living here, or if that person moved out of Ireland to look after the business? Is a person defrauding the State of its taxes in such a case? There are many factors that one could question.
We should have a thorough examination of the matter and decide exactly when, where and how people should pay taxes, as well as what taxes they should pay. For example, if a person is fortunate enough to make much money here and in order to avoid paying capital gains tax decides to do a runner and live somewhere else, I would regard that as being disloyal and unpatriotic. On the other hand, if a person has a business outside the country and wants to manage it while still being able to return to this country, would that person be a pariah if he or she ran businesses in this country? A person may want to live closer to his or her businesses.
There are various reasons for people being in different categories. Should people who pay a certain amount of tax through their businesses here be treated differently in terms of the number of days they can spend here? I presume that if a person is running businesses here, he or she needs more time to come back and look after them than those people who want to spend half the year here, enjoy our services but not contribute anything. Surely there must be a difference between such people and those who return because they want to or are looking after businesses here.
If a person is genuinely running businesses here but working abroad, is it not better for them to be here for the 40 extra days spending money rather than having to stay away? We should have a mature debate. Nobody wants to defend people who want to avoid paying any sort of taxes in this country while at the same time availing of the services we provide. I hope nobody in this House would want that type of arrangement. Nevertheless, there are circumstances where good Irish people live abroad but still invest money and create jobs here. They want to return home like anybody else and look after their investments or spend a holiday here.
I very much welcome what Deputy Burton is attempting to do here in having an open and frank debate on how people qualify as tax exiles, or under what tax bracket people would be. If a person is providing employment and investing in the country but happens to live in another country, he or she should be entitled to more days when looking after a business than the person with no investments and who wants to just avoid paying tax. A person from the European Union is entitled to be here all the time.
We are attempting to apply the same rules to everybody, which is not fair or reasonable. It is not fair to the people who have a commitment to the country and who wish to or continue to invest here while having businesses abroad that they must look after as well. The fact that such people create money abroad would help them to invest further in this country. We should have the debate and consider what bracket each group of people would come under but everybody should not be tarred with the same brush. That would be grossly unfair.
The singular regime taking into account the number of days one can spend in this country applies to everybody, irrespective of the circumstances various groups fall into. It is not a fair way to deal with the issue. As I indicated at the outset, we must also come to terms with our membership of the European Union. The Minister, Deputy Burton or I can live anywhere within the Union and return here as often as we like. That is what we signed up to.
I may have to interrupt Deputy Morgan at 1.30 p.m. to suspend the House.
I do not believe the Acting Chairman will have to do so as I only rise to say that I fully support the amendment. I am surprised it was not grouped with my own amendment No. 6 but having said that, I very much welcome the opening of the debate on the matter. I hope the tax exiles issue can be teased out and perhaps we can get a definition on the term, identify anybody involved in a scam and close significant loopholes.
I also welcome the debate because it affords me the opportunity to give some clarity on the matter. The Irish tax system is the same as those in other advanced countries and in line with general international practice in this respect. As Deputy Barrett pointed out, individuals travel between states and an arrangement must be arrived at between countries as to which jurisdiction such people are taxed in.
Individuals resident in the State for tax purposes are taxable on their worldwide income. Individuals not resident here for tax purposes pay tax on the income they earn here. In a strict sense, there is no such thing as a tax exile despite the popularity of the concept in debate. A former chairman of the Revenue Commissioners informed the Committee of Public Accounts in November 2004 that there was no such thing as a Revenue list of Irish citizens who are tax exiles.
