Amendment No. 1 is out of order.
Finance Bill 2017: Report Stage
I move amendment No. 2:
In page 8, between lines 16 and 17, to insert the following:
“3. The Minister shall, within 6 months of the passing of this Act, bring a report on the cost and implications of abolishing the Universal Social Charge for everyone earning less than €90,000 per annum.”.
This amendment seeks a report on abolishing the universal social charge for everyone earning less than €90,000 annually. It is a policy which was in the Solidarity-People Before Profit pre-budget proposal. It is coupled with amendment No. 3 which we will discuss in a moment which is to pay for the abolition of the USC by imposing new tax bands on the highest incomes. There is often a debate over whether, as the Government suggested, there ought to be some reductions in the tax burden on those who earn low and middle incomes or more generally.
Alternatively, although the Government sort of abandoned the policy, the debate is whether we should progressively move towards the abolition of the USC. Then there are those who say we should not do that but should spend whatever fiscal space is available on public services and infrastructure.
Solidarity-People Before Profit rejects the false choice that we can either have money for public services and infrastructure or money to reduce the tax burden on hard-pressed working people. We think it is possible to do both. However, to do both, it is necessary to be honest with people, which is where the Government fails. When it is criticised about the small €5 a week tax reductions it is proposing in this budget over the need to spend in other areas, it is open to that criticism and that is because we are fighting over crumbs. That is what we have in the budget. Do we have crumbs of €5 a week in tax breaks for workers or do we have crumbs of additional expenditure in public services such as health, education and the arts? We would have characterised the budget as a budget of crumbs. There were a few crumbs for the workers and a few crumbs for public services. However, it did not address the low levels of pay and the high tax burden, whether direct or indirect, on ordinary workers. It did not in any real sense tackle the massive shortfall in investment in public services, particularly areas such as housing, which is a disastrous situation, and health.
To do both justice, it is necessary to find other sources of revenue. That is the point to both of the reports referred to in amendments Nos. 2 and 3. It is to look for other sources of revenue. We have a series of other amendments seeking reports in other areas where we believe significant revenues could be raised. However, for the most part the Government does not want to talk about these revenues, which include taxing those on very high incomes of in excess of €100,000 a year. When we make such suggestions, the Government states that it is necessary to reward work and that it does not want to impose higher levels of tax on high earners because it disincentivises work. However, if we are to be concerned about punishing people for working, we should be more concerned about punishing those on low and middle incomes who have suffered pay cuts and the USC and feel disproportionately the impact of regressive indirect taxes, whether they are bin charges, hospital charges, parking charges or any other of the array of stealth taxes which reduce the real income of low and middle income people but mean nothing to high earners. A person on €150,000 a year is not bothered about paying bin charges, water charges, parking charges or increased public transport costs. For those on €25,000 to €45,000 a year, however, these charges really hurt and they hurt them disproportionately. The USC disproportionately hurts them and the pension levy hurts public sector workers as do the pay cuts they suffered during the austerity period. In proposing the abolition of the hated universal social charge for those earning less than €90,000, we believe it, and a hell of a lot more, can be paid for by imposing higher taxes on those on higher incomes as well as on wealth and profits and other sources of untapped revenue. That is the basic proposal and we think it is fair.
The concept of wealth distribution is missing in the economic debate; however, it needs to be debated. It was often spoken of in the 1960s and 1970s but it is now gone from political discourse. We end up fighting over things called fiscal space. As I said, we are arguing about the crumbs but we do not talk about the redistribution of wealth and using the tax system as the main mechanism to do it. The reason we should talk about it is that the inequalities in the distribution of income and wealth are growing all the time. That is what these two related proposals in amendments Nos. 2 and 3 are trying to address: the redistribution of wealth from the have-a-lots to the have-very-littles.
On Report Stage we are not speaking to the sections so I will speak to this issue through amendment No. 2. The reductions in the USC brought about in this budget, although modest, will make a difference when combined, in particular, with the raising of the entry point to the marginal rate of tax. To reaffirm the situation, from our party's perspective the provisions of the confidence and supply agreement provide for gradual reductions in the universal social charge, with an emphasis on low and middle-income levels. We had a discussion on Committee Stage with regard to the Government's plans for an amalgamation of PRSI and USC and it is evident from what the Minister said at the select committee that the project, if it goes ahead, will take some years. I think the Minister said it would take five years or so. It is clear, therefore, that it will be an issue at the next general election and parties will have to put forward their respective positions on taxation. From our perspective, the priority is that gradual reductions are continued in a sustainable and progressive way.
Are any other Deputies offering? I call Deputy Joan Burton.
Thank you, a Leas-Cheann Comhairle. I understand the Leas-Cheann Comhairle has no involvement in it but I fail to understand how my amendment, which had at its heart the merits of requesting a standing or permanent tax commission as its first task to advise and report on the best means of amalgamating USC and PRSI, was ruled out of order when other amendments on the same topic have been allowed. It is inherently unfair. I do not know who did it. As I said, I do not think the Leas-Cheann Comhairle himself was involved but I want to object.
If the Deputy allows me to explain, in normal circumstances, had her amendment been moved on Committee Stage, it would have been in order. However, her amendment was not moved on Committee Stage and therefore does not arise out of committee proceedings. It is very simple.
I was given a time which was different. I was just outside the door.
No. Hold on.
Also, when I came in, the Leas-Cheann Comhairle told me it was out of order.
Let me explain.
You told me it was out of order.
It is out of order. Let me explain why it is out of order.
That is not what you said then but I accept your ruling now.
Let there be no ambiguity about it because this is very clear. An amendment which does not arise out of committee proceedings is out of order. The Deputy's amendment was not moved at committee and that is the only reason. If it was moved at committee, it may have been in order here. That is a long-standing tradition.
I thank the Leas-Cheann Comhairle for the explanation now. It sounded rather different when he was speaking to me earlier.
It went out in a letter which I signed before 1 p.m. today.
Unfortunately, it did not reach me-----
I do not deliver them.
-----but I am sure it will in due course.
On reforms and the amendments before the House, Ireland as a country is now in a very difficult position.
We face an extremely uncertain Brexit and, at the same time, we are caught in the eye of an international storm concerning not only Irish tax practices but also the global tax practices of a number of companies that have significant operations in Ireland and achieve what might seem clever to many people, namely, the capacity to generate absolutely enormous revenue on a global scale and, by the utilisation around the globe of various tax stratagems and structures, to pay little or no tax, including in this country.
The essence of reform has to involve both individuals and companies paying their appropriate share of tax. Another speaker suggested it is possible to relieve practically everybody in the country of all forms of taxation. This is simply not possible. If, however, the State were to examine the various elements of its tax code, including PRSI, the USC, corporation taxes and employers’ contributions in respect of PRSI, it could, I have no doubt, come up with solutions over time that would enable us to achieve a fair system of taxation and not a system of zero taxation for particular people, as suggested by the previous speaker. I propose a fairer system of taxation that would allow people on incomes in Ireland, as earned by nurses, teachers, doctors and politicians, to contribute in a fair way and to make provision for their pensions, the health services they require and the education services their children require, be it at preschool, primary, secondary or third level. In that way, we would be able to provide for continuous growth in this economy that would be fair and balanced, with resources distributed in a way that would benefit the whole population. We have to be honest about this and state this means most people at work do have to contribute in taxation. They also contribute through indirect taxes and through taxation at other points in their lives.
What we have at present is a taxation system that has gone out of kilter. I have made a certain suggestion to the Minister on a number of occasions. I do not know whether he would have the courage to do what I propose, namely, establish a permanent standing commission on taxation, operating like the Law Reform Commission. It would review and examine loopholes, anomalies and instances of unfairness that arise in all tax codes from time to time. As we speak, I am sure there are some people at junior level in legal, tax and accountancy offices who have been delegated to listen to this debate, examine the Finance Act that arises from our deliberations and set to work, as in a game of chess, to create loopholes, backdoors, side doors, tunnels and alleyways in order that people will not have to pay their fair share of tax.
Last year at this time, I proposed to the Minister a review of people with offshore bank accounts, just as I proposed this to his predecessor, Deputy Noonan. In fairness to the current Minister, he agreed to have such a review. As with all of these trawls of evasion mechanisms, loopholes or tax planning arrangements, the investigation carried out produced, without very much difficulty, approximately €84 million on a first trawl. That was without examining all the accounts.
With regard to PRSI and the USC, when the ESRI first produced its proposals quite a few years ago — just before the crash, if my memory serves me correctly — it proposed a universal social benefit tax that would result in enhancements in pensions and would provide for people who might not have private company pensions or public service pensions. It would provide an income in addition to the public service pension paid by the Department of Employment Affairs and Social Protection. The crash came after Fianna Fáil collapsed the economy and the then Minister, Brian Lenihan, decided he would change the tax from a benefit tax to a universal social charge.
Could the Acting Chairman clarify whether there are time limits?
The Deputy is a minute and a half over time.
I will finish shortly. The consequence has been that while the USC has been a heavy lifter in providing tax revenue for the Government, it is very flawed in terms of what it pays to the people who contribute. It provides for the recovery of the State but as the recovery period has now come to an end, it is time to examine how the charge might be used to provide real benefits, particularly retirement benefits, to people who are dependent on the State retirement pension or on very small private pensions. In that context, I support a review of the USC to make it more effective in providing benefits that workers need, particularly in their later years.
I do not support amendment No. 2 for the reasons I have outlined on numerous occasions. I recognise that the Deputies putting forward the amendment have others that would see revenue coming in. They are not just suggesting a massive tax cut but the amendment is not well thought out. The USC is paid on single incomes. The amendment refers to a threshold of €90,000. This would mean the top 15% of earners would fall into the gap. The sum is nearly three times the average income. I am not sure whether everybody earning less than €90,000 would be exempt or whether somebody earning €91,000 would have a tax liability based on the €1,000 in excess of the threshold or whether she would be paying on the entire €91,000. Either way, one would fall into the trap set by the Government. In the last election campaign, it promised to abolish the USC. The proposers of this amendment, the members of People Before Profit, are arguing for a threshold of €90,000 in respect of the abolition. Fianna Fáil and the Labour Party are stating €80,000 and €70,000. I have made the point time and again that we cannot afford to do this. It is quite interesting that we are actually paying less tax now on all of these incomes than just before the USC was introduced. This is because the USC replaced two other forms of tax, the income levy and the health levy. If they were still in place and if we had just carried that through, we would actually be paying more tax on our income today than we are. I recognise the Deputies proposing the amendment have tabled others to raise additional revenue but we need to be maintaining and protecting the tax base. We need to be investing the proceeds in areas of social need, such as in housing, health and child care.
We dealt with this matter on Committee Stage. I just want to make a few points on the amendment put forward by Deputy Richard Boyd Barrett. I will explain why we will not be accepting it. The Deputy criticised the last budget when we delivered, through a series of changes to the USC and by increasing the entry point to the higher rate of income tax, a set of gains of around €5 per week for people who tend to be on lower and middle incomes. During Deputy Boyd Barrett's contributions on the budget and in his contribution earlier today, he criticised us for tax cuts.
He criticised us for saying that we are putting in place any form of tax reform or reduction at a time when we should be investing in public services. On the one hand he is saying we cut taxes too much in the last budget and in this amendment he is proposing a tax change that would mean that anybody earning up to €1,731 per week would pay no USC at all. During the debate on the last budget he said we cut taxes too much and now he is saying we should put in place a tax reduction on income which is many multiples ahead of what we did in the last budget.
I know Deputy Boyd Barrett will go on to say that he would seek to introduce a number of other measures that would raise revenue in other ways. He can expect that my response will be to say that raising revenue in those other ways would narrow our tax base even further or create difficulties that would undermine the competitiveness of the economy. If Deputy Boyd Barrett goes back to the exchange we had on Committee Stage, I understand he envisaged that increased income tax rates of between 50% and 65% on income above €100,000 would be used to off-set the USC reduction. However, as the Deputy is aware, we are already at the point where in 2018 the top 1% of income earners will pay 25% of all income tax and USC. It is for all of those reasons that I believe to put in place such a measure would really concentrate the risk that the State has in relation to the collection of tax revenues. As I indicated on budget day, I believe that we should have a threshold into USC, that we do not change in the years to come because if we were to do that it would undermine the breadth of the tax base which we will need even more in the coming years with all of the challenges that could lie ahead. For those reasons I will not accept Deputy Boyd Barrett's amendment.
I understand the Minister's confusion about the criticism of the tax reductions because different things are being said by different people in this House. To clarify, we did not criticise the Government at any point for proposing tax changes to low and middle earners. Sinn Féin and the Labour Party did, as did others, and they are entitled to do so. Our criticism was that those tax reductions were crumbs and we equally rejected the Hobson's choice of whether we have small tax reductions for workers or if we spend all the money on public services. We reject that choice. That is the point we are making, and we are unique in this House in making that point.
It is not correct for the Labour Party to mischaracterise our position but I understand why it is doing it, namely because it stood over the USC, which is hated by working people and is one of the reasons-----
Deputy Boyd Barrett is a true Leninist.
But it is true.
Could we have one voice please?
I did not interrupt Deputy Burton.
Deputy Boyd Barrett is correct.
I apologise, but he is an extraordinarily true Leninist.
The Labour Party stood over the USC but working people hate the USC. We are not proposing that working people should not pay, as they do, the 20% tax on the first €30,000 or €40,000 of their income and then 40% over and above that but we are saying they should not pay the USC, which was an austerity tax. We are saying that getting rid of that for people earning less than €90,000 can be paid for by introducing new tax bands of 50%, 55%, 60% and 65% on earnings over €100,000 up to more than €250,000. I will not go through all the details of the bands.
I remind Deputy Burton that those were the policies of the Labour Party in the 1960s and 1970s but they have abandoned them now.
No, they were not.
We hold on to those policies.
Deputy Boyd Barrett should stop reading-----
I thank Deputy Boyd Barrett.
-----and he should read history.
I think that is the difficulty, namely, that they were the tax policies of the 1960s and 1970s and the tax code, especially for a small open economy such as Ireland's, has very different needs. We must have a resilient tax base. If we were to take the course of action recommended by Deputy Boyd Barrett it would undermine the strength of the tax base and I believe instead what we should be doing is concentrating the funding that is available to reduce marginal rates of taxation while still asking anybody above a certain level of income to make a contribution to the funding of public services either through USC or through income tax.
With regard to the proposals put by Deputy Boyd Barrett in relation to what he would do from an income tax point of view, if we were to go ahead and do it, that would mean the top 1% of taxpayers, who would earn 12% of income, would pay 34% of income tax. That may well be the objective Deputy Boyd Barrett is seeking to deliver but it would mean that the risk in relation to the breadth of our tax base would be highly concentrated and concentrated at a very high level of income. Given all the difficulties and misery we have had in recent years that was partially caused by the fact that we had a way of collecting taxes and a tax code that ultimately proved not to be fit for purpose, this is not an amendment I will accept. I believe it would create the kind of risk that I for one do not want to see recurring again in how we collect taxes in the State.
What is not discussed anymore, which I mentioned in my initial contribution, is wealth and income redistribution. We can argue from budget to budget about marginal moves this way or that way and in so doing not see the wood for the trees. By that I mean a staggering growth in the gap between rich and poor and a staggering growth in the differential between the highest earners and the lowest earners. Anybody on the left should recognise that. It is not just we who are saying it; this is what people like Thomas Piketty have done forensic analysis of, and to be honest, the jury has come in on that debate. There has been spectacular growth in the gap between the rich and poor and that is accelerating every few years. That is going to continue unless one has a radical policy of income and wealth redistribution. When one asks whether the top 5% or 10% should pay a disproportionate amount of income tax, as we propose, I am pleased that the Minister at least understands it because some of our critics do not. That is exactly what we are proposing and unless that happens we will not close the gap that is widening all the time. If one goes back to the 1950s and 1960s, the highest earners might have earned seven or eight times that of the average earner but now the highest earners are earning 20, 30 and 40 times that of the average earner. The Minister has said the top 10% pay 40% of all the tax, which is the case, but they also have 40% of all the income, and rising, and they have 50% of all the wealth, and rising. We need a tax system that addresses such inequality.
For good or ill, I read Capital in the Twenty-First Century and it goes through the point Deputy Boyd Barrett made in great detail, but the majority of the book is about the inequality in the distribution of wealth and the causes of it.
We will move on to that later.
Yes, we will move on to that later, whereas what we are focusing on here relates to the distribution of income. In that context it is worth making the point that the latest data available to the OECD showed we had the largest absolute reduction in the Gini coefficient between market and disposable income for any OECD country for which data were available. We do have a way of intervening in terms of the allocation of income within the country, which is a combination of a redistributive social welfare policy and a progressive tax code. That means we do handle those matters and make progress on them in a better way than Deputy Boyd Barrett acknowledges. There will be many other ideas in terms of a wealth tax and other issues proposed by Piketty to which Deputy Boyd Barrett will return in the Finance Bill.
As I have said, I cannot accept the amendment.
I move amendment No. 3:
In page 9, between lines 11 and 12, to insert the following:
“4. The Minister shall, within 6 months of the passing of this Act, bring a report on the additional revenue that could be raised by introducing new tax bands for earnings over €100,000 as follows:
(a) earnings between €100,000 and €140,000 - 50 per cent,
(b) earnings between €140,000 and €180,000 - 55 per cent,
(c) earnings between €180,000 and €250,000 - 60 per cent,
(d) earnings over €250,000 - 65 per cent.”.
I will be more brief this time because I have made most of the points. In response to the Minister's last point, the inequality in the distribution of income leads directly to the inequality in the distribution of wealth that Piketty has identified. In fact, all the studies of the two show as much. Once a person has higher income or surplus income over and above what he or she needs to pay the mortgage, survive and pay day-to-day costs, he or she can then begin to develop capital. The person can start to make money out of money. That is the problem with the system. Once a person reaches over a certain threshold of income, the surplus available can start to self-expand. One can invest in property, shares and all manner of things that allow one to start to make money for doing nothing.
We imagine that is fair and legitimate. However, the problem is that when one person makes money, it does not come out of thin air. The person is taking it from someone else. If a person invests in property and is making money out of money because he or she has invested in property, who is losing out? It is the person who is paying the rent he or she cannot afford. That is how one thing leads to another. The inequality in the distribution of income leads to the inequality in the distribution of wealth.
Unless that is addressed, we will continue to see the gap grow, and it is growing. The Minister says our social transfers somewhat ameliorate the inequality. It is true that the Irish social welfare system somewhat ameliorates the inequality of income and wealth distribution but it only slows the growth in the gap. It is not stopping the growth in the gap. It somewhat slows the gap compared with jurisdictions that have no social welfare system. Everywhere in the western world the gap is growing. It is growing all the time at an exponential and obscene rate.
We need policies of radical redistribution using the tax system. I do not accept the Minister's suggestion that somehow this is an unsustainable narrowing of the tax base. The problem is that low and middle-income people are not only hit with the ordinary tax bands and the universal social charge, they are also hit disproportionately by myriad indirect taxes. People are now paying taxes for things that they used to get because they paid tax. Consequently, they are paying twice. We used to get our bins paid for because we paid our tax. Now, we pay €5, €10, €15, €20 or €25 per month. That is a new tax. The Minister can call it a charge if he wishes, but in reality for low and middle-income people that is a new tax. When a motorist has to pay God knows how much in parking charges every day to get to work, something he did not have to pay for previously, it is a tax. Public transport costs are rising constantly and public transport is seen as something that has to be commercially feasible and profitable rather than something that we need to make the economy and society function. In reality, the increases in public transport costs are hidden taxes. Moreover, they disproportionately hit the less well-off. We can go through the list of public service obligation taxes and so on, all of which disproportionately hit people on low and middle incomes.
Of course we must look at the whole package in the whole. Anyway, these amendments propose to make a radical move in the direction of redistributing income. Anything less will simply see the continual increase in the gap between the haves and the have-nots that has reached obscene and unacceptable levels.
I do not agree with the amendment. Those who advocate higher personal tax rates often say that what really matters are the effective rates and not the marginal rates of tax. Effective rates matter, but marginal rates matter as well. The landmark level of income has become €100,000. While someone at that level is paying a marginal rate of 52%, the budget day booklet indicates such a person is paying an effective rate of 39%.
When we are considering the amendment, we should bear in mind what is actually being suggested. I assume that when the Deputy refers to new tax bands and he puts a percentage next to them, the percentages are replacing the income tax rate of 40%. Therefore, the rate of 40% will become 50%, 55%, 60% and 65%. Deputy Boyd Barrett is advocating that the existing marginal rate of 52% would rise to somewhere between 62% and 77%, plus an additional 3% for the self-employed. That is what has been proposed.
I do not believe that someone on high levels of income is going to decide not to work because his tax goes up. However, I do not believe that such a measure would be without consequence either. There would be consequences not only in terms of the take-home pay of the people concerned but in respect of investment decisions and other employment decisions. The notion that we can tax to the hilt people on higher incomes without any consequence for people earning less than those levels is not one to which I subscribe. This is because the investment environment, tax environment and employment environment are all connected.
I take it seriously when representatives from organisations like IDA Ireland, which is selling Ireland, make the point that personal taxation rates matter. I believe they matter and I think what is being suggested goes too far. Certainly, it is not something we could support.
Ní bheidh mé ag tabhairt tacaíochta don leasú seo ach oiread. Tá na rátaí atá á maíomh agus á moladh anseo i bhfad ró-ard. Ní aontaím leis an Teachta McGrath nach cuirfidh ardú cáin isteach ar dhaoine. Ní chuirfidh sé isteach ar dhaoine má tá an t-ardú réasúnta, ach creidim go pearsanta go bhfuil an t-ardú cáin atá á moladh ag na Teachtaí anseo ró-ard. It is altogether disproportionate. I made the point previously about marginal tax rates. We continue to discuss myths in the House. I recognise what Deputy McGrath has said. He referred to what IDA Ireland representatives have told him and all of us about tax rates. They have made that claim and that much is without doubt. That is fair enough and certainly IDA Ireland deals with large multinational companies and so on.
There is no evidence, however, to suggest that high marginal tax rates of the type that we have are a distraction or a problem in terms of employment. Indeed, ESRI representatives told those of us on the finance committee that child care is probably a greater barrier to employment than our current tax rates. The point I made on Committee Stage was that there is a tipping point and we are on a curve. It is incorrect to suggest there is no relationship between marginal tax rates and employment; of course there is. Let us suppose we put marginal tax rates up to a high level. Different people will have different definitions of what constitutes a high level. Anyway, if we put the rates up to too high a level, as I believe is the case in this amendment, then of course it will have a consequence.
I look forward to engaging with Revenue representatives to try to get them to drill down into more granular detail in terms of incomes. One of the ways to increase taxes - the effective tax rate is the big issue - on those earning above €100,000 is to start to get rid of their tax credits or to have a tapering off of tax credits. We have articulated this policy for many years. We cannot put it forward because it cannot be costed. Anyway, I hope that in the coming 12 months, we will be able to get the costings when the budgetary committee carries out some work with the Revenue.
This policy exists in Britain, for example once a person's income hits a certain level. Above £120,000, a person's tax credits start to go and the person begins to lose the benefit of the tax credit.
This raises the effective tax rate but does not increase the marginal tax rate. We can each fight our corner in this argument. I speak about effective tax rates whereas the Minister of State speaks about marginal rates. We need to get real on this issue. It is possible to increase taxes at the high end without increasing tax rates. Under the current system, people have many ways to reduce their effective tax rate. These include pension reliefs and other reliefs which are not captured in the budget because they are individualised. It is interesting to note in the data for all taxpayers that the effective tax rate is relatively low in all cases. I will not support the amendment because it is disproportionate.
I, too, oppose the amendment. I believe Deputy Boyd Barrett described people earning €90,000 per annum as poor.
I did not say that. The Deputy should not make things up.
I would have thought €90,000, which is slightly more than what a Deputy earns, was an attractive salary. I note the proposed changes would apply to salaries of more than €100,000. I presume the Deputy was referring to those who earn less than €100,000 when he spoke of people being much poorer.
From the 1960s until the 1980s, Ireland had very high levels of income tax. This was the reason for some of the bugs which have since plagued the tax system, specifically, the ability of very wealthy people to avoid their liabilities by moving offshore, as we have seen in recent times, and employing accountants and experts to mitigate their tax. This means that people who do not have sufficient income to employ accountants are placed at a serious disadvantage and end up paying proportionately much more of their income in tax than those who can afford to pay for tax advice. While, on the face of it, proposing to increase income tax to 50%, 55% and 60% may seem reasonable, a public servant would also pay PRSI at 4.5% and approximately 6% of salary as a pension contribution. Automatically, therefore, we must add approximately 10% to the rate stated in the amendment to arrive at the effective rate. Given that we parcel out additional charges - some we allocate to PRSI for particular reasons while we allocate others to areas such as pension contributions for people in retirement - these are exceptionally high rates and I do not know how people could be persuaded to accept them.
The amendment has been tabled for propaganda purposes. It is not intended for any real purpose. Members of the trade unions marched en masse against very high marginal tax rates in the 1980s because people on relatively low incomes, including public servants on average salaries, inevitably ended up paying the bulk of tax. While it may have been the intention to catch only the very wealthy, in practice many wealthy people were able to avoid tax offshore while those who lived and worked here and contributed to the economy could not do so. In some ways, the drafters of the amendment should be careful what they wish for because while they may be sufficiently well off to be able to avoid these tax rates, others may not be able to do so.
While this is a difficult statement to make, we must also recognise that we live in a highly globalised economy. The impact of this is that people look across the water to the United Kingdom, the United States and many other countries and compare the average tax rates and contributions people pay here with those that they might pay if they were to move elsewhere. People make economic choices in a globalised world based on information about how Ireland compares with other countries. The OECD makes a number of points in this regard. It has noted for some time, for example, that the social welfare system lifts more people out of the risk of poverty than almost any other European Union member state. Ireland's tax code is also dysfunctional in one area which presents a growing difficulty, namely, the element which makes it possible to pay no tax in certain corporate structures. This applies to companies rather than individuals. We must address this issue and introduce fair and efficient taxes which treat people in roughly the same manner. We must enable companies to generate employment while requiring them to make a fair contribution. We must seek fairness, efficiency and effectiveness in the tax system to ensure we raise enough money to do what citizens want to be done in the areas of health, education, social services and public services in general. We must have a debate and reach an agreement on what are the approximate and fair levels of tax.
When one adds the other taxes and levies that people have to pay to the tax rates proposed in the amendment, the figure approaches the confiscatory. The people with the types of salaries listed in the amendment would avoid paying these rates in any case, which means the burden would fall back on people on middle incomes, particularly those who work in public services because all of their income is accounted for and they do not have loopholes that allow them to avoid paying tax. Incidentally, I am not aware of anyone in the public service who is clamouring for such loopholes. We have, by and large, a social contract in which people are willing to pay a fair share of tax, if not an excessive amount, that would allow us to create the type of society we want. Those are Labour Party principles which I stand by because they make sense. Based on these principles, people approaching retirement age will have been able to provide for their retirement and their employers will also, I hope, have made a contribution to that.
Deputy Boyd Barrett appears to be on his own on this one.
I have my comrades.
The other speakers may be on the left but not on this occasion. While I do not wish to go over old ground, I will place a couple of facts on record. The amendment would expand the current two-rate income tax system to a five or six-rate system. This would be in addition to the universal social charge system, under which five separate rates are applied, and a PRSI system which has further distinct features. To place the proposed increases in context, they would result in a marginal tax rate of between 62% and 65% for employees and self-employed persons on incomes of more than €100,000. Rates would continue to increase with income, reaching a marginal tax rate of 77% for employees and 80% for self-employed persons. This proposal is not a runner as the damage it would cause and its unintended consequences would be catastrophic.
To respond to Deputy Doherty's point on IDA Ireland, my role includes international financial services and I meet many foreign direct investment, FDI, companies backed by IDA Ireland. Not everyone employed by these companies is earning a fortune. The first issue consistently raised with me is not the higher rate of tax but the low entry point for the higher rate, which stood at €33,800 until it was increased in the budget to allow people to earn a little more.
Our objective is to increase that in order that people can earn more and pay at a further point along the earning thresholds.
It is always raised with me by companies which want to come here. It is always the first issue raised. A point I like to make to people is that just because it is an FDI company does not mean that everybody is on a fortune. On the figures Deputy Boyd Barrett is talking about, €100,000 is two people earning €50,000. I do not believe two people earning €50,000 are particularly wealthy. One could have two civil servants earning €60,000 getting caught with these thresholds, similar to the points raised by Deputy Burton. This is not the 1970s or the 1980s. It is coming towards the second decade of this century. It would be a hugely regressive step in the wrong direction.
I wish to clarify that while there is obvious disagreement on all this, it is on individual earners. It is not on the joint cumulative earnings of a couple. The Minister of State's assertion is not the case.
Our big problem in this country is we do not have enough teachers and nurses and young people coming out of university who could be doing these jobs. I refer also to occupational therapists, speech and language therapists or construction workers. These are workers earning under €90,000. Were the USC to be abolished, all those people would be much more likely either to stay in this country or, if they are abroad, to come back.
If the Minister of State states he is hearing about the entry point in to the tax system, he is talking to people who are very different to those to whom I am talking. Workers to whom I am talking have been talking about how much they hate the USC since it came in. They ask me to look at their pay cheque stating that is what was imposed on them because of the economic crash where they were made pick up the can for the bankers and all the rest of it. It is a huge chunk out of their earnings which has significantly added to the burden of ordinary workers and it is now an active disincentive for ordinary workers who we need to stay in this country or to come back from Britain, Canada or Australia.
We propose to take that burden, which was imposed because of the economic crimes of bankers, off the backs of workers and to pay for it by increasing the tax rates for people once they start to earn over €100,000. Incidentally, for the information of the former Tánaiste and Minister for Social Protection, Deputy Burton, in case there is any confusion, those between €90,000 and €100,000 will continue to pay USC. Once one earns more than €100,000 one would pay a higher tax rate, once one earns more than €140,000 one would pay a higher tax rate again, once over €180,000 one would pay a higher tax rate again, and once over €250,000, a higher rate again. To my mind, that is completely just. Frankly, nobody should be earning over €250,000 a year. It is obscene.
I am not in the least worried about how those earning €250,000 or €180,000 will feel about this but I am extremely worried about the teachers, the nurses, the construction workers and the care workers we need in all sorts of areas of the economy leaving this country or being unwilling to come back when we need them desperately.
To put it in context, Deputy Boyd Barrett spoke earlier about wealth redistribution. In 2011, when the income tax take was €11 billion, the social protection budget the then Minister, Deputy Burton, was handling was €21 billion. That was massive wealth distribution and we did not have the money. We had to borrow it. While Deputy Boyd Barrett is quick to talk about what the banks cost over the period of the crisis, nobody wants to hear that we had to borrow €15 billion or €16 billion a year for ten years in order that we could keep the rates of old age pension and children's allowance, and those about whom the Deputy is talking, the teachers and the public servants, at the rates they were at during that era.
Deputy Boyd Barrett states he does not care about the person earning €150,000 or €200,000-----
I do not care how they feel about these tax changes.
That is fine. However, the unintended consequence would be to drive them out of the country and along with them would go other jobs. Then Deputy Boyd Barrett would care, when the income tax take would collapse.
It is incredible for the junior Minister for Finance to state that the first question the companies which come here ask him - all of them, I think he said - is the entry threshold to the 40% tax rate. It is also incredible and non-factual to state that we were borrowing €15 billion for ten years to pay social welfare recipients.
I did not say that.
I think Deputy D'Arcy did.
I did not say that. What I said was the national debt increased on average by €14 billion to €15 billion a year for ten years. It went from €40 billion to €210 billion, but the reason was to keep the country trading.
Whether Deputy Pearse Doherty believes it or not, the first question I am asked on every occasion I meet financial service companies is the threshold at which people pay the higher rate of tax. It does not matter whether the Deputy believes it. I am telling him it is the first question on every occasion.
I move amendment No. 4:
In page 9, to delete lines 24 to 35, and in page 10, to delete lines 1 to 5 and substitute the following:
"(a) in subsection (1)(a) by substituting the following for the definition of "qualifying interest":
" 'qualifying interest', in relation to an individual and a year of assessment, means—
(i) as respects a year of assessment before 2018, the amount of interest paid by the individual in respect of a qualifying loan,
(ii) as respects the year of assessment 2018, 100 per cent of the amount of interest paid by the individual in respect of a qualifying loan,
(iii) as respects the year of assessment 2019, 75 per cent of the amount of interest paid by the individual in respect of a qualifying loan,
(iv) as respects the year of assessment 2020, 50 per cent of the amount of interest paid by the individual in respect of a qualifying loan, and
(v) as respects the year of assessment 2021, 25 per cent of the amount of interest paid by the individual in respect of a qualifying loan;",
(b) in subsection (1A)(b) by substituting "2021" for "2017",
(c) in subsection (2)(a)(ii) by substituting "2021" for "2017", and".
Baineann an leasú seo le daoine atá ag díol úis ar a gcuid morgáistí. Mar atá a fhios againn, sa Bhille atá os ár gcomhair anocht ní bhfaighidh siad ach faoiseamh de 75% fá choinne 2018 ach sa leasú atá curtha síos agamsa gheobhaidh siad faoiseamh de 100%. Tá an leasú curtha síos agam sa dóigh is nach gcaillfeadh aon cheann de na teaghlaigh amach ar an fhaoiseamh atá siad ag fáil ó thaobh an úis atá siad ag díol. Tá a fhios agam go bhfuil go leor teaghlaigh go fóill i gcruachás. Tá níos mó ná 80,000 teaghlach amuigh ansin nach bhfuil ábalta a gcuid morgáistí a dhíol bliain i ndiaidh mbliana agus mí i ndiaidh míosa agus tá sé seo go trom ar a gcuid guaillí. Mar atá a fhios againn, tá 292,000 teaghlach ag baint úsáid as an fhaoiseamh úis seo agus tá sé tábhachtach go mbeadh an faoiseamh sin ann go dtí, ar a laghad, go bhfuil an fhadhb mhór atá againn ó thaobh morgáistí réitithe.
Given that the mortgage crisis is still very much alive and raging with over 80,000 families in mortgage distress and many families each week losing their homes, I note that 292,000 families benefit from mortgage interest relief. While this Bill will restrict that mortgage interest relief next year to 75%, this amendment will ensure that in 2018, all those families will be able to get 100% relief if entitled to it. Caps already are in place to prevent anybody from benefitting excessively. I commend this amendment to the House.
To be clear, the current position is that mortgage interest relief is to end for all existing recipients at the end of this year. The reason it is being retained in any form is that the confidence and supply agreement provided that it would be retained on a tapered basis. I would love to see it retained at 100% of the existing rate next year but this was the best we could achieve in the negotiations.
It was my party which brought it to the table. While it certainly is the case that mortgage interest relief was retained within the base, that was only done following the election early last year and the negotiations on the confidence and supply agreement when the officials became aware that this had become an issue and took the conservative view of keeping the mortgage interest relief in the base. That is why the reduction in the rate of relief, from 100% to 75% next year, is showing up as a yield for the Exchequer. It is because of that decision.
We should be clear on the existing legal position. Mortgage interest relief was to be abolished completely for everyone overnight from 1 January next year. As Deputy Doherty stated, that would have had serious consequences for up to 300,000 mortgageholders.
I would love to see it kept at 100% but this was the best we could have achieved as part of the negotiations into which we entered.
Deputies will be aware that the process of phasing out mortgage interest relief from home owners has been under way since 2009. Relief has expired for qualifying mortgages taken out prior to 2004 and the relief was abolished for new borrowers for mortgages taken out after 31 December 2013. Therefore, only qualifying borrowings taken out between 2004 and 2012 remain in receipt of the relief.
I am aware of the financial pressures that individuals continue to face and of the fact that without any action in this Finance Bill, the remaining recipients of mortgage interest relief would have faced a cliff whereby their relief would cease entirely in January 2018. Therefore, the programme for Government committed to a tapered extension of the relief and it was stated last year in budget 2017 that the extension would run to the end of 2020. The Bill legislates for that extension, providing for the gradual tapered removal of the relief between January 2018 and December 2020, to allow the remaining recipients a phased period of adjustment to the cessation of the relief.
The amendment proposed by Deputy Doherty would defer one part of the taper for a year, thereby extending the tapered withdrawal of mortgage interest relief out from three to four years. However, given that the cessation of the relief has been provided for since 2010, I do not believe such a further extension would be appropriate. It must be remembered that this relief has ceased for home owners who purchased before 2004 and those who purchased their homes from 2013 onwards have never benefitted from this relief. In my view, a three year extension which meets the commitment given last year strikes a balance between supporting those current recipients while extending fairness to home owners who have never benefitted from the relief. Therefore, I cannot accept the Deputy's amendment.
This relief is widely available. As I said earlier, 292,000 families benefit from it. This amendment puts a freeze on it. One could freeze the local property tax or do other things but this has a direct benefit, particularly for those who are struggling to pay their mortgages at this point in time. Some of those who are having difficulties keeping a roof over their heads are benefitting from mortgage interest relief. As we parliamentarians cast our vote here, what we will be doing is potentially cutting what could have been 100% relief to 75%. This is the decision that we have to make. The Bill before us provides for 75% relief but I want to see that at 100%. I think we should provide the additional support, namely the current level of support that those families are receiving, which is why this amendment will be pressed to a vote. I am asking Members to reconsider their position on this, to support these families and to make sure they do not face higher mortgage payments next year as a result of voting down this amendment. All this amendment would do is make sure their mortgage payments will remain at the same level, instead of cutting the relief down to 75% which would mean they would have additional pressure in terms of keeping a roof over their heads.
Deputy Doherty knows the truth of this matter. Fianna Fáil was the only party to campaign in the election last year for the retention of mortgage interest relief. If we had not entered into a confidence and supply agreement and negotiated to the best of our ability, 100% of the relief would be lost at the end of this year. I agree with the Deputy about the consequences that would have for more than 290,000 mortgage accounts, which would almost certainly represent more than 400,000 mortgageholders. What we are seeking to do and what we have achieved is an abolition that is gradual. We would love to see the relief retained but what we are seeing here is a political manoeuvre by Sinn Féin. It did not prioritise this issue in the election campaign last year but Fianna Fáil did. We entered into political negotiations and got the best deal that we could. Sinn Féin has come to the table very late on this issue.
All Deputies will know that regardless of the composition of this Government, by the time a budget was being forged and a change introduced that could have had an immediate and significant effect on 400,000 citizens, steps would have been taken to moderate the effect of that change, to make sure that it was introduced in as fair a manner as possible and over as long a period as possible. That is what the budget aims to do and it is part of the agreement we have with Fianna Fáil. The proposal that is implemented in this budget is the fairest way of striking a balance between winding out a relief that was indicated to be wound out a number of years ago but doing it in such a way as to make it as affordable as possible for many families who already have many bills and difficulties. As Deputy Doherty will be aware, there are also many mortgageholders and home owners who do not have access to a scheme like this or to any form of relief and we must be conscious of them too when we make a decision relating to our tax code.
Obviously a wide range of people and families avail of this relief. Some of them are in mortgage distress while others are not in such distress. Similarly, some people who are in mortgage distress are not getting the benefit of this relief. All of that is taken into account.
We have what appears to be a ramping up of evictions and I expect that to continue over the next period of time as banks are asked to de-leverage and to deal with the remainder of those in mortgage distress. We need to give every support we can. This support is multifaceted and cuts across a number of different Departments, particularly the Department of Justice and Equality. There are certain things we have to do and this is one of them.
I hear Deputy McGrath and understand he is under pressure. I believe he is genuine in saying he wants to support the 292,000 families but -----
What I said is true.
-----this is why we are elected. It is in this House that we decide whether we are cutting or increasing taxes. The vote before Members is very simple. It is to keep, for 2018, 100% mortgage interest relief and for anybody who claims he or she would love to bring that about, it is very simple. He or she just has to press the right button. Anybody who wants to cut the relief to 75% can side with the Government and do that. Given that there is still a mortgage arrears crisis, this could have a tipping-point effect on many families. In that context, we make no apologies for arguing for the retention of mortgage interest relief. I do not think it should be retained indefinitely but until we get to grips with the fact that we have tens of thousands of households in mortgage arrears, we should not cut the supports from them.
- Adams, Gerry.
- Boyd Barrett, Richard.
- Brady, John.
- Broughan, Thomas P.
- Buckley, Pat.
- Collins, Michael.
- Connolly, Catherine.
- Crowe, Seán.
- Daly, Clare.
- Doherty, Pearse.
- Funchion, Kathleen.
- Howlin, Brendan.
- Kelly, Alan.
- Kenny, Martin.
- Mitchell, Denise.
- Munster, Imelda.
- Murphy, Catherine.
- Murphy, Paul.
- Nolan, Carol.
- Ó Broin, Eoin.
- Ó Caoláin, Caoimhghín.
- Ó Laoghaire, Donnchadh.
- Ó Snodaigh, Aengus.
- O'Brien, Jonathan.
- Ryan, Brendan.
- Shortall, Róisín.
- Stanley, Brian.
- Wallace, Mick.
- Bailey, Maria.
- Barrett, Seán.
- Breen, Pat.
- Brophy, Colm.
- Burke, Peter.
- Byrne, Catherine.
- Canney, Seán.
- Carey, Joe.
- Corcoran Kennedy, Marcella.
- Coveney, Simon.
- Creed, Michael.
- D'Arcy, Michael.
- Daly, Jim.
- Deering, Pat.
- Doherty, Regina.
- Donohoe, Paschal.
- Doyle, Andrew.
- Durkan, Bernard J.
- English, Damien.
- Farrell, Alan.
- Fitzgerald, Frances.
- Fitzpatrick, Peter.
- Flanagan, Charles.
- Griffin, Brendan.
- Harris, Simon.
- Harty, Michael.
- Heydon, Martin.
- Humphreys, Heather.
- Kehoe, Paul.
- Kenny, Enda.
- Kyne, Seán.
- Lowry, Michael.
- McEntee, Helen.
- McGrath, Finian.
- McHugh, Joe.
- McLoughlin, Tony.
- Madigan, Josepha.
- Mitchell O'Connor, Mary.
- Moran, Kevin Boxer.
- Murphy, Eoghan.
- Naughten, Denis.
- Naughton, Hildegarde.
- Neville, Tom.
- Noonan, Michael.
- O'Connell, Kate.
- O'Donovan, Patrick.
- O'Dowd, Fergus.
- Phelan, John Paul.
- Ring, Michael.
- Rock, Noel.
- Stanton, David.
- Zappone, Katherine.
- Aylward, Bobby.
- Breathnach, Declan.
- Butler, Mary.
- Byrne, Thomas.
- Cahill, Jackie.
- Calleary, Dara.
- Casey, Pat.
- Cassells, Shane.
- Chambers, Lisa.
- Collins, Niall.
- Cowen, Barry.
- Curran, John.
- Haughey, Seán.
- Healy-Rae, Danny.
- Healy-Rae, Michael.
- Kelleher, Billy.
- Lahart, John.
- Lawless, James.
- MacSharry, Marc.
- McConalogue, Charlie.
- McGrath, Mattie.
- McGrath, Michael.
- McGuinness, John.
- Moynihan, Aindrias.
- Moynihan, Michael.
- Murphy O'Mahony, Margaret.
- O'Brien, Darragh.
- O'Callaghan, Jim.
- O'Loughlin, Fiona.
- O'Rourke, Frank.
- Rabbitte, Anne.
- Scanlon, Eamon.
- Smith, Brendan.
- Smyth, Niamh.
- Troy, Robert.