I am now talking about income-tax, not about rates. I intend in this speech to confine my remarks to the subjects in the Finance Bill and not to refer to other matters, as previous speakers have done. I would refer on this matter to a memorandum on income-tax prepared for the Committee on Income-tax by the Irish Trade Union Congress in which the question of income-tax on agricultural land is dealt with very briefly. What I intend to quote is only a very small part of an already condensed statement. It is stated:—
"The fact that this is largely an agricultural country makes it difficult for an income-tax code to operate wholly equitably since the income of farmers is difficult to assess in the absence of any widespread system of farm accounts. Farmers as a class pay very little income-tax. Farmers as such are paying much less than 1 per cent. of the total income-tax. It must be admitted, however——"
and this will give comfort and solace to the great majority of the farmers
"——that the great majority of farmers are in all probability not liable for income-tax because of the fact that their income is below the exemption limit after taking into account the various reliefs and allowances."
The Trade Union Congress memorandum goes on to say:—
"...we deduce that the great majority of farmers—about four-fifths—are not liable for income-tax, but that a relatively small number are. It would seem that a large number of farmers on holdings of 50 acres and over, numbering some 80,000, should be liable for income-tax on the basis of their farm income, yet only a minute minority are even assessed for tax. It is difficult to devise proposals which would ensure that these farmers paid their fair share of income-tax and which would at the same time be equitable and practicable. The problem is one, however, which requires serious study and investigation. The present system of relating the income-tax liability of farmers to the poor law valuation of their holdings or to the original land purchase annuity provides a possible basis. Even though the general valuation of this country was made nearly 100 years ago, it is generally accepted that valuation is still a fairly reliable index to the value of farm land. If this is so, the present method of assessment of farmers under Schedule B could be retained as a basis, but the assessable value taken as twice or three times the poor law valuation instead of the amount of the poor law valuation as at present. Farmers' income (not including wages of farm employees) has increased nearly fourfold since pre-war, yet there has been no change in Schedule B assessments under the income-tax code.
In any event, modern conditions require farmers to utilise proper record keeping in order to progress in their own industry. The income-tax code did much to push business in this direction to its own advantage and the same indirect benefit would accrue to the farmer if he were required to keep and produce accurate accounts.
It might be mentioned here that for the purposes of the Health Act, 1953, a farmer the valuation of whose holding is over £50 is put on a par with an employee with more than £600 per annum (or £11 11s. per week), which suggests that the view is held officially that a farm with a valuation exceeding £50 is equivalent at the least to an income of more than £600 a year. There are around 33,000 agricultural holdings with a poor law valuation of more than £50."
The whole question of the revaluation of agricultural land must sooner or later be faced. One of the benefits which would accrue from such revaluation would be that a number of people who are now exempt from income-tax might be prima facie liable if they were not able to prove that their actual income was less than the amount liable to taxation.
Another inequity caused by neglect to take account of changes in the value of money is that the personal and dependents' allowances, in spite of recent increases, are still inadequate. On this matter I should like to refer to a statement on the Budget which was published in the newspapers and prepared by the Irish Conference of Professional and Service Associations. Calculations are made in that statement of the change in the cost of living of salaried workers. It is pointed out that the rise in the cost of living has not been compensated for even in the new allowances in the 1954 Finance Bill which we are debating to-day. The following are the figures which are given in the memorandum. In 1935 the allowance for single persons was £125; married persons, £225; and children, £50. The equivalent allowances to-day should be £323, £582 and £129 instead of £150, £300 and £85 given in the Budget.
The fact that the Minister has increased even to a small extent these allowances is a recognition of the justice of the claim made by the conference. He boasted that the Bill excludes a further 40,000 people from the payment of income-tax. I will come back to that matter in a moment.
Another injustice caused by the failure to take into account changes in the value of money is that the wear and tear allowances in business and the depreciation allowances have become much too small. This matter is within the terms of reference of the income-tax committee and I have no doubt that the Minister will, sooner or later, receive recommendations recommending a change.
I should like to refer the Minister to a short document prepared by the Dublin Chamber of Commerce by Dr. F. G. Hall, entitled The Inadequacy of Irish Commercial Profits. This document deals in detail with the question of depreciation and wear and tear allowances. I do not propose to weary the Minister by quoting to him the document with which he is, I believe, entirely familiar already. I will, therefore, just recall to his mind pages nine and ten that he may, perhaps, peruse them again in the light of this debate. At a time when everybody is talking about the necessity for more investment in Irish industry, it is inconsistent for the Government to maintain the wear and tear and depreciation allowances at a level which is quite inappropriate to the present level of prices.
The final matter to which I refer in relation to the change in the value of money is that surtax begins at much too low a level. It may be, perhaps, that at the beginning of this State in 1922 there was some justification for starting surtax at a £500 lower level than the British surtax which was £2,000 but whatever justification there ever was has long since disappeared. The price level has risen greatly since 1922. I do not think that anybody would suggest that an income of £1,500 is now so great as to be singled out as a proper object of high exceptional taxation. These are some of the old grievances regarding income-tax which I for one have raised already in the Seanad. I should now like to come to the Finance Bill before the House and indicate to the Minister that some of the proposals of that Bill instead of making things better make them, in my opinion, rather worse.
The late Minister for Finance in the Dáil boasted that one result of this Bill would be that 40,000 less people would now pay tax. A statement was made in the Dáil on the 24th February, 1954, by the late Minister for Finance that the number of individual taxpayers paying income-tax in 1952-53 was 195,000. The occupied population comes roughly to about 1,200,000 people so that about two out of every 13 persons at work are liable to income-tax. If the Finance Bill takes 40,000 people out of paying income-tax it means that the total income-tax in the country in future will be paid by 150,000 people. That is to say, one in 20 of the population. Therefore 19 out of 20 of the population are not paying income-tax and, therefore, will be completely unaffected by the level of tax or pressure of the tax on the underprivileged and unfortunate very small minority who are singled out for this entirely unjust and inequitable imposition.
The reason why the number of people paying income-tax is so small is partly the basis of assessment of Schedule A and Schedule B which, in fact, operate to exempt a large number of people from taxation in a perfectly legal way. The method of making allowances to business people for business expenses also reduces the burden of taxation on a great many people. In addition to that—it is a matter of common knowledge—there must be a considerable amount of evasion so that the number of people who do not pay income-tax in this country is partly the result of favourable assessment and partly the result of illegal evasion. The fact of the matter is that this tax which now raises something like £10,000,000 of revenue per annum, presses on 5 per cent. of the population. I cannot help feeling that prima facie that looks rather like as if a small minority of the population are picked out for unfavourable treatment in the fiscal system.
The reason why I say the present Budget makes things worse is this, that as the area of impact of this tax becomes narrower the possibility of a reduction in the standard rate becomes less. The tax is now spread over fewer and fewer people and the logical conclusion to this progressive nibbling away year after year is that, sooner or later, the whole £10,000,000 will be collected from 2,000 people. When we get to that stage, the only possible way in which an increase in the yield of income-tax can be secured is by a very stiff rise in the rate. I suggest that every time the area of impact of income-tax is narrowed, the burden on the wretched people who are still inside the net must become greater and, instead of it being a matter of congratulation for the Minister for Finance that there is a narrowing of the net, so to speak, it should be a matter of apology, if not of shame.
There is one feature of the present Finance Bill which to me is suggestive —maybe because I have a suspicious or evil mind—that is, the way it is stated that no person with less than £250 a year will be liable to any income-tax in the future. When the late Minister for Finance was introducing this Bill in the Dáil he stated that this would mean that no agricultural labourer in the future would be liable to pay tax. My mind began to dwell on the association of ideas between these two statements and the conclusion I came to was that, owing to the favourable assessment of farmers, the position has arisen that agricultural labourers are being assessed for tax and that when they refuse to pay it, or fall into arrears, their employers —many of whom are rich farmers—are being called on by the Revenue Commissioners to deduct tax from wages. It has reached a perfectly absurd state of affairs that a comparatively rich farmer who, owing to the differential basis of assessment, is not paying tax, is deducting a shilling or two each week from agricultural labourers, owing to their arrears of tax.
If this suspicion of mine is correct, we are driven to this conclusion, that the minimum income ever liable to income-tax will in future be fixed by the Agricultural Wages Board. If agricultural wages rise to £6 a week, we then will be assured that no one with less than £300 a year will in any circumstances whatsoever be asked to pay income-tax; because, if they were, a rich farmer might be asked to take a shilling or two each week from some poor labourer working on his estate, for arrears of tax. That is what used to be called in my school days a reductio ad absurdum.
The exemption of all incomes up to £250 has the effect of pressing the income-tax more and more severely on the salaried or white-collar class. We have already gone into this fully in the Seanad, that Schedule E accounts for more than its fair share of tax. Now that all incomes up to £250 are exempted, a very large part of manual workers will escape tax altogether. Therefore, the impact becomes more and more narrowly driven in on the white collar or salaried class. This is brought out very clearly in the statement on the Budget from which I have already quoted, prepared by the Irish Conference of Professional and Service Associations, where it is stated:—
"In spite of the reliefs given in the Budget, the incidence of direct taxation still bears unjustly and unduly on a very limited number of citizens. It is estimated that some 151,000 taxpayers are assessed under Schedule E and that the tax collected from them amounts to approximately £9,500,000. This means that those citizens are paying on an average £1 4s. 6d. per week in direct taxation. The average income of the person so taxed is £550 and when it is remembered that they also pay a considerable share of that income in indirect taxation, rates and welfare contributions, it has to be admitted that they bear a very undue share of the cost of running the country."
The Irish Conference of Professional and Service Association have elaborated that point in a memorandum they have submitted to the Committee on Income-tax Reform, in which they give the following striking figures. They show the percentage of the total income-tax collected in the year 1951-52 under the different schedules, with the following result: Schedule A, 4.21 per cent.; B, 1.07; C, 1.2; D, 41.55; E, 52.2. They followed that up with what I can only describe as a very remarkable comparison between the amount of income enjoyed and the amount of income-tax paid by different sections of the community. The figures given in the memorandum—which as I say, is before the Committee on Taxation—are as follows. The income of the community is divided into four classes:—(1) agricultural; (2) company profits; (3) other profits, professional earnings, etc.; (4) salary and wage earners.
I need not give all the figures, as the Minister has a copy of this memorandum. In the first column is given the amount of the national income estimated to be enjoyed under each of these categories. In the next column is given the amount of tax paid by the people in each of these categories. In the last column, which I am going to quote, the income-tax paid is stated as a percentage of the income received in each of these categories. The following figures are, I think, impressive— Income-tax as a percentage of the national income enjoyed: (1) agriculture, 0.51; (2) company profits, 13.3; other profits, professional earnings, etc., 7.0; salary and wage earners, 5.6. The contrast between salary and wage earners and the agricultural community is, to say the least of it, rather striking.
I would ask the Minister if he has already been struck by a certain inconsistency in his predecessor's Budget. The late Minister for Finance boasted that no person with an income of less than £250 would pay income-tax in future. We may take it, therefore, that that is officially regarded as the irreducible amount of income which is necessary to a person to live. If that assumption is correct, the personal allowance should be £250, not £150. It seems to me that one of the two figures is wrong and that there is a clear inconsistency. If no person with a total income of less than £250 should ever be liable to income-tax, the first £250 of every taxpayer's income should be free of tax.
This is a new inconsistency introduced into this Budget for the first time. In previous years there was a direct relation or identity between the personal allowance and the minimum taxable income. Now, owing, as I suggest, to the difficulty regarding the rise in farm wages, we have an inconsistency. If £250 is the absolute minimum income that can stand any income-tax, every taxpayer whoever it may be—whether he be a company director or a salaried worker, civil servant or a teacher—should have £250 free of tax. I would ask the Minister to apply his mind to that inconsistency in his predecessor's Budget—an inconsistency of which I do not believe a man of his own logical mind would be guilty.
I wish the Minister would apply his attention to this whole question in an open and liberal manner. After all, the five schedules A, B, C, D and E were not handed down with the Tables of the Law. There is nothing sacred about them. They are the creature of William Pitt during the French War. Yet they have become so much a part of our lives and, for some of us, a part of our dreams and nightmares that it has now become almost elementary that they cannot be altered. The fact of the matter is that the figures I have already quoted show they are entirely unjust and unsuitable for the circumstances of this country. I would ask the Minister coming with a fresh mind to these very difficult problems to face them in a way that they have not been faced before. I would ask him to consider whether or not these five schedules are in the same category as the Tables of the Law handed down from Heaven. I suggest they are not of that degree of sacredness and that they are quite capable of being amended or, if it is not disrespectful to the Revenue Commissioners to say so, even improved.
I want to suggest that other forms of taxation exist in other countries. If the income-tax is as unjust and as unsuitable for this country as I have suggested, I think it would be rather unfair for me to finish without throwing out at least a suggestion to the Minister and one which may be brought before the commission, assuming the Minister widens their terms of reference in an appropriate manner. I do not for a moment claim to have thought fully about this matter. I have no doubt but that a great many objections will be made to it and a great many points will be raised which have not occurred to my mind. But I throw these suggestions out for discussion in the Seanad and for reflection by the Minister. In the peculiar circumstances of this country, I suggest the same amount of revenue now raised by income-tax could be raised more easily and more cheaply and more equitably by means of a purchase or a sales tax. Such taxes are collected in many other countries and they seem to work reasonably well. The first great advantage of a purchase tax or a sales tax is ease of collection. All that has to be done is to take the Schedule to the Finance Bill—which now includes beer, spirits, tobacco and a few other dutiable commodities—and simply to lengthen it to include boots, shoes, household goods, and so forth. The collection of these taxes is impersonal. There is no inquisition.
I think I have made some valid points in criticising the income-tax code in this country. They have been financial points and moral points connected with the equity of the policy. However, as a citizen and as a member of the Seanad, I think I may say that the greatest objection I have to income-tax is the amount of prying and inquisition into the private affairs of people which the tax necessarily imposes. I do not blame the Revenue Commissioners: everybody's hand is against them. The collection of income-tax in this country is almost like a hunt where you have large packs of well fed hounds hunting half famished foxes. That is the picture as I see it. When the animal is dug out he is subjected to something which could be likened only to third degree and to the sort of things we read about as taking place in less free countries than this.
I seriously suggest that income-tax involves an inquisition into private affairs. It involves a lack of privacy which would be completely absent in an impersonal sales tax or purchase tax of the kind I suggest. Another great advantage—and this is on the financial side and it should appeal to the Minister—is that every Minister, including the Minister who is present to-day, on practically every occasion on which he appears in public praises the virtue of thrift, the virtue of saving. We hear remarks to the effect that our industrial progress depends on investment and investment depends on saving, so let us all save more. May I point out to the Minister that the income-tax code as we know it to-day directly discourages saving whereas a purchase tax directly encourages saving?
Income-tax is discouraging to saving for the reason that a person pays income-tax on the whole of his income —on that part which he spends and on that part which he saves. On that part of his income which he spends, he pays income-tax only once, but on that part of his income which he saves and invests in income-yielding securities he continues to pay income-tax year after year. That is a well-known criticism of the present code. It is not an original criticism: you will read it in any elementary book on public finance. Compared with that, a purchase tax has the advantage that nobody pays any tax on that part of his income which he does not spend. That part of a man's income which he chooses to save is free of tax. If the Minister for Finance is sincere in his desire to encourage thrift and saving, I suggest that here is a weapon ready to his hand—a system of taxation which does not tax savings and which does tax spending.
It has been suggested that a tax of this kind is unfair to the poor. In other countries it has been graduated in such a way as to fall more heavily on the purchases of the rich people than on those of the poor. In Britain, during and since the war, many experiments in the graduation of purchase tax have been tried and many of them have been successful. There is no reason why the progressive principle should not be applied to purchase tax. It has also been suggested that it cannot be adjusted to the taxable capacity of the taxpayers in the way that income-tax is by children's and dependents' allowances. The answer to that is that increased children's allowances and increased social services and allowances to dependents, wives and children, educational allowances, and so forth, can give an equivalent amount of relief to the parents of families to that which they now derive under the income-tax code.
It may be said that no differentiation is made in purchase tax between taxation of earned and unearned income. One of the features of our income-tax code is that people pay at a higher rate on income derived from property than on income derived from their own labour. Most people will agree that that is a fair distinction. A purchase tax can continue to operate that distinction if it is accompanied by high graduated death duties. My suggestion for the substitution of a purchase tax for income-tax does not include the abolition of death duties. Death duties can still be retained as the main direct tax. In so far as people have increased their capital wealth by speculation or otherwise, that can be taxed at death, and in that way an effective distinction can be made between taxation on earned and unearned income.
On a couple of occasions when I have discussed this matter with students in my college, they have raised the objection that when they read the English financial papers they see a great desire to abolish the purchase tax—everybody complaining about the purchase tax there while I am advocating a purchase tax for Ireland. The answer to that is this—that in England the purchase tax is on top of 9/-income-tax and so felt as a very heavy fiscal burden, whereas my suggestion is that purchase tax should not be an addition to income-tax but instead of income-tax. The proposals I make would involve no additional burden on the taxpayers as a whole.
These suggestions are made to the Minister merely to show that alternatives do exist, that I am not merely complaining of a tax which many of us do not like. I wish to end as I began, by welcoming the new Minister for Finance to the Seanad, by hoping that he will have many years of office before him, that he will introduce many Finance Bills into the Seanad, and that between now and the next Finance Bill he will apply his mind to these problems in a fresh and original way. The present Minister for Finance is a young man. He has many years of life and office before him, and can if he wishes establish a great reputation in the history of this country. As I have said, since the Treaty we have followed the English tax code slavishly without any real originality or any thought of our own. Over the years great Chancellors of the Exchequer in England have made reputations by adjusting the tax system to a new situation. In the 40's Sir Robert Peel scrapped the whole old-fashioned out-of-date tax system and introduced new taxes. Gladstone did something of the same kind in the 50's; and in the years before the first World War Lloyd George overhauled the tax system. Whether one agrees or disagrees with some of the things these statesmen did, the point is that at least they had originality to apply new taxes in a new situation. Here are three Chancellors of the Exchequer who have gone down to history as people who had courage and originality to deal with a dynamic situation in a dynamic manner. I appeal to the present Minister for Finance to be the first of a long line of Ministers for Finance who will go down to history with a similar record.
