Traditionally the Finance Bill gives the Seanad an opportunity to discuss the provision of the Budget. I propose, therefore, before coming to the specific provisions of the Bill, to indicate the main features of the Budget presented last April and the economic climate in which it was drawn up.
The background of this year's Budget was dominated by inflation. While inflation is not of course a phenomenon confined to Ireland its pace in this country is nevertheless becoming a cause for serious concern. The main reason for the recent acceleration of inflationary pressures in our economy has been the excessive income increases which have been spreading throughout the community since 1969. Increases in money incomes of this type, well above the growth in productivity, serve to push up prices because they outstrip the increase in the national product. In many instances, these income increases have been secured by strong organised groups as a result of a strike—or a threat of strike—without any regard for the interests of the community as a whole.
The general increase in prices brought about by these income developments was—and is—of serious concern to the Government for many reasons. In particular we are concerned about those groups in the community who are most severely affected by the resultant disimprovement in their standard of living. The people hardest hit are those who are least able to protect themselves, the old, the sick, the unemployed, pensioners and people on fixed incomes.
We were satisfied therefore that a major aim of this year's budgetary strategy should be to effect a redistribution of incomes by taking back some part of these excessive income increases and devoting it to protecting social welfare recipients and other vulnerable groups in the community from the worst consequences of those increases. Amongst those groups are persons on small incomes, on whom, because of the increase in money incomes in recent years, income tax had begun to bear increasingly heavily. We were satisfied that the time had come when some relief had to be afforded to them from the incidence of this tax. It was also, of course, necessary that the Budget should complement the monetary and credit measures which had already been taken by the Government to combat inflation and relieve the pressure on the balance of payments.
The additional taxation needed to give the necessary benefits and reliefs to the groups I have mentioned amounted to £20 million in total. The Government decided that the most equitable way for the community as a whole of securing revenue of this order was to increase the turnover tax by 2½ per cent, that is by 6d in the £ to bring it to a total of 1s in the £.
This increase in the turnover tax enabled income tax reliefs totalling £7.4 million, social welfare improvements costing £5.35 million, additional aid to agriculture of £5 million and increases in public service pensions of £1.16 million to be provided. As well a number of other measures which further reflect the social concern of the Government for the less fortunate in the community were introduced.
The substantial increases in social welfare benefits, the new schemes and the extensions to existing schemes, were fully described in this House when the legislation necessary to give effect to the measures was introduced here last week and I do not think it necessary for me to detail them again now. I should like, however, to make one point clear: it is that the increases in benefits which the social welfare beneficiaries will receive should more than offset any increase in the price of essentials resulting from the increase in the turnover tax.
The measures for farmers announced in the Budget were designed to bring about a better balance between farm and other incomes. They will bring the total Exchequer assistance to agriculture in the year to £96 million. The added reliefs will benefit producers of milk, beef, sheep and pigs and will also enable a number of existing grants to be increased and some new ones to be introduced.
Among the other new provisions in the Budget I should mention the extra money being made available to encourage local authorities and voluntary committees to continue their valuable efforts to settle itinerants in the community and educate their children. Voluntary organisations are also being assisted by a contribution of £150,000 in their very praiseworthy work in the care of the aged.
I now come to the income tax reliefs announced in the Budget for which the necessary legislative authority is being sought in the Finance Bill. These reliefs are designed primarily to benefit taxpayers on modest incomes and will as indicated cost the Exchequer £7.4 million this year.
The proposed reduction of one-third in the standard rate of income tax— from 7s to 4s 8d in the £—on the first £100 of taxable income, while of particular benefit to persons of low incomes, will represent a relief for all taxpayers and will enhance the graduated nature of the income tax code.
The minimum earned income relief of £125 for single and widowed persons and £225 for married couples is a new feature of the code which was introduced in the Budget. It will mean that
single taxpayers earning up to
widowed taxpayers earning up to
married taxpayers earning up to
will be exempt from tax. Many thousands of persons will thereby be removed from the tax net and the burden on many others will be reduced.
The married woman's earned income relief is being increased in response to many claims that the present level of the relief discourages married women from returning to employment in industry and the professions. The combined personal allowances of a married couple who are working will now equal the personal allowances of two single taxpayers.
Further income tax provisions in the Bill secure additional relief for persons with small total incomes and for the aged whether their incomes are earned or unearned and increase the dependent relative income limit from £196 to £222 so as to enable taxpayers who maintain dependent relatives with no income other than the non-contributory old age pension to continue to receive the full tax allowance when that pension is increased next month.
Other income tax provisions will relieve industrial and provident societies of the obligation to declare particulars of interest paid without deduction of tax where this is less than £70 instead of the present figure of £5; will grant the industrial building allowance to the purchaser of the building rather than to the builder; will extend the relief applicable to certain securities of Irish companies.
The Bill contains a number of measures designed to counter avoidance and ensure the equity of the tax structure. I should like to draw attention to some of these. The first ensures that certain receipts coming in after a trade, profession or vocation is discontinued will in future be taxable.
The second relates to the practice of labour only sub-contracting, or "lumping" as it is commonly called, and warrants, I think, special explanation. This practice of "lumping" has become widespread in recent years in the building industry. Many "lumpers" never complete returns of income and often escape tax completely. Section 17 is designed to tackle this problem by providing, in the first instance, for a deduction, at the rate of 7s in the £, by contractors from all payments made under a building contract to sub-contractors. To protect the position of established sub-contractors, however, I am providing that a sub-contractor with an established place of business will be furnished with a certificate by the Revenue Commissioners which will enable him to be paid without any deduction, provided he has furnished or undertakes to furnish accounts of his business. In other cases, tax will be deducted, but a provision in the section will enable such sub-contractors to claim repayment on a monthly basis of the excess of the tax deducted over their proportionate tax liability for the year.
In the estate duty field, changes are being made to prevent avoidance of duty through the medium of family companies and by way of securities which are issued subject to the condition that they be exempt from taxation in the beneficial ownership of persons who are neither domiciled nor ordinarily resident in the State.
Complaints about the complexity of the tax code are frequently heard and I am glad therefore to say that the stamp duty provisions in this Bill represent a major rationalisation of the stamp duty rating structure involving abolition of no less than 27 heads of charges, reduction of rates under other heads, particularly a 20 per cent reduction in the rate of duty on cheques and other bills of exchange drawn within the State, and increases in duty in a few cases, the most notable of which is the duty on conveyances or transfers of property other than land. This latter increase secures that the rate of duty on all property will be the same. Apart from the need to rationalise the stamp duty rating system, this increase is necessary to halt the present practice of avoiding payment of the proper amount of duty by placing an inordinate value on property such as goodwill attaching to premises, patents, licences, trade marks and copyrights, which attract at present a lower rate of duty.
I should now like to refer to the turnover tax and sales taxes in general. There has been criticism of the choice of the turnover tax for the purpose of raising the revenue necessary to achieve the desirable social and other objectives of the Budget but no one has come up with an acceptable alternative. To obtain the necessary extra revenue from income tax would have involved an increase of about 1s 9d in the £. It is clear that an increase of that order was out of the question on many grounds.
We are already over-dependent on the taxes on drink, tobacco, petrol and oil and the move to the broader base of taxation provided by the turnover tax was necessary if only for this reason. There was however another very cogent reason for such a change. It was that greater reliance on the turnover tax would facilitate the changeover to the system of added-value tax required by membership of EEC and would avoid serious disruption of our taxation system at a later stage.
The EEC system of added-value tax makes special arrangements for agriculture under which virtually all farmers are excluded from the full application of the system and the element of tax on their purchases is taken into account by means of a credit which they pass on to the buyers of their produce. It is proposed to include broadly similar provisions in our system, and these should remove virtually all of the problems which might confront farmers under an added-value tax. The changeover will also affect certain business not hitherto required to register for the purposes of the existing taxes but whose activities will be within the scope of the new tax.
I am confident that the change will not involve any serious problems for traders generally; indeed, in many cases, the operation of the new system should prove to be simpler and more straightforward than at present. To ensure a minimum of disturbance in existing business procedures it is intended to have the fullest discussions beforehand with interested bodies, and their views will be fully taken into account in framing the new provisions.
This is the first Finance Bill of the 1970s. As a nation we have just emerged from a decade of considerable material progress and stand at the threshold of another that promises well for our continued prosperity provided we avoid the heedless pursuit of narrow sectional gains. If only to avoid intolerable tensions in our society in the future the fruits of our prosperity must be equitably shared amongst us all. This, I think, our sense of social justice as a people would anyhow demand. In this we need a sense of national purpose as much now as at any time in the past and I am satisfied that the measures in this year's Budget and in the Finance Bill are a significant contribution to achieving it.
I commend the Bill to the Seanad for a Second Reading. The detailed provisions of the Bill are summarised in the explanatory memorandum circulated earlier but if Senators wish for further information on any points I shall be glad to supply it.
As indicated in the Budget statement this year the system of sales taxation known as the added-value tax has been the subject of study by my Department for some time.
The added-value tax has been developed from the experience of the operation of the older forms of sales taxation existing in most European countries for many years. It is generally recognised as the best system for efficiency of operation and adaptation to varying circumstances and changing conditions. While the existing turnover tax and wholesale tax have worked well in this country, it is apparent that the added-value system would be a more flexible one to meet the requirements of technical progress in industry and agriculture in the years ahead. Also, as indicated, it is the system of sales taxation prescribed by the Council of the EEC for adoption by its members.
In these circumstances the Government have decided in principle that an added-value tax should be introduced next year in place of the existing turnover tax and wholesale tax.
I wish to stress that the change to an added-value system would basically involve no more than a change in the method of collection—under the new system tax would be payable in fractions over the various stages of production and distribution instead of at the wholesale or retail stage under our present system.