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Seanad Éireann debate -
Thursday, 2 Jun 1983

Vol. 100 No. 14

Finance Bill, 1983 [Certified Money Bill]: Committee Stage.

Section 1 agreed to.
SECTION 2.
Question proposed: "That section 2 stand part of the Bill."

The Minister has demonstrated to us tonight his rare imaginative capacity in that he was unable to widen the 35 per cent tax band so that people would not enter the 45 per cent tax band so quickly. We are disappointed that the Minister found it necessary to introduce a top rate of 65 per cent. There should have been some provision in the budget to lighten the load of the PAYE taxpayer.

The proposal which was made in the Dáil and rejected would have cost £50 million, which is half of 1 per cent of the total expenditure in the budget. The Minister should find a way to give some encouragement to the PAYE sector. We did not put down recommendations to this section because we are mindful of the overall financial position but I ask the Minister to see what he can do to reduce the burden on the PAYE sector. The fact that the proposal made in the Dáil represents half of 1 per cent of the total budgetary provision must leave him in a position to make some adjustment.

As regards public expenditure, is it true that there are a number of State Departments and semi-State companies who have leased office blocks and have not occupied them? I believe there is a considerable sum of money being spent on this by the Government which should be avoided since they are cutting back on public expenditure. Has this anything to do with the developments in relation to disturbance money? In the last few years we have seen major scandals in relation to agreements being reached on the question of moving from old dilapidated premises into luxurious offices. These agreements have cost substantial sums of money. Taxpayers feel a sense of grievance that such luxurious offices are only occupied after strenuous negotiations which sometimes take years to finalise and cost substantial sums of money which cannot be justified.

The Senator has referred to an amendment which was proposed during the Committee Stage of this Bill in the Dáil in relation to the tax bands which would have cost £50 million. I do not criticise his arithmetic in comparing £50 million with the total of public expenditure but that is only part of the question. There is no doubt that £50 million is only a small part of the total current expenditure for this year, but to make the change that he seems to have in mind in relation to tax bands and replace the revenue from another source would be quite a different matter. I just underline that by pointing out that the introduction of the 65 per cent tax rate will produce extra revenue of £7 million this year. Members of the House will appreciate the magnitude of what would need to be done in order to replace £50 million as a result of widening the tax bands. I appreciate the basic point being made by Senator Smith about the tax bands and about the effect of our present tax bands and rates on the ordinary taxpayer. There is no doubt that it is a difficult situation. As I said on Second Stage, we have to meet these problems and in fact we are meeting only a part of the underlying problem this year. I regret that we do not have the flexibility to make a response of the kind that Senator Smith has in mind. He went on then to make some statements——

To ask some questions.

Yes, to raise some questions in relation to the occupancy of buildings, some of which I might add are owned by public authorities and some of which are rented by public authorities. I am not sure if that arises specifically on the section. I think he was raising the question in terms of making a point about the £50 million to which he referred. Of course it is rather out of proportion with the particular problem he has raised. He raised also a question about disturbance allowance. His specific question was whether the fact that a number of buildings have not yet been occupied by a number of Departments arises directly from the fact that there have been agreements on disturbance allowances. There are one or two cases where there has been a delay in moving into buildings, partly because negotiations have not been completed in relation to the conditions of transfer but I do not think it would be true to say in any general way that disturbance allowances have created that particular problem. A number of them have already been negotiated and I make the point that Senator Smith's concern about disturbance allowances comes a few months if not a couple of years too late for the particular cases that have been negotiated.

It is not the first time I have referred to this matter. I merely wanted to indicate to the Minister that I appreciate the financial constraints in which the budget had to be framed. I was rather looking to situations within public expenditure where savings could be made or where there is waste. I do not want to call it deliberate waste but it is very close to it in some circumstances that have been indicated to me. This area should provide an opportunity for the Minister to meet some alleviation of the kind that I suggested. I understand from what he has said that the amounts may not be very significant though a figure of some millions of pounds has been indicated to me.

On the last point made by the Senator, there is a well-documented file on the matter he has raised. I would ask him to consider this fact: we do not have just one kind of situation where a building has remained unoccupied for some time. There is a series of different situations. Without going into all the details here I would say that I share Senator Smith's concern with making sure that we get value for the expenditure that has been incurred in relation to these buildings. There are a number of different situations. There are cases where we have leases, one of the terms of which is that the tenant, that is, the Department concerned, agrees to take over a building and to pay the rent on the property while the interior of it is being fitted out in accordance with the specifications of the Department who are to move into it. That has given rise in some cases to an expenditure on rental without our having the benefit of the space itself. That is one kind of situation that has arisen. Another situation that has arisen in some cases is where a building for one reason or another has been acquired on particular terms and the Department who were to move into it have not been ready to move on the date that the building actually became available, either because of organisational problems in the Department or because negotiations with the staff have not been concluded on a particular point. There is a range of situations but I agree that we should try as far as we can to match the availability of buildings more immediately with the readiness of Departments to make the move, if a move is required.

The Minister has suggested that the cost of widening the tax band from what is done in Part I here would be about £50 million and that the loss of revenue by not raising the upper limit to 65 per cent would be about £7 million. What worries me about this is that this is a withdrawing from the free economy of about £7 million in the Minister's terms. I wonder if that £7 million would be better left in the economy rather than being dragged into the tax net and used within the public spending area. One of the constraints we have is that there is a lack of spending power right throughout the economy and what is suggested here is a narrowing of the tax bands on the one hand and a raising of the upper limit on the other hand which means that there is a withdrawal from the economy. The Minister mentioned the cost of, leaving the bands wider on the one hand, the cost of not applying the 65 per cent rate at the higher level, and to me it would appear much better at a time when the economy is slack if this money were left to people to spend. We have the constraints at present on spending because of people out of work. We have constraints on income. We have constraints all over the place. If this money were left to the economy to spend the Government would get revenue back by way of direct taxes. There would possibly be more jobs, but as it is this money is being dragged into the taxation net and nobody knows where it is going to go.

I just make the point that the amounts of money being raised in the various forms of taxation are not being withdrawn from the economy. As Senator Lanigan says, they are coming into the Exchequer and then being used for the purposes which the Exchequer sees fit to spend them on. They are not being withdrawn from the economy. The question that Senator Lanigan is raising is a wider one. I think basically the question he is asking is this: is it necessarily the case that governments are more efficient at spending people's money than the people themselves would be were the choice left in their hands? We might all have our own ideas about that.

The situation in which we find ourselves, however, is that if the Government do not take tax revenue on the scale we are talking about this year, without changing the expenditure side, they will inevitably be forced to borrow the rest and if they are not going to borrow it, then they must bring about changes on the expenditure side. Borrowing creates the problem that we are building up a repayment commitment, so we are landing ourselves with the same problem in future years. Further reductions of expenditure, on the other hand, create their own difficulties for the buoyancy of the economy. In essence what I am saying is that the overall balance of the budget as presented is the one which in the circumstances we think is best adapted to the situation in which we find ourselves this year and is best adapted to the kind of programme we see for the next three or four years for making progress with the central budgetary problem, that is, regaining a greater extent of control over our own resources.

I accept what the Minister says that it is a matter of choice as to whether the people use the money themselves or are dragged into the taxation net and the Government spend it. The choice should be left to the people. The Minister is going against the principles or the conclusions of the Commission of Taxation which stated that the income tax bands should be at a single rate, lower than at present, and on all types of income. The conclusions of the Commission of Taxation have not yet been discussed.

I referred in my Second Stage speech to some difficulty about the 65 per cent, not from the point of view of any personal obligation to pay it. The combination of circumstances will ensure that I will not go anywhere hear the 65 per cent bracket in respect of last year's income with the amount of time that I am spending in politics.

The Senator should be more ambitious.

I would like to ask the Minister whether he has given any thought to the level of income taxation that he would like to see. I am not suggesting that we can reduce from 65p in the £ this year. I recognise the necessity for having the 65 per cent rate this year and probably next year, until such time as we have got our finances under control. Where are we going? What is our objective? What do we consider to be the maximum reasonable rate for income?

Much of our problem — and this has applied to all Governments — is that Governments have not set themselves objectives. They have never told the people where they wanted to go and therefore the people have never been able to criticise them when they did not arrive there. That is politically very wise, but we are not here in the Seanad to get involved in political arguments. We are here to try to expand the general information available to the public; that is one of our important functions. Therefore I would like to ask the Minister where he wants to go, allowing for the fact that we are not going to get there this year or next year. Where in four, five or ten years time does he want us to go in terms of taxation on the top rate of a person's earned income?

From remarks I made earlier it would be fairly easy to conclude that my personal preference would be to arrive at an overall rate of taxation, both income and general taxation, lower than we have now. I do not think anybody here would disagree. There has been quite a deal of discussion both here and in the Dáil about the perceived disincentive effects of our present level of taxation. It is a purely personal view that in the first instance I would like to see over the medium to longer-term a move towards lower rates of taxation. That is only a part of the picture because we would have to look at the surrounding circumstances of a lower rate of taxation and we can conceive of several different situations.

If we had again a period of rapid economic growth, for example, we might be able to conceive of a situation in which we had a lower rate of taxation and a steady or even increasing real level of public expenditure. With a lower rate of economic growth a lower rate of taxation would inevitably mean some reduction in the real growth of public expenditure.

To reply to Senator O'Leary's question, if we talk only about taxation my own preference would be to move towards a situation when we would have a lower rate of taxation, but taxation is only one part of the picture. The rest of the picture depends very much on what rate of real growth in the economy we can achieve because that, plus what we feel about the level of taxation, will be conditioned to a large extent by the surrounding real growth in the economy.

I would not wish my colleagues on both sides of the House to run away with the idea that I feel we should abdicate our responsibility to the poorer sections who are dependent on people in a privileged position with taxable incomes of £10,000 and £20,000. We seem to be worried about the contributions from them when there are many people in sections who are totally dependent——

We are talking about narrowing the bands.

I want to ensure that there is money to distribute.

There is an increase at the top. Nobody is cribbing.

Not this year.

Do not run away with the idea then that there are not people who are dependent.

The Minister has told us that the yield from the 65 per cent is approximately £7 million. Whatever about the difficulties of raising £50 million, it would be an exaggeration to say that finding £7 million elsewhere would be an impossible or very difficult task. The real fact is that the 65 per cent band was not introduced, strictly speaking, for the purpose of raising tax. It was a kind of a sop given by the Minister to his socialist colleagues, if that is not too imaginative a term by which to describe the Labour Party, a sop to show that his heart was in the right place and so on. It merely comes within the category of window-dressing to show that everybody, including the very rich, will be hard hit. To that extent, of course, it will be irresponsible because anything that is merely window-dressing, that is merely giving a sop to somebody, is irresponsible if the cost of doing it is a serious cost.

It can be argued that the disincentive which results from this 65 per cent is a very serious disincentive. It will have a very bad effect on the economy in general because there is a kind of psychological barrier up to 60 per cent for anybody.

Senator Ferris was talking about the very rich but some of the people who will have to pay the 65 per cent will be earning salaries as low as £10,000 or even lower. What we are having is an income tax band now which will have a very serious disincentive effect for people right down to quite low salaries. That is going to have a bad effect on the economy generally. If it was really necessary, that is one thing; but I am afraid it was not really necessary. It is just a window-dressing, an effort to show that everybody had to suffer. In the long run, if we balance one thing with the other — the amount raised on the one hand, a comparatively small sum, and the harm that is being done on the other hand — it represents a feature of the budget which will be difficult to justify. It is unfortunate that it was introduced not to raise taxation but for window-dressing purposes to give a sop to the Labour Party, and certain other people, the unions.

An Leas-Chathaoirleach

I understand that we are to adjourn the debate now but before I call on Senator Brendan Ryan for the Adjournment Matter is the Leader of the House in a position to say when we will sit again?

It is proposed to adjourn until 10.30 a.m. tomorrow.

Progress reported; Committee to sit again.
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