As I said yesterday evening, I feel this is a very comprehensive Bill and one of the most important Bills we deal with during the year. It also requires great expertise and knowledge in the area of accountancy and fiscal matters which I do not have. Therefore, I will not make an extended contribution. I will deal with some of the areas in which I have a particular concern and leave the other matters to those who have a better knowledge of them.
I was dealing with the family and the stresses on the family yesterday evening and I gave figures to illustrate the point I was making with regard to these stresses and problems in relation to budgetary strategy over the past number of years. I will refer briefly to those first figures again. The table I gave showed that for a single person the tax free allowance in 1970-71 was £249. In 1975-76 it was £575; in 1980-81 it was £1,115; 1985-86 it was £1,900; and this year it is £2,000. The child's tax free allowance in 1970-71 was £135; in 1975 it was £230; in 1980-81 it was £195; in 1985-86 it was £100; and this year it is nil. I gave the percentage over that time of the child's tax free allowance in relation to single persons and in 1970-71 it was 54.21 per cent; in 1975-76 it was 40 per cent; in 1980-81 it was 17.49 per cent; in 1985-86 it was 5.26 per cent; and this year it is nil. We have a decreasing percentage there all the time which underlines and emphasises the point I am trying to make. The logic of this regression of the child's tax free allowance is that families with children are being pushed more and more into the poverty trap. They are being asked to pay an undue and higher proportion of the tax burden.
I then moved on to another set of figures which I had not completed yesterday evening. I would like to go through them again very briefly. In 1975 the Consumer Price Index base was 100 and in 1985 this had increased to 343.6 per cent. The single person's tax-free allowance in 1975 was £575 and in 1985, if it were to be in correct proportion to the consumer price index it should have been £1,975.70; in fact, it was £1,900, not that much less; and this year it is £2,000. When we begin to deal with married couples there is a problem in having a straight relationship between the figures because married couple's tax free allowance was £920 in 1975; again, in 1985, this should have been £3,161. There was a working wife's allowance of £230 which in 1985 should have been £750. The total in 1985 should have been £3,951. The actual figure was £3,800 — again not a considerable difference. This year the figure is £4,000.
In 1975, there was a year of marriage allowance of £100 which was introduced in the late sixties. In 1985 this should have been £343 to keep in touch with the consumer price index. It was continued in the early eighties. The child tax free allowance in 1975 was £230 and it should have been £790. In 1985, it was £100. This year it is gone. From the point of view of the family with children this table paints a bleak picture. While allowances for single persons and married couples marginally failed to keep pace with inflation, the allowance for children fell away and finally died this year.
In terms of money in the pocket let us look at what happens. For a family with four children the relative loss in tax free allowances compared with 1975 is four multiplied by £790, which is a figure of £3,160. To a family where the wage-earner is paying tax at the standard rate of 35 per cent the out-of-pocket loss is £1,106. This is a loss which the average family or, indeed, any family, could not sustain. Of course, the larger the family the greater the financial loss. The Minister and the Department and the Government should not feel proud of this development.
I quote figures from the supplement to the Administration Year Book and Diary for March 1986, giving changes in income tax resulting from the budget and the reduction due to the changes in the budget. Just taking the one income of £9,000 — incomes from £9,000 to £30,000 per year are covered in this but I will take the lowest — for the PAYE individual, a single person, the tax liability on an income of £9,000 will be £2,275.72. The reduction amounted to £212. For a married couple without children, one spouse earning, tax liability is £1,404.90, a reduction of £195. For a married couple with three children, one spouse earning, tax liability is £1,404.90 — reduction £90. For a married couple without children, both spouses earning, tax liability is £1,059.80 — reduction £230. There are more figures given in Schedule E which there is no point in quoting. It is clear there that the least reduction is for the married couple with three children and the discrepancy increases as the number of the family increases. This is patently wrong.
I could say in passing — and this is in the area of demography and demographic trends, which is a very specialised area, there is that undercurrent which is worldwide to discourage large families. It is an approach with which I do not disagree indeed — people must be responsible in that regard — but if that is the underlying notion it should be clearly stated because that, at any rate, is the effect.
Could I also say in passing — and I suppose it has nothing to do with the Finance Bill but just as a sidelight from my point of view — we had in the late 1900s a population explosion which apparently the historians are unable to account for. It was a worldwide trend and in some way the figures could be related to tax also because prior to that there was no proper census and the figures were based on tax returns, which again gave a wrong picture. In years to come when people look back at the situation and the change in the birth rate — it is not all that significant — they will certainly be able to trace it to policy in this country and abroad. France is an example in this regard where there is deliberate government policy to reduce the birth rate. Also, could I say in passing that the birth rate has decreased from 21.8 per 1,000 in 1980 to 18.2 in 1984 the last year for which figures are available. There was a downward trend over all of that period.
It is worth noting that the year of marriage allowance has also disappeared in recent years. It seems then that we are to understand that marriage and children are being discouraged. Perhaps my reference to this would encourage the Minister to rethink this policy particularly in view of the falling number of births in the country for the last five years. The Government are already reducing the population by forcing people to emigrate and I am sure that we do not want further to reduce the population by discouraging marriage and children in the family.
The general policy is to discourage marriage because, if we take persons who qualify for medical cards the qualifying limit for a married couple is not twice that of the single person and indeed for most social benefits the qualifying limit is not twice the amount of the single person. It has been often brought to the attention of the Minister in this House that two unmarried persons cohabiting would be in a better position financially than a married couple. Therefore, there is that stress on marriage that I have referred to and this is a continuation of it.
As I said at the start I am not an expert in this area — I know it is easy to be critical — but I am making my views known in a constructive sense. It is unfortunate, having regard to all the stresses that the family is undergoing particularly in relation to the divorce problem which we will be dealing with next week, this extra stress is placed on the family.
The argument will be made that children's allowances and child benefit allowances make up for the loss of the tax allowance. This is not true. Taxpayers always received children's allowances and they formed an important part of their income. This year the child benefit will increase by £3 per child per month giving a total of £36 per year but the worker loses his child tax free allowance of £100. Therefore on the standard rate of tax he or she will pay out in extra £35 in tax; the net theoretical benefit will be £1 per year. I am sure our children are not expected to be appreciative of this small concession. If the worker pays a higher rate of tax he will be a net loser just because he has children. The only people who can benefit from this new arrangement are the unemployed. Cynics might justifiably say that the Government have tried to increase the number of people who will benefit from the child benefit scheme in this way. I do not think it is right that we should have 250,000 people unemployed to achieve this aim. The Minister must pay attention to this matter. The families of this country are crying out for fair play in this area. The tax code must be readjusted before further damage is done. To continue the tax free allowance for children would not be all that expensive. On the basis of figures which I have worked out, 30.3 per cent of the population in 1983 were under 14; the population was 3.483 million and therefore 1.05 million are still under 16 and in those two further years there is a further birth rate of 0.13 million making a total of roughly 1.185 million under 16 years. An allowance of £100 for those children would cost between £40 and £50 million which is not a very big figure.
The Minister tells us at different times that there is a new optimism in the economy. He and the Government must be in a world of their own because I do not see that optimism. I can see nothing but pessimism. I cannot see anything in my own area or the commercial area which would give evidence to claiming a new optimism in the economy. We are told that the Government's role is to provide the best possible environment for growth. We would all agree with that but what follows on from that does not make sense. It seems to me like the situation where somebody wants to get to a particular destination; they see the sign to go right and then they go left in the opposite direction. The whole impetus of this Finance Bill is to discourage that growth and optimism that we should have.
Inflation has been dealt with at some length. I welcome the fact that it will be lower than projected at budget time and should average not more than 3 per cent. It is an achievement. I am not too clear as to what beneficial effect it will have. I recall the previous Minister for Finance saying that it would help in some vague way with employment; it would encourage more investment. If it does that I would welcome it. This is a special area where inflation and the consequences of the reduction must be considered. The Confederation of Irish Industry have gone into this in some detail. It is stated in their publication of February, 1986 that:
Ireland's inflation rate along with many others of our trading partners has been falling and seems set to fall considerably further. This is due to the overall increased strength of the value of the Irish pound mainly against sterling and the dollar and the dramatic fall in the price of oil to $12 a barrel. It is also a response to falling inflation around the world but like any other sudden fluctuation in economic variables it needs to be managed carefully to maximise potential and minimise the problems.
It goes on to state:
The problems are more obtuse. Manufacturers are selling into an increasingly buoyant European market partly because of the transfer of spending power to the European economy as a result of oil price reductions. At the same time because inflation in other countries is falling even more sharply than it is in Ireland (inflation rates in Germany and Belgium are running at an annual rate of 1 per cent, in France and Britain at over 2 per cent) producers are facing markets with falling prices so that margins are being severely squeezed in order to maintain competitiveness. There is a lag in the rate that wage rates and other domestic costs respond to the new price environment. It is therefore essential that full cost reductions in areas of fuel and other industrial costs are passed on immediately to industrial users so that exporters do not have to bear the full impact of competition by reduced margins.
That is very important.
The Irish Press of 14 May had an article headed “Inflation Drop Hits Tax Returns”, which said:
The Government's failure to anticipate a lower inflation rate will result in a drop in tax returns. The original tax estimates were based on prices staying at a certain level, the Taoiseach admitted yesterday.
Further on it stated that the Taoiseach said he doubted whether industry would be ready to respond quickly enough to the anticipated upward swing in the economy and a bigger growth in consumption. There we have the situation where, on one hand, we are told that the reduction in inflation is going to help and on the other hand apparently the Taoiseach is saying that it is not going to help, that we are not in a position to take advantage of it due to various reasons, the principal one being that the figures with regard to the budget were based on a certain level and we are not going to reach that. So, although, inflation is getting much lower and the Government must get credit for this, nevertheless it seems that on the basis of those figures there is an international trend and that Ireland is on this falling tide. While a certain amount of credit must go to the Government, these external forces played a very big part in that.
The Minister in his introduction to the Bill yesterday dealt with reconstruction grants and urban renewal. It is an area in which I have a very special interest. I quote from page 12 as follows:
I am pleased to report to the House that the anticipated activity in the designated areas along with the activity generated by the home improvement grants and the general pick-up in housing demand have an employment potential of more than 3,000 jobs per year.
I would like to state quite categorically with regard to the building industry that I have never seen the situation as bad. I doubt if anybody in this area has seen it worse. I do not think there is any reason to be optimistic in this regard.
With regard to the home improvement grant, which has been gone into in some detail by Senator Jim Higgins, I am not too sure it is achieving everything the Government claim. There are big problems in this regard. I welcome increased grants and the grants to local authorities for tenant purchasers. Basically, I do not see any activity generated by those grants.
In the Evening Press, 14 May 1986, the CIF criticised those grants. In relation to the regulations about home improvement grants, I made the case before that what this Government have done is to eliminate the do-it-yourself builder, the person who could not afford to employ a contractor, the person with very small means who, through hard work, provided an extension to his home. That person can no longer do so and this is unfortunate. It is wrong. It is not encouraging people to improve their housing stock. Many of the people who apply for grants feel that they are going to get a sufficient grant to do all the work whereas it is related only to a percentage of the work. The CIF have criticised the estimates for these works in that they are far too low. The Minister for Finance told us some time ago that he intended to bring in the same rules for new houses. This is unfortunate. It is a total change from the position we knew in this country. Even in the United Kingdom, there is a 50 per cent grant for the materials used in do-it-yourself home improvement. I fail to see how that cannot be done here.
I have pointed out at some length previously on a motion on the Adjournment that with regard to the black economy, I am totally against activity in this area as every normal person is, but there should have been some other way to overcome this problem.