The overall time limit on this debate is two hours. The Minister is allowed 15 minutes; the proposer of the motion is allowed 12 minutes; other Senators are allowed eight minutes; and the proposer has five minutes to reply.
Residential Property Tax: Motion.
Acting Chairman
I move:
That Seanad Éireann calls on the Government to withdraw the changes in residential property tax, as proposed in the recent budget by the Minister for Finance.
This motion will hopefully highlight for the Government the huge impact this tax will have on householders all over Ireland. It has been said this tax will affect Dublin exclusively but it will impact on families and homes throughout the country. An independent body, the Irish Auctioneers and Valuers Institute, stated this tax will affect 40 per cent of households in the Dublin area. Members of the Government ignored this statement and insisted the tax will only affect 3 per cent of the population.
An ESRI report says Ireland has the highest level of home ownership in the world, with 80 per cent of properties being family-owned homes. This level of home ownership has in large measure been achieved by the policies of successive Governments which provided incentives to encourage people to buy their homes. The incentives came in the form of exemption from stamp duty on new homes; new house grants for first time house buyers; nationwide local authority house purchase schemes; life insurance relief on endowment mortgages; and significant mortgage interest relief.
The budget changes affecting the residential property tax and the reduction of mortgage interest relief are clear indications of a complete change in Government policy on family home ownership. Many families who have improved their homes and borrowed extensively will, because of these changes, find themselves caught for a further tax liability they had not foreseen.
The budget changes are a two pronged attack on the family home. The lowering of the threshold on house value to £75,000 and the family income level to £25,000, coupled with a 10 per cent reduction in mortgage interest relief, will have a serious impact on the standard of living of many families. The changes are anti-family and anti-home and that is why there has been such a public outcry against these proposals. The family home or residential property tax is in plain language a return of rates on domestic dwellings. Rates are back, with the difference that the funds will not be spent locally as in the past but will go into central funds.
The Tánaiste, Deputy Spring, has stated the opposition to these changes is media driven. The Tánaiste and the Government are ignoring the real concerns of people affected by this tax. All household income is taken into account, while ignoring the substantial mortgage commitments attaching to most of these homes. In many instances a family home can be mortgaged up to 90 per cent of its value.
The Government has stated it will examine any anomalies that may arise. However the clear signal from all senior members of Government, including the Taoiseach, is that there will be no real or substantial changes to the proposals outlined in the budget. This morning in the Dáil the Taoiseach has come down strongly in favour of this family home tax. It is now definitely Government policy.
The policy of the Government is obviously to use this family home tax as a major source of revenue collection in the future. The increases will be seen in future budgets, with property values and income levels being reduced and the tax rate increased. As the Minister for Finance sees the current tax affecting only 3 per cent of the population, it is easy to see he intends to extend this measure further to broaden the tax base.
The Minister has stated these proposals are a once-off charge. Those who saw car tax abolished by Fianna Fáil in 1977 now see a change in policy where the same party will allow the State to seize and sell an untaxed car under the new Road Traffic Bill.
We said the 1 per cent levy was a once-off charge and it is now gone. The Senator should start to believe us.
Words carry little weight in some instances. That is why there is nationwide fear and dread about these proposals.
This tax is based on self-assessment. A family submits the valuation of the home. The Revenue Commissioners can, at any time in the future, re-open the question of the valuation submitted by the owner, whether based on neighbourhood values or otherwise. The commissioners are empowered to levy a tax based on their revised value and impose penalties and interest at 15 per cent for non-payment of tax they claim is outstanding and where the taxpayer was unaware any liability existed. If the outstanding tax is unpaid interest continues to fall due and remains as a charge on the property. The residential property tax is therefore by its nature a direct attack on the family home. People will not be allowed to sell their homes unless they get a clearance certificate from the Revenue Commissioners, so they will be caught in that way also.
This tax is neither equitable nor fair and strikes at the nature of the Irish people. Rather than encouraging families to improve their homes, these measures will act as a deterrent. It resembles the old penal taxes in Ireland where tenants had to pay for any improvements carried out on their properties.
Over the next three to four years of this coalition Government, this tax will hit people on all income levels in all homes across Ireland. The Government has said the reaction is out of proportion to the impact of the tax, yet each of the Government parties is trying to evade the responsibility and the odium attaching to it. The Government should accept the motion and withdraw these changes.
I second the motion and call on the Minister for Finance to withdraw this penal and inequitable tax. The residential property tax in the 1994 budget is totally inequitable in that the value of the property affected has been reduced to £75,000 and the income threshold has been reduced to £25,000. In addition, one must look at the situation in which it occurs. Just over a year ago, both parties now in Government gave firm commitments to the electorate that this would not occur when they entered Government. In particular, the Labour Party gave specific promises in the newspapers. Its leader, Deputy Spring, stated clearly at that time that Labour had no plans to introduce a new property tax and would not reduce mortgage interest relief or VHI tax relief. These are just some of the clear commitments that were given to the electorate and it voted for that party on the strength of them. The Government has reneged completely on commitments given to the electorate and it is time for it to withdraw this inequitable tax.
As Senator Enright stated, this tax is totally anti-family in so far as the entire family income in a property will be taken into account. I give the example of two old age pensioners living alone who receive approximately £5,000 or over a year. They have a son or daughter living with them who has a salary of £21-22,000. That family will be subject to this penal tax. They may have bought their house six years ago for £60-66,000, but as a result of an increase in value it is now worth £75,000. These people will now have to pay the tax. In those circumstances, people will be forced to leave the family home and find accommodation elsewhere. In many instances this will cause an additional burden on the State because it will have to provide home help where the son or daughter who was living in the home traditionally provided that assistance to their parents.
We have a high incidence of home ownership in this country. This tax is particularly anti-urban. People in the average towns in Ireland, quite apart from those living in cities, will be subject to this dreadful tax. It is an assault on the fundamental tradition of home ownership, which is very much part of the Irish scene and quite different from the experience of other parts of Europe. I appeal to the Minister to take this matter into account. We must recognise that the majority of houses are mortgaged to the hilt and their owners are taxed to the limit. The Government is proposing to impose a further penal tax. It is totally unacceptable and the Minister has no choice but to withdraw it.
The Government has stated its commitment to job creation. The Minister for Finance stated that 9,000 extra jobs would be created in the building and construction industry during 1993. However, we saw the loss of over 6,000 jobs last year and if this tax is imposed we will see further job losses in the building industry. I refer in particular to small building contractors and tradesmen, such as carpenters, who put extensions on to people's houses and do basic home improvements. People will be reluctant to proceed with this type of work because it will give additional value to their house and bring them into the tax net. The result will be that many small builders will be put out of employment.
That is crazy.
I urge the Minister to take this matter into consideration.
The yield is £5 million a year.
Acting Chairman
No interruptions, please.
This is a reality and the sooner the Government parties recognise it the better. As a result of the imposition of this tax, more and more people will not carry out the necessary improvements to their homes. In years to come we will see a future Government forced into the position of reintroducing home improvement grants to bring up the standard of dwellings across the country. I appeal to the Minister to take these serious matters into consideration. I also appeal to him to recognise the anti-urban trend involved in introducing this taxation. This penal tax will force people on a limited income, who are mortgaged and taxed to the hilt, to sell their homes and buy other houses of a lower value. Houses which are currently valued at approximately £60,000 will be caught in this tax net in another four or five years. The Minister says this will be index linked. In 1992, we heard the Taoiseach, then Minister for Finance, make the same hollow promise. As Taoiseach he has presided over a Government that has proceeded to reduce the valuation and income thresholds and break promises and commitments he made as Minister for Finance in 1992. The Government cannot stand with any honour or dignity in relation to this tax. It must recognise that is it a fiasco, that it is inequitable and withdraw it immediately.
I move amendment No. 1:
To delete all words after "That" and substitute the following:
Seanad Éireann supports the limited extension of the scope of the residential property tax as outlined in the budget, as part of an overall strategy for reducing the levels of income taxation and improving the equity of the tax system through broadening the tax base, and for curtailing the relative tax advantages of investment in dearer residential property as compared with industrial and commercial investments which are essential for employment growth. Seanad Éireann notes in this connection that the Government has indicated that they will examine possible anomalies in the extension of the tax in particular circumstances with a view to catering for them in the forthcoming Finance Bill.
It is significant that Fine Gael in introducing its motion has made no reference whatsoever to the overall budget strategy or to the place of this taxation increase in that strategy. We are discussing, in a total Government expenditure of over £12 billion, a tax imposition of £5 million, representing .04 per cent of GNP. At a time of concern for employment, the people expect to hear more from Fine Gael about its strategy, its priorities and how it would propose to implement them, as distinct from concentrating on one minuscule element of the budget. It must be seen in its overall context.
This budget has two central themes. The first is to boost economic activity and employment creation and pari passu to begin a new phase of tax reform. The budget is based on a net increase of 21,000 in employment in 1994. That will be the largest increase in employment since 1989-90. Since the Government of which I was a member came into office in 1987 in succession to the Fine Gael dominated coalition Government——
The Senator did not have that monkey on his back in 1987.
I do not think the Senator was a member of Fine Gael in 1987. Take it easy.
——net employment increased by 56,000, thereby reversing the disastrous decline up to then. The second point which must be remembered about budget strategy is that we have to give signals to the outside world. We must abide by disciplines which we accepted in the Maastricht Treaty. It is significant in that context that Ireland is now the only country to remain within the Maastricht guidelines while, at the same time, reducing the overall taxation level. That is no mean achievement at a time when that is the base on which economic activity is constructed. By way of illustration, the debt GNP ratio was reduced from 127 per cent of GNP in 1986 to 100 per cent in 1992 and it is still reducing. In addition we have the lowest rate of inflation in Europe.
The strategy which the Government is continuing to pursue of reducing taxation by reducing public expenditure is the only honest and consistent way of correcting the problems we have had in this economy over the years. I was crucified by my colleagues in Fine Gael, who were in the Dáil with me, for reducing the budget estimates for the former ACOT and the former An Foras Talúntais from £35 million to £28 million. This was an unpopular measure, but we did it because we knew it was necessary to reduce the level of taxation and to get Government expenditure in order. Does anyone now hear of a farmer, or anyone else, complaining about the fact that there are inadequate resources for Teagasc? We took the tough decision and did the right thing, and those who took the popular attitude must recognise that one is obliged in political activity to have a level of consistency.
The overall level of public expenditure is reducing. Total Government expenditure was 52 per cent of GNP in 1986, whereas in 1994 it is expected to remain more than 10 per cent lower than this at around 41 per cent. Are these facts to be dismissed as being of no consequence? Recent figures from the EU illustrate that Ireland has the lowest public expenditure as a percentage of GDP in the EU. It is a record. Did we ever believe when Fine Gael was in Government that this would be achieved?
What about the record number of unemployed?
Regarding taxation, which puts matters in context, in the middle 1980s there was a 1 per cent income levy, introduced by the then Government, a 65 per cent top rate, and a standard rate of 35 per cent income tax. There were queues of cars crossing the Border, which I personally witnessed, and the Border regions were crucified by a lack of competitiveness. For that reason we have been careful in this and the previous budget to keep indirect tax increases at a modest level to prevent a recurrence of that situation.
A key component in public expenditure is public service pay which I will not address at present as it is a major issue. I have some familiarity with tax reform as I was the Minister for Finance who, in 1980, established the Commission on Taxation. The consequence of this was the reform proposal of Miriam Hederman O'Brien, who in the first report recommended specifically that we broaden our tax base, reduce the level of income taxation and consider the application of a range of what she hoped would be graduated and modest increases in new areas such that which the House is addressing. Fine Gael supported the recommendation and I heard Senator Enright speak to that effect in the Dáil.
The Senator's memory is better than mine.
I will get the record for the Senator.
I would like to see it.
In that context, this change is a modest contribution towards the pro employment thrust of the 1994 budget. The present tax structure tends to favour investment and housing, especially in trading up and competing for limited capital funds with opportunities for industrial and commercial investment which is an essential basis for increased employment. This is what is required.
The limited reductions in the RPT thresholds, together with the complementary changes in mortgage interest relief, must be seen as a modest move towards tilting the balance back towards investment in employment generating productive areas as an alternative to investment in property.
Such as the building industry.
The fact that the yield from this in total will be an increase from £9 million to £14 million must be viewed in this context. It represents a modest contribution to income tax improvement in the 1994 package which will cost £330 million in a full year. Taking account of marginal relief, as detailed by the Minister, and the consequences of that relief, there will be no significant adjustment for those who will be liable for the first time. The facts speak for themselves.
I welcome the Minster to the House. The budget was balanced and well thought out. I am not taking a stance on party political lines as I am an Independent. Listening to the contributions from both sides of the House, and having a certain political memory, there is little to choose between the parties. Listening to Fine Gael, one would scarcely conceive that property tax was first introduced when it was in Government. The party now appears to wish to distance itself——
Not at all.
——with at least equal enthusiasm to those in the Fianna Fáil Party who wish to distance themselves from their Labour Party colleagues.
I wish to make a couple of points about this tax in general and then make one specific plea to the Minister. The value of a house is established by self assessment. This is a dangerous concept because the value of a house is the same as the length of a piece of string. How is it assessed? For example, at a public auction there may be no bid or there may be two people interested in the house and they inflate the price of the house artificially. Is somebody in that situation going to be penalised retrospectively by the inland Revenue for a situation over which they have no control? This would be most unfair.
There are circumstances where, for example somebody invests in a house, the area in which they live becomes fashionable and they then find themselves triggered into a situation where they must pay property tax. That is unfair. I do not see why changed circumstances should catapult somebody into this bracket. On the radio this morning I heard the economics correspondent of one of the principal newspapers say that this situation was too bad and the people involved would have to sell their house. That is a radical thing to say to people simply because they have the misfortune to live in an area which is becoming popular or fashionable. They either have to pay a tax which they cannot afford or they must sell their house.
It is as well that the Senator does not have to answer to financial correspondents.
This goes back to the rack renting of the nineteenth century, when absentee landlords observed closely the operation of their peasants on their ground, and if they spotted any improvements, instead of allowing them to enjoy the benefit of their efforts in improvement, they penalised them by rack renting them.
The Senator is on thin ice.
People have been encouraged by Governments to trade up. This involves them in taking out extra mortgage responsibilities which limit their disposable income. They are now going to be caught, and they will feel aggrieved about the circumstances.
Regarding the question of how much revenue this tax will produce, that is either a fraud or a sham. If it is only £5 million, is it really worth the political backlash? If not, how much is it really going to be worth? If it is only £5 million, where is it going? The idea of handing this money, which is squeezed out of the unfortunate, prudent classes, and handing it over to the GAA for Croke Park, before it is required to allow——
That is because the Senator never played hurling.
——the playing of other games is galling. In addition, it is an insensitive measure while the GAA continues to refuse to allow members of the RUC into its ranks.
The farmers managed to get rid of the probate tax, which is another £5 million.
They did not get rid of it.
Why should the Government balance that in this way? I am not convinced that it is merely £5 million. Either there must be something more in it, or else it is a very foolish tax.
My direct plea to the Minister is based to a certain extent on personal interest. As the Minister will know, I am referring to North Great George's Street, and I am aware that he is well disposed towards that area. I do not have to pay property tax because when the assessment form was sent, I pointed our that I bought my house for £26,000 15 years ago in a situation where it had been on the market for two years and there had been an auction without a single bid. There was a brothel in the basement next door and the house was in ruins — I managed eventually to put it on the derelict sites register. On the other side was the headquarters of the Moonies. I asked how many people were going to put in a bid for that particular house.
(Interruptions.)
I have a mortgage of £60,000 and many others have mortgages because they are trying to improve their houses. Their mortgages are greater than the original value of the house. The point I want to make——
(Interruptions.)
I am tempted to use the old cliché, Senator O'Kennedy, I did not interrupt the ex-Minister, so he should not interrupt me.
In regard to heritage houses and those who took out mortgages to restore them, we went through a stage where the State was actively antagonistic towards this type of restoration. It is now neutral and attitudes are changing in regard to this process. Unlike other European countries, no grants are available for this type of restoration work. Those who put their hard earned cash into the restoration of these houses and who took out substantial mortgages will now be penalised. By their efforts they have increased the value of the house. In certain parts of the city they have increased the value of an entire area, which is socially constructive in terms of the life of a city. When they sell the house they will get a small reward for the effort they made without assistance from central funding. If there is any conviction about the importance and the necessity to conserve our architectural heritage, then listed buildings should be exempt. I would like the Minister to consider that. When we debate the Finance Bill, I will make a more detailed plea in that regard.
I refer to the question of the value of a house. I am in favour of paying for services, a tax related to income and so on. Given that it is difficult to establish the value of a house because of variables in terms of markets, auctions, etc., why not take the value of the house at the time of purchase and index it over the period of years from that time to bring it into a realistic situation in relation to current market trends? If the Minister insists on a property tax, it should be taxed on the value of the house when it was purchased. This obnoxious idea of penalising people for improving their properties and areas should be stopped. We should encourage people to improve themselves, their homes and areas. We should not go back to that awful situation, which I see as an equivalent to rack-renting decent people attempting to be prudent.
I welcome the Minister to the House. I second the amendment to the motion, which refers to the broadening of the tax base and getting rid of anomalies. We hear a lot about tax reform from all parties, but as soon as changes are made there is uproar from some of them. We also hear people talk about the poverty trap. As far as it is concerned, many people get into this situation if they get a small increase and, therefore, move into a higher tax bracket. We can only have equality in society by proper tax reform and by a widening of the tax base.
I started my first job in the 1960s and I earned £9 each week, which was a substantial amount. Each week £1 was stopped out of my earnings, consisting of one stamp and income tax. The majority of those living where I worked did not pay tax. The tax base has since broadened, but it must be further broadened to have equality in tax.
Property tax is not a new concept. I say that because the press and others have said it was introduced by the Labour Party. Property tax has been in existence since the early 1980s. Like other taxes, it was adjusted in the budget; but so too was income tax. The figures we talk about in relation to property tax are £75,000 and £100,000 and incomes of £25,000. I know of people with a small pension from their social welfare contributions and from the place they worked — for example, the county council — who pay £5 or £10 each week in income tax, but we hear little about that. Yet we hear about somebody with a house worth £100,000 and an income of £50,000, a considerable sum, who must pay £250 property tax.
I do not believe this is an excessive tax. If one goes to the bottom of the scale to pick out individual items rather than considering the tax in an overall way, one comes up with some startling figures. We must take into account the way the tax has been adjusted to 1 per cent for a house worth less than £100,000. How many people own houses worth £40,000 or £50,000 and have incomes of £20,000? One cannot isolate part of the budget and say it has to go without considering the parts which are not highlighted.
The budget focused on the lower paid. Those earning less than £9,000 each year do not live in houses worth more than £75,000 and may never earn £25,000 or £500 per week, but they are gaining as a result of the removal of the 1 per cent levy and the health, employment and training levy. Do people want to abolish property tax and bring back a levy or enforce the health, employment and training levy? There was a substantial increase in the children's allowance, and the personal allowance was increased by £350 for a couple, or £175 each. This has been overlooked in this high-powered debate about a tax which means that a person with a house worth £200,000 will have to pay £2,500, an increase of £615. I do not believe that is excessive. If a person owns a house worth more than £200,000, with an income to keep it going, this tax will not be a burden on them.
Does anyone in this House like to pay tax? I do not. Consequently, any tax which is changed, or otherwise, will meet with opposition. We must look at the budget in its overall context. Do we want to focus on the lower paid? Do we want to give substantial relief to middle income earners? With the adjustments made in the budget — the abolition of the 1 per cent income levy, the raising of the allowance by £350 for a couple and the extension in the standard rate band by £1,050 — a couple earning £25,000 gain £640, a couple earning £30,000 gain £690 and a couple earning £40,000 gain £790. This will get rid of any property tax liability. I support the amendment.
The residential property tax is unfair. It penalises people who choose to live in one part of the country rather than another. It takes no account of relative house values in different parts of the country and in different cities. For this reason it has been labelled an anti-Dublin tax. It takes no account of the wealth of the householder. Whether one owns 100, 50 or 10 percent of the family home, one pays the tax on the value of the property. How can it be equitable that someone with £120,000 in cash can purchase a house and pay the same tax on it as a person with a mortgage of £80,000, who is put to the pin of his or her collar to pay the instalments?
The tax penalises people for investing their already heavily taxed income on house improvements. The construction industry commented on this. Senator Taylor-Quinn also made this point. We are told the Government's priority is job creation, and I welcome this. When one buys a house, especially a secondhand one, it always needs repair, painting and decorating and probably an extension, which would involve a contractor. This type of work creates sustainable jobs.
People who have enough money to buy a house, but instead put it on deposit and rent a house, pay little or no tax on their deposit income and no stamp duty and do not contribute to downstream job creation. Householders and those on the dole are the losers as a result of this tax. It is inconsistent with the Government's strategy for job creation.
It penalises people when the values of their houses rise faster than their incomes. It penalises those who cannot afford the expense of an annual valuation of their property. Is it fair to ask taxpayers to place valuations on their homes? Surely the value of a house can only be determined when somebody states what he or she is prepared to pay for it. The Government ignores this reality and prefers instead to lumber people with a tax based on the notional value of their property. The new reduced threshold for payment of the tax — houses valued at £75,000 and household incomes of at least £25,000 — means we are on the slippery slope for a wide ranging revenue source. This is a worry for house owners.
The property tax cannot be taken in isolation. I am pleased to see, and welcome, the Minister for Finance. In his recent budget he also brought in regulations which will reduce mortgage interest relief and VHI insurance relief. The State has responsibility for helping the less well off, who are on social welfare. Successive Governments have come to the assistance of such people as the unemployed and lone parents. Credit must be given to the Minister for continuing in the budget to help such people. However, there is another category of people which also needs support from the Government. This consists of those who buy their own houses, pay their taxes, educate their children and send them to university. If one is earning £30,000, has two children at university and is paying medical and other expenses, one has very little left. It is unfair to tax people to that extent. The State has a responsibility to support middle income earners in raising their families. For that reason I think the tax is anti-family.
The best case which can be made against this tax has been made by members of the Minister's party. The Minister was an esteemed member of Dublin Corporation and a former Lord Mayor of Dublin. At last Monday night's meeting of the corporation prominent members of his party requested the suspension of standing orders. This was fought tooth and nail by Labour Party members of the corporation. Standing orders were suspended and a motion was proposed and passed calling for a reexamination of the residential property tax to ensure an equitable charge, ability to pay, mortgage reduction and no disruption of the family structure. Members of the Minister's own party proposed and supported that motion. Five of them are Members of the other House. I hope, when the Finance Bill is being voted on, they will have the same courage they showed on Monday night and go through the lobby with my party and vote against the Finance Bill which proposes to introduce this tax. This is the best case I can make against this tax. When members of the Minister's own party are opposing the tax, why should I add to this opposition?
Were they all at the meeting?
There can be very few debates in public life which have been associated with so much cant, humbug and absolute hypocrisy. With regard to the last contribution, I always compliment Senator Doyle on the modesty of his contributions. However, I hope, when it comes to electing people to the mayorality, one of the five people Senator Doyle mentioned and not some extraordinary rainbow candidate will have his support, given his calls for consistency. I want to deal with the hypocrisy which has surrounded this debate, particularly the hypocrisy of both of the Opposition parties. I have to say, and it is a matter of public record, that I am no great defender of property taxes and do not like them. Like another contributor——
There are more than two Opposition parties.
I will deal with your hypocrisy in a moment, Senator Dardis. Like other Members, I do not like income tax or VAT——
(Interruptions.)
An Leas-Chathaoirleach
Senator Roche, without interruption. I ask the Senator to deal with the motion.
——or any other form of tax, but I will not be painted as a hypocrite as some Members opposite are. We must recall history. A Fine Gael Minister for Finance, Deputy Dukes, introduced the residential property tax in 1983. The current leader of that party saw a further rationale for taxes on property and capital when he introduced a land tax. Fine Gael can be forgiven, given its current state of affairs, for facing in several different directions at the same time. The reality is that this party is absolutely hypocritical on this issue. To describe an imposition of £5 million in the tones used by Senator Taylor-Quinn can most charitably be described as being grotesquely over the top. This Member goes over the top every time she contributes. We must remember Fine Gael's record.
Senator Taylor-Quinn is not here. That remark is not fair.
Senator O'Kennedy spoke about Fine Gael's tax record.
An Leas-Chathaoirleach
The Senator was not named.
Yes, she was.
An Leas-Chathaoirligh
Senator Roche, without interruption.
I know the truth can pinch, but Senator Cregan will have to listen to the truth for eight minutes whether he likes it or not. In relation to the Fine Gael tax record, we should look at what they did when they were in charge of the country's finances. VAT was at 35 per cent, the top income tax rate was 65 per cent, income levies were introduced and, of course, the residential property tax was introduced. Where were some of these people then? Some were Members of this House and more were Members of the other House. They kept their mouths closed.
This was because of the mistakes of 1977.
Fine Gael's difficulties are visible enough to the population. I would like to deal with the hypocrisy of another party, the absolute rancid hypocrisy of the Progressive Democrats. Fine Gael's record is bad but that of the Progressive Democrats is, to say the least, amusing.
Senator Roche's party was in Government with them.
Hypocrisy lies at the very heart of that party's approach to the issue of taxation and reform of taxation. I am sick to the teeth of listening to Progressive Democrats spokespersons telling us we must bite the bullet and be involved in taxation reform. On each occasion a change is proposed, no matter how modest, they scream. In 1988 the Progressive Democrats published a document called Employment, Enterprise and Tax Reform. I happened to keep a copy of that——
The Senator would want to be careful.
——because it is clear and evident from her contribution on radio today that the leader of the Progressive Democrats never read this document.
An Leas-Chathaoirleach
I ask the Senator to refrain from displaying documents in the Chamber.
On what basis, because I just want to help them with their selective amnesia? I will deal with the detail of the document, but the Progressive Democrats will read from it in a moment. In this document they recommended that the then residential property tax was not enough, that Fine Gael and the party in Government with them had not gone far enough. They suggested that we needed a local government charge which would be a real levy, would widen the group of people who are in the tax net and would pay for all local government services.
How can that be called a property tax?
The document states, on page 46:
Most importantly, the underlying principle involved in our approach is based squarely on the belief that there is an onus on the community at large to contribute to the development of local government and the provision of community services.
How were they going to that? By imposing a wide scale property tax.
No. Read the previous paragraph.
The Senator will have his chance. In 1991, during the review of the then Fianna Fáil-Progressive Democrat Government, the Progressive Democrats proposed a reduction in the level of tax relief on mortgage interest and VHI premia. That party is screaming about the same issue now. This was in line with the basic philosophy which had been continuously published by that party since the 1988 policy document. Yet when similar proposals with regard to increasing the tax net were produced in the 1994 Budget, Deputy Cox slated it and said it was an unfair attack on self reliance. Given his recent vicious shafting by his party, I think one can forgive him for being a little trína chéile on all matters relating to tax.
However, the same could not be said for his party leader and her extraordinary contribution on national radio today. In an interview on radio today Deputy Harney challenged the accuracy of statements made in the other House by the Taoiseach this morning. She repeated with particular vehemence that the Progressive Democrats had "never, never, never been in favour of a property tax". Somebody recently suggested that her grasp of fundamental economics was, to say the least, tenuous. If she had trawled the record of either House or even read the published policy documents of her own party, she would know that is not a truthful or accurate statement.
The record shows that at their 1987 party conference the Progressive Democrats voted in favour of tax on all real property as a method of funding local government and improving the overall tax balance in this State. There is something to be said for that approach. Deputy Harney, as a front bench spokesperson of that party at that time must surely be aware of those policies. On 11 February 1988 there was an interesting contribution on this whole matter in the Dáil, at column 1913 of the Official Report. This contribution was made by Deputy O'Malley, a man who is used to telling us all how we should govern, bite the bullet and do the hard thing. He stated in regard to widening the tax net:
However, that is really only feasible in the context of widening the tax base. That is why our party is committed to a comprehensive property tax on buildings and land to get this equation more into balance.
He went on and quoted statistics from other countries and decried the level of property tax in this country. If that is not cant, humbug and hypocrisy, given the activities of that party in the last two days, what is?
The reality is that this represents a modest extension of property taxation. I accept the contributions made by people who say that there are deficiencies in this, which is why I and others in my party and the other party in Government have campaigned with the Ministers involved to modify any untoward imposition which will occur. The Minister has indicated that he is prepared to listen. However, I could not blame him for not being prepared to listen to the cant and hypocrisy we have had here.
The reality of taxation is and always has been that whatever a Government gives, it must first take. If we are going to have a low tax economy we must have a low spend economy. If we are going to have a low spend economy and cut back on public expenditure programmes, one can only imagine how the hypocritical pips would squeak at that stage.
You are going to do an awful lot with the £5 million. Give it to Croke Park.
There is nothing wrong with the contribution which was made to Croke Park. It represents something fine and upstanding in Irish life, which is more than can be said——
Agreed, but has the Senator considered in his argument where the money will be going?
——for the Senator and his party and their hypocrisy.
An Leas-Chathaoirleach
I ask the Senator to resume his speech. He has gone over time.
The motion has nothing to commend itself to the House and I will willingly support the amendment.
Given the selective nature of the Senator's references to the document Employment, Enterprise and Tax Reform, you will forgive me, Sir, if I quote parts of it. It states that:
Our proposals do not involve an absolute presumption of ability to pay, merely on the basis of an individual owning and/or occupying any particular property
It is a property tax.
It goes on to say:
Accordingly, the necessary revenues should be raised by replacing the existing arbitrary scheme of service charges and the residential property tax by a local government charge to be determined by each local authority, which would be given autonomy to assess its own needs and priorities.
It talks about waivers for those who cannot pay——
With a total yield of £300 million.
An Leas-Chathaoirleach
Senator Dardis, without interruption, please.
The Senator was able to quote from the document; he should at least give me the chance to quote from the same document. Several speakers on the other side of the House invited us to comment on the overall budget strategy, which is very tempting. However, if we were to do so we would be here for the rest of the evening. Given the time constraints, I do not think I can go into it in a great deal of detail other than to say that I do not accept that what was presented to us in the budget represents anything to do with fundamental tax reform. It represents tinkering around the edges with mortgage interest relief, VHI relief and the area of property tax.
The unfortunate aspect of it is that once again it is the middle class taxpayers who are asked to bear the burden. The burden always comes back on the same small group of people who work for, invest in and stay in the country. That is what is inequitable about this tax. I can guarantee that it will go the same way as the inequitable 1 per cent income levy and the imposition on spouses of probate tax, which was introduced last year. Thankfully, the Minister at least exempted the spouses in this year's budget from that tax on an estate of £10,000. If we are talking about tax reform let us decide what it is that we are talking about. Is it tax reform which we have before us? My submission is that it is not. We do not have tax reform or a commitment to it from this Government.
The next question which arises is whose policy is it? Over the past few days we have had so many people running for cover that one begins to wonder is it the policy of the Labour Party, which told us during the general election that this tax would not happen? Or is it the policy of Fianna Fáil or of part of that party or part of the Labour Party? It has got to the stage——
We do not have Deputy Michael McDowell making policy.
An Leas-Chathaoirleach
Senator Dardis, without interruption.
——where we have such a degree of freelancing within the Government parties that one wonders what Government policy is.
If the Senator wants to make a gap he will need a bigger weapon than that.
Repeatedly, this Government quite rightly talks about dealing with unemployment and the generation of an enterprise culture. Let us talk about this budget in the context of what it does to address the problem of 300,000 people unemployed. In this enterprise culture, the people who have gone out, worked hard, put money aside and taken out a mortgage are now the people to be targeted by this Government. In my view that is not fair. People who save, work and invest in Ireland will be targeted.
That is not true.
There is a fundamental principle at stake here about capital taxes. Capital tax should be on the value of the net estate.
That was not the Senator's proposition in 1988.
An Leas-Chathaoirleach
Senator Magner had his opportunity. Senator Dardis, without interruption.
I add up all my assets, subtract my liabilities and pay the capital tax on the remainder. That is the principle of capital acquisitions tax and most of the capital taxes that have ever been introduced in the history of this State. In this case, however, a house may be valued at £75,000 and tax is paid on the total value, although there may be mortgage of £55,000.
There has been talk about dealing with the anomalies in this taxation. The whole tax is an anomaly and should be abolished when the Finance Bill comes before us. We should not be considering it at all. Even if one were to accept the anomalies, is it right that a retired person living in a house worth £100,000, who has children working who are not the title holders to the house, should be liable to pay the tax on the property? That is not equitable and it should not happen.
There has been some dispute as to the number of homes which will liable for the tax. According to the recent MRBI poll, electors residing in an estimated 110,000 households view the residential property tax as being harmful to them. Further analysis of the data shows that of the 110,000 households in which adult residents claim to be affected by the residential property tax, 70,000 are middle class, 55,000 live in County Dublin and 43,000 are middle class and live in County Dublin. Those figures are very different from the figures about which the Taoiseach has been talking.
The latest lunacy I have heard is the suggestion by Minister of State, Deputy Burton, that this tax should be paid out of PAYE earnings. This is the first example in the history of the world where we have PAYE capital taxation.
She is going to get rid of the anomalies.
Does she not understand that there are people living in this country who do not have a monthly income under the PAYE system? There are farmers and people in business who get their income two, three or four times a year. Certain farmers wait 12 or 14 months to get the money from Brussels which the Government owes them. That is the reality with which we are dealing. PAYE capital taxation is a new phenomenon which we should record for posterity.
It is wrong to introduce this tax. It is only going to raise £5 million — the £5 million that was given to Croke Park. I agree with Senator Roche's comments about the value of the Gaelic Athletic Association; that is not what is at issue. However, there are other places which are more deserving of that £5 million. In my view that money would be better placed in the pockets of the people who work, invest and live in this country.
I want to make a brief contribution in relation to this controversy.
Good.
Senator Doyle said he was glad to see the Minister for Finance in the House tonight. Why would he not be present in the House tonight? The budget is not only defensible but it is a budget which would be welcomed by all sections of the community if we got our PR right. If we are guilty of anything it is lack of presentational skills in relation to some aspects of this budget.
The Progressive Democrats built a castle based on toughness in determining how the finances of this State were to be restructured. They were going to be as tough as nails, yet when they see what is really a minor adjustment in the taxation system, they go absolutely crazy. Therefore, I am ruling them out of the way.
I turn briefly to my former comrades in Fine Gael. It is possible that they could one out of three wrong but when they get three out of three wrong and are about to get the fourth issue wrong, it is time they asked themselves some questions. We had a debate on Telecom Éireann in this House and the frighteners were put on half the population. They said that people were going to surrender their phones by the thousands because their bills would increase by 700 per cent following the restructuring of charges. We were told that the Government would rue the day and the people would know when they got their bills that this Government, and particularly the Labour Party, had sold them down the drain. What was the final result? The bills went down.
We did not get this month's bill yet.
The next issue was Aer Lingus. We were told the Labour Party were going to sell out on Aer Lingus and that they were not going to get their money. It was claimed that Dick Spring went up to the hangar and made promises on which he was not going to deliver. They said there would be a huge rift between Labour and Fianna Fáil, Aer Lingus would collapse and the Government would be booted out. What was the reality? The Government came up with the cash, Aer Lingus restructured and there is every possibility that it will become a viable and profitable organisation over the next three years.
Do you want to put a bet on that? Maybe £50 million.
If I were to take bets from the Senator, I would be a millionaire. He got so many scenarios wrong in the last couple of years I would not mind taking a bet from him.
Issue number three was the 1 per cent levy. We were told that we had crucified every worker in the country and that we were never going to remove it.
It would not have been removed if we had not mounted such a campaign.
(Interruptions.)
An Leas-Chathaoirleach
Senator Magner, without interruption.
In fairness to you, you mended your ways.
Senator Enright is a former chairman of Fine Gael and when he says something I intend to listen to it. Let us examine his proposition that it was the unremitting, undaunting work of the Opposition that made us bail out Aer Lingus and remove the 1 per cent levy. There is only one snag—nobody believes it. If they did, Fine Gael would be up 40 per cent in the poll——
There is an odd Labour man who believes it.
——for being such a brilliant Opposition. We both know it is not true.
Unwise talk.
I suggest to Senator Dardis that the Progressive Democrats problems could be even more terminal than Fine Gael's. They have a huge problem as they are minus a finance spokesman. At least our finance spokesman is here but theirs is away sulking in his tent.
It would be difficult for ours to be here when he is not a Member of the Seanad.
He has reason to sulk.
I will finish with something which was mentioned this morning in the Taoiseach's speech in the Dáil. Garrett FitzGerald was truly a national figure in so far as he had the interest of his country very much at heart.
Is that why you walked out on him?
He said that if you ever try to flog your soul to an interest group, you do not deserve power. I am surprised at Fine Gael. This will not even be a short term advantage because the public will see through it. I have no doubt but that all the scare stories will prove to be as false and as empty as the fears about Aer Lingus and Telecom. The best thing Fine Gael can do now is withdraw the motion and apologise.
I share the criticism of the decision to extend the residential property tax. I wonder about the Labour Party's priorities.
I was nice to Senator Sherlock. I did not mention him.
The yield from the extension of residential property tax will be £5 million, while the annual yield from the new tax on the unemployed will be six times that, £30 million. They will take £30 million out of the pockets and purses of those on low incomes, yet it does not produce one dissenting comment within the Labour Party. The media coverage of the two issues has been unbalanced. The extension of residential property tax has received lavish coverage, yet the decision to extract a further £30 million from those on low income has barely been mentioned. Media attention and political pressure have resulted in a retreat on this question. It looks like a retreat because we are told that hardship cases will be examined. How is the Minister going to look at hardship cases? How is hardship to be defined? Guarantees are being offered that the tax will not be extended.
The danger that the tax could be extended is the main reason it must be opposed. When residential property tax was introduced we were told it would apply mainly to people who had second residences. There was much speculation at the time, but the tax remained more or less the same. We had the abolition of the resource tax and the land tax. There was great support for the land tax because it was accepted as an equitable system of imposing tax on land and progress was being made in that regard. The Government elected in 1987 abolished the land tax and now in the guise of tax reform, a burden is being imposed on people who own their own homes in the form of residential property tax.
A large amount of State aid is paid to people on supplementary welfare who bought their own homes with borrowings from the bank, building society or the local authority and who now find themselves unemployed. They depend on supplementary welfare allowance to pay the mortgage. People were relying on mortgage interest relief when calculating their mortgage repayments. That relief was another factor which encouraged people to buy their own homes. Last week I had experience of a person who deemed it necessary to take a shared ownership with the county council because of the fact that we do not have a good public housing programme. The house cost £50,000. That is not much less than the present residential property tax threshold. That person took out a shared ownership loan because they saw no prospect of being allocated a local authority house for quite a number of years, and wanted to make a home for their family. That is the kind of scene being discussed here. Any extension of the tax will be vehemently opposed.
People who are being affected at the moment represent a very strong lobby and there is already a retreat. If it is being done in the guise of reforming the tax system and if the State can only account for 5,000 self employed people who pay a certain level of tax there is something wrong with the system. There is something radically wrong when the State has to give a tax amnesty to tax evaders and tax avoiders. That is the area to concentrate on and if there are many other measures such as a tax on wealth and so forth, they should be pursued vigorously.
It looks like the tax inequalities will continue for the future, although I thought things would change. I believed the line would be drawn when the Labour Party got such support. I do not want to be critical. If any line has been drawn it is very vague indeed. The same people have the power, the same strong lobbies have the influence, not the ordinary people, the ordinary workers, the people on the dole or the middle income group who are being fleeced.
The present controversy surrounding this once-off adjustment to the residential property tax thresholds completely ignores the very significant changes in the budget in favour of all income earners, including those on lower incomes. There has never been a more radical budget in this regard, and the very significant increases in take-home pay which will result must be taken account of in any balanced and fair consideration of the residential property tax issue.
Over the last number of years a great deal has been said by numerous commentators about tax reform. We all, of course, have our own views as to what precise form tax reform should take and as to how far reform can usefully be taken. While not wanting to exaggerate the importance of tax reform in terms of job creation, I am acutely aware that it is one of the more important economic tools which can aid economic development. It was with a view to focusing the debate on this issue in the context of the actual tax situation that I took the opportunity in the budget to outline the taxation strategy which I intend to pursue in the medium term. The Government's thinking was spelt out very clearly for those who wanted to read it. It set it out more clearly than any Government has done in the 17 years that I have been in the other House. It was not just the position for 1994, it was the position for the lifetime of this Government.
My budget speech set out what I and the Government regard as the guiding principles for a "pro-jobs" taxation strategy. The concerns which underpinned this budget and will remain the barometer of progress over the coming years are, in a nutshell, to seek to redress the long-run tendency for earned income to contribute a growing proportion of total revenue, to preserve and build on the considerable base-broadening across all major tax heads, but at the same time to preserve reasonable and focused incentives which further our economic and social objectives, particularly in relation to employment. These are the kinds of issues Senator Dardis was talking about. In this budget we have many of them. We will continue to pursue simplification and streamlining of tax legislation and administration, subject to the overriding need to maintain effective collection systems, which are fundamental to equity in practice.
We must all recognise that tax reform is not simply a matter of reliefs. The strategy behind the present tax changes involves a reorientation of the overall system to be more employment friendly. This necessarily involves choices and trade-offs, and the availability of some limited leeway this year does not get away from this. In the income tax and PRSI code, focusing reliefs and reductions on the lower paid necessarily meant less relief for others. Moreover, to make possible the considerable mainstream reliefs required some offsetting measures elsewhere in the tax code.
One of the key requirements, if we are to come to terms with the huge employment challenge facing our society, is that public policies promote job-creating investment, and in particular support the establishment and development of indigenous businesses. One element in this is the adoption of the kind of targeted and focused measures which this budget contains. The other side of the coin is that we look critically at aspects of our tax system that may divert resources into other areas which, whatever their particular merits, do not contribute to the creation of long term sustainable jobs. The advantages which our tax system conferred on housing investment have long been criticised from this standpoint. I feel satisfied that the steps I took in this budget to redress this imbalance in putting mortgage interest relief on a more equitable footing and in the very limited extension of the residential property tax are fully justified in the context of what must be our overriding objective to step up the pace of employment growth.
Before I address the various issues raised in relation to the extension of the residential property tax, there is one point that I have to stress. There is absolutely no question of the tax changes effected this year being a departure from the long-standing position that the core of housing policy is the promotion of owner-occupation, that is, of giving reasonable assistance to families who wish to acquire their own housing.
Even when the standard-rating of mortgage interest relief is fully implemented, there will still be very substantial assistance through the tax system, that is, from the general body of tax payers to those people who borrow to buy a house. It will still be in excess of £100 million per annum. For the first time buyer this will amount to meeting one quarter of the interest costs up to a size of mortgage that would at the prevailing interest rates fund the purchase of a substantial house. Even after the initial five years, approximately one fifth of the interest outgoings will be recouped. First time buyers of new houses will get a substantial grant, as they do at present, and most buyers of new houses are fully exempted from stamp duty. These benefits and reliefs are useful and they will remain. No one should try to argue that we are moving away from supporting home ownership, a concept we have had in this State for decades.
The residential property tax as extended is both a modest measure of equity in the tax system and a contribution towards tilting the balance in the tax code more in favour of productive investment, which helps to create and safeguard employment. The present tax structure has tended to encourage more than necessary investment in housing. In particular, it has given rise to tax driven trading up, with an undue bias towards the purchase of houses as investments rather than homes. These views have been echoed in all major reports and articles over the past 15 or 20 years, including the Commission on Taxation, which Senator O'Kennedy mentioned, the three recent NESC reports, Culliton, the ESRI and the OECD. Every political party has done a major document on tax reform and those who looked at the issue came up with the same solution. I will not quote from them, but they add to the argument.
The argument put forward in the last two weeks was that everyone was in favour of this measure, but not in this form. If it were done their way, they would still prefer it to be done differently and that is what always happens in this country. Most commentators never check what was said last year or the year before. Most commentators, with the exception of one, strongly supported residential property tax over the years. However, when they were contacted in recent days by various programmes they declined to take part. I have no doubt that in three months' time, when they take out the files to make another speech about tax reform, they will make the same points they have been making for the last 20 years. We should take this into account in any constructive discussion on this issue.
Employment is important at present. We should concentrate on it because it will be an issue in this House and this country for the next ten years. We should focus our energies on what we can do in this area. The reaction to this is not about the minor extension to the residential property tax. Everyone in the House, including my Government colleagues, mentioned the £25,000 income limit. However, no one mentioned the marginal relief, which means that a person earning £26,000 has an 80 per cent reduction, or the person earning £27,000 has a 60 per cent reduction. People talk as if everyone was included at £25,000, although when the marginal relief removes a large proportion of the population. Senators know that many people earning between £25,000 and £30,000 are removed. Only 7.5 per cent of the 915,000 people who pay tax earn over £30,000. The marginal relief catches between 7.5 and 12.5 per cent of the people. Some 5 per cent of the total are included in the marginal relief and this is a large proportion. If one looks at the indexes, one will see that a large proportion of people are removed.
Investment in dearer houses can only be to the disadvantage of industrial and commercial investment, which is essential for employment growth. There is no argument about that and everyone who has written about this subject has agreed with this point. This is partly a matter of scarce investment resources, partly of the individual's limited capacity to contemplate borrowings or financial exposure on more than one front, and partly of the natural disposition of financial institutions to favour secure lending.
Resulting from the 1994 adjustments, the yield from the residential property tax will increase from £9 million in 1993 to £14 million in 1994. This represents a modest contribution to the income tax improvement package in the budget, which will cost £330 million in a full year. This package will give significant benefits to all taxpayers. For instance, a married couple with two children who earn £30,000 will gain £639 from the mainstream income tax, levies and PRSI reliefs. To put this in context, the additional residential property tax charge on an £80,000 house for this family, which is the average family in most surveys, will be £20. We must look at this if it is a major issue.
Few people are writing letters about this issue because most people are concerned about what might happen in the future. It was for that reason that the Government clarified the situation last night, because it was being said that the Government would change the figure to £55,000 next year, £40,000 the following year and £10,000 the year after and that everyone would be included. It is not a question of the Government indexing the threshold. The Government did not take all week to consider this issue because there were more important issues to be considered, such as how to target the lower paid, what to do with marginal relief and how to help middle income earners generally. These issues were discussed in detail and the Government felt that £30,000 after marginal relief and £75,000 index were reasonable figures.
The existing records and figures have been proven right over the past 12 years. We argued about probate tax in this House, and Senator Dardis finally acknowledged that the changes were reasonable. I said last year I would look at them and review them during the course of the year. I made that promise to Senator Dardis and others in this House. Amendments were tabled and withdrawn and we said we would look at them.
The figures of £30,000 and £75,000 were reasonable figures based on existing statistics, which have been right for the last ten years. During the past two weeks everyone said their statistics were better. If their figures for the next ten years are better than the figures from the Revenue Commissioners and the Department of the Environment for the last ten years, then I will be glad if I am still around in ten years' time to acknowledge them. The fact is that the figures from the Department of the Environment and the Revenue Commissioners have held up. The reason is that while there are 56,000 houses in the State worth over £75,000, the statistics show that over 50 per cent are income exempt and that will continue to be the case. One can see this from the bar charts or figures of who pays what.
The figures show there is great concern that three or four incomes in a house will put everyone over the £30,000 limit. I am not saying there are not some houses where this will happen, that there are not some anomalies, or that in some cases a family, a husband and wife, would have an aged relative such as their mother or father in the house which could increase the income. But if this is the case, how do we explain the fact that there are 876,000 private houses in the country when we have only 915,000 taxpayers? There are either a lot of houses in which no one is living or where five people are living. Perhaps my figures are wrong, but we should explain how there are 876,000 houses when we have only 915,000 taxpayers.
The others availed of the tax amnesty.
I do not know where they are, but we should focus on those figures rather than on the figures which people make up.
They help to pay off the health boards' debts.
The house value and income thresholds are being reduced and we know the figures. An important point often overlooked is that the child relief substantially reduces the charge for all families with dependent children. I want to put that on the record because it was not mentioned here tonight. All residential property tax bills are reduced by 10 per cent for each eligible child in a household. Thus, where there are four children the charge will be only three-fifths, or 60 per cent, of the full figure. Moreover, marginal relief serves to greatly reduce the actual residential property tax charge for people whose income is relatively close to the new threshold of £25,000.
I wanted to make that point because last night I saw a lady on the news who, I am sure, was following her own figures. She had five children. She said her husband told her that the increased charge — not the charge — was £40 a month more, that is £480. If she has a 50 per cent reduction, we are getting into big house numbers. I know because I had a person today who has a £1.1 million house and has spent £250,000 on it. He told me his bill was now £19,000 per year and made the point that over ten years that was an awful lot of money. I asked him what his income was and he said it was substantial. His point really was that he did not mind 1.5 per cent but his argument was about the 2 per cent. There are perhaps anomalies on one side as well as the other, because a bill like that seems very substantial to a person who is out there trying to make money.
The other point I want to acknowledge is that because a person has £25,000 and they cut their cloth to measure, they have no money. However, if a person has £100,000 they also cut their cloth to measure and I suppose their liquid cash is tight as well. There are not that many people around with hard cash, though there are many people around with assets. The Government will look at all these issues. However, the proposal we are bringing forward is reasonable. In five of the last seven reports on property tax in this State, people spoke about tax takes of £250 million to £300 million. The Government is making slight adjustments. I agree with the earlier comment that our change in RPT is tinkering with the system. The changes we made in exemptions, levies and marginal relief were not tinkering with the position — they cost £330 million which has to be funded every year. This one, however, was a slight tinkering with it in line with what we thought was reasonable.
People should not get all het up about this. In driving the lobby they are saying quite clearly that they do not want to see a property tax on all sides and would rather — you have heard the arguments — put a penny on the pint or tuppence on petrol. But if we went back into that cycle in the next budget we would stick 5p or 10p on drink, perhaps 10p on fags and 10p on petrol. That would push the consumer price index through the roof, inflation and wage demands would be driven up, there would be pressure on interest rates and we would be back on the merry-go-round again. Is that the way we want to go? Is there no consensus? Successive Governments and successive commissions for every party in the House — although I am not too sure about Senator Sherlock's party — have examined this and said that base broadening was the way to go.
The reality is that as soon as anybody does anything, others are against it. They say that if it had been done another way they would have been for it, but now they are against it. If we continue that way we will maintain high taxes on income, a disincentive to work, and we will be moaning on about how PRSI should go or be in with social welfare. This year the Government substantially changed PRSI, with a 25 per cent reduction for low paid workers, as well as doing away with the health levy and the 1 per cent levy for low paid workers. We are trying to set a target so that we continue to move in that direction. We know we have not solved all the problems on the marginalisation of the £9,000 and what happens when you go £1 over that. There are still issues to be addressed, which I spelt out in our strategy document.
It should be apparent to the public that the general impact of the changes in RPT will be modest and that in the vast bulk of cases the increased charge will be far outweighed by income tax reliefs announced in the budget. In view of the level of public concern on the issue we will be reviewing certain situations where it has been suggested that the operation of RPT may impact unduly. Any anomalies which cause unreasonable hardship to families now or in the future will be dealt with in the forthcoming Finance Bill. We are not talking about anomalies that arose in the last fortnight; we are talking about anomalies that have been there since Deputy Alan Dukes brought in this property tax 12 years ago. Anomalies have been raised from time to time over the years and nothing done, but I am prepared to do something about them.
The fact that the increases in the residential property tax are modest should not be interpreted as an indication that further increases are planned. Successive Governments in recent years — I have been part of three different Governments — have been working to introduce base broadening while reducing taxes. I can confirm that there is no intention to reduce the thresholds further. While many economic reports have recommended the introduction of a comprehensive property tax, the changes in the long standing and limited residential property tax are once off and should not be interpreted as a first step on any road, particularly the road to a full property tax. These changes constitute a modest element in the overall strategy for reducing levels of income taxation and improving the equity of the tax system through broadening the tax base, and for curtailing the relative tax advantages of investment in dearer residential property as compared with industrial and commercial investments which are essential for employment growth.
I do not think it makes any sense, at a time when Government is actively seeking to encourage a flow of savings into job-creating investment in business and commercial ventures, to give signals through the tax system, both through interest relief and exempting fully from the RPT many valuable residences, that the best repository for savings is to acquire a dearer type of property. Over Christmas people were already highlighting the fact that we would be off into an inflation zone, trading up business. They said there would be no money for business investments and that everyone would take off into the property area. I think it is perhaps no harm that that has declined over the last few weeks. This budget moves to redress the imbalance in tax treatment between investment in house property and areas which contribute directly to supporting employment, but in such a way as to maintain reasonable and equitable assistance towards owner-occupation and not imposing any property tax charge on people with average income or with houses not valued over £75,000.
I want to thank Senators for contributing to this debate. I look forward to returning for the debate on the Finance Bill and discussing all the initiatives that this Government has brought forward in this budget. I have no doubt that the economic benefits of the 1994 Budget will assist the country. Already we can see money supply up, a growth rate of 4 per cent, an inflation rate of 2 per cent, and so many other things that are right. True to form in Ireland, people go through a 116-page budget speech and obviously can find nothing in 115 and three-quarter pages of it; yet they manage to find something to set off scare-mongering the nation again. However, at the end of the day, I see the 1994 Budget will be seen as one of the better ones in recent times.
First of all I would like to congratulate the Minister for addressing the subject of the debate because he was the first person on his side of the House to do so. While I do not agree with his defence of the tax which has been introduced, I am delighted that at least we have had an articulate, well-written and well-pronounced defence of it. Before that we were treated to a speech from Senator O'Kennedy which did not once address the issue of property tax. In fact, I do not think it mentioned residential property tax at any stage. We were treated to a speech from Senator Roche of a kind I have got used to. It is the single transferable speech in which he simply insults whatever political party his party is not in coalition with at the time, and uses the same insults for them. It was effective, but it is, I am afraid, becoming extremely stale. I have heard it before. It was addressed to the Labour Party when Fianna Fáil was not in coalition with that party, I heard it when Fianna Fáil was not in coalition with any other party and now I hear it addressed to both Fine Gael and the Progressive Democrats. I could have written it for the Senator; in fact, I think I did some years ago.
We would like to hear the Senator talk about the subject of the debate.
A Chathaoirligh, I guarantee that I will be as relevant as the Government party was. Finally, we had a speech from Senator Magner about Aer Lingus and Telecom——
I knew he would start. He will appeal for the Cathaoirleach's protection shortly.
It was a speech about everything except property tax.
The Senator wrote every word of it in the Sunday Independent. Every forecast the Senator made was wrong. The Senator owes me and I want my money back.
We heard speeches from everybody else about the budget.
The Senator owes me £3.
Senator Magner, please do not interrupt.
I bought the Sunday Independent and the Senator was wrong on every single issue.
The Senator came here specially to hear my speech, a Chathaoirligh, so let him interrupt.
I have not.
Senator Ross is also inviting problems for myself and himself. Please address the issue.
He is inviting even greater problems for Fine Gael.
I am delighted that we have had a pre-budget debate in this House. However, we have not had an examination of the issues involved. We do not necessarily need to know the detail of the residential property tax which has been spelt out ad nauseam. We want to know whether it is a radical departure and if there will be a radical transfer of tax from income to property. The Minister seemed to assure the House that this is a once off tax, that he has made a mistake for which he is sorry, so he will stop it at this stage. He has had enormous problems from Senator Magner's party and from his own. Therefore, this is all the medicine he will give us. That flies in the face of what Senator Magner's colleague, Deputy Eithne Fitzgerald, Minister of State at the Department of the Tánaiste, said when she claimed it was a radical restructuring of the tax system.
I do not know who is speaking with authority but I know its effect and I congratulate the Minister on it. The Minister has stolen 3 per cent from Senator Magner's party. Indeed, if 3 per cent had to go one way or the other, I prefer the direction it took. The Labour Party is undoubtedly responsible for this tax. The consequences of the tax were not thought out in a budget which — and I congratulate the Minister on this — was in many ways tremendously effective and good.
The influence of the Labour Party.
We will have to recognise that there were magnificent elements in the budget. It was a tremendous boost for enterprise. The small businesses were very pleased. That was not thanks to the Labour Party.
It was.
Certainly not. That party would crucify small business with tax if it had its way. Thank God, it has not had its way. It had only an input into this. We should have heard what the anomalies were from Senator Magner. How was it that these anomalies, which the Minister said have been in existence since 1983, were not redressed at some stage in this budget? Suddenly, when the budget is announced, the members of the Labour Party spot anomalies which have been in existence for 11 years. The reason, as everybody knows, is quite simple. They are getting huge flak from the middle classes——
Generated by the Sunday Independent.
——the people who voted for them at the last election and who will never do so again. That is why they spotted the anomalies and why we hear verbiage such as "inequities" and "anomalies". It is also why there will be a number of changes in the Finance Bill. There will be changes because of public reaction and it is a good thing we have such public reaction.
Serious issues must be addressed. They include the questions of whether residential property tax is a good idea and whether we should have such a tax. Are there so many anomalies, as they are euphemistically described by the Minister and the Labour Party, in the residential tax that it is not a workable tax? I believe that to be the case. It is not a residential property tax. Other people wrongly call it a "property tax". It is not. It is a tax on peoples' homes and an income tax. It is an income tax on those who have incomes over £25,000 and who also have houses worth over £75,000. A large number of people with incomes over £25,000 inevitably fall into that bracket. We are really introducing a surtax on those who have expensive houses. If the Minister called it an additional income tax I would not quarrel with him. However, he does not do so. He calls it a residential property tax and confuses everybody. An income basis is needed for it.
That was the Senator's title for it in the Sunday Independent.
The other issue which has not been pointed out is the fact that there is no ceiling. The Minister spoke very sympathetically about the man with a house worth £1 million who had to pay £19,000 per annum. It is absurd that anybody should have to pay £19,000 per annum because he lives in an exoensive house. That is unfair.
He was probably a Fianna Fáil backbencher.
It was a modest little house to the Senator.
The Minister should at least put a ceiling on this tax so that nobody is obliged to pay more than a certain amount. A situation could easily arise whereby property prices and incomes do not move ahead at the same pace. What will happen if there is a property boom as happened before? What will happen if Senator Magner's house increases in value to £300,000 or £400,000? There will be howls of protest here. The Act will be repealed and the Finance Bill will suddenly abolish residential property tax. There are unexpected circumstances in which there may be movements in the property market which the Minister cannot possibly anticipate. It would be far more sensible——
If I could build a house I would build it on the Senator's land.
Cork is not affected, as Senator Magner knows. It is very easy for him to speak. Cork is hardly affected at all. The Minister ought to consider the property boom——
The Senator has just upset everybody on the Rochestown Road.
Senator Ross, you are not helping the situation.
There are houses on the Rochestown Road worth £250,000. They are not all peasants like me in Cork.
No, they are not. There are some very nice people in Cork.
I wish to discuss mortgage interest relief. People did not seem to recognise that not only has mortgage interest relief been attacked but the size of somebody's mortgage could be higher than the value of their house. That is a common occurrence in England. It is not common here, but it is quite possible that it could happen. I know people who borrowed £90,000 to £100,000 for a house and their house is now worth less than what they paid for it. They will now be caught in a negative equity situation where they have to pay residential property tax——
They borrowed £90,000 on an income of £25,000? That is rubbish.
They were stockbrokers or yuppies.
——on a mortgage which is greater than the underlying asset.
Senator Ross has one minute remaining.
Do I get injury time from my colleagues?
I will give him injury time. He is great value.
There is a serious danger that some people will be caught not only for the full value of the mortgage but for a net liability. That is an extreme case, but the Minister should legislate for extreme cases. I was tired of hearing him say that only 3 per cent or 7 per cent or a small number of people will be affected. Those people will suffer immense hardship just because they have incomes of £25,000 per year and houses worth £75,000. That does not mean that they merit crucifixion. Just because 3 per cent of people are unfairly treated does not mean that they should be unfairly treated. The Minister is there to legislate for the exception, not for the rule. It is easy to legislate for the vast majority.
Luckily, the Minister has decided to respond to public opinion. I ask him to take a radical look at this tax and recognise that it is fundamentally flawed. He has obviously been stopped in his tracks by his party and it is going no further. It is unnecessary and full of anomalies. The debate this evening has been of such an abominably low standard from the Government side of the House that he might consider abolishing it.
Senator Magner gave a good speech.
Senator Crowley has five minutes.
I am honoured to speak on the amendment to this motion. I am glad to have the opportunity to put the record straight. Members opposite call for reform of the taxation code and the welfare code, but when the most radical change in many years is being put in place they immediately object. This shows the lack of initiative and vision on the Opposition benches. When they are asked to put forward alternative proposals to reform the system they are unable to come up with anything concrete or definite. If one goes over their previous record in this field, as other speakers have done, one will see the gap that has developed between what they are putting forward now and their declared party policy.
Taxation reform does not only mean that we are going to reduce all tax bands; that is part of it. The most important part of the reform of the tax code is a widening of the tax base to make it more equitable and fairer to everybody.
Is the Senator in favour of property tax?
Senator Crowley, without interruption.
I have been in the residential property tax net since 1987. On top of that I have been paying service charges. Obviously, I would prefer not to have to pay any tax. It would suit me better to have more disposable income and not pay any tax. At the same time, I understand that if we are to put in place the proper services for the people, if we are to provide a caring society and protect those most vulnerable in our society, then there is a moral onus on every one of us to pay what we can.
Figures have been bandied about in recent days regarding the property tax and how it will affect certain people in certain areas. I admit that some people will be affected, but until this year's budget those people who lost benefits when they came off social welfare and entered into low paid employment found themselves in a new poor category. I do not wish to knock the unemployed. The majority of people who are unemployed want to work. We must give them the incentive to get to that level, and the only way we can do that is by encouraging them through lower bands so that they will earn more money from working than from not working.
What is required is a radical and fundamental overhaul not only of the tax code but also of the welfare code. They are not mutually exclusive but rather they are mutually inclusive and have to be reformed side by side. I welcome the measures in this budget and the move regarding the residential property tax. It will have to be looked at and the anomalies will have to be sorted out in the Finance Bill. What has been stated is a proposal which can be changed in the Finance Bill. It is up to us to put forward the fairest viewpoints to represent every section of our community, not just people who live in Dublin city or Cork city or in my town of Bandon, or pensioners who have lived in a house that has shot up in value over the past few years. We must also ensure that low paid employees get a fair break. That is what they got from the budget with the widening of the tax bands and the reduction in employers' PRSI. This is a move forward. The future direction will be to help ensure that people have the incentive to work and are given the incentive to employ others. If that means that people such as I and other Members have to pay some more because we come into the residential property tax net, then so be it. We have a moral duty to ensure that we make the system as fair and as equitable as possible. Those who have more should pay more than those who have less.
I would like to put on record one of the points outlined in the Minister's speech. He claims it is easier for tax payers to assign a value to their houses using a value banding system. What we are talking about here is self-assessment. People can pay an auctioneer to value their house and it may be under the £75,000 limit. Let us remember that the Revenue Commissioners, at the press of a button, can get a print out on every person who has an income in excess of £25,000. It will automatically be assumed that any person earning over £25,000 must have a house worth over £75,000.
That is absolute nonsense. It is scaremongering of the worst order and the Senator knows that. It is not truthful.
Senator Enright, without interruption.
I would doubt Senator Roche's judgment. I believe what I am saying is accurate. Many people realise that.
Senator Enright is scaremongering.
All the Revenue Commissioners have to do is press a button to get all of these figures. A person is then guilty until proven innocent. That is where we are heading with this tax.
The Senator can do better than that.
I have here the Fianna Fáil manifesto from 1977. It is a wonderful document and the present Taoiseach got elected to the Oireachtas on the strength of it. One of its promises was to do away with rates because it wanted people to have better homes and improve the quality of their houses. Now it is bringing in the residential property tax. In the same budget Fianna Fáil did away with car tax. According to the new Road Traffic Bill, if a person is unemployed and cannot tax their car it can be confiscated and sold. That is a treble somersault. That is a good one even for Fianna Fáil — to take a car from a person because it is not taxed.
Is the Senator condoning law breaking?
The Senator asked me to be good and I will try to be good. Fianna Fáil also promised in 1987 to do away with service charges. It advised people across the country in the most wonderful literature that it would do away with service charges. The Minister for the Environment was going to abolish the Fingal and South Dublin Councils unless they imposed service charges. Does Senator Roche not find that interesting?
Unless they adopted the budget.
The Minister for Finance has said that this is a once off, but I believe he is surrounded by people who intend to put the boot into this tax. I have attended Circuit Courts around the country——
I hope not as a defendant.
Luckily I was not. If one looks at some of the Circuit Court lists one can see the different building societies and banks seeking orders for repossessions of dwelling houses. Recently it has not been as bad, but family homes were threatened because people were unable to pay their mortgages. Now we have a further tax on people which I feel is wrong. The Minister has too many advisers and receives too much advice. He is a highly intelligent man. If he listened to his intuition instead of these advisers he would not have imposed that tax. He says he wants people to put their money into productive investment. Perhaps I am old-fashioned but I believe one of the best investments a person can make is to buy and improve a family home. These changes constitute a retrograde step.
I hope the Minister will realise the fundamental mistake being made. There is fear and dread across the country. It is not caused by us, nor by Gay Byrne, Pat Kenny or Marian Finucane.
The Fine Gael press office is helping it.
Thank you for the compliment.
It is not so successful at other things.
The mistake has been made. Senator Magner was talking about telephones. Some of his advisers have two telephones in their hands. At times I think they are ringing themselves.
Amendment put.
The Seanad divided: Tá, 31; Níl, 17.
Tá
- Bohan, Eddie.
- Byrne, Seán.
- Calnan, Michael.
- Cashin, Bill.
- Cassidy, Donie.
- Crowley, Brian.
- Daly, Brendan.
- Fahey, Frank.
- Farrell, Willie.
- Finneran, Michael.
- Fitzgerald, Tom.
- Gallagher, Ann.
- Hillery, Brian.
- Kelleher, Billy.
- Kelly, Mary.
- Kiely, Dan.
- Kiely, Rory.
- Lanigan, Mick.
- McGowan, Paddy.
- Magner, Pat.
- Maloney, Sean.
- Mooney, Paschal.
- Mullooly, Brian.
- O'Brien, Francis.
- O'Kennedy, Michael.
- O'Sullivan, Jan.
- O'Toole, Joe.
- Ormonde, Ann.
- Roche, Dick.
- Wall, Jack.
- Wright, G.V.
Níl
- Belton, Louis J.
- Burke, Paddy.
- Cotter, Bill.
- Cregan, Denis (Dino).
- D'Arcy, Michael.
- Dardis, John.
- Doyle, Joe.
- Enright, Thomas W.
- Farrelly, John V.
- Honan, Cathy.
- McDonagh, Jarlath.
- Manning, Maurice.
- Naughten, Liam.
- Norris, David.
- Ross, Shane P.N.
- Sherlock, Joe.
- Taylor-Quinn, Madeleine.
Tellers: Tá, Senators Mullooly and Magner; Níl, Senators Burke and Doyle.
Amendment declared carried.
Question put: "That the motion, as amended, be agreed to."
The Seanad divided: Tá, 30; Níl, 17.
Tá
- Bohan, Eddie.
- Byrne, Seán.
- Calnan, Michael.
- Cashin, Bill.
- Cassidy, Donie.
- Crowley, Brian.
- Daly, Brendan.
- Fahey, Frank.
- Farrell, Willie.
- Finneran, Michael.
- Fitzgerald, Tom.
- Gallagher, Ann.
- Hillery, Brian.
- Kelleher, Billy.
- Kelly, Mary.
- Kiely, Dan.
- Kiely, Rory.
- Lanigan, Mick.
- McGowan, Paddy.
- Magner, Pat.
- Maloney, Sean.
- Mooney, Paschal.
- Mullooly, Brian.
- O'Brien, Francis.
- O'Kennedy, Michael.
- O'Sullivan, Jan.
- Ormonde, Ann.
- Roche, Dick.
- Wall, Jack.
- Wright, G.V.
Níl
- Belton, Louis J.
- Burke, Paddy.
- Cotter, Bill.
- Cregan, Denis (Dino).
- D'Arcy, Michael.
- Dardis, John.
- Doyle, Joe.
- Enright, Thomas W.
- Farrelly, John V.
- Honan, Cathy.
- McDonagh, Jarlath.
- Manning, Maurice.
- Naughten, Liam.
- Norris, David.
- Ross, Shane P.N.
- Sherlock, Joe.
- Taylor-Quinn, Madeleine.
Tellers: Tá, Senators Mullooly and Magner; Nil, Senators Burke and Doyle.
Question declared carried.
When is it proposed to sit again?
It is proposed to sit again at 10.30 a.m. tomorrow.