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Seanad Éireann debate -
Thursday, 19 May 1994

Vol. 140 No. 11

Finance Bill, 1994 [Certified Money Bill]: Committee and Final Stages.

I have to indicate to the House a printing error on the list of recommendations. It should read "Committee Stage" not "Report Stage".


Recommendations Nos. 1 and 2 are related and may be discussed together.

I move recommendation No. 1:

In page 12, paragraph (a), between lines 21 and 22, to insert the following:

"(ii) by the substitution in subsection (2) (inserted by the Finance Act, 1989), of `£10,000' and `£5,000', respectively, for `£7,200' and `£3,600' (inserted by the Finance Act, 1993), and".

The purpose of recommendation No. 1 proposed by Senator Burke is to increase the general exemption limits by £1,400 for widowed and single persons and £2,800 for married persons. The cost of the recommendation would be £71.7 million this year and £127.8 million in a full year. Approximately 105,600 persons would be exempt from tax liability as a result of the recommendation. The purpose of recommendation No. 2 is to increase by £400 and £800 the exemption limits relating to people aged 65 years or over. The cost of the proposal would be £4 million this year and £7.5 million in a full year and approximately 7,900 persons would be exempt from tax liability as a result of the measure.

This section provides for an increase in the general exemption limits in the case of taxpayers with dependent children and the special child addition, which operates in conjuction with the exemption limits, is increased by £100 per child — that is an increase from £350 to £450 for the first two dependent children and from £550 to £650 for each child thereafter. The child element of the exemption limit is intended to target relief at a group which has been identified as being particularly in need of State support — low income married couples with families.

The section also provides for a decrease from 48 per cent to 40 per cent in the rate applied where a taxpayer's income is above the appropriate exemption limit but is entitled to marginal relief. These measures will cost the Exchequer in excess of £10 million this year and in excess of £20 million in a full year. About 2,900 persons with almost 6,000 children will be exempted from tax by the child addition measure, and a further 8,300 persons will be brought into the more advantageous system of marginal relief.

I am disappointed that no change has been made apart from the child addition. If the changes proposed were made, employment would be created and the changes should have been made for that reason.

Recommendation put and declared lost.
Recommendation No. 2 not moved.
Question proposed: "That section 1 stand part of the Bill."

The Minister has allocated an amount of money toward the supplementary benefit that is available to those on a lower wage — I am not sure of the exact amount. Enough is not being done to inform those who are entitled to the benefits that they are available. This money needs to be allocated to those who are working and are not well off. What percentage of the money allocated is being taken up?

Is the Senator referring to the family income supplement scheme?

There has always been a difficulty with the family income supplement scheme of trying to make people aware of their entitlements. In the discussions on the PESP it was agreed that we would target the individuals who require it. That has continued to be the approach — to try to assist people in need and to target those people.

Although the benefits are quite attractive we have never had the take-up that one would imagine, as the Senator suggests. There are different reasons put forward to explain that, some of which are explicable and others which are not. Through the Revenue Commissioners and the Department of Social Welfare we must continue to make people aware of those benefits. I do not have the total figure for the take-up but I accept that we must continue the campaign to make the people in need aware. While there are some more sinister reasons why the entitlements are not taken up, I do not think we should concern ourselves with those.

This is an issue the Minister should examine. If we are talking about a person who is getting a supplement because of low earnings, the employer and the employee have to pay PRSI. The employee would not be paying taxes, otherwise he would not be getting the supplement. However, with the availability of computer technology I see no reason for not knowing who is entitled to the supplement. There is no reason for taking PRSI from the employer and the employee rather than giving the money directly to the employee. In the meantime we must find out who they are. Why is the husband entitled to the benefit if he is working but his wife must draw it from the local post office? This incurs extra costs on the State.

The Government takes PRSI relief from both the employee and employer. Why do we not tell the employer to pay his PRSI contribution to the employee? It would be easier and it does not put the spouse in the embarrassing situation of drawing that money from the post office. Only 65 per cent of those entitled to this supplement draw it; the rest do not know about it or possibly they may not want to be seen going to the post office to get this money. This is unfair. Why does the Government not set up a simple structure saying that anyone under a certain wage should not pay PRSI? The employer's PRSI contributions could be given to the employee rather than the State having to supply books at an enormous cost to hand them back.

Senator Cregan's point is a general one. The Senator was kind enough to acknowledge that some of the changes made the system as simple as possible in a range of areas. It is similar to the tax clearance question with which we dealt earlier this year. Whether the books involved relate to VAT, PAYE or PRSI, it is in the interest of the Department, the Revenue Commissioners and the individuals involved to make the system as simple as possible. There are practical difficulties in making people totally exempt from PRSI. However, we will endeavour to make the system as straightforward and as simple as possible.

Question put and agreed to.

Recommendations Nos. 4 and 5 are alternatives to recommendation No. 3 and all may be discussed together.

I move recommendation No. 3:

In page 13, subsection (1), lines 28 to 39, to delete the Table to subsection (1) and substitute the following:



Part of taxable income

Rate of tax

Description of rate




The first £12,000

25 per cent.

the standard rate

The remainder

40 per cent.

the higher rate.


Part of taxable income

Rate of tax

Description of rate




The first £24,000

25 per cent.

the standard rate

The remainder

40 per cent.

the higher rate

The Progressive Democrats are suggesting in this recommendation that the standard rate of income tax should be reduced to 25 per cent and the higher rate to 40 per cent. We are also recommending the extension of the tax bands to £12,000 and £24,000, respectively. These levels are acceptable and should be a target for the Minister to achieve. These tax band figures were recommended in the Culliton report. It also said we should aim to have no more than 20 per cent of our people on the higher tax rate. These figures are designed to achieve that.

People are looking for allowances because they are paying tax at too high a rate and on too low a level of income. Many people are looking for extra allowances, such as child allowances and recommendations have been put down on third level grants, for example. This high demand is due to the fact that people have little disposable income after paying the higher rates of tax. In 1973, only 2 per cent of our taxpayers were paying tax at the higher rate; in 1987, this figure was 43 per cent and by 1994, it had increased dramatically. This is a big difficulty and is the major problem with our tax system. People have little disposable income after paying this enormous tax burden. I am aware that to do this would cost a lot of money but, as I said yesterday, the Minister should set targets. People will accept measures if they are told what we are trying to do and how long it will take.

We do not have a tax reform policy. The Culliton report recommended tax reform as one of the basic elements of reducing our unemployment problem. The Government continuously claims to be pro-employment but I see little to achieve that in this Bill. This proposal could be taken on board. I said yesterday that we needed a Minister for Finance who was a champion of tax reform. I am looking for the Minister to be that champion, to state what he is trying to do and how he will do it over a period of time. The money sought could be got from cuts in public expenditure. If we look at the implementation of the Programme for Economic and Social Progress and the Programme for Competitiveness and Work we see the huge increases being given to the public service, but many of them would benefit to a greater degree from the tax cuts we are recommending. Would the Minister go in that direction?

While I appreciate we cannot change any of these provisions if a financial element is present, I ask the Minister to increase the tax free allowance from £8,200 to £10,000 for a single person and from £16,400 to £20,000 for a married person. It was Fianna Fáil policy some time ago to increase these allowances to £10,000 and £20,000, respectively. This should still be the case. A single person should be entitled to earn around £200 per week and a married person £400 per week without paying tax.

I do not disagree with Senator Honan's sentiments. I refer her to the lengthy speech I gave on budget day when I stated what I believed is the way forward, what we can achieve over the next number of years and what is the agreed programme of this Government. I do not know whether all of these objectives will be achieved, but it is the direction the Government hopes to go. In the successive Governments of which I have been honoured to have been a part since 1987, we have made the only reductions in income tax over the last 35 years. We have reduced the higher rate from 65 per and 58 per cent to 48 per cent. There is now only one higher tax rate. The standard rate was 35 per cent but is now 27 per cent. The standard band has been widened during that seven year period by 74 per cent.

I hasten to add — I am sure Senator Honan will remind me — that the band is still too narrow. I have never denied that fact. A single person is still moving into the higher rate of tax at the shamefully low rate of £12,000; a married couple move into it when they earn approximately £22,000-£23,000. Progress must continue to be made on that issue.

Every time we give an exemption, concession or relief in the tax code it costs money. Taking less tax from individuals and giving relief narrows the base and the wider taxpaying community then have to pay higher taxes. Senator Quinn said this is the approach we should take, but he knows the business community do not want to do that. After every budget, that community form a procession to the Minister of Finance looking for concessions for their sectoral interests. That is their job and I have no difficulty with that. However, it is misleading and unreasonable for those outside this House to say that one is in favour of mainstream tax reform, reductions in the rates and a widening of the bands if one does not clearly say that they are against their own reliefs, such as the BES, urban renewal and other schemes. It is the cost of those reliefs that increase mainstream tax. I agree with the broad thrust of the Culliton report. Of course, Mr. Culliton also agreed with a property tax until action was taken, at which point he no longer agreed with it.

The Irish definition of tax reform means reform the taxes of everybody else. Like Christmas, we are all in favour of it as long is it does not affect us. It is difficult for Governments to withstand the removal of these reliefs. The House will recall that two years ago, when the then Government, comprised of the Fianna Fáil Party and the Progressive Democrats, eliminated 32 to 34 of these reliefs from the system without apology, there was blue hell. It was believed that the country was going to close down and that there would be massive unemployment. One business leader said at the time that there would be 500,000 unemployed, simply because one relief directed at his firm was abolished.

The point is not that the Minister for Finance should be the champion of tax reform but that there should be a consensus in the community to convince people that results can be achieved by having the mainstream tax rates low and widening the tax net. In this respect there is a gambling nature in the Irish psyche and people find it difficult to invest in ventures unless there is a return, whether it be BES, urban renewal and so on. I am presently waiting to be advised that nobody will develop the Hill of Howth or Foxrock unless they have urban renewal status. We are at the stage where nobody wants to undertake anything unless there is a tax break in it. That is the difficulty.

Senator Burke's recommendations will increase the standard rate by a further £1,800 in respect of a single person and £3,600 in respect of a married person, resulting in a cost to the Exchequer of £164 million in a full year. Senator Honan's recommendation is slightly more costly. It would increase the standard band by a further £3,800 in respect of a single person and £7,200 in respect of a married person, while at the same time reducing the standard rate from 27 per cent to 25 per cent and the higher rate from 48 per cent to 40 per cent. The cost of these changes to the Exchequer would be £620 million in a full year and, unfortunately, I have not got that money for this year.

The Minister will get the money.

The Minister advises that, given present structures, it is difficult to create a fair tax. My understanding is that Mr. Culliton has had no objection since last Christmas to the implementation of the residential property tax. The point of the Culliton report on this issue is that to achieve a fair tax system consideration should be given to a property tax in tandem with a reduced amount taken from the PAYE sector.

At present the Government is taking revenue from the residential property tax without taking a reduced amount from the PAYE sector. That is why there has been a reaction to the RPT from the public. If we want more people to be at work, we must also be prepared to increase the tax bands, because revenue is being obtained elsewhere. However, the Department of Finance wants to obtain revenue from all sectors and gives no impression, especially in respect of the PAYE sector, that it wants to help.

I argue strongly on behalf of the PAYE sector, because there are many people who are not in the PAYE net and who do not pay enough taxes. It is an issue which the Government is not prepared to address and it is one of the reasons there has been so much opposition to the residential property tax. In addition, the Minister should not forget that 76 per cent of those in accommodation own their accommodation, which is the highest percentage of its kind in the world. Not even those in the USA buy as well as us. However, we were enticed to buy and the Department of Finance is now taking money from people who, it maintains, have done well and have bought their own property.

People are asking why they should pay out so much when they are already paying under the PAYE system and high VAT charges? The Minister cannot deny that jobs have been lost because of the high VAT charges. There is no interest in job creation in the manufacturing sector. For example, in the clothing area jobs have been lost to places only 60 miles across the water because of lower VAT rates. There are no incentives given the VAT charges, especially in respect of clothing manufacturing, to create jobs. It is an embarrassment to this country to take the view that because 80 per cent of our clothing manufacturing is exported, the remaining 20 per cent has to pay such high VAT charges. We should be enticing our manufacturers and we should be proud of them, especially those in the north-west of the country.

On the one hand the Department of Finance is prepared to concede that there is a problem with clothing manufacturing, but on the other hand it is prepared to reduce employer's PRSI in areas where it is established that the employer cannot pay. This is an admission that VAT should not have been increased so much and it is an embarrassment to the Department of Finance.

There are powerful lobby groups in the country and that is all very well for the fortunate members of such groups when they get what they are seeking. However, there are many people, PAYE workers, who are not members of these lobby groups. These people pay what the Government demands of them and carry on with their lives. These are the people I feel sorry for.

The Minister spoke of the gambling streak in the Irish. I recall a number of years ago talking to somebody who was paying into a pension fund merely to benefit from a tax break. The person did not even consider the return on investment, but because it was allowable for tax the investment was made. I explained that, given that the relief was at 48 per cent, it was a crazy basis to be taking out an investment of that kind. But this reflects the Minister's view that in this culture there has to be something for somebody in a venture if it is to get off the ground.

Many of those involved in the urban renewal schemes are high earners and are using the schemes as tax avoidance measures. However, the ordinary people who are in the PAYE net and are on low or reasonable incomes are so crippled with taxation that they end up with very little disposable income. They can never get involved in these schemes.

These schemes are also hindering employment. In addition, there are employment taxes, which are the strongest taxes in the country. We tax employment as if it was a luxury or an endangered species, yet it is the one thing which should not be taxed. We should be trying to create a pro employment tax regime.

The residential property tax is a controversial issue because those who pay under the PAYE system, service charges and so on feel they are paying for everything while many people are paying nothing. It is the unfairness of the system that is at issue.

The financing of local government must be examined and there is a need for us all to sit down together to discuss matters such as this. I have requested the Minister to set out a plan, advise the people of his intentions and of the fact that it will take four or five years to implement. By doing this the Minister can resist the lobbying from various interest groups. In this way we must face up, once and for all, to reform of the tax system, especially with respect to unemployment. We must advise the people how it is to be done and also advise them that there are no more schemes to try to get people to do things.

The Government should put money into people's pockets. They will go out and spend it and will look after themselves. That is what they want; they do not want the Government to be giving allowances for this and that. This is the policy of my party. I accept that it will take much bravery and courage on the part of the Minister to proceed on this basis, but he will obtain support from the vast majority of people. While there are vociferous people who scream and shout about matters, the vast majority are reasonable. They will accept when something is being done, and when an honest attempt is made to do it. On that basis I ask the Minister to implement this tax reform.

The word "reform" has been widely used by politicians over the years. I have heard about reform of local government but have not seen many changes in that area. The word "reform" is good and satisfies people. Its mention gives the impression that something is being achieved. The word is now used about the tax system but everybody knows this is not being reformed and that the Minister has collected more tax than any other Minister in the history of the State and that this amount is rising.

Does the Senator disagree with this?

When the Minister speaks about reform he means collecting more tax.

There were millions of pounds in uncollected taxes until this Minister took action.

Unlike the amnesty.

Senator Fitzgerald should tell this to small business people. The Minister should explain clearly what he means by reform. By reform he means collecting more in tax and raising taxes.

PRSI is probably causing greater problems than income tax. Many of the industries which have experienced financial difficulties have done so because of PRSI. Reductions in PRSI for both employers and employees over a period of years would have a positive effect in generating employment as distinct from the present situation which is causing unemployment. Senators Belton and Cregan spoke about the clothing and footwear industries. When last year's Finance Bill was being discussed, a number of people in these industries submitted to me a list of shops and firms which had gone out of business because of the penal levels of PRSI and VAT. This should be closely examined. Incentives for industrial development and the attraction of industries to Ireland is of immense importance. However, we should first concentrate on trying to maintain existing employment and remove factors which cause unemployment in existing industries. The present system is a disincentive to employment and is causing job losses.

I would not like Senators to get hung up on the myth that taxes in this country are higher than average European taxes. Our 10 per cent tax on manufacturing companies is one of the lowest in the EU. This year we reduced PRSI for lower paid workers. Our PRSI rates are among the lowest in Europe also. I do not have the figures now but can make them available during the debate. I quoted them in the House last year. There is no doubt that the PAYE sector carries the heaviest burden. Many other sectors do not pay much tax. We are finally closing loopholes. Senator Belton is right in saying I have put a great deal of effort into trying to catch tax dodgers and defaulters, who are spongers on the community——

The Minister was very nice to some of them.

——and for years were happy to use devices such as the black economy so that the PAYE sector was left to carry the burden. I am proud to have closed in on these people. I know Senator Belton is congratulating me for this even though he did not sound as if he was.

The Minister is congratulating himself.

I am against dodgers, people involved in fraud and people who have huge houses and cars while also having medical cards.

I admire the Minister for this, but he is dodging the main issue.

How did such people get medical cards?

Some Members in both Houses support these people. Taxation amounts to 37.5 per cent of GDP. In the UK, where there are far more people working, the figure is 36 per cent. We are only 1.5 per cent behind a large country with a huge population. The OECD average is 38.7 per cent. The EU average is 41.2 per cent. This proves beyond all doubt that the percentage in Ireland is not high. I accept the points made about the difficulties for employment and the need to do all we can to help job maintenance and expansion. This is why we have introduced a great number of measures to help small and medium sized industries not only to maintain what they have but to develop and grow in the future. The 21 reliefs we introduced were widely welcomed by ISME, IBEC and the chambers of commerce. These reliefs are targeted to help people in need.

I do not disagree with the points made about PRSI. This year PRSI has been reduced for lower paid workers and I wish to continue this. In the UK there is no ceiling at the upper end so that if one earns over £25,000 one continues to pay. In Ireland there is a ceiling above which one does not pay PRSI. If there are reductions at one end there must be increases at the other end. However, there is not agreement on this. I hope we will have an opportunity during the year to explore with employers PRSI levels for lower and higher paid workers.

Most people accept the reduction in PRSI for lower paid workers was a positive step. I regret that the Minister did not introduce this on a more graduated basis. There is a cut off point of £9,000. It is important that this reduction be extended to those earning £10,000, £11,000 and £12,000. The Minister was in the House for most of the debate. When I spoke last night he was not here but the Minister of State, Deputy Fitzgerald, was. The point I made was that the Taoiseach made very cogent comments on the banking system and bank profits when he spoke recently. He said that bank interest rates and charges are a serious imposition on industry. He went on to say that sufficient incentives are not being given to small businesses and firms to start up.

I made another point last night which is important for this section. At present if a small firm is in arrears in its PAYE or PRSI payments, a 15 per cent penalty is imposed on late payments. Many of these firms are late in paying because they are having financial or trading difficulties. Such a high penalty is unfair — no bank is charging that rate of interest. If the Taoiseach wants to attack the banks, that is his prerogative; but he should also question whether, at the other end of the scale, the State is also causing job losses with such severe penalties.

Question put: "That the words and figures proposed to be deleted stand".
The Committee divided: Tá, 25; Níl 8.

  • Bohan, Eddie.
  • Byrne, Seán.
  • Calnan, Michael.
  • Cashin, Bill.
  • Daly, Brendan.
  • Fahey, Frank.
  • Farrell, Willie.
  • Finneran, Michael.
  • Fitzgerald, Tom.
  • Kelleher, Billy.
  • Kelly, Mary.
  • Kiely, Dan.
  • Kiely, Rory.
  • Lanigan, Mick.
  • Lydon, Don.
  • McGennis, Marian.
  • Maloney, Sean.
  • Mooney, Paschal.
  • Mullooly, Brian.
  • O'Brien, Francis.
  • O'Kennedy, Michael.
  • Ormonde, Ann.
  • Townsend, Jim.
  • Wall, Jack.
  • Wright, G. V.


  • Belton, Louis J.
  • Burke, Paddy.
  • Cosgrave, Liam.
  • Cotter, Bill.
  • Cregan, Denis (Dino).
  • Enright, Thomas W.
  • Honan, Cathy.
  • Neville, Daniel.
Tellers: Tá, Senators Mullooly and Wall; Níl, Senators Burke and Honan.
Question declared carried.
Recommendation declared lost.
Recommendations Nos. 4 and 5 not moved.
Section 2 agreed to.

I move recommendation No. 6:

In page 13, before section 3, to insert the following new section:

"3. —A deduction shall be made from the total income of a parent for the year of assessment 1994-95 and subsequent years of assessment in respect of relief amounting to £400 per child.".

We are talking here about the family unit in the context of the £1,000 tax relief for child minding services. This a growth area where jobs can be created. I ask the Minister to comment on it.

The recommendation proposes to restore the income tax child allowance on a universal basis at a rate of £400 per child. The child allowance was withdrawn from the income tax code in 1986 in conjunction with the introduction of the new social welfare child benefit payment. It was in accordance with the then Government's intention to consolidate secondary tax allowances with social welfare payments.

Last year there were significant increases in the scheme which brought the rate for the first, second and third child in all families up to £20 per month, while it rose to £23 per month for the fourth and subsequent children. There were further changes announced in this year's budget and the £23 rate will rise to £25 per month from September next. This higher rate will be extended to cover the third child in the family.

The recommendation has to be viewed against the background of the considerable progress being made in reducing the level of income tax which has benefited all taxpayers, including those with families. This has resulted in the reduction in the top rate from 58 per cent in 1988-89 to 48 per cent now. The number of tax rates has been reduced to two. Under the proposals in section 1 of the Bill the exemption limits have increased by £100 to £450 for the first two children and £650 for the third and subsequent children.

We will not delay the Bill for too long. I want ask the Minister about the extension of the child allowance. He has said that there is an increase this year for the third and subsequent children, which I welcome. It is now recognised that benefit should be given to every child in the family. Why is the allowance for the first two children not being increased? Is it not true that they are entitled to an increase? It is an incentive for the mother to stay at home. This must be emphasised, because if more mothers stay at home, more young people will be working. Why did the Minister not consider an increase for the first and second child even if it is only being introduced in September?

I have a great deal of sympathy with what the Fine Gael Party are doing in this recommendation. However, the Commission on the Status of Women, of which I was a member, constantly considered child benefit, child tax free allowance and other allowances. After much agonising, we came down firmly in favour of child benefit. That is the fairest way to deal with the system. If a child is to be given an allowance, people on the higher tax rates will benefit more and that is unfair because we do not have a system of tax credits or tax reliefs at the standard rate.

While I sympathise with the recommendation, I would prefer if we concentrated all our resources on increasing child benefit. The Minister said that it was increased substantially last year, but the increases this year are paltry. We do not go for major reform. The family income supplement was introduced to assist lower income families, particularly to take them out of the unacceptable net where some lower income families feel they would be better off on social welfare. We should try to completely reform the system so that we could ultimately eliminate the need for the family income supplement. If that were the case, as Senator Cregan said, the man or woman who is working would be getting enough money into their pocket to enable them to survive. We should strive towards that, rather than introducing schemes to shore up the present bad system. I will not support the recommendation because I am totally in favour of substantially increasing child benefit. That is the route to take, regardless of what is to be given to families.

Everyone naturally, and perhaps spontaneously, supports increasing child allowances, subject to what Senator Honan said. However, the significant factor is that the areas of major need at a particular time must be targeted. The Minister's decision to increase the allowances in respect of the third and fourth children is not just a significant economic step forward but an important social step forward. We are dealing with larger families; and where there is the responsibility of larger families, with the obvious economic consequences, it is important to show support for those units in the priorities expressed in our legislation, particularly for the mothers who work at home in those units.

I have always strongly supported the role of the working mother at home. My colleagues may recall, the famous Murphy decision, where the Supreme Court held that working wives outside the home would be entitled to a separate tax allowance as they had a separate income from their husbands. As Minister for Finance at that time, I proposed to the Government, and it agreed, that working wives at home would also be entitled to the same recognition in our tax code as working wives outside the home. The recognition of the special role of the working wife at home was a major breakthrough. It was entirely consistent with the constitutional position which recognises the special role of the woman in the home.

The targeting by the Minister and the Government is in the right direction. I do not suggest that smaller family units are not entitled to our care and consideration. However, when one takes account of the moves the Minister made last year, one must agree that the special targeting of the third and fourth children is welcome. In the best of all worlds, we would like to increase allowances on all fronts for families. However, where that cannot be done at all times, the Minister's step here is exactly what I would favour. I hope my colleagues who put down the recommendation will agree.

I do not agree with the £400. What about the person who has children and who is exempt from paying tax? It would not apply to them and they would not benefit. A person on the standard rate of tax would only benefit to the tune of a little over £100 of the £400. A person on the 48 per cent tax rate would benefit to the extent of £200. Anomalies are being created immediately. It is much more important to add the money to child benefit. There were substantial increases for small families last year and there are good increases for larger families this year.

We do not object to child benefit, but people in the PAYE sector ask why they do not receive tax relief for their children. We should consider giving all benefits equally to people. As Senator O'Kennedy said, there is no difference between a woman working in the home and a wife working in some other place. The Minister at the time was correct to introduce that type of legislation. I have no hesitation in stating that not enough recognition is given to the person in the home. I commend those women who wish to work outside the home. They have demonstrated that they can do a marvellous job. However, the emphasis must be on the protection of young children.

The mother in the home is most important in Irish society and we learn this every day. I cannot overemphasise the point that benefits should be given directly to the mother in the home. I do not entirely agree with my colleague, Deputy Ivan Yates, when he says that an extra £1,000 tax relief should be given to a husband if his wife is prepared to stay at home. The wife or mother should receive the benefit directly. If we are prepared to give child benefit, there is no reason why we should not also give benefit to mothers every month.

I do not understand why the third and subsequent children should receive an increase this year while the first and second children do not. I do not agree with it. I have a large family and I do not suggest that my wife would not like an increase after the third child. However, it does not recognise the first and second children. There should be equality for all. I will not delay the House but I ask the Minister to explain his thinking on this matter.

In case people think I am not interested in women in the home, I wish to make a further point. I fully support what Senator Cregan said. The Constitution recognises the special position of women in the home but we do not appear to do very much about it. I acknowledge what Senator O'Kennedy said about giving women the tax free allowance. However, the husband who is working gets the benefit of that. My difficulty is that many women working in the home in this country do not have any financial independence. They are totally financially dependent on the man. It costs the State money to give these married allowances; but, in effect, the husband gets the benefit. The Commission on the Status of Women proposed that some method should be adopted to deal with this, but Department of Finance officials said it would be too difficult and there was no way that it could be done. Some recognition needs to be given to the woman in the home. If it is costing the State money by way of allowances or whatever, the woman should receive the cash directly into her hand.

As Senator O'Kennedy said, we made significant increases in the scheme last year. We increased the monthly rate to £20 a month for the first, second and third child in all families, while that increased to £23 for the fourth and subsequent children. The changes announced this year were developed in conjunction with the Department of Social Welfare as part of the social welfare package and the areas it believes it is best to target. This year, it means that the £23 rate will rise to £25 from September and the higher rate will be extended to the third instead of the fourth child. In reply to Senator Cregan, they want to target the available resources at larger families. They have moved back to the third child and are moving in the direction the Senator is seeking.

The same applies in the case of child additions. They are being increased by £100 to £450 for the first two children and £650 for the third and subsequent children. The view is that the pressures and costs of larger families mean that they require more resources. Both the children's allowance and the child additions recognise that the costs of trying to maintain, educate, clothe and feed a larger family requires assistance within the social welfare and tax systems.

Recommendation, by leave, withdrawn.
Recommendations Nos. 7 to 9, inclusive, not moved.

I move recommendation No. 10:

In page 13, before section 3, to insert the following new section:

"3. —Section 14 of Finance Act, 1992 is hereby repealed.".

The reason I am moving this recommendation is to introduce equity into the system. Prior to the Finance Act, 1992, full-time employees with material interest in a company for which they worked were entitled to full interest relief on funds borrowed to invest in that company. Section 4 of the 1992 Act abolished this relief for employees in public companies who took out loans after 29 January 1992, while transitional relief was granted up to the tax year 1995/96 for loans taken out prior to January 1992. Full relief is still granted to employees or directors who have a material interest in private companies. There seems to be an inequitable situation between private companies and public companies. My party has made representations and I would be interested to hear what the Minister has to say.

The recommendation proposes to repeal section 14 of the Finance Act, 1992. As Senator Honan said, this abolished relief in respect of interest on loans to acquire an interest by way of share or loan capital in a quoted company. In the case of existing loans the relief is phased out over a three year period, generally beginning with the second next tax year after the company becomes quoted. For example, in the case of a taxpayer who took out a loan to acquire shares in a company which became quoted in the 1992/93 tax year, the relief available in this tax year would be 40 per cent of the loan interest. In these circumstances, for a higher rate taxpayer the relief would be conferred at an effective rate of 22 per cent, which is not very far removed from the standard rate of 27 per cent.

Section 14 was enacted because it was felt that the rationale for the relief to acquire an interest in a company was dubious in relation to quoted companies which had access to capital through the stock market. I think that answers the question raised by the Senator.

Recommendation, by leave, withdrawn.

An Leas-Chathaoirleach

Recommendations Nos. 11, 13, 17 and 18 are related and all may be discussed together.

I move recommendation No. 11:

In page 13, before section 3, to insert the following new section:

"3. —With effect from the year 1994-1995, the provisions of section 138B of the Income Tax Act, 1967 (as amended) and section 6 of the Finance Act, 1982 (as amended) shall apply to all taxpayers, whether employed or self-employed or otherwise.".

This recommendation concerns a question of equity in the tax system and seeks to extend to all taxpayers equivalent allowances in respect of equivalent incomes because all taxpayers now pay their tax in the same tax year. The PRSI and PAYE allowances were given originally to taxpayers who were paying PAYE, because they were paying it on an actual year basis. At that time self-employed people were paying it on a preceding year basis. However, this system has been completely reformed and now all of them are paying their tax on an actual year basis. Would the Minister consider extending the allowances?

The purpose of recommendation No. 11 by Senator Honan is to give the PAYE allowance of £800 and the PRSI allowance of £286 to all taxpayers irrespective of their status. We have made a small step in the direction of this recommendation in section 4 of the Bill by extending the PAYE allowance to children of both the self-employed and proprietary directors. I know Senator Cregan welcomed this yesterday. It grants recognition where family members are working and involved.

The purpose of recommendation No. 13 by Senator Burke is to ensure that an income tax allowance of £1,086 would be granted to any person entitled to either the PAYE allowance, which stands at £800, or the PRSI allowance, which is currently £286. The purpose of recommendation No. 17 by Senator Burke is to extend the PAYE allowance to all family members employed by a farmer on the family farm. The purpose of recommendation No. 18 by Senator Burke is to extend the PAYE allowance to favoured nephews and nieces employed on the family farm.

In debating the recommendations it may be worthwhile to recall the reasons why both the PAYE and the PRSI allowances were introduced in the first place. The PAYE allowance was originally introduced to differentiate between the ordinary PAYE taxpayer on the one hand and self-employed proprietary directors of companies and their spouses and children on the other hand. The allowance was also aimed at improving the tax progression for ordinary PAYE taxpayers. It was probably Senator O'Kennedy who was involved in that particular process in the early 1980s, if I recall.

It was very useful. At the time he had to deal with a few hundred thousand people on the tax marches. One of the principal differences between ordinary PAYE taxpayers and the self-employed is that the self-employed generally enjoy a more favourable basis of taxation. Despite the introduction of the self-assessment system and the current year basis of taxation, this difference still obtains. The self-employed enjoy more liberal tax relief for expenses than an employee and are still not taxed on a full current year basis. They are taxed on their profits in the year of account ending in the current tax year. In addition, the self-employed have to pay a minimum of 90 per cent of their liability in the tax year, compared to 100 per cent for PAYE taxpayers, and the balance is not due for payment until 31 January the following year.

The combined effect of the two means that the self-employed, having the use for a long period of money owed in tax, enjoy a more favourable tax collection regime than those within the PAYE ambit. The self-employed also have opportunities of tax planning which some of them use and some do not. They have control over their own remuneration so that it is paid in the most tax efficient way. This is the reason why these reliefs were given in the first place. They have not moved up as they have gone on, they have stayed more or less the same for a number of years. The changes we made this year, which are valuable for spouses of the self-employed and proprietary directors, certainly help in some way because they are made to the families, not to the spouses.

The other change in reliefs is that the farmers also have the benefit of stock relief, which is probably a more advantageous system for them than the allowance. If there are any more questions on detail I will be glad to answer them.

The figure of £286 does not apply to all PAYE workers. We are dealing with something here that could cause a lot of complications. The £800 figure should be increased in line with inflation every year.

Recommendation, by leave, withdrawn.
Recommendation No. 12 not moved.
Section 3 agreed to.
Recommendations Nos. 13 to 18, inclusive, not moved.
Section 4 agreed to.
Recommendation No. 19 not moved.
Section 5 agreed to.

I move recommendation No. 20:

In page 15, before section 6, to insert the following new section:

"6. —Notwithstanding anything in the Income Tax Acts, as amended, with effect from the year of assessment 1994-95 the percentage of mortgage interest paid which qualifies for relief (subject to interest ceilings) shall be 100 per cent of such mortgage paid."

The Minister made a great error when he decreased the mortgage interest relief available to householders; it has been decreased from 100 per cent to 80 per cent. These people provide their own homes, they go to work every day and pay their taxes. They are not a burden on the economy. In that context the Minister made a grave error.

Working people depended on mortgage interest relief. At one time relief could be claimed on sums of up to £4,000. That was a great bonus to young married couples rearing their families. Indeed, it was a basic need for such people. At present they are the most hard pressed members of society because they must pay for everything, including fees for schools and colleges.

This provision will also affect the building industry. It destabilises the housing market as does the residential property tax which we will discuss later. The decrease in mortgage interest relief was a retrograde step. I ask the Minister to restore the relief, if not now then in the 1995 Finance Bill.

Nobody is anxious to speak in favour of reducing mortgage interest relief. However, we must recognise that our tax system has become overloaded with reliefs and allowances, such as mortgage interest relief, medical insurance relief and so forth.

I set up the Commission on Taxation in 1980. The distinguished Miriam Hederman-O'Brien chaired the commission. It was a group of sophisticated and well qualified people. She recommended in 1980 that the thrust of taxation policy should be to simplify the tax code and to reduce the plethora of allowances, although she acknowledged that they were deserving cases. The commission recommended that the Government focus on the basic tax burden and work towards reducing that tax burden in a progressive and effective way. She included PRSI in the tax burden.

Each of us can suggest allowances for items that are worthwhile and deserving. Who could suggest that mortgage interest relief is not worthwhile? The Minister is not abolishing the relief. He is introducing arrangements such as marginal relief to relieve the burden imposed by the change. I welcome the fact that we are, belatedly, moving in the direction recommended by the Commission on Taxation. Miriam Hederman-O'Brien was the first woman to preside over such a commission and I am proud of its work.

I would not support this provision were it not for the fact that, at the same time, we are trying to reduce the overall level of taxation. The higher tax rates have been reduced consistently in recent years. The standard tax rate has been reduced and marginal relief has been increased. On all fronts taxation policy is moving in the direction recommended by the Commission on Taxation.

The reliefs that are dealt with in sections 6 and 7 are dear to most people, including myself. I have benefited from them. However, the road which leads to the reduction of the overall level of taxation — and the 1 per cent levy has been abolished — is the road we should take. We will not achieve everything in one year. However, the Minister and the Government are moving in the right direction. While in the best of worlds I would like to see the mortgage interest relief being left untouched, the balance in the Bill is right. The road to travel is the one that leads to taxation levels being reduced.

Senator O'Kennedy referred to the Commission on Taxation. Would he not agree that this country is overrun with commissions and committees? The founders of the Oireachtas were ordinary men and women who used common sense as their yardstick. They rarely went to commissions or committees for advice. We must return to fundamentals and be guided by our belief in ourselves and in the people who are elected to these Houses.

This tax relief will be reduced from about £2,064 in 1993-94 to about £1,026 in 1997-98. As a result of tax free allowances and tax deductions in respect of homes, the people of this country have very good housing. Previous Governments have consistently made positive efforts to ensure the availability of good housing through home improvement grants, new house grants, mortgage interest relief and so on. That policy has worked. One need only drive across Dublin or any area of rural Ireland to see the fine homes which people have provided for themselves and their families. It is something of which we can be justifiably proud. Our housing compares very favourably to housing in the cities of Europe and the rest of the world.

Buying a home is the biggest financial investment any couple will make. Although motor cars and education for one's children cost money, a home is a person's biggest financial investment. The Minister is putting another nail in the coffin of people who are trying to pay their mortgages. I urge the Minister to visit the District Court and see how many houses are being repossessed by councils; in the Circuit Court he can see homes being repossessed by building societies, banks and financial institutions. People are unable to pay their mortgages. The situation is bad already, why make it worse?

I have seen the Circuit Court lists; page after page of cases being brought by building societies, banks and financial institutions against people who are unable to meet their mortgage repayment commitments. The one payment people will struggle to make is the mortgage repayment. It is the most important because it concerns the roof over their heads. To tamper with mortgage allowances is to play with fire. We should not delude ourselves; a significant number of houses are being repossessed by building societies. I see this happen on a regular basis. £20 per week might not be a large amount to some people but others can only dream of such a sum because they do not have it and are unable to pay their bills.

The Minister should think carefully before he proceeds with these changes. They are being made slowly. It is like a person on a pill; it takes a long time to work but over a period they have a lethal effect.

What would the Senator know about the pill?

This tablet or pill is rather bitter and it will have a serious impact on many people around Ireland. I wish the Minister well in many of his efforts but he is not following the right path here.

I disagree with Senator Enright when he said we have too many commissions in Ireland. The problem is we have many commissions but we do not implement their recommendations.

We still have too many of them.

I and my party support the recommendations of the Commission on Taxation. The Culliton report also said they should be implemented. If all the recommendations were implemented there would be fewer calls from different interest groups for changes; and if the calls continued we would be in a better position to turn them down. The vast majority of people, including those paying mortgages, would benefit greatly if the recommendations were put into practice.

My party also believes there should be a system of tax credits or that any allowances given should be at the standard rate, so it would be hypocritical of me to criticise the Minister for that. I would like to see all the commission's recommendations implemented, but doing so in a piecemeal fashion causes difficulties.

My approach is different from that of Senator Enright. Tax revenue is raised this year by £667 million, a 6.9 per cent increase. It should not be forgotten that the Minister is taking in more money. The Senator was correct about mortgage interest relief. 76 per cent of Irish people own their homes. The Department of Health will spend £30 million pounds this year in landlord supplement. That will increase next year because more people will realise they should not do something for themselves; they are better off taking a supplement from the State for better accommodation.

I can speak on this for a week, but I will just give one example. If a person decides to take accommodation from a private landlord he benefits and we make landlords richer, but we take that money from a couple wishing to buy a home at £50,000.

Senator Cregan can thank a certain candidate in the Dublin constituency for the European elections for creating that position.

Is it not true that the Department of Finance is allocating nearly £40 million to the Department of Health this year to supplement people who do not want to do anything for themselves? Meanwhile we gut those who do something for themselves.

We are not gutting them. A total of £140 million is given in mortgage interest relief.

Even if we do spend that much, at least it helps positive thinking on the part of those who want to do something for themselves. I agree that interest relief should only be given on the first £50,000 of the value of a house — if the house costs more the owner should not receive interest relief on the total value because he has enough money. However, the Minister should not remove relief from couples with small families.

I am glad to hear a radical voice in Fine Gael.

The Minister is taking money from couples living in towns all over Ireland and giving it to people who do not want to do anything for themselves. We are allocating £40 million to encourage people to rent from private landlords, paying between 70 and 90 per cent of the total rent. The Minister should look at the picture as a whole. He should not knock people doing something for themselves, but that is exactly what he is doing.

There will undoubtedly be less work in the construction industry. Only ten minutes ago the Minister said we have to establish specific schemes such as inner city renewal to provide a tax incentive. The most important step we can take for the 76 per cent of people who want to help themselves is to allow them to use their initiative. I am not saying houses costing £150,000 should get full interest relief, but houses under £50,000 should. Relief should be phased out for houses which are more expensive than that. We should not make the rich richer in that way but we are doing so in another way by giving £40 million for rent allowance to the Department of Health. That will increase by £20 million in two years if matters continue as they are.

I vigorously support the concept of helping, encouraging and supporting people to enable them to provide for themselves, especially in regard to the most fundamental provision of all, the home.

Senator O'Kennedy does not support that.

I ask the Senator to listen to my point. In common with Senator Cregan, Senator Enright and Senator Honan, I believe this must be a priority and we must be seen to support them at all times. We achieve this aim not by words but by effective action and it is evident that the action now implemented will enable this achievement.

I recall the huge demand for mortgage interest relief. Senator Enright is long enough in these Houses to remember when there were interest rates of 21 per cent. The reason the rates were so high was because the public expenditure bill was constantly growing.

Does Senator O'Kennedy remember when the former Minister, the former Deputy O'Donoghue, promised to end unemployment?

The problem started in 1977.

An Leas-Chathaoirleach

Senator O'Kennedy without interruption, please.

I am not making party political points. Senators will have to face the fundamental reality that a Government does not have money of itself, by definition. It only has what it collects and it then decides how much it will spend. For some considerable time, with the support of all, Governments have followed a policy of collecting less and spending less, or at least not spending at the same rate as before. People will benefit from these tax and expenditure policies. We have seen a reduction in the mortgage interest rate from the high of 21 per cent to the current rate of 7 per cent.

That was before the devaluation in 1993.

That has nothing to do with mortgage interest relief.

At the time of the devaluation the rate was 14 per cent; it has almost halved in that short period. Senators on both sides of the House will have to face our responsibilities. We all seek to reduce the burden of mortgage interest payments. The question is how to do so effectively and the Government has found the answer.

I prefer to see interest rates at the current level because of strict Government policies on public expenditure. The Minister for Finance can always find an extra £140 million for relief but he can only do so if the finances are properly managed and controlled by borrowing or increasing taxation. Who wants to do that? Economic observers or commentators and investors at home and abroad will react and our inflation and interest rates will increase.

It is time to make proposals to Government to spend more money to increase allowances. The best course is to ensure that the Government is prudent in the way it spends the money it has to collect. The Government must collect the money first before it can spend it. It is better for the mortgagees because they are entitled to our consistent help and support. We all support the concept of home ownership.

They are not getting it.

They are now getting it at a mortgage interest rate which is still not as low as it should be.

It is costing the Government less.

Why is it costing the Government less?

Because interest rates are lower.

When one reduces inflation and the growth of public expenditure, as the Government has successfully done, then — and Senator Cregan knows this because he is a businessman — one reduces the overall costs, the level of borrowings and the interest rates. Recent Government policies, and I am glad they are now being pursued, have brought about a climate where our interest rates are at a record low.

They are not low enough.

They are not low enough. I spoke at some length yesterday about the financial institutions, the banks and the building societies. The best support we can give to those mortgagees is to continue the policies which have been put in place and which will maintain the lowest possible mortgage interest rate, which I vigorously support. If we return to the old policies, which have failed us all at various stages, and say that the Government should allocate an extra £150 million, we should recognise that the consequences of such a policy will be an increase in interest rates. We want to help the home owners and this is the best way to do so.

It is not.

That is what the Commission on Taxation recommended.

The section provides for the changes in the mortgage interest relief which we announced in the budget. The changes concerned are relief as it affects persons claiming it for the first time and the granting of mortgage interest relief at the standard rate. The House will be aware that there are ceilings on the amount of interest in respect of which tax relief may be claimed. These are £5,000 for a married taxpayers, £3,600 for widowed taxpayers and £2,500 for single taxpayers. There is also the percentage limits on these amounts, which qualify for tax relief. The percentage is 80 per cent of the interest paid or the relevant ceiling, whichever is the lesser. A de minimis exclusion operates where the first £200 for a married person and £100 for a single and widowed person in respect of qualifying interest is calculated. That is excluded for relief.

Last year during the difficulties of the currency crisis and as an aid to first time purchasers, the percentage limit was raised to 100 per cent for the first three years in which a taxpayer claimed mortgage interest relief. That set that limit aside in such cases. It has now been provided that interest will be allowed at 100 per cent for the first five years and the de minimis exclusion of the first £200 for a married person and £100 for a single and widowed person will also not operate for the first five years. In this section we are giving a good break to people who are taking out a mortgage for the first time. Not only is it helping people who are taking out a mortgage for the first time during 1994-95, but it is also helping people who took it out in the last five years. These special measures will be of benefit to people who first claimed mortgage interest relief in 1991. For people who took out a mortgage in the early years when they were trying to pay bridging loans, credit union loans and small loans from banks, which they needed to pay for their marriage or to furnish their house, the 100 per cent relief for the first five years helps to relieve the pressure.

In regard to the phasing of mortgage interest relief, as Senator Honan said, it has been mentioned in the report of the Commission on Taxation and in every other report over the last 20 years. For example, if two individuals are living side by side in the same type of house, which cost £50,000 and which was built at the same time by the same builder, the person on the standard rate of tax, who is on a salary of £10,000 or £15,000 a year, gets £270 relief for every £1,000 paid. However, the person next door, who is on a salary of £60,000, gets £480 relief for every £1,000 paid.

The Minister should stop this happening.

How can anyone argue that a tax system should reward the higher paid person who is in a similar house to a person paying the standard rate of tax but who enjoys a difference of £210 for every £1,000? We are not talking about people on the standard rate of tax because they are not affected by this, but about those on the higher rate.

Over five years the money saved to the Exchequer is not all the money we pay on mortgage interest relief. Mortgage interest relief cost the Exchequer £140 million this year. I hope we never go below the standard rate, as other countries have done. Great Britain has done away with mortgage interest relief, but I do not agree with that approach. It is standard rated now and it should be left that way. This Government is phasing this in and it and the various commissions which have considered this suggest that it should stay at the standard rate. We should not give the person who lives in the same house and is highly paid £210 more for every individual in it. The £140 million relief this year will decrease over the period to over £100 million. We guarantee that the money saved to the Exchequer will go back into widening the standard rate bands, so that more people will be on the 27 per cent rate.

That is the way to do it.

The Minister, without interruption, please.

It is sensible to do this because it will work out in the future. I am not going to make political points about it, but the budget which collapsed in 1982——

That was Deputy J. Bruton's budget.

That is a long time ago. I heard about it on international radio.

The shoe budget. My wife wears a size three shoe and my daughter wears a size five.

It was the first Government in Europe to fall on the budget. It had never happened before.

Acting Chairman

The Minister, without interruption.

In the 1982 budget — and I am not criticising it because it was right — Deputy J. Bruton, who was Minister for Finance at that time, provided for the immediate implementation of standard rating for new mortgages. He did not suggest phasing it in over five years. That was a little harsh, but I have no difficulty with the concept. That budget was remembered for the tax on shoes.

Deputy Kemmy will need a new pair of shoes this year.

Senator Burke and Senator Cregan should ask why it took this Government so many years to do what their party did in 1983. That is what they should criticise us for because their party was ahead of its time on that issue. It took this Fianna Fáil-Labour Government 11 years to catch up.

It is not the only policy the Government has taken from our party.

We also took the residential property tax from Senator Burke's party.

The Minister's policy is "anything you can do, I can do better".

The standard rating will prove to be beneficial because it is fair. There should not be a situation where two people are living in similar houses, yet one is earning a larger salary and is getting more benefit, particularly if the relief gained is used to broaden the standard rate. The problem with our tax system is — and there is no disagreement politically about this — that people are paying the higher rate of tax too soon, regardless of what Government is in power. We must try to ensure that fewer people pay 48p in the £ on the PAYE system.

After this budget the net gain for a single PAYE taxpayer paying on £10,000, taking into account the underlying tax gain, the PRSI levy gain less the mortgage loss, is £80, it is £125 on £15,000, £175 on £20,000 and £225 on £30,000. In all cases these people will gain after the budget. A married couple will gain £160 on a £20,000 house or £200 on a £30,000 house. They are still not losing because of the other reductions in a package amounting to £330 million, or £150 million, or £160 million if one excludes the levy, which Deputy Yates likes to do; I am sure his colleagues in the House would do the same. The fact is that nobody is losing and mortgage interest relief is seen as a matter of equity and one which is fair in the tax system.

The Minister made a point about basic tax relief and that the person who is better off gains more. The Department of Finance should not say it cannot handle that situation and that a person is getting more because he is making more. Is the Minister saying he cannot solve that problem? We are talking about interest relief for the less well off, and I would like to hear Michael's view on this. What is wrong with looking at how much a person has earned the following year? If a person earns too much the previous year, he should get no relief — I have no problem with that. In other words, we must wait until the following year for interest relief. The Revenue Commissioners send out the tax forms and if a person has earned over £40,000, he should not get interest relief on accommodation. What is wrong with that?

We should not say to those earning £14,000, £18,000 or £20,000 per annum that they will get less because we are trying to catch those earning more and that their neighbour who is on £52,000 will get more out of this. We should look at what a person has earned in the previous year. If one is earning under a certain amount, relief should be given on a certain amount, but if one is earning over a certain amount, no relief is given.

Acting Chairman

I remind Senator Cregan that he should not refer to Senator O'Kennedy as "Michael".

I answer to any name.

I beg Senator O'Kennedy's pardon.

Senator Cregan's pardon is accepted.

The Minister made a significant statement. The amount saved by this adjustment in mortgage interest relief will be used by the Government — and this is a firm commitment — to broaden the tax bands and to reduce the level of tax on those who would otherwise pay a higher rate of tax. Surely, that is what we all want to achieve. It is a significant decision on the part of the Government.

The Minister illustrated an anomaly which exists between two people living in the same type of house of the same value, but the person on the higher rate of tax gets a better level of return than the person on the lower rate. Nobody wants that. I agree this is an instrument which should be retained at the standard rate and I would like to see that discussed in greater detail at another time.

We are making a definite decision to apply savings, which would otherwise be spent maintaining or, as some would suggest increasing, mortgage interest relief, to broaden the tax bands and reduce the level of taxation. Surely, that is the way we must go. It is a significant assertion of Government policy and it deserves the support of the House. It would also be welcomed by all home owners.

Recommendation, by leave, withdrawn.

Acting Chairman

Recommendations Nos. 21 and 24 are related and may be discussed together. Is that agreed? Agreed.

I move recommendation No. 21:

In page 15, before section 6, to insert the following new section:

"6. —Section 117 (benefits in kind) of the Income Tax Act, 1967, is hereby amended by the substitution of the following for subsection (4):

`(4) Subsection (1) shall not apply to the first 15p of the expense incurred for each meal provided by the body corporate or in connection with the provision of meals in any canteen in which meals are provided for the staff generally.'.".

I spoke about this yesterday and the Minister is aware of this unjust element of the Finance Bill in relation to tax on meals provided in canteens and restaurants. I ask him to review the situation. A person who qualifies for a meal voucher or who gets a meal in a canteen, a restaurant or some place other than a factory canteen, should qualify for the same concessions as those in canteens.

Senator Burke outlined his views on this issue on Second Stage and we will examine what he said. The recommendations are concerned with aspects of the Income Tax Act, 1967, which deal with the taxation of benefits in kind. I take this opportunity to address the topic of fringe benefits and benefits in kind generally. However, I will consider what Senator Burke said yesterday.

The House will recall that the previous Government decided not to proceed with the introduction of the fringe benefits tax, which had been envisaged would be levied on all employers. In making this decision the Government was influenced, in particular, by the undesirability of any action which might impact adversely on employment costs. It also took into account the fact that the advantage of the fringe benefit tax approach in other countries derived mainly from bringing about effective taxation of certain benefits, such as company cars and preferential loans, but that current arrangements are basically satisfactory. I made some changes to help those with preferential loans in this year's budget.

The Government's objective is to broaden the tax base to make possible improvements in income tax which will benefit all taxpayers. Senator O'Kennedy has been outlining this and Senator Honan strongly agrees with it.

The effective taxation of fringe benefits is essential so as to prevent erosion of the tax base by the proliferation of this form of remuneration and to ensure that there is basic equity in the tax system. To achieve this approach we decided to reinforce the arrangements existing under the 1967 Act. The Revenue Commissioners were asked to take the necessary steps through wider recourse to their existing statutory powers and the application of staff resources as they were freed from other more demanding areas, to achieve more effective taxation of fringe benefits within the basic parameters of the existing systems. As a consequence of that employers were sent the return form P11D of benefits noncash emoluments and payments not subjected to PAYE provided to directors and to certain employees. This is an element of ensuring that all the benefits are properly charged to tax in the interest of trying to broaden the tax base.

I know that this subject was raised last year and that Senator Burke would like me to look at the issue of excluding from the charge the first 15p on the expenses of each meal provided. Luncheon vouchers are regarded as not being taxable if certain strict conditions are met. One of these is that the value of the vouchers issued may not exceed 15p for each working day, so the apparent aim has already been met but the issues raised are broader than that of the 15p voucher. I will look at that and will communicate with the Senator directly.

The Minister is certainly not in favour of overeating with that allowance.

If you get five days' vouchers at 15p a day——

You have enough for a cup of coffee.

You would not want to have a pint to top up your lunch.

It must be the procedure in this House, a Chathaoirligh, if you are to have a vote at 1.30 p.m. and be back at 2 p.m. There would be no time to spend more than 15p.

Recommendation, by leave, withdrawn.
Section 6 agreed to.
Question proposed: "That section 7 stand part of the Bill."

Section 7 deals with the VHI. I could speak all day on this, but I will speak briefly on it because the Minister covered some of the ground previously. It is similar to provisions in relation to mortgage interest relief for houses. This is another retrograde step because subscribers to the VHI are looking after themselves. They are providing for themselves, they are no burden on society and I cannot understand the logic of this provision. We are trying to encourage people to pay for their own medical expenses and now we are taking this relief from them. We have overcrowding of hospitals by public patients, patients waiting for hip replacements and long waiting lists in regard to public patients.

The 1.3 million people in this country who are in the VHI are disappointed at the decision the Minister has taken in this Finance Bill. It is a retrograde step and he should look seriously at it because he is again taxing the people who are providing for themselves, who are no burden on the economy. These people are the foundation of this country. They have to pay their way in relation to health, education and every other aspect of life, so I ask the Minister to seriously reconsider taking these reliefs from VHI subscribers. The subscription fees are a great expense to the people who make up that 1.3 million.

I fully support what Senator Burke has said. Up to now money paid in VHI subscriptions was fully allowable for tax and the total amount could be deducted from income like a personal allowance. There was an incentive for people to subscribe to the VHI and people did so on a regular basis. Tax relief on these contributions to the VHI are now being restricted. Tax relief will be given in the current year but in 1995/1996 it will be restricted. In 1995/96 the allowance will be down to 37.5 per cent and in 1996/97 the allowance will be down to 27 per cent from the existing 48 per cent. I have grave reservations about this. These tax changes are wrong.

The removal of tax relief granted to taxpayers under health insurance will cause serious problems for the Voluntary Health Insurance Board. As Senator Burke said, there are approximately 1.3 million subscribers to the VHI, that is 34 per cent of the population. They have paid their contributions and generous tax allowances were available. All successive Governments realised the importance of the VHI since it was set up by the then Minister for Health, Mr. Tom O'Higgins. At present the VHI is financially sound. I am concerned that the tax changes the Minister is bringing in will result in many people reducing or cancelling their subscriptions to the VHI. At the moment there is an upward trend in contributions and of members joining but these tax changes may result in a reduction in subscribers.

If these changes do cause a reduction in subscribers or in the level of cover subscribed to, it could not come at a worse time, because the VHI will face competition from British health insurance firms over the next few years. It is a very serious matter. I am deeply concerned over it. There is unease in the VHI over this matter. Other matters in the VHI are also causing disagreement.

Acting Chairman

That is not relevant to this section of the Bill. Whatever happened in the VHI does not matter. We are speaking about the Finance Bill.

Could you please explain to me, Sir, exactly what is wrong with what I have said?

Acting Chairman

You are talking about troubles within the VHI, if I have understood you properly. That is not relevant to the Finance Bill.

Can I put it straight to you, Sir?

Acting Chairman

I am strongly of the opinion that it is not relevant. Continue, Senator.

We are talking about taxpayers' money. In 1992 the Minister decided to take £3 million pounds in a levy off the VHI. It is the Government's prerogative to do so, but the ordinary subscribers had to contribute towards it. That is allowable and justifiable, but it is not right that any subscriber to the VHI should be asked to contribute towards a Mercedes costing £100,000.

Acting Chairman

You are straying from the Bill. That is completely irrelevant. Please confine yourself to the subject at hand.

It is important that the Minister would examine how money is spent in the VHI. The Minister is collecting additional revenue from people out of their taxes to help pay for other health services. The money that has been retained by the VHI is of importance to its members because they are paying these subscriptions out of money that has already been taxed.

Who is monitoring the money spent by the VHI? Somebody must be responsible for that and I want to know what is happening to taxpayers' money, such as the £3 million, and who is paying for the Mercedes. Was it sanctioned by the Minister for Finance or by the Minister for Health?

There is deep concern in the VHI because there has been a disagreement between the chairman and the chief executive officer. The chairman is appointed by the Government.

Acting Chairman

That is not relevant to section 7 of the Finance Bill. The Senator is taking advantage of the section and I will not allow him to take advantage of the Chair. The section deals with the restriction of reliefs, so confine your remarks to that.

I am perfectly within my rights to say what I am saying.

Acting Chairman

The Chair will decide that.

We are dealing with the Finance Bill. The Government appointed the present chairman of the VHI and I want to know if it is satisfied with what is happening. The last report of the VHI came up with the result——Acting Chairman: We are not discussing the report of the VHI. We are discussing section 7 of the Finance Bill, so confine yourself to that, Senator.

What I am saying is of immense importance to many people, a lot of taxpayers.

Acting Chairman

You have other ways and means of raising the matter, but not on the Finance Bill.

I view this matter so seriously that if I am not allowed to continue speaking on it, I will take it up with the Committee on Procedures and Privileges.

Acting Chairman

The Senator may use whatever means are available to him but the matter is not relevant now.

I will refer this matter to the Committee on Procedure and Privileges. The VHI will face competition from overseas companies. They need a skilful negotiator, a chairman——

Acting Chairman

That is not relevant to section 7 of the Finance Bill.

Section 7 of the Bill means that the subscribers to the VHI will find that their tax allowances are reduced. The moneys they are paying are being wasted by the present chairman of the VHI and I defy contradiction on that.

Acting Chairman

Senator, you are out of order in referring to that.

It is not out of order.

I am not out of order. It is Mr. Noel Hanlon who is the chairman of the VHI.

Acting Chairman

You must withdraw that, Senator. You have privilege here.

I have no intention of withdrawing it.

Acting Chairman

The Senator should not refer by name to people who are not in the House and cannot defend themselves.

He is appointed by the Government. It is not good enough that people's money——

Acting Chairman

I appeal to the Senator to confine himself to section 7 or I will have to call the Cathaoirleach to deal with him.

These cutbacks the Minister is making come at an important time. I question the attitude of the Government to the VHI and these tax relief reductions. What is happening is completely wrong. Health services cost the taxpayers a lot of money each year and the VHI is facing severe competition from foreign companies. In the face of that competition the chairman of the VHI needs to be a skilful negotiator. There will be serious internal problems because of this competition. It is important that the Minister would make sure that whoever is in charge of the VHI would not look for confrontation but would be a skilful negotiator——

Acting Chairman

I have told the Senator, we are not discussing the state of the VHI. We are discussing section 7 of the Finance Bill. I appeal to the Senator to confine himself to it.

Thousands of people are worried about their health insurance and the current events in the VHI do not help a difficult situation. This is the only opportunity I can get to highlight what I feel has been a wrong done to the current chief executive officer.

Acting Chairman

I do not agree. The Senator may not use the Finance Bill to raise the matter and he is wrong to do so.

I am not. I will take the matter up with the——

Acting Chairman

The Senator is welcome to take the matter up elsewhere if he wishes, but not here.

The Senator must respect the Chair.

I respect the Chair, but I have a right——

Acting Chairman

The Senator has other ways and means of raising the matter rather than use the Finance Bill. The Senator knows that. I ask the Senator to resume his seat or speak to the section.

Senator Enright should know better. He is abusing the Chair.

It is with considerable regret that I have had a disagreement with the Acting Chairman on this matter. I regret it because I have never had a disagreement with him. I respect what he has said, but what I have said is important and relevant to many people——

Acting Chairman

It is not relevant to the Finance Bill. It might be relevant to other matters but not to section 7 of the Bill.

In 1992 the Government took £3 million from the VHI. At present other moneys are being spent. This matter has been put to me by many taxpayers and that is why I had a duty to raise it. I regret that I have had a disagreement with the Acting Chairman but I have a duty to raise this matter on behalf of many other people. It is not a matter that will go away.

Acting Chairman

The Senator has other ways and means of raising the matter.

The section provides that mortgage interest relief and relief in respect of medical insurance premiums will be given at the standard rate rather than at the taxpayer's marginal rate as at present. The change is being phased in for medical insurance premiums, unlike the mortgage interest relief, over two years beginning in 1995-1996. In that year only half of the qualifying premiums will be allowed at the taxpayer's marginal rate with the other half relieved in the following year. It will become fully effective in 1996-1997. The yield from this measure is about £7 million during the course of the next year.

I will give the House some figures with regard to the cost of the medical insurance relief over the last number of years. In 1990-1991 tax year it cost about £47.5 million and benefited about 340,000 people. This year the cost is about £67 million and benefits about 365,000 people. There has been an increase of 25,000 over five years; it has been more or less the same over the last three years because the increase took place mostly in the 1991-1992 period. When full standard rating is implemented in the 1996-1997 tax year the clawback will be about £25 million, so the relief will still cost in excess of £40 million taking the same number of people as being involved. The cost of the medical insurance relief to the tax system will still be in excess of £40 million.

On Committee Stage in the other House I agreed to allow the tax claimed back under the 1967 Act, which we had changed in the budget, to remain at the same allowance figures. That will also be of assistance. After standard rating applies it will still cost the Exchequer the same as it cost about three years ago.

This is similar to the mortgage interest relief in that a set of circumstances is being brought about whereby, irrespective of what one might do to assist oneself, one will be hammered for tax. I would not apologise to the Chair if I thought that there was an argument to be made about moneys that have been spent wrongly. We are discussing the Finance Bill and this is the occasion to point out such matters. The Minister for Finance is the person who wants to listen more than anyone else to what is happening. Senator Enright is perfectly right. I have never before heard it raised in the House what questions should or should not be asked. The Department of Finance allocates money to the other Departments, State and semi-State structures.

Acting Chairman

We are speaking on section 7.

There are 1.3 million members in the VHI. I was a former chairman of two voluntary hospitals in the County Cork region. I am concerned to ensure there is proper health care. The impression has been given for far too long that there are no problems in that area. The VHI has helped to finance many voluntary hospitals in ensuring, with the direction of the Department of Health and the Department of Finance, that all hospitals would restructure in such a way that more private money would come in. An increasing number of private beds is being taken from the public wards. There should not be a two tier health structure. However, the fact there is such a structure is evident to many of those who go to our health centres or hospitals, whether they be public or private, voluntary or belonging to the health authorities.

Being a member of the VHI helps the patient. Naturally, everybody wishes to live as long as possible. I understand both the Minister's and Senator Enright's fears with regard to competition coming from other countries. The European Union is telling us to get our house in order. It has given us Structural, social and other types of funding over the years. It is important that we do not undermine the VHI, which was set up for the good of the people. It has worked excellently. I know no one personally in the VHI, although I have read about its chairman and chief executive officer. Under no circumstances can one say that it has not helped the vast majority of its members, although they pay a lot of money for membership.

We expect our public health service to give the service the Department of Finance pays it to provide. However, this is not being done. Many people cannot afford to be members of the VHI. Some people holding medical cards are also members of the VHI because they are worried about the service provided by the Department of Health. I cannot blame them. When a person is admitted either to a public or private hospital, the first question they are asked is if they are a member of the VHI. If one is, it is a different situation. Many hospital beds have been privatised. Cork Regional Hospital, for example, has had one quarter of its beds privatised. Otherwise, it could not stay open. It would not have the money because it was not getting enough from the Department of Health. It was told by that Department that wards would have to be privatised to provide the necessary finance. Now we want to tax the private subscribers to the VHI and take the pressure off those who cannot provide health services for themselves. This is the wrong attitude.

What percentage of VHI subscribers do not pay any tax? Should we be taking money from the person with two or more children earning £12,000 a year who has to subscribe to the VHI because he is not happy with the service he would get from the public health sector? Is the amount the Minister will save considerable enough to do this? Will there be a constant flow of people wanting to see consultants in the public sector? One will then have more people out of work and more social welfare to pay.

The incentive is not good enough. Senator Enright is perfectly right when he says there will be a decrease in the membership of the VHI. It is only logical to say that one should give an incentive for people to look after themselves. There is too much being asked of central Government. It spends £11 million per day on social welfare alone. I know the Minister would prefer not to be paying out such an amount. I want people to be working and to be healthy. However, the actions of Government are ensuring the opposite will be the case.

Consideration should be given to facilitating more to subscribe to this Irish organisation. With the coming down of the European barriers, the Minister should not undermine the VHI.

I listened to the Minister's reply and it seems he will not make any concessions on changing tax allowances. Senator Cregan's comments are similar to mine. If people leave the VHI because of these changes in tax, the many people making mortgage repayments who suffer from a reduction in their mortgage interest relief will also suffer from a reduction of their VHI allowances. They are being put under increasing pressure from these costs. Those who are faced with that situation may decide not to continue their VHI subscriptions. If that happens, the VHI will be weakened.

Of course it will.

It makes the VHI a prime candidate for takeover by British medical insurance companies. They are powerful monopolies while the VHI is a relatively small organisation.

The final responsibility rests with the Department of Finance. The moneys given to the Departments of Health and other Departments come through the taxation system. The Minister is someone who would take a positive interest in what is happening. With this increase in competition, the VHI is moving into uncharted territory.

This House should have the utmost confidence in the board of the VHI and in its chairman. There should be a direct distinction between the chairman and the chief executive officer. One decides policy while the other decides the day to day administrative running of the company. The chairman congratulated the chief executive officer, Thomas Ryan, in the last VHI report. That same man is leaving within the next few days.

Acting Chairman

We are not discussing the VHI report.

It is a sad reflection on us.

It is essential that somebody with good negotiating skills be charged with the responsibility for managing staff. I regret that I have been prevented from completing my remarks on this serious matter.

Question put and agreed to.
Recommendations Nos. 22 to 26, inclusive, not moved.
Sections 8 and 9 agreed to.
Recommendation No. 27 not moved.
Section 10 agreed to.

Acting Chairman

There is a printing error in the list of recommendations. Section 11 should appear after recommendation No. 27 and recommendations Nos. 28 to 31, inclusive, should appear after section 11.

Recommendations Nos. 28 and 29 not moved.

Acting Chairman

Recommendation No. 30 is out of order.

Recommendation No. 30 not moved.

I move recommendation No. 31:

In page 19, before section 11, to insert the following new section:

"11. —(1) The provisions of Chapter III of the Finance Act, 1987 shall be amended as respects the year 1994-1995 and subsequent years of assessment by reducing the amount of appropriate tax to be deducted as follows:


Year of assessment

Amount of reduction in appropriate tax









(2) In respect of the year of assessment 1998-1999 and subsequent years of assessment the provisions of Chapter III of the Finance Act, 1987 shall cease to have effect.".

The purpose of this recommendation is to phase out the system of withholding tax over four years, as it would cause cash-flow problems if this was undertaken in one year. Withholding tax is a deduction of tax at source from gross income and it has no regard to the real tax liability of a taxpayer in the current year.

My husband is a GP and he has a large GMS practice, He pays a substantial amount of withholding tax. Many in my party are concerned with this problem and suggested that I put down this recommendation. I understand the Minister's objection to withdrawing holding tax altogether, but he should introduce the tax on a current year basis.

Withholding tax is still withheld on a previous year basis which is unfair. The task force on small businesses examined the issue and recommended that it should be considered, especially regarding firms such as engineers and architects because it was felt that the tax caused major cash flow problems and therefore affected employment. It also causes cash flow problems for many GPs and there has been much whingeing on the issue from doctors.

Many Deputies were sympathetic on Committee Stage in the other House, including Deputy Penrose of the Labour Party who considered the tax to be especially difficult for GPs. When discussing the issue on the task force for small businesses, I suggested it would encourage GPs and others to employ people if the Government introduced the withholding tax on a current year basis, or a system of compliance certificates, such as obtaining a C2 as in the construction industry.

The tax causes major cash flow problems and the greater the service to the State, the greater the tax paid. For example, a GP with a large GMS list pays substantial withholding tax, whereas a GP with a small GMS list but a big private practice pays very little withholding tax. The tax therefore causes many problems to GPs and to those who employ people, for example, engineering and architectural practices. It can be a crippling blow.

Altering the basis of the tax would create difficult cash flow problems for the Minister in year one. I read his reply on Committee Stage in the other House outlining why he could not introduce the tax on a current year basis and I was unable to understand it fully. I cannot understand why, if the Revenue is withholding a certain amount of tax, it cannot be offset against one year as another. I am aware that Revenue have taken it from income of a given year, but at end of the year Revenue works out how much tax is due and that is the amount paid.

It is wrong to withhold tax for expenses, such as the employment of nurses or secretarial staff by GPs.

I will first deal with the issue as to why the tax cannot be on a current year basis. I understand the Senator read my replies on Committee Stage in the other House. The operation of the withholding tax system in the context of a move to a current year basis was considered in detail in 1990 on the basis of assessments for self-employed taxpayers, and was changed from the preceding year basis.

It was decided to continue with the operation of the credit for withholding tax deducted on a preceding year basis. To move it to a current year basis would lead to a situation in which the tax credit available against the assessments would not be given because the income from which the tax was deducted would not form the basis for any year of assessment. This would freeze the amount of withholding tax for all time and it would never have been available for set off.

Another option was that the tax credit dropping out would be added to the tax credit for 1991, effectively doubling the amount of credit available for that year. This option was ruled out because of the high cost it would have entailed and it was the view then that a continuation of the withholding tax on the same basis as previously appeared to have been the fairest option, with no additional relief accruing to the tax payer and no additional tax revenue accruing to the Exchequer in consequence.

Recommendation No. 31 proposes the phased abolition of the tax over the period up to 1998-99, with its final disappearance in that tax year. Withholding taxes are effective, from the point of view of the Exchequer, in securing the payment of revenue that may not ever be paid or may not accrue to the benefit of the Exchequer until a much later period. The House is aware of the real contribution which the PAYE system makes to the Exchequer finances and over recent years the withholding tax from professional fees has proved to be satisfactory and effective.

Regarding the problem of refunds, which the House considered last year, I advised the other House on Report Stage that over the last year there has been a section dealing with the mechanisms, the system and the procedure with regard to the tax and it is turning submissions around in a matter of a few weeks. I hope this eliminates many of the pressures with the tax. Last year I accepted the argument that if there was a case that the tax should not be paid, and the refunds were being made over a long period, this was creating difficulty. This matter has been resolved, but there is a need to monitor the situation.

The refunds are based on interim funds, and the tax retained for credit later against tax liability.

Acting Chairman

I am sorry to interrupt you Minister, but it is now 1.30 p.m., and in accordance with the order of the House I must put the question: "That recommendation No. 31 be negatived, that section 11 be agreed and that the sections of Parts I, II and III of the Bill not disposed of are hereby agreed."

Question put.
The Committee divided: Tá, 23; Níl, 13.

  • Bohan, Eddie.
  • Byrne, Seán.
  • Calnan, Michael.
  • Cashin, Bill.
  • Daly, Brendan.
  • Fahey, Frank.
  • Farrell, Willie.
  • Finneran, Michael.
  • Fitzgerald, Tom.
  • Kelleher, Billy.
  • Kelly, Mary.
  • Kiely, Dan.
  • Kiely, Rory.
  • McGennis, Marian.
  • Maloney, Sean.
  • Mooney, Paschal.
  • Mullooly, Brian.
  • O'Brien, Francis.
  • O'Kennedy, Michael.
  • Roche, Dick.
  • Townsend, Jim.
  • Wall, Jack.
  • Wright, G.V.


  • Belton, Louis J.
  • Burke, Paddy.
  • Cosgrave, Liam.
  • Cotter, Bill.
  • Cregan, Denis (Dino).
  • Doyle, Joe.
  • Enright, Thomas W.
  • Henry, Mary.
  • Honan, Cathy.
  • Naughten, Liam.
  • Neville, Daniel.
  • Ross, Shane P.N.
  • Taylor-Quinn, Madeleine.
Tellers: Tá, Senators Mullooly and Wall; Níl, Senators Burke and Belton.
Question declared carried.

It had been agreed that we would resume at 2 p.m. but it has now been suggested that we resume at 2.30 p.m. Is that agreed? Agreed.

Sitting suspended at 1.45 p.m. and resumed at 2.30 p.m.
Sections 102 to 108, inclusive, agreed to.
Recommendation No. 90 not moved.
Section 109 agreed to.
Sections 110 and 111 agreed to.
Recommendation No. 91 not moved.
Recommendation No. 92 not moved.
Section 112 agreed to.

I move recommendation No. 93:

In page 135, before section 113, but in Part V, to insert the following new section:

"113. — An allowance for income tax shall be granted annually for all payments of residential property tax so that a full credit will be given for any such payments in the year of assessment.".

This section deals with the residential property tax. Will be we dealing with section 114?

We will, when we finish discussing section 113. Recommendations Nos. 93 and 94 are related and may be discussed together.

The issue of the residential property tax has been debated in a number of houses because, in its present form, it is not acceptable. The Minister and the members of the Government know that.

How will the residential property tax be implemented? I believe the Revenue Commissioners will get a computer printout listing anybody earning in excess of £25,000 per annum, automatically assume that the value of their property is in excess of £75,000 and issue them with an invoice for residential property tax. This is a tax on people who are not a burden on society. They are not looking for housing and are paying their way. It is a most unjust tax on the people who are paying most and getting little from the Government.

The Minister argues that inflation is low and that the economy is booming on the basis that interest rates are down. However, the reality is that many of these people are on the bread line. The new poor in this country are the those in the middle income brackets. The people with a £75,000 house in an urban area being targeted by the Minister, are the new poor. They have to pay service charges to their various local authorities and will now have to pay a property tax.

The Minister has put the onus on the people themselves to declare the value of their house. The Minister should know that the value of property is only as good as the day it is being sold. One cannot say that two identical houses in the same area will be sold for the same price. There may not be as many purchasers interested in the second house and it may not, therefore, be sold for as much as the first.

How will the Revenue Commissioners deal with this problem? The onus is put back on the owner. When they sell their house five years down the road, the Revenue Commissioners can go back to those people if they undervalued their house. That is a very important aspect to this Bill and the Minister should qualify it because anybody who breaks the rules laid down by the Revenue Commissioners are subject to hefty penalties and severe fines.

I assure the Minister and the Labour Party that when they go to Dublin South Central, Mayo West, Munster or Connacht/Ulster and other constituencies to canvass for the European elections they will get their answer at the polls. This residential property tax is not acceptable in its present form.

The Minister will probably point out that my party implemented the residential property tax. That may be so but it was back in 1983. The Minister for Finance at the time was Deputy Dukes who has since said that it was not a proper tax and that he introduced it under pressure from the Labour Party. Maybe the present Minister is doing it for the same reasons; only he can answer that. I assure him that when he goes to the polls he will get his answer.

No allowances are made for inflation since 1983. If there was equity the thresholds should state that the value of the house must be in excess of £150,000 and the income in excess of £40,000. It is far too low at present where the income is £25,000 and the property valued at £75,000. My recommendations represent a way out for the Minister. There is little money involved and when that is taken into account, in addition to what the Taoiseach stated a number of weeks ago, it leads us to believe that the reintroduction of rates is not too far away. The people will not stand for any further imposition of taxes, especially at local level in the form of rates. It was a retrograde move in 1977 when the former Minister for Finance, Martin O'Donoghue, who is long gone from Leinster House, abolished rates. However, people will not accept their reimposition.

The Minister should seriously consider the recommendations and give concessions before he appears in the west or the constituency of Dublin South Central. The residential property tax will, in the main, affect people in urban areas. It is a cruel tax that the people fear because the thresholds and limits are likely to be raised next year. Many houses in Castlebar, Westport and along the western seaboard are worth in excess of £75,000 and the people are waiting for Government canvassers to appear in their area.

The previous Senator mentioned the Labour Party in relation to the residential property tax. I read an article recently in The Irish Times which stated that arguments put forward by the Opposition parties in relation to the residential property tax are silly. None other than the former leader of the Fine Gael Party, Dr. Garret FitzGerald, said it.

We should study the situation carefully and consider what is happening. A person who earns £26,000 a year and lives in a house worth £85,000 will pay approximately £10 in one year in residential property tax. If that person has one child, he will not pay anything. One should compare that to the position if interest rate increase. If it rises 1 per cent, a person living in a modest house worth £40,000 who has a 20 year mortgage will pay £302 extra in the full year. If the price of houses increases by £1,000 per house, somebody on an 8 per cent mortgage over 20 years will pay £8.33 a month or £99.96 in a year.

If politicians are really concerned about those with mortgages, there are two things to which they should attend. The first is interest rates and the second is trying to stop an increase in the price of houses. The revised property tax, coupled with the equalisation of the standard income tax rates, will stop an increase in the price of houses and this is most desirable. It will also help to keep interest rates down and this too is most desirable. The property tax as it stands has much to recommend it.

The residential property tax is biased against urban dwellers. Even for relatively well off urban dwellers, the new urban renewal relief, which comes into operation on 1 August, is less than the existing system, which ends in July. In the Finance Bill, the Minister concentrated on relief for farmers and those who wish to avoid residence in Ireland. The Bill discriminates against the unemployed, PAYE workers and urban dwellers. I do not call it, as Senator Townsend did, a revised property tax, it is an extension of the existing property tax and it is particularly biased against urban dwellers.

Are we discussing all the items relating to residential property tax?

We are discussing recommendation No. 93. You have subsequently indicated your opposition to the section. If you wish, you may dispose of it then.

As currently constituted, the residential property tax is divisive and unfair. It bears no relation to the services being delivered and is simply a locational tax. We do not have a major problem with residential property tax in the town in which I live because very few houses there are valued over the limit. However, people in modest houses in Dublin, Cork, Limerick and other large urban areas will pay the tax, while the same type of houses in my part of the country would not be liable. From that perspective, the tax is unfair.

Much flak has been thrown at my party, stating that we are in favour of a property tax. We are currently opposed to this tax for the reasons I stated. We would not agree to a property tax unless it was used to fund a reformed local government system and there was a corresponding reduction in personal taxation at national level. This is the difficulty because the people who will be asked to pay the tax as it stands are already paying excessively through the PAYE system. The same people feel they are paying for everything and getting very little from the Government. They have to pay for the VHI and although they own their own houses, they have to pay substantial mortgages. This is the difficulty.

Local government has encountered enormous problems since rates were abolished and the rate support grant started to decrease in 1983. All sides agree that we need to urgently look at the funding and reform of local authorities. The Progressive Democrats favour a banded charge but it would take account of several things, including the value of the property and income. It would be a fair tax for services delivered by the local authority and it would all go to the local authorities.

We will not accept anything like this unless there is a reformed system of local government, a corresponding reduction in personal taxation and a shift from taxation on employment. There is no shift and this Government wants everything. It wants tax and residential property tax but it is not providing the services at local government level. That is why we oppose this tax. The Minister should abolish the present system of residential property tax and then start from scratch and decide how we will fund local government and raise the charges to do it. He should forget about this measure because it is unfair.

I can think of very few subjects which have attracted more humbug than the residential property tax. I do not favour it or income tax and while we are at it, I would like the Minister to abolish every other tax also. However, I am a realist.

There is no doubt that when a tax on property of any type is introduced it touches a nerve in the people. The home is most important to them. Senator Honan suggested that her party does not favour the residential property tax as it stands. However, it argued for a property tax while a partner in the last Government and that is a matter of fact. It illustrates the humbug on this issue. I do not like the residential property tax but a great deal of the criticism — although perhaps not enough — has been taken on board by the Minister. From time to time, I have criticisms, which I voice elsewhere.

There is no quick fix in the area of local government finance. If the Exchequer funding transferred currently to local government were raised by some new form of residential property tax, it would be an infinitely more expensive tax on houses. It would be even more iniquitous for people who live in urban areas. In my own constituency, for example, in 1987 when the rates were "abolished" and effectively transferred——

Senator Roche was there at the time.

I will deal with Senator Burke and some of his dafter propositions in a second. The rates on the modest semi-detached house in Rathdown Park in Greystones that I lived in were of the order of £400. The area is well known to Senator Ross and me as we canvass there frequently,


Obviously not enough.

In either case.

I do rather better there than Senator Ross.

Senator Roche, would you please make your contribution and leave the Opposition out of it? You are inviting problems for all of us.

The reality of it is——

——is that Senator Roche and I are here. That is the reality of it.

——that if we were to take Senator Honan's view and transfer all of the cost of local government over to some new form of rates, which is what her party is proposing, the imposition on householders would be not only catastrophic but most iniquitous on people in the PAYE area. Senator Burke's proposition is that a full tax credit should be allowed particularly, I presume, for the PAYE payers.

It is a way out for the Minister.

As a PAYE payer I could certainly see some merit in that, but we need to be honest with ourselves and above all else with the public. If we learned anything in 1977-78 surely we must have learned that it is a fundamental error to remove any taxation without putting in some new form. The reason the PAYE payers are crippled is that we have such a narrow tax base. The Minister has made a series of honest attempts over the last two years to broaden the tax base but on each occasion when he has tried to introduce some element of tax equity by broadening the base and lifting the burden off the one group that pays more than its fair share, he has been attacked.

The PAYE sector is paying more than ever.

Not only is this Minister attacked, but as the Senators opposite know, it does not matter who occupies the chair in the Department of Finance. Any Minister who tries to move the tax net from the back of the PAYE payer will be eviscerated by opportunist politicians on the Opposition side.

Is the Senator speaking from experience?

If we are to be honest about taxation reform we should suggest what alternatives are available, though they are very few. Either you diminish public expenditure, and we can imagine the howls that would come from the opposite side then because I remember the howls that came——

And your own side.

And our own side, I accept that. The Senator is quite right.

Come up with the alternatives. The Senator's party is in Government.

Politicians will use every opportunity to batter each other about the head and, unfortunately, they will have more than a fair share of support from certain people in the media who may have their own interests to serve on these issues. It is easy to suggest that we should abolish a taxation system but more difficult to say what we should put in its place. We should start doing what we did from 1987 onwards and look carefully at public expenditure.

With regard to this particular taxation, I would hope that the thresholds that exist at the moment will not be brought down any further. I do not think that will happen. I would also hope that over the next 12 months there will be a hard look at how it operates. The Minister has shown that he is quite prepared to accept proposals that come from within his own party, the other party in Government and the Opposition. He has made a great deal of change to this particular tax. It is unfortunate that in a year when the Minister is introducing very considerable benefits to PAYE payers — and to all taxpayers by removing the 1 per cent levy — so much attention should be focused on this issue. The extraordinary degree of attention the residential property tax has attracted must indicate to all sides the difficulty of putting tax changes into effect. We are all sincere when we talk about tax reform, expanding the tax net and lifting the tax burden off the backs of PAYE payers but it is always a case of "Not now, Lord" or "Not this one". There is always some special pleading. Any tax on property is always be bound to be unpopular because the family home has a special place in Ireland. However, a lot of humbug has been talked about this issue. The system could do with reform. As the Minister has said, we must look carefully over the year at the exact impact it will have.

Some method has to be devised to take into account the fact that property values vary dramatically from place to place. If you happen to live in parts of Bray, Greystones or Dublin 4, you will have high valuations for a modest house. A national valuation system is necessary if you are going to go into the property tax area. That was one of the problems with the rates. Maybe we should start looking at some sort of index so that it will not just be people who happen to live south of the Liffey or in north Wicklow who have to carry more than their fair share.

The Senator is making a good case against it being an unfair tax.

I want to make a case for a group of people of which I am a member and I wish to ask the Minister a couple of questions. Eight or nine years ago we had a fire in our home. The house was insured for £50,000. It was not a bad fire but the insurance company told me that if the house had been burned to the ground the maximum I would have received would have been £30,000, even though it was insured for £50,000. This was because there was a site value and this was the value of the whole property. I increased the value of the house to ensure that in the event of it burning to the ground I would get the replacement value.

There is, however, another side to it. There are hundreds of people all over Ireland of whom Senator Burke spoke a while ago. I hope to visit him in Mayo next weekend or the weekend after to make sure we have our seat back.

The Senator will be welcome.

It is West Mayo by the way.

I am talking about people who offer bed and breakfast, not guesthouses. We had a three bedroom home and over the years I put money into it to extend and improve it. Money made from bed and breakfast was also put into my home over the years. We now let four bedrooms with bathrooms and make a tax return every year. We have paid tax on the profit we made but it makes me mad when I hear people talking about service charges. Because we are doing bed and breakfast our water rate in Dingle is £235 a year, otherwise it would be only £120 or £130.

That is £5 a week.

We are paying £235 for water. We are paying £2 per week for refuse collection simply because we run a bed and breakfast. Now we face the crunch. My wife and I built this house to make a small income. We only need accommodation for ourselves and we use the other bedrooms to make money during the summer. However, because we do bed and breakfast the value of the house has gone up.

People like us are valuable assets to the tourist community. The Minister knows Dingle well and he enjoys a pint there.

It is very dear.

There are 52 restaurants in Dingle. Twenty years ago one could not buy a sandwich there. There are a couple of hundred bed and breakfasts located around the town. As they do not provide dinners, the restaurants in town are dependent on bed and breakfasts for custom each evening.

Will I tell the people of Westport where they are going wrong?

That is another source of revenue for the Minister for Finance. Why could the Minister not suggest, with regard to people who are involved in this business, who are paying their taxes and who are helping the tourism industry, that the residential section of the house be valued? I would not mind the residential part of my house being valued. The other part of the house is relevant only to the bed and breakfast business on which I am making my tax returns and paying my taxes. I cannot understand why such a system could not be used. It would be a major boost to the tourism industry. I hope the Minister will look at my suggestion.

I pay insurance on the house because I must ensure that if something goes wrong——

The Senator will have everybody doing bed and breakfast by the end of the year.

——in the house or affects third parties or otherwise I can afford to rebuild the house. I must therefore insure my house for about £100,000 to get the replacement value, which is about £65,000 or £70,000, from the insurance company. They are the expenses involved.

I have no problem with a property tax and if I had a house with 10 or 15 bedrooms and held parties every night I would be the first to pay my tax. However, my house is a business and the Minister should look at the tax in that context. There are hundreds of people like me. The Minister should divide the property according to its business and residential functions and tax me on the residential part.

Senator Fitzgerald is right and I am sorry he did not put down a recommendation to that effect. The Minister nodded his head as the Senator spoke and he will, no doubt, look at the matter sympathetically. However, he knows as well as I that there will not be any change this year.

Looking around the House, I wonder if anybody is in favour of this measure. We heard Senator Townsend return to the rhetoric of the Labour Party working class ghetto, where the party has forgotten about its middle class support, and speak in favour of the property tax come hell or high water. I am amazed at Senator Roche. I remember when Fianna Fáil had to defend the indefensible during Mr. Haughey's time. Senator Roche will have nostalgic memories because he was sent to appear on every television programme to defend the indefensible. He did a very good job — nobody else would do it. Oddly enough, history is repeating itself today. He is the only man on the Fianna Fáil benches who is in favour of the residential property tax.

He still got no reward.

Look where he is now. He was destined to be a Minister in those days, not a Deputy. Now he is here with humble human beings like us. I hope to see Senator Roche in the Dáil again.

We would make a great team.

More importantly, I hope to see him on Greystones Town Commission on 9 June, which is his latest aspiration. I hope he does not issue copies of his speech today — because I will. I hope he does not tell the people in the Burnaby, on Church Road, La Touche Road and other such roads that he stood four square behind residential property tax in the Seanad and supported every one of those houses being taxed. That is political suicide.

The Senator better read the script carefully.

The script was carefully worded. Senator Roche, who accused everybody on this side of the House of talking humbug and cant, talked about broadening the base. What does he mean? He means property tax. Everybody knows that is the code for property tax. It is obviously a code for property tax because there is no other form of tax unless he want to see people pay more income tax. Then he said that he did not really want to broaden the base — he wanted cuts in public expenditure. Where? I will pause for a moment. His silence tells us a lot.

If Senator Ross wishes to yield the floor I will speak.

I will yield it soon. Senator Roche admits that he wants cuts in public expenditure. It is incumbent on people who make silly statements in this Chamber to back them with facts. Where will the cuts be made? Is that what the Senator means by "broadening the base"? That is not broadening the base. Let us have cuts in public expenditure. Let them be proposed to the Minister by the Government benches. He listens to them, he does not listen to me. The Minister was doing well for a long time. However, each time a Minister does very well in a booming economy he blows it. This particular tax has brought fire and brimstone on unfortunate and good people like Senator Roche who are obliged to come here and defend it while they are standing for election. It is unfair.

We should hear what Senator Roche will tell the people of Greystones in the next three weeks. I am not suggesting that he is disingenuous or hypocritical or guilty of humbug. However, will he tell them that he is in favour of cuts in public expenditure or will he reserve that for people in local authority houses? Will he tell people in private houses that he wishes to see the tax base broadened and that he is in favour of residential property tax? One cannot have it both ways. I will yield the floor to Senator Roche. He does not want it.

The public believes that property tax is back regardless of whether it applies to properties valued at £75,000 or £92,000. The general impression is that rates are re-introduced.

I wish to refer to Senator Roche's comments about the situation in 1977. In 1977 a deep injustice was done to Irish society. It has been proven since then that nobody has paid more for that than the PAYE sector. We gave benefits to everybody outside the PAYE sector who had plenty of money. They gained enormously to the detriment of the PAYE sector. That should never be forgotten.

I do not understand how anybody can say that we must broaden the tax base. The fact is that this year an extra £700 million will be paid in tax. However, the tax base is not being broadened; it is being increased to yield more money. The tax burden is not being taken away from the PAYE sector. That sector has paid more and more money during the last four or five years. If I had all the answers I would not have to ask questions and if I was that smart I probably would not be here. I do not understand how people can say one thing and mean something else. The country is in a serious position, especially as regards work, but that is not relevant to the property tax. The vast majority of those who pay tax and live in their own homes are PAYE tax payers, so they will still be paying more taxes.

No more than three weeks ago the Taoiseach said local charges and property tax should be merged to become one tax. This is another tax levelled on PAYE workers earning £16,000 a year upwards. I do not agree with this move. No other country has as high a rate of home ownership as Ireland and so the Irish people will not agree with it either.

A certain party got a high vote in 1977 when it said it would abolish rates and car tax. This undermined the economy but the party received a 22 seat majority. The then leader of that party, Mr. Lynch, admitted his majority was too high. The same position prevails today; this Government has a 33 seat majority. This is a serious problem because the Government has the impression it can do as it pleases. However, no one is better than the Irish at putting people in their place and that message is coming through strongly.

We can speak of fair taxation as recommended in the Culliton report but this cannot be achieved by increasing tax revenue by nearly £700 million in the meantime — the increase may well be greater because the economy is buoyant at present. The ordinary public will not accept that — I speak from the ordinary person's point of view because it is the only way I can. The Government should not take more money from people while telling them they are changing the system for their good. That is not what is happening. The Government is taking more from the PAYE sector no matter what way one looks at it.

I and my party are totally opposed to the residential tax.

Why then did the Senator's party introduce it?

Times change.

Why were certain measures eliminated when conditions were never better? Between 1973 and 1977 inflation increased by 15 per cent and oil prices by 250 per cent, yet the country was not in bad condition in 1977. The 1973 to 1977 Government was excellent — they made great deals on behalf of the Irish people. The former Minister, Mr. Justin Keating, struck a great bargain on natural gas at little cost. Another Minister of the time, Dr. Conor Cruise O'Brien, put money into communications, although that was questioned by the Opposition. I was not involved in politics then but I give credit where it was due. I do not wish to be personal but the problems in the country arose from 1977 onwards and that will never be forgotten, like the shilling reduction in the old age pension in 1932. The property tax is not being accepted.

Senator Fitzgerald mentioned his four bedrooms but he is a typically cute Kerryman. He lets someone else provide dinner because there is no money to be made from that, but it can be made from providing beds.

More money can be made from dinners.

An Leas-Chathaoirleach

I ask Senator Cregan to stick to the amendment.

I hope the Minister and the officials are listening. It costs about £1.50 a day to provide accommodation in beds but one could lose money on dinners. It is therefore better to let someone else provide the dinner. I congratulate Senator Fitzgerald but I advise him not to say much to the Department officials because not alone will they know about him, they will know about us all.

Is Senator Cregan in the bed and breakfast business also?

The Minister and Senator Roche do not expect the £75,000 level to be lowered but the general impression is different. The Labour Party should be reminded that it said before the last general election there would be no property tax; that is in black and white.

No, we did not.

People are finding it difficult to pay their mortgages and this must be seriously examined, especially given the amount of money this measure will raise. It has been said it will raise an extra £5 million; it will probably be between £7 million and £8 million and for that it is not worth it.

I am totally opposed to the residential property tax. As it has been extended to drag more people into the tax net, it has been compared to the old rating system. The difference between this tax and the rates was that revenue from rates was paid directly to the local authority. Has the Minister considered paying the revenue from this tax to the local authorities in the area where the tax is collected? As he knows only too well local authorities are strapped for cash, especially in urban areas.

I am opposed to the tax but I am realistic enough to know anything I say will not prevent it being implemented. In those circumstances I ask the Minister to pay the tax to the local authority where the tax is collected. This should be extra finance to enable local authorities to overcome their difficulties.

I support this amendment. I am perplexed about this matter because Fianna Fáil is normally sensitive to a furore such as has been raised on this issue; that party has a good record in backing away from serious problems but it is not doing so now. This leads me to believe that what the Taoiseach said at the IMI conference was not merely speculation but being planned. It appears that rates will be reintroduced, whatever they will be called.

I have been canvassing in the Cavan-Monaghan area recently and this issue is a hot potato. People are concerned and do not believe anything Government members are saying about this tax. They have decided the Taoiseach's statement and the uncharacteristic actions of Fianna Fáil together mean that rates will be reintroduced.

I am against this tax because there are great problems with employment in my constituency. If money is taken from people, it goes out of circulation and reduces the amount of business which will be done. There will be less economic activity and therefore fewer jobs. For that reason, I am opposed to it. I was surprised when it was introduced in the budget. There are few expensive house properties in my constituency, but I was often approached by people who were concerned about it at the time. It raised hackles throughout Ireland.

People believe there will be a return to the old rates system. The Minister could signal that this is not his intention by getting rid of it. It is not worth fighting with the public about this issue, particularly when the amount of money is so small and when it is creating such a furore. It will be an issue in the local elections because we will use it for all it is worth. We have statements from the Taoiseach to back up the Government's agenda and we will use them to inform people about the agenda. I ask the Minister to take this last opportunity to remove the tax. I look forward to his response.

May we commend Senator Cotter for his honesty?

The House may if the Senator wishes.

There is no doubt this residential property tax generated considerable debate, particularly before the amendments were made. I have been in Dublin South-Central more than anyone else over the last few weeks, getting some fresh air and exercise. We have conducted polls on this tax and it comes approximately 19 on the list of complaints, seven items below the weather.

It would not be the best area to visit to test the residential property tax.

I have been in contact with some expensive areas in my constituency. However, I am not honoured to represent a constituency which has more houses over £1 million than anywhere else in Ireland. Anything involving property will cause the Senator hardship and I apologise for that.

Is that why the Minister made the changes?

We put a lot of effort into what we considered to be extremely modest measures of equity in the tax system and a small contribution towards tilting the balance in the tax code in favour of production investment. This is a small tax which may or may not help to safeguard employment.

I was interested to read the file on the residential property tax. I cannot find any area where Mr. Dukes was under pressure. It was Dr. Garrett FitzGerald's idea and he forced the Labour Party to accept it. However, he remained consistent on this issue. Obviously, there are a few houses over £75,000 in the Kildare constituency because Deputy Dukes said the tax should not have been introduced. However, he should not have doubled the national debt either in the four years he was in power.

The Minister trebled it.

That was the position then. What is the position now?

An Leas-Chathaoirleach

The Minister, without interruption.

If I am left in my position as Minister for Finance for another few years, I will reduce the national debt by more than anyone in Europe.

The residential property tax is a small tax. A person would be mad to try to bring back the old style rates. Sometimes politicians are classified as lunatics and someone said this on Committee Stage of the Finance Bill, 1994. I do not believe we will reintroduce the old style rates.

I have a lot of respect for the Progressive Democrats because that party has not tried to play football with this issue. It has clearly stated, as it did when it was in Government with us, that we should adopt an all-party position to try to get——

That party might change its position now that it has a new Finance spokesperson.

——a handle on local authority charges and finances. I do not know if that is possible. This has been an issue for over 20 years and it was an issue before 1977. We made mistakes in 1977 and in 1973 when we started to change it. All that was needed at that time, as Senator Roche said, was to update the rating system and to introduce a better waiver system. We did not do that at the time.

Revenue dealt with the residential property tax, which affects 3 per cent of the 900,000 houses in the State, and each year it brought in fewer houses. It will be the same story this year. The election will come and go, the political football will no longer be used and there will not be 30,000 households paying the tax. It is amazing that people from Dingle and Westport, for example, will be paying it because they have houses over £100,000, but they did not pay it when the rate was £91,000. At that time we did not have officials to work in this area to find out who was not paying the tax. It is extraordinary that there are houses worth £120,000 or £130,000, on which the tax was never paid when the rate was £91,000. Some people say there are 60,000 or 70,000 houses which are worth more than £75,000, and most of these are worth more than £90,000. However, the reality is that they were not, are not and will not be declared.

When making his arguments on this issue, Deputy Yates always mentions the £30,000 house. He had a road show, but the cost of hiring rooms around the city was not worth the crowds he was getting. Obviously, the cost of raising money in Fine Gael is like raising it in Fianna Fáil. Fine Gael is using posters which cost £4.50 each and there are two on each pole, one for Mitchell and one for Banotti. We cannot afford those.

Fianna Fáil is resigned to one seat.

We are trying to get two people elected.

The Minister's party is afraid to campaign.

If we could get £9 per house, we would not need the residential property tax. Fine Gael is putting more on lamp posts than we are in houses. A person with two children, who is on an income of £30,000 and owns a house worth £80,000, must pay £10. It is probably not worth collecting.

It is not worth collecting.

The tax on a £90,000 and £100,000 house is £50 and £90, respectively. The tax on one of the large houses, which Senator Doyle is familiar with, where it takes ten minutes to walk to the door——

The people who contribute to your party.

——is £800. Unfortunately, they do not contribute to or vote for my party. I do not know who they vote for.

They pay for your party.

An Leas-Chathaoirleach

The Minister, without interruption.

I want to tell Senator Ross that he is wrong again. I know he has a habit of being wrong because I keep a check on him.

His profession is being wrong.

He has got two or three things right. I have kept his articles and his predictions for 1994 and the top ten are already wrong.

I got devaluation right nine months before the Minister did.

If we had followed Senator Ross' policy we would have devalued approximately four times. I suppose the Senator made some money on it because he wrote about it for so long.

On a point of order——

An Leas-Chathaoirleach

There is no point of order.

A lot of big fellows made money out of it at our expense.

They listened to Senator Ross who fought consistently on that for five months. Senator Ross must acknowledge that we would have ended up devaluing the punt three or four times.

As regards bed and breakfasts, if one has a legitimate bed and breakfast business, like the one Senator Fitzgerald mentioned, one may avoid this tax. A person may apportion his house; it is like rented accommodation where one pays income tax on one's rental income. Many people are using that option and we have no difficulty with that. We would not like a person's wife, four children, dog and cat moved into one room so that the rest of the house may be used. That apportionment would not be acceptable.

As regards the extension of marginal relief to £35,000, people are not aware of the position and are confused. The Revenue Commissioners have produced a simple form and a number of Senators referred to it. One only has to tick boxes; it is a lot simpler than the old form. It does not deal with insurance values, which were dealt with before. Marginal relief has been extended to £40,000 for the elderly. We modified the definition of household income in the case of the elderly, the incapacitated and widowed persons and we provided the option of a phased payment facility. We have given relief where a house must be extended or adapted to cater for a disabled person and have provided for hardship cases; this was not in the code. A number of cases were brought to my attention by Deputies and Senators and it only right that account should be taken of hardship cases, some of which had not been there for the past ten years.

The two available reliefs, the marginal relief and the child relief, substantially mitigate the impact of the residential property tax on households. Most taxpayers will qualify for one of these reliefs and, in most cases when this was pointed out to them it helped a lot. Senator Burke asked about the market value of a house. We all know that assessment of the market value of a house is not an exact science no matter where one is living. There are, however, few households which do not know the value of their house. If a house is in an estate, people are always watching to see if their house has increased in value. They do this for various reasons — insurance purposes, if they want to move, etc. The Revenue Commissioners are reasonable when it comes to the market value of a house. They ask that a house owner make a fair and honest estimate of what the house is worth. Experience has shown that most estimates are close to the true value and there has been no difficulty in this regard.

The price obtained at a bullish auction is not necessarily the market value of the house. If a taxpayer has returned an honest and fair value of a house over a number of years, but it sells for more because of a bullish auction or where someone really wants to buy that house, it is up to the new owner to put their case to the Revenue Commissioners. People usually have a good idea of what houses in an area have sold for over a period of years, or this could be checked with one of the main estate agents. The Revenue Commissioners would not rely exclusively on a once-off auction.

The taxpayer has the option of appealing to an independent body in regard to the value of a house. If he is unable to reach agreement with the Revenue Commissioners he has the option to appeal to the Land Values Reference Tribunal. The argument that the Revenue Commissioners should pronounce on the value of a property when it is submitted to them countered the idea of self-assessment. Self-assessment presumes the taxpayer is honest, and that is how it should continue.

As regards Dublin, the residential property tax is a tax on houses above the exemption threshold of £75,000; it is too simplistic to argue that it is a Dublin based tax. It is true that a significant number of houses valued at more than £75,000 are located in Dublin and this reflects the fact that location has an impact on the value of a house. A house in Howth is more valuable than a house in Tallaght or Clondalkin, although both houses may be identical in every respect; they could have the same number of bedrooms, ground area and be in the same decorative order, but the location determines the value. Houses in Dublin are essentially more expensive than those outside Dublin. No matter how one deals with taxes, one must have a basis for them. It would be unfair to base this tax on floor area or the number of rooms.

Senator Burke also asked about the insurance value of a house. I am informed by the Revenue Commissioners that the revised residential property tax form does not require the householder to give information in relation to the insurance value of his house. In this respect the situation is better than it was.

We have had a wide ranging debate on this issue. As I said before, if we had realised the residential property tax would have created such a hoo-ha, it would have been left as it was because all it will mean to the Exchequer is £3 million for one year. Those who argue for tax reform are not always right, some people argue that we are working on a small tax base. I gave the following figures to the other House a few weeks ago. There are 60,000 businesses in the corporate sector, 40,000 return forms and 20,000 pay tax. There are 87,000 farmers and 20,000 pay tax, while there are 1.4 million PAYE workers and 700,000 pay tax. The relative tax for the self-employed and the PAYE sector is under £4,000, for farmers it is under £1,000 and for Schedule D people is approximately £3,200. It is a narrow base.

People are against the probate tax and other taxes, yet the residential property tax is a moderate measure. I argue against those who try to defend it by saying it is a major reform. It is a moderate measure; we must be honest about it. I would not like someone to examine the record of this House in 20 years time and suggest that the Minister made a radical move because all Members spoke about for months was the residential property tax. I spent approximately three quarters of an hour deciding on this tax, while I spent days deciding on the standard rate.

The Minister has spent three quarters of his life defending it.

The residential property tax was not a major move. However, if we look at property we will see that people trade up because of the tax position. Everybody does it; I and friends have traded up because of the tax system. Money is tied up in property which could be available for other productive investment.

I said today that everyone is in favour of tax reform just like everyone is in favour of Christmas and they all say that I am only tinkering at the edges. The headlines are written. I would never accuse Senator Ross of this because he writes a constructive article of his own and I accept that it is worth reading. However, others write the headlines on the morning of the budget and they say that the budget is not radical enough. Some day somebody will catch them out, somebody will abolish the Civil Service or something and the headline in the paper will be that the budget was not radical enough. That is the sad position.

I do not take any great pride in it, but this year I finished taxing welfare benefits, I standard rated VHI and mortgage interest relief and the only thing the whole country got perplexed about was £3 million on residential property tax. Those who look at it in the future have to decide what we are about. I have already acted on one issue very close to Senator Doyle's heart, something I have heard him argue for before. I gave £7 million that was not in the Estimates back to the local authorities. I gave £2 million for books in the libraries, something badly needed all over the country, and I gave £5 million more back to try to improve the country roads. In effect, therefore, what I got, I have already given back.

If a person had a very valuable house and they placed that house in trust for their family, would they be liable for residential property tax?

Yes, they are.

We are coming to the end of this section. I wish to make a comment on what the Minister said. We have had a lot of comment on what was wrong in 1973, in 1977 and what is wrong now. The Minister has quite rightly said that this tax affects very few people. Given that there was a disproportionate fuss about it from a very powerful lobby which somehow persuaded the Minister to change his mind and to amend the Finance Act, it is appropriate that having said — I note his words very carefully — that they were not going to introduce the old style rates, in the couple of minutes left the Minister might tell us what specific reforms he proposes for local government financing. He is in Government, so he has an obligation to say what specific reforms he has in mind. I also congratulate the Taoiseach for what he said at the IMI conference, which was a recognition of this problem. Perhaps the Minister would comment on what the Taoiseach said as well.

As I have stated before, the Government at the time of the budget had decided to examine this issue to see what could usefully be done in the wide area. We have no discussion paper at this stage, no preparation. We have a tax strategy group which is made up of officials and the parties. The Taoiseach said in Killarney and in the Dáil, as did the Minister for the Environment, that during the course of 1994 we would examine the issue to see if anything could be done. In some places they have local service charges, in other places there is no local service charge; in some places they are paying residential property tax and a local service charge, in others they are paying the residential property tax and no service charges. That in itself is creating a lot of argument. On Committee Stage in the other House we got into an argument between Dublin versus the rest of the country. That was never meant to happen and it is not useful. Parties were almost lining up against each other on that basis. My fear is that if somebody does not deal with it over the next few years, in 20 years' time people will still be paying high tax rates and the tax base will not be broadened at all.

Would the Minister relate it to a reduction in income tax?

My own view is that this issue should be in the area of local authority charges. I have had enough meetings and delegations on this for six months. Once it is in the context of the central Exchequer it will never get anywhere. It has to be in the context of local charges.

Question put: "That recommendation No. 93 be negatived and that the remaining sections of Parts IV, V and VI of the Bill not disposed of are hereby agreed to."
The Committee divided: Tá, 24; Níl, 12.

  • Bohan, Eddie.
  • Byrne, Seán.
  • Calnan, Michael.
  • Cashin, Bill.
  • Daly, Brendan.
  • Fahey, Frank.
  • Farrell, Willie.
  • Finneran, Michael.
  • Fitzgerald, Tom.
  • Henry, Mary.
  • Kelleher, Billy.
  • Kelly, Mary.
  • Kiely, Dan.
  • Kiely, Rory.
  • McGennis, Marian.
  • Maloney, Sean.
  • Mooney, Paschal.
  • Mullooly, Brian.
  • O'Brien, Francis.
  • O'Kennedy, Michael.
  • Roche, Dick.
  • Townsend, Jim.
  • Wall, Jack.
  • Wright, G. V.


  • Belton, Louis J.
  • Burke, Paddy.
  • Cosgrave, Liam.
  • Cotter, Bill.
  • Cregan, Denis (Dino).
  • Doyle, Joe.
  • Enright, Thomas W.
  • Honan, Cathy.
  • Naughten, Liam.
  • Neville, Daniel.
  • Ross, Shane P.N.
  • Taylor-Quinn, Madeleine.
Tellers: Tá, Senators Mullooly and Wall; Níl, Senators Cosgrave and Burke.
Question declared carried.
Recommendation No. 139 not moved.

An Leas-Chathaoirleach

Recommendation No. 140 is out of order as it involves a potential charge on the Revenue.

Recommendation No. 140 not moved.
Recommendations Nos. 141 to 145, inclusive, not moved.
Sections 149 to 152, inclusive, agreed to.
Question proposed: "That section 153 stand part of the Bill."

May I have clarification as regards assessment of a non-resident over the relevant year? There is confusion as regards these assessments. How is it done in comparison to the assessment of a self-employed person? Is it taken the year after? This section states that it is done during the preceding year of assessment. Are these people better treated than residents here?

The section is aimed at the foreign earnings of persons who only spend part of the tax year in the State but who are, nevertheless, resident in the State in that year, which is a reference to the residence rules. Therefore, it would generally apply to persons coming to live in, or emigrating from, the State during the course of a tax year. Since these persons are resident for the year, they would consequently be taxable on any foreign earnings earned outside the State, either prior to arrival or after departure from the State. Such treatment would be harsh.

To ensure this does not happen and to preserve the current administrative treatment, the section provides that in these cases, residents will be deemed to commence on the date of arrival in the State or cease on the date of departure from the State. The effect of this is to contribute non-residents to those parts of the tax year for which the person is not in the State. In this way, as at present, the foreign earnings of residents will not be taxable in such a transition year.

There are two elements involved in the other part of Senator Cregan's question. The first part is to allow non-Irish ordinary residents to come into the State and spend more days here. They would be foreigners who would have holiday homes or business people — they may be Irish but are not in most cases — to spend from 92 to 140 days here. Up until now, an individual could leave the State — this is the thrust of Senator Cregan's point — and avoid paying capital gains tax for having a clear break of a year and a day. This allowed major abuses of capital gains tax. This can no longer be done. They cannot dispose of their assets for a three year period; they can do so only in the fourth year. Otherwise, they are liable to capital gains tax.

In effect, we want to help those who want to spend more money in our country and nail those who are trying to get out.

I want to raise a point concerning the differences in tax years for various countries. Our tax year begins on 5 April. If a person comes here on 6 April, he can benefit from living in this country for a full year; he may even have a tax benefit from another country. The tax year starts on a different date in the USA, for example.

The Minister is correct when he says that these assets cannot be disposed of until the fourth year. However, the person could get an advantage of four and a half years by not selling his property after the fourth year. Is there any way to deal with that because these people could gain a lot by going from one country to another? I do not want to stop foreigners from coming here. The benefits we gain from them are welcome. However, they get greater benefits than the ordinary Irish person.

Senator Cregan is right and I share his views. The Senator wants to see certain individuals coming to this country but he does not want to see other categories benefiting, especially our own citizens, who would conveniently jump ship and play it both ways. Effectively a person who left during the tax year 1993-94 can only be in this jurisdiction for 92 days this year; from now on it will be 140 days. They could not dispose of any of their assets without being affected by capital gains tax for each of the next three years. In other words it will be 1999 before they can dispose of their assets. It is a hard measure but it is there to save capital gains and to stop people finding an easy way to circumvent the rules. While some members of the Institute of Taxation, among others, felt it was a hard measure, it is a fair balance against trying to attract in other people for more days.

Question put agreed to.
Question proposed: "That section 154 stand part of the Bill."

This section allows people to work outside the country without being taxed. Would our United Nations observers, military forces, gardaí, ESB or Telecom Éireann workers — many are now working in England and other countries — be allowed to earn tax free income once they are outside the country? In some EU countries residents' earnings for work undertaken outside their country are tax free, whether this work takes them out of the country for two weeks or 12 months. Will the Minister clarify if this means that whatever money our people earn outside the State will be tax free, for however long they are working, if they work for the Civil Service or in the private sector?

The rules on this issue led to difficult administrative arrangements which did not satisfy anybody. That is why, following discussion, we have amended the position. The section does not apply to civil servants, the military or the Garda Síochána. It provides relief by way of a deduction against foreign earnings in the case of Irish residents who work overseas during the tax year. It replaces the existing relief on unremitted foreign earnings for residents which relied on a distinction being made between an Irish and a foreign payment source. As with the existing relief, it does not extend to civil and public servants, military personnel and the like, or to earnings in the UK.

The new relief is aimed at those committed to working abroad for significant periods. To qualify therefore, a person must work abroad for at least 90 days in a tax year, or in a 12 month period if straddling two tax periods. Each period of absence abroad must include a continuous period of at least 14 days. The amount of the deduction is related to the time spent on foreign employment, ignoring the first 15 days.

Generally, a person working abroad for six months will, after deduction, be subject to tax on only half the annual earnings. The relief will operate by way of a claim made by the taxpayer and the new relief is designed to give due recognition to those spending substantial periods abroad, earning a living or selling and marketing Irish products and services, which many of them have to do through various agencies.

The measure provides a logical grading and tax treatment of foreign earnings between the extremes of a resident's foreign earnings, which are fully taxable, and a non-resident's foreign earnings which are not tax deductible. Indeed, where a person worked abroad for a full tax year, the deduction would practically wipe out a charge to tax on the foreign earnings, thus effectively restoring the tax treatment of a non-resident to a case which is appropriate to the circumstances.

The measure will apply to the commercial semi-State sector, such as the ESB, Aer Lingus and Aer Rianta. Staff at Telecom Éireann may benefit from it if Telecom Éireann sets up a special subsidiary company for its employees working abroad. I am aware that other companies have done this.

People working abroad now have certainty with regard to this measure whereas before, the pay point of people working abroad had to be relocated elsewhere in many cases. It is a tidier and more streamlined situation than was in place previously.

Question put and agreed to.
Sections 155 to 161, inclusive, agreed to.
Question proposed: "That section 162 stand part of the Bill."

Regarding the authority of the Revenue Commissioners to sue, there is a serious worry on the issue of payments of taxes due. There are people who owed back taxes and availed of the various tax amnesties. However, some taxpayers have difficulty paying what is due on a given day. The Revenue Commissioners have been and can be most helpful in such circumstances.

Given that interest rates are now low, although they could be lower, the charge of 15 per cent places a serious hardship on those people who cannot pay on the day. I am aware of many people who have made great efforts to meet their liabilities and the Revenue Commissioners have been helpful. However, the main problem is the rate of 15 per cent. What steps is the Minister taking to provide an incentive and help to those who want to hold on to their businesses by amending the charges imposed at a rate of 15 per cent by the Revenue Commissioners? Given the present economic situation with low interest rates, Revenue's rate is higher in real terms, and if the commissioners had the money they would not be getting 10 per cent on it, never mind 15 per cent.

A compromise would be appreciated and I look forward to the Minister's comments.

There are a number of businesses under pressure and the reduction in the rate of interest of 15 per cent charged by the Revenue Commissioners down to 8 per cent would be a considerable bonus. There are no more delighted people than those in business who have held on to their business, have sorted out their financial problems and are straight with the tax man.

Every effort should be made to ensure that every business person who wishes to hold on to his or her business should get every help possible. If not, the only road facing them is social welfare.

And the loss of jobs.

The Minister should make whatever efforts are necessary in this regard.

There was an opportunity to discuss this matter informally earlier. I am aware that a rate of 15 per cent appears to be penal. The difference between the banks and the Revenue Commissioners is that the Revenue Commissioners cannot pick their debtors. A rate of 1.25 per cent is a penalty to try to get people to resolve their difficulties.

In many cases where there are difficulties the Revenue Commissioners attempt to assist companies. While they cannot change the capital sum, they endeavour to assist in other ways. The rate is imposed, not as an interest charge but as a penalty to try and force compliance as quickly as possible because under no circumstances can the Revenue Commissioners pick and choose their debtors.

I note the Senator's point that at times the reason people do not pay is not that they are normally non-compliant but they have practical difficulties fulfilling their obligations. This is taken into account.

The rate of 15 per cent is not an interest charge but a penalty. While the Minister, the House and the Revenue Commissioners are aware of this distinction, business people are aware that they may have to pay a surcharge of 15 per cent to the Revenue Commissioners. Sometimes a business person will let the business go because of tax worries.

While the penalties are imposed under circumstances which are fair, there is an opportunity now, given the uplift in the economy, for the Department of Finance and the Revenue Commissioners to help people by declaring their intention to reduce the rate to 12 per cent or 10 per cent. They may never implement the measure, but the Minister should not be afraid to take the opportunity to reduce this rate to 10 per cent to give people more incentive. If we say the market is bullish and the economy is on the move, we should give example. I am not saying everybody has to pay it and I am aware assistance is given; I know people who have received such help. People get a lift when they become legalised. We are bringing about a situation where slowly but surely more and more people in the business sector want to be part of the legitimate economy so that if they are entitled to benefits they will receive them as well as making payments.

I understand what the Senator is saying and his attitude is reasonable. The Revenue Commissioners go out of their way to facilitate such people. They and I are anxious that where people are in genuine need a sympathetic attitude is taken. As Senator Cregan has acknowledged from his personal experience, there are cases where the Revenue Commissioners will agree to instalment arrangements. Not too many years ago there was a view that no matter what one did one could not get such arrangements. I was recently criticised in the other House because the Revenue Commissioners had not pursued a high profile company for a long time. This difficulty always exists but we will keep the matter under review. The penalties are there but it is important to have flexible arrangements in genuine cases where, because of cash flow or other difficulties, people unknowingly become non-compliant taxpayers. When such people experience hard times, they should receive sympathetic attention.

Question put and agreed to.
Section 163 to 166, inclusive, agreed to.
First Schedule agreed to.
Second Schedule agreed to.
Third Schedule agreed to.
Fourth Schedule agreed to.
Fifth Schedule agreed to.
Sixth Schedule agreed to.
Seventh Schedule agreed to.
Title agreed to.
Bill reported without recommendation and received for final consideration.
Question proposed: "That the Bill be returned to the Dáil."

I thank you, a Leas-Chathaoirleach, the Cathaoirleach, and your colleagues who have been in the Chair during the debate. I thank the Government spokespersons and my colleagues from both Government parties. I appreciate their help and assistance. I acknowledge the constructive contributions from the Opposition and the time put in by Senator Burke, Senator Cregan and Senator Honan. I hope the Bill will lead to better economic times; we are moving in this direction. I thank the Leader of the House and all Senators for their participation in the debate.

I thank the Minister. He is on top of his brief and was familiar with every aspect of the Bill. I would like to see some changes in the procedure for debating future Finance Bills. We would have spoken in more detail on some sections if the Bill had not been guillotined. We must develop another system for debating such Bills.

I compliment the Minister for being here for the greater part of the time the Bill was discussed and for handling all matters related to it very well.

I thank the Minister. Like Senator Burke, I learned a great deal today about the tax system. It has been a profitable day for me. I compliment him for his handling of the country's finances. Nobody wants to pay taxes but we have to accept them. I also thank the Minister's dedicated staff.

I thank the Minister and his staff. He shows real interest and recognises basics. The British Prime Minister, Mr. Major, could learn from him. He deserves great credit. Finance Bills should not be discussed over two days. The Minister and his predecessors always said this House is the place to have a great discussion on Finance Bills. Many people can learn from discussions here. I thank the Minister for his sincerity and commitment. I thank you, a Leas-Chathaoirleach, the Cathaoirleach and the staff here. We want it noted that in future we should be given more time to debate Finance Bills.

An Leas-Chathaoirleach

I join with my colleagues in complimenting the Minister for the manner in which he has taken the Bill.

Question put and agreed to.

An Leas-Chathaoirleach

When is it proposed to sit again?

Dé Céadaoin seo chugainn ar 2.30 p.m.