Death of Former Member. - Taxation Policy: Motion.

I move:

That Seanad Éireann condemns Government policy which discriminates against home ownership particularly through the reduction of mortgage tax relief and the extension of the residential property tax net; and calls on the Government to reverse the additional burdens imposed in this year's Budget at the earliest opportunity.

It is generally recognised that the tax introduced in this year's budget is one of the most inequitable ever. There was a property tax which was index linked but based on realistic house prices. As house prices rose a certain element of the tax was taken into account. However, through this measure the Government has brought in many householders who live in small houses and it has hit people who can least afford to pay.

This tax represents an attack on homeowners and the family, about which we have heard a lot in recent times. This is supposed to be Year of the Family. This tax is an attack on householders who do not have very high incomes and those who live in three bedroom semi-detached houses. It is an attack on home ownership. Luxury goods, including expensive paintings, yachts and second houses have not been attacked, instead this tax is an attack on the family. It represents an unjust and inequitable form of taxation. The majority of those affected supposedly own their property, but they do not. It is owned jointly with banks and building societies, which are the majority shareholder; they only have a minority share-holding in the family home.

This tax has come from this partnership Government. I know one side, the main partner, would like to believe it is something to do with the Labour Party, but the reality is that this tax was brought in by this Government. It is a tax which hits the Dublin area and major urban areas, including the Minister's area. It does not take all the factors into account.

This tax has come from a party which said at the last election that it would put truth and trust back into politics. I refer to an advertisement from the last general election. It began with an important message from Deputy Spring. It came from a party which said at the last election that many other politicians and parties were telling lies. The advertisement said Fianna Fáil lies and distortions were dangerous and that it knowingly spread these lies about the Labour Party's policies to scare people away from change. It also said Labour Party plans aimed for a reduction in income tax and it had no plans to introduce a new property or house tax. For those hard of hearing I will repeat that, it said the Labour Party had no plans to introduce a property or house tax and it would not reduce mortgage interest relief. This came from a party which exposed great virtues, a party of high morals and ethics in Government. If and when the famous Ethics in Public Office Bill is introduced, I hope certain aspects will be made retrospective and the Labour Party's policies, betrayal of the electorate and its pledge to put trust back into politics could be brought up.

This tax is wrong and it is recognised as such by various Members of both parties. My colleague in Dún Laoghaire, the Minister for Defence, Deputy Andrews, recently sold his house. Obviously he did not agree with this famous property tax. I am sure my friend and colleague from Tipperary, Senator O'Kennedy, where fewer people in the heartland of Roscrea, Thurles and Nenagh need to fill in residential property tax forms, does not recognises it. He recognises that this tax is unjust and unfair, that it is hitting those who this so-called great Government said it would try to defend — the family. When we discuss the break up in families in future months, what will this Government do?

Although the Minister in the House is not the Minister for Finance, I ask him to ask the Government to abolish this tax. If the Government does not, we in this party will abolish it at the earliest opportunity.

There is no doubt the electorate have been badly let down in relation to this property tax. They have been badly let down because people have put their hard earned income into a home for their family. Houses caught by this tax are not necessarily very big houses and I suppose shortly people in even smaller houses, people in council houses, will be paying property tax. If they are not paying property tax, the reality is that we will soon see the reintroduction of domestic rates. That is probably what is behind this. We have started down that road again. The Government will claw back money from the taxpayer, a little at a time.

We on this side of the House are very clear about our opposition to this measure. We are not simply saying that some taxes do not have to be raised, we are asking the Government to go about it in an equitable manner. We are asking the Government to refrain from attacking the basic fabric of society in this country. All sorts of houses will be involved. We are starting with three bedroomed houses, but apartments will be brought into the net. Flats, townhouses, all kinds of homes will be included in this net. This is not equitable. Some of the semantics brought in do not go any way towards addressing the problem. Questions were put down in the other House today and the Minister for Finance, Deputy Ahern, neatly side-stepped them. He did not have any information. He was not able to provide information about the various categories.

I ask the Minister here tonight to withdraw this tax. It is unfair and unjust. He has broken his promises to the electorate in relation to property tax and mortgage interest relief. I ask the Minister to pass my views on to his colleague, the Minister for Finance, because this is an issue that he will encounter on the doorsteps in the Dublin area in the next general election. He encountered it in the European and urban elections, he will certainly hear about it in the next three weeks in Cork North-Central and in Cork South-Central. I ask the Minister to look at the breaches of promise despite all the talk of virtue and high moral ground during the last election and to abandon this tax. Admit to the people that it is wrong. The Minister has already gone part of the way on it. Let us go the whole way and abolish this tax. It is hitting the people who can least afford to pay it. It is unjust, it is burdening people with an extra tax. On top of this tax water charges now have to be paid.

I ask the Minister to pass this message on to his colleague. He is a reasonable man himself and he knows that this tax is not just. It hits those who can least afford to pay it. If there is an overall package in relation to taxation, let the Government take measures to improve the taxpayers' lot, but do not hit the poor householder who has invested his or her savings in a house when many people who are outside the tax net do not pay property tax. These people may have a couple of yachts, expensive paintings or luxury goods. Why not go after them? Why hit the householder with a tax on a property that should be the family home? Why should we force people who are looking after their elderly relatives or sick parents to leave their homes?

I look forward to hearing the contributions from Fianna Fáil Senators from Dublin. I have no doubt that they will be rushing in here tonight to defend this tax. I have no doubt that they heard about this tax on the doorsteps last June. I look forward to hearing their defence of this tax and will enjoy hearing how to explain to the electorate that this tax is equitable. My colleagues on this side of the House will be following on in relation to this matter but I ask the Minister to give a commitment here tonight to abolish residential property tax at the next opportunity.

The Minister is welcome to the House this evening. I second this motion which condemns the reduction in mortgage tax relief and the extension of the residential property tax.

The reduction of mortgage tax relief and the extension of the residential property tax is a two-pronged attack on family home ownership in Ireland. While much public odium is being placed on the residential property tax, nevertheless the changes in the mortgage interest relief are highly disadvantageous to families who have mortgages on their homes. Rather than going into a considerable amount of detail and calculations on this matter, I will say that mortgage relief on homes by the year 1997-98 will only be allowed at the standard rate of 27 per cent. This attack on home owners who have already taken out mortgages and who have existing commitments on their homes means that their tax relief has been reduced from 48 per cent in the year 1993-1994 and will be down to 27 per cent by the year 1997-1998. The Government is effectively phasing out income tax relief on family homes.

At this point it is essential to make the Government fully aware of the views of homeowners across Ireland who are already paying penal rates of income tax, PRSI, VAT and road tax. Thousands of families — I believe the Minister is aware of this — are in arrears with their mortgage repayments to building societies and banks, as is evidenced by the number of cases being brought by the financial institutions against home owners for repossession of their homes. Unless the Taoiseach and the Government are out of touch or living in a dream world they must surely be aware of the fact that thousands of householders across the country are having difficulties meeting their existing mortgage payments and the charges on their homes.

An efficient system of taxation has several different characteristics. First, there must be equity. There is absolutely no equity in the residential property tax, in that a tax should be fair and acceptable to the community at large. By no stretch of the imagination could this tax be considered to be fair. The principle of providing equal treatment of equal people is broken in this tax. Moderate family homes in parts of Dublin, Cork, Limerick and in many of the large provincial homes across the country will not be taxed in the same way as a similar sized home in other towns.

A further characteristic of a fair tax system is certainty. The valuation of a home is necessarily a subjective task and it is difficult for the average home owner to place a precise market value on his family home.

The average family home owner is obliged and will be anxious to accurately complete his residential property tax forms. However, there are severe penalties for failure to return the necessary forms. Even the non-arrival of a form in the post does not allow a person to escape the rigours of the penalties involved. In the event of a person failing to send in a return, there is a a penalty of £1,000.

In an article which appeared in Business and Finance on 29 September 1994, Mr. James Downey — who writes for the Irish Independent— mentions his own family case:

Newspaper advertisements informed us that we must get one from a library, post office or Garda station. In my own family's case, the library directed us to the post office, who directed us to the Garda station, who directed us to Hawkins House. And that need not be the end of the saga, for the Revenue may dispute a house-holder's valuation. It makes you think there was something in the methods of the old time barons, who simply drove off as many of your cattle as they would have thought would meet the bill.

While I would not be in favour of the last remark, the quotation illustrates many of the difficulties people are encountering.

Mr. Downey was in attendance up to five minutes ago. Had he stayed he would have heard the Senator quoting him.

He can watch me on television now. There are a large number of penalties outlined for failure to comply with this aspect of the tax. Any person who obstructs or who fails to make a proper return can face penalties of up to £1,000. A further penalty of £2,000 arises in the event of a person fraudulently or negligently failing to deliver proper returns, or making an incorrect statement. Who is to say an incorrect statement is negligent, fraudulent or so on? There are considerable difficulties with these forms which doubtless the Minister has seen, and completion of them is a highly complex matter.

It is difficult to define market value; it is too arbitrary, too dictatorial and it places the individual in a situation where he can find himself incurring more severe penalties. An example is a person who places a value of £100,000 on his family home and a house two doors down the road is sold for £140,000. The Revenue Commissioners can then demand that the original home owner has to place a value of £140,000 on his property. He would then have to pay the increased residential property tax, plus a penalty for interest at a rate of 15 per cent per annum. In fact, the Revenue Commissioners may even decide to go back a number of years for the collection of specific tax debts.

The Minister will have been aware of this and of the following situation from her experience. Two people can attend an auction for a house which can drive up its value or, alternatively, if there is no interest in a house it can be sold for a low price. However, the highest value of the house is the one which sets the trend for the Revenue Commissioners and for those in the Valuation Office who keep an accurate account of property transactions. This illustrates that there is a real problem in this area.

In the Seventh Schedule to the Finance Act, 1994, the method of computing residential property tax is outlined. It is a highly complex system of assessment and it places an unreasonable onus of responsibility on the average home owner. Will the Minister outline to the House the cost of the collection of the residential property tax? Will she have a cost effective analysis undertaken by a competent body to ascertain the advantage, if any, to the State from the tax?

The Minister should examine the residential property tax under the following headings: the cost of overheads and office rental for staff, the cost of staff wages and those directly involved in the collection of the tax, the funding of the payment of staff and the cost of the Collector General's computer equipment and the time of the staff involved.

This tax is an attack on those in society who have saved over the years to provide themselves with a home, on those who have purchased their homes and paid huge mortgages on their property for the benefit of themselves and their families. A person can have a sizeable mortgage on a house, perhaps as high as 80 per cent, and be paying the full residential property tax. Given this, there is no moral justification for the tax. Combined with the reduction in mortgage interest relief, residential property tax is an unprecedented and savage attack on the family home. It is an attack on marriage and the family unit; it is an invasion of privacy into an ever increasing number of homes across the country.

The Government speaks of introducing freedom of information legislation. However, the residential property tax smells to me of Big Brother tactics. Considering the foregoing, the motion before the House this evening should be adapted by all concerned.

Acting Chairman

I call on Senator O'Kennedy. The Senator has eight minutes. I may allow him some latitude in view of the fact that County Offaly and County Tipperary are hurling counties.

I want to express my happiness and relief, and that of my colleagues — although perhaps not my colleagues from County Offaly — in the fact the Limerick selectors have been returned on the throne where they belong. I hope that we, as the premier county, will have the opportunity next year of dethroning you. I am happy to congratulate you, Sir, and to join with all the supporters in noting that Limerick have, again, settled those minor differences which happen in the best of families.

I move amendment No. 1:

To delete all words after "Seanad Éireann" and substitute the following:

"welcomes the progress in reform of the tax system which was continued in the 1994 Budget, particularly the major increases in the standard rate tax band and personal allowances

—recognises the Government's continuing substantial support for home owners and welcomes the significant increased support for first time buyers announced in the Budget

—recognises the contribution made by the changes announced in the Budget in relation to mortgage interest relief and the Residential Property Tax in redirecting the balance in the tax code more in favour of productive investment, helping to create and safeguard employment and giving a greater measure of equity in the tax system and

—welcomes the adjustments to the Residential Property Tax announced by the Minister for Finance which preserve the essential features of the budget proposals while at the same time catering for the more deserving anomalies in the scheme."

With regard to my mention of the best of families, the Government, like all Governments, is a partnership Government and, as in all partnerships, accommodations and compromises must be made. I acknowledge that one of the accommodations and compromises made in the form of the residential property tax is not something about which this side of the Government partnership, or at least me personally, is entirely enthusiastic. My views on this have been known from my days in Government and from my previous contributions in the House. Nevertheless, if there is a price to be paid for partnership, in the interests of good Government I am prepared to make my accommodation also, although I would prefer if it were not in this direction.

However, I am pleased that the general direction and thrust of taxation policy, and of the overall Government economic and fiscal policy is being maintained on a sound and consistent basis. In this respect I underline the fact that we have been adhering to the progress in reform of the tax system in the 1994 budget, especially the major increases in the standard rate tax band and in the personal allowances, which cannot be achieved unless adjustments are made in other areas.

I am especially pleased that the fiscal discipline which was introduced in 1987, not with the full support of all of those who are now partners with us, in reducing public expenditure is being adhered to — at least I hope that this is the case because it is the bedrock on which a sound economic policy is built. If such control of public expenditure is not achieved, the room for the private sector to expand, with low interest rates and low inflation, does not exist. I hope this discipline will be adhered to; it has made this economy, after six or seven years of effective corrective action, an example of what disciplined action can achieve.

With regard to taxation elements, there is a wide measure of agreement that there is a need to maintain the alteration to the balance of our taxation regime, to rely less on impositions on earned income, which is essential, and to promote those elements in our taxation system which are more beneficial to enterprise and employment. For that reason we must continue to work towards broadening the tax base. Limited and well focused incentives have a legitimate role to play but we must avoid poorly and excessively targeted subsidies. Significant progress has been made over the years and is continuing to be made in this year's budget in streamlining the tax administration.

We all want further major income tax relief. However, the prospect of such a move in the medium term will depend critically on the prospective need for tax revenue overall. One can only do that if one has a properly focused taxation system. I make one concession to my Fine Gael colleagues in the House regarding the concern that the favourable treatment of property in our tax code does not put investment in this area at an undue advantage over the alternative possibilities for investment, which would support long term employment creation. I am concerned about property taxes but one must not exemplify that concern to the extent that one would have favourable treatment of property in its own right at the expense of investment in employment creation.

I hope the progress on tax reform as it proceeds will continue to get that balance right. It must be recognised that tax reform does not provide a panacea for economic problems. It never did and it never will do so. It is one of the elements of our economic and fiscal policy. The control of public expenditure and targeted public expenditure is at least as important as adjustments in the tax area. The budget is an important instrument of policy but if we do not get control of public expenditure correct and target it correctly, the tax adjustments that can be made will be of minimal importance. By and large, the enterprise sector tells us to create the correct climate, where it will not have to subsidise major public expenditure, and it will do the rest itself. However, I recognise that while tax reform does not provide a panacea, tax incentives can to a large extent make adjustments, although they will not always live up to some of the wild claims that are made for them. At best, they can be only a part of a wider response to the employment challenge.

In that context and to focus on some of the elements of tax allowances in the budget, I particularly welcome the fact that specified interest rates, which were used to determine the benefit in kind charge for preferential loans made by employers to their employees, are being reduced. The tax relief in respect of mortgage interest and health insurance premiums are to be given at a standard rate in future in all cases and this is important. It will be phased in over a number of years and mortgage interest relief will be at a full standard rating in 1997-8. First time house buyers are most important and they will be allowed interest relief at 100 per cent, subject to ceilings for the first five years instead of three years hitherto. This will be of major benefit to first time buyers and to the house construction business. In addition, they will not be subject to the de minimis threshold of £100 to £200 for the first five years of their claim. These are all worthwhile indications of——

Acting Chairman

The Senator's time is up.

Is it up? There was so much more I wished to say.

Acting Chairman

I will allow the Senator to conclude.

The package in the budget gives major relief in income taxation to the general body of taxpayers. The fact that those reliefs will cost almost £200 million in 1994 is of considerable importance. As the recent quarterly returns demonstrate, the Government's targets, as set out in the budget, on income and expenditure are being met. This will mean the programme for tax reform as an essential part of the Government's economic policy will be maintained in the next budget.

The priority of any Government is employment. This Government decided to have a Department of Enterprise and Employment. The Minister explained that the word "enterprise" came before "employment" as the objective of the task was to create enterprise in order to create employment. Rather than condemning the Government for extending residential property tax, as the motion suggests, I prefer to use the debate as an opportunity to discuss what we should try to do with our tax system as a whole in order to stimulate economic growth and therefore help employment. In general our taxes are too high, mainly because they are too narrowly based. We should be putting our energy into reforming the tax system by widening the base, thereby making it possible to have a widespread lowering of taxes in general.

I will be specific in three areas. First, 85 per cent of all taxpayers should pay no more than one third of their taxable income in tax. This should include all taxes. The standard rate, including PRSI, etc, should be no more than 33p in the £ and the threshold for higher rate tax should be fixed so that only the top 15 per cent pay more than that amount. Second, the full rate of company tax should not be any more than 25 per cent. The overwhelming number of businesses in Ireland pay the full rate, despite the publicity surrounding the 10 per cent rate. Third, the rate of VAT should come down to 16 per cent, which is just over the minimum threshold permitted in Europe.

Taken together, those reductions in tax rates could quickly transform the economy. They would give people an incentive to work more and give companies more motivation to risk and invest. They would stimulate the consumption of goods and services across the economic spectrum. This is where my points connect with the motion. How does one achieve such widespread reductions in tax? There are two ways. First, one reduces Government spending, but that is an argument for another day. Second, one broadens the tax base and I wish to focus on this area.

I was impressed by the Commission on Taxation. It had the right idea when it stated that our tax base was too narrow and that we are constantly narrowing it by creating further new exemptions on a regular basis. The commission's recipe was to sweep away all those tax breaks and to apply taxes broadly at a much lower rate. It said that part of that broadening involved the necessity to generate and generalise VAT across the range of buying. It also stated that we should have a comprehensive property tax, in common with most countries in Europe. We are taxing too few people and too few things. By spreading the base wider, we can lower our rates to a level where people will consider them a good deal less penal than at present. I was impressed by this year's budget, which took a small step in the direction of a generalised property tax. It covered a small area and caused understandable pain to the people affected by it. However, it was a step in the right direction. If we are to criticise it, it should be because the extension of the tax did not go far enough.

We should keep our eye on the ball when we discuss tax. We should be pressing for a wide, swift and comprehensive reform. This can only be achieved by sweeping away all the tax shelters which have proliferated over the years like a Third World shanty town and bringing into the tax net the large sections of the economy at present outside it. Broadening the tax base will cause some pain but it can also stimulate the economy and create jobs. Let us concentrate on the many not on the pain for the few.

The link between the points I have made should be clear. Nobody likes tax and it must be difficult for any Government to introduce a new tax. If we are to broaden the tax base we will have to introduce taxes that hurt people. However, if we can do that at the same time as lowering the tax rates then we will end up carrying out the intentions of the Commission on Taxation — to encourage enterprise and by doing so to encourage employment. Broadening the tax base aims at doing just this. The residential property tax is a step in the right direction but it must be accompanied by the other measures such as those deemed necessary by the Commission on Taxation. We are going in the right direction but we have to do more.

I second the amendment to the motion and I welcome the Minister to the House. I hope she has a good financial package for us.

I have nothing.

At the beginning of each year the Government and the Minister for Finance have to introduce a budget. Many people believe that money is available like manna from heaven, that services can be provided and moneys paid without getting funds from somewhere else. Although we get money from the EU — and will continue to get it for a number of years — for building the infrastructure of the country through training, for example, the day to day running of the country has to be paid for. Moneys must be provided from tax.

At present we have income tax bands of 27 per cent and 48 per cent. It was to maintain a fair system that the mortgage interest relief was reduced. The reason for this was that the person paying a mortgage who was paying tax at 27 per cent gained 27 per cent on £100, whereas a person on the higher rate gained 48 per cent. It benefited the better paid person more than the lower paid person. The residential property tax was introduced in the early 1980s, there was no new tax this year, just an extension of the existing tax. I find it hard to understand why people who are shouting for tax reform and a widening of the tax base are critical when a move such as this is made.

The improvements in the tax relief compensated for any extra charges made. After the introduction of the measures in this year's budget people were better off. We must bear those points in mind when we consider this amendment. If we were to dump any provision of the budget relating to tax collection we would have to cut out some of the improvements made. Consequently, I would ask those who move motions such as this to say what they will cut. A 3 per cent increase was made in welfare payments, is it proposed to reduce that? A further 3 per cent was given to the short term welfare payments. These are completely necessary increases.

Do we want to reduce the waiting lists in hospitals or do we want to leave them as they are? A sum of £3 million was allocated to reduce the waiting lists during 1994. A sum of £7 million was given for improvements in education. As the Minister knows well from her time as Minister for Education, many schools which were in pretty bad condition have been improved with this money. Somebody proposed that the money which would have to be handed back under the terms of the motion should be taken from education. The budget has to balanced and if money has to be obtained for a project it has to come from somewhere and that "somewhere" is taxation.

Additional provision of £3.8 billion is being made available for sports and recreational facilities and £1 million for marine improvement works in the Gaeltacht. The reason I mention these is to show what was done in the budget. One can take any item in isolation from the budget and severely criticise it if it is a tax and praise it if it is a benefit. This motion only involves criticism.

Under the terms of the social housing scheme £12 million was provided for additional local authority houses. This is more than welcome and I would like to see more made available. However, it would have to be paid for and more taxation would be involved. We have to keep the balance. Many people will be happily housed as a result of provisions of the budget of which some people are so critical. A sum of £7 million has been allocated for remedial works in local authority housing and £4 million has been provided for the improvement of the housing conditions of elderly persons living alone in unfit and unsanitary conditions. All of these measures are caring — caring for the elderly and caring for children and education — yet they have to be paid for.

The introduction this year of the new community enterprises gave work to many unemployed people. Some people have said that such work is not good enough, but, nevertheless, it is work. The dignity of working which people feel is a tremendous boost to their morale and takes them out of the "dole syndrome". When a person applies for a full time job they like to be able to say that they worked on a social employment scheme. It is of great benefit to them. In providing money for these schemes we are helping them back into the workforce.

There are vocational training opportunity schemes which provided around 2,500 places in 1994 for the long term unemployed; £10 million was available for general training activities in FÁS and £5 million for tourism. All of these measures have to be paid for. Many people have talked of broadening the tax base, yet when the Government moves to do this it is criticised by them. I cannot see the logic in that. Why do they not just say that they are against widening the tax base and be done with it?

In the last budget the temporary 1 per cent income levy was abolished, as had been called for. The 1.25 per cent health levy and the 1 per cent employment levy were also removed for those in receipt of incomes not greater than £9,000 per year or £173 per week. Such measures have to be paid for. There was also an increase in the budget of £350 in the personal income tax allowance. I mentioned this earlier as compensating for the loss incurred in the residential property tax and the reduction of the mortgage interest relief.

The standard rate tax band was increased to £16,400 for a married couple and £8,200 for a single person. There was also an increase for people who had an income tax exemption for children of £100 per child to £450 for the first and second children and £650 for the third and subsequent children. The change that interested me was in the marginal relief rate in tax. It was dropped 8 per cent from 48 per cent to 40 per cent and that benefited many of our pensioners.

If one is going to select items from the budget for discussion, the items I have mentioned are worthy of substantial praise. However, I hear nothing about those items. All I hear is criticism of the other provisions. Tax must be balanced between those who can and those who cannot pay. I remember a time when an employed person was paying tax and his employer, who was very well off, was paying no tax. I also saw instances where the employee was unable to get a higher education grant but the employer was. Everybody in the locality knew the financial circumstances of both. However, by virtue of the rules at the time that was the outcome of the situation. Everybody knew how difficult it was to settle this matter because somebody has to bite the bullet. If we want to widen the tax base we must do so without fear.

The mortgage income tax relief will be reduced over a period of time. However, there is an extension of the 100 per cent relief for first time buyers for five years instead of the old period of three years. If we wish to have a financial discussion we must discuss the full budget. That is why I have discussed many of the provisions in the budget. I could say more but time does not allow me to do so. When an isolated provision in the budget is selected for criticism for publicity's sake it is my duty, as a member of one of the Government parties, to outline the good points in the budget. This debate might be better left until after the next budget.

I appreciate Senator Calnan's dilemma in defending this motion through his amendment. One of the advantages of a Government amendment to this type of motion is that one can put down an amendment and then not address the subject in hand at all. That is what Senator Calnan and Senator O'Kennedy have successfully done this evening.

We put down a motion on residential property tax because we thought it might be of interest to the public and, indeed, to the press. There is nothing wrong in seeking publicity for this motion. It is a matter of public interest and has become a matter of acute difficulty to certain people in the last few weeks. Senator Calnan will be aware that 1 October was the date by which the residential property tax had to be paid. In the weeks prior to 1 October people received in their letterboxes not one document but two pamphlets. The two pamphlets symbolised the complete dog's dinner which the Government has made of this tax.

Everybody in this House knows that when the changes in the tax were announced in the budget there was a hue and cry. In order to take the sting out of some of the hue and cry the Minister adjusted the tax to pacify his backbenchers at the expense of the Labour Party, which had imposed the tax in the first place. In doing so he introduced what I suspect is one of the most complicated taxes ever to be introduced in this country. Proof of that is evident in the leaflets which were sent to those who got demands for residential property tax. The Revenue Commissioners, who were set the extremely difficult task of raising only £12 million through this tax — we are talking about a very small amount of money but the tax affects a very small and very vocal number of people — decided that the tax was so complicated that just to send an ordinary demand to people as they usually did in the past was impossible. Instead of sending a four page leaflet they sent a four page demand and an eight page help leaflet. Nobody in their right mind, unless he or she is an actuary, could work out the residential property tax alone without help. It is extremely difficult and complicated.

The proof of that will be that every person who pays tax on this self-assessment basis this year will pay the wrong amount. That is certain. One is asked to pay tax on the value of one's house in April 1994. How is one to know the value of one's house in April 1994? One does not know. One can guess but if one guesses incorrectly one will be penalised when the house is sold. That is a draconian measure. One can engage an auctioneer to value it but that will cost £300 or £400 which is another penalty.

The explanatory document explains the meaning of market value in a way which makes me wonder whether the Revenue Commissioners were serious about the tax or whether they were trying to mock the Government. The leaflet defines market value as "broadly speaking the price the residential property would have been expected to obtain if sold on the open market on 5 April 1994". "Broadly speaking" means absolutely nothing. The poor unfortunate people who are victims of this tax must make a guess which will undoubtedly be wrong, pay a tax which is undoubtedly wrong and live in fear of a future clawback when they sell their houses. This will apply to many old people.

On top of that, according to figures which were released recently, residential property has increased by 13 per cent so far this year. Next year people will be paying at least 13 per cent more tax than they are paying this year. It might be a great deal more because property might increase again before April next year. It is undoubtedly true that we will encounter situations where people will have to sell their houses because of this punitive tax. It is a totally unfair tax on people who have not got an adequate income to pay it. It is unfair for two reasons. First, it is a tax on income which people do not have — I will explain what I mean momentarily. Secondly, it is a tax on assets which they do not own, or it certainly can be.

In many cases people who are not earning above the thresholds will have to pay this tax. Those with whom they live will put them above the thresholds. The houseowner will be paying a tax on an income which belongs to somebody else. The second problem is that it is a tax on assets which people do not own. I have never heard an adequate response to the criticism that this tax does not make allowances for mortgages. What happens if there is a heavy drop in the price of residential property in the next year or two and the tax continues at the same rate or increases at the same pace? The mortgage on the residential property will remain the same, the people's incomes will probably remain the same, but they may well fall into the negative equity trap. If they fall into such a trap and the valuation of their houses is over the threshold while their income remains the same they will have a mortgage which is above the value of their houses and they will have to pay residential property tax on that mortgage. They will be paying tax on a loan. That is a principle we cannot accept. The Minister did not provide an adequate answer to that dilemma. I accept that he came under much pressure at the time. That is the most gross inequity of this tax: that people will be paying a tax on debt.

This tax obviously discriminates against people living in Dublin, especially prosperous areas of the city. It is a tax against the middle classes and those who have managed to work their way up to own reasonably good houses. It is also a tax with an unpleasant ideological base. Because of the vocal public disquiet about this tax I hope the Minister will consider repealing it.

No one in this House would be as worried about this tax if we thought the Government was making a concerted effort to broaden the tax base or was committed to reform taxation. I do not believe that is true or that it has been thought out. The Taoiseach, in a brave departure from party policy, spoke about rates at the IMI and we should applaud him for having the courage to mention that word in a political context. However, it seems he, his party and the Labour Party have backed away from that.

If they are serious about broadening the tax base they should look at rates on domestic dwellings or at a means of transferring income tax on to domestic dwellings throughout the country — perhaps between £200 million and £300 million could be raised that way. The tax should not only be levied on those above a certain threshold. That is the only way to broaden the tax base if the Government is serious — it will not be done by raising a paltry £12 million in this haphazard way from a few people who cannot afford it.

The solution is radically to examine rates on domestic dwellings and for the Taoiseach to pursue the courageous initiative he took in June. He should be supported by his colleagues in the Labour Party who are so keen to broaden the tax base.

I welcome the Minister and am pleased to have the opportunity of speaking on the motion before the House. It has been put down for all the wrong reasons. The Opposition cannot be sincere about the plight of homeowners, if they are in such plight, because it was the Opposition who introduced the tax in 1983.

Not all the Opposition was involved in introducing the tax.

Those who spoke since I came in were; the rest of the Opposition is getting smaller every day. The main Opposition party was in a Government which introduced the tax. To listen to the last speaker it would appear they never heard about it until the last budget, although he is a recent member of that organisation. The public is not soft enough to listen to that nonsense when that party was the major Government party in 1983 when the property tax was introduced and collected the tax when in Government from that year forward.

The Minister for Finance in this Government introduced a budget this year which everyone now recognises as a proper framework of financial measures to enhance the economic standing of this country. It laid the foundations for providing employment for the vast numbers who are still unemployed. This Government has recognised its responsibility and realised changes were needed. The tax base had to be broadened and re-alignments were required if we were to get off the slippery slope, make tax equitable and reap the benefits on a national basis by providing employment to those without jobs. This was the foundation of the budget, while keeping within the parameters of the Maastricht Treaty. I have yet to hear of anyone who welcomes a tax, whether it is a local service charge or another form.

People do not mind paying tax on a winning bet.

An Leas-Chathaoirleach

Senator Finneran without interruption.

There have been a few minor changes to property tax but for a person who owns a house worth £100,000 and is earning over £25,000, the maximum tax payable is £225. There are also many reliefs which apply.

It is necessary to bring balance into the debate and show that certain measures are needed. What was brought in was a minor increase to a tax which existed for ten years. We must welcome the progress in reforming the tax system contained in the 1994 budget, particularly the increase in the standard rate tax bands and personal allowances. These were welcome initiatives and developments. We also must recognise the Government's continuing and substantial support for home owners and the significant increased support for first time buyers announced in the budget.

To broaden the focus, we should look at the massive increase in activity in the construction industry recently, which can be seen in any town in Ireland. There are a number of reasons for this. As well as the budget changes in tax, we should remember the urban renewal programmes, tenant purchase schemes allowing people to renovate their houses and the economic policies which have allowed interest rates to drop to an all time low. This combination of factors has given this lift to the construction industry.

It has been said in the past that if the construction industry is doing well, so is the country, because people are investing. The figures announced by the Minister in the last fortnight prove beyond all doubt that the economic proposals of this Government are not just on target but have led to the second best economic performance in Europe. Yet the main Opposition party forgets it initiated this tax in 1983.

We promised to repeal it and so did the Senator's party.

Ten years later a Government which is broadening the tax net and trying to provide jobs for the unemployed is castigated by the main Opposition party, as if that party had never heard of the tax until the 1994 budget. They might try to say that but the public will not accept it; that will be seen as the height of hypocrisy. It is more important that the Minister and the Government continue on this road and that there be a further broadening of the tax base in 1995, 1996, and 1997 and a reduction in personal taxes. This would create the opportunities for employment which are so necessary. We cannot be inward looking as far as the economic performance of the country is concerned and what it will be in the future. We must look at the 270,000 or so people who are unemployed. The number of unemployed has fallen because of the policies of 1994 and I hope it will continue to decrease over the next three years. This is what the public is waiting to see and from which it wants to benefit.

I have a simple point to make and I am glad the Minister for Finance is here to hear it. It is along the lines of what I have made pleas on previously, that is, making some amelioration in the situation for people who are restoring historically important houses. I know this is the kind of area which can easily become a political football — I have heard it this evening, one party making accusations against another, really looking for voter appeal. I do not want to engage in this but to make one clear simple point. There is no encouragement whatsoever in the form of a tax or grant for people who do the duty of the State by refurbishing, maintaining and retaining the fabric of historic buildings.

I dealt with two of the Minister's predecessors in this very important Ministry — Mr. Ray MacSharry and then the present Taoiseach, Deputy Reynolds — trying to get some small change in the tax structure for people restoring houses. We limited this by making it applicable only to list one buildings within the designated areas. There is a very small number because the Department of Finance is rightly conscious of its job of acting as watchdog of the public finances and it cannot permit a haemorrhage from the Exchequer. I do not believe one single person has ever availed of the small degree of leverage or advantage in these tax provisions. I have asked on several occasions for figures and I know of people who have asked for forms so that they could apply but they had great difficulty getting them and when they discussed it with their accountants, they found it was not worth their while.

I know this Minister has a direct personal interest in the fabric of our city and other cities around the country and for that reason I would make a suggestion. Of course, it is necessary to have either this kind of property tax or rates. There will be an Opposition and a Government wrangling and each trying to jockey for voter position; it is all a charade and a farrago of nonsense and nobody with any intelligence takes it seriously. I am not expecting this tax to be repealed. We cannot do that. There must be funds to administer local government. My suggestion is that there should be an exemption from the residential property tax for people in designated areas who have restored list one buildings which the State itself regards as a significant and important part of our inheritance and our tourism drive. Such people get no grants; unlike most other countries in Europe there are no incentives here. The very small degree of tax incentives which I managed to persuade previous Ministers for Finance to grant are absolutely useless. Here is something small which could be done which would not penalise people.

If I may make a parallel with the history of Ireland. I think of Charles Gavan Duffy, Fintan Lalor, the Land League and their three "Fs" and rack renting. People who buy slum properties and put a great deal of passion, energy, resource, initiative, money and labour into restoring these buildings find they have increased the value of these buildings. If they band together in an association, an entire area, willy-nilly, despite perhaps the interests of those who have restored buildings long term, will rise in value and become fashionable. I bought a house 15 or so years ago for between £20,000 and £30,000. I worked very hard and put huge amounts of money into it. I and people in my area formed an organisation, we raised the standards of the area and brought other people into it. Are we to be penalised because we have, by our own efforts, unaided by the State, secured an increase in the value and fashionability of the area? This seems to me to be unfair. People should not be penalised for doing this kind of work. Earlier we discussed the Heritage Council Bill and heritage houses, an area which is now recognised as very important and significant. However, there is nothing, apart from disincentives, for people to restore houses.

I am not a great dinner party person but in the last couple of weeks I was at a dinner party to welcome a new ambassador to Ireland. All the guests were reasonably well off and conservative. Virtually all of them were in favour of this tax. I was the only one who held out some qualification against it. When I explained what this was — that is, that people who restored houses were being penalised — to a person they said that is the only exemption to which they would agree. I believe there would be very little popular backlash against this and people would understand it. It would not affect me because I am so impoverished that I have let out most of my house. One is only taxed on the parts of one's house one occupies. I have written to the Revenue Commissioners and told them that this tax does not apply to me.

I would like to think — I believe the Minister would as well — that people would be encouraged to buy these houses and restore them. We seem to be incapable of providing grants of any kind. There are no grants. The tax changes do not work. This is a small measure which would recognise the work being done and would perhaps encourage people. I would like to use this opportunity to recommend this notion to the Minister. I am aware that this House cannot make amendments to the budget but we can make what I understand are called moltaí, or recommendations, and I will certainly recommend this for the next Finance Bill. I hope this opening shot might find a sympathetic response from the Minister when he comes to look at the next budget.

I support the amendment tabled by my colleague, Senator Wright. If we lived in a perfect world the Minister for Finance would have an easy time. Unfortunately, this is not the case. One had to pay dues to Caesar.

Look what happened to him.

I am not comparing our Minister for Finance to Caesar; I am saying that taxes were imposed even in his time. The Minister had to consider the unemployed, the over-taxed and services, such as health, education, public transport, lighting, sewerage systems, good roads and universities. Money must be provided for all these services but there are screams from one side that taxes must be lowered. I want to see the taxes of the average worker reduced, if he is lucky enough to have a job, and make it attractive for him to go to the expense, for example, of having a car to go to work, on which he also pays taxes. We cannot have it every way.

I do not have sympathy for people living in big cities. I come from rural Ireland where we do not have such services. We do not have universities, therefore we must send our children to the cities where they must live in low grade accommodation at great expense. Some of these people, the cartels which rip off the students every year, are screaming about property tax. These people have such vested interests, they would not pay a penny for anything. I know the conditions these students must live in. The property owners, who drive a Mercedes or a Rolls Royce, treat the tenants like fodder and my family had experience of this. They own a lot of property in this city and in other cities, such as Cork, Waterford and Galway. I have no sympathy for them because they should pay taxes. The Minister is right to introduce a property tax on such people.

Rural people have no public transport, which is also subsidised by the taxpayer. The cities have public lighting, sewerage schemes, good roads, universities and other amenities. This increases the value of a person's house because they are near these services. We cannot have all these services in one area and tell the Government and the Minister for Finance to go elsewhere for money, yet ask them to reduce the weekly and monthly tax which is taken from our pay packets on a Friday evening.

We do not want a situation similar to that in the early 1980s when the then Government introduced a property tax. The Minister for Finance and his colleagues had to rescue this country from bankruptcy because that Government went on a spending spree and we are still paying for it. The Minister is trying to do the best he can to lighten the tax burden for the unemployed and the employed. It is not an easy task and I do not envy him his job. He is doing his best and I am sure he would not like to tax residents because there are many in his constituency. However, he must balance the books. We cannot continue to borrow because the young people today will pay for that at a later stage. Our EU partners are currently looking at our books. We want funds for the development of roads, sewerage and water schemes, but if we do not keep our house in order they will not consider us favourably.

I am disappointed that the responsible people in Fine Gael have tabled such an irresponsible motion. They introduced a similar scheme. Yet they are now whinging. It is a double think because one cannot have one's loaf and eat it. I would prefer if a man with a young family could pay less direct income tax. If he is living in a big house in Foxrock, Cork or Limerick which is worth a lot of money, he is obliged to pay something on it. Even an ordinary tenant in Dublin, Cork, Limerick, Waterford or Tipperary, who is buying out his house from the local authority, must pay for it. There is no gold mine behind Seanad Éireann or Dáil Éireann for the Minister for Finance or any Minister for Finance. The day of reckoning is always here. If the Minister is too liberal today, the next generation must pay and many services could be cut back, which happened in the mid 1980s when there were cut backs in the health services and in education. I am glad we have changed such reckless policies and that the country's books are well balanced.

I compliment the Minister for Finance on what he has done over the years. It is not an easy task. He is doing the best he can in the national interest for the unemployed and those who are taxed. No one wants to pay tax, but, unfortunately, we do not live in cloud cuckoo land. If the houses in rural Ireland are not caught in this net, it is because we do not have the services which the people in the major cities enjoy. However, we lose in another way because our children must go to the cities for an education. The city people have this on their doorsteps and it is also subsidised by the taxpayer.

We are confronted once again by a calculating, sustained and unrelenting assault on middle class people in our country. It has gone beyond that to the point where people on less than middle class incomes are targeted. One wonders how that squares with the idea of enterprise and employment and having tax reform.

The Government gave us the 1 per cent tax levy in 1993 and its folly was seen when it was abolished. A 1 per cent tax levy seemed plausible until one converted it to what it was in the standard rate of tax, which was 2 per cent. The trend we experienced when in Government with Fianna Fáil, where the tax rate declined, suddenly went in the reverse direction. We had a tax amnesty for cheats so that the money they had salted away could be brought back and they could get away scot-free. When Mr. Justice Hamilton prepared his report and submitted it he said that senior management in the Goodman Group were aware of what was going on. A journalist went to court, but the people responsible for such activity seemed to be able to walk scot-free.

Probate tax operates at the level of £10,000, but its folly was seen and the Minister had the good grace to exempt spouses in the last budget. It was outrageous that people in that situation had to pay such a tax. At least the Minister accepted the fact that spouses should be exempt. He should now accept the fact that residential property tax is a bad tax. The reaction of the public was such that the Minister was compelled to make minor adjustments and he did so. However, the principle is still wrong.

If the last budget was presented to us as a tax reforming budget, it was no such thing. It seems to be the case that if this mantra is trotted out and if it is repeated ad nauseam that something is tax reform, it becomes fact. It was not a tax reforming budget and it was not, as the Tánaiste represented it to be, a pro-jobs budget. It had nothing to do with encouraging enterprise and employment in this country.

I am prepared to accept some of the points made by Senator Calnan. However, how can he, as a member of the Labour Party, defend that position when the Labour Party went to the country on a platform that it had no plans to introduce a new property or house tax. It made a solemn commitment to the electorate, but this was abandoned when the party went into Government. The Tánaiste said the tax would not be introduced, but it was introduced. What message is the Government giving to the people who work hard, save and put their money into their homes?

Senator Byrne mentioned students who live in rat infested tenements in Dublin. Of course that is wrong, but they are not being taxed; the person's home is being taxed. Is it proper that someone who lives in a good house in a city or town must pay a rate of tax which someone living in the same type of house in the country does not have to pay? I live in the country and I pay residential property tax because I value my property. How does one value a farmhouse? I pay the tax because I am a citizen. What does the person who owns a yacht, or the person who has the money salted away or has an offshore account in the Isle of Man pay? What liability is there on such assets? In addition, many people save and invest their money and buy a nice house with a substantial mortgage. What is the equity of a tax which is based on the value of the property and not on the value of the person's assets? How can one square that? If someone has borrowings of £55,000 against a house of £100,000, their net worth by definition is £45,000. Irrespective of whether their mortgage is £20,000 or £50,000, the residents of the £100,000 house pays the tax. Where is the equity in that? It was represented to us that this tax would generate £3 million and then what did we do? We found £5 million for the GAA. It is a worthy and great national organisation which does tremendous work, but after telling us about all of the things that we have to find money to fund, is it appropriate that £5 million be found for that purpose?

I support Senator Norris in what he said. We debated the Heritage Council Bill in this House this afternoon. There was unanimity across party lines about the value of our built heritage and the need to protect it. If somebody happens to live in a Georgian house in one of the nicer streets of old Georgian Dublin, I would support Senator Norris in suggesting that that person should receive an exemption if they put their money into keeping those properties. The effect of not doing that would be to have every building in Merrion Square and every other Georgian street in Dublin owned either by a corporation or the people who want to house students, but not the citizens of Dublin.

When the Progressive Democrats come back to Government, as I am confident we shall, this tax will be abolished. It is wrong that people should be penalised by virtue of location. We do not have tax reform. We have heard about the need to fund public spending, but what has happened? Public spending in this country has increased by 16 per cent over the past two years. That is what we have to fund, at a time when inflation is 2.5 per cent. Is that right? Is that good economic management? While we have performed well under the Maastricht criteria, it has also been pointed out to us that our debt to GNP ratio, although going in the right direction, is wrong and is still more than it should be.

An Leas-Cathaoirleach

I remind the Senator that he has one minute left.

Thank you, a Leas-Chathaoirleach. I will not strain your indulgence.

We had platitudes about the Culliton report in 1993, but then it was all forgotten about when the budget came. There was also the income levy and the increase in the standard rate of tax to 29 per cent compared to 27 per cent by virtue of that levy and what happened? It was the trade unions who saw to it that the 1 per cent income levy was abandoned. In 1994 we raised the PRSI ceiling for employers to £25,000. The effect of that was to add £450 to the employer's wage bill for a skilled employee. If an employer in this country wants to employ somebody at the marginal rates of tax, they have to find £2.45 to give the employee £1. Is that right? Is that tax reform? I submit that it is not.

I thank you, a Leas-Chathaoirleach, and your colleagues in this House for giving me the opportunity to contribute to this debate. At the start of any debate I have to remind colleagues in both Houses and elsewhere that, good as we are in this country at the three card trick, doing magic and talking ourselves in and out of problems, nobody has found a way of reducing taxes without borrowing and increasing expenditure. I totally agree with Senator Dardis about how terrible it is that public expenditure can creep up, but unfortunately practically every time Members of both Houses of the Oireachtas speak, put down a motion, ask a question or write a letter, they are looking for more money. I never get any mail from any Members of any side of this House suggesting ways to reduce this expenditure.

Did the Taoiseach write to the Minister?

I get many suggestions from my eminent colleagues, especially from those in the Opposition, on how I should do away with taxes, but they never give me any alternatives. They also write another letter in the same post looking for more expenditure. Unfortunately, until we learn the basic lesson, which is not even an economic one, that if we want to reduce our level of taxation and borrowings, which we will have to do, we have to stop looking to increase expenditure and all the things that drive it forward.

I am glad to have the opportunity to reply to this debate tonight. It is important first for me to set down a few basic facts about what we are trying to achieve on the taxation front. Resolving our critical unemployment situation must be our overriding economic and social objective. This requires our efforts and policies to be firmly focused on maximising the number of sustainable jobs. Ensuring that taxation policy is pro-employment is therefore essential. This means that the process of tax reform, now under way for the last seven years, which is aimed at increasing the rewards and incentives for work and reducing the cost of employing workers, must be continued.

It has been recognised by many national and international bodies who have commented on the area of tax reform that personal income tax in our country impacts most negatively on enterprise, incentive and employment. Despite the considerable progress already made, it remains an aspect of our tax system in need of positive reform. In particular the burden of income tax can bear heavily on those with modest incomes. In part this is because the proportion of all tax which must be levied on income is high, but it also reflects the structure of income tax. The point at which individuals begin to pay tax is relatively low and, more importantly, the level of income at which the higher rate of tax comes into play in comparatively modest.

The Government is faced on a daily basis with urgings to reduce tax in this area or that. However, few of those who seek tax reductions are willing to be specific as to which of the services from which they benefit they are willing to forego. The plain fact is that tax reliefs cost money. This money must come from somewhere, whether from expenditure curbs or alternative modes of taxation. With our level of national debt, borrowings on any substantial scale for any purpose is not a realistic option, either now, in the medium or long term. There is a clear onus on those who call for major tax cuts, be they in the area of income tax, PRSI or corporation tax, to cost such proposals and to specify where they think the money to fund these costs should come from.

I would ask those who proposed tax reform not to play the tired and predictable game of "Yes, but ...". This involves ardent declarations of support for the broad concept of tax reform. They are the kind of people who come on the radio or the television urging tax reform, believing it is manna from heaven, the panacea to all of our problems and the road to utopia. If we would only bring in tax reform, all of our problems would be solved. That is followed by the heartfelt denunciation of the particular changes that ensue from putting an effective tax reform package into place. The practical reality is that any revenue foregone in the process of tax reform must for the most part be recouped within the overall area of taxation. This means, in essence, increasing other taxes, imposing new forms of taxation or broadening the tax base generally. There is no getting away from the fact that there is no such thing as pain free tax reform.

It bears repeating and underlining that significant progress has been made in recent years in the area of tax reform. Base broadening measures have been implemented, especially in corporate, capital and indirect taxation. This has enabled the standard rate of corporation tax to be cut by 10 percentage points, from 50 per cent to 40 per cent, and the standard rate of VAT to be reduced from 25 per cent to 21 per cent.

Considerable progress has also been made towards improving the income tax system, despite the constraints of the serious imbalance in the public finances. The standard rate of income tax has been cut from 35 per cent to 27 per cent and the top rate from 58 per cent to 48 per cent, substantially reducing marginal tax rates for the majority of taxpayers and the number of rates was also reduced from three to two. In addition, personal allowances have been increased and the standard rate tax band has been broadened. The general income tax exemption limits, below which no income tax is payable, have been increased and a child addition was introduced into the exemption limits in the 1989 budget and considerably improved on since then.

This year's budget continued the process of tax reform. It had two particular focal points: first, it continued to address the most acute problems in the area of personal income tax and, second, to improve the fiscal environment for business, with special reference to the position of small and developing enterprises. By any standards, the reliefs in this year's budget in mainstream income taxation were substantial. They reduced the overall take from income tax by almost £200 million in 1994 and by over £330 million in a full year compared to what it would be otherwise.

The budget increased the personal allowances by £175 for a single person and £350 for a married couple, the largest single increase in personal allowances since 1984. The standard rate band was extended substantially with the result that the thresholds for the higher tax rate in the case of most employees, before any allowance is included for discretionary reliefs, have increased to around £22,200 if married and to over £11,600 if single.

These measures reduce considerably the burden of taxation on low and middle income earners. Moreover, they result, notwithholding other changes, in over 40,000 fewer taxpayers being on the top rate of tax.

Finally, to help maintain and create employment, especially in labour intensive sectors, a differential employers PRSI contribution rate structure was introduced. A reduced rate of 9 per cent is now levied on incomes up to £173 per week. The obligation for employers to pay the cost of the health and employment and training levies on behalf of employees with medical cards has also been removed.

The phasing in of standard rating of mortgage interest reliefs over a four year period demonstrates the Government's commitment to a well thought out and consistent programme. Our commitment to redirecting the proceeds of standard rating towards broadening the standard rate band is clear evidence of our belief in long term and lasting solutions rather than quick fixes. It would be easy to muddle on from year to year tinkering with the system and conceding relief after relief to the various interest groups. It would, of course, do nothing to remove the disproportionate tax burden on employment. It would do nothing for the silent majority who earn average incomes and find themselves paying the higher rate of tax on every extra pound they earn. This Government is not going to let the ordinary taxpayer down. We have grasped nettles in their interest and we will continue to do so.

What these reforms are about is the construction of a tax system that seeks to reward work, by easing the burden on the lower paid and taking as many people as possible out of the higher rate. I am sure the House will agree with me when I say that a transparent, equitable and work-centred tax system is worth fighting for.

In the case of mortgage interest relief, the new provisions will ensure that the relief is of equal value to those on average and higher incomes and particular assistance is given to those who are getting into the housing market for the first time. If looked at objectively this system is far more sensible than a regime which is of greater benefit to those on the highest incomes.

It is important for taxpayers with mortgages to appreciate that the reduction in their allowances this year came about mainly because their mortgage outlay has fallen substantially compared with early last year. This fall in interest rates is, of course, a reflection of general investor confidence in this Government's management of the economy. Taxpayers should look not just at their allowance for interest but also and more importantly at the important reduction in their mortgage payments over the past year and a half. Overall, they will see that they are significantly better-off, because the net cost of their mortgages has declined, while their other tax allowances have risen significantly and the 1 per cent levy is no longer in the picture.

While first-time buyers' allowances are affected by the adjustment for lower interest rates, they now enjoy for the first time 100 per cent relief for the first five years of their mortgage and, from 1994-95, will no longer have the de minimis of £100/£200 deducted from their allowable interest. Even taxpayers who first claimed mortgage interest relief as far back as 1990/1991 benefit this year. This approach is a good example of this Government's attitude towards tax reliefs. Such reliefs should be carefully targeted so as to achieve clearly defined social objectives; in this particular case, assisting young couples and others who are into mortgages for the first time.

I want to emphasise that this Government is fully committed to the principle of owner occupation and to giving reasonable assistance to families to acquire their own housing. The increase of the new house grant to £3,000 and the new mortgage interest relief concessions to first time buyers are tangible evidence of this commitment.

It should be remembered that the tax reliefs on house purchase and mortgages are the equivalent of a major programme of Government expenditure. Mortgage interest relief will cost about £140 million in the current 1994-95 year and the stamp duty exemption on new houses costs in the region of £30 million per year. The Department of the Environment in 1994 will pay out new house grants to the tune of about £20 million. This puts the combined annual cost of these pro-home ownership measures at over £190 million in 1994.

Even when standard rating of mortgage interest relief is fully implemented, there will still be very substantial assistance through the tax system, that is from the general body of taxpayers, to those people who borrow to buy a house.

The residential property tax as extended is both a modest measure of equity in the tax system and a contribution towards redirecting the balance in the tax code more in favour of productive investment, which helps in creating and safeguarding employment. The present tax structure has tended to encourage a disproportionate amount of investment in housing. In particular, it has given rise to a tax-driven trading-up, with an undue bias towards the purchase of dearer houses as investments rather than homes. These views have been echoed in all major reports in the last 15 years, including those from the Commission on Taxation, NESC, Culliton, the ESRI and the OECD. The changes to the RPT introduced this year constitute a very modest element in the overall strategy for reducing the levels of income taxation and improving the equity of the tax system and for curtailing the relative tax advantages of investment in dearer residential property as compared with industrial and commercial investments.

The increased RPT charge will in the vast bulk of cases be far outweighed by income tax reliefs introduced. For instance, a married couple with two children earning £30,000 gain £630 from the mainstream income tax and levies reliefs. To put this in context, the RPT charge on an £100,000 house for this family will, following the adjustments introduced, be £90, or less than £2 per week.

The fact that the increases in the residential property tax are modest should not be interpreted as being an indication that further increases are planned. I confirm that there is no intention to reduce the thresholds further. While many economic reports have recommended the introduction of a comprehensive property tax, the changes in the long-standing and limited residential property tax are once-off and should not be interpreted as a first step on that road.

I do not think it makes any sense, at a time when Government is actively seeking to encourage a flow of resources into job-creating investment in business and commercial ventures, to give signals through the tax system — both in interest relief and in exempting from the RPT very many valuable residences — that the best repository for savings or borrowing is to acquire a dearer type of house. This year's budget moved to redress the imbalance in tax treatment between investment in house property and areas which contribute directly to supporting employment, but in such a way as to maintain reasonable and equitable assistance towards owner-occupation and not imposing any property tax charge on people with average income or with houses not valued over £75,000.

The Government is responsive to concerns over anomalies within the RPT scheme as it had existed. We have adjusted the tax to deal with those anomalies. These adjustments preserve the essential features of the budget proposal, particularly in terms of promoting employment; at the same time they cater for the more deserving cases which have been highlighted.

The adjustments are intended to eliminate hardship for elderly or incapacitated owner-occupiers of houses coming with the scope of the RPT. They cater for the situation where a houseowner needs to bring in a carer on account of his or her incapacity or, if widowed, on account of having dependent children. They also ensure that no household will be brought into charge to the RPT simply on account of caring for an elderly or incapacitated person. They further provide that no RPT charge will arise from alterations made to a property because one of the people living in the house is permanently incapacitated. A provision was also introduced to give the Revenue Commissioners discretion to deal with possible hardship cases which are not covered by the various specific reliefs.

A very important point, often overlooked, is that the child relief substantially reduces the actual charge for all families with dependent children. All residential property tax bills are reduced by 10 per cent for each eligible child in a household. Thus, where there are four children, the charge will be only three-fifths, or 60 per cent, of the full figure.

Moreover, the income-related marginal relief serves to greatly reduce the actual residential property tax charge for people whose income is relatively close to the new income threshold of £25,000. Under the revised scheme marginal relief has been extended to £35,000 income. There is a one-tenth reduction of the RPT charge for every £1,000 below £35,000. For example, where the household earnings are £30,000 the RPT charge is reduced by 50 per cent. This means that all households with an income between £25,000 and £35,000, including those who benefited from marginal relief in 1993, will get income-related relief in 1994.

The Government looked at the argument that taxpayers should be allowed to set off an outstanding mortgage against the value of residential property. However, the existence of a mortgage is adequately recognised by the fact that RPT does not apply to the first £75,000 of value and interest on mortgages qualifies for income tax relief itself. At the same time, we were conscious that the residential property tax charge in respect of the larger family home increased quite sharply due to the combined effect of the reduction in the value threshold and the increase in the rate to 2 per cent. Accordingly, the rate applying on the value between £100,000 and £150,000 was reduced to 1.5 per cent, with the 2 per cent rate applying on the value in excess of £150,000. This moderated by up to £250 the increase in the residential property tax charge on all properties valued in excess of £100,000.

Finally, a phased payment system was introduced as an option for those who would prefer not to pay in a single lump sum. The Government remains satisfied that the residential property tax as extended is a justifiable measure in redirecting the balance in the tax code more in favour of productive investment, which helps in creating and safeguarding employment, and also produces a greater measure of equity in the tax system. From the employment viewpoint, the relative tax advantages of investment in more expensive housing can only be to the disadvantage of industrial and commercial investment which is essential for employment creation. I make no bones about this: taxes have to be raised and if we can raise them in a way that does not hinder employment, so much the better. Senators will agree with this. The forms were due in two weeks ago. There was a great national debate about my budget figures and instead of the changes bringing in £9 million they would be an extra £3 million to £4 million. The so-called experts made much play of this and stated that the Government's figures were only one third of what would come in and that in money values it was only a small percentage. I am sure that you, Sir, will be glad to hear as will many Members of the House, although others will be very upset, to hear that the only mistake I made was that my figures were a bit over-optimistic. All the other so-called experts were, as usual, totally wrong.

When I spoke in the House on 9 February 1994 in support of the motion "That Seanad Éireann calls on the Government to withdraw changes in the residential property tax as proposed in the recent budget by the Minister for Finance", I stated that the residential property tax was unfair, which I still believe. It penalises people who live in one part of the country. It takes no account of the relevant house values in different part of the country and in different cities. It has been labelled an anti-Dublin tax, and rightly so.

Since that debate the Minister has made some changes in the property tax. However, I believe they are minuscule. In the budget, the Minister announced that the income threshold for residential property tax was to be cut from £28,100 to £25,000 and that the house value threshold was to be cut from £91,000 to £75,000. This is the most obnoxious part of the residential property tax. Unfortunately, the income and value limits remain unchanged. There are now many citizens living in urban areas paying income tax, residential property tax and ever increasing service charges.

I was interested to note the comments of the Taoiseach at the Irish Management Institute conference in Killarney in April, as reported in The Sunday Tribune of 24 April. In the course of a long answer to a delegate during a public session the Taoiseach stated “I think that what we need in the future is a combination of both, a merger of the two, so that people see what they are paying for and that they are paying for a service that there is in every part of the country”.

He went on to state that he felt there would be less resistance if the tax went to the local authorities because people would see where it was being spent. He stated:

I think from an equity point view and from a fairness point of view that people would be a bit more transparent about things if they got that kind of a tax based and indeed paid in to the local authorities rather than the central Exchequer because any moneys going into the central Exchequer from a local taxpayer's point of view is money lost...and that sort of approach will certainly be looked at.

I am sorry that the Minister did not make any reference tonight to the enlightening words of the Taoiseach. I support his view. I believe that if people realised that the moneys being raised from the residential property tax were being spent on services in their local area, they would not object so strongly to it. According to an article in Business and Finance on 28 April 1994, it appears that the Minister for the Environment, Deputy Michael Smith, unfortunately has the opposite view. It appears that he is against any measure which would get in the way of his plans for implementing service charges.

Residential property tax penalises people when the value of their houses rises faster than their incomes. This point was well made tonight by a number of Senators. It penalises those who cannot afford the expense of an annual valuation for their property. Is it fair to ask taxpayers to place valuations on their own homes? Surely the value of a house can only be determined when someone states what he or she is prepared to pay for it. The Government ignores this reality and prefers instead to lumber people with a tax based on a notional value of their property.

The new reduced threshold for the payment of tax on houses valued at £75,000 and household incomes of at least £25,000 means that we are on the slippery slope to a wide ranging revenue source. When we look at house values today, especially in urban areas such as Dublin, a two or three bedroom terraced house will now fetch over £75,000. If one or two members of the family are working the income is likely to be over £25,000. A person living in such a house, earning £30,000 a year, with two children at university, paying medical and other expenses — and, of course, we must remember that now there is no VHI relief and the Minister brought in the regulation which reduces the mortgage interest relief — will also be paying income tax, residential property tax and probably service charges. The extra burden of the residential property tax is most unfair and for this reason I believe that it is an anti family tax.

The Government has two options: to abolish the tax or to allow local authorities to benefit from the moneys raised. If the Government is not prepared to take the second measure I will be calling on my party to abolish the tax at the earliest possible opportunity, which may be sooner rather than later.

I wish to give the Minister a word of advice. He said he was going to grasp nettles in the interest of the taxpayer. When he is grasping nettles he should make sure that he is not stung.

No doubt the Minister has got the gist of the debate from this side of the House. It is clear that this is a most inequitable and unjust tax. It is very anti-family, anti-urban and, in particular, anti-Dublin. Senator Calnan, Senator Kelleher and others will find out shortly when they are near the banks of the Lee how unpopular is this tax. I urge the Minister to abolish it in the next budget. If not, as Senator Dardis said and as our party have stated, we will abolish it.

The reality is that in relation to many other taxes, thresholds are raised to take account of rising prices and so on——

Why did the Fine Gael Party bring it in?

We did not tax every three bedroom house and council house as the Senator's party is doing. This is part of the policy of the reintroduction of domestic rates which is being discussed by the Government parties. I wish to quote again the important message from the Tánaiste, Deputy Spring, during the last election campaign towards the end of November. He stated:

These points and many others are clearly set out in Labour's programme including that Labour has no plans to introduce a new property or house tax. You have been misled and betrayed for long enough by Fianna Fáil.

I have no doubt that our party, and I am sure the Progressive Democrats, at the next election will be able to run an extended version of this advertisement: "You have been misled and betrayed for long enough by both Fianna Fáil and the Labour Party, the party which said it was putting trust back into politics".

It is very noticeable what a large turn out we have had tonight from the Fianna Fáil Dublin Senators to support their Minister promoting this tax. I have no doubt that if it is not abolished, the electorate, in Cork in a couple of weeks time and more particularly in the next general election which cannot be too far away, will deliver their verdict. I urge Members to support the motion.

Amendment put.
The Seanad divided: Tá, 22; Níl, 15.

  • Byrne, Seán.
  • Calnan, Michael.
  • Cashin, Bill.
  • Cassidy, Donie.
  • Daly, Brendan.
  • Fahey, Frank.
  • Finneran, Michael.
  • Fitzgerald, Tom.
  • Gallagher, Ann.
  • Henry, Mary.
  • Kelly, Mary.
  • Kiely, Dan.
  • Kiely, Rory.
  • Lydon, Don.
  • Maloney, Sean.
  • Mooney, Paschal.
  • Mullooly, Brian.
  • O'Brien, Francis.
  • O'Kennedy, Michael.
  • O'Sullivan, Jan.
  • Ormonde, Ann.
  • Roche, Dick.


  • Belton, Louis J.
  • Cosgrave, Liam.
  • D'Arcy, Michael.
  • Dardis, John.
  • Doyle, Joe.
  • Enright, Thomas W.
  • Farrelly, John V.
  • Honan, Cathy.
  • McDonagh, Jarlath.
  • Manning, Maurice.
  • Naughten, Liam.
  • Norris, David.
  • Reynolds, Gerry.
  • Ross, Shane P.N.
  • Taylor-Quinn, Madeleine.
Tellers: Tá, Senators Mullooly and Calnan; Níl, Senators Cosgrave and Doyle.
Amendment declared carried.
Question put: "That the motion, as amended, be agreed to."
The Seanad divided: Tá, 21; Níl, 16.

  • Byrne, Seán.
  • Calnan, Michael.
  • Cashin, Bill.
  • Cassidy, Donie.
  • Daly, Brendan.
  • Fahey, Frank.
  • Fitzgerald, Tom.
  • Gallagher, Ann.
  • Henry, Mary.
  • Kelly, Mary.
  • Kiely, Dan.
  • Kiely, Rory.
  • Lydon, Don.
  • Maloney, Sean.
  • Mooney, Paschal.
  • Mullooly, Brian.
  • O'Brien, Francis.
  • O'Kennedy, Michael.
  • O'Sullivan, Jan.
  • Ormonde, Ann.
  • Roche, Dick.


  • Belton, Louis J.
  • Cosgrave, Liam.
  • D'Arcy, Michael.
  • Dardis, John.
  • Doyle, Joe.
  • Enright, Thomas W.
  • Farrelly, John V.
  • Honan, Cathy.
  • McDonagh, Jarlath.
  • Manning, Maurice.
  • Naughten, Liam.
  • Norris, David.
  • O'Toole, Joe.
  • Reynolds, Gerry.
  • Ross, Shane P.N.
  • Taylor-Quinn, Madeleine.
Tellers: Tá, Senators Calnan and Mullooly; Níl, Senators Cosgrave and Doyle.
Question declared carried.

When is it proposed to sit again?

It is proposed to sit again at 10.30 a.m. on Thursday, 20 October 1994.