Senators will be aware that over the past numbers of years, Governments have been undertaking a programme of tax reform with a view to increasing competitiveness and growth, and thereby contributing to the maintenance and creation of sustainable employment. The main concern has been to redistribute the burden of taxation between the different factors of production more in favour of labour. The primary focus has been on reducing the level of income tax while implementing base-broadening measures, especially in the areas of corporation, capital and indirect taxation, and also through restricting or limiting the availability of allowances and reliefs in the income tax area.
Through this policy considerable progress has been made in improving the income tax system. The top rate of income tax has been reduced from 58 per cent to 48 per cent, and the standard rate from 35 per cent to 27 per cent, thus reducing significantly the marginal tax rates for the majority of taxpayers. There has also been significant improvements in personal allowances and exemption limits, and in widening the standard band. This policy, which has involved the restriction of discretionary allowances and reliefs, has been of benefit to all taxpayers, including trade union members. A continuation of this approach is the appropriate method for achieving further improvements in income tax, rather than by introducing new allowances of reliefs for expenditures specific to individual groups.
The Senator's suggestion relates primarily to the different rules applying to allowable expenses for tax purposes as between PAYE and self-employed or firms. In summary, under the existing tax code in the case of schedule E taxpayers, mainly PAYE workers, expenses are deductible for tax purposes where the expense is "wholly, exclusively and necessarily" incurred "in the performance of the duties of his/her office or employment". In the case of schedule D taxpayers, that is the self-employed, and for corporation tax, expenses are usually deductible for tax purposes where the expenditure is "laid out wholly and exclusively for the purposes of the trade or profession".
Consequently, in the case of schedule E taxpayers, normal trade union dues are not tax deductible. However, membership fees to certain professional associations could be tax deductible, but only where membership or affiliation is a requirement to practice in the profession or where it can be shown that the services provided by the association, extending beyond representation, are necessary for the person to perform the duties of their office or employment. Fees to such associations do not, in general, qualify for tax relief. Making trade union dues tax deductible would, therefore, require a new provision in the income tax code.
In the case of traders, both corporate and unincorporated, a subscription or levy paid to a trade protection or other trade association is, under case law, only a deductible expense to the payer if, and to the extent that, the trade association applies the contributions for the purpose which would permit the deduction if incurred by the contributing trader. In practice, however, a trade association may sign an agreement with the Revenue Commissioners to pay tax on the excess of its receipts over allowable expenses. Where an association signs such an agreement the whole of the subscriptions or levies paid by its members are treated as deductible expenses in the members' accounts.
There are reckoned to be around 0.5 million trade union members in the country. The processing of a relief for this number of taxpayers would add to the administrative workload in the tax system. Furthermore, while the value of tax relief per individual would be small, as trade union dues are relatively low, the overall cost to the Exchequer would be substantial. It should be borne in mind that the PAYE allowance, currently £800, was introduced in 1980 to compensate PAYE taxpayers from among other things, the more rigorous expenses rule applied to them as compared to the self-employed and employers.
It would also be difficult to introduce a tax relief restricted to trade unions as commonly understood. Such a measure would undoubtedly give rise to demands from other taxpayers for similar type treatment, especially membership fees to other interest groups, which in equity would be hard to resist and which would further increase the cost to the Exchequer. This loss of revenue would have to be found elsewhere if existing services are to be maintained.
The extension of tax relief to individual items, such as trade union dues, introduces additional expenditure specific tax reliefs which is undesirable from a tax reform perspective. For tax reform to be pursued on a consistent basis, it is necessary to maintain and extend the tax base and to focus resources on measures of general relief to taxpayers.
This is what the Government is doing. It is the Government's policy to continue, within responsible budgetary parameters, the process of tax reform as an important element in overall strategy. The policy agreement for renewal sets out the Government's commitment to tax reform. This policy is on the lines of the tax policy contained in the Programme for Competitiveness and Work. The programme of renewal states that the Government will accelerate the reform of the tax system, in particular to relieve the tax and PRSI burden on those with low incomes and especially those with families. Tax reform will favour the incentive to work, tackle the poverty trap, aim to reduce the tax wedge and encourage enterprise development and growth. In the 1995 budget significant progress was made towards this goal, especially through increases in the personal allowances and exemption limits, widening the standard band and in introducing the new £50 per week PRSI-free allowance. The Government hopes to consolidate and build on the 1995 budget in the next two.
The Seanad adjourned at 9.35 p.m. until 2.30 p.m on Tuesday, 19 December 1995.
