Recommendations Nos. 1 and 2 are related and may be discussed together.
Finance Bill, 1996 [ Certified Money Bill ]: Committee Stage.
I move recommendation No. 1:
In page 11, paragraph (b) (i), line 24, to delete " `£9,000' and `£10,200"' and substitute " `£11,000' and `£11,000' ".
I will be as expansive as the mover of this recommendation in saying that I reject the recommendations moved in the name of Senator Fahey. I can elaborate if needs be, but they are out of line with the attempts we are making to reform income tax.
Does the Minister accept that the changes he made in the Finance Bill have no real significance as regards the amount of extra income to be gained and that he should consider the increased levels outlined in the recommendation?
I do not accept that. The increased limits will exempt a further 16,000 taxpayers who in turn will have 18,000 children. The overall number of people who will be exempt from tax in 1996/97 because of the exemption limit is 95,000 with 17,000 children. If one looks at any of these components on their own, one can make a case for increasing or reducing that limit. The reality is that one must look at it in its totality. The totality of what we have done across the spectrum of income tax reductions is very substantial. Over 100,000 people, including children, or 95,000 former taxpayers will be out of the tax net.
Does the Minister not accept that people on lower pay are no better off in real terms as a result of the changes? Regardless of what the Minister may say about taking more people out of the tax net, the reality is that when one examines the budget tables people are no better off than they were before. There is no incentive to work unless it is correlated with the social welfare code. Too many people are on unemployment assistance and it is not worth their while to work because of the levels of tax they are forced to pay.
This is a complex area in that a number of different factors must be looked at. Of course, the case can be made for greater tax reductions — we would all like to do that and we are working at it. However, we have to work within the means available to us and on a programme basis over a number of years.
The focus this year, because of the debate which has taken place for the last number of years, has been on trying to ensure the benefits in tax relief are focused on the lower paid. That is what we have done. I can go into the detail if Members wish. It is impossible to construct a tax system where everybody is a winner, and anybody who suggests it is possible is, perhaps inadvertently, misleading the public. We have concentrated tax relief on the lower end of the income spectrum. That, plus the changes we made to PRSI and the fact that people leaving long-term unemployment are entitled to retain their medical card, means there is a considerable improvement in the total picture.
I do not want my comments to be taken as complacency or conveying a sense we have achieved what needs to be achieved and there is nothing else to be done — that would be erroneous. We have a long way to go in terms of changing our tax system but it cannot be done overnight. It has to be done in the context of the wider picture. That is what we propose to do this year and I do not propose to go further in relation to it.
It is difficult to explain this to the public. The Minister says he is endeavouring to help lower paid workers. However, I wish to give as an example a student who works as part of his college course in a co-op and because he earns a few pounds he loses the benefit of his covenant. I know that has been changed because covenants have been abolished——
So have his fees.
They have been abolished for the future but I am talking about a student who last year lost the benefit of his covenant because he earned a small amount of money. Can the Minister explain to these young people what is Government policy in relation to low paid workers and people who find it very difficult to survive at college without incurring enormous expense and who lose the benefit of their tax covenants because they earn a few shillings? In such cases there is not even an incentive to stay in college. It is time to stop bluffing about what is being done for lower paid workers because nothing is being done for them in this budget.
The Minister referred to the number of people who would fall out of the tax net as a result of provisions in the budget and the Finance Bill. Could he explain how, given all the people who have fallen out of the tax net over the last ten years, there are still people paying tax?
We are discussing this particular resolution. I would be happy to engage in a long debate on all this but let us put some facts and figures on the table in respect of the changes which have taken place in the last number of years. In regard to the long-term unemployed and low paid workers in the competitive, exposed sector — in other words, non-public servants — last year the first £50 of income they earned was exempted from PRSI and that has been increased this year to £80. Those are dramatic changes. If one looks at income tax and ignores everything else one is not looking at the full picture. I know the nature of the Bill is such that we have to do it seriatim and look at it item by item.
In relation to the debate we had about how it was not worth someone's while to come off the live register to take up a job, particularly if they were lowly educated and unable to earn much more than £150 or £200, we made significant changes in PRSI for such people coming into the paid labour market.
We have also made very significant changes for sections of the economy which complained to me during the currency crises in 1993 and 1994 they were losing market share and some of them were going out of business. The customers of traditional, labour intensive businesses tend to be large British retailers. Clothing companies across the country were complaining that a rise of two or three points on the Irish pound vis-à-vis sterling was wiping out their bottom line because their profit margins were very low; the labour cost component of their total product output was inordinately high, as much as 40 or 50 per cent, given the nature of what they were doing. What we did for them on both fronts was unprecedented and has taken a great deal of pain out of the system. We reduced employers' PRSI by 3 per cent for anybody earning less than £13,000 per annum and exempted from PRSI the first £80 per week earned by an employee.
In regard to the long-term unemployed sector, I would be the first to admit we have a very badly co-ordinated and non-integrated system of payment of wages and tax and social welfare. We have a great deal of work to do there which will not be easy to implement. However, under this year's budget, someone who has been out of work for a number of years and gets a job can now retain their medical card for three years.
No Government since the foundation of the State has done as much in terms of tax changes and financial measures for the long-term unemployed. I challenge anybody to refute that. Of course, we could always do more and we would all love to pay no tax. However, the reality is the people who do not want to pay any tax are those who also demand all the services delivered on a 24 hour basis, seven days a week. Those two things cannot be done at the same time; it has to be one or the other.
No Minister for Finance deliberately sets out to be unpopular or approaches his or her job with a view to screwing as much tax out of the system as possible. That is not in the nature of anybody seeking re-election. All Ministers for Finance, with one recent exception, knew they were going to have to seek re-election. Therefore, they were influenced to a certain extent by such considerations.
I said clearly that in this year's budget we were focusing on the long-term unemployed. I know the policy measures which were introduced — the PRSI changes and the income tax focus — disappointed a number of people. I said we had a choice to make. Politics is about choices and we will address other issues in next year's budget. However, the measures we introduced for the long-term unemployed, such as the medical card retention and the £80 per week subsidy for people over a certain age, will address the problems of the long-term unemployed, which exist despite all the buoyancy in the economy.
We are the best performing economy not just in the EU but in the OECD group — which includes New Zealand, Australia, Japan, Korea, the United States and Canada — in terms of net job creation. Last year, one in every ten jobs in the European Union was created in this country — by the private sector not by the State — even though we account for only 1 per cent of the EU's population of 373 million. We are trying to reduce the number of jobs the State is creating. Let us have some facts about what is going on.
I can give Members the schedule of what the improvements would be, but to have an amendment that says "increase this limit to a certain amount" would add extra costs which I cannot accept because the budget is framed. In so far as we had the resources to do so, we focused our attention on income tax this year on the interface between the long-term unemployed and low paid.
I do not wish to labour the point.
This is the third time we have discussed this.
The Minister makes a plausible case but it does not stand up in reality. This week a man in my clinic had been offered a low paid job, yet a fairly significant contribution would be taken out for tax and PRSI. The man explained that he could not go to work because he would lose his rental subsidy worth £90 per week. At least the Minister's statement acknowledges that there is bad co-ordination between the social welfare and tax codes. Until the Minister tackles the problem, the £100 million being spent this year on initiatives for the long-term unemployed will go up in smoke. I accept that the Minister has made progress but he must tackle the lack of co-ordination between the Department of Social Welfare and the Department of Finance. We will not find any solution to this problem until it becomes worth an employer's while to take a person on and worth that person's time to get off the dole and onto a weekly wage. What impact does the £140 PRSI relief's removal have on the lower paid?
I will get those figures for the Senator in a moment. It still leaves them ahead in terms of net gain relative to where they were this time last year. The Senator said that someone who came to his clinic was getting a £90 rental subsidy. Was it £90 per week? I would love to know where that person is because I can tell the Senator that any community welfare officer who authorised a £90 weekly rent subsidy is in serious danger of being called before their supervisor.
It was of the order of £90, although it may not have been exactly that figure.
Has he a rent allowance from the health board through the community welfare officer?
He has a weekly rental amount in Galway of something like £105.
That must be per month; it could not possibly be per week.
It is per week, Minister. Where would you get a house in Galway for £105 per month? Before the day is out I will get the specific details.
If that has happened it is crazy.
That is happening.
The maximum amount authorised by the health board in Dublin is £23 or £24 per week for somebody who is on long-term unemployment assistance. There are guidelines.
I have several cases in Galway of people with a couple of kids who have no option but to rent private accommodation at £100 per week or more.
We are dealing with an individual case.
They have to be given that level of rental subsidy, otherwise they would not have a roof over their heads. I will get the facts of that case for the Minister.
We have discussed this recommendation at length.
Please do. The Senator has given another good reason for endorsing the Government's decision to transfer community welfare officer rent allowance payments from health boards — and, consequently, that account — to the local authorities. In future the housing authority will administer that kind of rent allowance.
It does not matter who administers it because it has to be paid, or else the man will have nowhere to live.
Having raised the matter many times in the House, I welcome the decision to extend the medical card to those in employment for three years. The impact is more important psychologically than financially. The knowledge that the medical card will be made available for three years should be promoted because many patients do not know about it.
I agree with what Senator Henry has said. Part of the difficulty is that much of the employment that becomes available for long-term unemployed people, or for those with a low skills base, is of short duration. Because of the nature of the modern market economy, the employer cannot give commitments beyond a number of months or a year. Consequently, the job's time duration guarantee can be very short.
People act rationally when it comes to their own self interest. They do a calculation on the short term benefits, what they would lose and the time they would have to spend getting back to where they currently are. That is a function of the failure of our social welfare administrative system, which, notwithstanding what I have just said, has improved in leaps and bounds. The integration of the two leaves a lot to be desired.
The tax and social welfare group, which has been sitting for over three years, has completed its work but its report has not been finalised. Senators, however, should not hold their breaths for any dramatic revelations because it is quite disappointing and poses problems for all of us. I would refer the House to the ongoing controversy about taxation of short term benefits. Senator Daly is aware of it, given the area he represents. People want it both ways, which, I suppose, is the norm in politics.
Is recommendation No. 1 being pressed?
I raised with the Minister the question of students who are in co-operatives as part of their training for university degrees. This applies especially to the computer area where most students will enter long-term jobs. I appreciate the difficulty this Minister and his predecessors have had with the long-term unemployed. The way to tackle that, however, is to make sure the young unemployed are dealt with quickly so they do not get into the chronic situation affecting many of the long-term unemployed.
It is frustrating for students who find it difficult to get through long courses such as the University of Limerick's degree course for computer scientists. All such students are being employed as soon as they qualify, but they find it difficult to get into the colleges. Can income earned by students in co-operatives be exempted in some way that would not interfere with benefits from covenants, for example?
I will come back to the Senator on that. Much depends on the individual's circumstances, including income coming to the parents which is obviously being transferred. We got rid of covenants because they were being abused in a manner which was growing exponentially.
Some of them may have been, but I can assure the Minister that 90 per cent of them were not.
The covenants are gone and so are university fees. Anybody who works part-time is entitled to an income threshold limit of about £3,500. Presumably, if it is part-time or seasonal work that limit would address the bulk of their earnings in that period. If the Senator has specific details relating to particular categories I will look at them.
In the main, university students completing degree courses are taxed because they are in co-operatives as part of their training. It is difficult to explain to such students why they are being taxed before they are even out of college.
The Senator can take that up directly with the Minister.
They get the rebate back if they do not go to the limit. Of course, they are taxed on a weekly basis because that is the way the system works. The system is different now in that every employer is obliged to take tax and PRSI where it is appropriate on a weekly basis because it is calculated on a weekly basis. If they do not work the full 12 months they would be entitled to a rebate in the normal course of events.
I appreciate that.
We have discussed this recommendation at length. Is it being pressed?
It is if we cannot get some indication from the Minister.
The Minister has responded many times to the questions raised.
Will he give us an under-taking to look at the students' position to see whether some concession might be made?
I will gladly do so.
Recommendation No. 3 is out of order as it involves a potential charge on the Revenue.
Recommendation No. 4 is out of order as it involves a potential charge on the Revenue.
As I said on Second Stage, whoever came up with the proposal to give a tax break to old age pensioners living alone is not dealing with the reality in the west. I went to an active age group in Letterfrack, at which 27 people were present, only two of whom could qualify for the rebate. If the Minister cannot accept this amendment today I ask him, in the name of common sense, at least to examine it seriously. It provides that anyone in receipt of an old age pension who lives alone and thereby qualifies for a living alone allowance, who therefore would be a member of a contained group, would be entitled to a payment of £100 towards a security alarm. That is approximately 30 per cent of the cost. I press this recommendation strongly——
I have already stated that recommendation No. 4 is out of order. Are you pressing the section to a vote, Senator?
Yes. In view of the crime and vandalism inflicted on old people throughout the country but particularly in the west over the past few months, there is a need to give support to old age pensioners claiming a living alone allowance. In the group I met, only two out of 27 qualified. At a subsequent meeting of the same group, one of the companies displayed a security system which is widely available — it has been developed by former members of the Garda Síochána and costs £250, with an annual monitoring fee of £40 — and it emerged that only two or three of the group were able to afford this system. It is not that everyone will apply for a rebate but many need the security of knowing they can get an alarm if they so wish. I urge the Minister to consider this proposal instead of the tax allowance being enacted. We were told yesterday it would cost £10 million if the 100,000 people in this category applied for the measure in my recommendation. What would it cost if that number of people were given the Minister's tax free allowance, which most of them cannot claim?
I am seeking clarification. The Minister will recall that when this measure was announced in the budget there had been a spate of activities in rural Ireland which were a cause of concern to all. Thankfully these have abated, but as we approach winter people will be intensely interested in availing of this provision. I received inquiries after the tragic events of the last few days and many people are uncertain about the proposal. Section 5 (1) states that:
"qualifying individual", in relation to qualifying expenditure, means an individual who, at the time the expenditure is incurred, has attained the age of 65 years and who, for the greater part of the year of assessment in which the expenditure is incurred, lives alone [.]
The people at risk can often include an elderly couple, but this appears to apply only to a single person. There is no greater safety having two persons aged 70 or over rather than one in a house. We will receive an avalanche of inquiries from people in that category over the next few months and we should be clear whether we are bringing in a set of regulations which will reduce the number who qualify.
I also ask for clarification of section 5 (4), which reads:
Any deduction made under this section shall be in substitution for, and not in addition to, any deduction to which the individual might be entitled in respect of the same payment under any other provision of the Income Tax Acts.
That appears to mean that if people are already availing of certain deductions what they receive under this section will not be in addition to what they currently receive but in substitution for it. Is any financial assistance available to those who fall within that category?
Contrary to Senator Fahey's experiences in Galway, those in Mayo who have availed of the concessions made by the Minister for Finance are happy and the appliances have been installed in a number of houses. I agree with Senator Howard that this should not only apply to a person living alone, it should be extended to two people living together who are both over 65.
Has my recommendation No. 5 been ruled out of order?
No, you may move it now. Recommendations Nos. 5 and 6 may be taken together. Is that agreed? Agreed.
I move recommendation No. 5:
In page 14, line 11, after "alone", to add "or with another person who has attained the age of 65 years".
I thought this had been ruled out of order with recommendation No. 4.
No, they are two separate points.
This recommendation meets the question raised by the Senators on the Government side, that is, whether two elderly people aged 65 years of age upwards would be covered by this scheme. It would not involve an enormous amount of money because the cost of installing an alarm system would be the same whether there were one or two pensioners in the house. The Minister would be doing a lot of elderly couples living in isolated areas a favour if he accepted this recommendation. It would also meet the views of some Senators on the Government side who recognise, as we do in the west, that there is a grave problem, especially in isolated rural areas.
The amount of additional expenditure incurred by the Government in covering elderly couples would be limited. I will not document the cases in which elderly couples were beaten up, robbed and left in a bad way, both physically and financially. This would provide a minimal amount of assistance and the Minister would do well to accept the recommendation to include an elderly couple living together.
Senator Daly's recommendation is very sensible. Even if we look at it from the point of view of the implications to the Revenue Commissioners, it would not matter whether it was a married couple or a single person in terms of the cost to the State. I have reservations as to the merit of the scheme. I accept it would be of some benefit to people living in villages and towns, but putting alarms in houses where only sheep will hear them is questionable. The time it would take gardaí to get to some of these areas would be so long that the robbery would have taken place.
A better way to approach this is through Community Alert and Neighbourhood Watch schemes where people look after their neighbours. That was the approach taken by the farming organisations in response to a problem at a particular time. I note what Senator Howard said about section 5(4) in that it would be only open to people who do not qualify under any other relief. If farmers with taxable incomes installed an alarm systems in their farm houses, tax deductions would be involved and they would qualify in any event.
For double relief.
That brings me back to the value of the system. There is relief for people whose business is in their place of residence and who have a taxable income. This scheme is for people with taxable incomes.
I compliment the Minister on introducing this welcome scheme but we must consider the cost given that people are always talking about paying taxes and if we widen the scheme it will cost more. Many people live alone and some have neighbours and relatives who look after them, while others live in towns with houses close by and they do not need alarms. We must assess the number who need them. Perhaps in the next budget the Minister might see fit to extend the relief to two people, if the demand is not too excessive.
The idea for this proposal came from an elderly constituent of mine, a retired civil servant, who came to my clinic about six months ago. My constituent made the observation long before the tragedies in rural Ireland hit the headlines and made the point that there should be some relief because of decline in the sense of security which we all feel, young or old, urban or rural. The idea was considered and, understandably, the instinctive response from the permanent government in the Department of Finance was not to give anymore concessions, which is its job. Unfortunately, I was not persuaded.
We began with the possible cost and tried to get a handle on the figures. According to the statistics available to us, 400,000 people are over the age of 65, of whom 100,000 receive the living alone allowance. Therefore, to meet the cost of the proposal by Senator Fahey £10 million would be required, assuming that everyone availed of it. The concept behind this idea is to address the problem of the sense of insecurity which people living on their own feel. It is undoubtedly true that a person living alone will visit people from time to time and that is the reason they need not be living alone for 12 months of the year. It is written in that way so that somebody will not legally lose their entitlement if they go to stay with a friend or relative for an extended period, as is frequently the case.
The original proposal was confined to people with taxable income living alone. On consideration, we extended access to the tax relief to their relatives. As regards the situation in County Mayo, Senator Fahey was perhaps not aware of the change which had been made.
That is the case, even taking the change into account.
They must be a very unique statistical example of society that they do not have a niece or nephew or a son or a daughter, either by adoption or guardianship, who would be deemed to be a relative under the terms of this. I assure the Senator that the Revenue Commissioners will be as sympathetic and as understanding as possible. That group of people must be remarkably unique in its——
There is a big difference between the Minister's constituent, the retired civil servant, and this group.
I am talking about them having a relative under the definition I have given who would be in a position to assist them in this regard. If they are in the position which the Senator describes, I can assure him that all is not lost. The Minister for Social Welfare, Deputy De Rossa, as part of the budget package announced a couple of days after it, mentioned additional measures to address the same issue. It may come as a surprise to the Senator that £2 million in grants will be made available by the Department of Social Welfare to voluntary groups to support the installation of security equipment.
FÁS will encourage the development of special schemes aimed at enhancing the security of the elderly. Local voluntary and community groups will be encouraged when planning for this year's student summer job scheme to consider projects which will provide basic security for elderly people living alone. In addition to what we are providing in this legislation, that facility will be available. The £2 million could be used to address the category to which the Senator referred.
To address the point made by Senator Dardis, in rural areas an alarm can be a radio one to alert a neighbour; it does not have to be a box on the gable end of a building. I take the point that it has limited value in rural areas. If somebody is connected to a telephone, they can get an alarm system which is linked through the telephone to a point of contact in the vicinity. We are trying to address the sense of insecurity which people living alone feel. By virtue of their isolation, the problem is compounded in rural areas. The definition of alarm includes a radio alarm or something people can press to alert somebody that they are about to be intruded on. We do not know how well this will work. We have estimated that the cost will be about £5 million over two years, given certain assumptions about the take up.
I partially answered Senator Howard's point by way of intervention during Senator Dardis's contribution. Subsection (4) is exactly as Senator Dardis interpreted it. Under it a person cannot receive a double allowance. If a person buys part of an installation, tax relief cannot be claimed for this, even though it may qualify for such relief, if tax relief has already been sought for an alarm system in that person's family home and business because they are connected. This is a standard provision in all tax systems. This relief is available to a wide definition of relatives, which covers a substantial number of people. If this does not work, particularly in rural areas, there is a provision of £2 million for the Department of Social Welfare to provide this kind of facility. If there are difficulties, I encourage Senators to contact the Department of Social Welfare to find out how that money can be allocated.
What percentage of the 100,000 people who live alone are in the tax net? What would be the cost if they claimed the tax allowance? What would be the benefit to somebody paying £250 for the Telecom Éireann alarm system? How much benefit would a person be able to claim as a result of that tax free allowance?
We estimated that there are about 12,000 to 13,000 people with taxable incomes living alone. The original proposal would only have benefited a small section of the community. This is why we expanded the relief to include relatives. It is impossible to give the Senator a figure on this but we have to assume, given the nature of Irish family life and the sense of support which, happily, still exists, that it is a substantial number. The relief is at the standard rate of 27 per cent. The total cost for 100,000 people living alone at £100 each would be £10 million.
I wish to clarify the point made by Senator Howard. The reason the amendment refers to a person receiving the living alone allowance is simply to clearly define the people most affected. I carried out a survey with the aid of the Garda Síochána on the number of people in Galway who were the subject of attacks over a three month period. In every case the people lived alone. They were clearly staked out. The people who attacked them knew they were attacking people living on their own. In each case, as far as I am aware — there were one or two cases on which I could not obtain details — the people who were attacked were not in the tax net. Some of them did not have relatives who claimed tax relief. In isolated rural communities of small farmers, like Letterfrack, there are few people in the tax net.
Although I appreciate that the scheme works well for those it accommodates, I feel strongly that it does not accommodate the many people in rural Ireland who live alone. The equipment supplied by Telecom Éireann provides old people with security not just against attack but against falling in the bathroom. They can press a pendant and a phone will ring in Enniscorthy where their neighbour, next of kin or the local garda will be informed. This equipment provides significant security for these old people. It can save the Exchequer significant amounts of money by preventing the misuse by these people of services provided by the State because they need security. I am aware of the £2 million provided by the Department of Social Welfare and this is a helpful addition. However, not many of the 100,000 people will necessarily apply for it. A percentage will certainly do so but people want the security of knowing they can obtain this system if they want it. Many people in my area and throughout the country cannot afford an alarm system at present.
We could discuss this issue for the afternoon but would still not advance it too far. How much additional funding would be required to extend the scheme to elderly couples over 65 years of age? I am far more attracted to the proposal of the Minister for Social Welfare, Proinsias De Rossa. People in the tax bracket would be better off than some of the people living alone who need this equipment. It might be more advantageous to people who need this service if the Minister for Social Welfare's scheme was expanded. Under the scheme proposed here, better off people will qualify for the benefits provided for installing alarms whereas people on lower levels of income outside the tax bracket who need this equipment will not obtain any benefit.