I would like to make a procedural point. Do the Minister or the participants in the Select Committee have any objection, having regard to the fairly onerous schedule we have set ourselves, to agreeing to rise for 15 minutes at the time of the Order of Business today and tomorrow?
Finance Bill, 1993: Committee Stage.
Is Deputy Rabbitte suggesting that we rise at 2.30 p.m. and at 10.30 a.m. tomorrow?
At 4.20 p.m. and at 10.45 a.m. tomorrow morning.
Is that agreed?
I agree to that.
Is that agreed? Agreed.
NEW SECTION.
I move amendment No. 1:
In page 10, before section 1, to insert the following new section:
"1.—(1) Notwithstanding anything to the contrary in the Finance Acts, or the Income Tax Acts, the Minister shall provide by regulations, for the indexation of income tax bands, allowances and thresholds as they apply to Income Tax, Income Levies, Corporation Tax and Capital Gains Tax.
(2) If the Consumer Price Index for the month of December preceding a year of assessment is higher than it was the previous December, then unless the Houses of the Oireachtas otherwise determine, subsection (1) shall apply for that year, and the amounts specified by way of bands, allowances and thresholds shall be increased by the same percentage as the increase in the Consumer Price Index and if the result is not a multiple of £100, rounding it up to the nearest amount which is such a multiple.”.
It gives me great pleasure to move the first amendment to the Bill in this context. As we are implementing reform I would make the general point that there seems to be undue delay between the date of the budget and the publication of the Finance Bill. That places too great an onus on Opposition Members to keep up with this very complex legislation. There are over 150 pages to this Bill and more were added over the weekend. It is very difficult to do the job properly under the pressures placed on us. In the UK the timelag between the publication of the Finance Bill and the budget is a good deal shorter and the amount of time available for legislative review is a good deal longer.
I accept that having published the Bill the Minister, on reflection, will want to include new material. I thank the officials of the Department of Finance who over the weekend forwarded to me the amendments which the Minister proposed to make by fax. This information covered an entire fax roll and, on top of 150 pages in the Bill, is supposed to be reasonably dealt with. Clearly the parliamentary draftsman had to work very late over the weekend, and I appreciate his work. I also appreciate the pressures on the Minister, but from the point of view of an Opposition something better will have to be done in the future. We must have an earlier publication and a more reasonable set of deadlines.
The reason I am moving amendment No. 1 is that a strong case can be made in favour of indexing income tax bands, allowances and thresholds as they apply to all taxes in Chapters I and II — income tax, income levies, corporation tax and capital gains tax. Without indexation, inflation acts as a tax gatherer by stealth and the Government is provided with an opportunity, which it avails of every year, to benefit from a windfall in tax terms by not adjusting tax bands, allowances and thresholds in line with inflation.
In our steeply progressive tax system people are catapulted and pushed from one tax bracket to another, which presents problems in terms of equity. For example, it presents particular problems for pensioners on fixed retirement incomes because over time their real income is eroded. If provision was made for indexation we would avoid the illusion each year that the Minister is providing us with extra money when, in many instances, in strict economic terms the value of tax reliefs decline. Tax decisions should be more explicit.
In recommending that provision is made for indexation it would not be tried de nova; such a system has been operating in Canada for many years and in the United Kingdom for well over a decade. Since our two systems are similar the Minister should study section 24 (1) of the United Kingdon Finance Act, 1980, which, it is interesting to note, was introduced following a revolt by Tory back-benchers and the Opposition. For some curious reason the Government did not want to introduce it but the revolt succeeded. We ought to consider introducing a similar provision here.
I am suggesting in this amendment that income tax bands, allowances and thresholds should be indexed automatically unless the Minister provides otherwise in a Finance Bill; it would be open to the Minister, for budgetary or other reasons, to say that he wants to exclude items for certain reasons. However, the Government's intentions in regard to taxation would be transparent and explicit and would have to argue the case against indexation. Under the current system provision is not made for indexation and it appears that the Minister is giving us gifts when, as I said, in many instances, he is not.
I propose that the consumer price index for the December preceding a year of assessment should be used, we should compare this with the index for the previous year, measure the rate of inflation and apply the index to all the various income tax bands, allowances and thresholds. In the United Kingdom the figure is rounded up to the nearest £100. I am sure, as taxpayers, we would prefer if the figure was rounded up.
While the amendment would oblige the Government to index all such allowances it would have some discretion but only where the Minister wishes to make provision for an explicit relief in a Finance Bill. The hidden aspects in regard to taxation would be more transparent and the Government would have room for manoeuvre, where required. Will the Minister state the cost involved? If we knew that we would know exactly how much is taken from us in tax by stealth in any one year because of the failure to index. I recommend that this amendment be considered.
I agree with Deputy Cox in relation to the circulation of amendments by the Minister. As we discovered last week, the advice available to him is better than that available to the Opposition. As a consequence, life is made exceedingly difficult if a new Finance Bill is produced the day before Committee Stage is due to be taken. Some reasonable deadline should be set.
The list of amendments which are to be grouped together should be circulated as early as possible. I note that a number of the amendments which have been tabled by Deputies Cox and Rabbitte and in my own name are similar. I also assume that other amendments will be grouped together. Will amendment No. 1 be taken with any other amendment?
Amendment No. 1 is being taken on its own. Amendments Nos, 3, 4, 12 and 13 are related and by agreement amendments Nos. 2, 3, 4, 12 and 13 may be taken together.
It was customary practice at the special committee which dealt with the Child Care Act to circulate such a list.
We will endeavour to have such a list circulated at the earliest possible time.
The present allowances and exemption limits are appallingly low. Low paid workers are treated more penally here than in any other country in Europe. For example, if one earns more than £25 per week one will pay PRSI at the rate of 19.95 per cent. It is proposed that the allowances be indexed. As a general point this would not be unreasonable but it would depend on from where one would start. We would be starting from a base which is too low.
The basic income tax allowance has been increased by £75 from a figure of £2,100, representing an increase of 3.5 per cent which is broadly in line with inflation. While I hope we are in an era of low inflation this step will not lead to the elimination of poverty traps. For example, it would not pay a married man with three children to go to work unless he had a job for which he would be paid in excess of £173 per week. This is clearly wrong.
I do not believe that we should focus exclusively on high-tech, high-skilled jobs; there are tens of thousands of low paid jobs available which offer young people an opoprtunity to take up their first job. However, because of the way low paid work is treated in tax terms these people have been forced into the black economy and jobs have been displaced by technology.
What is required — and I would argue in favour of this on sections 1 to 6 — is a radical new departure. All the reports, including the Culliton and NESC reports, state that radical action is necessary, not marginal adjustments.
The previous Government focused exclusively on rates of tax with the result that they were reduced but people found that the amount they paid in income tax receipts will rise by about 6.5 per cent.
While Deputy Cox is to be commended for trying to introduce some order on a semi-permanent basis the base from which we would start is far too low and would not be appropriate when one considers what is now required to eliminate poverty traps, restore the incentive to work and reduce high tax levels. Single people earning around £200 per week will pay tax at 57p in the pound. Is it any wonder, therefore, that our brightest and best feel that they are being penalised when they come out of university? They move to the United Kingdom or other countries where their talents will be rewarded. The approach recovered by Deputy Cox could only be adopted after there has been radical change with regard to income tax allowances and exemption limits.
This is the second year in succession that this procedure has been adopted in dealing with the Finance Bill. Last year the Labour Party, which was then in Opposition, found this useful in coming to grips with the complexity of the Finance Bill which follows a certain pattern every year. Indeed all Members know there is a deadline in regard to the implementation of the provisions of the Finance Bill, giving legislative effect to the budgetary provisions. In fact there was an intervening period between the passage of Second Stage and our commencement of Committee Stage, affording all Members — Opposition spokespersons and Government back-benchers — an opportunity to examine all the ideas of the Minister and his advisers.
Deputy Cox's amendment No. 1 might appear to be a panacea to most people in that their tax bands, allowances and thresholds would be index-linked, which would mean that, whenever they received an increase in salary linked to the cost of living index, they would be given an automatic increase in their tax-free allowances which would also be index-linked. However — and I should like to hear the Minister's view on this — implementation of this amendment would remove responsibility on the part of any Government to continue the wide-spread, nationwide demand to examine tax reform. Of course, the concept of tax reform in everybody's minds is that people will pay less tax. If we do not spread the taxation load equitably across the community, the private sector, the self-employed and the industrial sector — indeed to those about whom there is much talk at present, of having considerable investments outside the country, illegally and otherwise — more particularly, to the PAYE sector, index-linking, a system we all agree is inequitable, and in need of overhaul at present, would be a dangerous step to take. It might be all right if we were satisfied with the present system but to index-link an existing inequitable system — which is demonstrated effectively when parliamentary questions are tabled to the Minister and when one discovers the tax take from the PAYE sector is so great in comparison with all other sectors — certainly would not meet the demands of those who represent the PAYE sector within various sections of the trade union movement who have been lobbying for the introduction of equity to our taxation system. Therefore, indexation of an already inequitable system would not meet the criteria of what should be done in the area of tax reform.
I am always very glad to have an opportunity to speak in this beautiful Chamber as long as I am a Member of the lower House. The Minister has not been as prone as his predecessor to using the budget as a bargaining counter for lobbyists between the emergence of the budget and the Finance Bill. However, the publication of so many complex amendments on the evening before the debate began, as other spokespersons said, has made life very difficult for us.
Deputy Ferris said that last year the Labour Party used this debate to get to grips with the complexity of the Finance Bill. My memory of it, and from reading the minutes last evening I was confirmed in this view, is that last year the Labour Party used it to get to grips with Fianna Fáil, not with the Finance Bill. Going back over some of the amendments I recall vividly the then Labour Party spokesperson, Deputy Quinn, constantly making eyes across the Chamber at the Minister for Finance and we know that that marriage has been consummated since.
I am amazed at Deputy Ferris's argument that, because the existing tax system is inequitable, one could not possibly graft on to it the indexation that Deputy Cox's amendment seeks. I cannot possibly see the connection. What harm would indexation do to the fact that the system is inequitable in certain respects at present? All it seeks to do, by using the consumer price index, is to have the tax bands and/or personal allowances increased by that amount. The fact that the system is still inequitable means that people generally remain apace of inflation; that is all it means. I do not suppose it is intended as a major reform or anything of that nature; if is purely an administrative mechanism to keep people abreast of the rise in consumer prices.
It is something we debated at some length on an amendment, if my memory serves me correctly, tabled by Deputy Noonan of Limerick East in 1991. At that time the Minister did not seem to be averse to the concept. For example, one amendment in my name refers to the PRSI allowance introduced in 1982 as a sop to the street protests of the time by PAYE workers about the inequity of the tax code. A special allowance of approximately £312 was introduced in 1982. For some reason it went down to £286 the following year and remained there for the intervening ten years. It is a particularly glaring example of something that has greatly eroded in value in the intervening decade. Similarly, people who qualify for the particular phase under the Programme for Economic and Social Progressalso had their position eroded as a result of not getting the benefit that would be provided by taxation.
I consider the amendment worthy of support by the committee.
I thank the Members of the Seanad for allowing us to use this Chamber and our Chairman, Deputy Ellis, for having organised the briefing session last week which was useful to my officials.
I have been involved in the House for 16 years, having had an opportunity of contributing to the debate on most Finance Bills when I was not a Minister, approximately ten Finance Bills. I know Deputy Michael Ahern is one of the few Members who has also been a Member of the House throughout that period.
Of course, the timescale and intervening period create difficulties. Therefore, I have a certain sympathy with Deputies Cox, Yates and Rabbitte in this respect. In return, I hope they will have some sympathy for me because, while I was issuing amendments to Deputy Cox on the FAX machine, he was sending 200 or so amendments to me tabled by the Opposition although I thought the deadline for their receipt was last Wednesday. Having spent most of the weekend travelling between here and Denmark, and going through the amendments, I arrived back to discover another 198 on my desk yesterday morning. Then I was informed that the deadline had been one in theory rather than in practice. As if that was not bad enough, another 40 were tabled on the appendix I received last evening. Clearly, Members will appreciate that it is very difficult. However, many of those emanating from the Department of Finance are technical, necessitated by rechecking, cross-references and so on but I accept there are others. I am not averse to trying to improve the Bill, as drafted.
For the benefit of new Members what happens each year, after the introduction of the budget is that all the legal, accountancy and tax groups, apart from all the other interest groups, examine not only the budgetary provisions but those of the Finance Bills of former years. This leads to examination of a phenomenal amount of documentation, presentation and cases on all kinds is issues, ranging from taxation, corporate taxes and levies to property taxes; almost everything contained in any previous Bill is brought forward, some repeatedly, while others may have arisen in cases heard or brought by tax groups in the course of the year. It is only when on the other side that one sees what surfaces. Even though I had to disappoint some groups by not meeting them this year, altogether I have met over 100 groups to discuss various points, some of which were meant to have arisen from the budget but were not actual budgetary issues. As the budget covers everything, the groups feel entitled to put forward cases on everything. If the Minister for Finance does not meet with the various groups, he is criticised and we meet them to try to reach an understanding of their viewpoints. That puts tremendous pressure on both the Department of Finance and the Revenue Commissioners. These issues then have to be discussed at Government. The governmental procedure on amendments to the Finance Bill is slightly different from the procedure on other legislation, where the Minister has a great deal more discretion. In the case of the Finance Bill, all the amendments go back to Government and when the Bill is approved we still go back with the amendments the various groups have put forward. This year we tried to get many of the major sections into the Bill. I know that Deputy Rabbitte will certainly remember that the provisions for the vehicle registration tax were put forward in an amendment. This year's Finance Bill is only a quarter of the size of last year's Bill. Quite honestly, I felt guilty about tabling an amendment with 70 or 80 sections in it. We will continue to try to improve on that position.
The purpose of Deputy Cox's amendment No. 1 is to provide for statutory increases in income tax bands, allowances and exemption limits by reference to the annual increases in the consumer price index, unless the Houses of the Oireachtas otherwise determine. The recommendation would, therefore, establish the principle of automatic entitlement to indexed increases unless the Dáil made other arrangements. Amendments on these lines was also moved last year and the argument was that this would be a means of being honest with the taxpayers. The line Deputy Cox is pursuing is that because the value of the allowances is being maintained from year to year, any additional relief would be transparent in any given year.
I indicated last year that I was not convinced by the arguments put forward in favour of indexation. I wonder if it is such a good thing. There was certainly a far greater argument for it when the rate of inflation was in double figures. I am sure the case was debated in those years but it was not implemented. Notwithstanding the fact that the provision for indexation could be overruled by the Oireachtas in any given year, it would greatly reduce budgetary flexibility and would deprive the Minister for Finance of an important discretion in budget decisions in any particular year and possibly conflict with the Government's intended future measures on other fronts. The annual indexation of allowances and exemption limits in general implies that they are all at the correct level and have equal claim to the resources that may become available for income tax relief in the future. However, in recent years increases in the exemption limits have been far higher than the level of inflation. That is the key point. Four years ago a child addition was introduced and this has been substantially increased. These measures were specifically designed to help the low paid. Indeed, it may not have been feasible to do this if all the reliefs were indexed.
I agree totally with the arguments that we should turn our focus from the higher band of 48 per cent, which is relatively high but not excessively so. Certainly the standard rate of 27 per cent is not high. In 1984 the highest rate of income tax was at 65 per cent; it was then brought down to 58 per cent. The Government has put a great deal of resources into bringing that band down to 48 per cent and bringing the bands into a much improved, though not ideal, position over recent times. The policy outlined in the Programme for Government is to focus on improving exemption limits and improving the lot of the low paid as resources permit. That is what we started to do this year and we can debate it if Deputies wish.
The committee will also be aware that the Government has made a firm commitment to reduce the standard rate of tax and to widen the standard tax band. Deputy Yates has amendments down to that effect, and this is our intention as budgetary circumstances permit.
Indexation might give rise also to unrealistic expectations of taxpayers in times of difficult budgetary circumstances and this could of itself be inflationary. The level of income tax that is required to fund the annual budget is of necessity determined each year by reference to the budgetary position. That will always be the position, no matter what we say. In this context there would be inherent problems in making decisions on the level of allowances for a particular year in advance of the annual budget.
Deputy Cox asked me to comment on the cost of the changes made in recent years. It is worth stressing for the benefit of the House that this year's performance was not just a flash in the pan as over the past number of years a similar picture emerges. The cost of the budgetary concessions on tax rate exemption limits and general personal allowances over the past five budgets is in the region of £685 million and this is greater than the relief that would have been given in the budgets if we had been confined to indexation of the tax rates, exemption limits, personal PAYE and PRSI allowances on the lines suggested in the amendment. We could have a situation where Governments stick to indexation and use the resources somewhere else, but in not using that system the taxpayers have benefited greatly over the period. The implication of the amendment is that this system would leave taxpayers better off as they would fare better than at present. That is not the case and I can illustrate it by giving some examples. If the basic income tax structure consisting of the main personal allowance, the exemption limit and the rate band was indexed for the year 1993-94 in line with increases in the consumer price index, the cost to the Exchequer would have been £36 million in 1993 and £61 million in a full year. This is lower by £1.6 million in 1993 and £3.5 million in a full year than the cost of the concessions in this budget of £37.6 million in 1993 and £64.5 million in a full year. That answers Deputy Cox's question.
In preparation for this debate I have prepared examples to illustrate further what has happened to the tax and PRSI burden since 1987-88. Let us take the case of a single person in 1987 taxed under PAYE and paying the higher rated of PRSI on an income of £7,000 per annum. As a percentage of constant real income the tax plus PRSI take amounted to 27.8 per cent of income in 1987-88. This has now been reduced to 24.3 per cent of income. A single person earning £16,000 paid 46.2 per cent of income in tax and PRSI and this has now been reduced to 40.3 per cent of income. A married person with two children earning £7,000 in 1987-88 would have had to pay 17.8 per cent of income in tax and the higher rate of PRSI in 1987-88 and this has been reduced now to 10.7 per cent. Finally, for a married person earning £16,000 in 1987 the burden of tax under PAYE and the higher rate of PRSI would have been 32.9 per cent as a percentage of the constant real income and this is now 28.1 per cent. That proves the point that we are reducing the burden on taxpayers, perhaps at a slower rate in some areas than we would wish but it is being reduced.
I will comment briefly on the Minister's reply. I! had chosen — I hope I can continue on this line over the next few days — to focus on the amendments as they arise. I am quite happy to go around like a free range chicken and make a speech about the need for tax reform but I am not saying this amendment is tax reform in terms of the totality of what one is looking for. I will have many suggestions to make as we discuss the different amendments.
I was interested to hear the Minister say we have done better in recent years than indexation and argue at the same time that we ought not to have indexation on the grounds that it is a type of discretion. All I am saying is that it is the bottom line, the de minimis rule, below which rates should not fall. There is a compelling argument for bringing the bands well above this rate. There is a strong case for a de minimis rule and it is not, as Deputy Ferris said, cast in bronze for the future, with no possibility to change a system which is inequitable. It is not designed to be a substitute for tax reform; it is simply a complement to back it up.
The Minister said that when we had double digit inflation figures the argument for this would have been very strong. Indeed, from the taxpayer's point of view, and the confiscation of income, it would have been very strong. At a time of double digit inflation Governments argue this was implicit in one of the Minister's remarks — that because it may well be inflationary not to grab that money off the public in terms of the overall demands on the economy policy makers in macro economic terms are less likely to give that advise. Now that we have entered a period of low inflation it is much easier to contemplate in budgetary terms. The Minister said he is doing that and better but to put it in as a de minimis bottom line below which rates cannot fall, to top up over time, seems realistic. In the context of what we are discussing here it makes sense. I do not believe that the arguments, particularly by Deputy Ferris, that this is some kind of a substitute for tax reform hold any water.
Amendment put and declared lost.