Amendments Nos. 2,3 and 4 are related to amendment No. 1 and may be taken together.
SECTION 1.
I move amendment No. 1:
In page 13, paragraph (b) (i), line 24, to delete "£8,600" and substitute "£10,000".
This section relates to the exemption limits. My amendments call for having, when a person becomes 65 years of age, an exemption limit of £5,000 for a single person and £10,000 for a married couple. The Minister increased these exemption limits in this year's Finance Bill but there are different scales for persons between 65 and 75 years of age and aged 75 and older. There should be one exemption limit for persons of 65 years of age and upwards. I think the changes I propose would not be a great cost. The merits of simplifying the taxation system are self evident and the lesser the number of thresholds, exemption limits and various rules, the easier it is for everybody to comply, not least for those whose job it is to administer the system.
What is the difference between a person of 65 years of age or older in this regard? I have had various representations — I am sure this is also the case for other Deputies — over the years from old age pensioners asking why they are in the tax net. This may be because they have an old age social welfare pension or a small pension from their previous employment. Successive Ministers have endeavoured to raise the exemption limits to free as many of them as possible from this net. One way of starting this process would be to have an overall exemption limit of £5,000 for a single person and £10,000 for a married couple of 65 years and upwards.
The Deputy asked about the costs involved. They would consist of an additional £4.3 million in 1995 and £8.3 million in a full year and on the basis of the overall budgetary arithmetic, I am not able to accept the amendment. I can understand the logic behind it — we might address it in future years — but the changes that were already made are the only ones that we can make within the context of the overall package of changes we made in income tax. The Deputy's amendments, if accepted, would impose additional costs which are not provided for and, therefore, I cannot accept the amendment.
Is the extra £4.3 million the Minister said my measure would cost in 1995 over and above the increase that the he has already applied?
Yes. It would be an additional cost.
How many persons avail of this relief and what is the total cost of the exemption limits, as they stand, to the State?
It is an additional cost to those we have already provided for in this Bill. The quotas in the Bill exempt an additional 9,700 persons with 8,700 children. This does not include the 600 persons with 100 children who are exempted because of personal allowances; these people are in the tax net. It would bring a net additional 10,800 persons with 8,300 children into the associated marginal relief. Overall, the limits set in the Bill provide that a total of 10,300 persons with 8,800 children will be exempted from tax. Deputy McCreevy's proposals, I understand from the calculation made by the Revenue Commissioners, would affect 31,900 persons.
Does the Minister agree that, since the cost is small —£4.3 million in 1995 and £8 million in a full year — and has the effect of standardising exemption, there is an artificial threshold between 65 years of age and 75 years of age? It is nonsense. Whatever the limit the Minister may set — and he may not agree with my particular figures — it would be better to have one rate for all. When these schemes are built into a Finance Bill or other areas of public activity, everyone feels that there has to be an increase based on the existing level whereas very few people ask why we have it in the first place. The Minister might consider, for future Finance Bills, having only one exemption limit. There is a lot to recommend it.
To introduce clarity would certainly be of assistance but I caution against extending too far in relation to reduced levels of taxation for older people because of the demographic profile that Ireland will experience over the next ten to 15 years. Our social welfare pension bill will increase by 100 per cent in the next ten to 15 years, from about £400 million to £800 million.
The year 2025 — if my memory serves me correctly — is when we will have serious problem. The Minister and I will still be quite young at that stage and we will have to worry about it then.
We can certainly look at the idea of streamlining allowances in future Finance Bills. There is some merit in that but I cannot move from my present position in respect of the amendments.
Amendment put and declared lost.
I move amendment No. 2:
2. In page 13, paragraph (b) (i), line 24, to delete "£9,800" and substitute "£10,000".
Amendment put and declared lost.
I move amendment No. 3:
In page 13, paragraph (b) (ii), line 27, to delete "£4,300" and substitute "£5,000".
Amendment put and declared lost.
I move amendment No. 4:
In page 13, paragraph (b)(ii), line 27, to delete "£4,900" and substitute "£5,000".
Amendment put and declared lost.
Section 1 agreed to.
NEW SECTION.
I move amendment No. 5:
In page 14, before section 2, to insert the following new section:
2. Section 2 of the Finance Act, 1991, is hereby amended
(a) as respects the year of assessment 1995-96, by the substitution of the following Table for the Table to that section:
'TABLE
PART 1
|
Part of taxable income |
Rate of tax |
Description of rate |
|
(1) |
(2) |
(3) |
|
The first £8,900 |
25 per cent. |
the standard rate |
|
The remainder |
45 per cent. |
the higher rate |
PART II
|
Part of taxable income |
Rate of tax |
Description of rate |
|
(1) |
(2) |
(3) |
|
The first £17,800 |
25 per cent. |
the standard rate |
|
The remainder |
45 per cent. |
the higher rate |
(b) as respects the year of assessment 1996-97, by the substitution of the following Table for the Table to that section:
'TABLE
PART I
|
Part of taxable income |
Rate of tax |
Description of rate |
|
(1) |
(2) |
(3) |
|
The first £10,000 |
23 per cent. |
the standard rate |
|
The remainder |
42 per cent. |
the higher rate |
PART II
|
Part of taxable income |
Rate of tax |
Description of rate |
|
(1) |
(2) |
(3) |
|
The first £20,000 |
23 per cent. |
the standard rate |
|
The remainder |
42 per cent. |
the higher rate |
(c) as respects the year of assessment 1997-98, by the substitution of the following Table for the Table to that section:
'TABLE
PART I
|
Part of taxable income |
Rate of tax |
Description of rate |
|
(1) |
(2) |
(3) |
|
The first £12,000 |
21 per cent. |
the standard rate |
|
The remainder |
40 per cent. |
the higher rate |
PART II
|
Part of taxable income |
Rate of tax |
Description of rate |
|
(1) |
(2) |
(3) |
|
The first £22,000 |
21 per cent. |
the standard rate |
|
The remainder |
40 per cent. |
the higher rate |
(d) as respects the year of assessment 1998-99, by the substitution of the following Table for the Table to that section:
'TABLE
PART I
|
Part of taxable income |
Rate of tax |
Description of rate |
|
(1) |
(2) |
(3) |
|
The first £14,000 |
20 per cent. |
the standard rate |
|
The remainder |
38 per cent. |
the higher rate |
PART II
|
Part of taxable income |
Rate of tax |
Description of rate |
|
(1) |
(2) |
(3) |
|
The first £28,000 |
20 per cent. |
the standard rate |
|
The remainder |
38 per cent. |
the higher rate |
(e) as respects the year of assessment 1999-2000, by the substitution of the following Table for the Table to that section:
'TABLE
PART I
|
Part of taxable income |
Rate of tax |
Description of rate |
|
(1) |
(2) |
(3) |
|
The first £15,000 |
20 per cent. |
the standard rate |
|
The remainder |
35 per cent. |
the higher rate |
PART II
|
Part of taxable income |
Rate of tax |
Description of rate |
|
(1) |
(2) |
(3) |
|
The first £30,000 |
20 per cent. |
the standard rate |
|
The remainder |
35 per cent. |
the higher rate |
This is a proposal that the income tax code should, over a number of years, be radically reformed. Members will note that section 2 of the Bill states, as regards the year 1995-96 and subsequent years, the rates set out in the table will apply. The process of tax reform should be driven by setting out, for a number of subsequent years, a series of phased changes in the tax system to bring it to the point where the standard rate of tax is 20 per cent and the top rate of tax is 35 per cent. It is proposed to make this change over a number of years and to do it in a manner which would effect a possible change in each of the given years.
As I said before Deputy McCreevy moved his amendment, the Opposition in this House can never propose any measure to widen the tax base. It is not possible to propose any increase in taxation. It is not even possible, for instance, to propose the introduction of tax credits instead of tax allowances because they might adversely affect some people who would have to pay more tax as a consequence. Therefore, all an Opposition Deputy can do on an occasion like this is put forward proposals for the reduction of tax rates.
Taking into account the changes the Minister made in the budget, which I think were very marginal, the standard PAYE allowance is now £800, the new PRSI allowance is £140 and a single persons' allowance is £2,500. A single tax payer now has standard personal allowances of the value of £3,440. Taking the fact that the first £8,900 of his or her income will be taxed at 27 per cent into account such a taxpayer will hit the top rate of tax, 48 per cent, at £12,340. That figure may seem substantial but it is less than 90 per cent of the average industrial wage. This means that people in Ireland earning well below the average industrial wage are hitting tax rates of 48 per cent plus social security and levy deductions bringing the total deductions from their marginal earnings up to 56.75 per cent.
If a single worker earning that kind of money, which is below the average industrial wage, decides to spend a Saturday morning working overtime and earns £10, the State will take £5.60 out of those overtime earnings and the employee in question will get £4.40. That is an indication of the failure of the Irish system to realise what is wrong with the employment market in Ireland and to address the problems that we face. Without making a meal of it, it strikes me that there is something seriously wrong with any society which takes 56 per cent tax on the marginal income of a worker who is earning less than the average industrial wage. Unless there is radical tax reform to challenge a situation like that the present inhibitions to people taking part in the economic life of the country will be perpetuated.
The figure £12,340 seems very high, but when you actually do the sums — I did them recently — a single person with those gross earnings brings home about £169 per week. That is the take home pay of a person who has to hand up more than half of their marginal earnings. The cost to the employer of giving them that £169 per week is about £13,800 per annum. I wish to relate this to particular circumstances and state what really concerns me. Prior to the last crisis the Packard electrical plant in Tallaght had a gross payroll expenditure of £15.5 million per annum; I presume more or less the same applies now. Of that the Government took £3.5 million per annum, a very significant take. In that context, if the Packard company was located in Newry, it would be approximately £0.5 million more profitable there than in Dublin. Low paid workers are being priced out of jobs because such high taxation is charged on below average industrial earnings.
In the amendment, I spell out a two pronged approach to tax reform over four years; first, a reduction in the marginal rates of tax and second, an increase in the amount of income which a single person can earn without reaching the top rate of tax. It should be possible by 1999, which is the last year covered by the amendment, to bring the lower rate band up to at least £15,000.
The Minister will note I doubled the tax allowance for married people. However, as I said in the House recently, it is not right or fair, because a single person is taxed at 27 per cent on £10-15,000, that double that amount should necessarily be given to a married person. The more I explore the constraints on tax reform, the more it strikes me that the 2:1 ratio of married to single people is wrong in principle. It is a lazy man's cop out in terms of tax administration.
A married couple living in a house have expenses, typically, of 1.5 to 1.6 times that of a single person. One does not need two telephone lines, two newspapers or two television licences. Married couples do not need to do all the things, which are done by a single person, twice. To have a tax system which doubles the allowances and bands for married couples compared to single people is wrong in principle as it ignores practical realities. It maintains the high taxation of income from low paid, below average earnings.
The time has come for the House to acknowledge that the decision made in the light of the Murphy case to double the allowances for married people was wrong in principle as it grinds down single people and robs them of any incentive. A different ratio, perhaps based on a family tax allowance, should be introduced instead.
The people are entitled to see some light at the end of the tunnel and to hear from a Government, irrespective of political hue, what the tax system will be if it is in office for two to four years. They are entitled to specific targets, set out at the beginning of the life of a Government, which form a constraint. This will ensure that when budgets come around, the first thing which must be dealt with is the fact that the Government must stick to its tax reform targets. Tax reform should not be a residual in the budgetary process, rather the starting point, especially given the level of unemployment. In this spirit I propose the amendment.
I agree in principle with the last point regarding doubling allowances. However, this would require us to bring the notion of cohabiting couples into the tax system. This could not be done with great facility, although it applies in the social welfare system. We should examine this matter in principle. The idea, as a result of the Murphy case, that one gets double is inequitable.
Regarding the broader point made by Deputy McDowell, he is correct in stating that choices must be made. For many years, the level at which one starts paying the higher rate of tax has been too low. There is broad agreement on this point. However, there is also broad agreement on the fact that personal allowances are too low and that we are not targeting low pay if we focus on those on middle incomes. While £12,340 may not be all that much, it is still more than most people earn. About 60 per cent of people earn less than that. We are, after all, talking about £12,340 in the hands of somebody who is single, does not have a mortgage and probably does not have a great deal of responsibility either. In so far as we have to make choices, and the tax system is all about making choices, my view is that at this stage we should target it at increasing the exemption limits and personal allowances at the lower end.
Deputy Michael McDowell made an interesting point about the procedures that constrain Opposition Deputies and, of course, he is quite right but I do think his argument would carry a great deal more persuasive force if, in the course of this discussion, he set out the areas in which the Progressive Democrats would increase tax rates or increase the tax base. That would lead to a much more interesting discussion in this select committee.
We all agree that tax bands are too low and tax rates are too high, but we have to make the choice and the tax balance in favour of married couples or the family should not be interfered with.
I have a number of points to respond to and I will do so in the same spirit offered by Deputy McDowell because they are more in the nature of reflective points while I know there are specific amendments. The idea of committing specific rates in the Finance Bill over a period of four or five years to 1999 would, frankly, be unwise in my view because there is a requirement for some flexibility having regard to the fact that other aspects of Government finance are planned on an annual basis. I can see great merit in having multi-annual planning and rolling fiscal plans that would set limits and parameters within which you could begin to match tax revenue with expenditure commitments. Indeed, the Government for the first time in my knowledge has, in addition to the Maastricht criteria which are, in effect, an external framework, taken upon itself the constraints in relation to public expenditure, and when we are in breach of them, as we clearly are with regard to the equality payments, the commitment is still there.
There is great merit in arguing the case — the Deputy made this point — that the citizen is entitled to see light at the end of the tunnel and to have some indication from the parties in Government of what the taxation strategy is and what they can expect to happen over a number of years. As Deputy Derek McDowell indicated, we have clearly made choices in this budget. We made choices in favour of the lower paid and the benefits can be openly calculated.
For the information of the committee I would say that taking an income of £10,000 for a single person in 1990 and looking at the tax that has been taken as a percentage of constant real income from 199,1 starting with that figure up to the current 1995-96, the total take, including PRSI because people look at it as a tax deduction, was 29 per cent as a percentage of constant real income in 1991. It will be 25.3 per cent in this year. Taking an income of £16,000 in 1990-91, with the same base and constraints, tax plus PRSI as a percentage of constant real income has fallen from 40.1 per cent in 1991 to a projected 35.5 per cent in this year.
Does that refer to the 1991 or the 1992 budget?
I will give the figures. It was 40 per cent in 1991, 39 per cent in 1992, and 37 per cent in 1992-93. It reversed temporarily because of the income levy to 38.3 per cent in 1993-94, and was then back on track to 36.7 per cent. So there has been a linear continuation and it would be my intention to continue that. Let us look at what taxation rates have been here, personal income tax as well as VAT for example. It is not so long since there was a massive VAT rate of 35 per cent which, in retrospect, seems incredible. In corporation tax and other areas which we will deal with in due course, the trend is for taxation levels to come down, for the valid reasons adduced by Deputy Michael McDowell and others.
I am acutely aware of the competitive disadvantage of sectors of our employment market. Paradoxically, these will be exacerbated as a result of the peace process — which, nonetheless, we all welcome. We have to move to reduce taxation on personal income so we can address one of the objectives of the budget, which was to reward work. However, we must make choices within that, which is why I agree with my colleague and friend, Deputy Derek McDowell.
Deputy Michael McDowell included PRSI as part of the taxation system. On foot of this measure we introduced a new principle in terms of differentiating between full and part-time PRSI contributions, which was specifically designed to tackle some of the problems the Deputy identified. It is my aspiration, subject to constraints, to continue that.
Our biggest competitor, regrettably, in medium to low paid, semi-skilled employment is the United Kingdom. It is an indication of how that country is running its affairs that it believes it can run itself on a low wage basis, notwithstanding the flow of income from North Sea oil. That is a matter for the beleaguered people of the United Kingdom and I hope the leader of the Labour Party, Tony Blair will in due course liberate them from that problem.
The last point Deputy Michael McDowell raised, which he made eloquently on Second Stage, was the implications of the Murphy judgment. I have a note which with your permission, Chairman, I will read into the record because the Deputy is perhaps more knowledgeable about this case than the rest of us. The decision of the court was summed up in the final sentence of the Murphy judgment as follows:
"The court will, accordingly, declare that ss. 192 to 198 (inclusive) of the Act of 1967, in so far as these sections provide for the aggregation of the earned incomes of married couples, are repugnant to the Constitution."
The judgment involved a striking down rather than an insertion and this was the only question the court was asked to decide. However, it would be naive to think the decision would have been different if a decision on unearned income was also required. In deciding what action to take consequent on the court's decision, the Government of the day — the late George Colley was Minister for Finance at the time — had to have regard to the wider implications of the decision and not just to the narrow interpretation of which the Government was fully aware.
In addition to the question of unearned income, there was the implications of the decision for one income families. A narrow approach towards effecting the minimum changes to meet the Supreme Court's decision would have led to unjustifiable discrimination against one income families, particularly where a married woman elects to care for the family on a full-time basis at home rather than take up paid work outside the home. Families with only one income earner would have been worse off than a two income family with the same level of total income. Even in cases where both spouses were working, their tax liability on the basis of the court's decision would have varied, depending on how their incomes were divided between them. In the case of the self-employed and better-off taxpayers, there was considerable scope for tax avoidance under the arrangements for both spouses to have an income to minimise tax liability.
In the circumstances, to implement the basic principle that taxpayers with the same income, the same family and social circumstances should pay the same amount of tax, the then Government decided to implement in full its long term plans for income splitting. This meant in effect that all married couples, whether with one or two incomes, would have the benefit of double the personal allowance and rate bands applicable to single persons. The principle, established by the Government in 1980, has been followed by subsequent Governments.
I welcome that statement but the problem raised by Deputy Derek McDowell remains — if one makes the changes recommended by Deputy Michael McDowell, how does one avoid encouraging cohabitation rather than marriage? Having said that, the social welfare code does not apply the same principles.
My officials can correct me if I am wrong but I understand the reason for that is that we apply different rules when we are giving out money. It is our money we distribute and we can write the rules as to how it is distributed.
That is what I was going to say.
It is our money to give out and we can write the rules, in essence, as to how it is distributed —"our money" being the taxpayers' money under the guardianship of the Oireachtas — whereas it is private income that is being taxed in the first place under the Constitution. I presume that is the reason it can be made.
In its report the Commission on Social Welfare estimates, because of the factors Deputy Michael McDowell mentioned — there being one electricity bill, one heating bill, one TV licence etc. — that the appropriate payment for a couple, as compared to an individual, is 160 per cent rather than double. There is a conflict between what is done in the income tax code and the social welfare code. I do not know whether the Minister will reconcile those differences today.
On the Murphy judgment, some years ago it would not be possible at this stage to introduce provisions in the tax code that would effectively overturn the Murphy judgment. Is it legally possible to do that? More important for committee Members, I doubt it would be politically open to any Government or any party to do so. The emphasis over the past few years, as espoused by Deputies from all sides, has been in the opposite direction — that each individual stands on their own feet.
I am familiar with the survey referred to and the emphasis in the social welfare code, more as a result of pressure from Europe than elsewhere, will be to individualise payments. Within the next decade, rather than a married couple, for example, getting one cheque for social welfare, made up of a personal allowance, an adult dependency allowance and child dependency allowances, pressure from Europe will force individuated payments — the wife will get hers and the husband his. It would have been done long ago if the payments could have been divided and reduced but that is not politically possible and no Minister has had the courage to do so. The adult dependency allowance would have to be increased which would have serious cost implications.
That is the direction the social welfare code is taking, and will take, regardless of the party in Government. For us even to think about going back to a reversal of that in the income tax code, irrespective of the merits outlined by Deputy Michael McDowell, would not be politically possible nor wise. We should consider those points before raising a hare we cannot control. On balance it would not be a wise course to pursue and I advise Deputies to rethink it.
It seems there are a number of ways of looking at this matter. Most important, I want to do justice to people who are paying large amounts of tax on low salaries. It is not implicit in the Murphy decision that if one improves the tax situation by X amount for a single worker that it must be increased by twice that for a married person.
The political problem referred to by Deputy McCreevy is not all that real. Various mechanisms could be used to arrive at the position I am talking about. For instance, what the Minister did this year in relation to PRSI is a prime example — it does not double for married people. The PAYE allowance is not available to married people. It is possible to give low paid single workers a tax break which does not double up for married people. We can do it if we set our minds to it. It may well be that the 2:1 rubric is so firmly planted in people's minds as justice that politicians will have to achieve this result by stealth through the PAYE allowance or a reduction in PRSI. This will give single workers the leg up they obviously need.
I will not go to the stake for any particular variant. It is equally possible to give a family allowance or a family tax credit which could be shared between spouses. We could treat everyone as single earners and give a married couple a family tax allowance to be split between them as they wish. Many things can be done to break this 2:1 ratio and it is particularly worrying that it has such a vice like grip on taxation policy. If we want to get people earning the average industrial wage on the low rate of tax, we are faced with doubling it up for people earning between £24,000 and £34,000. That is an unnecessary implication of continuing the current system.
There is more than one way to achieve it and it does not have to be done as blatantly as Deputy McCreevy feared I was suggesting. There are subtle ways to achieve the same result but we must do it because we cannot afford in future to hammer single people at the rate we are doing. It is wrong that someone who earns below the average industrial wage is hit by massive rates of tax because giving them a break would cost twice as much for a married person. We, as a society, have to face up to that issue. If the £800 for PAYE workers is an example of something that is available on a non marital or non double up basis, plenty of other measures could be implemented to achieve the same result.
One cannot ignore the fact that the worst poverty traps arise for married couples with children. The larger one's family, the more likely one is to be trapped in poverty. It is not simple; it is a rubik's cube rather than a simple move.
Deputy McDowell is correct in identifying what he described as the vice like grip of this rubric of the automatic 2:1 ratio. A change for one category of person — the single worker — has an automatic fixed cost. The judgment simply struck down the fact that people had to aggregate their incomes for the purpose of income tax. The judgment said that the court would, accordingly, declare that the relevant sections of the 1967 Act, in so far as they provided for the aggregation of the earned incomes of married couples, were repugnant to the Constitution, in other words, people should not be obliged to aggregate their incomes. However, other issues of equality became policy and have now become practice.
The problem of incentives for low paid single persons, which is in part driving Deputy McDowell's observation, is critical and should be examined. I am not adverse in principle to doing so. As the Deputy said, this does not have to be attacked head on. I am not saying I accept this amendment. There are certain difficulties in this area. The other side of the coin is that to which the chairperson referred when he mentioned other aspects of poverty traps which this may exacerbate.
One must also consider the position of people who are cohabiting. Given social practice, the probability is that cohabitation will continue even if divorce legislation is enacted following a referendum. We also must address the legitimate question of the position of women who opt to forego earned income outside the family home to maintain, for a period of time, their position in the family home. One cannot look at any of these things in isolation. Any consideration of alterations in what has been the rubric of 2:1 would have to be looked at in the context of what effect it would have on the constituent components of income coming into a household. That was part of the thrust of Deputy McCreevy's contribution.
I support what the Chairman said in that people with families are caught in the poverty trap because of taxation and PRSI. Is it the Minister's intention in the long term to regard PRSI as tax or to keep it separate? I am aware the Congress of Trade Unions and trade union representatives like the idea of the social insurance fund, but things have moved on. It was a good principle at the start and I see a lot of merit in it. However, tax and PRSI is regarded as the same by most people. Perhaps there could be discussions on whether the principle of a separate social insurance fund should continue ad infinitum.
The Chairman said that the poverty trap mainly applies to those with a number of children. Any employer in Dublin will say that he cannot get a married person with four children to work legitimately on the books on a building site and that he can only get a single person to work. A person who is unemployed and who gets an adult dependency allowance and children's dependency allowances will not turn up for work if his net wage is not better. Any small building contractor in Dublin, Kildare or Meath will say that. Despite the best efforts of the Revenue Commissioners over time and the joint investigation units from the Department of Social Welfare and the Revenue Commissioners that problem has been impossible to stamp out. It is not fly-by-night builders who operate this system. Building contractors ask us to try to do something to stop this. They are in an impossible position because work must be done, but their employees do not want to pay tax as they are on social welfare. They building contractor must get the work done so he will go to someone else. We can close our eyes and say it does not happen, but it happens on every building site in Kildare, Dublin and elsewhere. While it may not be politically popular to say so, everybody knows it is happening.
This problem is caused by the poverty trap created by the child dependency allowance. I support the initiative of the Government and the Minister for Social Welfare, Proinsias De Rossa, to increase child benefit allowances with the long term intention of doing away with child dependency allowances. That is the way forward. I worked towards that when I was Minister for Social Welfare, although the Minister might say otherwise. This problem is exacerbated each time percentage increases are given across the board to child dependency and adult dependency allowances. As the Chairman said, that is where the real poverty trap is and not among single people.
An interesting consensus has emerged in that the committee believes that taxes should be more tailored rather than rigidly applied. The Minister's reaction has been interesting in that respect. I am sure we will have more time to discuss that outside the context of the Finance Bill when we discuss policy at a later stage.
The thrust of Deputy Michael McDowell's amendments is that we should plan our taxation to the year 2000. That would be great if it was possible. However, I would prefer the Government to plan its expenditure for the next two, three or five years and to have a rolling budget in that regard. It would not be wise to tie the hands of the Minister for Finance as regards taxation. However, I understand the thrust of his amendments in this regard. I would be happier if the Government could have a rolling budget for expenditure, rather than taxation. I do not support his amendments because the cost would be astronomical. I do not want to say to the Minister for Finance that he has lost the run of himself by allowing expenditure to go beyond control and then to tell him that I support amendments which will cost a great deal of money.
We are having difficulties with the sound system this morning, therefore I ask Deputy McCreevy to turn off his microphone.
I regret that I am losing Deputy McCreevy's support since I have a speech on file by his party Leader which states that Fianna Fail supports a 20 per cent standard rate of tax and a 40 per cent top rate of tax. I do not know how it will achieve this if it does not set it out over a four-year period in Government with whoever its partner may be. It seems the party line is being abandoned by Deputy McCreevy.
He said an introductory rate of tax of 20 per cent for new entrants to the employment market.
He said a standard rate of tax of 20 per cent and a top rate of 40 per cent. My ears nearly fell off when I heard him saying this because I heard him say different things in the past.
I do not accept the views expressed by the Minister, Deputy Quinn, and Deputy McCreevy that they regard tax as the residual item to be decided. This country is trying to come to grips with unemployment which, if one takes everything into account, is closer to 400,000 than 300,000. In those circumstances, this country must consider tax as its priority. We must look at the things, as the Minister said, which are inhibiting employment in that regard.
We are not dealing with a stationary target. The Minister correctly said that the peace dividend will expose the difficulties of our high tax and work regime relative to Northern Ireland. If the Tory party survives long enough, the differences between the Republic and Northern Ireland will have widened even further by the time Mr. Tony Blair gets into office. Our tax system creates serious difficulties for this country as a location for employment. Many employers are now looking at Newry and Dundalk and asking why they should come south of the Border to locate an industry. I believe that IDA Ireland will start making drumbeating noises about the need to put Irish tax on work on a par with UK tax on work.
Deputy McCreevy is aware of the working group on the study and implications of the integration of income tax on social welfare. We must remove the confrontation and contradictions in this area. It is desirable to phase and overlap the two methods of payment of taxation in order to remove the contradictions and barriers, although this will not be done easily. It has, as he knows from his brief sojourn in the Department of Social Welfare——
I remember it.
He has a dozen reasons to remember it or so it is alleged.
Many of them were withdrawn.
The issue has been around for a long time and must be addressed. If we abolished PRSI and integrated the same take of income as part of general taxation, the standard rate of income tax would increase from 27 per cent to 54 per cent, because PRSI is deducted from gross salary, it is a flat rate.
That is because it is levied on all income and there are no allowances given in respect of it. On the question of the comparative tax regimes North and South, are there any overall figures for the total tax take per capitain the North compared to the South? I am not just talking about income tax.
I will take notice of that question and will come back to you with the answer. I wish to revert to what Deputy Michael McDowell said about the purpose of the taxation system. I understand he is trying to be helpful with regard to this. The first thing we have to do and are trying to do is to have multi-annual budget planning in relation to expenditure. In contrast to what the Deputy is suggesting, we have to get a handle on this first, both from an orderly planning point of view and from an orderly cost control point of view, and then look, regrettably, at taxation, as he put it, as "residual".
Because of the obligations and requirements in our society, I do not think politically there is a sufficient majority for this and I would not support such a majority. We must have regard to the supply side first in terms of the services being provided. We are not getting the kind of value for money I believe we could get if we had multi-annual planning and we could get better controls and more cost effective limits on expenditure which in turn would enable us to plan for taxation reductions. That is not to say we should not have targets for taxation reduction but they should be conditional on expenditure controls being met in the first instance.
Deputy McCreevy said the black economy is rampant in relation to the building sector, where people are on unemployment assistance and working. We cannot accept this at one level and then go on to say, as Deputy Michael McDowell said, that the real figure for unemployment is much higher than stated. Some 276,000 people are registered as unemployed as present. If we add the 14,000 people currently on community employment programmes, this is the total number which can be measured.
Between 55,000 and 65,000 are excluded.
That is a relatively small number. The Deputy is either agreeing or disagreeing with Deputy McCreevy.
I was not making a point in relation to him. I am saying that there is a very high unemployment rate. I accept that there is a very substantial black — or grey — economy and that a significant number of people working are claiming social welfare on the basis that they are not employed. I agree with Deputy McCreevy that anybody who turns a blind eye to this is ignoring reality.
I have some difficulty with and am not convinced of the argument about competitive disadvantage vis-�-vis the UK. I think when countries decide to locate here, the rate of income tax payable to their employees is not by any means their first consideration. They look much more at the regime of corporate taxation and the skills and workforce available to them. I am not sure we have lost a great deal of industry to the UK and elsewhere because our rates of income taxation are higher. I would be interested to hear the Minister's views.
For countries locating into this economy the Deputy is correct. The rate of pay is secondary to the available skills base. The level of remuneration of employment for many of the industries coming into this country is well above the average industrial wage. There is substance to the argument in relation to indigenous existing employers who are finding it hard to maintain their margins and profitability and are undoubtedly at a competitive disadvantage in some sectors. I can offer a specific example. The Welsh Development Office — the equivalent of the IDA — has been attempting to recruit on a regular basis over the last couple of years companies in the garment business here whose main market would be large multiples in the UK. They have been offered fairly attractive packages to relocate in Cardiff or elsewhere in Wales. On a strictly comparative basis, wage rates in Wales are much lower. The fact that the individuals must pay the community tax — what we would call residential rates — is secondary to the employer. However, the wage rates are different.
There is a further point to be made following the comments of Deputy Derek McDowell. We are, rightly, spending substantial funds on education. If we continue to train people for export there will be a serious loss to the home market in terms of the development of those skills. People who are educated and highly skilled are more mobile and the State's investment in them is being availed of by competitor countries. While it might be the first criterion for companies who are looking at Ireland, we are losing and potentially we may continue to lose the skills base in which we have invested substantial sums of money across a spectrum of areas. The Minister is aware of this problem. It must be tackled in the context of single rates of taxation. If we lose people at a young age they will not return.
Obviously this amendment offers scope for a wide-ranging debate which gets to the core of many of our underlying economic problems. Unfortunately, time does not permit further discussion.
Perhaps the Minister calculated figures as he did for the amendments to section 1. Did the Minister calculate the costs? Perhaps he would circulate them.
We have figures. I will circulate them.
Amendment put and declared lost.
Section 2 agreed to.
SECTION 3.
Question proposed: "That section 3 stand part of the Bill".
I recently read a document entitled "Fine Gael Priorities for Government, 1992-1997". One of the cornerstones for the creation of employment is outlined as follows:
We want to give a real incentive to companies to provide jobs for young people. Thousands of jobs could be created for young people, if employers did not have to collect income tax from them. [That is a very wise statement] To bring about such job opportunities, Fine Gael will introduce an extra annual tax free allowance of £5,000 — or its equivalent — to every person up to the age of 23. This will apply in his or her first two years at work, or in self-employment after having completed full time education. It will apply to those commencing work on or after 5 November, 1992.
Fine Gael is now in Government and I am sure that when this was put in front of the Minister——
I bet they did not even dare to put it before him.
What would it have cost the State if that was implemented? Of course, this is another U turn and we are used to those since November.
You do somersaults.
Will the Minister accept that if we wish to take substantial numbers of low paid people out of the tax net, or to provide a reasonable incentive to people to seek the available jobs, some of which are very low paid, he should take vigorous action with regard to allowances, rather than the kind of low level increases we have had hitherto? In this respect, the budget is consistent with all recent budgets. Perhaps for his second budget, the Minister will consider significantly raising allowances.
With regard to the question raised by Deputy Michael Ahern, parties on occasions propose different packages, and as the Deputy's party has recently learned these have to be negotiated with other parties before the formation of a Government. The Programme for Government is the basis of our policy for this and successive years. I welcome the fact that parties are obliged to publish their positions in advance as it enables people to ascertain the thinking of various parties. When a coalition or partnership Government programme is negotiated, people can see what the relative position has been, and the constituent parts that make up that programme for Government.
Was a costing on the proposal undertaken?
No.
Did the Fine Gael Party undertake a costing?
If 20,000 people availed of it, the cost would be approximately £30 million. This is a summary costing and it would require confirmation. With regard to Deputy Broughan's question, lowering the rate of income tax is a better way to proceed than through the exemption rates. This is my preference; it is a question of attempting to get the balance between the two.
This brings the married tax free allowance up to £5,000, together with the corresponding adjustments for the other allowances. For a number of years I have been concerned about the allowances provided to widowed persons. Changes were made many years ago so that a widowed person received an extra allowance in the year of bereavement, equivalent to the married allowance and there are also additional allowances in respect of widowed persons with children. However, in the social welfare and tax codes, the State has always been niggardly in its approach in this area. As this is a day for openness, transparency and accountability, I must confess that I am influenced in this view by the fact that my mother was widowed at a very young age and I was the eldest child at a little over four years of age. I am not aware of the costs, and doubtless some anomalies would emerge with regard to single persons and so on, but I have always felt — and this has been influenced by my upbringing — that the State should be more generous in the tax code. The allowances in respect of children go some way forward and in the past decade some changes for the better have been made. However, will the Minister consider changes in future years? I promised myself before I was elected to the Dáil that if I was ever in a position, I would attempt to do something about this issue, especially in respect of the social welfare code. Luckily, because my father worked for CIE, my mother was entitled to a contributory pension and the few pounds which it amounted to was very welcome every weekend and it kept us together. That has been improved over the years but the taxation code, as far as it reflects widows, should be improved if at all possible. The costs would not be enormous and I ask the Minister for Finance, irrespective of the difficulties, to try to do something about it.
I agree with that. Not only is Deputy McCreevy's point valid but often widows — and I am sure the same applies to widowers — who are under the age of 66 are in a poor state when there family have gone and they are on their own. I would welcome the Minister's response to the points made.
I agree with Deputy McCreevy. I find the system is not kind to widowers, in particular, those whose wives die in their forties. They find themselves with an economic crisis at home. They have to look after their children. They frequently have to bring in a housekeeper or someone like that. For them to be told they are getting their tax bands and allowances chopped in those circumstances is harsh indeed. I know there are transitional provisions etc. but I still believe transitional relief it is not much help to someone in his forties whose wife dies unless the person remarries. The position is similar if working wives die too, so on all fronts from a position of being a two income family people find themselves in the situation of having one income and in need of a housekeeper. That is a calamity for a family and the tax system should be as generous as possible to people in those circumstances
I acknowledge the Deputies' sentiments. I can identify with them because we all have either direct personal experience or know people in the situation. I undertake to look at the situation, do some costings and make them available for Members. We would want to look at the context in its totality and at some of the circumstances Deputy Michael McDowell referred to with regard to the countervailing effects that proper insurance could provide for people in those circumstances too.
Widowers are treated the same as widows in taxation, as Deputies know, but their obligations and requirements may be different and that was the point made. I understand the thrust of the question is that we should look at the costs and the implications for next year and I undertake to do so.
Question put and agreed to.