I move amendment No. 2:
In page 12, line 16, to delete "£10,400" and substitute "£18,000".
SECTION 1.
Amendment put and declared lost.
I move amendment No. 3:
In page 12, line 20, to delete "£5,200" and substitute "£9,000".
Amendment put and declared lost.
Section I agreed to.
NEW SECTION.
Amendments Nos. 4, 5 and 6 are related and may be taken together.
I move amendment No. 4:
In page 12, 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 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 £9,900 |
24 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 £19,800 |
24 per cent. |
the standard rate |
|
The remainder |
45 per cent. |
the higher rate |
'
(b) 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 £10,500 |
22 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 £21,000 |
22 per cent. |
the standard rate |
|
The remainder |
42 per cent. |
the higher rate |
'
(c) 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 £12,000 |
20 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 £24,000 |
20 per cent. |
the standard rate |
|
The remainder |
40 per cent. |
the higher rate |
'
(d) as respects the year of assessment 2000-2001, 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 |
40 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 |
40 per cent. |
the higher rate |
'
(e) as respects the year of assessment 2001-2002, 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 |
40 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 |
40 per cent. |
the higher rate |
'.".
I have moved a similar amendment in the last three years. I am getting weary of it but at least it shows a degree of consistency on my part. Its purpose is to set out a plan over five years to reduce the marginal rates of tax to 20 per cent and 40 per cent, respectively. Last year I was more ambitious and provided for a 35 per cent rate at the end of the process but the last two tables are to extend the income level which will be covered by the 20 per cent rate rather than the higher rate. I will not repeat my remarks on the 2:1 ratio but that is still a major problem in any restructuring of taxation policy. If I varied the amendment, however, it would be ruled out of order so I must stick to that ratio.
The cost of the five year programme identified by the Progressive Democrats has been significantly reduced by the 1 per cent reduction in the PRSI rate and the 1 per cent reduction in the standard tax rate in this year's budget, even if there was no reduction at the higher rate. In this context I ask the Minister to indicate, first, the cost of reducing the tax rates to 20 per cent and 40 per cent, respectively, with present allowances and, second, the cost of implementing this five year programme.
As the Deputy knows, the purpose of his amendment is to apply for a statutory commitment to reduce the burden of income tax over a five year period. I am informed that the total cost involved would be £1.326 billion by the end of its time scale.
For five years?
For five years. For the current year the amendment would, in addition to the same widening of the standard band provided for in the Bill, reduce the standard rate of tax to 24 from 26 per cent and the higher rate to 45 from 48 per cent. The Deputy's proposal would cost £185 million in a full year and Deputy McCreevy's would cost £218.3 million. Deputy McDowell would have to sell the ESB and Aer Lingus.
No. Let us get this straight. The Minister is forgetting a number of things. Under the Partnership 2000 programme the Minister has committed the Government to tax cuts of £900 million over three years. That is £300 million per annum which is roughly speaking what the Minister has committed the Exchequer to. The Chairman nearly fell off his chair when the Minister mentioned the sum of £1.326 billion. However, when one looks at it over five years, one is talking about £260 million of tax cuts per year which is less than what the Minister is talking about in Partnership 2000 over three years. This is not something that requires the sale of anything, unless the Minister's proposal requires the sale of far more assets. They are different answers but let us compare like with like.
The real question is whether this is the way we want to go. There are compelling reasons for the 20 per cent tax rate. Some people think it does not matter what the tax rate is — they would just run up the allowances and spread out the bands. The five year programme, which would cost £260 million gross per annum not taking into account any netting upwards in relation to tax points in other bands——
All the measures we are talking about are gross, so we are comparing like with like.
I said that. The £260 million we are talking about would, on the present very rigid 2:1 ratio, bring a married person up to £30,000 and they would stay on the 20 per cent rate. If existing allowances were added, one could earn up to £36,000 and still be on the 20 per cent tax rate. The cost per annum is £260 million compared to £300 million under the Minister's proposed package. This is neither extraordinary, or out of the way but it does show that if you set out a programme and follow it year on year you can get ordinary married people earning up to £36,000 on a 20 per cent tax rate.
If the 2:1 ratio was maintained — which in that context would be even less fair than it is at the moment — you could have the single worker earning up to £17,000 or £18,000 on a 20 per cent tax rate. People say the 20 per cent tax rate sounds Thatcherite or right wing but it means that the State is telling a worker in an ordinary job that the very most he or she will ever pay in tax on any pound earned is 20p. These figures are achievable. If what the Minister says is achievable — that over three years it is possible to deliver £300 million every year in tax cuts — then this is achievable at the rate of £260 million over five years.
Every time we have a debate in public the Minister is tongue-in-cheek about it, saying we will have to sell the family silver to finance it but he does not say that about his own £300 million tax breaks. When the Progressive Democrats put forward anything the Minister says it is part of some right wing conspiracy to cut or destroy public spending.
There is a compelling case that the economy will be able to sustain gross tax cuts of the order of £250 million every year over five years if public expenditure is prudently managed. I am constrained by the rules of this game not even to show one halfpenny of counter tax raising measures which I have in mind to claw back some of the so-called advantages of this on equity grounds. One of them would be the introduction of tax credits. The Minister recently indicated, in a Dáil reply to me, that the benefit to the Exchequer of substituting tax credits for allowances would be in the order of £750 million. However, he added — I think very fairly to warn people off such a simplistic approach — that he would be running many people into higher rates of tax if he did that alone.
If you had a 20 per cent and a 40 per cent rate of tax, the arguments for making a personal allowance worth twice as much to a 48 per cent taxpayer as it is to a 26 per cent — which is roughly the situation at the moment — would be very much reduced in strength. Tax credits would be more possible in the context of lower tax allowances. To put it bluntly, if the middle classes saw their marginal tax rates coming down they would be much more politically malleable towards tax credits than insisting on the high value of tax allowances on the 48versus 26 per cent rates.
The annual cost of this particular tax reform would be significantly less than the annual cost of the tax give-aways posted in Partnership 2000, but they would be for five budgets as opposed to two more budgets in Partnership 2000, bearing in mind that your first budget is already incorporated in this affair. All that is required is to keep doing what we are doing at the moment and we can get to these kinds of tax rates. The question then is one of political judgment. Is this the right way to go or should we — as the Minister said on the radio — put economic growth into higher spending instead? In my view there is a compelling argument for saying that, at least, the country has the capacity now, if there was prudent management of the economy, to sustain something which ten years ago would have got Fine Gael Deputies shouting "Where's the beef?" at the Progressive Democrats. The beef is on the table if you want to pick up your knife and fork.
The Minister gave the figures of these adjustments in a full year. My proposals would cost £280 million in a full year. Taking the outturn for 1994 on the spending Estimates, and increasing them by inflation plus 2 per cent, if those figures had been adhered to in the years 1995, 1996 and to the end of 1997 there would be £1,560 million available to the Exchequer.
I listened to the Deputy's colleague, Deputy O'Dea, last night, telling me how to spend money I do not have with regards to the paramedics. I suggest the Deputy should visit his own colleague.
The Minister may have been influenced by some pickets he met on the way in. Those people handed him some documentation.
This is beginning to sound like a Limerick.
For 1995, 1996 and 1997, to keep gross public spending and inflation at 2 per cent, the resulting savings would be £1.6 billion which would finance Deputy McDowell's tax reductions in one year. It could have been done this year. The money could have been held over until the election and Deputy McDowell's reductions could have been introduced in one year or one could adopt my proposals and do it over a number of years.
I am saying this to prove that there is a direct correlation between increased public spending and taxation. I and many others, including maybe the Minister in his private moments, thought that increasing public spending by the rate of inflation plus 2 per cent during an economic boom was very generous. It is not a particularly onerous hurdle to jump. It probably would be good in macro economic terms. Such an increase in gross public spending over those years is neither Thatcherite nor hairshirtism, for want of a better word. Therefore, it is possible to reduce taxation only if one accepts the correlation between public spending and taxation. Notwithstanding his best efforts over the past number of years, the Minister for Finance has been unable to do so. This money has been spent and I have not witnessed an increase in public services to the value of £1.5 billion. If one asks anybody on the street whether he or she has noticed the tremendous increase in public services worth £1.5 billion, I am sure they would say "no".
These kinds of tax reductions are feasible without indulging in hairshirtism or Thatcherite policy or without selling off the family silver but it is only possible if one keeps some semblance of control over public finances. The Minister is right; it is not possible otherwise because if one is intent on spending as if it is going out of fashion, one will not be able to make tax reductions. That is obvious.
I agree with the Deputy but the problem is that big pay claims emerge. Services do not increase; it is public service pay that increases. There is a classic case of it today. People are saying "get the Government to fix the strike" and it was the same with the nurses' strike.
I gave the Minister advice in that regard about eight weeks ago. I said that neither the Government nor the Opposition would be able to stand up to any of these groups, in the run up to an election and I have been proved correct.
It was interesting to hear Deputy McCreevy trotting out the old mantra about public sector increases which we have been hearing with great regularity from him and Deputy McDowell over the past six months.
I have been saying that for the past 15 years.
I was at a meeting of representatives of adults with learning disability on the north side of Dublin the other night. Most people agree there is a need for a programme for adults with learning disability which Governments to date have failed to introduced.
The Government has increased public spending on valid areas, such as child care, education and health, at a time when the economy is booming and there has been 35 or 40 per cent accumulative growth. The issue is whether we should spend some of that money on necessary services or return it all in tax cuts. The Minister has tried to pick the delicate middle path on behalf of the community. He has done that well and I want him to continue to do so in the new rainbow Government after the general election.
I have sympathy with some of Deputy McDowell's thesis. It was a previous Labour Party Minister who implemented a 20 per cent personal tax rate but we know, from looking at the Progressive Democrat document from which these rates come, that the party has plans for us if it gets into Government, examples of which are the reimposition of water charges and services charges. They want to adopt New Zealand as a model but that is one of the most socially divided economies in the world. That will be the debate during the coming general election campaign. We must resist it.
Deputy McCreevy better talk to the leader of his party. Last year the Leader of the Opposition visited my constituency and, as is usual in such cases, he was taken to every place where there is a problem. He was shown a school, a water scheme, a sewerage scheme, etc., and at the end of the day he made public spending commitments valued at in excess of £40 million in my county. He went over the border the following day into County Longford and I counted additional public spending commitments there of about £23 million. There is a huge dichotomy between what the Opposition Finance spokesperson is saying here and what his leader states when he travels to rural constituencies away from the glare of the Dublin media. The record ought to be put straight.
With regard to the fact that we might have saved £1.5 billion if the increase in public spending was held to the rate of inflation plus 2 per cent, we are entitled to ask the following questions. Where would these savings be made? Which badly needed hospital beds would be closed? Which school building would not be completed? Where would the Fianna Fáil Party and the Progressive Democrats Party make those cuts? If one demands that these cuts are made, it is only fair and right that they tell us where the money was spent inappropriately? Let them name the projects on which the money ought not to have been spent. It is as simple as that. Unless the Deputies do so, I take their comments as political cant and nonsense.
Deputy McCreevy said that there would be no need for cuts. If one implemented the increase over the rate of inflation, one is not talking about Thatcherism or hairshirts.
The problem is that the money would have been available but for the fact that there is a totalitarian hue in this Government which does trust the people to spend their own money.
We are not looking into our hearts.
We can see where it is being spent and whose tail is wagging the dog.
This is the first time in 40 years in which the national debt has been reduced in real terms. That is due in part to currency appreciation——
Most of it.
——but it is also due to the fact that we had a current budget deficit outturn of 1 per cent — far less than that which was planned. Second, we had a surplus on the current account of £262 million, albeit a windfall surplus, but it may come as a surprise to the Leader of the Fianna Fáil Party after his comments at his party's Árd Fheis that we have planned a budget surplus on current account for this and the next three years in the published convergence programme. Therefore, the national debt has been reduced in absolute terms, the current budget deficit is way below what was projected and we have planned a surplus in respect of the current account. On top of that, we have reduced income tax by just under £400 million in full year costings for 1997 in Partnership 2000.
If the Deputy wants to know where the money went, which took us over the 2 per cent limit which we had set ourselves, the actual momentum of the special and internal pay commitments of the PCW, to which we cannot get the social partners to adhere, would drive up costs by about 2.25 per cent.
Which one of the brave fiscal rectitude Deputies across the table wants to remove the extra teachers in the education system or take away the extra health care in the areas of mental handicap or physical disability? As Deputy Connors asked, will the Deputy identify the areas in which the excess expenditure over the 2 per cent reference figure which he has highlighted can be reduced? In what area would he or his party reduce expenditure? We are in a difficult position which I do not welcome as Minister for Finance. We have to manage expectations in a booming economy. This Government is not exclusively responsible for the booming economy. I have expressed the view in public and private that the economy is booming because we have got our act together in relation to social partnership and because successive Governments, some of which I participated in and some of which I opposed, took difficult and brave decisions. We will all suffer if we lose the run of ourselves and revert to naked and negative partisanship. We can all take credit for our success.
There are real needs in areas such as mental and physical handicap and in education where needs are addressed through initiatives such as the Breaking the Cycle programme and the abolition of third level fees. We are trying to balance these needs with the reduction in income tax which we all aspire to — none of us volunteers to pay tax. It is a matter of how quickly taxes are reduced. I suspect there is a macro economic argument which would say that a precipitous reduction in income tax would fuel consumption and be inflationary. We have already seen what has happened in the mortgage market.
I suggest to Deputy McDowell, in the spirit of intellectual ecumenism, that the Progressive Democrats Party argument of moving towards lower basic rates of personal income tax has been adopted. Nobody disputes that the thrust of personal income tax is downwards. At issue is the speed at which this process should be undertaken and at what level we can maintain public spending on public services. There is a clear ideological division between my party and the Progressive Democrats Party.
I always admire the intellectual clarity with which the Deputy's party presents its arguments. He would like to see individuals taking responsibility for their own future and to be given the maximum amount of their own income to do that. Not everybody has the foresight and wisdom to engage in personal pension plans or the perspicacity to invest their income without having to ask the Government to bail them out when an investment goes wrong, as is happening with farmers at present. Some degree of State organised and managed collective solidarity is better than relying on rip off merchants masquerading as personal pension consultants. Perhaps this is too pejorative, but I merely wish to illustrate the contrast between our two positions. A high level of social solidarity is necessary in the context of public spending.
At issue is the speed at which we can reduce levels of personal income tax. There is no basic disagreement regarding the necessity to reduce it. Ireland as a competitive wage economy can only use the UK as a benchmark within the EU. It is clear from the experience of the UK that, irrespective of who wins the next election, we will be faced with a low income tax competitive benchmark system. Therefore, wisdom and common sense behoves us to move in that direction. The real debate is at what speed we undertake this. For the vast bulk of taxpayers, namely, Class A PAYE contributors who account for 73 per cent of income tax payers, we have reduced personal income tax by 2 per cent if PRSI is considered a tax, as I consider it to be. The standard rate has been reduced from 27 to 26 per cent and the PRSI rate has been reduced from 5.5 to 4.5 per cent.
The is no reason to doubt that in the next two budgets under Partnership 2000 the figures I will introduce on 29 October and subsequently will reflect this trend. This debate is emphasising that focus.
I am pleased to hear Deputies Broughan and Quinn contributing to this debate. Traditionally Deputy Broughan and latterly Deputy Quinn have agreed with the thrust of what I have said about taxation on work, although Deputy Broughan adorns his fundamental agreement with some barbed encrustation.
Unlike the Deputy, he is a northsider.
I set down a five year programme in this amendment to have tax rates reduced to 20 per cent and 40 per cent because, as the Minister said, that is the direction in which EU rates are moving. Germany and the UK have embarked upon this and Tony Blair will do the same if he is elected Prime Minister of Britain. Ireland must have a low rate of tax on work. We have a highly skilled and educated workforce. We suffer from peripherality and need employment incentives and employment friendly tax conditions. I have already said it is important that we do not agree to any EU standardisation of tax. We must plough our own furrow because it is probably the only way of providing ourselves with an advantage within Europe.
There was an inference that my view is not compatible with social partnership. It is compatible because there is more than one model of social consensus. Social consensus should involve hope for the 264,000 people who are out of work. Even though last year's unemployment figures can be explained away by references to Good Friday, the fact is that during the Celtic tiger's rampant growth, the underlying rate of unemployment increased.
I have no simplistic view that lowering tax rates guarantees high employment. However, my conviction is that a society which takes 54 per cent of a below average industrial salary in taxes is not interested in full employment or in maximising employment. Regarding social justice, it is valid to refer to remedial teachers, the provision of psychologists for disadvantaged children and the needs of different groups in society. There is a need for increased expenditure in these areas. But the one way of breaking the cycle of deprivation and psychological and educational disadvantage, which is endemic and self perpetuating if not tackled, is by economic participation through employment. Money can be spent on an educational psychologist in places like Darndale, but all the psychologists in the world are no use to the children if they exist in a world where nobody in their families has a job and where they have no prospect of getting a job themselves. Remedial teaching is not going to change their position.
The fundamental social justice issue relates to jobs, as exemplified by opinion polls, when shorn of tax and crime issues. My proposal is not for making the rich richer but for making the poor richer and integrating them into economic life. I am talking about social justice and not a comfortable policy for comfortable people in society. I am talking about social justice, not about a comfortable policy for the comfortable people in society. The Department of Finance has never understood, in a convinced way, that social justice is an issue to be determined on a yearly basis in relation to how anti-employment the tax regime is. There is no point in visiting Gallanstown, Darndale, Ringsend or anywhere else and talking about how well one is dealing with social expenditure if in the final analysis everything has been financed at the expense of keeping people out of work.
I do not apologise for my view that if one is really concerned about social partnership one needs to bring people into employment. That is the ultimate social partnership; there is no social partnership without work. That is not to say that if everyone has a job for which they are paid slave wages there is no social issue to be dealt with. If people are permanently excluded from economic participation in the life of the country there is no foundation whatsoever for social justice. I am advancing this proposal on the basis that greater fraud is possible.
The Minister has put a price tag on a five year programme of tax reform to reduce tax bands to 40 per cent and 20 per cent respectively, and to reduce the income levels at which these bands would apply, to £18,000 or £19,000 for a single person and £36,000 for a married couple. That totals £1.326 billion over five years or approximately £260 million each year. If this country were to elect a Government — even one of which the Labour Party would be part — who would undertake to achieve these targets, I believe that by the year 2002, the economic foundations for social justice and for people's participation in the workforce would be far stronger than they are at the moment. The only way in which that can be achieved is if a strong view is adopted on public spending.
The Garda, nurses and occupational therapists might have adopted a very different attitude if they had been allowed to take home 80 per cent of their earnings. That might create a very different attitude to social partnership and there would be none of this heaving and puffing by the strongest groups in society to get their share first. There might be far less concern about parity if every worker was taking home 80 per cent of what they earned. The conditions for social solidarity and moderation in wages would be immensely improved in the lifetime of a Government which would urge people to hold off on wage demands and so on in order that by the year 2002 they could be retaining at least 80 pence in the £1 for every pound earned. If the ordinary workers think they are going to have 54 pence in the £1 taken out of their earnings there is no prospect of achieving social solidarity. People are going to seek more money irrespective of the consequences.
All of these pressures are coming from the public sector; the same tax regime applies to the private sector, but we do not have threats of strikes there. In that respect the tax argument is an invalid one.
Amendment put and declared lost.
I move amendment No. 5:
In page 12, in column (2), line 29, to delete "26" and substitute "22".
Amendment put and declared lost.
I move amendment No. 6:
In page 12, in column (2), line 34, to delete "26" and substitute "22".
Amendment put and declared lost.
Section 2 agreed to.