Amendments Nos. 7 and 8 are related and may be discussed together, by agreement.
SECTION 3.
I move amendment No. 7:
In page 13, in column (3), line 25, to delete "400" and substitute "1200".
I referred to these amendments earlier so I am not going to repeat the arguments I made at that stage.
Amendment put and declared lost.
I move amendment No. 8:
In page 13, in column (3), line 26, to delete 800" and substitute 2400".
Amendment put and declared lost.
Section 3 agreed to.
NEW SECTIONS.
Amendments Nos. 9 and 10 are related and may be discussed together, by agreement.
I move amendment No. 9:
In page 13, before section 4, to insert the following new section:
"4.—Section 154 of the Finance Act, 1994 is hereby amended in so far as it has application to an employment situated in Northern Ireland;
(a) (i) by the substitution of '5 consecutive days' for '14 consecutive days' in paragraph (a) of subsection (2),
(ii) by the substitution of the following paragraph for paragraph (b) of subsection (2):
'(b) one of which the individual concerned is absent from the State, and present in Northern Ireland for at least eight consecutive hours during the day,',
and
(b) by the insertion of the following proviso after paragraph (c) of the proviso to subsection (3):
'Provided that paragraph (b)(i) shall not apply to an employment which is subject to the provisions of Part III of Schedule 6 to the Income Tax Act, 1967, solely by reason of the employment being situated or exercised solely in Northern Ireland.'.".
This amendment relates to the vexed question of cross Border workers' taxation which the Minister and I, having canvassed in the Donegal North East by-election, are fully appraised of. The problem has not diminished. The Minister set up an interdepartmental working group which issued some proposals, the net effect of which were that there should be no change, excepting a small adjustment made to the payment of levies, which overcame some of the difficulties.
Deputies from Border constituencies are fully aware of this matter, which I appreciate is a vexed and contentious one and which will be difficult to resolve. Two people living side by side in Monaghan town might be doing the same job but one might work in Northern Ireland while the other works in Monaghan. Both workers would be enjoying the fruits of economic prosperity in this State, its educational facilities and so on, but would have two totally different rates of tax. We do not want to arrive at that kind of situation which would create serious anomalies and lead to the displacement of workers, jobs and so on.
We have attempted to draw up an amendment which would recognise the de facto situation of people who work in Northern Ireland and live in the Republic. The extraordinary tax assessment situation which prevails has led to the formation of a very active cross-Border workers’ taxation group. This amendment would alleviate the problem for 85 to 90 per cent of people affected by this problem. We would like to see this anomaly removed once and for all. I appreciate it is not one which can be easily dealt with but we must seek to do our best in a very difficult situation.
I spoke on Committee Stage for the first time on 24 April last year and my comments then also concerned this issue. I accept that many of the pros and cons of the argument were debated at that stage but it is disappointing that a year later there has been no change for the people caught in this very difficult trap. The problem has increased since the moratorium ended and people are very vexed that the situation has reached a deadlock. At the time of the by-election last year, this heated issue was much debated but people now feel that, because the intensity of the debate has abated, they have been forgotten about once again.
I would like to outline for Members the stark reality of the situation. This week alone, two families who lived within a seven mile radius of me moved out of the area. This kind of occurrence results in the loss of revenue for local shops and a decrease in the number of children attending local schools. That will have implications next September in relation to enrolment figures for primary schools.
A person who earns £12,500 in a job in Derry city contacted me recently and said that if they were to do the same job in Letterkenny they would receive a starting salary of £18,000. Another couple I spoke to earn £35,000 between them and had been issued with a tax bill for the payment of back taxes. They wondered whether they should relocate. Having examined the figures, we discovered they would be £2,484 less well off living in the Republic. The Border is not visible but there are problems because of the lower income rates in the North.
We spoke earlier about depopulation and the consequences for services. This issue will also have a big spin off effect. Various solutions were considered in the meeting held a couple of months ago and I ask the Minister to seriously consider the amendment because it would cover many of the circumstances I encounter on a daily basis.
The purpose of my amendment is to achieve more or less the same result, but it is more vaguely drafted because this is a complex problem and a wizard would be required to put in writing a system which would effect justice between the cross Border and stay at home worker in County Donegal.
I agree with Deputies McCreevy and Keaveney. If we had a decent tax system this problem would not exist. While I am not in favour of tax harmonisation, I am in favour of keeping up with the Jones's. If the UK tax regime will result in rates of 40 per cent and 20 per cent this problem will become more severe unless the Republic pursues similar policies to reduce marginal tax rates.
Wage rates in Northern Ireland are much lower than in the Republic, creating the worst of all worlds for those competing in a market which lower wage rates because of a lower tax wedge and, perhaps, Thatcherism. Those earning lower gross wages are clobbered by a tax regime which is appropriate, or perhaps inappropriate, depending on one's judgment, for a high gross wage rate economy. When the income is transposed south of the Border it looks small by comparison with incomes available in equivalent positions in the Republic. This is a serious injustice because it is doubly unfair. Not only does it amount to higher taxation for those involved, compared with their work colleagues living in Northern Ireland, but they receive a much lower wage rate in Northern Ireland than would be the case if they were employed in the Republic.
There has been disquiet about the fact that people in certain occupations are treated differently because of the double tax regime which operates North-South and comments have been made on what used to be State employment, etc. Deputy Keaveny has outlined her geographic interest in this matter, but it is one which we all share. If our Border regions are to be up to par economically, they cannot be expected to compete with a system where employment yields very different consequences a few miles away over what she rightly describes as an invisible Border.
Something must be done on a short-term basis to alleviate the problem of cross Border workers, while the basic gap between southern and northern tax and wage rates should be eliminated over the next five years, as my amendment proposes. It is naive to think that what Deputy Keaveny says is happening is not the case. People are voting with their feet because they see no light at the end of the tunnel. They consider that they are being heavily taxed as they reside in the Republic on incomes which, because they are earned in Northern Ireland, are significantly less than for equivalent work in the Republic. In such circumstances they will vote with their feet or vote to go to on the dole queue.
If we are serious about the EU, about doing something for Border regions and getting people to work, whether the job is in or outside the Republic, we must do something in the short-term about cross-Border taxation. In the longer term, we must hold out the hope that in five years' time, by the next general election, people caught in this situation will be in a position at least as advantageous tax wise as those with whom they work north of the Border.
I appreciate Deputy Keaveney's involvement in this. She continues to live in Inishowen, but having worked in Derry she was directly affected by this. I was made aware of this on a recent visit to County Donegal in the course of her by-election, on which I have already congratulated her.
I am the first Labour Party Minister for Finance and as the sole representative of my party to hold this office since the foundation of the State, I have done more to address this problem than all the previous office holders. This problem has existed since 1922. It did not happen since I became Minister for Finance. My family comes from the Border area and I know about the tide coming in an out in respect of the economic movement of goods from one side of the Border to another.
They made money.
I have cousins on both sides of the Border and we ensured that nobody lost out at the end of the day, whether it was the McGahons or the Quinns. It is only since it has begun to pinch that people have started to scream and shout. When the boot was on the other foot and people were getting great wages in Derry and living in Donegal, silence characterised their position. We must be clear about the legacy of the past in this regard.
However, since Deputy Keaveney is a very young Deputy the past has no relevance to her concerns and she must deal with the reality today. As a good republican she is asking me, in support of the amendments in the names of Deputy McCreevy and Deputy Michael McDowell, to write into the tax law of this country specified structured inequality among citizens. She is asking that a Fianna Fáil supporter for Deputy Michael Ahern in Youghal would be treated differently from a supporter in the Inishowen peninsula. She wants active Fianna Fáil loyalists, many of whom gathered at the party's Ard-Fheis held last weekend on the premises of the Royal Dublin Society, to be legally treated differently under what may be described as the Napoleonic code of this Republic. That is offensive to every tenet of every political party in this country.
Ultimately, a component of the only solution that will address this problem in a satisfactory manner — I have dealt with levies, ease of payments and other aspects — is a degree of harmonisation and convergence, as has happened over VAT rates. We can bring our tax rates closer together, but unfortunately, until perhaps the Labour Party in Britain wins the next election, we can do nothing about the outrageously low rates of remuneration for public sector workers north of the Border.
After the broadcast on BBC television last night, Tony Blair may lose the election. I saw it last night and was not too impressed. We have had numerous meetings and Deputies will concede I have devoted a great deal of attention to this issue. We had a working party and changes were made based on its recommendations. We are making progress with Article 18 in regard to certain categories of public sector workers. The jury is still out on that.
Will Deputy McCreevy in his professional capacity as an accountant tell me how he would be able to monitor and show how that an individual had spent at least eight consecutive hours a day in one place and prepare a tax submission for the Revenue Commissioners which could be policed, notwithstanding the well known commitment of the people of Donegal to standards of veracity and accuracy? People must make certain points——
The Minister is thinking of his family. Has he any relatives left?
I do not necessarily believe in the theory of original sin but I believe in humanity. Deputy Keaveney adverted to the question of forces generating population decline in rural areas. In the context of Inishowen it has been attributed to the pull factor of Derry. Rural decline is not unique to the Inishowen peninsula. Deputy Michael Ahern would be able to testify to primary schools under similar pressure in the hinterland of Cork county.
Not on my side of it.
It is in other parts of Cork county, as in parts of Laois, Offaly and elsewhere. Kildare is a function of the greater Dublin region in terms of economic growth. Deputy McDowell at least casts responsibility on introducing regulations from time to time under which we would have to define and address this problem. There is no obvious way in which we can do this without offending tax principles of a fundamental nature throughout the system. If there was, we would be the first to try to introduce it.
I have sympathy for the arguments put forward by the Minister and I have explained that over a period to members of my party. Having experienced the problems that some cross-Border workers endure, we came up with this formula. A change was made in section 154 of the 1994 Finance Act which more or less gave a deduction for foreign earnings. Its purpose was to recognise that people who spent an extraordinary amount of time abroad should get an extra deduction. I was Minister for Tourism and Trade at the time and encountered many Irish people who spent a great deal of their time abroad doing work for Ireland on behalf of their companies. That is where we got the idea of extending the principle to get over the problem for cross-Border workers.
I tabled a similar amendment to the 1995 Finance Act to extend the principle which had been put on the Statute Book following the 1994 Act. It recognised that individuals working abroad for Irish companies should receive a special deduction based on the time they spent there. It is an attempt to tailor the principle established in 1994 for people from the Republic of Ireland who work in Northern Ireland for eight hours or more every day.
I recognise the anomalies one could create by going too far down one road but this approach is worth examining.
The tax revenue from this is relatively small but we simply cannot find a way to resolve the problem. Section 154 of the Finance Act, 1994, refers to people who are out of the country for periods. They are cost associated with being away from the family home, which underpinned the logic of that section. In this instance, one refers to people who are in their own homes and travel to and from work every day. We have examined comparable positions in France, Switzerland and Luxembourg where a substantial number of people travel in and out every day from adjoining jurisdictions. There is a cardinal rule with regard to income tax legislation. It is based on a place of residence. I am conscious that a number of Members opposite are professionally qualified in taxation and they will recognise that if one starts to interfere with those principles, irrespective of how valid a particular case may happen to be, one does not know how much one opens Pandora's box.
The Revenue Commissioners should design a section which would ring fence these issues.
I am prepared to look at this amendment further. If a solution can be found that will ring fence the issue and provide additional relief, I am not averse to that. There are essentially two problems, as Deputy McDowell said. Our rates of personal income tax are higher than the UK as are our rates of salary. When you earn a low UK salary and pay Republic of Ireland income tax rates, you receive a double whammy. Perhaps, harmonisation will resolve that. I am not sure what we can do to provide amelioration by way of tax in the short term.
I thank the Minister for taking the amendment on board. The Minister referred to special cases. A special case was made when levies were applied to health contributions. People feel the goalposts are being moved, even when there is bilateral agreement. Some were covered under it but then suddenly they were not. There are many anomalies.
An individual is a resident of an estate if he or she spends 183 days living there. Notwithstanding the fact that the Minister is a tax consultant and I am a humble accountant, perhaps he can clarify whether this includes Saturdays and Sundays. In that neighbouring jurisdiction, Saturdays and Sundays are not included in the compilation of ordinary residents. Has the Minister considered the exclusion of Saturdays and Sundays from the 183 day requirement? Many people go to England to work, come home on Saturday morning and return on Sunday evening. If those days were not included, they could perhaps come home more often.
The 183 day provision is an international standard shared among a number of jurisdictions and includes Saturdays and Sundays. However, we will look at the matter.
Amendment, by leave, withdrawn.
Amendment No. 10 not moved.
Question proposed: "That section 4 stand part of the Bill."
From what year does the taxation of unemployment benefit, disability benefit etc., apply? It was introduced in one Finance Bill but was not to take effect until the subsequent tax year. I am confused with the exemptions and reliefs etc., as to what is in and out.
It was agreed in 1992 when we were in Opposition. It subsequently took effect in 1993, the first year of the Fianna Fáil-Labour Government. The 1992 Bill was altered but it did not come into effect until the following tax year, 6 April 1993. When it started to impact in 1993, people realised there were structural patterns of remuneration for seasonal workers — both in relation to creameries and the tourist industry. Congress, SIPTU and other unions were not aware of these patterns.
Was taxation on unemployment benefit introduced in 1993-4?
The decision to include it for taxable purposes was made in 1992 but this only affected disability benefit in 1993. Subsequently, unemployment benefit was included in 1994.
It was included in one Finance Bill but did not come into effect until subsequent Bills. All the provisions were not implemented at the same time. Taxation on disability benefit was introduced in 1993-4 and on unemployment benefit in 1994-5. In 1995-6, the disregard applied to the first £10. When were the child dependency allowances included?
In the same year.
Political parties of all shades have been subject to abuse because of this matter. Inadvertently the taxation of unemployment benefit was included in the 1993 "dirty dozen" cuts. It was a finance rather than a social welfare matter. I was incorrectly given the credit or pilloried when something went wrong. This idea did not come from politicians, but resulted from negotiations with trade unions and ICTU in particular. This has been conveniently forgotten in recent years, particularly in the light of representations we received recently.
The idea of taxation of disability and unemployment benefit was introduced so that income from different sources could be taxed equally. It was strenuously put forward by trade Unionists, but politicians, from both the Labour Party and Fianna Fáil got the blame. I would like the trade unions to be open about this. If they want to say they made a mistake, they can do so. It is not fair to blame politicians for an idea which did not come from political parties or the Department of Finance.
I should accept some of the blame as a voice from the 1992 period. I agree with Deputy McCreevy. At that time we were led to believe the taxation was a good thing by the people who later said it was the worst thing that ever happened. I will not draw any comparisons with other U-turns in politics but it was a notable one.
Why will the first 18 days of 1997-8 be disregarded but it will be 36 days thereafter? If 18 days is a good idea for this tax year, why is 36 days the period for the next tax year? Where did these figures come from?
Thirty-six days came from the six week provision agreed in the negotiations for Partnership 2000 which we are phasing in over two years.
Question put and agreed to.