I cannot accept the amendment as proposed by Deputy Burton for a number of reasons. The Government's approach to exempting the minimum wage from tax is already well established. The Programme for Prosperity and Fairness contained a commitment that, over time, all those earning the minimum wage would be removed from the tax net. This approach was endorsed in An Agreed Programme for Government, which indicated that the objective was to be achieved as a priority over the next five years subject, of course, to the overarching requirement for sound economic and fiscal policies and for keeping the public finances in order. This is entirely consistent with the Government's broader economic strategy of sustaining economic growth, strengthening and maintaining the competitive position of the economy and maintaining full employment.
In budget 2002, 90% of the minimum wage became exempt from tax and through section 3 of the Finance Bill this position is maintained even though the minimum wage was increased again in October 2002 and now stands at €6.35 per hour. Workers earning at or below an annualised figure of €11,600, or €223 per week, will pay no tax at all. It is the Government's clear intention to fulfil its policy of exempting the minimum wage from taxation over the next number of years as resources permit.
I have difficulties with the particular mechanism suggested by the Deputy for exempting the minimum wage from taxation, that is the use of the general exemption limits. Such an approach would be complex to implement not only for the Government but also for employers because of the large numbers of people, almost 100,000, who would be brought into the system of marginal relief. In addition, it would run contrary to the thrust of Government policy over recent years. This stems from the recommendations of the expert working group on the integration of the tax and social welfare codes and which was to move away from use of the general exemption limits as a means to remove lower paid individuals from the tax net. That report was produced in the lifetime of the rainbow Government, if memory serves.
The expert group highlighted two particular difficulties associated with the use of the exemption limits, namely poverty traps arising from interaction of the limits with the family income supplement scheme and large numbers of income earners on a high marginal rate of tax. In relation to the high numbers of income earners on marginal relief the group noted:
The main disadvantage of the exemption limit/marginal relief system is one of principle. It involves what is in many ways a second income tax system for those on low and in some cases middle incomes.
Completing the process now of exempting those on minimum wage through the preferred route of increasing the personal credits would be very expensive - prohibitively so in present circumstances. For example, to complete the process using an increase in the personal credit alone would cost about €420 million in a full year. To achieve the same result through an increase in the PAYE credit alone would cost about €286 million in a full year and to do so using equal increases in the personal and PAYE credits would cost about €353 million in a full year. The Government, recognising the scale of costs involved, prudently set itself the more realistic target of exempting the minimum wage over the full period of its present term of office. In the circumstances, I cannot accept the amendment proposed.
I caution Deputies regarding exemptions for the minimum wages being carried out in this fashion, or other matters that would result in having a high drop-off point from exemption to taxation. The expert group report issued under the rainbow Government and the previous Minister was not in a position which allowed him to go against his budgetary priorities of the time, but I have set myself a goal of getting myself away from that system. The marginal relief applies to a very small number of taxpayers - basically to taxpayers over 65. Why? I have exempted those over 65 by using the exemption limits but I have got away from the difficulties that existed with the exemption limits before, which the expert group described as causing difficulties. What happened was that when one when got just above the marginal relief exemption limit one was taxed at 40%, so it was an income tax poverty trap. I can get the numbers for the people affected by this when I became Minister for Finance, but thousands were involved. We have changed this into a very low figure and effectively only those over 65 are affected by this method.
All the expert groups, from the one referred to earlier to CORI and expertise put forward by the various parties, have advocated going this route for years and I have done so. It has worked pretty efficiently and I do not recommend going back to the other way. Exempting is the cheapest way but one would create the poverty trap again. In 1998 and 1999 there were 81,898 people on marginal relief but after this budget there will only be 16,400, most of whom are over 65. That is because of the method I have used to exempt the aged from taxation.
Members have raised the minimum wage and for the record, Deputies O'Keeffe and Finneran were right in their comments about it. Curiously, it was me, this right wing ideologue beloved by certain sections of the newspapers and so on, who announced long before the general election of 1997 that we would have a minimum wage. I announced it as a Fianna Fáil policy proposal at an accountancy function in the Royal Hospital, Kilmainham. It became a Fianna Fáil policy proposal and was reported in the newspapers on that Saturday, then it became incorporated into the Fianna Fáil manifesto. Funnily enough, despite being an election promise made well in advance of the election, the then rainbow Government did not respond to it. That Administration was made up of eminent people from the Irish political left, such as the then leader of Democratic Left, Proinsias De Rossa MEP, who was Minister for Social Welfare, Deputy Rabbitte, current Labour Party leader, and Deputy Richard Bruton, under whose remit it would fall as Minister for Enterprise and Employment. None of the Deputies parties included it in its election manifesto. I do not know what Sinn Féin was doing at the time - it was probably busy with other activities - so I do not know if it included it. It was a Fianna Fáil proposal long before the general election and was incorporated in its manifesto. When we came into power we set up the commission on the minimum wage. It reported early in 1998 and matters progressed thenceforth.
The idea, which I put forward, was not part of the proposals of the other parties even during that election campaign. Towards the end of the campaign I think the Labour Party might have said, out of pure fear, that it might not be a bad idea. I do not know about the party of Deputy Ó Caoláin——