The burden of taxation on the people has far exceeded the targets laid down by the Government in both the Second and the Third Programmes for Economic and Social Development. If the Government are serious about economic programming they should make much greater efforts than it would appear have been made to keep within the targets they have laid down for themselves. If the Government want others to aim seriously at the targets, they should make more serious efforts themselves to keep within the targets of taxation they have laid down for themselves.
In the Second Programme the target in regard to taxation was that in 1970 it should take 26.2 per cent of the gross national product. In fact, taxation in 1970 took 31 per cent of the gross national product. The Third Programme projected that taxation should rise from 29 per cent of gross national product in 1968-69 to 31.4 per cent in 1972-73. In fact it had already reached 31 per cent by 1970-71. So, we seem set fair to exceed the Third Programme target for taxation.
A reduction in the rate of growth or, certainly, a cut in taxation can usually take place only if there has been a cut in Government expenditure. I am afraid the public may in effect have been seriously misled into thinking that this year there has been a cut in Government expenditure. At the time of the Budget the words "£67 million cut in Government expenditure" were flashed across the television screen and captioned in the newspapers. The Minister for Finance speaking about Government expenditure said in his Budget Statement—column 697, Volume 253 of the Official Report:
This very substantial reduction, which was not achieved without difficulty, represents the main efforts of my budgetary policy for 1971-72 and
—note this—
is of much greater significance for our economic well-being than the changes I shall announce today.
In fact, there had been no reduction whatever in Government expenditure. Government expenditure was projected to rise by 9½ per cent in 1971-72. All that happened was something which occurs every year. The various Departments in their submissions for funds looked for a total of £797 million and when the haggling was over the Minister granted them £721 million. Obviously the original requests for funds submitted by the Departments were greatly exaggerated. They all asked for more than they expected to get in order to drive the best bargain possible. In effect, what happened was an accounting matter. If the Minister wanted to obtain greater cuts all he had to do was to connive with the various Departments to ask for a little more and in this way he would have even more leeway to make some of the alleged cuts in Government expenditure.
The whole procedure is bogus. The Minister for Finance allowed the people to be misled into thinking that there had been a cut in Government expenditure at a time that expenditure and the burden of taxation is projected to rise by 9½ per cent in 1971-72. If these mythical cuts were as important as has been maintained, the Minister had a duty to this House to spell out what services would be reduced as a result of the reductions and what services would not be available to the community. He did nothing of the kind because he knows that there has not been any cut in Government expenditure and that the burden of taxation will continue to rise.
It is worth noting in what way the revenue derived from taxation in the past eight years has been spent. Since 1964-65 overall taxation has increased by approximately 148 per cent. Of this increase 37 per cent was spent in remuneration for the ever-increasing army of civil servants; 32 per cent was spent in servicing the national debt but only 19.7 per cent went towards social welfare. We are spending more and more on servicing the national debt and in employing more civil servants and less on social welfare. It is important that we see how the revenue derived from taxation is being spent. The low priority for social welfare indicates the Government's priority and concern for social progress.
In regard to income tax, it is interesting to note the section of the community from which the Minister chooses to raise the extra cash. It is not the really well-off; he chooses to take it out of the first £100 of taxable income by removing the concession whereby this amount was taxed at two-thirds the standard rate. It is obvious that the first £100 of taxable income is more important to those on small incomes that to those people with large incomes. The burden of this change on a man earning £100,000 yearly will be no greater than it will be on a man earning £700 a year. This taxation is taking proportionately more from the poorer sections than from the well-off sections. It emphasises the bias in our taxation system against people on low incomes.
It may surprise people to learn that the cost of living in Britain is approximately 10 per cent lower than in this country. In Britain the Supplementary Benefits Commission, who were concerned with maintaining the incomes of the lower paid sections of the community, drew up what they considered minimum income limits to keep people just above the poverty line. In view of our higher cost of living the equivalent figures here would be approximately 10 per cent higher, but we shall consider the figures adopted by the British Government in this regard.
The commission worked out that for a single man the poverty line would be a weekly income of £10 8s. For a married couple living alone, the poverty line was considered to be a weekly income of £14 3s. People in similar categories in Ireland are paying income tax and we are prepared to drive these people further into poverty. In Ireland the tax-free allowance for a single man is only £7 weekly and for a girl it is £6 15s—in contrast to the limit of £10 8s set by the British Commission as the poverty line. In Ireland, in addition to income tax, the person must pay a flat rate social insurance contribution of 78p weekly, which is a form of taxation. In effect, we are taxing people who are already below the poverty line. If that is not bad taxation I do not know what is.
The same situation obtains in regard to the married couple. In Ireland the tax-free allowance for a married couple is £11 per week although it has been established by the Supplementary Benefits Commission in Britain that the poverty line is £14 3s—in other words, £3 of the income of the couple is being taxed. This is unjust taxation.
There have been a number of changes in allowances in the tax code. Sections 6 and 7 make provision for raising the minimum earned income relief from £225 to £250 for married persons and from £125 to £150 for single and widowed people. These allowances only keep pace with the increases which have taken place in the cost of living in the last year. It is worth reminding ourselves that in the last year the cost of living rose by 10 per cent and the allowances are no more than compensation for that increase. We are not giving any effective benefits.
In relation to section 10, the change does not even keep pace with increases in the cost of living. If the allowances were to be kept up to date with the cost of living, a figure of £311 should be substituted for the figure of £303 and the figure of £244 should be substituted for £243.
I should like to refer now to section 9. This section enables an unmarried mother engaged in full time employment or business to claim a housekeeper allowance in respect of a female relative resident with her for the purpose of caring for her child. Why should we insist that she gets a relative to do the housekeeping for her? Why do we not give her the allowance irrespective of whether or not there is a relative available? Why not leave her free? Because of the stigma attaching to unmarried mothers in the past it is possible that relatives might not be prepared to give this service and, in that case, the unmarried mother would be unable to avail of the service because, according to the law, there might be a relative available but the relative might not be prepared to do the job. I hope that this aspect will be examined.
I have referred to the heavy burden of taxation on those below the poverty line. From whence would the money come to compensate for the revenue lost if these people were taken out of the tax net? I suggest the introduction of a capital gains tax. Many people are making money by buying and selling stocks and shares and by buying and selling land. The difference between the price at which they buy and the price at which they sell is not liable to be taxed so long as that buying and selling is not the primary source of income. If one can make capital gains on the sideline those gains will not be taxed so long as that form of activity is not one's primary source of income. These gains constitute a big increase in the incomes of those concerned and, generally speaking, those concerned could well afford to pay tax. I believe these gains should be taxed. They are taxed in Britain. If they were taxed here the revenue netted would be more than enough to remove those under the poverty line from the tax net.
One of the more serious trends in taxation has been the increasingly heavy burden on the productive sectors of our economy. Capital gains are not a productive activity. The burden of taxation on the productive sectors is far too heavy. The most graphic example of this is the 58 per cent company taxation. In Britain it is only 42 per cent. The effect of the tax here may be to induce those with subsidiary firms in this country to close down. There will be a positive monetary incentive to them to move to Britain where they will pay less taxation. This tax hits directly at the employment of a great many Irish workers in sensitive industries. This punitive level of taxation is not only serious for those companies making a useful contribution to production but it is also serious from the point of view of the employment of many Irish workers. The level is far too high.
The Minister attempted rather lamely in his Budget speech to justify this level of company taxation. He said that if a company distributes 40 per cent of its pre-tax profits to its shareholders the rate effectively borne by the Irish company on its profits is not 58 per cent but 44 per cent. In other words, if a company retains its profits and ploughs them back in order to create new jobs and new outlets it will have to pay the full 58 per cent. If, however, it gives its profits out as dividends to shareholders, who may spend those dividends on imported consumption goods, it will have to pay only 44 per cent. This is a positive incentive to the distribution of profits in the form of dividends instead of retaining such profits to finance investment out of the company's own funds. This is the reverse of the way in which the system should operate. It is the reverse of the system in Britain where there is a positive incentive towards the retention of profits for investment instead of spending profits on dividends. The operation of this system may well negative the investment incentives in the Budget since it provides a positive disincentive to people to retain profits and encourages them to be spendthrift in giving these profits away in the form of dividends.
Sections 20, 21, 22 and 23 are concerned basically with improving depreciation facilities available to firms and with the introduction of a new system of investment allowance in designated areas. These are useful incentives but they are being effectively negatived by the high rate of company taxation, which is a disincentive to investment. There is, too, this outmoded distinction between designated and non-designated areas. The system relies on crude county boundaries. Quite often areas in a county may be very much better off although that county is a designated area than are areas in some other county which is not designated. This is obviously unjust. There is need for more flexibility. The counties designated are not always those most in need of designation. I understand the level of income in Clare and Kerry is much higher than the level of income in Laois and Offaly but Laois and Offaly are not dessignated, whereas Kerry and Clare are. The system puts a very severe disincentive on parts of my constituency, like North Meath, and those areas outside the commuter belt which must compete directly for factories with Monaghan and Cavan which are designated areas. This is not fair.