A Finance Bill should represent one of the most important documents laid before the House because it sets forth any changes the Government make in the taxation system. While the budget debate gives us an opportunity to discuss general Government policy, the creation of jobs and so on, the Finance Bill is better dealt with on Committee Stage and on Second Stage.
People are concerned about the level of taxation they are paying. Therefore this year's Finance Bill is more relevant and controversial than ever before. While it is fair game for Opposition speakers to make political points against the Government, each speaker so far has referred to the radical changes in taxation which are needed to prevent people from taking to the streets. As the last speaker said, the danger of street politics is all around us if changes in our taxation system are not made.
If people want to pay less tax they must accept fewer services. There is no point in any politician promising that people will pay less taxation and later saying that there will be increases in social welfare, better health services, better roads and so on. As politicians we may have failed the people by giving them the impression that they can have these services free. We should tell them the truth. They get nothing free. Anything provided by the State is paid for by taxation. For short-term periods the Government may finance their budget deficit by borrowing from abroad or internally. All that money must be repaid. The only way this can be done is by taxation. Whether this taxation comes from companies, individuals or some other way, ultimately it will be paid by the people.
In future general elections will be fought on the basis of what "goodies" the people will get. I am very concerned about this. If people think that by putting out one Government and putting in another they will be better off overnight, they are on the wrong track. If we encourage people to think like that we cannot expect them to do anything but rebel when we put harder options before them. For as long as I am in politics my message to the people I represent will be that services provided by the State are paid for by taxation.
It galls me to hear the Opposition speaking about changes being made in the PAYE taxation system and saying that people are paying too much taxation when they had four years to do something about it. A few figures at this stage would be relevant. While people can prove anything by juggling figures, there are certain figures which are indisputable. When the last Government came to power for the tax year 1974-75 the married allowance was £800; in their last year, 1977-78 it was increased to £1,100, a 37½ per cent increase. The cost of living in that period doubled. These people talk about indexation of allowances but that was the time to do something about it. If allowances had been indexed to the cost of living, the tax-free allowance in 1977-78 would have been greater than £1,100. As a result of this budget the 1978-79 tax-free allowance for a married person has been increased to £2,230. In the 18 months since we took office the cost of living has fallen. While people may dispute that inflation was reduced because of world markets or because of Fianna Fáil policies, no one can dispute that while we have been in office inflation is lower that it was when the last Government were in power. While the Coalition were in power they increased the tax-free allowance by only 37½ per cent and so far we have increased it by 100 per cent.
In the tax year 1976-77 the average industrial worker paid 16.6 per cent of his income in taxation. As a result of this budget the average industrial worker will pay 12.6 per cent of his income in taxation. That is an improvement in the level of taxation for these workers. If this is true one might ask why the people are taking to the streets because of taxation. Apart from any specific matter which may have caused their anger and brought them to the streets, we as politicians, have to face certain facts. In my opinion, the people are marching because they want more personal disposable income—to spend more in the public house on Saturday night, or at the races and so on. They do not feel they are getting value for the money which is being taken out of their pay packets every Friday night. I am sure that if PAYE taxpayers saw their money going to feed an old age pensioner or to a deserted wife or people in need, they would say their money was well spent; but, unfortunately, people see an evergrowing amount of money taken from their pay packet and going into the Exchequer coffers. They do not feel they are getting a proper return.
A lot of people feel that the civil service is grossly over-staffed and these people have to be paid for out of taxpayers' money. The taxpayer does not think he is getting the best return there as services are getting worse. The PAYE taxpayer feels that he is paying more than his fair share of tax. I suppose we all feel at one stage or another, whether in politics or business, that we are paying more than the person beside us or that we are getting a hard deal from the Opposition or the press and the others are getting it easier. That is a normal reaction.
PAYE taxpayers are saying that they are paying more than the self-employed and farmers. I have heard people say that the PAYE system is not working. Unfortunately for the people on the system, it is working too well because they are the only people it is easy to collect tax from. They have no way of avoiding paying tax because it is collected at source. They never get the money into their hands to do anything with it. It is paid over by employers at the end of the month. For the self-employed and for companies the method of calculating their income is not as exact and the same set of rules do not apply. Unfortunately, what people and trade unionists are saying when they say that the self-employed are not paying their fair share is that if they had the same opportunity they would try to fiddle their tax as well. We must ask ourselves why people think like that. People think that the self-employed, who have the opportunity of calculating their own income in a different way, abuse that calculation and fiddle as much as they can. That is a symptom of our society.
There may be ten out of 100 people who abuse the social welfare system but they give the whole system a bad name. People are inclined to say "Look at the abuses in the social welfare system. There is John X who has a job and is drawing unemployment assistance". They forget about the 90 people who are genuinely unemployed and are not abusing the system. The same applies to taxation. It is the 10 per cent of self-employed people who do not pay their fair share of taxation who give a bad name to all the self-employed. I do not say that 10 per cent is an exact figure.
The self-employed have a lot of problems. They do not have the same regularity of income as people on the PAYE system have. Their tax is computed by a different system, but by and large the self-employed person, who is the bane of the PAYE taxpayer, is paying the correct amount of tax. I would not be so innocent, as an accountant, to say that some people who are self-employed do not evade tax. However, the number is grossly exaggerated. It is impossible for a self-employed person who might evade tax by off-setting his receipts to accumulate a large amount of money because the tax inspectors are very much on the ball and if a person has shown his income as being only £5,000 and then turns up with £40,000, £50,000 or £100,000 out of nowhere, he is hammered on that. He has to pay not only the tax he should have paid on it but interest and penalties as well. To accumulate large sums of money when one is self-employed is simply not on. The abuse of the taxation system is not as great as is imagined.
The figure given for taxation paid by those on PAYE is in the region of 85 per cent and the self-employed usually contribute only a very small amount. Included in that figure are directors of all types of small private firms. In theory, if all self-employed people formed themselves into limited companies, the companies would pay corporation tax and the money taken out by directors would be taxed under PAYE directors' tax. No taxation at all would be collected from the self-employed.
The figure of 85 per cent grossly distorts the amount contributed by the self-employed because included in it are large amounts of money collected by directors of private family-owned companies. When people speak of self-employed people they usually mean those who run their own companies. Such people also pay PAYE and are included in the figure, but that is a point which is always forgotten.
It is difficult to speak about the Finance Bill without referring to the national understanding. Since the budget and the national understanding there has been a greater crack down on people who do not pay tax, namely, the self-employed. I read recently that the Revenue Commissioners are considering publishing the individual returns of groups of people. I do not mean that they will publish any individual's tax but rather the income of certain people in society—for example, doctors, solicitors and accountants. By doing this they hope to encourage people, who see Mr. X, a doctor down the road, with an average return for income of say, £10,000, who has a very high standard of living and goes on a continental holiday twice or three times a year, to report this to the Revenue Commissioners and that this will help the Revenue Commissioners in catching up with tax evasion. What I have seen and heard from the Minister and the Revenue Commissioners is to the effect that this should help and that the ordinary person who pays his correct tax has nothing to fear but that the person who is evading tax should worry about it. Consequently, there is nothing for the man who is not breaking the law to worry about. In the past few months also there have been reports in the papers about tax spies and people giving information to catch out their fellows. I am totally opposed to such an idea.
I do not believe that the publication of returns of groups of people is the way we should approach the tax evasion problem. We do not allow people to drive while drunk because the police are not able to catch them. We make laws more stringent and get more police and hope they will be able to catch them. I am not prepared to advocate a system by which everybody will be a tax official and be writing letters to the inspector of taxes saying that Mr. X. or Mrs. Y have bought new coats or cars. That is not the way an economy should make progress. It is part of what I call the politics of envy. Whether it is the farmer who is getting better off or our neigbour we should encourage people to become better off and not try to knock them. It may even make the burden of the Revenue Commissioners more difficult. If we want to catch people who are evading tax I suggest that we should have more tax inspectors, but I would not advocate a system of people rushing in every day to the local inspector, in effect spying on their neighbours. Whether this is oldfashioned or not, the whole idea is abhorrent to me and I do not agree with it.
There are many points in the Bill which perhaps can be dealt with on Committee Stage. I welcome particularly section 6 which gives allowances for expenditure on residential premises. I understand the idea is that the householder who does some improvements to his house such as installing insulation will get tax relief on the labour element in that expenditure. That is a worthwhile scheme with the relief extending to the excess over £50 subject to a maximum of £450. While I commend the idea in reading through the section I doubt very much if the scheme will get the support it deserves. A person who wishes to claim for this expenditure must first apply to the inspector of taxes on the prescribed form. Section 6 and the Second Schedule must be taken together as the Schedule sets up the system and procedure. I feel that while this is a good idea it will become bogged down in massive bureaucracy. In the Second Schedule we have almost five pages setting out various ways to prevent the system being abused. I sympathise with the Revenue Commissioners in trying to device a system that will not be abused but I think the complicated bureaucracy involved may render this worthwile idea inoperable.
Paragraph 2 of the Second Schedule states:
Where an individual wishes to claim a deduction under section 6 in respect of the labour cost of qualifying work carried out or to be carried out by a registered person, he shall—
(a) make an application on the prescribed form to the Revenue Commissioners for a form on which to claim the deduction (in this paragraph referred to as "a claim form") bearing the name of the registered person, and
(b) complete the claim form (which shall be issued to him by the Revenue Commissioners if they are satisfied that the form ought to be issued to the said individual),
This is an application on a prescribed form to the Revenue Commissioners to get a form on which one can make a claim. It is not the claim form. There are about three pages dealing with the claim form. The Revenue Commissioners may not even issue the claim form: they will not issue it unless they are satisfied that a form ought to be issued. Nowhere in the section or the schedule can I find how they will decide whether it should be issued or not. I should like to know why it should not be issued. According to my reading of the section a person who wants to get his improvements done and make a claim must first get a prescribed form from the Revenue Commissioners. He then makes applications for what I shall call the claim form on which to make the claim. That form will not be issued unless they are satisfied it ought to be issued. This is before he begins to get down to his claim.
When he gets the form he has to do a lot of things set out on pages 32, 33, 34, 35 and 36. Presumably most of this expenditure on residential premises will be carried out by ordinary people on PAYE who wish to improve their houses. Since it is subject to a maximum of £450 it will not be a very big job. They must contend with this bureaucracy before they get started. The allowance will not be paid at all unless the work is done by a registered contractor. I have a good deal of experience of contractors dealing with taxation problems. These registered contractors, as far as I can ascertain, are not the same people as contractors to whom a sub-contractor's certificate of authorisation is issued. There is very involved legislation in relation to sub-contractors. Under section 6 of the Second Schedule, we are now creating a new form of contractor, a registered contractor, to whom people will be able to go to have a house repaired and they would possibly qualify for tax relief. There will be so many types of contractors and so many different certificates that builders and other people will be totally confused.
In order for a person to become a registered contractor he must go through an elaborate process. The procedures are listed out in a number of pages and the penalties if he does not fulfill all his obligations are also listed. Paragraph 5 of the Second Schedule sets out in very simple terms how a person can become a registered contractor. Paragraph 5 (1) says:
5. (1) The Revenue Commissioners shall on application to them in that behalf on the prescribed form by a person issue to the person a certificate (referred to in section 7 and in this Schedule as "a certificate of registration") if they are satisfied that the person or, in the case of a partnership each partner, is resident in the State.
Paragraph 5 (2) states that the Revenue Commissioners will keep a record of these people and that a list of them will be displayed at each office of the National Manpower Service and also in the offices of the Inspector of Taxes. According to paragraph 5, the Revenue Commissioners will issue to each person who applies to them a certificate of registration provided he is resident in the State. It seems quite simple, yet there are three pages showing how this person can get the certificate, why it will be taken from him and various other things. If it is so simple to obtain a certificate why are all these paragraphs necessary? Paragraph 7 relates to the reason for the cancellation of a certificate. What is the reason for paragraph 7 (a), which says:
(a) a certificate of registration was
issued on the basis of false or misleading information,
Surely it is not an elaborate process to discover if a person is or is not resident in the State. Paragraph 7 (b) says:
(b) a certificate of registration would not have been issued if information of which they became aware subsequent to its issue had been available to them at the date of its issue,
What information is referred to here? What information could the Revenue Commissioners become aware of? The only qualification is that a person must be resident in the State. Paragraph 7 (c) says:
(c) a person, to whom a certificate of registration was issued has permitted it to be misused,
I cannot see how these certificates could be misused; there would be no reason for misusing them. They are not the same as subcontractors certificates, because anyone can get these certificates if he resides in the State. However I am prepared to concede paragraph (c). Paragraph 8 also refers to false or misleading information and so on. This goes on for pages. The kind of contractor who would take on small jobs will not go to the Revenue Commissioners for a certificate of registration. People in the subcontracting business who have been hassled about subcontractors certificates and who have been unable to obtain sub-contractors certificates will not go through the same procedures to secure a registered contractor's certificate. These certificates are not needed by people who work on small house extensions and improvements because they are dealing with people who will pay them straight off.
As far as I can see, this section was put in to get tax evaders into the tax net. The idea behind this will fail because the ordinary individual will not go to the bother of getting a registered contractor's certificate. The big contractors will not do this type of work which will only be done by the small contractor. At the end of the year we will find out that the amount of money saved by the taxpayer through the section will be negligible because people will not go through all these procedures relating to the issue of certificates of registration.
On Committee Stage will the Minister cut out this paraphernalia in paragraphs 7, 8 and 9 and leave in only paragraph 5 setting out how they will be issued? The Revenue Commissioners are trying to guarantee against the failure which they had when they issued subcontractors certificates in 1970, when so many were issued and the system was so widely abused. It is now almost impossible to get a subcontractors licence because the legislation is so tight. The Revenue Commissioners are trying to do the same thing here to guarantee against failure. If the section is to work the Minister must cut out a lot of these thinks about how a subcontractor gets a certificate of registration.
In this Finance Bill there is no provision about legislation regarding sub-contractor's certificates of authorisation. The certificates were introduced in 1970 and the idea was to prevent the "lump" system on building sites. Until that time very few people who worked for builders paid any tax. A few building companies operated PAYE but most of the people were "lumpers" and were classified as self-employed. They worked in groups and moved from job to job. The Revenue Commissioners never caught up with them and, consequently, the people concerned never paid tax. Following legislation enacted in Britain, in the 1970 Finance Bill the Revenue Commissioners were authorised to bring in certificates. It was easy to get the certificates in 1970. All a contractor had to do was to promise to submit his accounts at the end of his first year of trading and he got the certificate. I do not think the figures were published but in the case of the 7,000 certificates issued in the Dublin area only 20 per cent sent in their accounts. The system was so widely abused that it became a joke. In 1973 the Revenue Commissioners withdrew about half the certificates in the Dublin area and various Finance Acts tightened the legislation making it difficult to get a certificate of authorisation and also making it difficult to abuse the system.
I sympathise with the inspectors of taxes. Because there was such abuse of the system I accept that there was a need to tighten up the legislation. I do not blame the Revenue Commissioners for withdrawing the certificates but we have now reached the stage where we have gone to the other extreme. The Revenue Commissioners now have a practically foolproof system regarding the certificates. Any person who has a sub-contractor's certificate can get jobs from builders and local authorities because the person paying him does not have to worry about the tax. If a person has not got such a certificate and does a job for a builder or a local authority, the principal contractor is obliged to deduct tax at 35 per cent before he pays him. Some people are prepared to work that system but the majority of larger builders and employers prefer if a person has the certificate. The Revenue Commissioners are quite severe on the principal contractor and if he pays without deducting the tax he has to pay tax on the sub-contractor's behalf.
Since 1976 a better system has been in operation. Now a principal contractor has to apply to the Revenue Commissioners for a construction payments card and if the Revenue Commissioners change their minds they can refuse to issue the certificate. The principal contractor is not allowed to pay the sub-contractor until he gets the construction payments card. The Revenue Commissioners have an exact record of the whereabouts of each sub-contractor. After 5 April the principal contractors who are issued construction payments cards are obliged to return them to the inspectors of taxes. It is practically a foolproof system and I wish to commend the inspectors of taxes on their foresight.
The system is working well but it is almost impossible to get a sub-contractor's certificate of authorisation. The Minister may tell me that if a person has an established place of business, if he has a satisfactory tax record and if the Revenue Commissioners are satisfied that he will comply with the rules they will issue him with a certificate. Unfortunately the position is that it is a difficult job for even the most genuine person applying for such a certificate to get it. Perhaps it is because of the bad experience of the Revenue Commissioners but they make it nearly impossible for a person to get a sub-contractor's certificate. Anyone with such a certificate knows that he must comply with the rules because the certificate is of considerable value to him in that he will get work that would not be given to him otherwise. The certificates are like pieces of gold. Even if there was abuse it would be for only one year because after 5 April the Revenue Commissioners can take it from a person.
The issuing of these certificates and the rules made have meant that many jobs that could be created are not being created. I know many sub-contractors who are willing to keep books properly but they are not able to get the certificate. It is all very well for the inspector of taxes to say that if a person has not got the sub-contractor's certificate he can get the tax stopped and that he can come each month to get back his money. It is not possible to pay wages and to pay for materials throughout the month when one gets only 65 per cent of the money that one should get. It is not possible to do this in any medium or large business.
I put to the Minister that at least 5,000 new jobs would be created in the private sector overnight if inspectors of taxes had a more relaxed way of issuing certificates, if they did not turn down applications straight off. The system used is keeping down the numbers who could otherwise be employed. The Minister should bring to the notice of the Revenue Commissioners that they should ask inspectors of taxes to have regard to the job-creative potential of issuing certificates quickly.
There are sections in the Bill relating to the taxation of farming profits. The main change in this regard is in the lowering of the liability threshold from £60 to £50 and increasing the multiplier from 90 to 125. All this has been overshadowed by the announcement on Tuesday that from 1980-81 there will be a new taxation system for farmers. Since 1974 the taxation of farming profits has been a recurring budgetary problem, and I admire the previous Government for tackling farming profits. Sooner or later some administration had to set about doing it.
Talking about farmer taxation, the majority of people living in Dublin have the impression that Irish farmers drive around in large cars, have big houses and make plenty of money. That impression has been created by the sight of a few farmers coming to Dublin for big matches, but unfortunately the majority of them, 90 per cent, do not drive around in big cars and do not enjoy a high standard of living. Many farmers would like to have the incomes city people think they have. People have misconceptions about farm profits.
Until 1972 there was no reason to tax farm profits: although technically they were liable for tax since 1969, the tax had never been collected. It is only in the last ten years that farming has developed properly. People are inclined to think of the £900 million farmers have got since we joined the EEC and of the big prices they get for cattle and other agricultural produce. However, if a person had £10 a week and he got a 100 per cent increase in his wages, he would still have only £20 a week. The base from which farmers started was very low. Farmers' profits have increased rapidly in percentage terms, but if recent studies are anything to go by, it is only now that average industrial wages and average farm incomes have become about the same, though perhaps farmers are still a little behind. We should remember that before we go off half-cocked talking about the millions farmers are making.
On the other hand, it is not fair for the farming organisations to be all the time saying the opposite, that farmers are not making money, and crying and whinging no matter what kind of increase they get. Up to seven or eight years ago farmers were not enjoying a reasonable living. My people are farmers and, although I am not a farmer, I live in a farming area and I understand about work on a farm. I know that farmers do not like union leaders and people in cities week after week giving out about taxing farmers who, they say, are making millions, and treating them as public enemy No. 1. On the other hand, they do not particularly care for leaders of their own organisations saying they are not doing well enough. The ordinary farmer is a very balanced and fair-minded person. If he makes money he works hard for it. We have had a hard winter. There is no great joy in getting up at 5.30 in the morning with snow on the ground and going out to milk 30 or 40 cows or going out to feed cattle through the snow. Of course there are some substantial farmers with a large labour force, but they represent not more than 5 per cent of the total farming community.
It has to be recognised that the amount of tax collected from farmers is not in proportion to the tax collected from other sectors. Last year the income tax collected from farmers with valuations of more that £20 amounted to about 5 per cent of farmers' incomes, and the percentage collected from other sectors of the community was 17. A Government could not allow such a situation to continue. If a farmer makes a profit he should pay income tax, but if he does not he should not pay income tax.
