This section secures that in future the income limit for purposes of the dependent relative allowance under section 142 of the Income Tax Act, 1967, will be an amount equal to the sum of the maximum old age contributory pension payable at the personal rate to persons of 80 years and upwards and the living alone allowance provided for pensioners over 80 years. The House will recall that the income limit was set at £944 by section 1 of the Finance Act, 1978. In the course of the debate on that Act I stated that I was considering bringing in a general rule which would not need to be revised by new legislation every year. Section 1 sets out this general rule so that automatically the relief provided for will apply to whatever is the appropriate rate without the necessity for amendment each year.
Finance Bill, 1979: Committee Stage.
I do not disagree with that. I see the thinking behind it. It makes the Finance Bill somewhat neater. At the same time, I wonder if we should not be a little cautious about this. I tried to find out why this was not done years ago but nobody could tell me. A guess was made that there was a fear at the time that some future Minister for Finance might decide to lower income tax—this happened once before—and to lower old age pensions.
Is the Deputy asking why it was not provided that this would automatically apply every year?
Evidently there was a fear that some future Minister for Finance might lower the age for old age pensions in which case the dependent relative allowance would automatically be lowered by this section. I think it is right that it should be tied to something in order to save us from dealing with the section every year.
The Deputy may be slightly misinformed in this regard. There was an automatic provision of this kind operating up to last year but at that time the limit related to the non-contributory pension. Last year I provided for an increase in the limit to the contributory pension, but it was not possible at that time to have this automatic rule incorporated. All the section did last year was to relate to the specific figure, but I indicated that I would examine the possibility of having it applied automatically. That is what we are doing in this section. The difference is that the allowance is now automatically at the contributory pension level, rather than the non-contributory pension level.
That is the highest rate of contributory pension.
Yes.
I move amendment No. 1:
In page 7, to substitute the following for column (1) of the Table to subsection (1):
"
|
part of taxable income(1) |
|
the next £3,600 |
|
the next £1,800 |
|
the next £1,200 |
|
the remainder |
".
The purpose of this amendment will be quite obvious. It is to give effect to indexation in the tax bands. There has been much resentment since the budget about the payment of tax and despite the fact that allowances were given in the budget many people still feel they are not being fairly treated under the PAYE system. When the budget was first announced this point did not quite sink in. In speaking during the budget debate on 7 February I said that when the small print came to be read people would resent moving into a higher tax band £400 earlier because of the abolition of the 20 per cent band.
Last year there was a similar section in the Finance Bill and I moved an amendment seeking to have the bands indexed. The Minister turned down this amendment, despite the fact that in 1974 while in Opposition he moved an amendment during Private Members' Time seeking indexation of the tax bands and tax allowance. He has not put into effect the proposition he then put forward. The amendment I tabled last year was defeated because of the division of seats in this House, yet within a few months the Minister introduced the capital gains tax and the concept of indexation. Those who receive forms of payment through capital gains now have the benefit of indexation, but the ordinary person earning a weekly or monthly wage or salary does not have this benefit. Resentment of this fact is still seething under the surface and, unless we want politics conducted on the streets, this House must recognise the sense of grievance felt by people. We will build up trouble for ourselves in the future unless we take the opportunity to show PAYE taxpayers, who rightly consider themselves the major pillar on which the structure of the State is held, that they are fairly treated under the tax system. It is in an effort to show that they are fairly treated that I have introduced this amendment. Indexation is available to those who receive money through capital gains and there must be some recognition that inflation has the effect of moving people into higher tax bands earlier than might normally be the case.
The lack of indexation and the foolish abolition of 20 per cent band make it extremely difficult to get the cooperation which the Minister is seeking in regard to the national understanding. I agree that some form of wage restraint is necessary during the next 18 months so that we will be able to see the way ahead and plan the economy. I hope the understanding will not be turned down, but if it is rejected the people voting against it will be ordinary taxpayers impelled by their resentment regarding tax. I know there is a section in the national understanding which promises to refund to the taxpayer the amount of £175 at the end of the year under certain conditions and the Minister has circulated an amendment dealing with this. In many cases when taxpayers receive an increase in wages they move into a higher tax band and when they move above a relatively low income they pay in tax 60 per cent of the increase in wages. This causes real bitterness. The bands have not kept pace with inflation and in my amendment I am suggesting that the first band should be £1,800. I have amalgamated the first two bands, the old £500 and the next £1,000, and increased them by 20 per cent which is the increase in inflation since this band was introduced in the 1977 budget. I have also increased the other bands by 20 per cent.
The Minister would be unwise to refuse this amendment. I concede that it would have an effect on the country's finance, but if we pretend that taxpayers are not resentful and do not cater for that, then many more of the decisions affecting the economy will be forced on Government by people outside this House. An indication of this is the march which took place during the month of March. When it was announced I guessed it would be successful, but in my wildest dreams I did not anticipate that 250,000 people would march on that day. For the sake of orderly Government in the future, the Minister and the House would be very wise to accept this amendment.
There will be an amendment on similar lines from the Labour Party, apart from the figures set out here. In general, we favour a more graduated band system. There appears to be too sharp an ascent into the highest tax-paying bracket for people in the middle income range. This is having a bad effect on industrial relations generally. I think the Minister was mistaken in abolishing, as he did, the 20 per cent rate in his original proposals. If there was a more gradual rise in ascent with the taxation level not biting into the middle income range especially, it would be an improvement. I am thinking of the industrial worker earning an average at present of about £80 per week. With overtime he finds himself paying the highest rate of income tax. All through industry at present there is a clear realisation of the interaction between taxation levels and income levels. Industrial bargaining now is no longer what it used be. In the traditional situation we knew that employees bargained with employers for a set figure but now representatives of employees are as acutely aware as the Revenue Commissioners of the likely effect on net take-home pay of taxation provisions. The sums are done on what level of insurance contribution has to be paid, what rate of income tax is levied and so on. All these come into the final reckoning now before employees are satisfied that their income will permit their standard of living to be either maintained or improved.
I am not going beyond the confines of the section in saying that there is no doubt that the prospect of success for the national understanding depends on a responsible and more constructive attitude on the part of the Government to the question of taxation and the disproportionate burden borne by PAYE workers. The possibility of support for the national understanding hinges on this. I am anxious to hear the Minister on this point. We shall certainly try to see what improvements can be brought about in the present situation. I should like some acknowledgement from the Minister and, as proof of his acknowledgement that this is a very serious problem at present, some response to the requirement that exists undoubtedly for a less steep ascent into the higher tax brackets for the average industrial worker.
In talking to industrial workers one very frequently hears the comment when they are forced into overtime as many of them are with weekend working: "Two-thirds of this goes to the State." While they realise that so much of their over-time earnings goes into the Exchequer they are forced to undertake overtime because of various pressures on their living standards that compel them to seek extra overtime when their family living and social life suffers as a result of this dependence on excessive overtime.
There are many factors involved in the solution of this whole problem which are perhaps outside the scope of this section but there is no doubt that it is relevant for the Minister to inform the House what steps he proposes to take to prevent this rather precipitate rise into the higher tax ranges in respect of workers' incomes. When PAYE was originally contemplated I am sure it was never visualised that such workers' average earnings would attract the higher taxation rates. This is undoubtedly a very adverse factor in industrial relations at present and quite outside the scope of employers and employees and union representatives to settle among themselves. It needs a very constructive contribution and reaction from the Government.
It is quite unreal and a little mystifying that Deputies should refer to the changes in the bands without referring to the changes in personal allowances. For instance, under the proposals in the Bill the married allowance is increased by £500, in other words £500 of additional taxable income is completely free of tax before the bands operate at all. Of course one cannot look at the operation of the bands without having regard to the level of the personal allowance and it is quite misleading to try to do otherwise. Clearly, on the combination of the two changes, one finds that all taxpayers other than single people earning in the region of £7,000 per year or more are benefiting. Such people at the maximum pay an extra £15 a year in tax. Apart from those, all other taxpayers benefit and we should have that clear in our minds.
Deputy Barry referred to the indexation of capital gains as he has already done on a number of occasions. I responded to it but since he has raised it again I must once more point out that the tax on capital gains is what it says, a tax on a gain. Without indexation you could have a tax on a loss. Whatever one may say about income tax, nobody is taxed on an income he does not have. That is the basic difference between the two systems. Deputy Barry also referred to a proposal I made in 1974 in regard to increasing the allowances in line with inflation. If the Deputy cares to refer to the records of the House for 24 July 1974 he will find what I said. I was quite specific in limiting my proposal and also in referring to the fact that we were at that time suffering an annual rate of inflation of 24 per cent. It was specifically in that context, a totally new context for us, that I made my proposal. I do not think Deputy Barry can saddle me with making a proposal in Opposition which I was not prepared to implement in Government if only because the enormously different circumstances then prevailing which I spelled out at the time did create a new situation. However, suppose that when I came into office I had applied indexation, what would the consequences be? It is important to realise that this now seems to be a firm proposal from the Fine Gael Party.
It would appear from what Deputy O'Leary has said that the Labour Party favour this proposal also. Let us look at what would have happened if I had applied indexation since I took office after the last general election.
The first thing would have been that, instead of the married allowance sum of £2,230 which is being provided for in this Bill, the figure would have been £1,315. Is that what the Fine Gael and Labour Parties are asking for: that we should reduce the married allowance from what we are proposing here by almost £1,000, with similar reductions in the personal allowances for other categories of taxpayers, single, widowed, and so on? People should understand —and it is one of the difficulties in dealing with tax that enough people do not understand—the extent to which the burden particularly on PAYE taxpayers has been relieved in the last two budgets. This illustrates very clearly the degree to which progress has been made in relieving that burden. The fact is that if we had applied indexation, instead of being £2,230 the married allowance would have been £1,315.
That is not the end of the story. Deputy FitzGerald, who put forward this proposition at the Fine Gael Ard Fheis, was interviewed on the radio the following day and said, correctly in my opinion, that if we were applying indexation to income tax we would also have to apply it to indirect taxes. What would be the position if we adopted that course? Apart from reducing the personal allowance so substantially, the consequence would have been that, to adjust the duty on the pint of stout and other beers in line with the increase in the consumer price index since it was last increased in 1976, an additional tax increase of 5p over and above what was provided for in this year's budget would have been necessary. Instead of an increase of 2p on the pint, the increase would have been 7p. On the glass of spirits the tax would have been increased by more than 6p over and above the budget increase. The corresponding increase for cigarettes would be over 4p per packet of 20 for the popular tipped brands, over and above the increases provided for in this year's budget. In addition, the duty on petrol would have been increased by 19p per gallon.
We ought to get an air of reality into the situation. If Deputies opposite are proposing indexation, the onus should not be on me to spell out the consequences of what they are saying. Since they are carefully avoiding the consequences, I have to do it. The consequences are, as I have already indicated, that if we applied indexation the tax allowances we are proposing would have been vastly reduced, and the indirect taxes on beer, spirits, tobacco and petrol would have been vastly increased. If that is what Deputies opposite are advocating, the people should understand that.
The real secret in all this is that Deputies opposite do not want to acknowledge, and are doing their best to conceal, the degree to which this Government have relieved the burden on taxpayers as compared with the situation when they were in office. I sympathise with Deputy Barry and Deputy O'Leary. They were both members of the former Government. They have a job to do as spokesmen on finance for their respective parties. I cannot think of a more embarrassing question to put to Deputy Barry and Deputy O'Leary as members of the former Government than the question: "What did you do for the PAYE taxpayer when you were in office?" Is there a more embarrassing question they could be asked?
It ought to be particularly embarrassing for Deputy O'Leary. I am not exonerating Deputy Barry, but at least he has not posed in recent times as the champion of the PAYE taxpayer which Deputy O'Leary has tried to do. The record of these Deputies in Government in relation to PAYE is appalling. Any comparison between what they did in office and what has been done by this Government shows that they were totally unaware of the burden on the PAYE taxpayer or, if they were aware of it, they did not bother to do anything about it.
I do not want anyone to suggest, because it would be quite untrue, that I believe the situation in regard to the PAYE taxpayer at the moment is satisfactory. It is realistic to say we will never reach the situation in which all PAYE taxpayers will be satisfied unless, of course, income tax is abolished altogether. Even then, I suppose some people would have justifiable complaints on certain grounds. However, it is unlikely to happen in our time so we need not consider that possibility.
We need to consider what has been done by this Government to ease the burden on the PAYE taxpayer and ask are we moving in the direction of easing that burden further. All the evidence shows that is so. I do not think it is unreasonable of me, when I hear from Deputy Barry, and from Deputy O'Leary in particular, about what should be done for the PAYE taxpayer, to point out to them that when they had an opportunity to do something about it, their record cannot be described as anything but appalling. The amount of posturing involved in this area does not help anybody. If Deputies want to put forward the proposition of indexation, as has been done here, they will have to accept the consequences. The consequences are that indexation which they are advocating would do far less for the taxpayer than this Government have done, and would have increased the burden of income tax and indirect tax to an intolerable degree as compared with what has happened under this Government.
That was ten minutes of posturing in the grand manner. Let me start by saying that I thank the Minister for his sympathy, and no doubt Deputy O'Leary will speak for himself. I sympathise with the Minister, Deputy Colley, because I think he is a decent man, but I do not sympathise with him as Minister for Finance, or with any member of this Government. I do not have to underline here—and it has been said outside the country which is far more serious—that since this Government started off by unleashing unreliable expectations in their manifesto they have not deserved the slightest sympathy from anybody.
The Minister said that the budgets this year and last year had relieved PAYE taxpayers. If that is so, can the Minister tell us why so many people went on the streets in protest earlier this year? Is it because they do not believe what the Minister has been saying?
There is a case to be made for indexation of direct as well as indirect taxation, but if indexation were introduced in respect of PAYE the Minister would have to introduce it for ordinary taxation as well, but then at least the Government would be seen to be raising extra taxation. But when the tax bands are changed and when people get wage increases which put them into upper bands, the Government get increased revenue which is not immediately obvious.
The Minister has told us about the increased personal allowances he has given, but he did not do anything to change the bands. This year he did away with the lowest band which was of peculiar benefit to the lowest taxpayers. Automatically every taxpayer went into the higher band at 25p in the £. Now, when most people get wage increases they will be moved into the higher tax bracket because of the telescoping of the tax bands. The Minister has told us that it is only people who earn several thousand pounds a year who will be affected.
Single people.
I have got figures in front of me in relation to tax liabilities of married and single men earning £6,000 a year. Everybody listening to me here earns that amount, and there is not an army of us here at the moment. All tradesmen probably earn £6,000 a year. Middle rank gardaí, junior Army officers, industrial workers with some overtime, commercial travellers, shop managers, junior doctors just starting off, local authorities and TDs earn that amount, some of them a bit more. In the financial year 1978-79, a single man earning that amount would have a personal allowance of £865. He would have been given a social welfare allowance of £64. On the first £500 of taxable income he would have paid 20 per cent, £100. On the next £1,000 at 25 per cent he would have paid £250, on the next £3,000 at 35 per cent he would have paid £1,050 and at 45 per cent on the balance, his total income tax would have been £1,701.95. He would have paid £171 in social welfare payments, and on those figures his payment to the State last year would have been £1,879.
Social welfare contributions are not income tax.
I had guessed the Minister would say that, and I will deal with it later. This year that man will have to pay pay-related contributions, he will be caught by the telescoping of the tax bands and the abolition of the social welfare allowance for tax purposes, and taking into account the increased personal allowance he will be paying £1,920, meaning he will be about £41 worse off, or 80p per week. The Minister has said that social welfare contributions are not income tax, but a person drawing a weekly wage is not concerned on a Friday night about the brand of tax: he is concerned about what is in his pocket at the end of the day. That man was concerned in the first week of April this year that he took home 80p less than on the last week of March. He was incensed and he did not distinguish between the Minister for Social Welfare, the Minister for Health or the Minister for Finance—he had less in his pocket.
If the man with £6,000 a year income is married with three children, after his personal allowance and child allowance and the social welfare allowance, in 1978-79 he would have paid a total of £1,045.10. He would have paid social welfare contributions of £77 bringing his total contribution to the State to £1,122.10. This year, his aggregate tax means that he is about 50p a week better off. That man will not shout from the rooftops about it. It will buy him a pint and I am not sure whether it would be enough to buy a packet of cigarettes.
The food subsidies were taken off in January and because of that I reckon that that married man who is 50p per week better off from the taxation point of view, will be paying between £3 and £5 a week more for food this year. There is no point in the Minister for Finance telling me that the Minister for Industry, Commerce and Energy is responsible for that. this or the Minister for Health and Social Welfare is responsible for that. The point is that at the end of the week that man is worse off. An annual income of £6,000 is not a lot of money for a man with a family who perhaps has to pay a mortgage, and mortgages have gone up since last year. He will not be going to South America for a holiday, he will not own two cars and he will not be dining out in one of the places one reads about in the glossy magazines. He is finding it damn hard to live.
I may be wrong but I think that the Government encouraged RTE to produce a programme on Friday mornings which compares food prices from week to week. I heard the programme on Good Friday morning when the presenter compared last year's prices with this year's prices. I am sure it was not a scientific survey but she compared her lists for both years. She showed that the price of vegetables had increased by 100 per cent and that the price of meat had increased by 35 per cent.
It is in order to compare incomes week by week but we cannot have a discussion on food prices.
That is the point I should be making. When people refer to their incomes they are really referring to their take-home pay. The majority of people consider themselves to be either marginally better off or worse off. A married man with three children earning £6,000 a year is better off by only 50p a week. Both he and his wife know that his take-home pay will do less from now on. This situation has prompted the PAYE marches.
I urge the Minister to accept my amendment. I accept the point he made about indexation of other forms of taxes. If the Minister accepts the amendment the people will see that the increased taxes are not being taken by stealth.
I should like to make a few points in relation to the tax bands and the rates of taxation. It is amazing that Deputy Barry, who was a Minister in the previous Government, is now putting down an amendment which proposes increasing the tax bands and indexing allowances. The lowest tax band during the term of the Coalition Government was 26 per cent on the first £1,550 of taxable income. The next £2,500 of taxable income was taxed at 35 per cent.
That is not right. The figure was £500 at 20 per cent.
In this year's budget the Minister has taxed the first £500 at 20 per cent.
We introduced that rate.
A 10 per cent surcharge was introduced on all rates over 35 per cent. This meant that the 35 per cent was 38½ per cent and that the 45 per cent rate increased to 49½ per cent. It amazes me that Deputies who were Ministers in the previous Government are championing the PAYE cause. In the tax year 1974-75 the married tax allowance was £800. In the tax year 1977-78 the married tax allowance was increased to £1,100, an increase over the period of 37½ per cent. In the same period inflation rose by 100 per cent. Surely that was the time to make the case for the indexation of allowances. In the 1978 budget the Minister increased the tax-free allowance from £1,100 to £1,730. He has now increased it by £500, which leaves it at £2,230. This shows that the Minister has doubled the allowance in 18 months whereas the Coalition Government increased the allowance by only 37½ per cent. When the Coalition were in power the inflation figure was 102 per cent.
The increases given in this year's budget are very good. I believe that the Minister has relieved the burden of the PAYE sector. The PAYE marches are a separate question. When people discuss the PAYE burden they should compare like with like. In the tax year 1976-77 the average industrial worker paid about 16.6 per cent of his earnings in tax. From April 1979 he is paying 12.6 per cent, which is an improvement of 25 per cent. The Opposition cannot have it both ways. The shedding of crocodile tears for the PAYE sector by Deputies O'Leary and Barry is nauseating. There is a good case to be made for the indexation of allowances but they did not do anything about the matter——
I am not talking about the indexation of allowances.
Deputy Barry's amendment proposes that the first £1,800 of taxable income——
Band.
It is an increase in the taxable band. On a previous occasion the Deputy said that the allowances should also be indexed. We have greatly increased the allowances. I think the bands are reasonable. I do not know why the PAYE sector is marching when the Minister has reduced their tax liability. Some people wish to pay less taxation and do not want money taken out of their pockets on Friday nights in taxation. Part of the reason why they are up in arms is that they feel that everyone is not paying their correct amount of tax. Whether they are or not is a matter for the Revenue Commissioners but we must show that such people are being pursued. The Minister has increased the staff of the Revenue Commissioners——
The Deputy is getting away from the amendment.
Given the bands that the Minister has in section 2, the increased personal allowances and the Opposition's record when they had a chance of doing something about it, the amendment put down by Deputy Barry should not be supported.
Deputy McCreevy is suffering from a misapprehension. He says we had a chance to do something about it when we were in power and did nothing about it. The Deputy is an accountant and is more familiar with figures than I am. I presume the figures he uses are correct. He is wrong about the tax bands when we were in office. Perhaps the Deputy has forgotten but when we came into office the tax bands ranged from 26 to 80 per cent. When we left office they ranged from 20 to 60 per cent. We did do something about them: we reduced them. In this year's Finance Bill under Fianna Fáil they will move up again because the 20 per cent has been abandoned and they are now 25 to 60 per cent.
The point about the bands is crucial to the whole question of taxation reform. It is not a sufficient response to the discontent there is with the burden of taxation borne by the PAYE wage and salary earners to say that the Government have increased the allowances. Without the incorporation of the principle of indexation, inflation will eat into the allowances and any superficial concession given on budget day will be eroded in the course of the year. If a Government wish to be honest with the electorate in matters of tax reform, central to this honesty is the incorporation of indexation. Otherwise we will have what we had this year and what, to some extent, is accountable for the degree of discontent we have witnessed and that is, a cosmetic exercise in tax reform. That is what the Minister indulged in in the recent budget. The make-up has been removed from his exercise and people have seen through it. One could give many, many illustrations where people can prove that they are at a net loss when all the deductions for State purposes are taken into account—for example, welfare deductions, the elimination of the tax allowance for children's allowances or the fact that the lower tax band was removed. People must move into the higher range more rapidly. All these can be instanced to show that, under the so-called tax reform programme of the Government, at a time when the economy has been improving little has been done to shift the burden of taxation borne by PAYE earners.
More money will be taken from this section of our population this year than last year. This year a married man with no children and a gross income of £70 will have £13.42 deducted between tax and welfare contributions. The PAYE section of the population feel they have been conned by the budget, which claimed to be a direct response to their plight. They believe that the budget has not delivered the goods as far as they are concerned. Instead they can cite such matters as increased contributions in welfare and the removal of the subsidy on food. What they are concerned about is the net effect of these measures on their take-home pay.
Anyone conversant with the situation knows that the bad industrial relations we have is the tip of the iceberg of the discontent felt with the taxation system, which is creating a great strain on industrial relations at present. A good deal of difficulty has been caused by such factors as the burden of taxation being borne by the PAYE taxpayers. No Opposition would be doing duty if they did not draw the attention of the Government to these facts of life, which took the form of recent demonstrations and mean that the discontent will not be dissipated in the near future. They are facts of life that suggest that the Minister is not on the wavelength of reality when he talks about the allowances being sufficient to meet the tax reform demand. The question of agreement and sanity in industrial relations depends upon employees being convinced that the Government are serious about reform.
On Committee Stage the Labour Party will be putting down a similar amendment. Unless the Minister accepts the amendment he is not facing up to the widespread demand that exists for tax reform. PAYE receipts have been increased in 1978 by £80 million. There will be a further increase this year of almost 30 per cent in the overall take from PAYE earners. While bad handling by the Government of the farmer tax issue may have precipitated recent discontent, basically it owes its origin to the recent budget and to the claim made by the Minister that the budget was designed to meet the problems and demand for reform of PAYE earners.
When people take into account the various allowances withdrawn for tax purposes—the children's allowance, the increased contribution in welfare and the abolition of food subsidies—families are at a net loss arising out of the past measures of the Government this year. Last year, when the Government introduced the principle of deductions offsetting the tax on capital gains, they proposed that in all cases adjustments would be made to allow for inflation as measured by the consumer price index.
That was done for capital gains tax purposes. We demand that a similar principle be incorporated as it applies to the PAYE wage and salary earner to apply from next year. That would mean that at next year's budget when the Minister stands up and announces any improvements he has to announce they would retain their real value. Also it is not a comprehensive response and the Minister is not setting himself on secure foundations in talking about reform of our tax system by simply concentrating on allowances alone.
We are only dealing with one amendment here and it deals with the tax bands. We are getting away from that completely at the moment.
The fact that the Minister taunts the previous administration with how little they did is a bit unsatisfactory coming from a Minister who presided over an economy with record levels of growth for two years. It is not sufficient for him to taunt the previous administration with the fact that they, in a period of unexampled economic difficulty, were not able to do a great deal. He, in this more fortunate circumstance, has done very little indeed and he has no excuse economically to plead inability. Over our period there certainly was structural reform in the tax bands system which were abolished by this Government; there was this allowance for the lower paid worker—we had the 20 per cent band and that has now been abolished.
Quite outside the levels of tax being paid on the tax base itself the actual structure of our tax system as it applies to PAYE people is wrong. It suffers from the glaring weakness that it penalises the middle income earner at too high a tax rate. It catches his earnings at too high a point in the year. Of course the discontented taxpayer, if he cannot get a remedy from the Minister on budget day will seek his remedy in claims for increased wages; that is his only remedy. That explains to a great extent the kind of large claims we have seen launched up and down the country over the last year and the special cases that have been made. If we do not meet the demand for tax reform it is not only marches we need be apprehensive about but we must be realistically apprehensive of the effect on industrial relations in conditions in which this country is a member of the European Monetary System.
We must stay on the tax bands until we dispose of this amendment. We are really only dealing in this amendment with one thing and one thing only—the proposed increase in the tax bands.
The amendment put to the Minister incorporates the idea of a more graduated level or band system. The Minister has not so far responded in any constructive fashion to that demand. It would be helpful in the present circumstances because one of the main weakness of the present tax system is the manner in which the worker in the middle income range is taxed at too high a level. I have not had time to do the work on this but I believe that compared to similar tax structures elsewhere ours has a very sharp ascent indeed in terms of the way the average wage earner has to pay top rates very quickly on overtime he has done.
I would like to endorse the remarks of previous speakers. It is not enough in tax reform to change the basic allowances. One must enlarge the bands in line with inflation as one increases the allowances. Otherwise people will, because of higher allowances, take longer to get into the tax net but once they get into it they move to a higher rate relatively more quickly than they would previously have because of inflation and that is not really equitable. We should try to adjust the entire tax system to take account of inflation including the bands as well as the allowances. Otherwise we would have a situation where taxation increases will take place not by legislation but by inflation. In fact most of the increases in taxation that have taken place here over the last ten years have arisen from inflation rather than legislation. That is a bad thing and it arises from the fact that we are wedded to specific figures in our tax code rather than to percentages of income. We must radically alter the way in which tax-free allowances and tax bands are adjusted to take account of the fact that whereas when we were living in the twenties and thirties in an era of more inflation and in some cases deflation allowances and tax bands were at the same figure and were therefore relevant, now we have moved into a different era in the sixties and seventies, an era of inflation, and we must change our whole approach to taxation to take account of this. The accountancy profession has recognised this change in the whole approach that is necessary to make this sort of calculation in that they have proposed a completely new accountancy system.
A similar type of approach to take account of what they call inflation accounting must be introduced into our tax system and that implies the indexation of tax-free allowances and the indexation of the tax bands. I will say more about that on the section but I believe that the amendment is something that should be endorsed and I hope the Minister will see his way to accepting it.
It is interesting to note the reaction of the Deputies opposite to what I said in regard to indexation. Deputy Barry rather adroitly tried to move his feet and I do not blame him for doing it. He now says that he is talking about indexation of bands. Of course the whole principle of indexation cannot be confined to bands; it has to be applied across the board as I outlined and indeed as the leader of his party acknowledged. It would have to apply to allowances, to bands and to indirect tax. I spelled out what was happening. Deputy Barry saw the implications of it and did his best to redeem the situation by talking only about the bands but Deputy O'Leary does not seem to have——
That is not true.
What is not true?
That I did not refer to what the Minister said about indexation in regard to other forms of tax. I did.
But the Deputy said that he was advocating indexation only in relation to bands. If he wants to correct it that is all right with me, but if he wants to go along with what Deputies O'Leary and Bruton said, then he will simply have to take the consequences. I have already explained it to him but I am going to have to explain it to him again. I am also going to have to explain to the public what the Fine Gael and Labour Parties are urging. The problem of Deputies opposite is that having been members of a Government which did so much worse than indexation they have not grasped the fact that they now have a Government which has done so much better than indexation and so they have not really taken in the consequences of what they are saying. But the consequences of indexation are, as I have indicated, that the marriage allowance of £2,230 provided for in this Bill there would be reduced to £1,315. We can only assume from the repeated assertions——
The Minister has not indexed the child allowances.
——of Deputies O'Leary and Barry on behalf of their respective parties that they are advocating reducing the marriage allowance to £1,315 from £2,230. Even though I have pointed out the consequences they persist.
The Minister is in possession. Order.
The Deputies can have it one way or they can have it the other; either they are for indexation or they are not. Before Deputy Bruton came in I pointed out all these consequences and yet Deputy O'Leary got up and repeated that there should be indexation. Deputy Barry whom I tried to let off the hook to some extent insisted on going on with it—he was not only talking about the bands but about all aspects. Deputy FitzGerald spelled it out at the Fine Gael Ard Fheis and subsequently. So really I do not think there is any point in trying to let Deputy Barry off the hook any further. The fact is that the Fine Gael and Labour parties are urging indexation, one of the consequences of which would be to reduce the size of the marriage allowance under the income tax code from £2,230 to £1,315. Another consequence would be to increase the tax on the pint by 5p on top of the increase allowed in this budget—in other words make it 7p; an additional 6p on the glass of spirits; an additional 5p on cigarettes and an additional 19p on the gallon of petrol. That is what the Fine Gael and Labour parties are advocating. I pointed it out and they are still advocating this and they are stuck with it now. I do not think that is what the people want. If the Deputies think it is let them go out and sell it to the people. The basic problem is that the Deputies opposite have not adjusted to the fact that while they were in Government they did so much worse than indexation that they think it would be an improvement to apply indexation. They have not grasped the fact that they are now operating under a Government who are doing so much better than indexation that those are the consequences which would apply if we had been applying indexation.
That is not the end of the matter although one would have thought that it ought to be the end of this nonsensical policy being advocated by Deputies opposite in the light of the current situation under the present Government. It would not have been nonsensical under their Government but that is another story. We now find that, in order to make the case they are trying to make, Deputies opposite are skilfully jumping in and out from tax to social welfare. When it suits them they pick part of it and when it suits them they leave out part of it. The truth is that income tax represents a payment by the taxpayer to the cost of meeting the running of the State, all the services provided, including such things as education, health and aid by way of pensions and otherwise to the aged, the needy and the sick. Social welfare contributions are payments by employees to secure benefits for themselves for the future.
The changes which were made, and which were referred to by Deputy Barry and Deputy O'Leary, to introduce a pay-related scheme were changes which were primarily in aid of the lower paid and that is how they have worked out. The majority of contributors are doing better because of this change to pay-related because they are lower paid and there is an overall limit now of £5,500. It is not realistic, apart from the distinctions between income tax and social welfare contributions, to lump them together without having regard to the benefits that accrue from the changed system. Neither is it realistic to bring in social welfare and to ignore, as Deputy Barry did, the social welfare children's allowances and the cash received by people on that basis.
I did not.
If the Deputy did not, his figures were wrong. The first thing wrong with his figures was that he talked about £6,000 as being around about the kind of level that would be received by many industrial workers and other categories. The latest figures from the Central Statistics Office in June 1978 indicate that the average income in transportable goods industries was £4,490, that is £86 a week.
That is right but I said that the average industrial earning with overtime——
I am talking about his income. I am not talking about his basic earnings. I am not trying to tie the Deputy down to a precise figure. I am trying to show that for the person on an average income in the transportable goods industries, which, as the Deputy knows, is a wider category than industrial earnings, who is on £4,490—I am taking a figure of £4,500—the combined tax savings under this Bill for that person with the increased social welfare children's allowances would give him a saving of £125.80 in the year, a rather different figure from the one Deputy Barry was talking about.
We are talking about two different salary rates and the saving is bound to be different. The Minister is talking about a figure of £4,500 and I am talking about a figure of £6,000.
I am talking about the average income in transportable goods industries and I am giving the latest figure available. So far as Deputy Barry is now withdrawing his suggestion that the figure of £6,000 would cover the bulk of industrial workers——
I am not.
If the Deputy is not withdrawing it, would he explain how £4,490 becomes £6,000?
The Minister is the best man I know to muddy water.
We are getting away from the amendment before the House. The Minister, without interruption.
Will the Minister give way for a minute until I explain what I said? I was talking about a person on £6,000 a year and I guessed what kind of a person that would be. I may be wrong but I was not talking about the average industrial worker, to whom the Minister is now referring. I am sure he will get a different answer if he does that. I am only guessing at the type of people earning £6,000 a year. I include TDs, junior Army officers, many ranks of the Garda and a lot of other people.
I am talking about the average income and not the basic earnings in transportable goods industries. If Deputy Barry is now saying that his case was not related to the average industrial worker——
It is not. It was related to somebody earning £6,000 a year and nothing else.
Let us be clear about this. The Deputy is not saying that his figures related to the average industrial worker.
I never said it and the record will show that.
I believe the Deputy will find when he looks at the record that he said that a great many industrial workers and tradesmen would be in the category he was talking about.
Industrial workers on overtime.
That is what the Deputy said. I believe he will find that if he examines what he said he was indicating that this would go very close to the average. I am not arguing with the Deputy. I am simply pointing out that in so far as that was implied it is not correct. In so far as the Deputy says that he did not mean to imply that I accept it. I am talking now about the situation in regard to the person——
It is quite clear what I said. The Minister should not be putting words into my mouth. I did not say anything about the average industrial earnings at any stage. I was talking about people earning £6,000 a year.
It is a largely irrelevant point but since the Deputy is making so much about it could we get it right? Did the Deputy or did he not talk about industrial workers and tradesmen? Did he not talk about a great many of them?
Could we get something else corrected?
Let us take one point at a time.
While the Minister is on his feet he might as well get a second point correct. I started out to say about one-and-a-half hours ago that the Minister had abolished the £500 tax band at 20 per cent. Would he justify that? In all his talking here this morning he has not mentioned it once.
I know the Deputy wants to change the subject.
The Minister should be allowed speak without interruption.
The Deputy wants to run away from the point. That is all right and I will not pursue it. Would the Deputy allow me to say what I want to say? I did not interrupt him. I understand his concern in relation to what has emerged. Let us leave that point and go on to some other points I want to make, one of which is the one to which Deputy Barry has just referred. He talks about the change in the tax band, the abolition of the £500 at 20 per cent. How can anybody talk about this without reference to the allowance? How can anybody ignore the fact that if the married allowance is increased, as we are doing in this Bill, by £500 that means that another £500 of taxable income is free of tax before any question of a band comes into operation? That is a fact. It is quite misleading to talk about tax bands without regard to that. It is only after that that the band comes into operation. It is not unreasonable to suggest that in some cases one must have regard to the combined effect of the increased allowance and the tax band. If one has regard to the increase in the social welfare children's allowance, which ties in with another section we will be coming to, one gets the kind of result I indicated for the person on an average income in the transportable goods industries.
It is quite unreal and misleading to talk about social welfare in conjunction with tax and to ignore, first, the basic purpose of the social welfare contribution, second, the benefits that accrue from the changed pay-related system and, third, the social welfare children's allowances which mean cash in the pocket for the person concerned.
I was surprised—but I suppose I should not have been—that the Deputies opposite have continued to talk about indexation. Deputy M. O'Leary tried to imply that he and his colleagues in the Coalition Government should be exempt in this area because when they were in office things were difficult but we are lucky because we are in at a time when there is growth. It is no accident that we are in when there is a time of growth. That did not happen by accident and it would not have happened if there had not been a change of Government.
Does the Minister claim that for the year 1977?
For the latter half of it, yes.
For 1976.
Every economic commentator in the country added at least 1 per cent of his estimate of growth for 1977 after the election. Does the Deputy know that?
Mr. O'Leary
I hope the Minister will be as proud of 1979.
Will the Minister tell me why?
Because of the changes made by the Government when they came into office.
The abolition of rates and the car tax——
Does the Deputy know what I am talking about?
The Minister is on his own 1979. That is his achievement.
The Deputy hopes so but he has been so wrong every time. I want to tell him something. With all his excuses for his failure in office on all fronts, and he blames the world situation for virtually everything, it still does not add up to a justification for coming in here and trying to urge on us indexation which would totally disimprove the position of the taxpayer, whether on PAYE or otherwise, but when he tries to pretend that he is concerned with the burden on the PAYE taxpayer that is a bit hard to stomach.
Deputy McCreevy pointed out some of the consequences of what happened under the Government of which Deputy O'Leary, Deputy Barry and Deputy Bruton were partakers. Let me give some further examples. Deputy McCreevy gave them in percentage terms but I would like to give them in cash terms so that the people will know how realistic are the proposals from the other side as compared with what happened when they had some control of the situation.
Under the Coalition Government in 1976-77, a married person with two children earning £30 a week was paying £18 tax. Under this Government this year, not taking account of the special allowance in December——
Would the Minister repeat those figures?
A married man with two children earning £30 a week was paying £18.
No. Those figures must be wrong.
What is he paying this year?
Those figures must be wrong.
What is the Deputy talking about?
Out of £30 he was paying £18 tax a week?
Excuse me. On £30 a week he was paying £18 tax per annum. Under Fianna Fáil he is paying nothing. On £40 a week he paid £153 tax a year, nothing under this Government. On £50 a week, he paid £289 tax a year, nothing under this Government—that was in 1976-77 when the value of money was greater than it is now, allowing for inflation. On £70 a week he was paying £634 per annum, this year he is paying £244. On £90 a week he was paying £1,034 a year, this year he is paying £595.
Whether you take it in absolute cash terms or in percentage terms, you can juggle it any way you like, but the message is loud and clear. Whatever people may think about the tax system, and in particular the PAYE system, no Deputy on the other side of the House, and in particular no man who was a member of that Government, if he has an ounce of shame in him should dare to open his mouth on the subject of PAYE because, as I said earlier and as I have demonstrated, the record of that Government in regard to the burden on PAYE taxpayers was appalling. In the light of that performance, it is a little difficult to accept any degree of sincerity in the proposals being put forward here this morning.
We have debated this long enough——
Yes. We are getting into the field of repetition and away from the amendment.
The Minister is probably the best man in the House to muddy the water. If I put up an argument about A he says that "Deputy Barry never said B comes after A"; if I said I never mentioned B, he says "do you deny that B comes after A?" He totally twisted all the arguments today and, until I forced him to say something about it, he never mentioned the fact that in this year's budget Fianna Fáil are taking away the 20 per cent band which has applied for the past two years.
Of course I said it before and I will say it again.
Perhaps at future budget meetings the Minister would look at the top rates. Deputy Barry's amendment takes the rates of taxation, as the Department of Finance do, as Godgiven. They think there must be 40 per cent, 45 per cent, 50 per cent and 60 per cent rates. In future the top rate of taxation should not be greater than 50 per cent. If the Minister and his Department did that they could then work down. Sometime there might not be a reason to have a rate of 45 per cent. After the 35 per cent rate the next £2,500 of taxable income might be at a rate of 40 per cent. When the 60 per cent rate is applied more of a person's money is going to the Exchequer and this becomes a disincentive to work. I am conscious that rates were higher in previous budgets. They were up to 77 per cent at one time. In future budgets perhaps the Minister would consider that not having a rate of taxation——
Sorry, Deputy, we have enough to do to deal with the Finance Bill before we get on to the next one. I am putting the question.
Tá
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