Vol. 321 No. 9
Before we commence the Committee Stage there are two printing errors, which appear now in two of the Financial Resolutions relating to the Finance Bill, (1) item No. 15 in the fourth line the word "and" should read "any" and (2) in item No. 18 in the second line the word "treatment" is misspelt.
SECTION 1.
Amendment Nos. 1 and 2 are related and we will discuss both amendments together.
I move amendment No. 1:
In page 9, between lines 31 and 32, to insert the following:—
"provided that an exemption from or a reduction of tax under this section shall have immediate effect and shall not be subject to repayment by the Revenue Commissioners at the end of the tax year."
It was announced in the budget that any single person whose income is less than £1,700 or a married person whose income is less than £3,400 a year will not be liable for tax in the current financial year. Obviously their tax allowances would be less than this amount and a situation could arise in the last four or five months of the year where people who were technically not liable for tax would pay tax which I presume the Minister would refund after the close of the financial year. There is no provision in the Bill to ensure that tax will not be collected from people in this situation. A person earning £1,700 a year whose tax allowance if he had no other allowance would be £1,130, would use up his tax allowance in approximately two-thirds of the year and then his employer would have to deduct the appropriate amount of tax on the balance from his salary, yet this person is not liable for tax. The Minister probably intends to refund the money at the end of the year but I want to ensure that people who are not liable for tax will not have to pay tax even though it is intended to refund that money at some stage after the end of the financial year. Bearing in mind that this affects the people who have just barely crept into the tax net it is obvious that they can ill afford to have any money deducted from their weekly salary. Due to administrative and technical difficulties, to the fact that Governments are notoriously slow in refunding money, however good the intention, and due to high inflation even when the money is returned possibly six months later, it is worth much less than when it was deducted.
I assure the House that administrative arrangements are being made to apply the exemptions immediately. These arrangements work on the basis that a taxpayer who is exempt will not have to pay tax at all in the current year. I assure the Deputy that existing legislation is sufficiently flexible to allow this. I appreciate what the Deputy is trying to achieve in his amendment but his amendment would mean that in the event of there being any repayment of tax it would not be possible to provide any repayment. It is not the intention to withhold the benefits of the exemptions until after the end of the tax year as the amendment implies. Neither are there any administrative or technical difficulties which would cause any undue delay in the operation of the system. The administrative arrangements being made will ensure that the exemptions will apply immediately as distinct from what might have been the case of applying them ex post facto. The possibility of anyone overpaying tax during the course of the year will not arise.
Is the Minister sure that if a married couple whose income exceeds £2,400 get into a situation at the end of the year where they have earned £2,600 the extra £200 will not be taxed even though the law under the 1976 Act appears to say that they must be taxed?
The marginal tax relief would apply above £3,400 and, secondly, within the year. So far as the exemption is being given from the beginning of the year—the tax is a matter for administrative arrangements—it will not become payable during that year. The Deputy will appreciate that where they have been given exemptions on the understanding that the total income was £3,400 or less and where it turned out at the end of the year to have been more, some adjustments will obviously be made in the following year or whenever the matter came to the attention of the Revenue Commissioners but it is not the intention to claim it back at the end of the year.
Anybody earning between £2,400 and £3,400 will not have tax deducted from them in the current financial year?
Anybody earning under £3,400 will not. We have sent out formal notices to employers and these have been published in the papers notifying them of the exemption categories in this matter and also in respect of the age relief which, as the Deputy knows, extends the exemption. While I appreciate the Deputy's purpose in putting the amendment I assure him that in view of the way it will operate from the beginning of the year as distinct from looking back at the end of the year it will work, if anything, the other way.
Amendment No. 3 proposes a new section instead of section 3.
This amendment seeks to increase the rates applicable in section 3 (1). It seeks to increase the 15 per cent and 25 per cent rates respectively to 25 per cent and 35 per cent. I do not see this as a totally satisfactory solution but it is a step in the right direction.
This deals with the amount of tax chargeable for 1980-81 and subsequent years and is related to section 8 which fixes the rate for those years. Will the Deputy agree to leave it until we get to that section?
All right. Does the Minister agree with the substance of it?
We can take note of it and deal with it on section 8.
That is all right if the Deputies remind me.
I move amendment No. 3 (a):
In page 11, paragraph (a) to delete lines 1 to 3 and to substitute the following:
(a) in a case in which the claimant is a husband—
(i) who is assessed to tax for the year of assessment in accordance with the provisions of section 194, or
(ii) who proves that his wife is not living with him but that she is wholly or mainly maintained by him for the year of assessment and that he is not entitled, in computing his income for tax purposes for that year, to make any deduction in respect of the sums paid by him for the maintenance of his wife,
a deduction
The purpose of this amendment is to provide that, where a husband wholly or mainly maintains his wife who is separated from him, he will receive the married personal allowance. This really maintains the status quo and goes perhaps a little further in that the husband who mainly maintains his wife will now benefit as well as the husband who wholly maintains his wife. Deputies will see that it is simply maintaining the status quo in relation to the existing provision having regard to the impact of the Supreme Court decision and of the income-splitting proposals. To the extent that it effects any change it is a change which extends the provision to husbands who mainly, as distinct from wholly, maintain their wives.
Does this mean that the husband who mainly maintains his wife will claim the full married person's allowance?
Not the full married person's allowance in all cases, but the Deputy will be aware that at the moment the position is that if a wife has separate employment or any part-time employment, that in effect debars the husband from claiming the married allowance under the existing law. This amendment does not correct the law completely because it is tied up with other legislation which extends beyond tax legislation, such as that relating to family, home, property and so on, but to that extent it is appropriate to make this amendment here, in respect mainly of maintenance. The application of the legislation will be a matter for determination by the Revenue Commissioners in the first instance, but it is an advance to try to meet that situation.
Will he be given greater allowances than heretofore?
Yes, but it will not deal with the matter finally because there are other related matters which will have to be dealt with.
Are they not related to tax?
Not related to tax, and this is as far as we can go appropriately at this stage until these matters have been dealt with in consultation with the Department of Justice.
Is this to deal with difficulties between the couple concerned?
Precisely.
Does the Minister see this extending to cases of common law wives?
I do not think so, not at this point.
What is the thinking behind this?
Really this is intended to preserve the married allowance where a husband maintains his separated wife. Obviously up to then, the husband has received the married allowance and this would maintain that provision. I started by saying that this maintains the status quo in respect of the maintenance by the husband of the wife, but there have been cases, as distinct from wholly maintaining the wife, of mainly providing maintenance for her where up to this moment the allowance was not claimable by the husband. This is a move in that direction.
I appreciate that, and I applaud the Minister for going in that direction because there are a certain number of cases—perhaps not many—in which a great deal of hardship has been caused. Presumably it is in response to cases of that kind that the Minister has made these changes. Can he assure us that he will look into that twilight area of the common law wife in that these are, admittedly, all individual cases? It may be difficult to enshrine in legislation suitable statutory provisions to apply in all cases but this is an area in which a relatively small number are concerned and there is a good deal of hardship for the children concerned in this kind of situation at present.
We are looking into the whole range of areas. Deputies will appreciate that there are a range of possibilities such as voluntary separations, separation under court order where the husband is wholly maintaining the wife, separation under a court order where the husband is partly maintaining a wife and the other twilight area that the Deputy has referred to. To the extent that at this time we can only make a move in this direction, we are doing so in this Bill. Other consultations will have to follow and they will also have to take into account the nature of court decisions under the law as it stands at the moment.
Amendments Nos. 6, 8, 10, 12 and 14 are related and amendments Nos. 5, 7, 9, 11, 13 and 15 are alternatives to amendment No. 4. Deputy Barry will move amendment No. 4 and he will discuss all these other amendments with it.
I move amendment No. 4:
In page 11, lines 4 and 6, to delete "£2,230" and substitute "£2,565".
The purpose of these amendments is quite clear. It is to ensure that the allowances in every year, this year in particular, reflect the increased cost of living between one year and the other. I have picked the figure up to last February which is the only firm one which could be written practically into the Finance Bill because it is the only one available when the Finance Bill is published in April or May. A fairer figure from the tax payers' point of view would be the May figure of which, even though we have not got it yet, the indications are that it is going to be considerably worse than the 12-month figure to mid-February last, but I have chosen 13.6 per cent which was the official figure in the CPI increase between February 1979 and February 1980. If the Minister will not accept this amendment he will find himself being pushed into doing so with the present rates of inflation as more and more people are sucked back into the tax net because of inflation reflecting itself in increased wages fairly regularly in the future.
It would be far better if the Minister would accept the principle now which I pushed forward last year and am pushing forward again this year in these amendments, that indexation should apply to the tax allowances. The Minister will argue that these allowances have been increased very favourably by virtue of the Supreme Court decision already referred to, but it is hardly adequate because the Supreme Court decision covers only married people and about 50 per cent of the work force are single. Therefore, half of the work force will not benefit by that decision but they will find themselves, especially those in the lower income group, paying tax above the £3,400 level which is the present ceiling below which tax will not be paid, even though they may consider themselves exempt. The present rate of inflation is running to 20 per cent or more for the 12 months to mid-April 1980, and if we are to believe the statements of certain trade union officials on radio and in the press, that is the figure they have in mind for any national understanding in the 12 months ahead. Anybody who at the moment is earning £3,000 will find himself or herself in the tax net before the current year runs out, despite the fact that the ceiling is at present £3,400. That could in turn bring its pressures both on the Minister for readjustment and on employers and trade union officials either to break or renegotiate the national understanding which, if negotiated, will come in with what may seem fair but with the current rate of inflation will be seen quickly not to be adequately recompensing those on whose behalf it was negotiated.
Therefore, the Minister should accept the amendments. Deputy O'Leary's amendments go much further than mine in this regard, and I presume that he intends to explain them. As I have said, I have taken the figure to mid-February last. If the possible, projected or prophesied figure from May 1979 to May 1980 were taken, then the £2,565 which I have in amendment No. 4 would be much greater. This House should obey the spirit of what the Minister announced in the budget as well as the letter of what is written into the Bill. The consumer price index for the 12 months should be used as an adjustment for tax free allowances for taxpayers in the coming 12 months and in subsequent years.
Deputy Barry has indicated that the suggestions we made appear to go some distance further than the proposals before us. The figures we have calculated for this exemption rate relate to an inflation rate in excess of 20 per cent for the year. It may be claimed that that is an exaggerated figure but the CPI figure for the June quarter shows a startling rate of inflation. It is central to any hope for restraint in wage claims to provide a tax reduction for the people concerned. A commitment by the Government that salaries will not be taxed as heavily as heretofore is central to restraint in wages claims. There is a trade off between the restraint which can be exercised by the Government in the collection of taxes and that which can be obtained voluntarily from wage earners generally.
Without the indexation principle being conceded—and it has not been conceded—most improvements in exemption rates are eroded as the year goes on. In the increases we are looking for, we allowed for foreseeable increases arising from another national understanding or from plant by plant bargaining in a negotiating situation similar to that which obtained in the late sixties. We do not know what the position will be after the unions and employers have had their discussions and negotiations.
The Minister may claim he has not got the resources to meet these requests, but he will concede that any realistic hope of achieving wage restraint must lie along these lines. With today's rapidly rising costs, we cannot expect wage and salary earners to respond in a satisfactory manner to demands for restraint, without giving them the package of tax reforms they have been seeking for many years. In relation to the provisions in the budget, my worry is that what appear at first glance to be moves in the direction of tax reform will be seen before the end of the year to be lacking in that element of indexation. These improvements will be seen as being not quite adequate to deal with the head of steam which has been built up. Tax reform cannot be tackled in isolation. There is an intimate connection between it and restraint in the wages area.
If the Government can be accused of one failure in their economic management it is their failure to seek consciously to wind down inflation. It appears that they have lost their courage in dealing with that matter. This is the sensible course to adopt and the one the previous Government adopted in attempting to bring the rate of inflation under control. All the signs suggest that it is getting out of control once more. This is one suggestion the Minister could adopt to ensure that his management of the budget assists in winding down inflation.
These amendments raise some very fundamental issues. Deputy Barry referred to the number of people paying tax and the levels at which they are paying tax. He and Deputy O'Leary would suggest both amendments are directed toward relieving the tax burden. I should like to make some general comments which the House may find enlightening on the progress made last year and the year before and the major progress which will be made as a consequence of the proposals in this Bill.
The total number of taxpayers for 1980-81 is estimated at 727,000. That might not seem of immediate significance, but it is the lowest number of taxpayers since 1972-73. That is a matter of considerable importance and it should be an inducement and an encouragement towards reason and understanding on the part of those who are expressing and have expressed concern about the level of taxation. There are now fewer people paying tax than there were in 1972. That is an indication of great progress, having regard to the increase in the number of people in employment. It should be a major element in achieving reason and understanding and co-operation. That is not the end of the story.
The Minister will agree that the figure will have altered by the end of the year.
It is by comparison with the beginning of any previous year. One must compare like with like. That achievement should not be passed off lightly as if it were in ease of the Minister for Finance or the Government to claim credit for it. It is no harm for the public to know that, and those who are anxious to get an understanding in the broadest sense of the word should mark that progress for what it is.
Deputy Barry's proposal would cost an extra £60 million in a full year. Deputy O'Leary's proposal would cost an extra £98 million in a year. Both those Deputies are spokesmen for the Department of Finance. I could understand other Deputies saying: "So what if it is an extra £60 million or £90 million?" Some people are concerned about the regulation of the public purse and the control of public expenditure. Deputy O'Leary mentioned inflation specifically. One is entitled to ask both Deputies in the light of the real progress being made in this area this year on what basis do they suggest it is not enough and that we should add on Deputy O'Leary's £98 million or Deputy Barry's £60 million. Deputy O'Leary's proposal would mean an increase of about 2 per cent in the borrowing requirement and Deputy Barry's proposal an increase of 1½ per cent. On the face of it, those proposals would be acceptable to and popular with those who did not give very much thought to them but would not commend themselves to those with the responsibility of Ministers for Finance. Nonetheless, I suppose every year no matter what is being done in a particular Bill amendments to increase the allowances are put down.
Let me make some other points that may help the House to recognise that of all years this was one year when this standard amendment was not and is not appropriate. A little more thought might have suggested that this was a year that could usefully have been passed by. In 1972-73 the single allowance was £299; married allowance, £494. Over the five years to 1977-78, a relevant period in respect of both Opposition spokesmen now, the single allowance was £665 and the married allowance £1,100. The increase in the single allowance over that period was £366. In fact £100 of that was required to compensate for discontinuance of earned income relief in 1974, so that the net increase in the single allowance over that period was £266. Similarly, the net increase in the married allowance over the period—apparently indexation was not in vogue then nor the case for it—was £441. In the two years 1978-79 and 1979-80 the single allowance was increased from £665 to £1,115, an increase of £450. The married allowance was raised from £1,000 to £2,230, an increase of £1,130. Very considerably more has been achieved in two years, particularly in this Bill, than was achieved in the previous five years.
I felt I should mention those three factors first, that the total number paying tax is the smallest number for seven or eight years; secondly, the level of allowances is the highest by any standard and certainly far in excess of the allowances applied when Deputies opposite might have been in a better position to give increases and, thirdly, there is the cost. In view of those reasons I do not think either Deputy will be surprised if, having gone so far this year, farther than anything contemplated previously, I am not of a mind to say that I will add an extra £90 million or £60 million and let us guess where it will come from.
(Cavan-Monaghan): It would be no trouble for the Minister if he were writing a manifesto.
I was just about to make that point.
We are dealing with the Finance Bill, not the manifesto.
It would be more appropriate if we were to look at corresponding documents over a number of years, the Finance Acts introduced when the Deputies opposite were in Government, and compare them with the Finance Bill now before the House. I suppose it is fair to say that we are ad idem that this is going much further to meet the case being proposed today than those Deputies themselves were in a position ever to consider going when they might have had their own case. I could not possibly agree to these amendments at this stage.
The Chair would repeat that amendment No. 4 is before the House and we are discussing with it amendments Nos. 5 to 15 so that we can dispose of them all together.
It is difficult to listen to a member of the Fianna Fáil Party complaining about how much any measure will cost. This is the party that bought their way into power three years ago almost to the day with a most expensive set of proposals and now cannot pay the bill. They even proposed to cut back on school transport—until the people rightly objected—because of the difficulties they have got the ecnonomy into. To have the Minister for Finance saying that he cannot afford this when nothing was too expensive three years ago——
I am Minister for Finance now.
We must keep to the amendment before the House.
We have the Minister for Finance saying here today that he cannot afford this when three years ago nothing was too expensive for the same Minister as part of his collective responsibility which appears not to apply once Ministers are in Government because they go apparently whatever way they like. Some of them do not even talk to each other and collective responsibility does not apply at all. I notice Deputy Keegan who was one of the gainers out of that exercise three years ago is here as a result of it. Be that as it may, the Minister says fewer people now pay tax than at any stage in the past eight or nine years. That is not true. Many people pay income tax but the people who have been caught by this most savage budget in other areas are taxpayers and they are the poorest section of the community. I think it has been proved by and accepted in very perceptive articles in one of the newspapers that in fact the lower paid people benefit least from the tax concessions in the 1980 budget. By the time they had become liable for increased taxes in other areas—drink, petrol, cigarettes and 5 per cent on VAT——
The Deputy is going into a budget debate. We must stay with the amendment.
The Minister has said that it would cost £60 million to implement my proposals. I am showing him where he has much more than £60 million in the last budget. It is quite legitimate for me to compare one with the other. We have had this 5 per cent VAT added on since 1 May and we have a list at the back of the present Finance Bill showing the depths to which he would sink to collect another £5 or £10 from all sorts of licences, including railway dining cars. That cannot be a great source of income for the Minister——
We shall come to those at the appropriate time.
—— but it is not too petty for the Minister to scoop into his net for tax purposes.
It is not too petty for the Deputy to raise it now.
We should keep to the amendment before the House which only deals with certain figures.
The amendment relates to part of the Bill and if an amendment is accepted——
The Chair must get the amendments dealt with. We cannot go over the whole Bill.
With due respect, if I am allowed to speak I shall finish perhaps sooner than if I am interrupted. The points were made by the Minister that it would cost too much and that there are fewer people in the tax net now than there were seven or eight years ago. He has not, of course, mentioned that all those people are paying considerably more tax indirectly than they were paying three years ago. There is an increase in the price of petrol which will affect their jobs as well as their pockets. There is an increase in the cost of other oils. The chairman of one company has pointed out that the amount of tax collected from his company as a result of that increase would equal the total wage bill for the company for 12 years. The amount of tax that the ESB will have to pay under this heading is some £11 million. Eventually all that will have to be paid by taxpayers to whom the Minister is now saying they have been relieved of their burdens. They are not being relieved at all; the tax is just being collected in another way and from the less well-off section of the community. The Minister should, in justice and equity, accept these amendments.
As a six months old Minister for Finance it is understandable that the Minister can indulge in financial responsibility and in speeches on that score here. Also, as Minister for Finance he is in a different position certainly from the Minister for Finance in the Government to which he refers in the period between 1973 and 1977. That Government during most of their period in office waded through one of the deepest world recessions since the thirties. The present Minister for Finance now stands on the brink of another recession. Opinions differ as to what measures will be forced on him through this recession, whether as serious or otherwise as the last one. He will find that the constraints become more formidable in financial management as one works through a recession. But he is right to remind the House that the country is living beyond its means and that inflation is a serious matter and affects everybody. We have previously made the case of course that his very own budget has contributed to the increase in inflation here by its reliance on more indirect taxation. But that argument has been gone over already and I do not propose to go down that road. I would simply make the point—and this is the only reason we put in these amendments which the Minister said would cost more and of course they will cost more—that the increased cost of these amendments is intended to be part of a bargaining process that would give us moderate wage increases.
The civil servants in the Minister's Department who worked out the figures relating to what these amendments would mean in increased costs can also give him figures relating to the public service pay bill; for every extra percentage point there the public service pay bill, as the Minister knows, goes up by a certain figure. It is a very interesting thing to examine and it is part of the thesis of these amendments that the tax reform and exemptions and indexations that might be agreed in this area go hand in hand with moderation in wage claims. It is part of a policy that leads to improvement in the inflationary situation so that it is not simply mindless largesse. One could again say to this Minister in particular and to anyone in this administration that, as an administration, they have not been quite so scrupulous in their immediate past in ensuring that taxpayers' money was spent to the best benefit. That again is an argument I do not propose to pursue here this afternoon. I would merely make the point that such increased expenditure as would follow as a result of these amendments being adopted in the context of wage bargaining can be defended if a quid pro quo for these reforms in the tax area were sought in the wage bargaining area. So when the Minister dismisses these amendments by simply saying they would cost more he must also consider that costs will come if the subsequent bargaining between the social partners gets out of control and that he himself, in his guise as chief Government employer or negotiator for the Government as employer, will be forced to pay very large sums of money indeed as a result of the decisions reached in these wage negotiations and bargainings. So financial responsibility is something that it is good to see in a Minister for Finance, even one who is only six months old and very good to see even in a Minister for Finance in an administration who have had some profligate habits over the last two or three years when the economy was improving. Without going into a complete defence of the attitude of the last Government on tax reform because I do not think the argument should be related to it, I would simply say that if the Minister wishes to compare like with like, to compare the tax reform programme of a Government who were hit amidships by a very deep international recession with a Government who are just now encountering the first bitter winds of the present recession is not to compare like with like.
The Minister's reaction to Deputy Barry's amendments a few minutes ago, delivered with a disarming smile along the lines that Deputy Barry must have his tongue in his cheek if he did not realise that his proposals were going to add a point and a half to the public sector borrowing requirements, makes me wonder what exactly is the financial and economic policy of this Government at all. It is true that there has been an attempt and that there is a continuing attempt to shed responsibility for the white balloons that Deputy O'Donoghue was launching in all directions with a crowd of laughing children behind him, including the Minister opposite, at a time when there was applause all around for those balloons. It is true that, since they have mostly drifted out of sight, there is now an attempt to put a distance between the Government as at present constituted and the Government which contained Deputy O'Donoghue. I must say I would like to get some guidance on what their thinking is. Is it Keynesian or is it not? It did appear to be Keynesian at the wrong time if one was to judge from the strategy with which Deputy O'Donoghue wanted to identify himself. He had some dashing figures of speech three years ago—and shortly after he entered that office they excited even me—about how we had to do things which otherwise might not be advisable in order to float off the economy from the rocks, in order to prime the pump, although I do not think that phrase was his own but was borrowed. He even had the simile of the economy being like a beleaguered caravan of people making for the new territories of the wild west surrounded by circling, whooping tribes of Indians and deciding that they either would make an effort to break out or they would end up all scalped.
Deputy Kelly should deal with the amendments before the House. They only deal with the personal allowances in the income tax code. The Deputy is talking about everything but the amendments.
With respect, we are talking about the cost of this amendment. I have got the Minister's word for it that the cost of Deputy Barry's amendment would be £60 million. He then said, and I could not help laughing at it, that there is not really any difference between that and Deputy O'Leary's amendment except that the latter would cost £98 million. I know an extra £38 million seems a bagatelle. But the whole thrust—to use another word from the manifesto age, since this equally appeared over the hill—of the programme was to put money into the economy in order to gear it up, in order to allow it to float off the rocks on which, as they would have us believe, the malice of the side I worked for had stranded us. Surely the proposal which Deputy Barry's amendment represents would be very much in line with that kind of thinking. It will add a point and a half to the borrowing requirement, but the Government have already over-borrowed by three points last year and are going to do so by another three points over and above the O'Donoghue 1977 target this year. Where, therefore, is the killing finality in the argument of the present Minister to Deputy Barry that his proposal, socially equitable though it seems to be, will add a point and a half to the public sector borrowing requirement? Let me tell the Minister opposite that if he has got a crushing borrowing requirement it is because of the reckless prodigality with which his Government sought to pretend they were curing the unemployment problem by creating unnecessary public service jobs, stuffing school leavers behind desks——
We are not dealing with jobs on those amendments. Will Deputy Kelly please deal with the amendments before the House? There are ten or 11 of them.
The Minister knows that we are winding our way with no one at the helm, unlike the Government that I worked for, into a very serious financial situation. He also knows that part of the financial orthodoxy, that I understood was axiomatic, and I do not set up to be a financial expert and never did, is that one spends one's way out of a recession and when one is in calm water again one draws in one's horns and economises. Both parts of that axiom were neglected by the Government. The recession was already over and the National Coalition had pulled the economy off the rocks a year-and-a-half before the Minister opposite entered office. That did not stop them spending when they got in to buy off election promises. Then when the recession has now really begun to bite, as Deputy O'Leary said a moment ago, they drew in their horns. I agree that they have virtually no manoeuvring room, virtually no leeway, virtually no scope for drawing in horns, very little area in which to economise and there is a population twice as ungovernable as it was when we left office and twice as bloody-minded about being asked to carry any burdens at all. The Government have only themselves to blame for that because of their having flattered the people into believing that they need not carry any burden and that anybody who imposed anything on them was being either malicious or incompetent or both.
This set of amendments in the name of Deputy Barry is socially equitable. Admittedly, their acceptance and implementation would cost money, and to this extent I would accept the Minister's figure of £60 million. However, that money would be a very substantial contribution towards easing the business recession and towards easing the difficulties of individuals whose shortages in regard to credit are having a very bad effect on the building trade. In general this £60 million could be seen to be pumped straight into the economy and for that reason, if for no other reason apart from the element of social equity that is involved, I urge that the amendments be accepted.
It is important to note first that in regard to what the Deputies opposite are asking, regardless of whether one thinks in terms of £60 million so far as Deputy Barry is concerned or of £90 million so far as Deputy O'Leary is concerned, we are talking of these amounts in addition to what is being done in this area. Deputy Kelly may go back as far as he wishes, but we are talking here about this year's Finance Bill. It is important that I should tell the House that the full-year cost of the allowances being introduced in this Bill will be of the order of £231 million, a sum which by any standards and in the context of anything that has been done in this area up to now, not only in one year but over an aggregated four or five years, is an unprecedented major development. In view of that and since what we are doing goes even further than the case made to me in submissions by such people as the ICTU and other concerned interests, it is somewhat unreal and very unreasonable for Deputies opposite to be pressing for the further allowances as suggested in these amendments.
It may well be that the type of case made by Deputy Barry and Deputy O'Leary will be the case that will be made annually by Opposition spokesmen and, when we take their arguments together with the passionate plea of Deputy Kelly, the attitude of the Opposition seems to be: "Why not go all out and let us all be merry and gay?" That would appear to be the basis of Deputy Kelly's case.
We are now in an economic situation that calls for spending.
This year the cost of what is being done will be £235 million and in a full year the figure will be £231 million. Everybody, with the exception of those who are arguing here today, recognise this step as being a major and unprecedented step. Deputy Kelly chided me for smiling a little but if I smiled it was because of the difficulty I had in taking seriously the proposals of the Opposition. If I were to take them seriously I would have to show an appalling sense of shock that Finance spokesmen from the other side should make such proposals at this stage. Even in the very difficult year we are experiencing, we are making these major concessions. For the benefit of those who apparently have only painful memories of what happened in 1975-76 the impact of oil prices this year——
Do not give us percentages.
——will be at least, if not more damaging to the economy than was the case then.
That is because the economy is more damaged now.
In any terms the situation is worse now in the context of the damage caused by oil prices increases since then.
In money terms.
On a point of information, have oil prices increased in the period in which the Minister is talking of by 400 per cent?
From the base at which they started last year, they doubled. They started from a very low base in 1974.
We should keep to the amendments.
A figure of 400 per cent on a low base is not nearly as much as 200 per cent on a very high base. Making adjustments of the kind that we have made in this situation is something that should be recognised for what it is.
Regarding what Deputy O'Leary has said, one of the reasons for these very generous allowances is our recognition of the importance of creating a climate of responsibility and of understanding throughout the community in the context of a national understanding. For those who have said so often that these allowances had to be introduced anyway as a result of the Supreme Court decision, I would underline the fact that the implication of that decision would have cost £30 million this year whereas what is being done involves a figure far in excess of that. I have heard arguments about the lower-paid workers and about our alleged lack of concern for them, but I would have thought that this question was dealt with in terms of the exemptions in taxation. It is important to remind the House and the people generally that the lower-income sector here have a much lower tax liability than their counterparts in the UK and in Northern Ireland, for instance, where the lowest rate of tax is 30 per cent compared with 25 per cent here. To give an example of what is involved, a married man here, without children and earning £5,000 per year, will pay £227 less in income tax than his conterpart in Britain will pay, and we must remember that Britain has the North Sea oil. For all these reasons, particularly in view of the major steps taken so far, I would suggest that the Deputies opposite do not have much of a case. I do not believe that they have much stomach either in pressing this issue. It may allow Deputy Kelly an opportunity to go over historic arguments, arguments that were put forward at the last election and which presumably will be put forward again on the next occasion, but this is hardly a time for such arguments. If it is the view of Fine Gael that the addition of another £60 million or £90 million is not of any significance, that message should be heard loud and clear.
The Minister has referred a number of times to what would be the cost of implementing our proposals and he has spoken about the consequent effect on our borrowing requirements——
I did not mention the borrowing requirement this time.
But the Minister referred to it earlier when he said that the implementation of Deputy O'Leary's proposal would cost 2 per cent while my proposal would mean 1½ per cent in terms of the borrowing requirement. May we take it, then, that the borrowing requirement as announced by the Minister on 27 February will not be increased in the current financial year, that it will remain as outlined in the budget speech?
These provisions are on that basis, towards that borrowing requirement.
Since the Minister is objecting to my proposal on the basis of cost, are we to assume that there will not be any question of the borrowing limit being extended this year?
Even at this difficult time there are people on the other side who would wish to be in my place. However, regardless of that, I can tell the House that I am determined that, in so far as I can do so as Minister for Finance, the borrowing requirement will be kept within the limit announced. Apparently the difference between the Opposition spokesmen and myself is that they, of their own action and not even because of any pressure on them from any other source, are proposing the spending of this extra money. In all of the consultations I have had with the various interests I have not had a request either from trade union representatives or from anyone else to increase the allowances beyond the figures announced in the budget. That pressure has not been put upon me and I assume, by definition, that it has not been put on the two spokesmen for finance on the other side. If it has not, they themselves, by their own actions, are saying: "It does not matter. We are going to increase it anyway". They are taking that decision now, which is rather different.
I am delighted to hear the Minister's assurance to the House about the borrowing requirement. Everybody in the House will remember Deputy Colley last year giving an unbreachable figure of 10½ per cent, and he got loud claps from every Deputy sitting opposite him at that time.
He did not give us the benefit of knowing what the borrowing requirement was then.
That was the only applause during the budget speech, on the mention of 10½ per cent. We all know that this worked out at 13.8 per cent. I am delighted to hear the Minister assure the House today that the borrowing requirement will be maintained. The Minister has, I am sure, been told and is aware of the damage that can be done to the value of our currency in not adhering to that.
Do I now take it that the Deputy is withdrawing his amendment because of the consequences of it?
I did not say that at all. There are other ways of doing it. It is typical of the Fianna Fáil Party to think that the only way to get money is to borrow it. They have taken an overdose of this medicine in the last three years, including the example I gave last year, where in spite of the fact that it was one of the ten commandments of finance that the borrowing requirement could not be breached, it went up by about 40 per cent in 12 months.
I wish to give notice, but I am not sure if it is the correct time to do so, that I would like the Minister's comments on an article in today's Irish Times which may be appropriate to this section of the Bill, and will be of concern to many people.
Portion of the article reads:
The position in relation to married couples who have paid tax for any preceding tax year (pre April 5th, 1980) and whose returns and assessments have been completed, accepted and finalised prima facie, appears to be that they cannot now seek a refund for the “unconstitutional” portion of tax paid by them.
I am not asking the Minister to answer that point or to comment on it at this stage, but am asking him at the appropriate section of the Finance Bill to comment. This has very important implications.
That does not arise now.
I have not read today's Irish Times. I was engaged in preparing for this debate. This will arise later.
The Minister mentioned the extension of tax reliefs and that taxation reliefs went beyond what the Supreme Court had determined as being necessary. He mentioned the figure £30 million as being the minimum cost. Tax reliefs were, in fact, greatly increased. Could the Minister elaborate on that aspect? When he is answering that point, would he also comment on the number of widows and single parents who benefit by the increase in tax reliefs which they get and by how much this could affect them?
As I have said, the Supreme Court decision will cost approximately £30 million this year. It confined itself very deliberately to earned income.
(Cavan-Monaghan): That is it.
This was the decision of the Supreme Court and that was the basis on which they approached it. What is being done in this Bill in the various relevant sections will concern earned income but includes also unearned income. To that extent it takes note for the first time of the role of the wife who works at home. This year alone it will cost at least four times what the Supreme Court decision would have required us to provide for. It not only introduces that principle but because of the extension of the tax bands, which have been an issue for some considerable time, the level of tax which these people pay on their salary has been reduced very considerably. It is important to mention at this stage, in the context of the attitude towards the national understanding, that the new tax allowance forms going out will not immediately disclose to the person in respect of whom they have been drawn up that their tax liability will be considerably less than it was. This form will show only the tax allowances and will not indicate to them that in almost every case they will be in a lower tax band. It is of vital importance to consider the impact of all that has been done in all these sections. I became aware of those myself over the weekend when some people who had received their tax allowance forms said that they were getting only a little more than last year and did not appreciate that, in addition to increased allowances, the application of this system means that they have moved from a higher to a lower tax band. This will be seen to operate in the next few weeks and people will then appreciate the impact of both events.
In reply to Deputy Briscoe's other question, I am afraid I have not an immediate answer to it. I may have an opportunity in the meantime of looking at the matter of the position of widows and single parents. This matter will be dealt with in detail at another stage when I shall be able to give the Deputy an answer.
(Cavan-Monaghan): The Minister says that it will be apparent to certain people in a few weeks' time what exactly the budget is doing for them. One thing which will be apparent is that for people in the lower income bracket it is doing very, very little. Until you get up to at least £8,000 a year, it is an “as you were” and in many cases a worse off budget. I am obliged to Deputy Briscoe for asking the Minister to clarify the point about the Supreme Court case. On a number of occasions since I came into the House the Minister has said that the Government were doing much more than they were bound to do by the Supreme Court decision. That is correct, if you put a very strict and extremely narrow interpretation on the Supreme Court case. The Supreme Court were asked to decide whether it was constitutional to aggregate the earned incomes of husbands and wives. That is all they were asked to do and that is all they decided. The Minister says that it will cost £30 million to put that right.
Of course, everybody knew that it followed, just as day follows night, that the first time the courts were asked to adjudicate on unearned income or splitting of income the decision would be the same. Of course, it would be the same. The Minister may laugh at that, but what in the name of goodness is the difference between earned income and unearned income? There was a difference away back, when there was an allowance for earned as against unearned income, when £500 or so was exempt from tax. That has gone with the snow. As far as income in the hands of a spouse is concerned, there is no difference—and the Minister knows it—between earned and unearned income. It was indeed very wise of him to take the bull by the horns now and deal with the matter, because he knew perfectly well that it was only a matter of waiting until somebody brought him to court and he would have to do it. In so far as married couples are concerned in this budget, they may thank Mr. and Mrs. Murphy, and not the Minister for Finance or the Fianna Fáil Government, for anything which they have got out of this. Mr. and Mrs. Murphy brought them to the High Court and then to the Supreme Court and got a decision which virtually means across the board, that you cannot aggregate the income of a husband and wife.
We are debating the decisions of the Supreme Court and they do not arise.
Not alone are we debating the decisions of the Supreme Court but we find that Deputy Fitzpatrick, who has certain legal experience, going much further than that. He is sitting in the Supreme Court now and deciding what the Supreme Court will have to do. He is casting himself in that role. That is a little bit of self-promotion on the part of a solicitor, even one of the experience of Deputy Fitzpatrick. The only issue before the Supreme Court——
(Cavan-Monaghan): I want to prophesy that it will find its way into the Social Welfare Act.
I want both sides of the house to get away from the Supreme Court decision which is dealt with in a later section.
The decision did not make any reference to income splitting for unearned income. The court was not asked to, it did not and it deliberately refrained from doing any such thing. Deputy Fitzpatrick can take any conclusion he likes from that. The law is applied from the decisions that are taken and not from speculation in any person's mind as to what somebody should do if asked.
(Cavan-Monaghan): The Supreme Court decide on what they are asked to decide on.
My guess is at least as good as that of Deputy Fitzpatrick as to what the Supreme Court would do in that case. My guess is the opposite to that of Deputy Fitzpatrick.
We cannot lie down under that bit of a lecture from the Minister. Was it not on the basis of the legal advice to the Government from their own adviser—or was it a charade after all —that we passed a constitutional referendum last year in apprehension of what the Supreme Court might do on the basis of a few throw-away remarks made in court in the course of a different type of case three years ago? Surely the plain truth of the matter is that Deputy Fitzpatrick's point represents in the forceful language that is natural to him what the legal adviser to the Government told them was the likely outcome in the long-term of the decision in the Murphy case?
The Chair must insist that the House move away from the Supreme Court decision. We are about six sections ahead of ourselves. The amendment deals with the personal allowances under the income tax code.
The kind of manner the Minister puts on of the kindly old nanny willing to teach the alphabet yet again to a particularly backward child is unendurable in a case like this.
If Deputies will not confine themselves to the amendment the Chair will put the question.
It is a long time since Deputy Kelly sat as a student. Lecturing is the Deputy's experience, not practising.
The Minister's party was founded by a professor, or so he described himself, and many a lecture he gave.
I have experience of court practice which the Deputy does not have.
The Chair will not stand for any more of this. Deputies are wasting their own time.
(Cavan-Monaghan): The Chair should have ruled the Minister out of order at the outset. He wants to discuss the Supreme Court decision ad nauseam.
I stopped the Minister in the middle of his statement and told him he was out of order, like everybody else, but I might as well have been talking to myself.
The Minister made the point that the Opposition were being irresponsible in seeking exemptions which would cost in the region of £98 million. He claimed I was irresponsible in making such a point at a time of economic difficulties and in the context as he put it, of a budget which was so generous and bent on reform in many areas. I would defend costings even of the order required—I take the figure given by the Minister as being the cost of my suggestion—as a worth-while investment in assisting the winding down of inflation. I see a direct relationship between budgetary reform in the taxation area and the obtaining of reasonable pay settlements. It is crucial to the country's economy this year that settlements are obtained freely from unions and employers which the country can live with.
I do not believe the Government in the budget made it any easier to get such settlements because their action in altering the fiscal stance to one of depending on indirect taxation embittered the atmosphere. It will make it more difficult to get the type of reasonable settlement the economy requires in this crucial year. If one accepts the importance of getting settlements which will permit, to the greatest extent possible, employment to be created that figure is a worth-while investment and one that can be defended, even to the costings of £98 million. We all know that in the absence of such a settlement increases will be sought which will add appreciably to the public wage bill. The Minister is aware that pay settlements that go beyond a certain figure in this area pose a grave threat to our resources.
The Minister's case is not made when he accuses us of being irresponsible. We would be irresponsible if we looked upon these figures in isolation but I do not put them forward in isolation. I put them forward in the context of bargaining as a quid pro quo for the reform elements involved in allowances obtained from the social partners in reasonable pay settlements. Inflation is a serious problem but this administration who set out to conquer it are now succumbing to the inflation psychology. Apparently, they do not have any solution to the problem and are prepared to live with it. It is possible that in a certain sense they consider that in terms of tax collection and so on it is an endurable infliction. In the context of the EMS the kind of inflation we are facing this year is very dangerous and it makes good sense to consider trade-offs of the kind implied in the amendments. They are not irresponsible taken in that context.
What is being done in the Bill provides at least twice the measure of relief the Opposition are asking for. When that is being provided it is unreasonable to ask for the type of allowances they have suggested. That is not in line with what I would have thought to be the position of Opposition spokesmen on Finance in a year in which we have made the greatest single advance. I hope the significance of this will not be missed by those referred to by Deputy O'Leary, the social partners. It is the main thrust of Government policy.
The position for a PAYE taxpayer who is married in the three year period to 1980-81 is that the increase in his allowance will be £1,530. That compares with an increase of £440 over the previous five years. That is very substantial. It is at least three-and-a-half times what it was in the previous five years. Most of that substantial increase has been introduced in this year's Bill as a consequence of the budget. I hope it clearly demonstrates the Government's concern to ensure that the tax scheme is such as would make a major contribution towards understanding, in the broadest sense of the word, and to the national understanding as well.
The single allowances have increased to £850 in the three year period by comparison with £260 over the last five years. Surely that is evidence that this scheme is making a major contribution. Surely it is evident that it is costly, although it is a cost that will be well repaid if people take note of what it will mean in real income as distinct from the impact of other taxes which might not affect all of them. What has been done is far in advance of what has been done in wealthier member countries of the EEC. One would expect the support of both sides of the House for doing it rather than asking us to go further still. If Belgium or the Netherlands had this scheme, their workers and married people would say it was a major revolutionary advance. We have it and yet we are asking for more as if more were necessary. I am asking for reasons at this stage and to acknowledge that we have made progress.
It is not a question of Deputy Barry's amendment trying to get more from the Minister, but we are trying to leave the Minister's purpose with the same real value as it would have had when it was first drafted. Does the Minister realise that the sums mentioned in this piece of green paper have had a couple of hundred pounds sweated off them by inflation since this paper was printed? That is the kind of inflation the Minister is responsible for.
The Minister chose to sneer at our amendments and said that Deputy O'Leary and I were inclined to put them with tongue in cheek. He gave a long list of what better things he had been doing than the Supreme Court demanded or that had been done by any previous Government. He should remember the point made by Deputy O'Leary and the inflation levels at present. As Deputy O'Leary said, the most important thing that can happen for this country this year is that we have a national understanding that will not affect our competitive position on foreign or home markets. Everything the Minister for Finance and other Ministers do should be done with that in mind. They should have it framed over their desks.
Deputy Briscoe raised a question about single and widowed persons' allowances. It will provide for single and widowed persons' allowances at £1,115 and £1,185 respectively. The provision relating to one parent family allowance has been doubled and will be £500 instead of £250. This increased allowance will benefit about 1,500 one parent families and will cost £1 million this year, perhaps about £1½ million in a full year.
About 700,000 people will qualify this year for the special PAYE allowances. That alone will cost about £56 million or £57 million this year. The unions in their pre-budget submission expressed concern for groups who for one reason or another are not in a position to earn and what I am doing for this group and for the earning population will make the right climate to achieve what Deputies Barry and O'Leary have been asking for.
I am glad that the grant of married allowance to a widow in the year of bereavement will still continue. If a husband died a month before the end of the financial year would she get the married allowance for one month or would it be for a year following——
For the full year.
(Cavan-Monaghan): Do I understand the Minister to say that if a husband dies towards the end of March 1980 his widow will get the married allowance for 1980-1981? That is what the Minister said.
Yes. It depends on what the date is. If he dies in 1981——
(Cavan-Monaghan): In March 1980. If the husband dies towards the end of one financial year will the widow get the married allowance in the following financial year?
No, in the current year.
(Cavan-Monaghan): I thought the Minister said the opposite to Deputy Briscoe. It might only be for three or four days.
She would have the full allowance in addition to the allowance he would have for the earlier part of the year.
The Minister in the budget stated at column 725 of the Official Report:
There will also be marginal relief at a rate of 60 per cent for taxpayers with incomes just above the exemption limits.
I do not understand that. Perhaps it is not under this section but when we come to it would the Minister explain it to me?
It will arise on section 8, in the tables.
We can deal with it in section 8. I will take note of it.
I move amendment No. 16:
In page 12, subsection (1), column 9 (3) of the Table to delete "195" and substitute "300".
This is the section of the Bill which reduces the allowance for children under the Income Tax Acts from £218 to £195. This is the second consecutive year this reduction has been made in the allowance for children of taxpayers. The Minister will argue that the children's allowances have been increased, but that is a different thing altogether. Children's allowances are designed to help people with large families to rear those children; they are designed primarily to assist people in the less-well-off sections of our community. I think it is for administrative reasons only that a means test is not applied—and maybe it should be applied—to those. But to deprive taxpayers of a benefit in helping them rear their children, or indeed failing to increase the allowance by an amount equivalent to the rate of inflation, but to actually reduce it in the year strikes me as petty, mean, unnecessary and very anti-family.
I am somewhat at a loss here. I have been reading over the debates on the Finance Bill each year. I have been reading the proposal made by the Deputy last year and the reply given him by my predecessor. Perhaps that reply incorporates the best precedent one can find for the proposal adopted in this Bill. I do not know if I can do better than quote from what the present leader of the Deputy's party had to say on the Second Stage of the Finance Bill, 1969, because where I might not succeed in persuading Deputy Barry perhaps the leader of his own party might. Here I quote from volume 241, column 587 of the Official Report:
.... I should like to congratulate the Minister on this move. What he has done is, in fact, to recover only a proportion, a fraction, of the amount involved. Perhaps he might go further, not because any one wants more taxation—none of us wants it; none of us paying it wants it; I am one of those who suffer from it—but because every £ we get back from people who do not need children's allowance is an extra £ which we can give to people who are in very real need.
Deputy Richie Ryan, when introducing a similar proposal in 1973, said in his Budget Statement, at volume 265, column 1255 of the Official Report:
As a partial contribution to the cost of these proposals,
——the increases granted in the social welfare children's allowances——
the allowances under the Income Tax Acts for each such child will be reduced in the case of taxpayers whose net incomes exceed £2,500.
He in fact set a precedent for what I am now doing. I can only say that I agree wholeheartedly with both spokesmen that one must define the priorities. The priorities they proposed then, which were followed by my predecessor, are ones that are not only meritorious but absolutely essential in ensuring that the benefit of the social welfare children's allowances be applied to those who need them. The only way in which this can be guaranteed is to effect this clawback by reducing the actual child allowance now being proposed. That is the pattern that has been followed and, if it was right then, it is right now.
I should tell Deputy Barry that, apart from his amendment drawing no distinction between those in greatest need of children's allowances and those who are not in need of them this year if I were to do as he asks it would be at a cost of £15 million, which would be almost exclusively in ease of those who do not need this as an income supplement. If that £15 million were available I would prefer to spend it on providing greater benefit for those in need of it.
This is a section in which I am greatly interested. Would the Minister not feel that the expenditure of £15 million, in compliance with the full wishes and terms of Deputy Barry's amendment, would be wisely and well spent? There is no point in the Minister quoting previous Minister for Finance. That cock will not crow now. The Minister is responsible for his budget and this Finance Bill. We are living now in different and more difficult times. Now is the time for the implementation of new measures, particularly those affecting the family. When one realises that the family constitutes the fundamental unit of society there is no point in a Minister for Finance or any other Deputy giving lip service to and pious expressions of goodwill towards the family when there is an opportunity afforded in this section, through the adoption of Deputy Barry's amendment, to do something in practical terms for the family.
It is quite wrong, in the event of children's allowances under the Social Welfare Acts being increased, that there should be any question of a clawback in the finance regulations so that any increase in benefits granted by the Minister for for Social Welfare with one hand would be taken back by the Minister for Finance with the other. The whole principle is wrong. The Minister's granting of allowances in respect of children under this section is a recognition of the parents' responsibility for the welfare and maintenance of their children. Here a golden opportunity is afforded the Minister to give serious recognition to the standing of the family in this state, it being recognised that the family constitutes the fundamental unit in society. This affords the Minister an opportunity to do something in a very practical way to assist large families particularly and the father or wage earner who must support that family.
I would ask the Minister to consider very seriously the full terms of Deputy Barry's amendment because it goes to the very heart of family life. It is quite wrong for the Minister to say that the social welfare children's allowance should be withdrawn from the better-off people. Is this not another method of imposing a means test on children's allowances under the guise of national economies? The Minister has said that the implementation of the provisions of Deputy Barry's amendment would cost £15 million. In my opinion that would be £15 million very well and wisely spent in assisting and encouraging families. I give my fullest support to the amendment tabled by Deputy Barry as constituting a most practical means of assisting the family as the fundamental unit of society and as so recognised under our Constitution.
(Cavan-Monaghan): I support Deputy Barry's amendment. Since this Government came back to power they have been particularly mean in regard to families. That has been the trend of their budgetary policy year after year. In the first year they did not give any increase, the first time it had not been done in many years. In 1979 they reduced the child allowance for income tax purposes from £240 to £218, and this year they have had another go at it and reduced it to £195.
Looking at the table in this section there is evidence that the Government know that the cost of living in regard to children has increased substantially, because they have doubled the allowance in respect of the children of widows and other such people from £250 to £500. They have increased the allowance in respect of an incapacitated child from £165 to £330 and in a case where both spouses are blind they have increased the allowance from £330 to £660. I thank the Minister for that because it happens that in my constituency there are two people, husband and wife, both of whom are blind. However, there is not much money involved in giving the increased allowance for incapacitated children—it is a glorified cosmetic exercise.
As I have said, the table provides evidence that the cost of maintaining children, whether incapacitated or normal healthy children, has increased, but this is the first time in our history that we have seen a budgetary trend against the family, particularly the larger family. In the first year of this Government being in office, children's allowances were not increased whereas every other form of allowance was. They increased these allowances for tax purposes last year but this year they attacked them with a clawback clause which reduces the income tax allowance from £240 to £195. That is a substantial reduction and Deputy Barry's amendment, therefore, has great merit and should be supported.
The best way I can present my case is to refer to the combined effects of income tax provisions and children's allowances. The Opposition have been complaining about the reduction in the child allowance and say that the combined effect has been a lowering of the benefit. Deputy Flanagan suggested that if one is concerned about the need for supplementary incomes for larger families one should express that concern through every avenue available. That is what is being done as distinct from applying the available resources to all families irrespective of income.
The purpose of the scheme we are proposing is to define these priorities and act accordingly, and the proposals being put by the Opposition would have the opposite effect. The quotation I used earlier from the Leader of Fine Gael was not from a statement he made as Minister for Finance but as spokesman on Finance in Opposition in 1969-70.
What has that to do with the position I outlined?
It is a matter of whether Deputy FitzGerald's case is more persuasive than Deputy Flanagan's.
The Minister is a poor person to argue that two cases are being presented from this side.
(Cavan-Monaghan): A pair of child's shoes then would have been £2. What are they now?
I will refer to the combined effect in regard to PAYE of the reduction in the child allowance. A married couple with one child on an income of £3,000 a year—we have been expressing concern for the lower paid—as a consequence of these general provisions in respect of children's allowances and the child allowance will be saving £147 per annum, about £3 per week. A married couple with two children with an income of £6,000 will have an increase in the order of £236. I am taking random examples. In the case of a married couple with three children and an income of £7,000, the increase will be £243 per year or £5 a week. It is arguable that we should spread the net wider and hit upper incomes more, without applying any priorities. The Deputies opposite know that there are choices. Children's allowances could be paid irrespective of income, to the poorest and to the richest—perhaps Deputy Flanagan is suggesting that this be done—and then there could be a clawback to ensure that the taxpayers' money would be applied to benefit those most in need. That is what is being done, and from the examples I have given I cannot see how it can be argued that it is not being done to the benefit of families with lower incomes, those who are most dependent on us.
If the Minister is so fond of reading past speeches and giving quotations by Deputy FitzGerald and others, would he direct his talents to reading some other speeches, particularly that made by the late Deputy Seán Lemass when he spelled out in this House that children's allowances by the Department of Social Welfare were for every child of every family in the State? The majority of Members accepted the principle that children's allowances were to assist parents to provide for their families. At no time did I ever hear the late Deputy Seán Lemass say children's allowances were for the full support of children. As I said, these allowances were to help parents to maintain their children. He never said children's allowances were to be given with one hand and taken back by the other. This smashes the recognition of the scheme of children's allowances and drives a coach and four through the principle of encouraging large families.
This year and last year we had this unreasonable and very biased attitude by the Government which appears to be against children's allowances. The Minister would need £15 million to meet this request but he does not have that money. There are numerous ways a Minister for Finance can obtain such a sum. Under our present income tax laws certain persons are exempt from paying tax. More power to them. It is terrible to see wealthy cultured workers getting away with real concessions under the tax laws while, at the same time, the family unit appears to be the target for the Minister's arrow. I am sure these people would not have any objection to paying their fair share of tax if they were assured that the majority of families would be given sufficient allowances to help them educate their children.
Deputy Fitzpatrick was right when he said parents of large families were experiencing unbelievable difficulties in rearing their children. The Minister represents a rural constituency which has a number of large families. These parents, who have only an average income, are feeling the strain financially, mentally and physically. It could be said that we should discourage large families, but that is not the right attitude to adopt.
We should encourage large families and also encourage parents to spend as much as they can on educating and clothing their children. The Minister has a golden opportunity to do something about this problem and all he needs is £15 million.
I ask the Minister, a dedicated family man, to have a measure of sympathy for parents of large families who are saving every penny they can to provide for their children. I am sure if he examines the tax laws he will not reject this amendment but perhaps he needs more time to look at the merits of this amendment. If he looks seriously at this grave situation he will do his best to provide £15 million for the family unit. I appeal to him to do something practical to meet the terms of this amendment.
(Cavan-Monaghan): As I understand it, the Minister justified his rejection of this amendment by saying that by taking income tax and children's allowances into account, a married man with three children is £243 a year, or £5 a week, better off under this budget than he was last year. If that is the best argument he can give to support his rejection of this amendment, he should accept it.
How much of this £5 a week is gobbled up by paying for petrol to bring this man to and from work? How much is gobbled up as a direct result of the 20p tax on a gallon of petrol? How much is gobbled up by the indirect effect of the tax on petrol which has increased the cost of transporting goods and supplies across the country? How much is gobbled up by the brutal increase on the pint and on cigarettes? How much is devoured by the increase in the cost of living and inflation at the rate of 20 per cent?
And holidays in Spain.
Some families in my constituency never have a holiday.
(Cavan-Monaghan): Deputy Briscoe may have different ways of doing things, but I would like him to tell the House how a married man with three young children and earning £7,000 a year can afford holidays in Spain. I am finding it more and more difficult to understand how a married man with a few children, trying to run a car, paying a house mortgage and doing the ordinary things people have to do, can exist on £6,000 or £7,000 a year.
I do not want to take up the time of this House on this section because this is a limited debate, but a married man earning £7,000 per year who has three children is worse off under this budget than he was in 1979 and notwithstanding that fact the Minister is gobbling back money from all income tax payers while people are left without any increase in respect of their children. We detect in this measure part of the social thinking of Fianna Fáil. In their first budget since returning to power the one thing they did not increase was the children's allowance and in the following two years the allowance in respect of income tax was chopped from £245 to £218 and then from £218 to £195.
The great part of the social thinking of Fianna Fáil has been to try to help those most in need and this is seen by our Government as the best way to give sizeable increases—in this instance a 25 per cent increase in children's allowances—to those most in need. People I have spoken to during the years have felt that the really wealthy people who were getting the children's allowance were using it as pin money. The wives would, perhaps, spend it on a few drinks with the girls or buy a new dress. This was an abuse of the underlying principle of the children's allowance.
The Minister has already stated that allowing for the increase in the children's allowance and the reduction in the tax allowance, it is still costing the State £15 million more this year. It is not as if we were robbing from children's allowances. Normally we could afford to give bigger children's allowances but in this instance we are taking from those people who have bigger incomes. I see this as the continuing policy of the Government and perhaps the Minister would confirm this in his reply. This is a direct way of giving cash benefits to those most in need and reflects the general direction of financial policy.
I defend this policy and Deputy Peter Barry's amendment, if it were carried, would result in many people not getting the increases they need and the less well-off having to pay for increases to the wealthy.
That is not so. This case has been very eloquently put by Deputy Fitzpatrick and Deputy Flanagan. I would add that children's allowances are entirely separate from the tax code. This Bill will have the effect of widening the gap between a married man with a wife and two children and a married man with a wife and no children.
Referring to the Minister quoting Deputy FitzGerald, Deputy Flanagan said that that cock would not crow. I should not like members of the party opposite to take that as an indication that we will not be quoting some of their more quotable sayings during the past 12 months. I will be stitching many of them into the record at appropriate times. That cock will still crow.
Deputy Flanagan seemed to convey the impression that I was the first to introduce this principle; that is not the case. His memory in this House is longer than mine and the principle was first introduced in 1944. It was applied for a very considerable time and then was not pursued. When it was reintroduced the leader of that party put himself firmly on the record in support of the principle for good social and economic reasons. The measure was implemented by the Minister for Finance of that party. This is not something which is being done for the first time.
As Deputy Briscoe said, one has to decide what one's priorities are. Should children's allowances be increased across the board without any attempt to effect a balance by way of clawback, ensuring that everyone gets a little irrespective of income, or should those who are really at the lowest level get much more than a little?
(Cavan-Monaghan): The Minister is distributing the national bun.
At one point during his speech Deputy Flanagan seemed to be talking to me personally. In so far as I seem to be representative of a category in this House, I do not think that I or any other Member can complain too much if we have to forego a little by way of reduction in the child allowance so that those who really need increased children's allowances can get more. That is the position to which I adhere and which I propose to the House. I would point out that there was no effective increase in the child allowance between 1972-73 and 1975-76 when the first increase was given. This surprises me when I hear the enthusiasm on the other side.
Was it cut down?
(Cavan-Monaghan): It was put up at least six times.
In 1975 it was £200 but £50 of that was to compensate for the abolition of earned income relief. In 1975-76 it was £230 and in 1976-77 it was £240. It is not consistent to ask us to increase it again to £300, despite the increase in children's allowances.
My priority is to ensure that this scheme will work on the basis of applying the overall benefits of the tax scheme and the children's allowances scheme to the lower income groups in particular. Over 80,000 people will gain totally as a consequence of the increase in children's allowances because they are not liable to tax. These are the people about whom we are anxious and whom we wish to protect in rejecting this proposal. Nothing has been said that would convince me to change.
As a mother and someone extremely concerned about children's allowances, I would point out that the priority of Fianna Fáil has always been to give to those who are most in need. I do not believe that people who have good incomes and can provide for their children without depending in any way on children's allowances will object to a little being taken from them to be given to those most in need. The Opposition are in favour of giving extra money to people who can well do without it. Surely we cannot advocate increasing allowances for people who are earning £10,000 to £20,000 per year? Those people do not need the money to look after their children. They have sufficient money of their own to do that. Our priority is to give to families who are most in need. I have always been in favour of increasing children's allowances. Those who need money should get it and those people who can provide adequately for their children out of their own income should do that.
(Cavan-Monaghan): It is difficult to follow the reasoning of Deputy Lemass when we remember that in 1978 children's allowances were abolished completely. That was the year that wealth tax was abolished also——
Are Fine Gael going to reintroduce a wealth tax?
(Cavan-Monaghan): In that year rates on houses were abolished irrespective of the wealth of the owners of the houses but not one penny was given by Fianna Fáil for children's allowances. This year occupiers of every cottage in the country have got notices and demands regarding increases in rents, in some cases increasing rents from £7 a month to £40 a month. Occupiers of all council and corporation houses have received such demands. Many of the recipients of these notices are on social welfare benefits, yet their rents are being doubled and trebled. This is the year also when children's allowances are being cut.
We are glad Deputy Lemass intervened because it has enabled us to put some facts on the record. As Deputy Fitzpatrick said, the party opposite, the so-called party of concern, abolished tax for the most wealthy people in the country. We are not talking here about people with incomes of from £10,000 to £14,000 per year; we are talking about people who earn £85 or £95 per week. These people will be affected by the Minister's proposals. If Deputy Lemass had been here for the whole debate instead of coming in at the end, seeking to run up a rather tattered flag of social concern on the bent flagpole of Fianna Fáil policies, she would not have made that intervention.
I may not have been in the Chamber but I heard the debate.
There has been considerable exaggeration from Deputy Barry and Deputy Fitzpatrick. Obviously many people on incomes of £85 per week who will be buying their houses will get tax relief on their mortgages. Most of them will be out of the tax net anyway——
I do not know where Deputy Briscoe is living if he thinks a person on £85 a week can pay a mortgage.
One must accept what the Minister said, namely, that 80,000 people will benefit directly from a net increase in children's allowance. That is a considerable number of people. It is my belief that fewer people than was suggested by Deputy Barry will be caught by the reduction in the income tax allowance. He made a claim that every person with an income of £7,000 will be caught, but that is not so because everybody knows there are all sorts of ways to get tax relief on an income of that amount. Most people in the income range of £7,000 to £8,000 probably have an overdraft and they will get tax relief on that, they will get income tax relief on the purchase of their house, on insurance policies and so on. I do not accept that it will hit a large number of people in that income bracket.
This section provides for the increases announced in the budget in respect of the tax allowances for blind persons. The existing allowances in this case are being doubled, as they are for incapacitated persons. Deputy Fitzpatrick argued that because special provision is made for blind or incapacitated persons by doubling their allowances—this was a deliberate decision on my part and on the part of the Government—that was evidence of the fact that everybody's allowance should be doubled also. On the previous occasion the Deputy appeared to suggest that because we were making a very proper adjustment in respect of blind and incapacitated people it should be done for all, that the cost of living was going up for everybody and people outside the categories I have mentioned should have their allowances doubled also. I cannot accept that argument.
(Cavan-Monaghan): I agree with what the Minister is doing here. There has been a campaign for a considerable time in regard to this matter. A married couple in my constituency have been campaigning on their own behalf and on behalf of blind people. They consider that the blind are badly catered for in this country in comparison with other countries in which they have lived. The Minister's proposal is welcome; it is long overdue. It is an acknowledgement that the cost of living has gone up for people in the categories we have mentioned as well as for others.
I wish to make a special plea to the Minister to keep this provision with regard to blind and incapacitated people under annual review.
As I indicated, we are making special provision for blind and incapacitated people. I hope we will continue to do that, as Deputy Briscoe has suggested. I welcome what Deputy Fitzpatrick has said, but because one makes a special provision for the categories mentioned here that cannot be the basis for giving the same concession to the rest of us. That would defeat the purpose of the provision. We are making special provision for the blind, the incapacitated and the disabled. I cannot accept what Deputy Fitzpatrick has said about the cost of living. I hope that each year we will be able to distinguish between the categories mentioned here and others.
This section gives effect to the proposal in the budget that where a husband and wife are assessed as single persons the existing £1,000 limit will apply to premiums paid by each spouse on life assurance policies. Where they elect to be taxed on their aggregate income, a limit of £2,000 will apply now.
(Cavan-Monaghan): If the income is spread and one spouse uses the full £2,400 and the other does not use it, spouse who needs it take credit
It comes up in the next section, but the answer to the Deputy's question is yes.
Amendments Nos. 17, 20, 24 and 25 are related and we will discuss them together.
I move amendment No. 17:
In page 14, subsection (1) (a), line 10, to delete "husband" and substitute "spouse".
I am sure the Minister will accept this amendment if it is legally possible to do so. Quite a lot of this Finance Bill is concerned with equality between the sexes and equality between married partners. This section has a subsection which states:
In relation to any interest paid in respect of any period...in the case of a husband, who is assessed to tax....
The husband is always the dominant person. I suggest, in order to carry through the whole spirit of the Bill, that the word "spouse" rather than "husband" be used.
I accept the Deputy's point. Amendments Nos. 20, 24 and 25 are on the same issue as this. Did you indicate that we will take amendment No. 24 at this stage?
Amendments Nos. 20, 24 and 25 are being discussed with this amendment by agreement. They are related.
The Deputy's amendments, particularly Nos. 24 and 25, are presumably intended to cover the position where a couple opt to be assessed on their combined income and the assessment shall be made on one of the spouses as the couple elect. The Deputy's amendment would not have that effect nor would anything I could propose have that desired effect. The effect of the Deputy's amendment would be that where a couple elect to be assessed on their combined income the husband shall be assessed and charged to tax on that combined income and the wife shall be assessed and charged to tax on that combined income. It does not state, but it is presumably intended, that only one of them will be assessed. The Deputy has asked why should it be the spouse. It does not state either who will decide which of them will be assessed. In order to meet the case made by the Deputy the amendment could not be accepted in the form it is in. The principle behind the amendment should be commended.
There will probably be cases where the wife will be the person with the family income, the husband being unemployed, and there will be other cases where both have incomes but the wife has the larger one. The position, by and large, can be achieved under the existing legislation and the purpose of the amendment can be achieved without the need to introduce more complex legislation. If we attempt to do what the Deputy is proposing we will have a situation where the husband could be assessed and charged tax and the wife could be assessed and charged tax. I do not think that is what the Deputy wants to achieve. I do not think the amendment is necessary. It would be more desirable to accept the Bill in its present form to achieve what I know the Deputy is concerned about.
Is the Minister saying that the position I am seeking to achieve can be achieved by an interpretation of this?
Yes, if they apply for separate assessments. Where, for instance, the wife has an income and the husband has little or no income, which is the case the Deputy is concerned about, the election for separate assessments under section 197 will ensure that the wife will be assessed in respect of her income. If they go for separate assessment this will ensure that the wife will be assessed in respect of her income, which is either the total family income or the greater portion of it. She will be granted either the total allowances due to a couple or her portion of those allowances together with any balance of allowances unused by the husband. She would then have the effective responsibility of meeting the tax liability falling on the couple. As the Deputy is probably aware, it is open for couples to go for separate assessments and, if so, the application of the allowances can be applied in such a way as to be assessed on the main income earned. If that is the wife's, so be it.
I can give an example which might demonstrate the case to the Deputy's satisfaction. I have sympathy with the case he is making. Take the case where the wife is earning about £10,000 and her husband has very little earnings, say £1,000, giving a total of £11,000. The situation there would be that the wife on her earnings would have an employee allowance of £400 and a personal allowance of £2,230 less £600, which is £1,630. There are total allowances of £2,030. There is total taxable income of £7,970 chargeable at 25 per cent up to £2,000, that is, £500, and at 35 per cent on the balance, that is, £2,089, making the tax payable £2,589. The husband has no taxable income and the assessment can be made on the lines the Deputy is suggesting. It is open to any couple to opt for separate assessment. Where they do not opt for separate assessment earnings are assessed against the husband because in the vast majority of cases the husband is the main earner. It is to the convenience of the vast majority of people who do not apply for separate assessment to assess earnings against the husband. There is no advantage or disadvantage in opting for separate assessment.
I am not sure if I accept the Minister's explanation. In page 14 lines 10 to 15 of the Finance Bill it appears that it is not possible in paragraphs (a) and (b) to do what I want. It says there "in the case of a husband" and "in any other case" which I presume is anybody but a husband.
Section 197 which relates to the application for separate assessments says:
(1) Where an election by a husband and wife to be assessed to tax in accordance with the provisions of section 194 has effect in relation to a year of assessment, and, in relation to that year of assessment, an application is made for the purpose under this section,
I see that and I see where it applies. Can the Minister assure me that that will refer back to the section and not to (a) and (b) which specifically says "a husband" and appears to exclude everybody else? Could the Minister not say "spouse" or something else just to make it clearer?
It would make it too complex. There must be a definite person who is charged tax, and as in the majority of cases the husband is the main income earner we must do it that way unless they opt for separate assessment.
I hope I will not be writing letters complaining about a wife who has been hard done by in this regard.
In relation to this amendment to substitute "spouse" for "husband", according to the Concise Oxford Dictionery a spouse can mean either a husband or a wife. If the Minister cannot accede to Deputy Barry's request to substitute "spouse" for "husband" could he not write in "husband or wife" since spouse means both husband and wife?
The Minister has already explained the position with regard to the use of the word "husband" and Deputy Barry has accepted it.
That is all right but it is no harm to have the definition of the word "spouse" on record. I am prepared to accept the explanation of the meaning of "spouse" in the Concise Oxford Dictionary.
Deputies will appreciate that it is done this way in order to convenience the vast majority of people. If it were not done in this way up to 300,000 notices would have to be sent to married couples. To work in this way relieves the inspector of taxes of a lot of unnecessary work.
I move amendment No. 18:
In page 14, subsection (1), line 13, after "£4,800" to insert "provided that this amount shall be assessed to tax for a widowed person for a period of seven years after the year of bereavement".
The purpose of this amendment is quite clear. The vast majority of people who claim relief under this provision are people with mortgages. Obviously if the husband dies the financial circumstances for that family are altered, in some cases drastically. If in addition to funeral expenses the wife is disallowed a further £2,400 in tax relief, having budgeted maybe for from five to ten years prior to her husband's death on the basis of £4,800 relief, and if she has children it is hard on her. It is to provide for those tragic circumstances that I put down this amendment. The £4,000 in the case of somebody who has been married should be carried on after the death of a spouse. In other instances as well, though perhaps not so many, this will be continued for seven years so that the widow will have a chance of making alternative arrangements or maybe her financial circumstances would improve. At the moment besides the tragedy of losing her husband a wife at the same time is faced with this extra financial burden when her normal income has been reduced.
I am in sympathy with this amendment and I would not even limit the time to seven years. A widow who is left with a very high mortgage when her children are very young and, as Deputy Barry said, her allowances halved to £2,400, in seven years might find herself in the situation where her children have to be educated and there could be further difficulties for her then. I hope the Minister will give the amendment every consideration because if it is not taken into account there could be cases where widows would have to sell their homes where they could not afford to keep up large mortgage. Having budgeted for £4,800 tax free interest allowance a widow might have to sell her home and go to less expensive accommodation and this could cause great disruption to herself and her children and the family might be so upset that they might not settle down. She might not be able to cope emotionally with the situation in which she would find herself. Other people might think that they were in the same category, but we must consider a widow or a widower in a very special category of people. They are not like single people. Their lives, emotionally, economically and in every other way, have been disrupted completely and they are due every help they can get. I appeal to the Minister to think about this amendment and I hope he will be able to do something about it.
At the conclusion of Second Stage of the Finance Bill I gave some indication that I would be prepared to consider some of the cases that have been made and generally I have sympathy certainly with the cases made by Deputy Barry and Deputy Lemass. Before and since Second Stage I have received representations from Deputies, particularly from Deputy Lemass, on behalf of this category. She has been making the case that she has stated this afternoon. I have considered it in the light of what Deputy Barry and Deputy Bruton said on the last occasion.
I recognise the special case that has been made. But, generally speaking, it is proper to make some distinction between widowed people and the married couples we are speaking about where the section doubles the interest relief. No one of these factors that I am going to mention is in itself absolute, but most widowed persons—not all by any means—are older people who do not have high mortgages by comparison with the average range of those who will be depending upon the mortgage relief as married couples. Secondly, it is fair to point out that usually mortgages are covered, nowadays particularly, by mortgage protection policies. Therefore, in the case of a widow generally there should not be a burden on her in respect of the mortgage if the husband dies. Rather ironically, it could operate the other way to some extent where the wife dies and the husband, being the wage earner, would now, as a result of this Bill, have the married person's double allowance of £4,800. To lose that might in the circumstances seem rather harsh in addition to the other problems people have to face.
On balance, I have taken note of what has been argued by Deputy Barry and Deputy Lemass. I have considerable sympathy and I have come to the conclusion that an appropriate relief in this case should be something of the order of £3,500. In response to the case that has been made I propose to introduce an amendment to that effect on Report Stage. I think it would be appropriate, having regard to what I have said, and it should cover borrowing in that instance of up to about £24,000. I hope that it will meet adequately the situation of widowed persons in more difficult circumstances. I do not want to add to that the fact that extra allowances that are applicable to widows and one-parent families are being introduced elsewhere in this Bill. I hope that in all the circumstances what I propose will meet the case generally and that it would not be confined to a particular period, that it would have the same extent and duration as the other extensions in the Bill.
I thank the Minister for this response to this amendment. I understand the difficulty and I appreciate what he has done. I do not want to appear churlish but I would like to point out a case that can arise in this regard. The Minister has proposed an amendment on Report Stage for £3,500 as opposed to the £2,400 that would exist if the husband or wife died. However, the strain on the family budget could still be to the amount of the tax on the interest between £3,500 and £4,800 and what that would be would depend upon the circumstances of the case. I thank the Minister for his response to this amendment. He appreciates the case that I have made. Deputy Lemass has particular reason for being able to speak more authoritatively from a human point of view in this regard than I have. Whereas I would wish for more I am thankful for what I have got.
May I ask one question? Does this apply automatically to people who already now are widowed, widows or widowers?
Yes, that is correct.
I move amendment No. 19:
In page 14, subsection (1), line 15, to delete "and" and to insert the following paragraph after paragraph (a) of subsection (1):
"(b) by the insertion after subsection (3) of the following subsection:
‘(3A) Where, in relation to interest paid in respect of any period beginning on or after the 6th day of April, 1980, relief is claimed by a person by virtue of more than one of the following provisions, that is to say, this section, section 76 (1) (c) and paragraph 1 (2) of Part III of Schedule 6, relief shall not be given to such person in respect of the part (if any) of the aggregate amount of interest paid by him that exceeds the appropriate amount specified in subsection (2A) in relation to the year of assessment 1980-81 and subsequent years of assessment.':
and".
The purpose of this amendment is to ensure that the loan interest relief in excess of £2,400 or £4,800 in respect of non-business interest may be claimed in respect of mortgage or loan interest paid to building societies, banks and so forth and loan interest to foreign banks paid out of foreign income which is chargeable to tax. The new subsection ensures that the limit on interest relief will apply to the total amount of relief claimed regardless of the heading under which it is claimed. It is meant to ensure that the total relief claimed can be applied irrespective of the headings. Whether it is mortgage or loan interest paid to building societies or banks, this will ensure that the total relief up to £4,800 can be applied across the sum of each of the categories.
I move amendment No. 20:
In page 14, subsection (2) (a), line 22, to delete "husband" and substitute "spouse".
We have argued this already on amendment No. 17. The Minister appreciates what I am trying to do here and has assured me, which of course I accept, that the position which I feared will not arise. I accept that and I withdraw the amendment.
I move amendment No. 21:
In page 14, after line 29, to insert the following subsection:
"(3) Section 10 of the Finance Act, 1979, is hereby amended, as respects the year 1980-81 and subsequent years of assessment, by the substitution in subsection (2) of the following definition for the definition of ‘A':
‘A is—
(i) in the case of a husband who is assessed to tax in accordance with provisions of section 194 of the Income Tax Act, 1967, £4,800, and
(ii) in any other case, £2,400.'.".
Section 10 of the Finance Act, 1979, is the provision which ensures that the maximum amount of interest, that is £2,400, which ordinarily qualifies for tax relief will be scaled down in cases where certain employees and company directors enjoy the benefit of loans made at a preferential rate of interest.
Subsection (2) of that section contains the formula which restricts the maximum amount of interest on a preferential loan which will qualify for relief—Deputies opposite will be familiar with this—applied particularly to preferential loan interest rates for employees of financial institutions. The formula has been settled in that Act. In this amendment we are applying the formula in respect of the increased interest relief. It is necessary to ensure that the arrangements which were brought into effect in that Act are implemented. We are redefining the base of the formula to include reference to £4,800 in the case of a husband who, for 1980-81 and subsequent years, is assessed to tax on his and his wife's combined income in accordance with the provisions of section 194 of the 1967 Act. In one sense it is consequential on what was already done in an Act, and it is also consequential on the increase in the interest relief now being provided in this Bill.
I opposed this last year but I was beaten on it.
Earlier it was agreed to discuss amendment No. 3 on section 8. Is amendment No. 3 moved?
The point Deputy O'Leary had in mind——
If the amendment is not moved we cannot discuss it.
This is the section which gives effect to the new tax rates and rate bands. The rates and bands are set out in Part I of the Table and they apply in the case of single or widowed persons and where a married person is assessed to tax as a single person. The doubled rate bands shown in Part II of the Table will apply in the case of a married couple, where they have opted for assessment on their combined incomes, whether or not each spouse has income. The doubled rate bands and the doubled personal allowance for a married man as compared with a single personal allowance give effect to what has become known as income splitting. Under this scheme the tax bill of a married couple is the same as it would be if each of the spouses had half of the total combined income and each was assessed on that half as a single person. The tax bill of a married couple is the same whether or not one spouse only has income or each spouse has income, but the division of income between them varies from case to case. The cost of this element in the scheme this year will be of the order of £61 million and £105 million in a full year.
This may be the appropriate section on which to discuss a point I mentioned about an hour ago in relation to an article in The Irish Times of this morning by Mr. Alan Shatter, the solicitor acting for the plaintiffs in the recent tax law cases in the High Court and Supreme Court. He said:
The position in relation to married couples who have paid tax for any preceding tax year (pre April 5th, 1980) and whose returns and assessments have been completed, accepted and finalised, prima facie, appears to be that they cannot now seek a refund for the “unconstitutional” portion of tax paid by them. There is, however, still an ambiguity in the position.
We will be dealing with that point on a later section.
I thought this was the appropriate section.
It comes up specifically on an amendment which I put down. The Deputy asked earlier about the operation of marginal relief. Take the case of a single person with a total income of £1,780 in 1980-81. His single allowance is £1,115 and what we call his employee allowance, the PAYE allowance, is £400. That amounts to £1,515. Therefore, his taxable income would be £265 and, at 25 per cent, that would be £66.25. Under the operation of marginal relief, the excess of his income over the exemption limit of £1,700 is £80. He has an income of £1,780. His exemption is £1,700. Therefore, the income excess is £80. The maximum tax is 60 per cent of the excess which is £48. The marginal relief is £18.25. There are other examples I could give the Deputy privately to enable him to see how it operates.
His income is £1,780. If there was no marginal relief he would be taxed on £80 and, at 25 per cent, that would be £20.
No. He has gone over the £1,700 so, if there were no marginal relief, he would be entitled only to his single allowance and his employee allowance which would amount to £1,515. That would give him a taxable income of £265 at 25 per cent and if marginal relief were not applied he would pay £66.25. Because marginal relief does apply he will pay £48 tax.
He will pay 60 per cent of £66.25?
Sixty per cent of £80.
60 per cent of £80?
Yes. £80 is the amount by which it exceeds the exemption limit.
I see; he will pay £48.
Exactly. He will pay £48 instead of £66.25. He gets marginal relief of the difference between £48 and £66.25, £18.25. I can appreciate that this looks easier when you see it in black and white and if it is a help to the Deputy I can——
Has the Minister tables?
I have examples and I shall certainly give the Deputy examples.
As regards marginal relief I presume the higher you go the more you get?
Precisely, except that it runs out at a certain point. You then come into the ordinary scale of allowances. In the case I have given, for instance, marginal relief would run out when total income reached £1,832.
Is this marginal relief available to people who do not get the £400, the non-PAYE sector?
Yes, indeed.
Where is the marginal relief written into the Finance Bill?
Sections 1 and 2, the first sections we dealt with. They only apply where you are dealing with exemptions. The general exemptions are in section 1 and the age exemptions in section 2. It is on the bands above the exemption up to a certain figure that marginal relief applies. It is in paragraph (b) of subsection (1).
It is rather complicated but I think I understand it.
I am not sure if this is the proper time to mention it but I have had some complaints that doctors are being asked to disclose the names and amounts of money paid to them by patients. Is that incorrect?
First, it is not correct and, secondly, I do not think this is where it arises.
It will arise under the anti-evasion section anyway. One can understand that doctors would naturally be concerned.
There is a section in the Bill to which it might be relevant.
What is the section and I shall make a note of it?
Section 53.
This is the section which gives effect to the proposal I announced in the budget that the tax exemption limit of £3,000 in respect of lump sums paid as compensation for loss of employment would be increased to £6,000. The new limit will have effect for the current tax year, as from 6 April. I should also mention that I propose to introduce an amendment on Report Stage to correct a defect in "top slicing" relief which allows the avoidance of tax on very substantial termination of employment payments. As matters stand, a situation can arise where a director or highly paid employee can reduce his liability for tax on a large termination payment by creating charges against this liability through offsetting allowances. There are cases on file where sums of up to £75,000 have been received practically tax free through the use of avoidance measures. I propose to close that loophole by introducing an amendment on Report Stage and I thought the House should have notice of it at this point.
The section provides that a registered trade union which is precluded by statute or by its rules from assuring to any person a sum exceeding £600 by way of a gross sum or £450 by way of annuity is entitled to exemption from income tax in respect of its dividends and interest which are applicable and applied solely for the purpose of provident benefits. The present section actually raises those limits from £600 to £2,000 and from £450 to £750. This is in response to representations made to me by representatives of the Irish Congress of Trade Unions.
These figures were completely out of date and I am glad the Minister has responded to the trade union representations.
I move amendment No. 22:
In page 16, before section 12, to insert a new section as follows:—
"12.—For the year 1981-82 and subsequent years of assessment the amounts specified in sections 3, 4, 5, 6, 7, 8, 10 and 11 of this Act shall be increased by the percentage figure as represented by the Consumer Price Index to mid-February of each year."
We had this argument out earlier today. There is not much point in going over it again. It was designed to index the amounts specified in all these sections.
I do not think we can throw any further light on that issue.
I do not accept what the Minister said but I do not think we should waste the time of the House by going over the arguments again.
