Amendments Nos. 1 and 2 are related. Deputy Barry will move amendment No. 1 and we will discuss amendment No. 2 with it.
Finance Bill, 1980: Report Stage.
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."
Amendments Nos. 1 and 2 are related and we discussed these on Committee Stage. As I explained at that stage, I presume that this provision is included in the Bill as the Minister said. I did not get a chance to look at it yet but I will accept the Minister's word and if that is so I will withdraw these amendments the purpose of which was to make sure that tax would not be deducted from couples which they were not immediately liable for because their income limit is below the level at which people are exempt from tax but could be above the level at which normal tax rates would come into operation. Amendments Nos. 1 and 2 are for that purpose and the Minister assured me on Committee Stage that arrangements were being made with the Revenue Commissioners to issue tax-free allowances to people under £3,400 per annum if married and £1,700 per annum if single exempting them from payment of tax. I understand at that stage that he would be putting into the Bill as amended in Committee some provision to cater for that. If that is in the Bill I will withdraw my amendments.
Yes, I gave that assurance to the Deputy on the Bill and I convey to him now that it has been done. It has been provided for in the certificates that are issued and there will be no question of the Deputy's apprehension being realised. The exemptions will be given in respect of people who are at that level.
Amendment, by leave, withdrawn.
Amendment No. 2 not moved.
Amendments Nos. 6, 16 and 17 are related to amendment No. 3. Deputy Barry will move amendment No. 3 and we will debate amendments Nos. 6, 16 and 17 with amendment No. 3.
I move amendment No. 3:
In page 14, line 10, to delete "husband" and substitute "spouse".
The purpose of this amendment is in page 14 line 10 to delete the word "husband" and substitute the word "spouse" and the related amendments to which the Leas-Cheann Comhairle referred do the same. It is accepted nowadays that husband and wife, man and woman, are equal and they should be treated as equal, yet in part of the Bill before us now there is an unintentional appearance of putting the wife in this case into a subsidiary position. It was to change that and to ensure that they are not alone treated equally but spoken of as equal persons in the legislation going through the House at the moment that I put down amendment No. 3.
I indicated to the Deputy when we were dealing with this on Committee Stage that for the purpose of the convenience of the vast majority of taxpayers we were approaching this on the basis that their income would be deemed to be the income of the husband with the right to single or double allowances. Each would have the allowance in respect of that income. This was proposed because it was seen that the vast majority of cases would come within that category, and to enable it to apply automatically without putting these people to the trouble of having to make specific requests on notice to the Revenue Commissioners, we decided to do it that way. If you were to accede to what Deputy Barry is suggesting, you would then not be able to follow the easy and convenient procedure that I have suggested. You would have to arrange that in each case they would indicate who it was they wished to be liable to tax on the income.
As I have already indicated, there is no financial gain from this separate or single assessment as the case may be. It will apply automatically once the income is deemed to be that of the husband. The allowance will be doubled for the husband and wife. It is for the convenience of the taxpayers. Under the amendment they would have the obligation to notify who the person responsible for the tax is. I indicated to the Deputy on Committee Stage that we could not agree to his proposal. I understand what the Deputy has in mind about the recognition of the equal status of the partners. We have given effect to that in the Bill. The consequence of his amendment would be to make a lot of unnecessary work for the taxpayers and a lot of unnecessary work in the administration of his proposal.
I understand the point the Minister is making but I still think it would be worthwhile to accept my amendment. I am not sure that it would create that much extra work for the taxpayers but I accept the Minister's word for it and I withdraw my amendment.
Amendment, by leave, withdrawn.
Amendments Nos. 5, 7, 8, 9 and 10 are related to amendment No. 4 and may be discussed together.
I move amendment No. 4:
In page 14, line 13 to delete "interest over £4,800, or" and to substitute "interest over £4,800,
(b) in the case of a widowed person, on the excess of the interest over £3,500, or".
These amendments are designed to give effect to the statement I made on Committee Stage. Provision is being made to raise the interest relief to £3,500 for widowed persons. The amendments provide for the increased limit and make certain consequential changes in the section. As the House will be aware, the provision of a limit of £3,500 for widowed persons is supplemental to the provision of a limit of £4,800 for a húsband who is assessed on the combined income of himself and his wife.
I listened to the points made by Deputy Barry and Deputy Lemass on Committee Stage and I am responding to them. We acknowledge that a married person whose husband or wife dies may have to continue his or her existing mortgage in order to retain possession of the dwellinghouse. It is probably fair to say that in the vast majority of cases, they will be covered by a mortgage protection policy in one way or another. This relief will probably apply more to widowers than to widows. That does not take from the effect or impact of it.
Before the death of the spouse there would have been an entitlement under this new provision to loan interest relief up to £4,800. In the absence of a provision such as that being proposed in these amendments, the death of one of the spouses would have reduced the entitlement to £2,400. That figure represents the interest in an average case at 14.5 per cent on a borrowing of about £16,550. In many cases it would not be enough to give full relief on the house purchase commitment. The limit of £3,500 now being proposed represents interest at the same rate on a borrowing of about £24,140 and would cover most people's house purchase commitment.
I can give a qualified welcome to this amendment. I accept that the Minister has gone part of the way to meet the point made in amendment No. 5. The Minister is probably correct when he says widowers will benefit more than widows. There is no doubt that the psychologically disturbing experience a widow goes through on the death of her husband takes a long time to get over. If, added to that, there is an extra financial burden placed on her, the State has a duty to ensure, as far as possible, that she is relieved of that anxiety.
The Minister said that most widows are covered by a mortgage protection insurance policy. That is probably right. In recent years a condition of being granted a mortgage was that it had to be covered by an insurance policy in the event of the death of the bread winner. Unfortunately, the section is not confined to interest on mortgages. Any interest, no matter for what purpose, can be claimed against tax. We would certainly advise a person in that position not to borrow for consumer spending, to buy cars, or yachts, or to go on foreign holidays. In the event of the death of the person who is claiming that loan interest against his income tax, the person concerned must pay off the overdraft and cannot make the same claim in respect of the interest on that overdraft as when the husband or wife was alive.
I recognise that the Minister has moved from £2,400 to £3,500 for a widowed person. That is a movement in the right direction. I thank the Minister for listening to the points raised on Committee Stage and bringing in, as he promised he would, an amendment to cater for them on Report Stage. I had hoped that he would have gone further. Amendment No. 5 is in some way more limited than the Minister's, because there is no time element in the Minister's. On remarriage they would be cut off from benefiting under the section. In fact, they would cut themselves off because they would automatically benefit under the £4,800 provision. In my amendment there is a time limit of seven years even if they do not remarry which would give people a chance to reorganise their finances.
I appreciate what the Minister has done. It is a step in the right direction. It does not go as far as I suggested in my amendment. However, unlike a lady in a neighbouring island I am grateful for half a loaf.
Amendment agreed to.
Amendments Nos. 5 and 6 not moved.
I move amendment No. 7:
In page 14, line 40, to delete "of that Act, and" and to substitute "of that Act,
(b) in the case of a widowed person, to the excess of the interest over the amount specified in paragraph (b) of the said section 496 (2A), or".
Amendment agreed to.
I move amendment No. 8:
In page 14, line 42, to delete "paragraph (b)" and to substitute "paragraph (c)".
Amendment agreed to.
I move amendment No. 9:
In page 14, between lines 43 and 44 to insert:
"(3) (a) Section 38 of the Finance Act, 1974, is hereby amended—
(i) by the substitution for subsection (i) of the following subsection:
"(1) In relation to connected persons, the reference in section 496 of the Income Tax Act, 1967, and sections 44 and 52 to any sum shall, in the case of each such person, be taken to be a reference to the proportion of that sum which the interest paid by that person bears to the aggregate of the interest paid by all the connected persons."
and
(ii) by the substitution in subsection (2) for "1968". of the following:
‘1968:
Provided that in a case where a husband and wife are assessed to income tax for a year of assessment in accordance with the provisions of section 193 of the Income Tax Act, 1967, they shall not, for that year of assessment, be connected persons for the purposes of this subsection.'.
(b) Section 9 of the Finance Act, 1979, shall have effect for the year 1980-81 and subsequent years of assessment as if paragraph (b) in the Table were deleted."
Amendment agreed to.
I move amendment No. 10:
In page 14, line 51, to delete "Income Tax Act, 1967 £4,800, and" and to substitute "Income Tax Act, 1967, £4,800.
(ii) in the case of a widowed person £3,500, or".
Amendment agreed to.
Amendment No. 11 and 51 are related and will be discussed together. Recommittal is necessary in respect of Amendment No. 11 since it involves a charge upon people. We are now going back into Committee. It simply enables the Deputies to tease it out and speak more than once.
Bill recommitted in respect of amendment No. 11.
I move amendment No. 11:
In page 16 to delete lines 1 to 29 and to substitute the following:
"10.—(1) Section 115 of the Income Tax Act, 1967, is hereby amended—
(a) by the substitution for subsection (2) of the following subsection:
‘(2) Tax shall not be charged by virtue of section 114 in respect of a payment in respect of an office or employment in which the holders' service included foreign service where the foreign service comprised—
(a) in any case, three-quarters of the whole period of service down to the relevant date, or 4bl (b) where the period of service down to the relevant date exceeded ten years, the whole of the last ten years, or
(c) where the period of service down to the relevant date exceeded twenty years, one-half of that period, including any ten of the last twenty years.',
(b) by the substitution in subsection (3) of ‘£6,000' for ‘£3,000' in both places where is occurs,
(c) by the deletion in subsection (7) of`,"payment of compensation for loss of office"'',
and the said subsection (3) and (7), as so amended, are set out in the Table to this section.
(2) The Schedule set out in Part II of the First Schedule shall be substituted for Schedule 3 to the Income Tax Act, 1967.
TABLE
(3) Tax shall not be charged by virtue of section 114 in respect of a payment of an amount not exceeding £6,000, and in the case of a payment which exceeds that amount shall be charged only in respect of the excess:
Provided that where two or more payments in respect of which tax is chargeable by virtue of that section, or would be so chargeable apart from the foregoing provisions of this subsection, are made to or in respect of the same person in respect of the same office or employment, or in respect of different offices or employments held under the same employer or under associated employers, this subsection shall apply as if those payments were a single payment of an amount equal to that aggregate amount; and the amount of any one payment chargeable to tax shall be ascertained as follows, that is to say—
(a) where the payments are treated as income of different years of assessment, the said sum of £6,000 shall be deducted from a payment treated as income of an earlier year before any payment treated as income of a later year; and
(b) subject as aforesaid, the said sum shall be deducted rateably from the payment according to their respective amounts.
(7) In this section ‘the relevant date' and `foreign service' have the same meaning as in Schedule 3, and references to an employer or to a person controlling or controlled by an employer include references to his successors.".
This is the amendment that was referred to in the course of the resolution being discussed this morning. Section 10 of the Bill provides for an increase in the exemotion limit from £3,000 to £6,000 for certain lump sum payments made as compensation for loss of employment. When dealing with it on Committee Stage I drew attention to the fact that some top executives and directors of close companies, when leaving their companies, so arranged their affairs as to escape tax altogether on a very substantial golden handshake. I said then that I would introduce an amendment to deal with this and to counter these devices and this is the purpose of the present amendment. There will be a consequential effect which I will refer to in a moment. It substitutes a new section for Section 10 of the Bill. First of all it will provide for the increased exemption threshold of £6,000 and for the application of a new formula for calculating what is commonly referred to as top slicing relief. This relief originally was designed to ensure that a taxpayer would not have to pay tax at an excessively high marginal rate on a large payment received in a single year. Tax planners have, however, over the years exploited the relief and the various weaknesses in the existing formula. In fact they have created a situation whereby directors and executives in receipt of very substantial golden handshakes have escaped tax altogether which of course was never the intention of the significant relief that was provided at the time.
The new formula will apply an average rate of tax to the chargeable element of the lump sum, that is to say, the average rate of tax charged on the recipient's taxable income over the five years previous to the assessment. In case there is any doubt about this I should say that it will be the actual average of the tax charged and not the average of the bands to which he was liable which would not in fact be an average in any event. That would be the rate at which the figure then becomes liable to tax. The new formula is contained in the schedule which it is proposed to substitute for schedule 3 to the Income Tax Act, 1967, where the present formula is contained at the moment. That is the first point. The second is at least as significant and will be a matter of considerable relief and easement to a wide variety of people who are in receipt of redundancy lump sum payments.
The present legislation draws a distinction between compensation and non-compensation payments. There does not appear to be sufficient reason for maintaining this distinction and it is proposed to eliminate it in the new provisions. The second change relates to a provision in the existing legislation which enables recipients of lump sums to substitute for the exemption limit a deduction equal to the standard capital superannuation benefit from the employment. A formula is provided for calculating this deduction which may produce a higher exemption figure than the figure specified in the section, that is, the £3,000 which has now been raised to £6,000. It may produce a higher figure than that £6,000. It is proposed to widen the provisions relating to the substitution of this deduction which was designed to enable an individual who might have no pension scheme or whose employer might wish to increase the benefits due to him under such a scheme to receive at least as much tax free on termination of his employment as he could have received tax free under an appropriate superannuation scheme.
In practice the ordinary worker gained very little from this provision and with the raising of the exemption limit to £6,000 he is unlikely now to derive any advantage from it. So what I am proposing here in conjunction with dealing with the top slicing which is being used as an avoidance measure is that where any superannuation benefit falls short of £4,000 the shortfall will be added to the £6,000 exemption figure. The effect of this is to eliminate any tax charge where the total lump sum compensation and any tax free superannuation benefit do not exceed £10,000.
That is indeed a major step ahead of what I have already done in raising the limit to £6,000. The effect is that there will be no tax charge on the total lump sum compensation and any tax free superannuation benefits which do not exceed £10,000. I would hope that these changes would be welcomed by the House since they improve considerably the tax position of the ordinary worker who receives a lump sum compensation in respect of the loss of his employment and it also ensures that directors and top executives will no longer be able, by means of various artificial arrangements, to escape the tax charge on their golden handshake payments but will have to pay their fair share of tax also on the basis of the average over the previous five years. There will be a saving to the Exchequer because of the curbing of this avoidance but it is not possible to estimate precisely what that will be. Deputies will appreciate that when one is dealing with avoidance cases one cannot be quite precise as to the consequences to the revenue of coping with the avoidance. The loss of the revenue resulting from the other leg of the proposal should more or less match the saving to the Exchequer in relation to the top slicing change. We are talking about a figure of about £500,000 in a full year and probably half of that in 1980.
Let me give an example. The provisions relating to the substitution of deductions where superannuation benefits are payable ensures that no tax will be charged where the total of the lump sum compensation and any tax free superannuation benefit does not exceed £10,000. This means that instead of the basic exemption of £6,000, a person claiming relief under the provisions for the first time would be entitled to receive a minimum of £10,000 tax free. So if an employee receives an ex-gratia payment of £10,000 but is not entitled to any payment under a superannuation scheme then the entire £10,000 will be exempt from tax. On the other hand, if he receives an ex-gratia payment of £10,000 and is entitled also to £2,000 under a superannuation scheme, because of the superannuation benefit being exempt anyway this would make a total of £10,000 which would be exempt from tax. The balance in that case— £2,000—would then be chargeable to tax at the average rate on the person's taxable income for the five preceding years. I hope that is a summary in reasonably plain man's language of what is involved.
With respect to the Minister, that is as clear as mud though I appreciate that the Minister is trying to explain the situation as simply as possible. Are we to understand that anybody receiving a golden handshake of £10,000, regardless of the source of that money, will not be liable for tax in that respect and also that if the money is composed of two elements, a cash free superannuation allowance of £2,000 plus a golden handshake of £8,000, it will be exempt but that in a case, say, of the golden handshake amounting to £6,000 and a superannuation amounting to more than £4,000 the balance on the £10,000 will be chargeable to tax at the average of the tax paid by the person in the previous five years? This is most complicated but have I got the position right?
Yes.
Deputies will understand that we are back in Committee for this amendment only.
The provision that tax shall not be charged in respect of a payment not exceeding £6,000 seems to me to be the maximum ex gratia payment that a person may receive without being liable to tax. This confuses me somewhat in the light of what Deputy Barry has said. He has asked what the situation would be in the case of there being a capital payment of £10,000, irrespective of the source and irrespective of whether the money was made up by way of superannuation and a capital payment. This is something which needs to be clarified. I understood from what the Minister said that a golden handshake of £10,000 would be tax free but this seems to be at variance with the provision in subsection (3) of the Table.
Another aspect of this on which I should like to hear the Minister comment is the question of the tax-free superannuation receivable by an employee on retirement. For instance, if a person retires and is to benefit from a superannuation scheme by way of monthly payments rather than a capital sum, is the value of the superannuation to be capitalised for the purpose of this section or will the pension be taxed on an on-going basis? There seems to be a slight divergence here in that the Minister seems to be favouring the payment of a capital sum under the superannuation scheme by not taxing it up to the sum of £4,000 whereas a person retiring from a company and getting his superannuation benefit by way of monthly payments would seem to be discriminated against.
The provision is that superannuation benefit is exempt anyway. That has been the position for some time. In addition, the position up to now has been that a lump sum of up to £3,000 in respect of redundancy has been exempt but we have provided for that £3,000 to become £6,000. That is the figure that is referred to in the Table mentioned by the Deputy. It is the exemption figure for the lump sum but it is qualified by the Table in Part II of the Schedule which explains that the operation of the provision will be that the difference between that amount and £10,000 will also be covered. Therefore, the sum of £6,000 is the basic but we are increasing it upwards to £10,000, regardless of whether the £10,000 is made up of a lump sum compensation and tax-free superannuation benefit or otherwise. The reason for this is, first, that the provision in itself is desirable and also because of the change in the provisions in respect of golden handshakes. This change would not bring about much benefit for the ordinary workers but as we are anxious that such people would benefit and as we have provided that on any amount greater than £10,000 tax would be chargeable as I have indicated, we decided that it would be appropriate to make provision also in this context for applying the benefit of the new exemption to workers who would not be receiving a golden handshake of anything like £10,000. The important point is that this exemption can apply only once. In the normal course the exemption on a lump sum payment can apply whenever the situation arises but this particular extension of the exemption can apply once only. This means that if a person changes jobs a number of times and gets a lump sum on the termination of each employment, the £10,000 exemption will apply only in the first case. That is why the figure of £6,000 must remain as the basic exemption in respect of the first-time payment. As I have indicated, it becomes £10,000 in effect.
Regarding a person who gets a golden handshake of, say, £6,000 on retirement as distinct from somebody who is leaving a company for some other reason, will it not be the position that the only people who will benefit from the new provision will be mainly professional or semi-professional people since by and large manual workers or blue-collar workers do not receive golden handshakes on retirement? This will mean that a large proportion of our industrial workers, for instance, will be discriminated against. I say this because they will be subject to income tax on their superannuation payments from the date of retirement, whereas a person in receipt of a lump sum payment will benefit substantially in this regard. Therefore, there should be some provision for a special retirement allowance for workers who are not in receipt of lump sum payments in order to bring equity into the situation.
The first £6,000 of the taxable income of a person who is retiring from a job and who is not receiving a lump sum should be tax free. I do not see why workers who do not receive a lump sum payment should be discriminated against. That is, in effect, the result of the allowance made by the Minister for a situation where a person receives a capital sum. I am not against the concept of a capital sum payment being tax free; I think it is good. It is fair recognition that a man on retirement has done his life's work and, certainly, is entitled to a reward. A figure of £6,000 is specified, although the Minister says, in effect, it is £10,000.
It becomes £10,000.
My contention is that, in order to ensure the continuation of equity a worker who is not in receipt of a tax free capital sum should have full alleviation from tax on the first £6,000 or, as the Minister says, £10,000 of the sum he receives in his pension. This would be an equitable approach to the matter as the present position is discriminatory.
I rise in support of Deputy Collins's suggestion. There is a lot of complaint at the moment, as the Minister is far too well aware, about people being taxed on their pensions and feeling aggrieved that having paid tax during their lives they should be taxed again on the return from a pension scheme to which they have subscribed. If the Minister were to consider in his next budget something on the lines of Deputy Collin's suggestion he would be going some way towards meeting this case by at least putting people who do not receive a lump sum on retirement in the same position as those who do, by allowing them to get a large tax free allowance on the first £6,000 or £10,000 of pension payments received, after they have retired initially.
The Minister should look carefully at this suggestion. We realise that his room for giving concessions on Report Stage of the Bill is limited, but we would be happy if he were to give an indication that he would be prepared to look at this matter between now and the next budget, if he ever is in the position to introduce another budget.
Deputy Bruton has acknowledged—if not explicitly, implicitly—that what I am doing here is giving relief, in any event. Let us be clear on that. While giving relief to this extent, Deputy Collins asks why we do not move into a new territory altogether. That is, in effect, what he is saying.
Deputy Bruton acknowledges, and Deputy Collins might also, that this is, indeed, a new territory and not one which I could contemplate at this stage. Having said that let me nonetheless indicate the extent of the territory about which we are talking. Most Deputies will appreciate that most pension schemes provide for superannuation benefits. The amendment deals with a lump sum payment on redundancy or retirement, as the case may be. Those things which are covered in this part of the Finance Act are, in effect, as a consequence to what I am doing in regard to exemption from tax this year which exemption, before this Finance Bill came in for the first time, was £3,000. That exemption now becomes £10,000. Everyone will acknowledge that that is to be welcomed.
Many Deputies have had representations on this subject, as I have had myself in my capacity as a Deputy, over the years and they have not eased off since I became Minister for Finance. For instance, of over 200 cases which came under review under the lump sum payment concession last year, 39 were within the range of £3,000 and £5,000—they will benefit from this Bill in any event, 28 were within the range of £5,000 and £7,000, who will benefit from this extension, 76 were between £7,000 and £10,000 and those over £10,000 were approximately 57. Workers who get lump sum benefits in addition to their ordinary superannuation benefits will benefit considerably from this. The question of exempting pensions entirely from income tax, as Deputy Collins knows——
I did not say entirely.
I appreciate that. Our giving more is a wider issue altogether and one which can only arise in the course of the normal budgetary considerations. I might mention that I did make some moves in that direction this year, to say the least of it. The exemption from tax, for instance, will affect a very considerable number of pensioners—I cannot recall exactly how many under that section but proportionately very many more pensioners than others. In addition, I exempted entirely what one might call Old IRA pensions in this legislation this year. I certainly am moving as fast as one can in a certain direction and what I am doing here is moving far in a consistent direction.
I take note of Deputy Collins's recommendation. It will be one of the things which will fall for consideration in next year's budget as to what measures of relief, if any, one can give at that time.
I doubt that the Minister will be there.
It is certainly not appropriate at this stage, but this point will be on the list. One gets a little bit uneasy when one is criticised, while making a substantial move, for not jumping into the other field and ploughing that as well, although it is not the field one is concerned with.
The Minister has disappointed me. Basically, I am on this point making a plea for equity. We shall keep this figure at £6,000, ignoring the further £4,000 as a tax free income from a superannuation scheme. By and large, the person who gets a £6,000 golden handshake is a white collar worker, probably well paid. I am in favour of paying a person upon retirement and I am speaking about retirement and not about a person leaving a job and getting a redundancy golden handshake. The person who, at the point of retirement, receives £6,000 is likely to be the white collar worker, probably on a fair income. Very few blue collar workers in manufacturing industries or the service industries receive a lump sum. They may get a pension from the firm, plus their old age pension which would probably be their income.
Or a gratuity which is becoming quite popular.
It is not quite popular in industry as yet, to my knowledge. If it is becoming popular it is more with the better paid than the lower paid. My point is that when a worker retires the Minister is discriminating against the worker who does not receive a lump sum payment. My contention is that in order to ensure equity in the tax system the first £6,000 of taxable income of the worker who does not receive the £6,000 tax-free grant should be alleviated in the same manner as a person who receives a golden handshake. I admit that it would be the State that would be financing that but I feel the State has a responsibility to the lower paid workers in society. What I am suggesting is that in relation to pensioners who do not receive a golden handshake the first £6,000 of their taxable income should be free of tax.
Possibly the term "golden handshake" is an unfortunate term to use because they have become associated with generous goodbye gifts to senior, superfluous management personnel on mergers of firms or other changes in the upper echelons of management structure. The Minister may contend that he has effected an improvement here by conceding a certain non-liability for tax purposes for the so-called gratuity, gift, call it what you will, or golden handshake. The Minister should seriously look at the extension of the principle here to all categories of employees qualifying for retirement.
It is not limited to categories.
I know, but I doubt very much if the 76 cases the Minister referred to would belong to the manual worker categories. It is more prevalent for a non-manual, non-general worker in industry to receive these ex gratia payments on retirement. Therefore, in equity, there should be no exception made as between one category and another. In equity also the pension system applicable to the average general worker on leaving employment should be free of tax to the same value as the maximum suggested here by the Minister in relation to golden handshakes. In other words, the same generous approach exhibited by the Minister here to a minority of people reaching retirement in industry should be applied to the generality, to all those qualifying for retirement benefits of one kind or another. The Minister should free these from tax liability also.
The Minister may contend that this is slightly unfair of Opposition Deputies, when he has effected this improvement, to seek this widespread extension. On the other hand, if he accepts the principle of freeing from liability the retirement gratuities of a small minority then he should display the same latitude in relation to tax liability to the pensions of general workers throughout industry. As the Minister knows, in regard to the pension situation in Irish industry, we have been awaiting for quite some time now a general commitment from this administration to a national pension plan. It was the intention of the previous administration to introduce such a plan at the earliest possible opportunity. In fact there is a discussion paper in this regard at present gathering dust in the archives which sets out the problems in this area and on which we have had no action.
However, the Minister, having given this concession to a relatively small number, and probably not the worst off section of the Irish work force reaching retirement age—and I am happy for them that they have received this concession at the hands of the Minister—must not simply confine his generosity to this small number but must, in reviewing the whole area of pensions in industry, concede the very same tax free concessions to the majority of workers attaining retirement age. God knows, the pension schemes obtaining throughout industry leave a lot to be desired. Very few of them match the cost of living or keep pace with the rate of inflation from year to year. Very few of them contain any inflation-proof features; in the public service only do those obtain. A person retiring this year with a pension will see its value considerably reduced over the next ten years with a rate of inflation, on present expectations, of something like 14 per cent average per annum. In value the average pension does not withstand the kind of depredations wrought by the current rate of inflation unless the pensioner concerned has been in the public service in which case his pension will be maintained in value to correspond with the rise in inflation. But, for the generality, their pensions are reduced to the status of paper money after relatively few years.
In these circumstances the Minister should seriously consider the idea of assisting, in the absence of any guarantees, that the average man's, or woman's, pension will be protected against the ravages of inflation, at least as an instalment of social justice in this area, the concept of freeing from tax their pensions to the value of the concession he has given here to the categories who obtain lump sum payments on retirement.
The Chair would like to point out that the discussion should not be widened to include the general effectiveness of pension arrangements operating in either the public or private sector. We are here talking effectively about an extension of relief to gratuities.
I am obliged to the Chair. I do not know whether this places me at a disadvantage, the debate having been widened already to cope with these matters. In accordance with the Chair's reminder, let me say briefly that the majority of workers, in the cases to which I have referred—and I have enumerated some already—are, in plain man's language, and I will use it when it suits me, ordinary workers, in the sense that many firms making what one might call rationalisation arrangements, some of them quite significant firms in this city, have made provisions of this sort. The people who will benefit from what I am doing here are manual workers, be they semi-skilled or skilled, in situations of that type.
Frankly, because I want to get at the avoidance that has been a major problem in relation to the executives who are able to make appropriate arrangements to avoid tax liability on their golden handshakes, it would seem that an appropriate figure beyond which they should be rendered liable to tax was one of the order of £10,000 and that, above that, they would pay tax at the average rate of tax applicable to them in the previous five years. If you like, that would be the starting point. But if a figure of £10,000 is taken for that purpose I saw no reason why the exemption extension—which I have introduced already from £3,000 to £6,000 in this Bill—should not be brought up to £10,000 which would cover a very considerable number of ordinary workers, although that term is rather easy to say but difficult to define—whether workers are defined having regard to the clothes they wear or the jobs they do is something open to a lot of analysis and discussion these days. Nevertheless, ordinary workers, be they manual or otherwise, will benefit to a very considerable extent from what I am doing here.
I understand why the Chair has reminded us that we are dealing with this provision. If in dealing with an exemption of this sort I find that I am being asked to deal with the whole spectrum of pension arrangements within the State, which Deputy O'Leary has mentioned, whether or not pensions should be liable to tax, or at what rate they should be liable—as Deputies O'Leary and Collins mentioned as well—it broadens it not just beyond the scope of the section but of the Bill, because these are matters that would be appropriate also for discussion with the Minister for Social Welfare in the first instance because of its wideranging implications, possibly with the Minister for Labour, and then back to the Minister for Finance——
Not generally noted for his generosity.
During the debate so far whenever I have introduced concessions, of which there have been many, the obvious criticism by Deputies has been that I should not stay in that field alone, that I should jump into the next field and plough that one as well, and then jump into another field and plough that. In this Bill, and in the exemptions already provided, 83,000 people who would otherwise be paying tax this year under the first and second sections will be exempt from tax and in addition 12,000 old aged people will benefit, of whom 8,000 will be taken out of the tax net altogether. We have made good progress in that direction this year. I have exempted Old IRA military pensions. I am glad the House welcomed that and agreed that they should be in a special category. Widows in that sector have also been exempted. If ever there was a year when we made considerable progress in these matters it is this year.
The net will be full of taxable fish by Christmas——
Further indication of the improvements we have been making——
——wriggling in pain.
I should like to take up the last point made by the Minister.
I made that point only in response to Deputies.
Acting Chairman
The Chair will be glad if Deputies would not go through it at great length.
The Minister criticised Deputies for seeking to extend benefits conferred under the new section now being inserted. It is not right to say that the Opposition should not seek to have these things extended if the case is just. I can understand the Minister saying he cannot afford it, because obviously the Government do not like raising taxes, and if there is an exemption from tax in relation to one sector the money must be raised from taxation. That was lost on members of the present Government a few years ago when they were over here. The Minister said that these things would balance out.
Marginally. There should be a marginal balancing out when the top slice has been dealt with.
The Minister suggested a sum of £500,000. The point I am making is that many more people will come into the £6,000 a year bracket. At the moment there must be extraordinarily big sums involved in tax avoidance and evasion by a limited number of people. If they are to subscribe £500,000 in the six months left of the current year because of this section there must be some of them getting away with murder at the moment.
I will give one instance. A company director whose employment was terminated in July 1977 received a cash lump sum of £75,000, and other benefits in kind gave him a total golden handshake of £81,000. The income tax which would have been paid if total benefits in that year were treated as remuneration would have amounted to £44,000, but as a result of the exploitation of reliefs given in section 115 of the 1967 Income Tax Act, no income tax whatever was borne. That is a big gap, and this House could not tolerate a situation whereby funds of that sort would not become liable to any tax at all simply because of the manner in which loopholes have been exploited.
I will illustrate how it would apply in this instance. If that person had been subject to the provisions we are now introducing, the capital benefit of £81,000, less standard capital superannuation benefit, which was £12,300, would mean that the chargeable benefits would have been £68,700. The total tax for the previous five years in that case was £24,000. The total taxable income for that period was £48,000 and therefore the rate of tax on average was 49.9 per cent. Therefore that golden handshake would have attracted tax of £34,281. The House will therefore understand the considerable avoidance there has been.
In the course of the budget statement I said I regarded the line between avoidance and evasion as very thin, but when people get advice as to how not to walk through but to run through loopholes in income tax law I feel obliged to ensure that the gaps will be plugged. I am also trying to ensure that those who get lump sum payments on redundancy will get relief.
The Minister said that the line between tax evasion and avoidance is very thin. Every Deputy is aware that tax evasion means breaking the law by fraud or by failure to comply with the law. Tax avoidance is different and I do not agree with the Minister's reference to the line being very thin. There is quite a difference between complying with the law and breaking the law by fraud. I do not blame the Minister for not knowing what is right and what is wrong. Fraud is wrong. An attempt to evade tax is an attempt to perpetrate a fraud. Everyone knows tax avoidance is a different matter. Tax avoidance is endeavouring to have accepted for taxation purposes the least possible assessment of income and the greatest amount of claimed expenses. One is breaking the law and the other is legal.
What is the Government's thinking when they grant concessions to one section of the taxpayers and not the other? They give concessions for golden handshakes but not for a lump sum paid from a pension fund. Everybody knows this legislation gives every benefit to the rich because the majority of workers will not get a golden handshake when leaving work. This principle is wrong.
A few moments ago the Minister referred to the concessions being given to people in receipt of Old IRA pensions, which are no longer liable for tax. The Minister can do that quite easily because the men of the Old IRA and the women of Cumann na mBan, who can be described as the unselfish, patriotic, forgotten minority, are growing fewer each year. These concessions will not make any difference to the Exchequer because each month there are fewer claimants. When considering Deputy Barry's suggestion the Minister should closely examine the pleas made by the trade union movement calling not for less overall taxation but for a fair spreading of the revenue gathered. The possibility of increases through catching tax avoiders——
The Deputy is very interesting but he is not on the amendment before the House.
I think I am.
The Deputy is not. The Chair will have to deal with this. The amendment deals with one specific matter, what the Minister calls the golden handshake. The Deputy cannot broaden that.
Before the Leas-Cheann Comhairle arrived the Minister, when dealing with the golden handshake, commented on the concessions made in relation to certain pensions, particularly the Old IRA, linked with Cumann na mBan——
The Chair cannot understand how the Minister could be in order in introducing the Old IRA.
I did not introduce them. I was answering——
The Minister was telling the House of his generosity and that he had already done something for pensioners. Deputy Barry and Deputy O'Leary asked why all pensions and all lump sums given on retirement were not given the same concessions as are given to people who get a golden handshake. He said he had already given concessions by making Old IRA pensions free of tax. I said that was easy to do because the number of Old IRA pensions to be paid each year were getting fewer and the amounts were so insignificant that if they were taxed it would mean these people were getting very little.
That was a passing reference.
I, too, am making a passing reference but I would like it on record——
The Deputy should move on to something else.
Some of these golden handshakes can be for substantial amounts which no ordinary Irish worker could ever hope to receive during his lifetime. It is those people who have been very substantial earners and who are in a much better position——
Deputy Flanagan, who arrived late is talking about golden handshakes and implying that I am giving golden handshakes, but I am doing the opposite——
I was not suggesting that the Minister was giving golden handshakes. There is no provision in the public purse for the giving of golden handshakes to anyone. Nevertheless, the Minister is aware that in the past substantial golden handshakes have been given to people associated with State and semi-State bodies and a Minister for Finance must take some measure of responsibility. I am not saying that during the Minister's time in office many of these hand-outs have been given, but it is well known that on the retirement of certain persons associated with State and semi-State bodies——
I do not wish to interrupt the Deputy but we cannot debate the question of who is getting these golden handshakes. We are debating the taxation of them.
The Minister has not explained to my satisfaction why this concession should be given to a handful of people.
There is no concession being given here.
Of course there is.
Will the Deputy tell me what it is?
That is what I want to hear from the Minister. What is the underlying principle? The Minister has adopted a different attitude to that which he holds in relation to the lower paid who are about to retire. This legislation is biased in favour of assisting the better-off.
The Chair understands that this amendment was practically agreed before I came in.
It is a very important amendment.
The House has been dealing with it for the past hour.
Deputy Flanagan is only a short time in the House this morning but he has called on his long service and experience here, on which I commend him, not only to broaden but to confuse the issue. He is making a case in favour of good against evil and with that I totally concur, but I wish to dispel the doubts in the Deputy's mind. Tax avoidance on golden handshakes has been very significant in some cases and the action now proposed will close that gap. I do not see how that can be regarded as a concession; it is quite the opposite. It will ease the burden on other taxpayers by about £500,000 in a full year. Liability to tax will arise on a lump sum or golden handshake over the figure of £10,000 and will be based on the average tax paid over the previous five years. Tax will be charged at that rate on the amount in excess of £10,000. In many cases that will mean a considerable contribution on the part of those who hitherto have not been making any contribution at all in some cases. Everyone in the House was in agreement with that.
Up to this year the lump sum which was free of tax was £3,000. In an earlier amendment I raised that limit to £6,000.
Is that not a concession?
It is a concession to workers. I should not teach grandmothers to suck eggs but some workers in the Deputy's constituency have written to me, having become redundant in certain activities, and have made that case. I responded by raising the limit to £6,000. The amendment with which we are dealing will for the first time raise the limit to £10,000, though this will not be repeated on every other occasion. This is a concession towards the lower paid rather than the higher paid.
Surely the Minister is not confusing redundancy payments to which workers are entitled when they lose employment with the presentation of golden handshakes?
They are both payable on the termination of employment. I am trying to give more protection to the redundant worker. The worker in several major industries in this city and elsewhere will benefit considerably from this measure and many others would have benefited last year had such a provision been in existence.
There is a very thin line between tax avoidance and tax evasion and this amendment is designed to deal with avoidance. Deputy Flanagan said we should not put these two things in the same category. I have already made my position quite clear on this matter, as have many others. The Irish Congress of Trade Unions generally would not give the benefit of legal niceties to people who avoid their moral obligations. I will take every possible action to deal with tax avoidance because I regard it as reprehensible. I can call on the authority of no less a person than the Professor of Moral Theology at Maynooth to say that it is not only socially reprehensible but morally reprehensible. People should not think that a technical lacuna is a substitute for conscience and this is in line with some pastoral statements from the bishops in 1977. I am sure Deputy Flanagan will agree with me now that it is morally and socially reprehensible. The moral judgment will be made by someone else at a later stage. Let us not allow people the comfort of thinking it is only a question of avoidance, not evasion.
Is it a sin?
We appear to be dealing with a completely new matter. I do not know how we got into this area but I think the House had better deal with the amendment.
The Minister referred to Saint Patrick's College and he used the words "morally reprehensible". Does he consider that what he described as morally reprehensible is a sin?
I do not think the House is competent to deal with sins, mortal or venial.
I regard it as a sin in the political and economic sense.
Does the Minister agree that the Professor of Moral Theology said that there was certain obligations with regard to justice, that it should be meted out to all people? There is a moral obligation to apply justice fairly to all.
The House is getting into the area of theology now.
Amendment agreed to.
Amendment reported.
I move amendment No. 12:
In page 16, between lines 42 and 43 to insert the following:—
"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 represened by the Consumer Price Index to mid-February of each year.".
I hope the Minister will accept the amendment despite the fact that he did not have much sympathy with what I had in mind on this matter when we were on Committee Stage. The purpose of the amendment is to help the Government to avoid getting themselves into the situation that occurred last year when, because of the inequities in the tax system hundreds of thousands of people protested in the streets.
We have just had two lectures on morals from both sides of the House. Taxpayers last year protested because they regarded as inequitable the tax they were forced to pay. Because of inflation and wage increases that tended to match that inflation, people whom it was never intended to tax were caught in the tax net and gradually as their allowances and wages increased they moved into higher tax bands. As a result, wage increases were of little real value to them.
The threat of revolt on the part of taxpayers has occurred in many parts of the world. An amendment with regard to tax was defeated in California last week only because the proposers of that amendment were too ambitious in what they were trying to achieve. If they had been less ambitious the income taxpayers of California would have voted for the proposition and this would have changed matters drastically. That was the situation with regard to the property tax amendment some 18 months ago. It changed the attitude towards tax collection throughout the United States. I do not want an upsurge of such opinion in this country and that is what I am trying to achieve by my amendment.
I want to ensure that automatically in each Finance Bill tax bands and allowances will be indexed according to increases in the consumer price index between mid-February of one year and mid-February of the following year. The taxpayer would regard himself as being more fairly treated if that were the position. Taxpayers do not see themselves as being fairly treated unless they get all the services they demand but legislators must adopt a different attitude. We must be conscious of the fact that every week people in the PAYE sector have amounts deducted from their wages and salaries which they sometimes regard as excessive. If they get wage increases during the year, frequently they are moved into a higher tax band.
As inflation bites more sharply into wages, people will have less money at the end of the month. When increases are sought to compensate for inflation they are taxed at the higher rate. There is always a suspicion that inflation is the friend of governments because automatically it means an increase in income tax. The Minister has pointed out that he gave generous allowances to taxpayers. However, one of the allowances was forced on him as a result of the Supreme Court decision in the Murphy case.
Despite the Minister's claim about the generosity of his tax allowances, in his estimates for receipts for 1980 he expects to get 30 per cent more from the taxpayers than he got last year. This is a fact. This is 10 per cent more than the latest figure we have, if the figure to come out at the end of the week is of the order of 20 per cent. The Minister will get 10 per cent more than the CPI increase in taxation in the current year. The whole field should be opened up so that taxpayers will feel they are being treated generously. They should know that no matter what happens to the cost of living index figure this year and no matter what wage increase they get, these increases will not be eroded but will be reflected in their allowances for the coming year. They should know that if they are to be squeezed by the cost of living they will not be squeezed again later in the year by a Minister for Finance who has not allowed for the increases in the cost of living.
This should be done particularly in times of high inflation. Other administrations have resisted this over the years but during our term of office the Fianna Fáil Party moved a Private Members' motion to bring this situation about and everyone of them, including the present Minister for Finance, voted to have tax allowances and tax bands indexed because of the high rate of inflation obtaining then. We resisted that at the time but I am now asking Fianna Fáil to do what they advocated while in Opposition, now that they have the power to do it.
One of the elements which contributed to bringing about the huge and rather frightening tax marches last year was the fact that Fianna Fáil had left the taxpayers under the impression that they would index tax bands and allowances when they came to government and they failed to keep that promise. If they are seen to let down the taxpayers again we could well face the same problem next year no matter who is in government. We are as concerned as the Government when 200,000 or 300,000 of what might be called the normally non-protesting type of people, take to the streets in the angry mood in which they took to the streets on two occasions in 1979. I would ask the Minister to accept this amendment not just for the sake of equity for the taxpayers, but also to show some recognition of the fact that we are listening to the taxpayers and want to see this reflected in increased allowances no matter what happens to inflation.
This concept of indexation is the minimum requirement in relation to equity in taxation. The marchers who recently protested about the incidence of taxation on PAYE taxpayers were brought out because the position prior to the last budget had become so blatantly inequitable. It is only because of the Supreme Court ruling in relation to married couples that the matter has been alleviated somewhat. There are still some anomalies but in relation to the amendment in principle, it is vitally necessary to ensure that benefits and allowances will not be eroded by inflation. It is vitally important that the allowances given in relation to one parent families, in relation to children, to incapacitated children, allowances in respect of a housekeeper, in respect of blind persons and the personal allowance are not eroded by inflation. This is a minimal amendment if we are to have an equitable tax system. It would be grossly unfair to use the population as pawns and to allow what was given to them this year in the budget to be taken away by the ravages of inflation. Past administrations were not better in handling this question than the present Government but it is time to take the bull by the horns and agree to the indexation of the allowances and to agree that it is unfair that inflation should erode what has been granted to taxpayers whether they are PAYE taxpayers, farmers or businessmen. It is very important that allowances are maintained from year to year.
What Deputies opposite are seeking to achieve in this amendment has already been more than achieved in the Bill as it stands. For the sake of principle the Opposition would sacrifice advantage for the taxpayers. Had we had indexation of personal allowances since this Government resumed office taxpayers would be considerably worse off than they are now. In 1977-78 the single and married allowances were £665 and £1,100 respectively. The consumer price index for the three years from February 1977 to February 1980 had increased by 39 per cent. Commensurate increases in the allowances would have meant single and married allowances of £925 and £1,529 had we operated the system being advocated by Deputies opposite. As Deputies know, the present allowances for single and married people are £1,115 and £2,230 respectively. It is evident on the face of it, even after the most cursory examination, that what the Deputies suggest would leave taxpayers worse off than they are as a consequence of the provisions of last year but particularly the provisions of this year. Deputies opposite might say that is if one starts from that date and why start from 1977? Why not start from some other base and make a comparison?
The position now is very much better than it would have been if one were relying on indexation, say, from 1972 on. In 1972-1973 the single allowance was £299 and the married allowance was £494. This is significant. Saul was converted on the road rather dramatically but it is nothing to the conversion that the Opposition have experienced since they went to those benches. Over the five years to 1977-1978—they were responsible for four of them—the single allowance was raised to £665 and the married allowance to £1,100. The increase in the single allowance was £366 over the five year period, but one must subtract £100 of that to compensate for the discontinuation of the earned income relief which was discontinued in 1974. The net increase in the single allowance over that time was £266. The net increase in the married allowance overall in that period was £441, so that it will not surprise anyone to note that in the first two years I am referring to of this Government we increased the single allowance from £665 to £1,115, that is an increase of £450, and the married allowance by £1,130 by comparison with the net increases of £266 and £441 over the five-year period. Those facts demonstrate more than anything I can say by way of argument exactly what has been achieved in the last few years by comparison with what was achieved in the four years immediately preceding it.
This is irrelevant to the amendment.
It is very relevant. I shall repeat what I have said as the Deputy was not here to hear all of it.
There is no need for that.
I think I should for the Deputy's enlightenment because I know it is a matter about which Deputies are very much concerned.
Would the Minister not agree that since——
Deputy Collins has already spoken.
On a point of order——
On a point of order is a phrase, used very frequently, which occurs to Deputies opposite when they have nothing else to say.
The Chair will have to decide whether it is a point of order or not.
I used to be in a debating society and I know what a point of order means.
The amendment states that indexation should commence this year and in future years and the Minister is addressing himself to a retrospective period.
The Minister is dealing with indexation generally.
If the amendment states that, I could be forgiven for taking the view that in the manner in which it was presented from the other side, when they were indicating the rate of inflation over the last year and so on, what they said was not quite in line with what their amendment, which Deputy Collins narrowly interprets now, intends to convey. If I take a base year from the time we took over responsibility, even on that base year, 1977, what I am providing in this Bill is much more effective for taxpayers by way of increased allowances than indexation would be.
The amendment does not suggest indexation only.
If I go back to the base year, 1973——
It is only a minimum.
——what has been done is more generous than anything the Deputy's amendment would suggest.
The Minister is choosing not to understand the amendment.
No, I am choosing to understand it very well.
Deputy Bruton will have an opportunity of speaking later.
The Chair should keep the Minister in order.
It is the Chair's job to keep everyone in order on both sides, but so far the Chair considers that the debate is still in order. It is dealing with the amendment.
As Deputy Collins is trying to keep me in order, I presume I will be in order if I follow his path when he made his contribution. That brings me to the Supreme Court decision and income-splitting. Deputy Collins wants to keep me in order.
It has not so much to do with indexation.
I am prepared to be guided——
The Chair is perfectly correct.
The Deputy did mention it, why I do not know.
Two or three facts seem to have been missed. The Government's decision on income-splitting was announced—I hope Deputies opposite are aware of this and are listening—before the Supreme Court decision was announced. As I have said on many occasions, to implement the Supreme Court decision would have cost the Exchequer £30 million this year. What the Government are doing this year involves income-splitting and the package will cost the Exchequer £135 million this year alone. How anyone can say in the face of those realities that the Government were simply doing what the Supreme Court required them to do I just cannot understand. The Supreme Court, even had they extended their judgment to unearned income, which they did not, never hinted that they were suggesting income-splitting, which is way beyond what the plaintiffs in that case were seeking. I am sure Deputies opposite know this, but in case they do not I will lay it clearly on the line. They wanted to be taxed as single people. The Supreme Court held they were entitled to be, in respect of their earned income. To be taxed as single persons does not give one a right to transfer the allowances one does not use to the other single person, which is what is involved in income-splitting. Sometimes nobody wants to know about that. They say in a confusing way that the Supreme Court dealt with this and what I did was to follow them.
They only decided on what was before them.
It should be clear that they were not asked by the plaintiffs in that case——
The Minister should address himself——
I am following Deputy Collins on the line he started for me. Now, when I am following him in a way that does not suit him, he objects.
I should like to tell the Minister, and other Deputies, that if something is raised they are allowed to reply but once the reply is given we must get away from the matter.
It is no wonder that Deputy Collins puts his hands to his face and is not anxious to hear what I have to say. He introduced the topic but when he is given the facts he does not want to hear the answer. It is obvious that what I have done is more generous than what was required by the Supreme Court. The benefit to the taxpayers is better than what is proposed by the Opposition. If in addition to all that the Opposition want to suggest indexing then the range of options open to any Minister for Finance in any year would be immediately restricted, to say the least of it. The entire tax arrangement would be already written for him before he looked at the type of allowances he should give. One of the fundamental responsibilities of a Minister for Finance, and a Government, is to make appropriate tax provisions at the appropriate time.
The Opposition have implied that the CPI is the real indication of an increase in the cost of living and against it no other judgment stands. I do not accept that and my predecessor, Deputy Richie Ryan, did not accept it. The CPI, as I stressed more than once, is not related to the actual increase in the cost of living, it is related to a basket which does not immediately reflect the actual increase in cost to the consuming public. For every 2p that is put on the price of a glass of beer the CPI moves exactly in line. If 4p is put on the price of that item it is double the increase for 2p, 6p of an increase means treble a 2p increase, an increase of 12p means six times what it would be for 2p and an increase of 20p means an increase of ten times what it would be for 2p. If additional excise duty is put on to that extent the consumption, of course, falls off. People will not keep following up to that point but although the consumption falls considerably the CPI continues gaily up without any reference to the actual level of consumption. Deputies opposite are aware of that. In concentrating on the discretionary areas of expenditure of the CPI I was conscious of the fact that for the vast majority of households the real benefits in the budget under the new provisions of income-splitting, increased bands and allowances would certainly match the effect of the increases in drink, cigarettes and petrol. I acknowledge that petrol is in a different category for a variety of reasons and we are made more conscious of that today because of the meeting of OPEC Ministers.
My predecessor, Deputy Richie Ryan, tried unsuccessfully to convey to the public, and to the social partners, the anomalies involved in the CPI. I hope I am more successful in conveying the same. I do not accept that the CPI is the total final guide even as to the cost of living. It reflects a weighted basket within it but it does not relate entirely to consumption which determines the cost of living. I do not accept that it should be the thing which should tie my hands, or those of any Minister for Finance, in the future in relation to any arrangements one should make on taxation. For those reasons I do not accept the amendment.
I should like to ask the Minister a question which might prove helpful.
I intend to adhere to order from now on. If Deputy Collins was here for the Committee Stage debate he would have been able to ask questions. I am not reluctant to engage in a debate with him but I am going to stick strictly to order and it might help if the Deputy did the same.
On Report Stage Members can speak only once. I am calling Deputy Flanagan who has not yet contributed.
This debate is considered important and serious as far as the ordinary taxpayers are concerned because we are considering the value of their tax allowances. One could be forgiven for concluding that the Minister was in a jocose mood earlier when he tried to convey that taxpayers, because of the allowances given to them, were better off than they were in 1976-77. There is no comparison as to the degree of prosperity between these two periods.
Since the Minister introduced his budget the allowances have been reduced substantially in value. Deputy Barry is seeking the same concession as the Minister, and Fianna Fáil, sought when in Opposition. There is a grave danger that the allowances granted to the taxpayers will be eaten up and reduced in real value by inflation and rising prices such as the recent increases in the price of meat, milk, petrol and rents. Taxpayers are entitled to expect that at the end of the financial year the increases in the allowances granted by the Minister will not be eroded or reduced because of rising prices or inflation.
The amendment seeks to prevent the erosion of those allowances. The CPI indicates the value of incomes in relation to prices and for that reason the Minister is wrong in suggesting that taxpayers are better off today with the allowances he gave in the budget than in 1976-77. Those allowances are being eaten up weekly and reduced in real value daily. In 1976-77 there was some form of stability in relation to rising prices and the cost of living. I should like to know why there has been such a turn round in relation to this matter by Fianna Fáil who advocated it when in Opposition but reject it when in Government. I should like to be in a position to explain that to the taxpayers in my constituency. That is what the Minister has not explained—why the sudden and extraordinary turnabout in relation to the stabilising of tax allowances so that they will not be eroded or perhaps wiped out by rising prices or inflation. Why the extraordinary change in policy in relation to this aspect that Deputy Barry has raised?
I support my colleague in urging the Minister to adopt indexation of tax free allowances. The Minister fairly pointed out that in the recent past the increases that have been given have been greater than would have been given if indexation had been adopted over that period and no other increases were allowed. That, of course, is not what the amendment proposes. The amendment proposes that indexation of tax free allowances should be there as a minimum, not as a maximum, and if the Minister of the day wished to give larger increases in allowances over and above indexation there would be no obstacle. The vast bulk of the Minister's speech against the amendment was in the true sense of the word irrelevant: he was not arguing about Deputy Barry's amendment. Deputy Barry was not suggesting, nor does the amendment suggest, that indexation should be the only increase in the allowances granted. It was suggested that indexation be allowed as a minimum and, if the Minister of the day wished to give more, he should do so. Therefore, the Minister was not arguing to the point at all.
The Minister may say that indexation of tax-free allowances is not a usual procedure in most countries and that most Governments retain discretion in any year to give increases in tax-free allowances which are more or less than the cost of living. In Canada they have adopted indexation of tax-free allowances. Automatically, every year tax-free allowances will be increased in line with inflation and if the Canadian Government of the day wish to give more they can do so. I urge the Minister to examine very carefully the way in which this provision operates in Canada. We should have a similar provision here. It is notable that the Government which introduced indexation in Canada, the Government of M. Trudeau, although they lost an election, were very quickly re-elected. One of the reasons why they were re-elected, I think, was that the Conservative Government wished to remove the indexation provision introduced by the Liberals. This shows clearly, I think, that indexation of tax-free allowances is a very important political issue.
The Minister is well aware that the Irish Congress of Trade Unions have adopted indexation of tax-free allowances as something they would like to see adopted as part of Government policy. We are concerned at present with obtaining a non-inflationary national understanding and negotiations are now beginning.
I believe that, if the Minister were to say he would be prepared to introduce indexation of tax-free allowance hence forth on a statutory basis—not on the basis of some kind of a political commitment but that he would actually be prepared to write into the Bill a provision to that effect, although that would not cost anything this year, in which, I recognise, he has difficult financial sums to balance—the making of such a commitment to indexation in the form of an amendment to this year's Finance Bill would go a long way, in my view, towards obtaining the right type of climate for a successful conclusion to the negotiations now beginning for a new national understanding. That is a very strong argument in favour of it.
Secondly, it is only fair, because all indexation would do is guarantee that what people have been given would not be taken from them by increases in prices. It is not giving anything new. Indexation of tax-free allowances does not give anybody any additional concession but it ensures that the concessions already obtained cannot be taken away by stealth as a result of the operation of inflation. If the Government of the day decided to reduce tax-free allowances, even if there was indexation, the Government could not be stopped from doing it—they need only introduce an amendment. Writing indexation into the tax code would prevent people being deprived of allowances they had already got, not by Government action or passage of a Bill but by stealth, the operation of inflation in reducing the monetary value of the allowances they had been given. I believe that everything should be indexed, that all cash limits in all legislation——
The Deputy is getting into a new field now.
There would be no function for us if we did that.
There would. If the Minister thinks that our function consists in making changes in figures to take account of inflation, there is not much function anyway. Perhaps the Minister would think a little more about that statement.
I shall give some examples later.
Not now, Minister.
Perhaps Deputy Connolly will give me the examples.
I shall enlighten the Deputy.
I am never averse to enlightenment. I feel very strongly that indexation should be introduced in the interest of social harmony in the community. One of the reasons people went on the streets about tax burdens in recent years—no doubt it was very regrettable that people had to take to the streets over taxation—was that they felt that what had been given to them in the past by Government decision and decision of the House had been taken from them by prices rising faster than the allowances had risen over a period. It was nothing that the House had decided; it was just that the legislation had not worked as intended, because inflation had taken place subsequent to the passage of the original legislation. If one were to go back to, say, 1953, of course it would depend on the period you took, the tax-free allowances that now exist as a result of the concessions made in the past two or three years—I do not denigrate them; they have been considerable—would be far far greater than the tax-free allowances that now exist. You would have had to earn four or five times as much in real terms in 1953 to reach the maximum rate of taxation as you now have to earn.
Was it 1953 the Deputy said?
Yes. A study was done on this subject by the Statistical and Social Inquiry Society, I think by a gentleman named Ó Muircheartaigh, on tax-free allowances and what has happened them since 1953. He showed quite clearly that if these allowances had been indexed since then the position would be that one would not reach the maximum tax rate until one was earning between four and five times as much as one now earns when reaching the maximum tax rate.
A similar situation applies to tax-free allowances. I am not talking off the top of my head. I have seen this paper and I would urge the Minister to examine it. I think it was published about two years ago in the journals of the Statistical and Social Inquiry Society. I think the author is now an official of one of the Government Departments and the Minister will therefore have no difficulty in consulting him about exactly how he made his calculations.
It is probably not in Finance?
No, it is Industry and Commerce. The Minister should not adopt the stance he has adopted on indexation. It would do a great deal to improve the climate of industrial relations if the Minister, or the Minister of State, Deputy Connolly, on his behalf, were to say that the Government will introduce indexation. It would not cost anything this year but it would give people an assurance that the allowances that they have already given would not be taken from them because of inflation. It would certainly contribute towards creating a climate in which a national understanding could be successfully negotiated. I hope the Minister will reconsider his position.
This is an interesting amendment which states:
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.
It does not say "minimum" there to which Deputy Bruton referred. Would the taxpayers agree to this?
Of course they would.
They certainly would not agree to being taxed on that rate. It says in the amendment that the amount specified "shall be increased by the percentage figure as represented by the Consumer Price Index". During the three-year period we have been in office the increase in personal allowance for a single person has been £850, which is more than three times the increase such a person got in the previous five years. The improvement is even more impressive for the married PAYE taxpayer. His increase in the three year period is £1,530.
That is on the record already.
I did not interrupt anybody since I came into the House. I came into the House because I am interested in this matter. This man received an increase of only £441 over the previous five-year period. This means that his increase is almost three-and-a-half times the increase he got in the previous five-year period. Deputy Bruton says that everything should increase in accordance with the CPI. Does he mean that the banks and all the rest of those people are included in this? I would not like to see the tax allowances based on the Consumer Price Index because I do not believe that taxpayers would agree to this. Since Fianna Fáil came back into power we have given increases substantially above the CPI.
I have grave reservations with regard to Deputy Barry's amendment. When I was in Opposition I spent a lot of time discussing Finance Bills. One can be taken up on wording. Outside the House one can be taken up on the crossing of a "t". There is nothing in the amendment about minimum. It actually says "shall be increased by the percentage figure..." Was Deputy Bruton referring to amendment of the bands also? This is open to interpretation but I believe that is what he was referring to. I would not agree with that aspect of it. The way the Minister is doing this now is the right way. It is being done in a constructive way. The people are satisfied with what is being done.
I would like to thank all the Deputies, including the Ministers who contributed to the debate on my amendment. It shows what an important amendment it is when for the first time today we have got another member of the Fianna Fáil Party to contribute besides the Minister for Finance. The Minister of State came in here to find out if there would be a vote or if he could go away for his dinner and he was drawn into speech.
The Deputy is talking about another Deputy.
I thought the Minister of State did not interrupt anybody. He was drawn into the debate to answer some of the points raised by Deputies which the Minister, because he can speak only once on Report Stage, could not answer. The Minister was very careful when he spoke. I will confine myself to what he said because it is his reaction to the amendment which is important. He did not refer to indexation of the bands, which is the point which has given rise to much controversy over the last few years. The allowances are important and the indexation is important. The reason for so much controversy and why people protested in the streets over the last few years is that when one receives any increase in salary one is in danger of moving into the higher tax band. If the Minister of State feels that the word "minimum" should be in the amendment I am willing to resubmit this on the Fifth Stage. Would that satisfy the Minister of State?
Procedure is tough enough without bringing in amendments on the Fifth Stage. There is no such thing.
I thought I would like to give the Minister of State a chance to vote on this.
The Deputy is introducing a new procedure.
I can see a lot in what the Minister said about the Consumer Price Index, that it may not be a perfect measurement of what exactly the cost of living is. I would be certainly willing to give any co-operation I can if the Minister wants to restructure it so that it more accurately reflects what is the difference between one period and another in relation to the cost of living for some group or family or whatever unit one chooses to take. At the moment the only measurement we have as to how much more it costs somebody to live this year as compared with last year or mid-February compared with mid-November, is the Consumer Price Index. That is the only reason why it is in the amendment. It is nearest to what I am trying to achieve and the only official measurement available.
Deputy Bruton said that he understood that the Canadian Government lost office because of their threat to remove the facilities existing in the tax code. That was one of the major elements and the Minister should take note of that, but an even greater contribution to the defeat of the last administration in Canada was putting up the price of petrol, and they did not put it up by as much as the Minister put it up.
Surely that does not arise on this amendment.
He would want to take warning from that.
The Chair must interrupt now.
I come to my final point. The Minister quoted figures back over the last few years showing how much better off we are but I am thinking of the future. The amendment states 1981-82. The figures, as Deputy Bruton acknowledged rightly, have been increased generously in some cases in the last year and I am trying to ensure that that is maintained in the future and that will help to defuse any tendency there might be for people to feel that the only way that they will get a positive and helpful reaction from the Government is to take to the streets. That, we would all agree, is a most undesirable development in any country, particularly a democracy like this, and it is to help to see that that situation does not recur that I have introduced this amendment.
Amendment put.
The Dáil divided: Tá, 36; Níl, 53.
Tá
- Barry, Myra.
- Barry, Peter.
- Barry, Richard.
- Begley, Michael.
- Bermingham, Joseph.
- Bruton, John.
- Burke, Joan.
- Burke, Liam.
- Cluskey, Frank.
- Collins, Edward.
- Conlan, John F.
- Cosgrave, Liam.
- Crotty, Kieran.
- Deasy, Martin A.
- Desmond, Barry.
- Enright, Thomas W.
- FitzGerald, Garret.
- Fitzpatrick, Tom (Cavan-Monaghan).
- Flanagan, Oliver J.
- Griffin, Brendan.
- Keating, Michael.
- Kelly, John.
- Kenny, Enda.
- L'Estrange, Gerry.
- Lipper, Mick.
- Mitchell, Jim.
- O'Brien, Fergus.
- O'Brien, William.
- O'Keeffe, Jim.
- O'Toole, Paddy.
- Pattison, Séamus.
- Ryan, John J.
- Taylor, Frank.
- Timmins, Godfrey.
- Tully, James.
- White, James.
Níl
- Ahern, Bertie.
- Ahern, Kit.
- Allen, Lorcan.
- Andrews, Niall.
- Aylward, Liam.
- Barrett, Sylvester.
- Brady, Gerard.
- Brady, Vincent.
- Briscoe, Ben.
- Burke, Raphael P.
- Callanan, John.
- Calleary, Seán.
- Cogan, Barry.
- Colley, George.
- Collins, Gerard.
- Connolly, Gerard.
- Crinion, Brendan.
- Daly, Brendan.
- Doherty, Seán.
- Farrell, Joe.
- Faulkner, Pádraig.
- Filgate, Eddie.
- Fitzpatrick, Tom (Dublin South Central).
- Fitzsimons, James N.
- Flynn, Pádraig.
- Fox, Christopher J.
- Gallagher, Dennis.
- Haughey, Charles J.
- Herbert, Michael.
- Hussey, Thomas.
- Keegan, Seán.
- Killeen, Tim.
- Killilea, Mark.
- Lenihan, Brian.
- Leyden, Terry.
- McEllistrim, Thomas.
- Meaney, Tom.
- Molloy, Robert.
- Moore, Seán.
- Morley, P.J.
- Murphy, Ciarán P.
- Nolan, Tom.
- Noonan, Michael.
- O'Connor, Timothy C.
- O'Hanlon, Rory.
- O'Kennedy, Michael.
- O'Leary, John.
- Power, Paddy.
- Smith, Michael.
- Tunney, Jim.
- Walsh, Joe.
- Woods, Michael J.
- Wyse, Pearse.
Tellers: Tá, Deputies L'Estrange and B. Desmond; Níl, Deputies Moore and Briscoe.
Amendment declared lost.
Business suspended at 1.40 p.m. and resumed at 2.30 p.m.