Financial Resolution No. 9. - Financial Resolution No. 13: Income Levy. – Dáil Éireann (24th Dáil) – Wednesday, 9 Feb 1983

Financial Resolution No. 9. - Financial Resolution No. 13: Income Levy.

The Taoiseach

I move:

(1) That, with effect from the 6th day of April, 1983, there shall be paid, subject to and in accordance with the provisions of paragraph (2) of this Resolution, by or in respect of an individual who is over the age of sixteen years, a levy (which shall be known as "Income Levy").

(2) That the provisions of sections 1, 16 to 26, 27 (2), 28 and 30 (2) of the Youth Employment Agency Act, 1981 (No. 32 of 1981), and the regulations made under that Act before the passing of this Resolution, shall, with the following modifications and with any other necessary modifications, apply in relation to Income Levy as they apply in relation to the Youth Employment Levy—

(a) in section 1 (1) of that Act, the definition of "the Agency" shall be deleted.

(b) in sections 16, 17 and 18 of that Act, references to an individual referred to in section 15 of that Act shall be construed as references to an individual mentioned in paragraph (1) of this Resolution,

(c) references in that Act and those regulations to the Minister for Labour shall be construed as references to the Minister for Finance,

(d) references in that Act and those regulations to Youth Employment Levy shall be construed as references to Income Levy, and

(e) references in that Act and those regulations to a contribution year shall be construed as references to the year beginning on the 6th day of April, 1983, and ending on the 5th day of April, 1984.

(3) It is hereby declared that it is expedient in the public interest that this Resolution shall have statutory effect under the provisions of the Provisional Collection of Taxes Act, 1927 (No. 7 of 1927).

Acting Chairman

The House has until 11.40 p.m. on this resolution. That is the time agreed to by the Whips.

Mr. Haughey

I do not think it will take us until then to demolish this piece of chicanery. Resolution No. 13 proposes to put a levy of 1 per cent on all incomes. This is another very undesirable development in this area. We have already had one such imposition, the youth employment levy, when a levy of 1 per cent was placed on all incomes right across the board for the purposes of the Youth Employment Fund. At that time we indicated quite clearly that we did not like that idea of an income levy. On that occasion at least the money raised was being devoted for the purposes of youth employment. Therefore, we did not oppose it as strenuously as we might have.

Here the Government, apparently encouraged by that manoeuvre at that time, are coming in again with this unacceptable type of taxation. It is unacceptable because it goes right across the board on all incomes without any regard to the different circumstances of the individual income earner. It is unjust and discriminatory in that regard. It is unjust and discriminatory in another way. Everyone knows that, when you put a levy of this sort on incomes, you will succeed only in extracting it from one section of the community, that is, the PAYE section. Experience has shown that the 1 per cent youth employment levy is not being collected from those other sections who are supposed to be paying, the self employed, farmers and so on. This particular mechanism suffers from those two defects. First of all, as far as those who pay it are concerned, it does not make any allowance for individual circumstances of the payer. At least the ordinary income tax takes into account family and other circumstances of taxpayers and makes certain allowances to cater for those differences, but this mechanism does nothing of that sort. Everybody pays it no matter what their circumstances are. It has the other gross inequity which I mentioned, that it is a further levy on the PAYE sector. For both those reasons we are opposing it and we regard it as a very bad development in our taxation system. It is very undesirable and should not have been resorted to. If this money had to be raised in the budget, it should have been put on to the ordinary income tax system in some way because then it would have had some element of equity and fairness.

There may have been some justification for having it in the case of youth employment, the argument at the time was that this desirable end of youth employment justified the means and, broadly speaking, the House accepted that. We all let it go without kicking up too much of a row about it. We are not doing that on this occasion because this is an extension of a bad principle and I am surprised that the Government have resorted to it in this way. I hope there will be second thoughts about it. If the Government wish to put it through tonight they can do so because they have the voting strength to do that but I believe they are not behaving properly in regard to the principles of taxation in raising the money in this way. I presume they are going to push this resolution through tonight but, between now and the Finance Bill, it should be looked at again. The money which is required should be raised in some other way because this is bad and undesirable in principle. It is also inequitable and unjust in the way it is going to fall on a particular section of the community.

Mr. MacSharry

I agree with everything that my leader has said.

I should like to comment on a few things which the Taoiseach said before the Minister for Finance returned. The Taoiseach referred to buoyancy in taxation, or fiscal drag, amounting to something in the order of £300 million this year plus £18 million income tax changes, plus £47 million from a levy on incomes. That gives a total of £365 million for the PAYE sector. What is being given away? A sum of £4 million in slight changes in the exemption limits. Arguably the Government and the Minister will put forward that they are giving away £55 million in the PRSI PAYE allowance. That is not new; people already have it and they expect it will be continued. It would be very difficult for any Government not to continue it. Leaving that aside, the PAYE sector are now being asked this year to pay an extra £365 million in taxation as against 1982-83. All the Government could find to give away with slight changes in exemption limits was £4 million. We will have a lot more to say about this in the budget debate and when the Finance Bill comes up, as colleagues of the Minister in Fine Gael and Labour did between March and July of last year in relation to this aspect of PAYE and PRSI payments.

Mr. De Rossa

Of all the impositions in the budget this 1 per cent on PAYE taxpayers is the most unacceptable. I cannot understand how a Government with a Labour Party element could agree to this kind of imposition. It is an imposition that will have no bearing on the allowances or otherwise to which the taxpayer will be entitled. It is also a further £80 million in a full year on top of the £290 million to £300 million which the Taoiseach has already agreed will be taken from the pocket of the PAYE taxpayer. The Taoiseach says that of course there are some people within the PAYE net who are quite wealthy. The Taoiseach must be moving in circles of which I am unaware if he knows wealthy PAYE taxpayers. If there are a half a dozen at present, there will be very few at the end of this year.

This levy will only be applied to the PAYE sector. It will not apply to income from rents, dividends, profits or from incomes which farmers or self-employed are earning. This is at a time when the Comptroller and Auditor General's Report indicates that something like £450 million are owed in back taxes by various sectors of the community, not I might add the PAYE sector, because they fork it out every Friday evening before they go home. This 1 per cent levy is unacceptable and I do not understand why the Labour Party are supporting the Coalition on this matter.

I would like to refer also to the points which have been made in relation to the PRSI allowance. We are told that this allowance is being maintained and that it will cost £84 million in a full year. At the same time, this 1 per cent levy is going to take in approximately £80 million in a full year. Effectively what they are doing is simply putting it into one pocket and taking it out of the other.

The family income supplement which the Government are so generously giving the low paid workers they are already taking from the PAYE sector by reducing the PRSI allowance. Again it is a question of grabbing the money from those who are caught most easily. There is absolutely no attempt, apart from pious platitudes, in the Minister's budget statement to tackle tax evasion, capital taxation, profits or farmers' tax.

Mr. Gene Fitzgerald

I agree with those speakers who have said this is a most penal imposition. I said earlier I thought this budget would go down in history as the most inequitable in recent times and the Minister for Finance must take the blame for all the unrest it will cause. For long we heard preaching from Fine Gael when they were in Opposition about the PAYE sector. On this occasion that sector is being loaded with a burden to an extent not known in recent times and this is the final straw.

In the Minister's absence when the Taoiseach was taking the resolutions he said that the increase on vehicle duty would have little impact. Unfortunately all these impositions have to be added up and paid for by the workers. We were told today that the impact on the CPI would be in the region of 4 per cent but the knock-on effect will mean it will be nearer to 5 per cent. The Minister is well aware of this and he need not argue with me that it will be 3½ per cent. However, I will be kind to the Minister: I will be conservative and leave the figure at 4 per cent. To this must be added the 1 per cent and this is a clear 5 per cent imposed on workers. Will the Labour Party walk into the lobby tonight and impose that additional charge? What are their views on the matter? We have not heard from them tonight. Not one shilling has been provided in the budget for public service pay, yet this 5 per cent is being imposed on public servants, from the lowest to the highest paid. I ask the Labour Party members to think twice before they vote in favour of this resolution. If they do so vote they will never be forgiven in their constituencies. As Deputy MacSharry said, when we get an opportunity in the coming weeks in the budget debate we will cause considerable embarrassment to the Minister and his colleagues by quoting what they said on those benches a few months ago.

I add my voice to that of our leader when I ask the Government to have a rethink on this matter. Not only is it inequitable in general on the PAYE sector but it is also inequitable within that category and this was pointed out by Deputy De Rossa. Earlier this evening I asked the Taoiseach a question regarding the 65 per cent tax band and I inquired what a single person earning a salary of £12,000 would have to pay. I was told the increase would be £139 on what he has been paying before the budget. To this amount must be added the figure of £120. A married person earning the same salary with five or even ten children will also be paying £120. The Minister estimates that this tax in a full year will realise £80 million. He knows he is being optimistic here. He has told us it is a temporary levy that will apply to the categories to whom the youth employment levy applied. He knows as well as I that it will be very difficult to collect this levy from some of the categories but it will not be difficult to collect it from the PAYE sector.

I ask the Labour Party to wake up before it is too late and ask for a change in the Finance Bill. Obviously the Government needed another £45 million and they looked around to see where they could obtain it with the least administrative cost. Last year we agreed to the youth employment levy because of the intention behind that levy but now we are faced with this temporary levy. In this context the word "temporary" is a misnomer and should not be used. It is a way of sliding this measure through in the easiest way possible and making it look less objectionable. The Minister knows that 1 per cent will become 3 or 4 per cent and the Labour Party members who vote for this tonight will have to face their constituents, whether in six months or 12 months. They will have to explain why they allowed a new levy to be introduced on the PAYE sector. I ask them to think carefully about this. As the days and weeks go by we will embarrass them when we discuss the Finance Bill. Before it is too late they should ask the Minister to withdraw the 1 per cent levy.

Mr. D. Andrews

Deputy De Rossa and Deputy Fitzgerald have dealt with a point I shall discuss briefly in deference to the time left for discussion of this matter. There is no member of the front bench of the Labour Party present for this discussion. There is no Labour Party Minister present during this travesty of justice perpetrated on the people whom they represent, namely the workers. The reality is that they have become the rump end of Fine Gael. Why is no Labour Minister present?

Mr. P. Barry

They were here earlier when the Deputy was not present.

Mr. Gene Fitzgerald

They were not long here.

Acting Chairman (Mr. Connolly)

Deputy Andrews without interruption. I ask the Deputy to speak on the resolution before the House.

Mr. D. Andrews

I am doing that. It is one element of the motion that is of concern to me. The Labour Party represent themselves as socialist but that is one of the greatest political jokes of all time. The real socialists are sitting up there. I hold no great brief for Deputy Mac Giolla and Deputy De Rossa and what they represent but the truth is that there will be a tremendous shift in Irish politics. It has now become a reality that The Workers' Party really represent the workers, or a certain element of the workers and the Labour Party and the Labour Ministers represent nobody other than Fine Gael.

Have the Government any imagination? Why did they go for the easy option, the 1 per cent levy? It was such an easy thing to do, with an easy prey in the PAYE sector. What they have done is repressive and depressing. The Government and their advisers have not shown any imagination. The budget is a disaster. It represents the worst form of bunker mentality politics it has been my misfortune to experience and I have been a Member of this House for nearly 20 years. It is the most unimaginative budget ever presented.

Mr. Reynolds

This budget is an arithmetical exercise. The Government have taken the easy way out. They have put down a set of figures and have looked for the easy option. I draw the attention of the Minister to the fact that the two major factors facing the economy are unemployment and inflation. It is against this background that we must look at the budget and we must consider the 1 per cent levy in that context. Unemployment rising by an average of 300 people a day. Inflation when we were in Government was coming down nicely, not as fast as we would like but well on the way down. When the full, knock-on effects of the 4 per cent, 5 per cent or whatever it is in this budget are added up, when you consider all the increases in VAT, housing and so on — and probably the price of a private house will rise to the tune of £1,200 — all those areas on the one hand will depress employment. There is nothing whatsoever in that budget to boost employment. Therefore, we have a fatalistic acceptance that unemployment must rise at the rate it is going.

The budget strategy ignores the primary factors that should be looked at. We will continue to pay out money to people out of work and to put them out of work. The budget certainly has no strategy in relation to unemployment or inflation. We know what the direct effect of inflation will be on competitiveness. We know what effect it will have on people trying to sell goods in an increasingly competitive market. It will mean more jobs lost.

Still on the area of employment, we have heard from the benches on the far side post-election — never mind what we hear during election campaigns — that Fine Gael policies in Government have the answer to unemployment. I put it to the Minister and his party, to the front bench spokesman of that party and to the members, absent tonight, of the Labour Party that nothing is done for employment in this budget. They have taken £220 million off the capital budget. They have done away with decentralisation. We will have an opportunity in the coming weeks to go right through the whole lot of it and we will take that opportunity to expose the budget for what it is.

Having done nothing for employment, having accepted that they can do nothing for employment, what do they do? They increase tax on employment. That is the reality of that 1 per cent. At the moment the joint take from an employer and employee tax now stands at 19 per cent, today increased to 20 per cent. If one of those employees happens to be in a private pension scheme he could be paying 5 per cent or 6 per cent more. Therefore, for a person employed today we are talking about a minimum 20 per cent tax for having that person employed. Where is the incentive in that for anybody to take on an extra person in a job? There is not a hope. Employers will be looking for ways and means of reducing the number of workers that they have. That is what this budget will do. It will put a tax on employment, apart from doing nothing to create employment.

Was Deputy Spring, Tánaiste and Minister for the Environment, at the Cabinet meeting when this budget was put together? For a man who had plenty of PR publicity about his meetings with the construction industry and about what was to be done for employment, lo and behold, when you go through it not alone is there nothing here to do it, but the budget that came out in disguise late in those pages——

Mr. Dukes

The one the Deputy's party nearly decided last October.

Mr. Reynolds

——makes one wonder. The bland ministerial statement on the budget was beautiful and easy to market but the real budget lies in there. Throughout the Minister's statement it is easy to see what happened to the Labour Party when they were inside the doors. It becomes more evident in the weeks and months ahead when everybody begins to realise what is in that. The 1 per cent levy, in spite of people who talk about equity in taxation, is a further tax on employment. That is the direction of the Coalition Government and, as Deputy Fitzgerald said, we will take the greatest of pleasure in exposing it for what it is. I would like to hear from the Minister if he accepts that the 1 per cent levy, apart from being a tax, is a further tax on employment, a disincentive to employ people. Is that the strategy adopted by the people opposite towards the major problems facing the economy?

Dr. Woods

This income levy is one of the worst features of this budget. It is a grossly unfair tax which is not related in real terms to a person's income. It is based on gross income and deducted from the net income. This is the worst possible way to inflict a tax. It is very similar, therefore, to the PRSI tax and the youth employment levy in its imposition. Will the old age pensioners be excluded from this additional income levy? Will medical card holders be excluded? We hear from the Minister that in reality this is to be a doubling of the present youth employment levy and the weakness of that has been pointed out already in that it falls particularly on those PRSI, PAYE payers who are a captive group as far as the Minister is concerned. Certainly they will pay it in full and on their full income, on every penny of that income, whereas others may pay part of it, particularly those whose income is much more difficult to ascertain. Again and again the Minister has talked about equity but in this instance he has once again hit the captive PRSI payer.

How much are the farmers and the self-employed paying at present on the youth employment levy? How much invome is received from the current youth employment levy? Does the Minister think that he will be able to double the amount of the youth employment levy intake in relation to the self-employed and the farming sector? I ask this because, particularly in relation to the health levies, as you increase them you get less money and that is one of the problems. That one per cent is levied in much the same way as the youth employment levy is taken and by going up yet another one per cent the fall-off effect may well be greater.

The Minister has mentioned that he hopes to find a means — he has not said that he has the means yet — of paying a family income supplement of £5 million. Is he making provision still for the double week for social welfare dependants in September and at the beginning of December, which was the £4 million paid last year, or is his family income supplement taking the place of that £4 million? I would be grateful if the Minister would clarify that.

In relation to the general effect, 7.5 per cent PRSI now becomes effectively 8.5 per cent and that on a maximum of £13,000 — and we know that this will increase — instead of £9,500. The combined effect for a person on £13,000 of this and the one per cent increase in rate is £7 a week for each employee. An additional £7 a week will be the effect of this combination on the PRSI payer, and that will be taken not from his or her gross income but from net income. This is where it becomes so unfair. It is calculated on gross income and taken from what is left after tax and other deductions. I calculate that it will amount to £358 in a year or £7 per week.

I agree with Deputy Reynolds that when the Labour Party Deputies and Ministers meet their friends in the unions and the friends that possibly they had in the working sector they will find it hard to explain how they agreed to such an unfair imposition. If money must be raised, why go back to this captive group and raise it in such an inequitable way?

Mr. MacSharry

Can the Minister tell us how many pensioners will be paying this?

Mr. Dukes

The levy will apply to those who now pay the youth employment levy. That means that it will be payable by all individuals over 16 years of age regardless of the level of their income, except for certain social welfare recipients and medical card holders who were not in insurable employment. The people who will be exempt from the levy on their total income are those who get a range of social welfare allowances which I can list if Deputies wish. They are the widow's contributory pension, a widow's non-contributory pension, deserted wife's pension, deserted wife's allowance, death benefit by way of widow's pension, social assistance allowance or a payment equivalent to any one of these that I have set out. The levy would be payable on all income as estimated under the Income Tax Acts but excluding approved superannuation contributions and benefits in kind.

A number of Deputies opposite asked questions about the collection of this levy. The total amount we would expect to collect from self-employed would be on the same basis that we collect the Youth Employment Levy. It is estimated that approximately £8 million is collected from the self-employed under that levy. The difficulties of collecting from the self-employed have been adverted to. There are a number of self-employed people who, up to now, in one way or another, have been avoiding the payment of the Youth Employment Levy and, indeed, avoiding the payment of income tax generally. The measures I referred to earlier today to reduce the amount of tax evasion will necessarily reduce evasion of the Youth Employment Levy and, therefore, of this levy and of income tax generally. As we have more effective measures to prevent tax evasion we will be applying the Youth Employment Levy and this levy as well as health charges, where there is another problem. We will be extending the collection of those taxes. I would like also to make the point that to the extent that we extend the income tax net by the measures put forward today we will again be extending the field over which we will be collecting the Youth Employment Levy and this new levy.

The overall justification for the measure needs rather more examination than Members opposite have given it. Members opposite are running the risk of creating a new mythical animal known as the PAYE worker. I have a feeling, when listening to the comments made by them and also the comments made by Deputy De Rossa, that the kind of people they have in mind in making those remarks are a particular group of PAYE payers.