Dáil Éireann díospóireacht -
Wednesday, 25 Jan 1984

Vol. 347 No. 4

Financial Resolution No. 9: Income Tax.

Minister for Finance (Mr. Dukes)

I move:

(1) That, in relation to income tax for the year 1984-85 and any subsequent year of assessment—

(a) section 8 of the Finance Act, 1980 (No. 14 of 1980), shall be amended, by the substitution of the Table to this subparagraph for the Table to that section:

TABLE

PART I

Part of taxable income	Rate of tax	Description of rate
(1)	(2)	(3)
The first £4,000	35 per cent.	the standard rate
The next £2,000	45 per cent.	the higher rates
The next £2,000	55 per cent.
The next £2,000	60 per cent.
The remainder	65 per cent.

PART II

Part of taxable income	Rate of tax	Description of rate
(1)	(2)	(3)
The first £8,000	35 per cent.	the standard rate
The next £4,000	45 per cent.	the higher rates
The next £4,000	55 per cent.
The next £4,000	60 per cent.
The remainder	65 per cent.

, and

(b) (i) where a deduction falls to be made from the total income of an individual in respect of relief to which the individual is entitled under a provision mentioned in column (1) of the Table to this subparagraph and the amount of the deduction would, but for this subparagraph, be an amount specified in column (2) of the said Table, the amount of the deduction shall, in lieu of being the amount specified in the said column (2), be the amount specified in column (3) of the said Table opposite the mention of the amount in the said column (2):

TABLE

Statutory provision	Amount to be deducted from total income for 1983-84	Amount to be deducted from total income for 1984-85 and subsequent years
(1)	(2)	(3)
	£	£
Income Tax Act,1967
(No. 6 of 1967):
section 138
(married man)	2,900	3,600
(widowed person)	1,950	2,300
(widow bereaved in the year of assessment)	2,900	3,600
(single person)	1,450	1,800
section 138A
(additional allowance for widows and others in respect of children)
(widowed person)	950	1,300
(others)	1,450	1,800
Finance Act, 1969
(No. 21 of 1969):
section 3
(housekeeper taking care of incapacitated person)	700	2,000

(ii) section 138 of the Income Tax Act, 1967, shall be amended—

(I) in paragraph (a), by the substitution of "£3,600" for "£2,900",

(II) in paragraph (b), by the substitution of "£2,300" for "£1,950" and of "£3,600" for "£2,900", and

(III) in paragraph (c), by the substitution of "£1,800" for "£1,450",

(iii) section 138A of the Income Tax Act, 1967, shall be amended by the substitution of "£1,300" for "£950" and of "£1,800" for "£1,450",

(iv) section 3 of the Finance Act, 1969, shall be amended, in subsection (1), by the substitution of "£2,000" for "£700".

(2) 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).

Mr. Haughey

I move amendment No. 1:

In subsection (1), to delete paragraph (a).

The purpose of our amendment will be clear to everyone in the House. Resolution No. 9 as it comes before us is in two parts. The first part deals with the abolition of the 25 per cent band and its incorporation into the higher bands. The second part deals with an increase in the personal allowances of the taxpayer. In announcing these changes today the Minister indicated that, in all cases, the operation of the increase in the personal allowances would more than compensate for any disadvantages brought about by the changes in the bands and the rates.

An Ceann Comhairle

Deputies will please remain silent or leave the Chamber.

Mr. Haughey

We argue very strongly from this side of the House that the changes which are purported to be made by this Resolution are so minimal in impact as to be hardly worthwhile expecially in so far as the lower paid are concerned.

Most people agreed with us in the arguments we put forward before the budget was introduced that one of the things needed in this year's budget was some reasonably substantial easing of the burden of direct taxation on the lower paid. That is a very arguable case on the grounds of equity and on the grounds of the conditions in which the lower paid find themselves today.

Right through 1983 the lower paid section of our community, and lower income families in particular, were faced with one imposition after another. Overall their entire position was seriously adversely affected. It would make very good economic sense to effect a very considerable reduction in the amount of tax paid by the lower income groups because that section of our community, by and large, spend almost their entire income. They have no alternative. In order to get by from week to week and from month to month they have to spend almost their entire income, whereas when one moves up the income brackets a certain amount of income is saved or used in another way. Any reduction in income tax for the lower-paid section would have a direct and immediate effect on consumption and therefore would help to stimulate employment. From both the equity point of view and the general economic point of view in regard to stimulating employment, a substantial reduction in the amount of tax paid by the lower-paid section should have been an essential and integral part of budget strategy this year. Unfortunately that has not been the case and instead we have Financial Resolution No. 9 which, as far as the lower paid are concerned, will have only a minimal effect. Taking a typical case, a married taxpayer with two children earning between £5,000 and £7,000 a year will gain very little from the operation of this Financial Resolution. The relief will be about £22 or £23 a year which is almost of no value.

We would have wished to propose an amendment bringing about a considerable change in income tax provisions for the lower paid but the rules of procedure do not permit us to do so. We have had to confine ourselves to doing the maximum possible in proposing to delete from Financial Resolution No. 9 those provisions which are detrimental to the taxpayer because they abolish the 25 per cent band and move that income of £1,000 into a higher bracket. The purpose of our amendment would be to remove that change but leave intact the changes in the personal allowances. The Resolution as framed, because of the operation of the two different parts, will have a minimal relief effect for lower-paid taxpayers. We are trying to leave the better part of the Resolution intact in effecting an increase in personal allowances but at the same time making no change in the existing bands and rates. We would have liked to do much more but as we interpret the rules of procedure we are not permitted to go any further at this stage. I recommend the amendment to the House.

Mr. MacSharry

I support the amendment and I wish to ask the Minister some questions. We were told yesterday by the Minister that 71,000 taxpayers were paying tax in the 25 per cent band. According to the increase in the exemption limits announced today, 15,000 people will be relieved of liability. That leaves 56,000 taxpayers of the type described by Deputy Haughey moving from the 25 per cent band to the 35 per cent band. I would ask the Minister to confirm or deny that.

Secondly, if no changes were made today in the income tax regime, could the Minister tell us what amount of additional tax would be paid by the PAYE sector under fiscal drag? I should like to have that figure because it is important, bearing in mind that the total relief for all taxpayers is £40 million. My concern is for the huge number of people — 56,000 — who will be moving into the 35 per cent band.

Mr. Dukes

The effect of this measure is that the first tax band into which a person will move is the 35 per cent band. Offsetting that we have the increases in personal allowances which bring up the point at which a person enters that tax band. I said to the Deputy in reply to a question yesterday that there were 71,000 people now paying tax in the 25 per cent band. The 15,000 people now relieved of liability will be relieved because of the increase in the exemption limits and the 15,000 people are coming off the bottom group of taxpayers. The effect of not making the change put forward in the Financial Resolution would be that £40 million more would be paid in income tax during this year than will now be paid.

Mr. MacSharry

The Minister is confirming that 56,000 people will be paying tax at 35 per cent who were paying at 25 per cent. That is the important point.

Mr. Dukes

On the basis of the 7.5 per cent increase in income, the fiscal drag, that is, the extra amount of tax that would be raised in 1984, would be £85 million. In a full tax year it would be £132 million.

Mr. MacSharry

The Minister is giving £40 million of that back.

Mr. Dukes

That is right.

Mr. MacSharry

It is important for the House and for taxpayers generally to realise what is being done here. There has been quite a lot of talk in recent days, obviously prompted by leaks from Government sources, about the amount of relief to be given to the PAYE sector. We see now the extent of it. They will pay all the tax they paid last year plus £45 million, even taking into account the relief announced today. There is no relief whatsoever for the PAYE sector, except the 15,000 people who are now to be exempt from liability. Probably even more important is the fact that 56,000 of the lowest income earners will now find themselves paying tax initially at the 35 per cent rate who heretofore paid at 25 per cent. The Minister has confirmed this and that gives a clear example of the futility of the effort to have it said that something was done for the PAYE sector, while in effect absolutely nothing was done other than lower income earners paying tax at a higher rate and all taxpayers paying increased taxes as compared to 1983.

Mr. S. Brennan

It is worth driving home the point which has been made. The Minister made a major mistake this evening. The 56,000 people are effectively moving into a new rate which is 35 per cent. I get the feeling from the Minister that he did not intend to do that.

Mr. Dukes

It was fully intentional.

Mr. S. Brennan

The Minister intended to bring 56,000 people at the bottom of the scale up into a higher rate. Is the Minister confirming that?

Mr. MacSharry

The Minister has confirmed it already.

Mr. S. Brennan

The Minister is nodding.

Mr. Dukes

I said it this afternoon.

Mr. S. Brennan

As long as we are clear about it. The Minister is moving them into the 35 per cent rate.

Mr. Dukes

Does the Deputy object to the reduction in tax?

Mr. S. Brennan

I will tell the Minister about tax reduction. Last year he took £4,681 million from the people. He is proposing to take £5,254 million next year. If that is tax reduction I would like to know what the Minister considers tax increases. The Minister will take more tax from the people, many of whom are lower paid, than he did last year. I do not require a lecture on tax reduction.

Speaking of tax reduction, about which the Minister is very proud, a married couple with one child earning £10,000 will benefit by the princely sum of 88p a week and that is in the name of tax reduction and tremendous budget strategy. It would not buy a few pints of this dear beer which has now hit us and would not put a gallon of petrol in a car. It is hardly worth the administration of the scheme to do that.

Mr. Dukes

It would reduce the administration.

Mr. S. Brennan

Is it worth all the trouble, rearranging and administration to give a reduction of 88p? It will cost more than 88p to the State to administer that reduction. It has to be regarded as a purely nominal gesture and to that extent it is welcome. However, it is only a gesture and not a massive effort at tax reduction. We must look at the overall burden of taxation. There is the 1 per cent temporary levy which has now been reimposed. It will probably be a permanent feature. There is the youth employment levy and the PRSI levies. Overall 30,000 people lost their jobs last year so the tax base was reduced by that number. The Minister is predicting that a further 30,000 people will lose their jobs this year. The tax base will be reduced by 60,000 people over two years. The Minister is asking fewer and fewer people to pay more and more to carry the services of the State. Unemployment assistance will be £560 million. Every working person pays £500 a year or £10 a week to fund the social welfare payment. If 30,000 people lost their jobs last year, 30,000 lose their jobs this year and 30,000 next year, the Minister will have shoved the working force so low that the level of taxation——

Mr. Molloy

The Minister is not allowed advisers in the House.

Mr. Haughey

I must object to this procedure, please.

Mr. P. Gallagher

The Deputy has not been convinced that he will vote for this.

Mr. S. Brennan

I do not want to interfere with the saving of a Government if that is what is in question.

Mr. Haughey

The Deputy is a very unpleasant little fellow. I am not surprised he is breaking the rules of the House.

Mr. McLoughlin

I am not too fond of you myself and you do not look too pleasant either. You have a head on you like a goat.

An Leas-Cheann Comhairle

Deputy Brennan, please.

Mr. S. Brennan

I do not want to interfere with Government negotiations or the survival of the Government. If that is what is at stake I will not detain the House much longer. The reduction of 88p is derisory. The number of people paying taxation above the standard rate is now 40 per cent. In Canada it is 1 per cent; in Sweden 12 per cent and in Britain, who had a litany of socialist Governments, it is only 5 per cent but it is 40 per cent here. In the United States it is 11 per cent. While the 88p is a step in the right direction, it is not a real attempt to push down the enormous figure facing us. Ten years ago the number of people paying tax above the standard rate was 1 per cent. Today the figure is 41 per cent. We are the most highly taxed country in the EEC and 88p is no solution. With the price of two beers, a gallon of petrol and VAT on clothing that 88p will be well gone. The average family are worse off tonight as a result of the budget.

Mr. Molloy

In examining the contention that the Minister is offering relief of the taxation burden which is crushing the workers of the country, can he inform the House what the income tax take from the PAYE sector was in 1983 and the estimated take in 1984? When listening to the answer I would ask the House to bear in mind, as Deputy Brennan emphasised, the number of people paying PAYE during 1984 will reduce by 30,000.

Mr. Dukes

I do not have specific figures for PAYE taxpayers. We have figures for the total number of taxpayers whose taxes are paid through the PAYE system. This includes a number of people who do not pay what is regarded as PAYE. The proportion of taxpayers paying tax at the higher rate in 1984-1985 before these budgetary measures would have been 45 per cent of taxpayers. The effect of the budget and the changes in the allowances that are provided for in this Resolution will bring the proportion of taxpayers in the higher rate down to about 39 per cent.

Mr. MacSharry

Will the Minister tell the House the number of people paying tax at the different rates?

Mr. Dukes

I gave the Deputy information on the number of people paying tax in the individual rate bands on the basis of the system that existed up to tonight. I do not have a figure for the change in the numbers.

Mr. MacSharry

The Minister has made a statement based on what the changes will be.

Mr. Dukes

Broadly speaking that is the proportion of people paying tax at the higher rate as against the lower rates. It is down from 45 to 39 per cent.

Mr. Molloy

Is it not true that the figure the Minister circulated in regard to the tax take from income tax for 1984 shows an increase of approximately £300 million over the take in income tax for 1983? If there are 30,000 fewer people expected to be paying income tax during 1984 surely the budget is increasing substantially the tax burden on the remaining taxpayers rather than, as the Minister claims, offering some relief?

Mr. Dukes

The Deputy is, of course, playing the numbers game with the averages against the specifics. I have said clearly that the value to taxpayers of the tax reliefs we are now discussing is £40 million. I do not think I said at any stage today that this represents a large reduction in the burden of taxation. I did not say that it represents a reduction in the total take of taxation. I told the House that for people in the lower income groups, and the groups under the exemption limit in particular, it will represent a substantial improvement in their position. For the 15,000 people who will come out of the tax net it represents an improvement in their position. As I said this afternoon, it has been my concern in constructing the measures before the House to spread, as far as that could be done within the confines of the system as it is, the advantage of that £40 million reduction in the total tax take as far as possible in favour of those on lower incomes.

Mr. MacSharry

The Minister did not do that. A total of 56,000 people had their tax increased by 10 per cent. The Minister did the opposite to what he said he was doing.

Mr. Molloy

Will the Minister explain to the House how he estimates that the take from income tax will increase by £300 million during 1984? How does he arrive at that estimate?

Mr. Dukes

That is the tax revenue forecast for 1984 as compared to 1983. It is made up of a combination of the effects of the operation of the system as it was when the forecast was drawn up — it is a pre-budget forecast — the rates as they applied then and the expectation as to what will happen to incomes and, therefore, the effect on people moving up through the bands.

Mr. Molloy

In effect the Minister is not offering any relief and they are all caught.

Mr. Dukes

That is the way tax forecasts are done normally. With regard to what Deputy MacSharry has said about 56,000 people moving into a different rate band it is, as I said earlier, a fact that with the change we propose in the Resolution the first rate band a taxpayer will move into will be the 35 per cent band. A taxpayer will move into the tax system at a later point than he would have up to today owing to the operation of the increase in the personal allowances. The net effect of all that for all taxpayers is to reduce the amount of tax compared to what they would otherwise have paid had the system remained the same as it was until today.

Mr. S. Brennan

The Minister will be taking in £300 million extra on income tax.

Mr. Haughey

The Minister announced in his budget speech that tax credits were postponed and I gathered from his remarks that they were being postponed indefinitely. Is that the position? How can the Minister reconcile that with the frequent statements, promises and pledges by his party, and the Taoiseach in particular, that tax credits represented the best and fairest system and would be a major plank in the taxation programme of the Fine Gael Party?

Mr. Dukes

I can recall what I said in the 1983 Budget Statement, which was to the effect that the tax credit system was not an immediate option in the short term. I explained at some length this afternoon why I believed that to be the case. I do not dispute the fact that, other things being equal, a tax credit system is a fairer way of going about taxation but, as I said this afternoon, a move to tax credits without a substantial reduction in the overall burden of the tax system would have particular effects on people in the middle income group about whom we all need to be concerned, apart from our concern for the lower income group. Without a substantial reduction in the overall burden of taxation which Deputies opposite are talking about a move straight away to a tax credit system would create a number of serious problems for people in part of the income bands.

Mr. Haughey

Will the Minister accept that those considerations should have been present in the mind of the Taoiseach when he was making those promises and pledges in an election context? To that extent he has seriously misled the tax paying public over the last two or three years on this single issue alone apart from other issues.

Mr. Dukes

It is not anything of the kind. I have made it clear, as it has been made clear for the last couple of years, that our opinion is that the tax system needs substantial changing. We have made a beginning as a part of that system today——

Mr. Molloy

By taking in an extra £300 million?

Mr. Dukes

I made it clear today that in order to bring about a substantial change in our income tax system we need to look not only at the structure of the system but also at the total burden of taxation that is being taken. It is our intention, and I have no difficulty in reconfirming this — from time to time I heard noises from the opposite side of the House which seemed to indicate the same thing — to take the only kind of action that can bring about a reduction in the total tax burden. Without that we will be in a position where we will not have people who are even employable under the kind of circumstances that will exist.

Mr. Hilliard

Deputy McLoughlin does not look too happy.

Mr. Dukes

Deputy Brennan, or Deputy MacSharry, referred to prompted leaks. If I can make any claim for a name I have got in that respect it is that I am one of the people who is well known for not leaking anything in spite of repeated questioning. I find the suggestion that there had been prompted leaks to be out of place in a discussion like this. It is a shot in the dark and, like all shots in the dark, it misses a mark that was never there in the first place.

Mr. Molloy

The Minister must not have read this morning's newspapers.

Mr. Haughey

The Minister has been leaking information for the last month.

Mr. Dukes

If Deputy Haughey wishes to talk about leaks we could have a long and interesting discussion about that and I have a large tome from which I could get some references.

Mr. Haughey

The Minister has been brainwashing the media for the last month.

Mr. Dukes

Deputy Brennan raised a question about the administration of a system and I have to say he is completely incorrect. The removal of a rate from the system will make administration more convenient and not less.

An Leas-Cheann Comhairle

It has gone past 11.15 p.m. and I must put the following question: "That the paragraph proposed to be deleted stand".

Mr. Haughey

Should our amendment be taken first?

Question put: "That the paragraph proposed to be deleted stand."

The Dáil divided: Tá, 81; Níl 74.

Tá

• Allen, Bernard.
• Barnes, Monica.
• Barrett, Seán.
• Barry, Myra.
• Barry, Peter.
• Begley, Michael.
• Bell, Michael.
• Bermingham, Joe.
• Birmingham, George Martin.
• Boland, John.
• Bruton John.
• Bruton, Richard.
• Burke, Liam.
• Carey, Donal.
• Cluskey, Frank.
• Collins, Edward.
• Conlon, John F.
• Durkan, Bernard J.
• Farrelly, John V.
• Fennell, Nuala.
• FitzGerald, Garret.
• Flaherty, Mary.
• Glenn, Alice.
• Griffin, Brendan.
• Harte, Patrick D.
• Hegarty, Paddy.
• Hussey, Gemma.
• Kavanagh, Liam.
• Keating, Michael.
• Kelly, John
• Kenny, Enda.
• L'Estrange, Gerry.
• McCartin, Joe.
• McGahon, Brendan
• McGinley, Dinny.
• McLoughlin, Frank.
• Manning, Maurice.
• Mitchell, Gay.
• Mitchell, Jim.
• Molony, David.
• Moynihan, Michael.
• Connaughton, Paul.
• Coogan, Fintan.
• Cooney, Patrick Mark.
• Cosgrave, Liam T.
• Cosgrave, Michael Joe.
• Coveney, Hugh.
• Creed, Donal.
• Crotty, Kieran.
• D'Arcy, Michael.
• Deasy, Martin Austin.
• Desmond, Barry.
• Desmond, Eileen.
• Donnellan, John.
• Dowling, Dick.
• Doyle, Avril.
• Doyle, Joe.
• Dukes, Alan.
• Naughten, Liam.
• Nealon, Ted.
• Noonan, Michael. (Limerick East).
• O'Brien, Fergus.
• O'Brien, Willie.
• O'Keeffe, Jim
• O'Leary, Michael
• O'Sullivan, Toddy.
• O'Toole, Paddy.
• Owen, Nora.
• Pattison, Séamus.
• Prendergast, Frank.
• Quinn, Ruairí.
• Ryan, John.
• Shatter, Alan
• Sheehan, Patrick Joseph.
• Skelly, Liam.
• Spring, Dick
• Taylor, Mervyn.
• Taylor-Quinn, Madeline.
• Timmins, Godfrey.
• Treacy, Seán.
• Yates, Ivan.

Níl

• Ahern, Bertie.
• Ahern, Michael.
• Andrews, David.
• Andrews, Niall.
• Aylward, Liam.
• Barrett, Michael.
• Barrett, Sylvester.
• Brady, Gerard.
• Brady, Vincent.
• Brennan, Mattie.
• Brennan, Paudge.
• Brennan, Séamus.
• Briscoe, Ben.
• Browne, John.
• Burke, Raphael P.
• Byrne, Hugh.
• Byrne, Seán.
• Calleary, Séan.
• Collins, Gerard.
• Conaghan, Hugh.
• Coughlan, Cathal Seán.
• Daly, Brendan.
• De Rossa, Proinsias.
• Doherty, Seán.
• Fahey, Francis.
• Fahey, Jackie.
• Faulkner, Pádraig.
• Fitzgerald, Gene.
• Fitzgerald, Liam Joseph.
• Fitzsimons, Jim.
• Flynn, Pádraig.
• Foley, Denis.
• Gallagher, Denis.
• Gallagher, Pat Cope.
• Geoghegan-Quinn, Máire.
• Harney, Mary.
• Haughey, Charles J.
• Hilliard, Colm.
• Kirk, Séamus.
• Kitt, Michael P.
• Lemass, Eileen.
• Lenihan, Brian.
• Leonard, Jimmy.
• Leonard, Tom.
• Leyden, Terry.
• Lyons, Denis.
• McCarthy, Seán.
• McCreevy, Charlie.
• McEllistrim, Tom.
• Mac Giolla, Tomás.
• MacSharry, Ray.
• Molloy, Robert.
• Morley, P.J.
• Moynihan, Donal.
• Nolan, M.J.
• Noonan, Michael J.
• (Limerick West).
• O'Dea, William.
• O'Hanlon, Rory.
• O'Keeffe, Edmond.
• O'Kennedy, Michael.
• O'Leary, John.
• O'Malley, Desmond J.
• Ormonde, Donal.
• O'Rourke, Mary.
• Power, Paddy.
• Reynolds, Albert.
• Treacy, Noel.
• Tunney, Jim.
• Wallace, Dan.
• Walsh, Joe.
• Walsh, Seán.
• Wilson, John P.
• Woods, Michael.
• Wyse, Pearse.

Tellers: Tá, Deputies Barrett(Dún Laoghaire) and Taylor; Níl, Deputies B. Ahern and V. Brady.

Question declared carried.

Amendment declared lost.

Financial Resolution agreed to.