Amendment No. 1 Amendment No. 2 is related and Nos. 11 and 12 are consequential on Nos. 1 and 2 respectively. Amendments Nos. 1, 2, 11 and 12 may be taken together by agreement.
Finance Bill, 1985: Committee Stage.
SECTION 1.
I move amendment No.1:
In page 6, line 18, to delete "£5,300" and substitute "£5,500".
These amendments relate to exemptions from the income tax code and a proposal to extend the exemption for married couples to £5,500 which is the equivalent of £105 per week and for a single individual to £2,750 or the equivalent of £52.50 per week. Let me say, in introducing this amendment, some introductory words about the burden of income tax that we propose certain people who are particularly poorly off be exempted from. I want to relate my comments in the first instance to remarks made by the Minister yesterday in connection with the growth of income tax and the growth of the interest payments on our foreign debt which is swallowing up almost all of the income tax being paid in. The Minister said yesterday that since 1979 foreign interest payments by the Exchequer have increased more than sevenfold and interest payments on the national debt now absorb almost all of the receipts from income tax. Therefore, in all of the debates we are going to have here we will have to face the reality that the burden of income taxation that we have been discussing for some days here now is a direct consequence of the huge increase in foreign debt, as the Minister puts it, since 1979 especially. That we all share this burden is one thing, but the categories we are particularly concerned about here are in a very special situation. I propose, and I think the House will agree, that these people should not be made to pay for the huge increase in the foreign debt that the Minister especially has been responsible for.
I would like to outline how the growth of income tax has followed the growth of foreign debt under the biggest borrower of them all, the Minister at present in the House, who is not just a big spender but the biggest we have ever experienced in this nation, and others have been put on the record of this House from time to time. In 1984 an amount of 36p in every £ of total revenue in this nation went to service the interest on foreign debt. That figure is likely to increase to at least 40p in every £ this year, and that is a direct consequence of the huge growth in the foreign debt under this Minister. As a consequence of his disastrous decisions and particularly his splurge on foreign borrowing, we are coming back to this House today, tomorrow and all this week and we are going to impose levels of income tax burden on the people, particularly the lower paid, which by any standards are crippling and certainly should not be imposed on married couples who earn less than £105 per week.
Let me illustrate again for the record just how much this has grown under this Minister. When he came to office in 1982, the total foreign debt was less than £7 billion. Since this Minister came to office in a little over two years it has grown now to almost £10.5 billion. It has increased by almost £3.5 billion or 50 per cent under this notionally disciplined Minister who is regulating the public finances. The increase in that couple of years is more than the accumulated foreign debt was when I happened to be Minister for Finance in 1980, a little over four years ago, at £3.217 billion. Now it has increased by at least £3.5 billion under this Minister. Because it has so increased, on his statement yesterday evening the burden of income tax has to increase to the extent that 36p in every £ of total revenue—not just income tax—plus total service charges of all kinds is going to service the increase in this debt for which this Minister has been directly responsible. Over the years up to 1980 the figure had accumulated to £3.217 billion and the Minister, who has prided himself on getting everything in order and in bringing down borrowing, has in that couple of years seen it increase by almost £3.5 billion.
It is not surprising that we see the corresponding huge increase in income tax to even begin to cope with the huge increase in the debt under this Minister. In one year alone, 1984, this Minister raised something short of £2 million gross in foreign debt — £1.969 million — an astronomical figure by comparison with any previous borrowing by any previous Minister. He has that to his eternal credit and no matter how long we are fortunate enough to be still in control of our own affairs — and some of his colleagues are casting doubt on that these days— no future Minister for Finance could possibly boast of such a record.
The total national debt at the end of 1982 was £12.8 billion. At the end of 1984 it was £18.5 billion, an increase of almost £6 billion or 50 per cent, and at this moment it is not less than £19.5 billion. At the end of this year, if we are lucky, it will be less than £21 billion. That growth which took place over a few years is costing the taxpayers very dearly. This is borrowing run wild. The biggest borrower of all has presented himself as the person who, for the first time, is prepared to regulate, control and discipline borrowing and to make us face reality. The document, Building on Reality, apparently is based on the very shaky foundation that we are going to get our financial affairs in order. With that kind of borrowing pattern leading to an increased tax burden, the chances of us even beginning to get our affairs in order under this Government are clearly becoming more remote every day.
Last year, as a consequence not just of the extent of the borrowing but the nature of the borrowing, putting all our eggs in the dollar basket, our taxpayers found themselves faced with an extra £375 million because of exchange rate fluctuations. The Minister may say that was true if we paid at the end of the year, and we did not have to, but, at the end of the year, because of exchange rate fluctuations the increase in the interest payments on our foreign debt, particularly in the dollar, was £375 million, almost twice the extra amount of income tax the Minister proposes to raise this year. All these factors put this debate on income tax and income tax exemptions into context because until such time as this Government can begin to gain some control over their borrowing programme, particularly their foreign borrowing which has been of record and disastrous proportions, then the reality is, as the Minister acknowledged last night, that since 1979 — I do not know why he picked 1979, he could have picked a later year but I think he wanted to lump in another few years because borrowing in a big way began in 1983——
1978.
I can give the figures for 1978 and the Minister can look at them.
I gave them to the Deputy a couple of weeks ago.
I have the figures for 1978 in my room and they are nothing like what the Minister says. I will bring them down so that we can put them on the record. The Minister said that since 1979 foreign interest payments by the Exchequer had increased by more than sevenfold — they certainly have — but they have increased by fourfold or fivefold in the last two and a half years. He went on to say that interest payments on the national debt now absorbed almost all the receipts from income tax. That was a casual observation made by a Minister who, last night, made other false statements which I want to put on the record. I want to ask the Minister to acknowledge that the statements he presented last night were false.
Rubbish.
I will quote them. In last night's statement the Minister said that inflation was reduced to 8½ per cent, the lowest annual inflation rate in almost 15 years. Is he still insisting that my statement is rubbish?
Yes.
Let me remind him that his figures go back only to 1978. If he asks any of his officials he will find that in 1978, within the last 15 years, the inflation rate was 7.6 per cent. That is a fact but the Minister chose to ignore it for the purpose of putting a totally false statement on the record. He went on to make another false assertion when be said the increase in unemployment as measured by the live register——
On a point of order, I will be very happy to debate this with the Deputy, but I do not think this is the moment——
The Deputy may make a passing reference when dealing with amendment No. 1 which deals with income tax exemption.
In his speech last night the Minister related all this information.
What the Minister said last night has no bearing on the business in this House today. We are dealing with amendment No. 1, income tax exemption.
We will be dealing with that but I want to get something on the record.
Only if it is relevant to the debate.
It is. For a considerable time I have made the case that the burden of income tax being imposed by this Minister, particularly as a consequence of his disastrous foreign borrowing policies, has had a major impact on unemployment.
You may make only a passing reference.
I will conclude with a passing reference. Last night in a passing reference the Minister said the increase in unemployment on the live register last year was the smallest in four years. That is totally false.
That should be your final passing reference.
It will be, because I wanted to remind the Minister that if he looks back——
We have a very long day ahead of us and many amendments to debate. Amendment No. 1 deals with income tax exemptions and not unemployment.
I am about to conclude. My concern is that if the Minister is capable of making two totally false statements simply to give the impression that he is controlling public finances, then I begin to wonder about the worth of statements made in this House.
Deputy Mac Giolla put down an amendment which is exactly the same as ours. I hope we will receive support from the House on these amendments. I am speaking particularly of the Labour Party. It is time this nonsense stopped. They can go to Cork, make statements and commitments and give the impression that they have a separate soul, which survives, but they absent themselves from a debate of this kind which is so crucial to the interests of the lower paid, and they will be absent because not one member of the Labour Party will come into this House to argue for an increase. In Cork they speak in tongues which are different from the Minister for Finance when expressing their concern for the lower paid, but what will they do when we call the vote? They will vote like sheep to reduce the level of exemptions for the lower paid. It is time this farce stopped. It is time there was an end to the nonsense of differing statements made by different Ministers, all proving that they are alive and well, and appealing to their flock. Commentators can say that only the Minister, myself, Deputy Mac Giolla and another Fianna Fáil colleague are present in this House now. There are no Labour members here. Let us see from what they are absenting themselves.
The Minister proposes to exempt a married couple who have the princely income of £5,300 gross, marginally over £100 a week. We are proposing to increase the exemption limit of £105 for a married couple or £52.50 per week for a single person. Surely that is not asking too much. We have been very measured in our amendments and have avoided the temptation to make proposals such as the Minister's colleagues made when they were on this side of the House while I was Minister for Finance. We are concentrating particularly on the lower paid.
A few figures will demonstrate the increase in the income tax burden since this Minister took office. A married couple earning only £105 per week and a single person earning only £52.50 should at least be exempt from any increase. In 1980 total income tax was just over £1 billion. That was the year I sat in the Minister's seat. Under the proposals now being made, total income tax will be more than doubled at £2,131 million. That is a direct consequence of the huge growth in debt which is sweeping up that huge increase. When this Minister came into office the yield from income tax stood at £1.459 million and the figure now proposed is £2.131 million, a huge increase by any standards. Income tax has increased as a proportion of GNP from 11.5 per cent to an amount marginally short of 14 per cent. That tells the story of how this Government are delivering on their promise to reduce the burden of income tax on the PAYE sector, as they indicated in their fictitious document, Joint Programme for Government. Documents come freely from this Government — statements, Building on Reality, national corporations and so on. The record is very different.
The consequences of the enormous growth in the burden of taxation is that there is resistence in terms of receipts because the numbers at work are diminishing and because the level of taxation is acting as a disincentive. It is patently obvious to people on very low salaries that they could probably be better off not working since they would qualify for a medical card and for a reduction in differential rent on a local authority house. They might be better off working a three-day week on one of the new Government schemes. A married man realises that if he earns more than £105 he has to pay tax and that he might be better off not working. That is the kind of disincentive we are offering.
Ten years ago in Ireland personal tax as a percentage of total tax income was the second lowest in the EC. It was then of the order of 22.5 per cent, while in the UK it was 33.4 per cent, in Germany 31.8 per cent, in Belgium 29.4 per cent, the Netherlands 27.6 per cent, Luxembourg 26.1 per cent and Denmark, always very high, 57.6 per cent. We were at the bottom of the scale in terms of tax on personal income as a percentage of total tax revenue. Under this Government we are second from the top — Denmark is still in top position at about 51.9 per cent. We are a very comfortable second at something short of 30 per cent. Is it any wonder that we find ourselves at a disadvantage in terms of our competitors, that we are not benefiting from market opportunities, that those who come here one day go away another day? Is it any wonder that the Minister has to introduce this rather strange notion about incentives for foreign companies to invest here when tax levels are so very much higher here than anywhere else?
In 1980 the average tax payment under the PAYE system was £1,130. By the end of 1983 that figure had increased to £1,875, an increase of over 40 per cent on the 1980 figure. At the end of 1984 the average figure was almost £2,100 and one can only project that by the end of this year the average payment for the PAYE worker will be about £2,300. We seem to be determined to stay right at the top in terms of our PAYE tax imposition. The Government ignore the impact on the incentive to work and the crushing impact on morale. It is also frightening investment out of the country. All these figures follow the huge borrowing splurge by this Government. It follows as night follows day. Even then we are only covering a percentage of it. We will never catch up. No matter how much tax we impose it will not be adequate to cope with the increased burden of debt. It is not as if borrowings were being used for productive purposes. The money is being used to service interest payments on loans made two and three years ago. It is being used particularly to service the current debt. I will ask the Minister to give a figure for this and it will probably be in the region of £6 million gross. In net terms we will have to reduce about 35 per cent of that gross figure.
In view of the inequity in having in the tax net people at the level of income I have referred to and the impact that has on their attitudes, there is a very good case for increasing the exemption limit. Perhaps it will cost £4 million or £5 million, but there would be a greater justification for spending that sum on those people than there is for spending such an amount on public relations consultants attached to the Government. The Taoiseach has only to talk to Senator Kennedy and it is big news——
Senator Kennedy is not mentioned in section 1.
We are talking about spending public money. If the Taoiseach talks to the Sioux Indians next week will that be headlines in the news?
Please keep to the relevant section.
The Government would be doing the public a service if they got rid of all their PR consultants — their officials in the Department are there to do the job in any case — which is costing the taxpayer about £4 million per annum as is obvious from all the propaganda emanating every day from some Minister or another and sometimes even disagreeing with one another. If we spent that money on the less well off section of the community we might get back to where we were four years ago. That section should get some little breathing space from the heaviest tax burden — Denmark excepted — of any country in Europe. However, Denmark provide services for the less well off of a kind to which we cannot aspire. They can see that if they pay higher rates of tax there should be an order of social justice which is absent here. I will be speaking later on about the other issues such as tax bands, income levies and so on. I am asking the Minister, who is responsible for the huge growth in our debt which, in turn, is responsible for the huge growth in tax, to shift the burden even slightly on the lower paid. I hope he has it in his heart to respond to them, if not to me.
These amendments are put down basically to increase the exemption limits by 10 per cent for tax purposes. The Minister is giving an increase of approximately 6 per cent in exemption limits to the lower paid worker; but for a number of years, due to the non-indexation of taxation, the lower paid workers have become increasingly burdened by taxation. Ten years ago only 3 per cent were paying above the standard rate of taxation, but that figure has now reached 40 per cent. Over the past few years low paid workers, who should not be paying tax, have been brought into the tax net by virtue of the increase in inflation. While there was an apparent increase in their wages, due to inflation there was no actual increase and they were brought into the tax net, which they should not be in. We are endeavouring to redress that here and, although there are all sorts of projections with regard to a lower inflation rate this year, similar projections in other years were not attained. We are asking that last year's inflation rate of 10 per cent should be the exemption rate here.
The level of tax on personal incomes has been accepted as enormous by everybody, and the Government admitted this in Building on Reality. They recognised this by saying that there was a very high level of taxation and that the Government guaranteed that there would be no increase in taxation. They really meant that there would be no increase in the overall level of taxation. They did not mean that some people's tax would not be increased and others reduced and they did not intend to broaden the taxation system. The statement made by the Government was simply an attempt to reassure those on PAYE, who are already overburdened by tax, that they would have no further taxation imposed on them. However, they did not give any assurance that other areas which had not been previously taxed would not come into the net. Since that assurance was given by the Minister he has disclosed a new system of taxation, particularly in regard to the levy imposed on Bord Telecom. This had already been done in the case of the ESB. The Minister dipped his hand into their till, which meant that the ESB had to increase their prices to consumers. Of course, that was not regarded as tax, although it was money going to the Exchequer.
I am sorry to interrupt but Bord Telecom and the ESB are not relevant to this section. I will allow a passing reference but not a full discussion.
I am sure that when the Minister imposed these levies he hoped they would not be subject to discussion as taxation——
This is not in order on section 1.
They are a method of imposing taxation because the consumer has to pay for them and the money goes to the Exchequer. The purpose of taxation is to provide money for the Exchequer. I am simply pointing out that, despite the assurances that there would be no increase in taxation, the Minister has used a device whereby the consumer has to pay more in order to provide more money for the Exchequer. In our amendments we are trying to give some small relief to the PAYE sector, particularly to the lower paid income earners. In a later amendment we are calling for a higher rate of taxation, 70 per cent. Higher income earners will pay for this and money would not be taken from the Exchequer. We are endeavouring to give relief to people on the bottom of the scale and increase taxation from those earning over £20,000 a year or in the case of married couples £40,000.
We put down a similar amendment last year but it was not accepted by the Minister. People in the lower income bracket face great difficulty trying to make ends meet and pay mortgages. It is incumbent on the Minister to give some further relief to them to ensure that they will have some stability and security. They face further difficulty each year as prices rise and so on. It is a real struggle for them to live. I do not know if the Minister is aware of that.
The take from income tax, as Deputy O'Kennedy pointed out, has increased at an enormous rate over the last three or four years. This year will be no different from any other year despite the assurances given in Building on Reality. It will be seen that the take from income tax will have increased considerably on the take for last year. This is at a time when there is a great outcry from the public service about the Minister for the Public Service's hamfisted effort to cut back the numbers employed in the Civil Service. The one in three embargo is having an extraordinary effect on the efforts of the Revenue Commissioners and in other parts of the public service to bring in the revenue due to the Government. When revenue is not taken in the Minister for Finance must increase taxation the following year to make up for the loss.
Figures were given last year under various headings showing the amount of tax estimated to be ultimately payable and the actual amount paid. The unpaid amount under each heading showed there was an enormous sum outstanding. The 1983-84 figures were not available for many of the items. Examples are: income tax excluding PAYE, £120 million outstanding for 1983-84, £65 million outstanding for 1982-83, £21 million outstanding for 1981-82, £12 million outstanding for 1980-81. In the case of corporation tax there was £190 million outstanding for 1983-84, £65 million for 1982-83 and £11 million for 1981-82. In the case of capital gains tax, VAT and capital acquisitions tax the sums outstanding ran into hundreds of millions of pounds. In all his shouting about efficiency, management and new technology can the Minister for the Public Service indicate any efficient manager in the private sector who would endeavour to reduce staff in that hamfisted way? Surely he would retain the most efficient staff and those who are most productive and reduce staff in inefficient areas. The Minister obviously has no conception of the effects of his action on the public service, on the revenue due to the Government, on the taxpayer, on productivity and investment, job creation and in fact on everything. The series of amendments are to deal with the issue of reasonable exemption limits for those on low incomes.
The amendments which are the subject of debate are emotive issues. Deputies on the opposite side have pointed out that the PAYE sector have carried an enormous burden for some time. It started with the expensive splurge which was engaged in in 1977. The economic policy pursued by the then Government was to extend the public service without any real control. The Minister should be heartened to hear Deputy Mac Giolla admit at long last that public service cuts are necessary. A few moments ago he advocated that selective cuts should be made. I am sure Fianna Fáil intend to make cuts. By putting down the amendment Deputy O'Kennedy is saying that there are areas where the Government might make a saving. Implied in that is that there will be public service cuts.
As the record shows, the Department of Finance decided to engage in cuts in July 1982 when Deputy Haughey was Taoiseach. There were substantial cuts in the health service and the public were so shocked that they rejected Fianna Fáil at the 1982 election. I agree with Deputies O'Kennedy and Mac Giolla that the basic income tax limits should be maintained. I also agree that the burden on the less well off is great. However, the Minister has to take the whole of society into account when deciding on what to do. Modest targets were set in Building on Reality. Is it not an achievement to be able to pay the huge numbers of unemployed weekly without a revolution?
The Deputy should stay within the terms of section 1.
Will the Government stop it next year?
I do not believe that Deputies O'Kennedy or Mac Giolla want cuts in social welfare. They put down this amendment about income tax exemption limits knowing that it would cost the Exchequer a substantial amount of money. When the Minister puts this package together he is stuck with what he said in Building on Reality. He said there would be no increase in personal taxation. The public service will get an increase of approximately 6 per cent in 1985. We should be most concerned about the private sector where their capacity to bear the burden of taxation is limited. Their earnings improved by more than 6 per cent in general. I sympathise with the Deputies who are making a plea for an increase in income tax exemption limits. This must be tempered with a realisation of the facts. They must say where the cuts are to be made.
We will do that.
A Leas-Cheann Comhairle, I will ask your indulgence if I pass briefly by some of the points made by Deputies on the other side of the House. I intend to pass by them rather more quickly than Deputy O'Kennedy and Deputy Mac Giolla. It might be useful at this stage to answer some of the points raised. This might save time later on during the discussion on this Bill.
So far as the distribution of our taxation between different groups and rates is concerned, the total number of people exempted from taxation by this budget will be about 10,500. The total number of people who will avail of marginal relief after the provisions of this budget are taken into account, will be about 36,900. Prior to the budget some 47.1 per cent of taxpayers were paying tax at the higher rates. After the budget 40.3 per cent of taxpayers will be paying tax at the higher rates. That is a reply to one of the points raised by Deputy Mac Giolla. We are actually reducing the proportion of taxpayers who are paying tax at the higher rates. With the system as we now have it, 4.3 per cent of taxpayers will be on marginal relief; 55.4 per cent will be paying tax at 35 per cent; 24 per cent will be paying tax at 48 per cent; and 16.3 per cent will be paying tax at 60 per cent. Deputy O'Kennedy had a number of remarks to make about the level of taxation here compared with other countries. I am not quite sure what the base of his information was, but I have been looking back on information which is available to me.
A reply I got from the Minister.
It might be useful if I were to give some illustration on where we stand in relation to the tax burden here compared with other countries.
Income tax.
Comparing taxes on personal income with gross domestic product, that is, total taxes on personal income as a proportion of gross domestic product, of 22 OECD countries in 1982 we ranked ninth with a proportion of 11.8 per cent. The OECD average for that year was 12 per cent, so ours was a little below the average. The EC average for that year was 11.53 per cent, so we were a shade above the EC average. We were ranked ninth out of 22. If we then compare taxes on personal income with total taxation, of the same 22 countries for the same year, 1982, we ranked eleventh. Personal income in Ireland that year accounted for 29.83 per cent of total taxation. The OECD average was 32.65 per cent, so we were noticeably lower than the OECD average. The EC average was 27.95 per cent, so we were somewhat higher than the EC average.
To compare taxes on income and profits, for which I have figures for 1983, that is, a combination of income tax, corporation tax and capital gains tax, comparing that total with total GDP and expressing that total as a percentage of total GDP, of 16 OECD countries on which I have information for 1983, Ireland ranked eighth. Comparing taxes on income and profits as I have defined them with total taxation, out of 15 countries we ranked eleventh in 1983. On any one of those four comparisons for 1982 and 1983, we did not do all that badly in terms of our comparison with the scale of other countries.
That is not the total picture as Deputy O'Kennedy ought to know by now. We have to relate the position to our relative income per head which Deputy O'Kennedy does not do. I am not sure that he really knows quite which point he wants to make. On the earlier points he was making, if we compare the cost of servicing debt with total tax revenue, in 1980 debt servicing costs amounted to 30.2 per cent of total tax revenue. In 1982, a year in which Deputy O'Kennedy and his colleagues were in Government although Deputy O'Kennedy was rather higher up on the benches, the figure was 36.4 per cent. In 1984, the figure was 32.1 per cent which represents, in the terms Deputy O'Kennedy was using, an improvement compared with either 1980 or 1982, years in respect of which he seems to express some passing relative satisfaction.
I might add that the only occasion I can find in the past 15 years when the cost of servicing the national debt equalled the net receipt of income tax was 1982, again a year in which perhaps Deputy O'Kennedy did not have a great deal of influence over what the Government were doing although his party colleagues were in Government. Deputy O'Kennedy made more than passing references to various aspects of foreign debt and the financing of foreign debt payments, increases in foreign debt and so on. I do not intend to go into all of those questions in detail because I know you would not permit me to do so, a Leas-Cheann Comhairle.
That is convenient.
Once again Deputy O'Kennedy has shown what I can only describe as the most incomprehensible refusal to make even the slightest attempt to find out just what is going on in international financial markets. If Deputy O'Kennedy can find some place where he can finance our total borrowing programme by borrowing in pesetas, or escudos, or drachmas, or any other currency that is in a lower position on the kind of scale he and I know about, than the punt — and there are many of them — I will be very happy to hear his advice because I doubt that any one of those countries would dare to engage in lending on the kind of scale that would get them into international markets.
Deputy O'Kennedy and his colleagues must realise that we cannot talk in isolation or in total abstraction of what is happening in relation to our foreign borrowing programme or even our domestic borrowing programme but that is what the Deputy has been doing for the past year or so. However, his credibility in financial circles had declined to vanishing point.
Words from the great guru himself.
Deputy O'Kennedy wishes to control borrowing, especially foreign borrowing, but I intend reminding him about that during the course of this year because it makes him uncomfortable to be reminded of something he said before particularly when he begins to espouse the cause of controlling borrowing or expenditure. The Deputy is fine on principles and generalities but he is nowhere so far as detail is concerned. I have never heard him offer any specific system or series of proposals that would bring about the kind of control he talks of. The kind of control I operate and which the Deputy appears to find inadequate, seems to annoy him intensely.
It worries me more than it annoys me.
It does not matter very much whether the Deputy is worried or annoyed. The fact is that he is wrong.
Perhaps we could remain with the section.
Section 1 proposes increases in the general exemption limits, an increase of £300 to £5,300 in the general exemption limit for married couples, and increase of £150 for single persons and a series of related increases in the age exemption limits. But considering only the general exemption limits, the increases and the associated marginal relief are estimated to cost about £2.8 million this year or about £4.7 million in a full year. These changes will benefit some 7,200 taxpayers. The total cost of all the increases by way of the general exemption limit and the age exemption limit will be £3.7 million in 1985 and £6.3 million in a full year. As I said earlier, these will be of benefit to 10,500 taxpayers with 36,900 more benefiting from marginal relief.
The amendments proposed would give rise to an additional cost to the Exchequer of £2.4 million in 1985 and £4 million in a full year. I would remind the House that the total budget changes in income tax this year, taking account of the personal allowances, the exemption limits, the changes in the structure of the system itself, the continuation of the PRSI allowance and the continuation of the various other allowances provided for in this Bill will reduce tax revenue by £113.8 million in total or £189.8 million in a full year.
What about the increases?
We must be clear on this. Tax revenue from income tax last year was £1,966.5 million. Can the Minister explain how that is reduced when it is being increased to £2,131 million?
I am disappointed to find that my attempts since the budget to explain this to the Deputy seem to have fallen on deaf ears. Had we not made the various changes I have mentioned on the income tax side——
It is a question of, `now you see it, now you don't'. In other words, it is a three card trick job.
——revenue would have been greater in 1985 than the amounts I have mentioned. Deputy O'Kennedy is making his consistent error in confusing tax take with tax rates.
It is a consolation to hear that tax revenue is lower than it might have been had the Minister done something else.
The Minister deserves first prize.
What I am doing is clear and if Deputy O'Kennedy can remember far enough back he will realise that he offered the same kind of presentation during the brief period when he as Minister made passing references to these matters.
I did not.
Clearly there is no dispute in the House on the general principle and desirability of increasing both the ordinary exemption limits and the age exemption limits. Where there is room for discussion is in relation to the amount of increase in each year.
We have considered very carefully what the distribution of total income tax take will be for different groups of taxpayers during this year. There was a limited amount of tax revenue to redistribute to the taxpayer and we have made a judgment as to the most equitable and fairest way of redistributing that amount. The increases in exemption limits proposed in the Bill appear to us, in that context, to be the fairest allocation we can make of those changes. By the standards of recent years and given what has been happening in terms of inflation, the increase in the exemption limits are fairly generous. For that reason I cannot accept the amendments.
When I proposed the increase in the exemption limits — and my figure is exactly the same as that proposed by Deputy Mac Giolla — I was prepared to contemplate that the gross cost might be of the order of £5 million which would reduce to a figure in the region of £3 million net. The Minister has indicated now that the gross cost in 1985 would be £2.8 million.
That is additional. The figure would be £5.2 million.
Of course, but I shall return in a moment to the matter of some of the other strange ways the Minister has of presenting increases as reductions and of presenting reductions as increases. The gross extra cost this year for exempting married couples and in this instance we are talking about young married couples, on income tax of about £105 per week gross, would be £2.8 million.
That is the cost in addition to the cost of the increase I am providing for.
I begin to despair of the Minister. We are talking about an increase. One must admire the Minister's cool. Even as the ship is sinking, he remains cool and detached.
He is a good swimmer.
Cool Dude Dukes.
In a full year the exemption we are proposing would cost £4.7 million. In the first instance, the cost this year in net terms would probably be about £1.8 million and in a full year not much more than £3 million.
Deputy Carey has asked correctly where the saving is to be made in the event of the proposal being accepted. We could allow the Minister and the Government a very considerable sum out of their £4 million public relations consultancy expenditure and yet make this concession to the poor.
I presume the Deputy is only making a passing reference.
Yes, but understandably I have been asked where we would find the money that would enable us to make this concession. We would find it where the Government have piled it on and piled it on in a way in which we never did.
But the question is: how many times has the Deputy tried to find it? — Umpteen times.
No, I have not. I have only said this once and, if the Minister would agree, we would all be happy. The Government would still have £2 million less for the public relations programmes for themselves and their colleagues and the Taoiseach as he wanders around——
In Canada.
——visiting various places and talking to Senator Kennedy for the umpteenth time.
The Deputy is wandering. He does not mind wandering.
He knows where he is going.
He has been there so often before. He is going around in circles.
One is entitled to question the Government's stubborn determination not to give a marginal easing of the burden. We all live with the reality, let it be in Wicklow, Clare, or Kildare, where I presume the Minister does come face to face with reality in his own constituency——
That is a cheek.
——sometimes. We all know the impact the tax levels are having, particularly on the lower paid. That is a fact which we all face every day. We are asking for only the most minimal extra exemption which would cost so little. The Minister will tell us that he cannot afford it. That would be about half of the Government's massive public relations bill.
That is absolute nonsense.
Is it nonsense? This year this Government have actually spent up to £4 million on consultancies for themselves.
Now.
The Deputy should ask Seán Doherty about that.
He would not hold a candle to the Minister. The Minister should try to tell the people on the R and S tables why they are ten and 11 times worse off this year than last year.
Please leave Deputy Doherty out of this debate on section 1. Confine yourselves to that section.
Deputy Reynolds does not know anything about PRO exercises. He was never fond of them.
I do not need national handlers to do the job. I never did. I do it myself all the time.
All the public relations exercises in the world will not ease the burden on the lower paid. The Government can spend what millions they like getting messages across, distorted though they might be. They cannot change the reality that these people about whom we are concerned here are worse off. They are being crushed and we all know it.
They are worse off.
Let me come to another reality. If the Minister continues somehow to live in the total confusion that he is actually decreasing the level of income tax, I have to leave him in his own abysmal ignorance. Mind you, it is less than it would have been had he not done something else, had he not increased the figure to 70 per cent. If he reduces the tax exemption level, of course the figure is less. It is less than it might have been had he done something more outrageous. I grant him that right now. He can never argue that case with me again. Income tax is £240 million or thereabouts more than last year. That is a fact.
Total take.
His own tables demonstrate that. They are imposing the burden on these people for the sake of a miserable £1.8 million and the Minister is determined to go ahead.
We then come to the Minister's selective misrepresentation. I said earlier that I was concerned at statements which he was making in the House and as to how one could rely on them, having regard to the fact that he was capable yesterday of making statements which were outrageously untrue in fact in every sense. He had time to consider in detail that if he made false claims about the rate of inflation for the last 15 years and the increase in unemployment levels which are totally at odds with the facts——
The Deputy is wrong.
The Minister says that this is wrong?
Read them out to the Minister.
They are irrelevant. They have nothing to do with this debate.
I am concerned about the reliability of the Minister's statements.
I am only concerned about section 1 and about exemptions in income tax. I would prefer if you did not wander too far.
The Deputy loves wandering.
He got as far as Washington the last time.
In 1978 the rate of inflation was almost 1 per cent less than it was last year. Nonetheless, the Minister could claim that it was the lowest rate for 15 years. How could he say that? I am saying that in 1981 the increase in unemployment was less than in 1984. Nonetheless, the Minister last night could claim that it was the lowest rate for 15 years.
Can you say that this is connected with section 1? I say that it is not.
I can. It has to do with the credibility of this Minister. I turn now to statements which the Minister has now made. First, he invited me to consider certain matters and I went to my room and got the relevant facts about the position in 1979 on borrowing. I thought it better to do that. I thought I might go back further and see where the real borrowing increased, which is causing this terrible burden of taxation. In 1971-72 the amount of Government borrowing was £106 million. Four years later — who was Minister for Finance that year?
Richie Ryan. There was no oil crisis, none at all. He was a magician, Deputy O'Kennedy will say.
We have Paul Daniels here himself today. Listen to him.
That figure has increased to almost £601 million, from £106 million in 1975. That is where it started. It was back, in 1977, to £545 million — a year that Deputy Carey seems to be fairly infatuated with. There was an increase of £350 million between 1975 and 1979. There was an increase of £500 million between 1972 and 1975 — in three years. Let us get the record right about where the splurge started about which we are all talking.
That is a better argument. Now the Deputy is getting somewhere at long last. He is acting responsibly and I thank him.
I am glad that the facts appeal to the Deputy.
The Chair will say who is making a good argument.
Not only is it a good argument, it is fact. The Minister invited me to present these facts and I am now doing so.
What happened in 1970 and 1979?
Deputy Carey, please.
I know the old way in the Banner County. I spent a few years over there. When the old match is being lost they start shouting and roaring.
They blame the referee.
Deputy Carey will have to get out of this argument or get in and play on the pitch properly. There is no point in this game.
Perhaps we will have the first round in the Munster championship.
I will see the Deputy there, in Carmody's Hotel.
The Deputy can bring the book with him and we will go through it.
We will have the argument then, all right. He should bring Halpin along with him and we will have a good argument. May we get back to serious business?
There is £9.3 million a day from the first quarter.
I do not think Deputy Kennedy needs any help. He is well able to look after himself.
I just want to put on the record that the Minister acknowledged that in 1980 30.2 per cent of total revenue was going towards servicing the foreign debt. My authority that that has increased to 36.5 per cent is none other than the Minister himself, in a reply given in this House on 20 February 1984. He said that total tax revenue as defined for budgetary purposes had grown from 26.7 per cent of GNP to an estimated 36.5 per cent of GNP in 1984. Those are the Minister's own figures. How can he by some sleight of hand try to reduce that to a figure of 32 per cent?
I told you he was Paul Daniels. Magic.
The facts are there, in a reply which he himself gave. Total tax as a percentage of GNP has been growing enormously under this Minister, as has total foreign borrowing. Before yielding to Deputy Mac Giolla who has a keen interest in this — as anyone must have — I must say that when the Minister starts to quote that we are halfway in the OECD countries league, he should confine himself to EC countries. In the OECD league about which he is talking, Switzerland, Sweden, Finland, Japan, Austria and Norway are above us in terms of tax. However, the Minister does not know, which leads him to put us halfway in that league, that in each of those cases the growth in their economy in the last few years has been enormous. They have used their tax — or imposition, if you like — to fuel very considerable economic growth and to cut back on unemployment to a point where it hardly exists. It is significant that in the OECD countries who are above us in terms of tax, whether it be Switzerland, Finland, Norway, Austria, Sweden and, of course, Japan, the level of unemployment is so much lower than here that they cannot be compared. For that reason, I confined my analysis to the EC countries, as we are a member of the Community. I said that in that context we have had the unenviable distinction for some time of being the second highest in terms of income tax — after Denmark — when in former years we were the lowest. For the past few years we have steadily risen in the scale, and although we are second only to Denmark we cannot claim we are providing anything like the same kind of social services as the Danes. We pay more income tax than Britain, Italy, the Netherlands and so on. Let us not talk about the OECD but let us talk about the EC of which we are a member.
I have demonstrated this to the Minister more than once but he does not seem capable of understanding and that is a pity. If the rest of us are not capable of understanding that is only a personal matter; but this Minister is responsible for the nation's finances in terms of regulating our borrowing, which he is increasing at an enormous rate. He is responsible for regulating our taxation, which he is increasing at an enormous rate, and the same applies with regard to unemployment. Thus, when the Minister misunderstands the position, it becomes very serious. If Deputy Mac Giolla, Deputy Reynolds or I misunderstand the situation with regard to borrowing that is something personal to each of us, but it is a serious matter when the Minister misunderstands it. When I speak of a borrowing strategy, the Minister keeps asking me——
I do not want to start an argument about Second Stage speeches and so on but I must point out that in my opinion it would be in the interests of the House if we kept the debate at a Committee Stage level.
We are.
No, we are not; but the Deputy is not the only one involved. We could get bogged down on this amendment and stay on it for the rest of the week.
I agree with the Chair. What I have to say will take about 20 seconds. The Minister asked me to enlighten him and I propose to do that. I never said to the Minister he should borrow in pesetas, escudos or drachmas. I know they are not available on the international currency market. I have advised the Minister in the past two years that we should have a mix of currencies in our borrowing portfolio. I said we should have the Swiss franc which we had in former years, but the Minister moved away from that currency. In my opinion we should have the Deutschemark, which was a considerable element in our borrowing; but, again, the Minister moved away from this currency. Similarly the guilder was a considerable element in our borrowing portfolio, but the Minister moved from that currency. I have also said we should use the Japanese yen. We had all of these currencies in a blend in our borrowing portfolio. I never suggested that the Minister should borrow in pesetas, escudos or drachmas and I would certainly not advise him to go chasing after these currencies.
This is a resumption of the debate on Second Stage.
I am replying to a query by the Minister.
I remember clearly this being argued in a Second Stage speech.
As a consequence of this borrowing splurge, of these disastrous borrowing decisions and the growth in borrowing, we find now we cannot even afford to relieve the burden on the less well off by approximately £1.8 million out of a total of more than £900 million. We cannot afford to exempt from tax people such as married couples who have the princely sum of £105 per week. The Minister cannot do that. He can spend three times as much on public relations but he cannot spend it on the poor. I am prepared to let that be the record if that is the case. If the public relations of this Government is more important than relieving the poor, so be it. The Government have the numbers. The Labour Party will vote with them. They will not be here to listen to the arguments but they will vote with the Government. They will parade their consciences in Cork and elsewhere but they will come here and vote against this humane amendment that would cost nothing. They will win the vote but they will not win the argument. They could not do that in the face of the facts.
I support Deputy O'Kennedy. The points he has made have outlined our position clearly. The general exemption limit is proposed to be increased from £2,500 to £2,650, an increase of less than 6 per cent. So far as a single person over 65 is concerned, the increase is just in excess of 7 per cent.
Regardless of the figures the Minister may quote, the reality is that if inflation for the period for which the exemption limit remains in force exceeds those figures, the exemption limit will be reduced in real terms. Our amendment proposes to increase the amount the Minister is prepared to give by £100. From that point of view the amendment is most responsible. It will not cost the Government a great deal of money and will just about maintain the real value of the exemptions in existence.
I wish to put a point to the Minister which I hope he will reply to specifically when he is answering. As the Minister is aware, a system of marginal relief operates in relation to those exemption levels to take account of the fact that a person might be slightly above the exemption limit. In the past 12 months it has been my experience that in many cases the tax office seem either unaware of that marginal relief or unwilling to operate it. I have come across dozens of cases where I concluded a person was entitled to marginal relief because they were slightly over the exemption limit but the tax office did not operate that relief. When I contacted the tax office, ultimately they gave the marginal relief; but if I had not intervened for those people they would not have their statutory entitlement. I realise it is difficult to find words to cover every situation. I do not know if it is possible for the Minister to bring in some provision here that would set out the levels of income up to which marginal relief would apply in each case but if that is possible I ask the Minister to give the matter some consideration.
I hope the Chair will forgive me if I make, as I must, one passing reference to Deputy O'Kennedy's passing references to borrowing.
This is quite a big Bill, containing 69 sections and two Schedules. There is also a considerable number of amendments. The Chair cannot put out of his mind the fact that this business must be concluded before a certain time. The Chair considers it his business to have the Bill debated in a reasonable way and as fully as possible, but if we are to spend as long on even the first few amendments as we have on this we will not make much progress. In the end dozens of amendments and sections will not be reached.
We are fully aware of the time constraints and we are also aware of the priorities we want to have debated.
As long as the Deputies are aware of the time consideration and as long as they keep the debate within the confines of a Committee Stage debate, the Chair will not intervene. However, I will not allow a long debate on borrowing and so on, which is clearly a Second Stage debate.
I am as concerned as Deputy O'Kennedy is with blending and carry it out to the maximum extent possible.
As Deputy O'Dea has pointed out, the increases in the exemption limits provided for here are around 6 per cent to 7 per cent. The period during which those specific exemption limits will be in force will be in 1985-86 tax year. The expected rate of inflation for the calendar year 1985 is a little under 6 per cent. I would expect that the rate of inflation for the following year would be lower again. Therefore, the changes in the exemption limits themselves are somewhat bigger than the expected rate of inflation over the period to which they will apply. From that point of view we have at least maintained, if not somewhat increased, the value of the exemption limits in real terms. We have somewhat increased the value of the exemption limits in real terms.
As far as the operation of marginal relief is concerned, I can understand the Deputy's concern about this. It is a situation that is difficult to forecast for any given taxpayer in any given year. That is the difficulty we encounter in the PAYE system generally. As the Deputy knows — unless one has complete reporting of income, year by year — it can be rather difficult to apply the system to give the result, with full accuracy, over the period of the year.
For example, in the case of a single person who is not taxed under PAYE, who has a total income of £2,700 and is under 65 years of age we can see the operation of marginal relief which, in his case, would be £250. But, to respond to what Deputy O'Dea asked, the point I want to come to is that for that person, single, not taxed under PAYE and who is under 65 years of age marginal relief for him would expire when his total income reached £3,700. But, for another taxpayer with the same gross income but with different allowances, for different reasons, the figure at which his marginal relief would expire could well be different. That is what I intended to convey when I said it is difficult to forecast just where and to what extent marginal relief will apply or indeed for an individual taxpayer whether, in a given year, he will continue to be entitled to marginal relief for the whole period of that year. The same kind of reasoning applies mutatis mutandis for married taxpayers who are taxed under PAYE. I would suspect that it is really in cases like that that the difficulties referred to by Deputy O'Dea arise.
Certainly there is no unwillingness on the part of the Revenue authorities to operate the marginal relief system but, in some cases, there may be a difficulty in determining in advance that a specific case is one to which marginal relief would apply.
I was preparing for the question to be put. If Deputy Carey wants to prolong the debate, adding some enlightenment, than let him do so but I am quite prepared to move on, as you have requested, Sir. The Minister has spoken on behalf of the Government but if we want some further enlightenment from Deputy Carey let us have it. Otherwise we may be forced to reply — perhaps Deputy G. Mitchell has something to say as well.
On one point——
It must be on the amendment. We have not got near the section yet.
I have been listening upstairs to the debate. In regard to these exemption limits generally there is not the knowledge among old age pensioners or people who are entitled to claim them that they are so entitled. If they are to be increased or adjusted, or with regard to any of the amendments being made, I would ask that steps be taken to ensure that taxpayers are made aware that they are entitled to these exemptions.
The next amendment deals with old age pensioners.
Yes, but the exemption limit does not relate to old age pensioners only; it is an income related matter. The older one is the higher is the income level. For example, a person who is not an old age pensioner can have an exemption but, if that person becomes an old age pensioner, then that exemption is increased. I am dealing with the area of exemptions generally whether in the case of old age pensioners or others and this amendment is as applicable as any other.
Having worked as a tax practitioner many people have come to me with tax queries. The area in which I get most change from the inspector of taxes is in that of exemptions and marginal relief simply because people are not aware that they are entitled to this exemption and that, if they go over the exemption limit, rather than going right back to their ordinary allowances, they are then entitled to marginal relief. I should like greater highlighting of this fact, not just for old age pensioners but for everybody. There are non-old age pensioners, married and single, who can benefit from the exemption and marginal relief levels. They simply do not know that these are available, which is a terrible indictment of the system. I have written to the inspector of taxes on several occasions pointing out that people were entitled to marginal relief. In this case the inspector of taxes is not at fault, he is allowing exemptions and marginal relief where these are brought to his attention. Rather is it a matter of the taxpayer not being aware of his entitlements. It should be highlighted in, say, post offices, places where old age pensioners congregate, perhaps even in senior citizens' clubs, health boards and so on, that they are entitled to this, and that if they do not get the exemption they are entitled to the marginal relief.
In comparison with other taxpayers old age pensioners do not fare all that badly. But there are taxpayers outside the old age pensioner category who can also benefit from exemption and marginal relief and they also are not aware of that fact. People tend to view the exemption as an allowance and it is not an allowance. For example, if one has £10 over the exemption limit one loses the exemption entirely and one goes back on ordinary allowances, with the exception that there is a marginal relief applicable. Often this appears on a tax free allowance certificate as an overpayment for the year in question because apparently there is no other way the computer can deal with it. It is not an overpayment; it is marginal relief. Perhaps the Minister could have a leaflet issued on this which could be distributed to old people and also made available in post offices, health boards and so on by way of explanation to people generally. I have already written on behalf of half a dozen people who have come to me since the beginning of this tax year. There must be hundreds more walking about who are entitled to this marginal relief who simply are not applying for it. I would ask the Minister to take steps to ensure that adequate publicity is given to this so that people can apply and benefit therefrom.
I should like to be associated with the appeal for greater publicity to be given to exemptions, especially marginal relief. Indeed I compliment Deputy O'Dea on having brought forward this aspect, in stark contrast to the economic debate being conducted by Deputy O'Kennedy earlier and, as the Ceann Comhairle pointed out, which was not relevant to the amendment before the House.
I too have found, especially among semi-State employees, that they are not aware of this marginal relief. In particular people in charge of pension trusts seem to ignore it, causing great strain on elderly people especially at this time of the year. Perhaps the Minister would request the Revenue Commissioners to review the publicity they give these aspects of taxation law.
Is amendment No. 1 being pressed?
Since specific points have been raised by Deputies Mitchell, Carey and O'Dea, I will comment on the operation of the system. As far as the direct assessment cases are concerned we now have a redesigned computer programme for dealing with direct assessments which will enable us to show marginal relief separately in future. In any case where it applies it will be given automatically in direct assessment cases. The same applies to the exemptions generally where given. The exemption is applied automatically where there is a projection that the taxpayer's income will be below the exemption limit. As far as marginal relief is concerned, that is a bit more difficult because that is something that has to be judged in retrospect when the total level of income that was subject to tax is known so that one can calculate the amount of marginal relief. However, within the constraints imposed by that difficulty, and taking account of the improvements that we were able to make in relation to direct assessment, which is only a small part of the problem, I will try to take on more of the points made by Deputies about improving the level of public knowledge of the exemptions and the levels as they apply.
Question put: "That the figures proposed to be deleted stand."
Will the Chair tell Labour Party Members that we are proposing to exempt people earning between £50 and £52 from tax? It is important that they should know that because they were not here for the debate. They may now vote as they wish.
(Interruptions.)
I cannot allow this practice to develop——
Labour Party Members should know what they are voting on because they were not here.
The Deputy should know Standing Orders.
The Committee divided: Tá, 70; Níl, 61.
Tá
- Allen, Bernard.
- Barnes, Monica.
- Begley, Michael.
- Bell, Michael.
- Bermingham, Joe.
- Birmingham, George Martin.
- Boland, John.
- Bruton, John.
- Bruton, Richard.
- Carey, Donal.
- Cluskey, Frank.
- Conlon, John F.
- Connaughton, Paul.
- Coogan, Fintan.
- Cooney, Patrick Mark.
- Cosgrave, Liam T.
- Cosgrave, Michael Joe.
- Coveney, Hugh.
- Creed, Donal.
- Crotty, Kieran.
- Crowley, Frank.
- D'Arcy, Michael.
- Deasy, Martin Austin.
- Desmond, Barry.
- Desmond, Eileen.
- Donnellan, John.
- Dowling, Dick.
- Doyle, Joe.
- Dukes, Alan.
- Durkan, Bernard J.
- Farrelly, John V.
- Flaherty, Mary.
- Flanagan, Oliver J.
- Glenn, Alice.
- Griffin, Brendan.
- Harte, Patrick D.
- Hegarty, Paddy.
- Barrett, Seán.
- Barry, Myra.
- Kavanagh, Liam.
- Keating, Michael.
- Kelly, John.
- Kenny, Enda.
- L'Estrange, Gerry.
- McGahon, Brendan.
- McGinley, Dinny.
- McLoughlin, Frank.
- Manning, Maurice.
- Mitchell, Gay.
- Mitchell, Jim.
- Moynihan, Michael.
- Naughten, Liam.
- Nealon, Ted.
- Noonan, Michael.
- (Limerick East)
- O'Brien, Fergus.
- O'Brien, Willie.
- O'Keeffe, Jim.
- O'Leary, Michael.
- O'Toole, Paddy.
- Owen, Nora.
- Pattison, Séamus.
- Quinn, Ruairí.
- Ryan, John.
- Shatter, Alan.
- Sheehan, Patrick Joseph.
- Skelly, Liam.
- Spring, Dick.
- Taylor-Quinn, Madeline.
- Timmins, Godfrey.
- Yates, Ivan.
Níl
- Ahern, Bertie.
- Ahern, Michael.
- Andrews, David.
- Aylward, Liam.
- Barrett, Michael.
- Brady, Vincent.
- Brennan, Paudge.
- Briscoe, Ben.
- Browne, John.
- Burke, Raphael P.
- Byrne, Hugh.
- Byrne, Seán.
- Calleary, Seán.
- Collins, Gerard.
- Conaghan, Hugh.
- Connolly, Ger.
- Coughlan, Cathal Seán.
- Cowen, Brian.
- Daly, Brendan.
- De Rossa, Proinsias.
- Fahey, Francis.
- Fahey, Jackie.
- Faulkner, Pádraig.
- Fitzgerald, Liam Joseph.
- Flynn, Pádraig.
- Foley, Denis.
- Gallagher, Denis.
- Reynolds, Albert.
- Treacy, Noel.
- Tunney, Jim.
- Wallace, Dan.
- Gallagher, Pat Cope.
- Harney, Mary.
- Haughey, Charles J.
- Hilliard, Colm.
- Hyland, Liam.
- Kirk, Séamus.
- Kitt, Michael.
- Lenihan, Brian.
- Leonard, Jimmy.
- Leonard, Tom.
- Leyden, Terry.
- Lyons, Denis.
- McCarthy, Seán.
- McEllistrim, Tom.
- Mac Giolla, Tomás.
- Moynihan, Donal.
- Nolan, M.J.
- Noonan, Michael J.
- (Limerick West)
- O'Connell, John.
- O'Dea, William.
- O'Hanlon, Rory.
- O'Keeffe, Edmond.
- O'Kennedy, Michael.
- Ormonde, Donal.
- O'Rourke, Mary.
- Power, Paddy.
- Walsh, Joe.
- Walsh, Seán.
- Wilson, John P.
- Wyse, Pearse.
Tellers: Tá, Deputies Barrett(Dún Laoghaire) and McLoughlin; Níl, Deputies V. Brady and Barrett (Dublin North-West).
Question declared carried.
Amendment declared lost.
Amendment No. 2, by leave, withdrawn.
With regard to amendment No. 3, I should like to state that amendment No. 7 is related and that amendments Nos. 4 and 8 are alternatives to Nos. 3 and 7 respectively. Amendments Nos. 13, 14, 17 and 18 are consequential on amendments Nos. 3, 4, 7 and 8 respectively and, by agreement, amendments Nos. 3, 4, 7, 8, 13, 14, 17 and 18 may be taken together.
Will it be possible to take amendments Nos. 5, 6, 9, 10, 15, 16, 19 and 20 together? All those amendments deal with the age exemptions and is it possible that the House will agree to take from No. 3 to 20 together. The principle is the same in them all.
From No. 3 to 20 could be taken together.
There are two different issues involved but they all deal with age exemptions.
I am calling amendment No. 3, and No. 7 is related. Amendments Nos. 4 and 8 are alternatives to Nos. 3 and 7 respectively. Amendments Nos. 13, 14, 17 and 18 are consequential on amendments Nos. 3, 4, 7 and 8 respectively. Amendments Nos. 3, 4 — do you want to take Nos. 5 and 6?
We could debate them together.
And decisions will be taken on each of them. Tell me the ones you want to take. Nos. 3, 4 — there is a gap to No. 7.
That is if Deputy Mac Giolla finds this agreeable, because we are dealing with two different age limits and we could argue both together. We could take amendments Nos. 5 and 6 and the consequential ones from that.
I have read out Nos. 3, 4, 7, 8, 13, 14, 17 and 18. Deputy O'Kennedy is suggesting that Nos. 5, 6, 9, 10, 15, 16, 19 and 20 be taken together. Is that agreed?
Yes.
Deputy Mac Giolla to move amendment No. 3, with which we are discussing the other amendments that I have read out, by agreement. A separate decision will be taken on each amendment.
I agree.
Some of them cannot be moved when others have fallen.
I appreciate that.
I move amendment No. 3:
In page 6, line 22, to delete "£6,000" and substitute "£6,160".
I agree that these amendments be taken together because they are all on the exemption limits. The purpose of amendment No. 3 and the other amendments is to achieve 10 per cent on the exemption limit that existed rather than the roughly 6 per cent exemption limit by which the Minister has increased it, the £6,160 being the 10 per cent adjustment. We could probably have levelled it up and £6,200 would be acceptable to us. The purpose in attempting to increase all these exemption limits is to remove the burden from the people who can least afford to pay these taxes. The general effect of the budget the Minister has brought in is to increase the burden on the lower end and reduce it on the top of the scale. Those who come out best from this budget are those on the highest incomes. Our purpose in these amendments is to endeavour to redress that balance and to give some element of security to people who have paid their taxes over the years, all their lives, and who at this stage should have a reduced level of taxation which is generally recognised by Ministers for Finance to some extent, but insufficient recognition of this is given. This amendment is a relatively small effort to redress the balance in favour of such people and to give increased exemption limits there.
Can the Minister give us an idea of what the cost of adopting these amendments would be, allowing that the original proposal we made for exemptions at the lower age level is defeated? What would it cost to implement the amendments in the name of Deputy Mac Giolla which are almost the same as those in my name?
Deputy O'Kennedy is asking for the separate cost of implementing the amendments we are now looking at, of the series proposed by Deputy Mac Giolla and the series proposed by us.
The separate cost.
The extra cost over and above what is proposed in the Bill of the proposals in amendments Nos. 3, 7, 13 and 17 would be about £600,000 in 1985 and £1 million in a full year. The extra cost of the proposals in the amendments proposed by Deputy O'Kennedy, Nos. 4, 8, 14 and 18 would be about £0.75 million in 1985 and £1.25 million in a full year. I would make the point that the increases that are provided for in the Bill are in all cases between 6 per cent and 7 per cent. As I said earlier, given the declining path that inflation is now following, I am happy to say, we expect that inflation over the period to which those increases in the exemption limits would apply will be somewhat less than that, so that in making the increases proposed in the Bill we will have increased these exemption limits by more than the expected rate of inflation over that period. As I have said, like every other Member of the House, I am anxious to ensure that those for whom these age exemption limits are intended in particular would get the maximum possible relief. The provisions in the Bill within the tax expenditures that we have available to us strike a balance between the different requirements of the different groups who are covered by the changes proposed in the Bill, much as I proposals that are in the Bill, much as I would like to go further than that. Of course, these are not the only cases in which I would like to go further in relation to taxation, but we have fixed a total amount that is available for redistribution and the proportions of that available to different groups.
Would the Minister indicate, so that we can understand, the age category we are talking about in these amendments Nos. 3, 7, 13 and 17 and 4, 8, 14 and 18?
Amendment No. 3 relates to the age exemption limit for a married couple aged 65 years or over but under 75 years. That is the reference to £6,000.
Between 65 and 75?
It is.
It was for that reason that I proposed that we should take the others also relating to over 75 which are not included in the list so that presumably we can make a case and have all of these dealt with together.
Amendment Nos. 3, 4, 5, 6, 7, 8, 9, 10, 13, 14, 15, 16, 17, 18, 19 and 20. Is that by agreement?
Yes. Having regard to the minimal cost I imagine that Deputy Mac Giolla would support my proposal which is for an extra £40 over and above what he asks for a married couple. We are both working on a 10 per cent increase over the exemption limits, so if we go on the basis of the figures that the Minister has given we are talking of a gross cost this year in respect of the age exemptions between 65 and 75 of £0.75 million, the net cost being something of the order of £500,000. I had hoped it would be not only possible but desirable to show the people in this age group that they are not going to be asked to fill in tax forms which worry them because the anxiety, tension and unnecessary bother generated for them and for the tax staff, when one takes into account the minimal amounts of tax they will have to pay, is not worth the candle. We made this measured proposal to extend the extension limits from £3,000 to £3,100 in respect of a single person between 65 and 75 years and from £6,000 to £6,200 in respect of a married couple between those ages. The revenue involved is of such little significance that I appeal to the Minister to accept these proposals.
If it were seen that, despite the burden of tax which we all have to share, we have a particular care for the old and that where possible — and there will not be too many affected because they are small in number — we are going to ease the burden on these people, we would be doing a very good job in terms of the reaction we would get from the public. In these very difficult times we would be demonstrating that, despite the problems the rest of us have to face, we are trying to ease the burden on our senior citizens. A few pounds extra to people of that age means an awful lot. They do not spend very much on themselves. If they have a few extra pounds to give their grandchildren this can give them a feeling of independence, importance and a feeling that people will look to them. We need to promote that kind of social awareness. Obviously many of these people will be putting by some money for what they regard as their final obligation — their burial costs.
I hope these amendments will be adopted by the Minister. They will not cost very much but will have a major effect on the people involved. We must all be concerned about the security of old people in their homes. These extra few pounds might encourage them to put their money in the bank. This would be very desirable and would show them that we are encouraging them to save but in a safe place where they might make a few more pounds. Little things change public attitudes. It is the small things which show that we are not all that selfish after all. We all fall into one group or other — tax evaders, tax avoiders, politicians, the media, and Church and so on, and there seems to be a determination to engage in condemnation of the different groups. Hardly anyone escapes this criticism but can we not turn this round by showing that we care for these people?
I hope the Minister will accept these amendments which will cost very little — £500,000 this year and £750,000 in a full year. If he accepts them he will be doing a great job. In his reply perhaps he would tell me how many people are involved.
I agree with Deputy O'Kennedy that it is desirable not only that we show that there is some care for the people in question but that we act accordingly. I would be much more open to Deputy O'Kennedy's argument if nothing were proposed in this Bill to deal with that problem but there is a provision which has its place, smaller than many of us would wish, in the scheme of changes we are making in the tax system this year. Deputy O'Kennedy is not arguing for something that is not in the Bill; he is arguing for something that is a little different from what is in the Bill. It is not the case that we have not made any provision, because we have. It has been weighted and tailored as much as we can make it in favour of the people who are most concerned within the framework of the tax changes in the Bill.
The provisions in the Bill in relation to the age exemption limits would exempt 3,300 people altogether. The general exemption limits would exempt a further 7,200. I would like to make a brief comment on another point Deputy O'Kennedy raised on security and encouraging older people to put money in more secure places. There is a provision elsewhere in this Bill designed to help them do that, but it is not something which would be directly affected by this section.
The figures the Minister gave relate to the category between age 65 and 75. What are the equivalent figures for the categories covered by the other amendments we are taking by agreement, from 75 years upwards?
I said the provisions in the Bill would exempt 3,300 people. That figure includes all the provisions on the age exemption limits. The number of persons exempted by the provision relating to married couples between 65 years and 75 years is 1,800; the number of persons exempted by the provisions in relation to married couples aged 75 or over, 300——
Of the 3,300?
Yes, the corresponding figures for single, widowed and married persons assessed as single persons between 65 and 75 years is 700 and in the category 75 years and over, 500; and the total is 3,300.
We are talking about a total of 3,300 people under the Minister's proposals. How many would be affected by my amendments if adopted?
Under amendments Nos. 4, 8, 14 and 18, the total number would be about 2,500.
Is the Minister sure that only an extra 2,500 people would be involved over and above his proposal?
The total change that would be made in the amendments suggested by Deputy O'Kennedy over all the categories would be about 2,970 persons.
I must press the Minister to adopt this change. We are dealing with a very small number of people and a very small amount of money. These people are not capable of dealing with tax forms. The cost to the Revenue would be minimal. This is something we owe to people. They do not have any idea how to fill in these forms and must seek the assistance of their local TD. If the Minister adopted this amendment he might find us very forthcoming on other issues. This small change would mean so much to these people. It is nonsense that people at this level should have to fill in tax forms when they are over 75 years of age.
I support that view. There is a growing acceptance of the need to do more for our senior citizens. People are anxious to help elderly people living in their area. One person approached me recently who, after 45 years working, considered that he had a very good pension. He receives £78 into his hand every week. He is in a home — not a very expensive one — where he has to pay £70 and he is left with £8 to buy some tobacco or a present now and again for his grandchildren. He has nothing. Now he has the worry of these tax forms and he does not know what he is supposed to claim. People cannot understand why having paid taxes for 45 or 50 years and contributed towards a pension they should now be taxed on that pension. It is difficult to give a satisfactory explanation. How does one explain that a man finishes up with a few pounds to spend although he worked all his life for what he regarded as an excellent pension?
The exemption of these people would cost a very small sum and the impact on the Minister's figures would be minimal. There are other areas where small adjustments could be made to cater for this change. Everybody would agree that these are the first people who should be looked after. These amendments are relatively small adjustments which would mean a lot to a few thousand people and the Minister should reconsider his figures to see if any further exemption could be given. The exemption of any individual would be a good deed by the Minister which would be rejoiced in by everybody.
I am proposing that the exemption rate for a married couple aged between 65 and 75 years should be increased to £6,000 and for a married couple aged over 75 years it would be £7,000. Deputies will recognise that those levels of income are not found on a very wide scale among people of that age in our society and many people have considerably less. I have made my position clear. I have a great deal of sympathy with what Deputies Mac Giolla and O'Kennedy are proposing but we made a certain number of decisions last January on the distribution of tax reductions between different groups in society. I must stick to that.
We are talking about married couples who will benefit from the Minister's exemption at about £113 gross. My proposal would raise that figure to £117 gross. I should like to propose something considerably higher but there is a point at which one must acknowledge that even for the older people one cannot increase the exemption greatly beyond the exemptions that apply to the lower paid who are not in the aged category. The increase we are proposing involves only £4 per week. The Minister is right in saying that many old people have much less than £113 or £117 per week. Former semi-State employees may have a contributory pension in addition to a pension from Bord na Móna or the Sugar Company and the two together bring them into the tax net. This causes all sorts of confusion and tension and these people cannot understand why they are being taxed. I regret that the Minister cannot see his way to adopting these amendments. Young people would respond because we would be seen as sharing the concern they have about old people.
Are Deputy Mac Giolla and Deputy De Rossa pressing amendment No. 3?
I suggest that Deputy Mac Giolla might withdraw his amendment in favour of mine since I am asking for a little bit more.
Amendment, by leave, withdrawn.
I move amendment No. 4:
In page 6, line 22, to delete "£6,000" and substitute "£6,200",
Question put: "That the figure proposed to be deleted stand."
The Committee divided: Tá, 71; Níl, 62.
Tá
- Allen, Bernard.
- Barnes, Monica.
- Barrett, Seán.
- Barry, Myra.
- Begley, Michael.
- Bell, Michael.
- Bermingham, Joe.
- Birmingham, George Martin.
- Boland, John.
- Cosgrave, Michael Joe.
- Coveney, Hugh.
- Creed, Donal.
- Crotty, Kieran.
- Crowley, Frank.
- D'Arcy, Michael.
- Deasy, Martin Austin.
- Desmond, Barry.
- Desmond, Eileen.
- Donnellan, John.
- Dowling, Dick.
- Doyle, Joe.
- Dukes, Alan.
- Durkan, Bernard J.
- Farrelly, John V.
- Fennell, Nuala.
- Flaherty, Mary.
- Flanagan, Oliver J.
- Glenn, Alice.
- Griffin, Brendan.
- Harte, Patrick D.
- Hegarty, Paddy.
- Kavanagh, Liam.
- Keating, Michael.
- Kelly, John.
- Kenny, Enda.
- L'Estrange, Gerry.
- McGahon, Brendan.
- Bruton, John.
- Bruton, Richard.
- Carey, Donal.
- Cluskey, Frank.
- Conlon, John F.
- Connaughton, Paul.
- Coogan, Fintan.
- Cooney, Patrick Mark.
- Cosgrave, Liam T.
- McGinley, Dinny.
- McLoughlin, Frank.
- Manning, Maurice.
- Mitchell, Gay.
- Mitchell, Jim.
- Moynihan, Michael.
- Naughten, Liam.
- Nealon, Ted.
- Noonan, Michael.
- (Limerick East)
- O'Brien, Fergus.
- O'Brien, Willie.
- O'Keeffe, Jim.
- O'Leary, Michael.
- O'Toole, Paddy.
- Owen, Nora.
- Pattision, Séamus.
- Quinn, Ruairí.
- Ryan, John.
- Shatter, Alan.
- Sheehan, Patrick Joseph.
- Skelly, Liam.
- Spring, Dick.
- Taylor-Quinn, Madeline.
- Timmins, Godfrey.
- Yates, Ivan.
Níl
- Ahern, Bertie.
- Ahern, Michael.
- Andrews, David.
- Aylward, Liam.
- Barrett, Michael.
- Brady, Vincent.
- Brennan, Mattie.
- Brennan, Paudge.
- Briscoe, Ben.
- Browne, John.
- Burke, Raphael P.
- Byrne, Hugh.
- Byrne, Seán.
- Calleary, Seán.
- Conaghan, Hugh.
- Connolly, Ger.
- Coughlan, Cathal Seán.
- Cowen, Brian.
- Daly, Brendan.
- De Rossa, Proinsias.
- Fahey, Francis.
- Fahey, Jackie.
- Faulkner, Pádraig.
- Fitzgerald, Liam Joseph.
- Flynn, Pádraig.
- Foley, Denis.
- Gallagher, Denis.
- Gallagher, Pat Cope.
- Harney, Mary.
- Haughey, Charles J.
- Hilliard, Colm.
- Hyland, Liam.
- Kirk, Séamus.
- Kitt, Michael.
- Lenihan, Brian.
- Leonard, Jimmy.
- Leonard, Tom.
- Leyden, Terry.
- Lyons, Denis.
- McCarthy, Seán.
- McEllistrim, Tom.
- Mac Giolla, Tomás.
- Morley, P.J.
- Moynihan, Donal.
- Nolan, M.J.
- Noonan, Michael J.
- (Limerick West)
- O'Connell, John.
- O'Dea, William.
- O'Hanlon, Rory.
- O'Keeffe, Edmond.
- O'Kennedy, Michael.
- Ormonde, Donal.
- O'Rourke, Mary.
- Power, Paddy.
- Reynolds, Albert.
- Treacy, Noel.
- Tunney, Jim.
- Wallace, Dan.
- Walsh, Joe.
- Walsh, Seán.
- Wilson, John P.
- Wyse, Pearse.
Tellers: Tá, Deputies Barrett(Dún Laoghaire) and McLoughlin; Níl, Deputies V. Brady and Browne.
Question declared carried.
Amendment declared lost.
Amendments Nos. 5 to 20, inclusive, have already been discussed with amendment No. 3. Is it proposed to move any of these amendments? Does the House wish me to consider them or will I take it that amendments Nos. 5 to 20, inclusive, are not moved?
Deputies
Not moved.
I am declaring that amendments Nos. 5 to 20, inclusive, are not moved.
Question: "That section 1 stand part of the Bill" put and agreed to.
SECTION 2.
Amendment No. 21 has been ruled out of order. Amendments Nos. 22 and 23 are related and will be taken together by agreement.
I move amendment No. 22:
In page 7, in the Table, Part I, Column (2), opposite "The next £2,800" to delete "48 per cent" and substitute "45 per cent.".
Here we are proposing the most limited possible adjustment to the general tax tables which the Minister introduced. What we are proposing is that the first level of application of the higher rate of tax would be 45 per cent instead of 48 per cent. It is obvious from the amendments we have been dealing with that our approach to the Bill is a very measured and responsible one.
We are not looking for huge changes in the taxation system. We acknowledge that the changes introduced were, belatedly, welcome. We have called for these changes since the Minister first introduced the top rate of tax at 65 per cent which was a penal disincentive to the managerial and executive personnel we need so badly. Belatedly, the Minister saw the light and, as in the case of the VAT bands, he reduced the top level of taxation to the level at which it had been before he increased it. Even a belated conversion is welcome but it cannot be attributed to any great degree of commitment to general tax reform.
I heard the Minister say on occasion that the reduction of the top tax band this year and the simplification of the bands is in line with the recommendations of the Commission on Taxation. It is not. At the time the commission produced their first report they were speaking in terms of a tax band of 60 per cent. They recognised that the increase to 65 per cent was totally at odds with the general direction of their proposal and equally clearly it could be seen that the level of taxation was having a very damaging effect on our economic development.
I have already mentioned the growth of taxation and have given figures in global terms over the last few years and as percentage of GNP. I do not propose to repeat those. Many people are entering the higher tax bands as a consequence of the tax adjustments which were made. They would have been in the lower tax bands previously. We got rid of the 25 per cent tax band last year. As a result of getting rid of the top and bottom tax bands we have shoved more people into the higher tax bands as they are described in Part I of the Table I am proposing to amend. The 35 per cent is the standard rate and the higher rates are 48 per cent and 60 per cent. It is very obvious that our tax levels generally in the higher bands are having a major impact on the whole investment climate. Later on we will be dealing with the Minister's attempt, which I have to say at this stage by way of preface to what we will say later in greater detail is ineffective, to encourage foreign multinationals to invest in Government securities.
The Deputy does not know that yet.
The Minister can consult anyone in the business world and, unless they are telling the Minister a different story from the one they are telling me — either the Minister does no understand the message or he is getting a different message — he will find that all the major finance houses are saying it will not work. The Minister is introducing it because our tax levels in the higher bands are disincentives to the key personnel in these companies — not that they are our only concern; far from it — the key management personnel in marketing, research, development and accounting procedures of these very sophisticated companies. Given an option between locating in Spain, Portugal, Puerto Rico and locating in Ireland with our tax rates, in many cases they are encouraging the multinationals to be more mobile outside of this country. They come in and take the benefit of our tax breaks. They then move out because they find that the personal taxation level is far too high.
The measure we are proposing here, I have to admit, is almost a token gesture to all the people in the higher bands that it will not be a sin to earn money above the levels of the standard rate of taxation. Our standard rate in many cases equates with the higher rates in other countries. We are still way above the United Kingdom where they do not come into the 60 per cent band until they reach a figure of something in the order of £46,000 Irish equivalent. They are in that band here when they have something over £12,500. We are trying to make that adjustment in the centre of the band at the beginning of the higher tax band. Apart from the impact it would have, it would be seen as a signal that we are becoming a little more enlightened and have seen the consequences of our high level of taxation — fewer jobs and lower tax yields.
The first quarter returns show a reduced yield from income tax and show the figures running behind what is necessary to meet the Minister's target of income tax for the full year of £2,131 million, which is a very sizeable sum. The indications are that we will not reach that figure because we will get less revenue yield from higher tax levels. We have seen this pattern from this Government in a whole range of areas from VAT to excise duty. We will demonstrate that that is proved beyond yea or nay. That is one of the reasons why we feel this marginal adjustment would be seen as a signal.
I should like the Minister to indicate to us what this adjustment would cost. If my calculation is correct, we are talking about something in the order of £18 million out of a total tax imposition of £2,131 million. The Minister may say it will be more. To demonstrate that we are prepared to make an adjustment in the interests of creating a climate for investment and work, we should do that. For some time I have been making the case that, to encourage our own senior executives in our own domestic companies, we should have particular provisions for marketing executives. Every report coming through demonstrates that our marketing effort is deplorably weak and that we are not penetrating the markets. It is not a question of blaming CTT. We are not making an impact.
Marketing personnel who have to spend so much time out of the country have no incentive to come back when they are taxed on the same base as everyone else. Even with the dropping of the 65 per cent these levels are way above those which apply elsewhere. They know that if they move to Britain, Belgium, France, Germany — not Sweden or Switzerland where they would do better in terms of income — or Japan which the Minister likes to quote in his OECD survey, much less the United States, they will do better for themselves. The trouble is they are doing that. We are losing revenue and, more important, we are losing the key personnel we need to launch our industry into the next decade and the next century. That should appeal to the Minister in making a marginal adjustment. That, plus the reduction of the 65 per cent to 60 per cent, would be seen as a clear demonstration that the Government have changed their minds. That change of mind is badly needed and long overdue. I should like the Minister to tell me whether my figure of £18 million is correct. If the figure is of such a small order having regard to our total tax, I will have to press the Minister to accept the amendment.
This section gives effect to the new rates of tax announced in the budget. The Deputy opposite seems to take the view that there is no move towards tax reform involved in this because it does not conform precisely with what was proposed in the first report of the Commission on Taxation. The Deputy has not had an opportunity to spend much time with me at various public meetings although we had an opportunity once or twice to talk about tax reform. I am sure he is aware that one of the main difficulties I find with the proposal made in the first report of the Commission on Taxation is that the single rate of income tax proposed by the Commission would have to apply to all income. It would have to be in the region of 35 per cent and that change would constitute a very serious blow for many of our lower income taxpayers. I am not saying I would object in principle to the system proposed by the Commission on Taxation. Far from it.
A single rate of tax of 35 per cent?
Yes, 35 per cent on all income.
How could that be regarded as a blow? The standard rate is now 35 per cent.
On taxable income. Given the number of reliefs and exemptions the commission proposed should be taken out of the system, a single rate of 35 per cent, on the basis proposed by the commission, would represent a very substantial increase in the tax level at 35 per cent given the present reliefs and exemptions. I am not putting that forward as an argument against the principle of what the commission proposed, but as an argument against applying holus bolus this year what the commission proposed. Its effects would be very regressive and damaging for quite a large number of lower paid people. But I must insist that it is not an argument against the principle of the proposal for which there is a great deal to be said. The argument is against making that change now. However, a move such as the one we have taken here to reduce the number of rates is a move in the direction that was pointed out by the Commission on Taxation. I should hope that in future years there would be opportunities to make further moves. This year we are talking about what is possible within the present budgetary context. There is no doubt that what is contained in this Bill demonstrates amply that the Government are prepared to make adjustments in our tax system and are prepared to do so in a balanced way, in a way that would have the maximum possible effect having regard to the amount of leeway at our disposal to make such adjustments.
Despite all I have heard from Deputy O'Kennedy and his colleagues in the past couple of years about taxation, if one eliminates the possibility of implementing immediately the proposals contained in the first report of the Commission on Taxation, one realises that they have said nothing else. I have produced a proposal to rationalise the income tax system, a proposal that is streets ahead of anything put forward by the Opposition and the Opposition have not put forward anything practical in an immediate sense.
The provisions of the Bill bring us to a system in which our rates of income tax are 35, 48 and 60 per cent. The 35 per cent band is being widened by £500 for single persons and by £1,000 for married couples. That represents a very substantial move in the direction of tax rationalisation. The change in the rates and bands, together with the increases in the main personal allowances, will cost about £54 million in 1985 and £90 million in a full year and they will be of benefit to 818,600 taxpayers. That represents a fairly substantial change in our tax system. It is a major modification of the system. Regarding the effects of the changes on the various categories of taxpayer, I repeat what I said earlier, that is, that we will go from a situation where, pre the budget provisions, 47 per cent of taxpayers would have been in the higher rate bands to a situation where, post budget, 40.3 per cent of taxpayers will be paying tax at the higher rates. This means that 10,500 people will be removed from tax liability as a result of the new exemption limits, that 4,600 will be removed from tax liability as a result of the new personal allowances while the renewal of the PRSI allowance which was provided for in the Bill will remove 10,500 people from liability. In addition, 15,400 people will move downwards from liability and one of the rates in the system to a position in which they will qualify for marginal relief. From a marginal rate of 65 per cent, 60,000 people will move to a rate of 60 per cent while 80,000 people will move from a marginal rate of 55 per cent to a rate of 48 per cent and 65,000 will move from liability at a marginal rate of 45 per cent to a rate of 35 per cent. Therefore, a total of 205,000 taxpayers will find their marginal rates reduced.
The 481,000 people who will remain liable at the same marginal rate will be in the marginal relief category. The breakdown of that is that 55,000 people will remain at marginal relief of 60 per cent. The number remaining in the 35 per cent band will be 410,000 and the 16,000 people who have qualified already for marginal relief will continue to benefit from that situation. Therefore, for 481,000 people the marginal rate will remain unchanged or else they will remain on marginal relief.
The marginal rate in respect of 124,000 people will increase from 45 to 48 per cent while for 25,000 people the marginal rate will increase from 55 to 60 per cent. Before Deputy O'Kennedy begins rubbing his hands in glee and saying that this is a dreadful extra imposition on those people, I should point out that——
I find no cause for glee either in our taxation system or in the Minister's approach to it.
——at the same time all of those people will be experiencing an overall reduction in their tax liability as a result of the increases in personal allowances. A bigger portion of their income will be taxable at the lower rates as a result of the widening of the bands. In any language, that represents a fairly substantial change in the income tax system.
I turn now to the amendment tabled by Deputy O'Kennedy. The purpose of the amendment is to reduce the 48 per cent rate to 45 per cent. That is an ambition that I would share. Everyone would be happy to pay less tax. However, the effect of Deputy O'Kennedy's amendment would be to reduce tax revenue by an estimated £15.4 million in 1985 and by about £25.7 million in a full year.
Even then the figures are too high.
As I said earlier, the proposals for restructuring the rate bands together with the increases in personal allowances will cost just more than £54 million in 1985 and just more than £90 million in a full year. That represents the limit within the present budgetary constraints and this is what we must come back to at every stage in the discussion. We must have regard to the limit of the changes we can make in tax revenue this year. What we have done has been, first, to assess the amount of leeway we have for making changes in the system and then to use the elbow room we have in the most constructive way possible in terms of bringing about changes in the system. We have made provision for increases in personal allowances and have put a great deal of the weight of what it is possible to do this year on the reorganisation of the system. I notice that Deputy O'Kennedy again repeated his fears that the first quarter returns seem to indicate certain trends — I have already told the House my view about the first quarter returns and what may be read from them. Frankly, within the budgetary constraints that face us this year, I continue to take the view that I have no reason to be other than confident that our budget figures will remain on target.
We all heard last year about lots of things but unfortunately the confidence was not warranted.
None of the spurious interpretations that Deputy O'Kennedy may engage in will change my mind about that. To do him justice, he knows perfectly well that one cannot project for the whole year on the basis of first quarter returns. It is clear that, given the budgetary constraints under which we have to work this year — as in other years — the maximum amount of latitude that we had for changes in the structure of the system has been used for constructing the changes provided for in this Bill. For that reason, I cannot accept the amendment.
Let me first deal with the general reaction of the Minister, who claims that this is a move in the direction wished by the Commission on Taxation. If the Minister has been responsible, since the first report of the Commission on Taxation, for increasing the tax bands beyond the point at which they then were, up to 65 per cent rates and otherwise, will he now claim credit for moving in the right direction simply by correcting some at least of his own mistakes? That is clearly a spurious claim which cannot be allowed to stand on the record. When he assumed responsibility the tax rates were lower than they are now, or at least of the same order. Because he reduces those levels he is claiming that he is following the recommendations of the Commission on Taxation. That is a dismissive claim in respect of the work of that commission who have made much broader recommendations than the actions of the Minister have measured up to.
Secondly, on many occasions the Minister has made confident claims — some might say with the confidence of the expert — which, in the event, have been proved to be false. With regard to a whole range of matters — borrowing, levels of unemployment and general taxation, these were not realised. I can bring the Minister back over the record for the last two years. With regard to any of the major indicators in the economy the calm, confident assertions of the Minister were not realised. He says calmly that he is confident that the level of taxation on income at the end of the year will be on target and the deficit will not increase, when the reality is that even on one score the level of unemployment is running away ahead of the confident assertions of the Minister made a few months ago when the Building on Reality document was published. No matter what miracle or magic one tries to engage in or hope for, it will not be possible to adhere to the targets in that plan in terms of deficit and tax when there are a higher number of unemployed. Deputy Carey gave us a new proclamation from Fine Gael today when he said it was marvellous that they were able to pay social benefit to the increasing number of unemployed and still avoid a revolution. If that is to be the achievement of the Government, I shall grant it to them. The fact is that the diminishing number at work trying to cope with the increasing burden of social welfare payments is the reason the Minister cannot bring back the 48 per cent band to where it was before his Finance Bill.
Let us look at the spurious claim in terms of the levels of income tax, that 205,000 people would have their rates reduced and 481,000 would have unchanged taxation or marginal relief and that there is only a tiny group of 124,000, between 45 and 48 per cent, who will have a marginal increase. The facts demonstrate something very different. First, let us consider the total tax take. The total income tax take this year will be not less than £165 million more than last year. In simple percentage terms over last year, that represents over 8 per cent increase. That fact emerges from the Minister's budget table. We are told that we are protecting inflation by the Government, by this Minister and every Minister from time to time, at a very optimistic 6 per cent in the course of the year. Without going into all the gobbledygook about marginal reductions at this level and other reductions at that level, between this group and that group, the clear fact emerges that if there is an 8 per cent increase in total income tax against a projected inflation of 6 per cent, clearly the burden of income tax in 1985 will be heavier all round by at least 2 per cent.
The Deputy is forgetting the other factor of the equation. I shall explain it to him later.
I shall put some of the facts to the Minister, as he does not come to grips with or understand these realities. If I am not too clear, that is bad enough, but it is only personal. If Deputy De Rossa gets it wrong, that also is a personal matter.
He will not be damaged.
However, if the Minister gets it wrong — and he has got it so wrong so often, despite all his confident and calm assertions — everyone suffers. People are becoming very conscious of the fact that despite the calm, confident assertions of the Minister they are suffering because of his outrageous miscalculation in the last couple of years.
Another factor of which the Minister does not want to take account is that we have growing unemployment and a diminishing labour force paying the same amount of tax — in fact not the same, 2 per cent more. That would show anybody that that means increased levels of taxation. Over the course of the next few days in this debate we shall present some of the cases of increased taxation to the Minister, but if he meets the people who have increased tax claims he will find that for all his claims of marginal or significant reductions, the bulk of people, particularly in the sector about which we are talking now, will be paying significantly more tax than last year. The Minister must know that, otherwise he is ignoring reality.
There are those at the top, who were paying 65 per cent and are back to 60 per cent and who will be paying less, but in the middle bands the vast bulk of the people will be paying more this year. The increased PRSI, and the levies, supposedly temporary, also have to be considered. What were first supposed to be temporary measures have now become permanent. I might draw the Minister's attention to the report of the Commision on Taxation which stated that all these deductions from gross salary — income tax, PRSI, levies and other charges of that nature — should be treated in one fashion, as income tax deductions. Far from moving in that direction the Minister maintains what we were told was to be a temporary income levy for no particular purpose except to boost revenue.
That income levy will add to the general burden of taxation. Incidentally, that is not included in the figures that I have given. I am only talking about income tax. The income tax levy yields an extra £77 million this year. Add that to the £2,131 million and we are talking of a figure of the order of £2,200 million in total taxation. What we are proposing here is simply to get back to where we were before this Finance Bill in respect of the 45 per cent tax band. We shall have the opportunity of giving the Minister many more arguments which I hope will enlighten him a little and get him to move from his intransigent position. £15.4 million gross is equivalent to £10 million net, out of the total tax of £2,131 million. If the Minister cannot see fit to make an adjustment of that nature he will never be enlightened. We will have to live with the reality that he sees his role simply as regulating and controlling tax revenue, of sealing off loopholes and having no awareness of the need to create a climate for renewed activity in the economy.
Progress reported; Committee to sit again.