I am advising that amendment No. a1. in the name of the Minister is different from the others because of its recommittal. Because of that it is being dealt with in a different fashion from the normal Report Stage where the debate is confined.
Social Welfare Bill, 1988: Report Stage.
Bill recommitted in respect of amendment No. a1.
I move amendment No. a1.
In page 4, to delete lines 39 to 43, and substitute the following:
"(b) the substitution for paragraph (b) (amended by the said section 4) of the following paragraph:
‘(b) in the case of a family which includes more than one child, £108 increased by—
(i) £23 for each additional child up to and including the fifth child, or
(ii) such amounts as may be prescribed for each additional child up to and including such numbers of children as may be prescribed.'.
(2) Section 232C (2) (inserted by section 13 of the Social Welfare Act, 1984) of the Principal Act is hereby amended by the substitution for paragraph (b) (amended by section 4 of the Act of 1987) of the following paragraph:
‘(b) in the case of a family which includes more than one child, £16 increased by—
(i) £7 for each additional child up to and including the fifth child, or
(ii) such rates as may be prescribed for each additional child up to and including such numbers of children as may be prescribed.'
(3) Subsection (1) of this section shall apply to any claim for family income supplement which is received on or after the 28th day of July, 1988.".
I should like to apologise for the arrangement but this is a question of parliamentary drafting and having it correct for this morning.
During the discussion on Committee Stage I undertook to have a look at the possibility of making an amendment which would enable higher income limits to apply to families with more than five children. The current income limit for families with five or more children is £192 per week and this is being increased to £200. As average earnings are around this level, this limit is still valid by reference to the original criteria of the scheme, one of which as I mentioned previously was to ensure that the family income supplement was not supplementing incomes in excess of average earnings. However, I consider that for larger families the cutoff point of £200 may not be sufficient.
I mentioned earlier that in line with our commitment in the Programme for National Recovery, a detailed study of the working of the family income supplement is being carried out to identify what adjustments might be necessary. It would be best to await this study before making any fundamental changes to the scheme. However, in order to give some flexibility to be able to make changes in the scheme following consideration of the report, I am proposing this amendment which will enable me, by regulations, to vary the upper income limit and the maximum payment depending on the family size.
The amendments which were proposed by Deputy Mitchell, Deputy Bell and others on Committee Stage were ruled out of order because they could involve a charge on the Exchequer. We had a lengthy discussion on that subject and I undertook to look at the situation. I have done that and I have found that if I am to be able to vary in relation to the number of children I will have to take some additional enabling power in the amendment. That is what I am doing here. I want to be able to meet the requirements. It is quite complex in its working and I would need to have the report before we make our decisions. We could make a wrong decision if we do something now. To enable me to meet the requests made by the Deputies, I want to have the enabling power. That is the purpose of this amendment.
I am grateful to the Minister for at least meeting some of the amendments I proposed on Committee Stage. What he is proposing is a tentative step because if he does not issue regulations under this amendment there will be no change in the present situation. My ambition will only be realised, and even then to a limited extent, if the Minister proceeds to issue regulations under the amendment now proposed.
The Irish tax and social welfare systems are heavily biased against employment and the OECD have repeated this distressing fact. One of the principal causes of this anomaly is that in the social welfare code we make provision, and properly so, for a payment for each child, regardless of the number, whereas those at work not only get no money for their children but are not even given a tax free allowance for them. This means that a married man with ten children has the same tax free allowance as a married man without children, but his outgoings and costs are incomparably greater.
I do not know why the Minister proposes to prescribe in this amendment the maximum number of children in terms of which a family might benefit under the family income supplement. I would have preferred if he had abolished the upper limit of five. If he does not do that, an anomaly will still exist because anyone on social welfare will be able to get social welfare payments in respect of any number of children. It could be argued that if there is no upper limit the amount of money a person with a large family could get would be enormous. Would the Minister not agree that anyone entitled to family income supplement should get the same payment for each child as the average social welfare recipient? If the Minister took that step, it would meet the point I raised.
This is only a small step to remove some of the anomalies which exist in our social welfare code which caused OECD to say that our tax and social welfare systems are biased against labour. That is the fundamental reason we have such high unemployment. As I told the House yesterday, in the past two months I have met four or five married men with children, men who have jobs, but who are giving them up because they would be better off unemployed when all the circumstances are taken into account, or, when the difference in being at work and staying at home is so marginal that it is not worth their while getting up in the morning. This is not rhetoric or hearsay. I can give examples.
For example, PAYE deductions are penal on a man with many children, who has the same tax free allowance as the man without children. If he is paying PRSI, which he is, occupational pension contributions and bus fares of £10 or £12 a week, and if his gross income is taken into account when assessing his differential rent, which it is, rather than his net income, if his gross income is taken into account for his FIS, which it is, and if his gross income is taken into account for his medical card, as it is, rather than his net income, he is much worse off at work because he would lose his medical card, his differential rent concession, some if not all, of his FIS and he has to pay occupational pension, PRSI and PAYE contributions as well as bus fares to and from work. We have to remove these anomalies and this is but a modest step in that direction. Nevertheless, I thank the Minister for it.
I welcome the amendment because the Minister has gone some way towards meeting what was proposed in my amendment on this subject. I agree with Deputy Mitchell that this has become a very important element for those in the lower income group who are at work. I am amazed at the number of people who still have not applied for this benefit. A year or two after this benefit was introduced, I find people who could have been in receipt of £15 or £20 a week, but who did not know about it, or did not want or care to apply for it. The reason may have been that people are fearful of applying for a benefit when it is centralised in Dublin. Many more people in rural areas would have applied for this benefit if it had been paid through a local office like the employment exchange. I do not know if there would be any value in that, but as the decentralisation process is now in hand and as there is computerisation, I do not see why this benefit could not be paid locally. People tend to talk about this and other benefits in the employment exchanges. Therefore, I suggest the Minister might consider my proposal.
Under the amendment it is possible for the Minister to prescribe how many children could be covered, or what extensions could be made to the maximum of five children. I never believed there should have been a maximum, although I have a maximum of ten children in my amendment because I felt that this was reaching the upper limit in terms of family size these days.
I thank Deputies for their welcome for this amendment. I have listened carefully to what they had to say. I examined how I might, in practice, apply those ideas, but I found I would be creating more anomalies if I did so. This point would need further consideration.
This amendment will allow me to increase by different rates the amounts for children. This is the point Deputy Mitchell was making. At present, the rate will go up by £23 and we would very quickly get to the figure of £16,000. I want to be able to increase the number of children eligible and this amendment will allow me to do that.
Deputy Bell mentioned decentralisation. He knows I want as much as possible to have this work done locally. We will try to ensure that people know this scheme is there and that they will make use of it.
Amendment agreed to.
Amendment No. 1 in the name of Deputy Jim Mitchell. Amendments Nos. 1 and 3 are consequential on Amendment No. 2. It is proposed, therefore, for the purpose of discussion to take Amendments Nos. 1, 2 and 3 together. Is that agreed? Agreed.
I move amendment No. 1.
In page 5, line 11, to delete "This section" and substitute "Subsection (1) of this section".
Amendments Nos. 1 and 3 would not make any sense without amendment No. 2 which is the substantive amendment. The amendment before us is different from the amendment I moved on Committee Stage in that it allows the Minister to proceed with his proposal in the Bill to increase the upper income limit to £16,200 as and from the beginning of April. On Committee Stage the Minister made the point that my original amendment, if accepted, would have meant that regulations would have had to be prepared thus delaying the implementation of the upper income limit provision. He told us there would not have been enough time to draft the regulations and have them approved by both Houses before April.
My amendment will not interfere with the Minister's power to come before the House to amend the social welfare regulations. Our social welfare legislation is extremely complex. The Social Welfare (Consolidation) Act, 1981 is an enormous tome and it is incredibly difficult to read through it. We have had at least one Bill annually amending that Act since then. Last year we dealt with two Bills amending provisions in that Act and we may have more this year. Many of the amendments are concerned with a change in the rates of contribution and such changes are more appropriate to regulations which need the prior approval of the House. I have heard it said that we will have to think of introducing a new consolidation Bill shortly and in that event I hope the Minister will consider providing for changes in the rates to be made by regulation, to be approved by both Houses. That would simplify our social welfare legislation.
My amendment is in keeping with the principle of the amendments I moved on Committee Stage which were designed to ease or eliminate the anti-employment bias of our tax and social welfare systems, to help remove the roadblocks to employment creation and employment maintenance. Our employment position will get worse. My amendment seeks to give the Minister the power to ease the lot of two groups in our society, if he so wishes. I am not seeking to force him to do that but I want to give him the enabling power to do so. The amendment enables him to vary the rates or to exempt the first portion of income. He can say that the first £500, £1,000 or £2,000 should be exempt from social insurance contributions and he can increase the rates so that he will not be at any loss in revenue terms. Yesterday the Minister told us that to exempt the first £1,000 would cost £105 million. I am not proposing that the Minister should contemplate any change that would cost such an amount of money, or any money. I am suggesting that he should take the power to exempt if he considers it possible and feasible, the first £1,000 or £2,000 and adjust the rates of contributions thereafter upwards, increase the upper income limit upwards, to compensate for that loss of revenue.
My concern is to ease the relative position of the low paid. They would be the first group to benefit from any regulations the Minister would introduce in regard to this. The second group to benefit in my efforts to ease the anti-employment bias of our social welfare and tax systems would be those involved in labour-intensive industries. If the Minister decided to use the regulations so that in the case of the employer contribution he would exempt the first £2,000 of income but would increase the upper income limit to £18,000 or £20,000, or would increase the rate thereafter from 12½ per cent to 13½ per cent, he would reduce greatly the bias against labour-intensive industries.
I will illustrate my point by the example of two employers with the same payroll of £200,000, one employer employing ten people at £20,000 each and the second employer employing 20 people at £10,000 each. The payroll would be the same but the employer with 20 employees would pay more tax than the other employer. My amendment will allow the Minister to rejig the system so that that will not occur. We would not tax employment. We are not forcing the Minister to do that but we are giving him the power to do that if he wishes. We are giving the Minister a lot of flexibility in the amendment. He may exempt an employee from paying contributions on the first part of his or her income or he may exampt an employer. He will have power to exempt both, if he wishes. He will have power to introduce different upper income limits for employer and employee. We are giving the Minister an enormous flexibility but it is a flexibility he can only exercise with the permission of the House.
It makes a great deal of sense to give the Minister such flexibility. It cannot be argued that what we are proposing is unwise. It could only be unwise if the Minister decided to come before us with proposals which were unwise. Presumably the proposals he would seek to introduce under these flexible arrangements would be designed to remove or reduce the anti-employment nature of our tax and social welfare systems. There are 250,000 people unemployed here — 20 per cent of our labour force — and emigration is very high but the Bill, which arises from the budget, does not do anything to ease that problem. It is very conservative legislation.
There are many things we can do to ease that problem. On Committee Stage I proposed the substitution of a social security levy based on turnover or a part of the employers' PRSI contribution and while that was described as interesting by many Members it was not adopted. I accept it is a radical change and that there would be difficulties in implementing it but it should not be taken in isolation. It should be part of a package of measures to speedily change the tax and social welfare environment. We need to adopt such a package urgently. Such a move would be a major step towards improving the systems.
Today's proposal is another step, perhaps not major in itself, but it would give the Minister interesting possibilities in relation to employment creation. It is just part of a package. The rest of the package would have to come in the Finance Bill which is due on 8 April. I expressed the wish that there should be very radical changes in taxation, even though not announced in the budget, to reduce PAYE and substitute taxation on property or wealth. I do not believe there is the remotest chance of getting such radical changes from this Government, but that is what we need to do if we want to create the right environment for employment creation and maintenance and eliminate the criticism of the OECD which rightly says that our taxation under the social welfare sustem is the most heavily biased against employment in the whole OECD.
Because the powers given to the Minister are considerable, it is appropriate that the regulations, if proposed, should first come before the House. I hope that the Minister will be able to accept this amendment as he accepted the main thrust of the amendments I had down concerning the family income supplement. Only in this way will we even begin to make progress in fighting unemployment. Unemployment is adding greatly to despair and to poverty. What is more, it is adding greatly to the budget deficit. Therefore, reducing unemployment relieves poverty which is supposed to be one of the main functions of the Department of Social Welfare. It also reduces the budget deficit which is the central problem, after unemployment, facing this country. We should take every and any step to change the environment so that jobs can be created and maintained. I hope the Minister and the House will support this amendment.
We had a very long discussion on amendments Nos. 16 to 18 yesterday. In relation to this amendment, I said at the time that the Deputy had put what was seen as a question to the Minister about exempting portion of income or making exemptions of various kinds and I was to look at that question to see exactly what powers I had. The situation is that at present I have power to exclude, by regulations, certain people; therefore, if we are concerned about people who are on the lowest income levels I have power to exclude them. At the moment that is done by virtue of the inclusion of the phrase "under 18 hours". We could do so by another mechanism if we so desired. That was one question about which I was particularly concerned yesterday.
I also have the power to change the rates of contributions by regulation. Deputy Mitchell made quite clear that the principal intention of his proposal is to exempt, say, the first £500, £1,000 or £2,000 from the employers' side of the contribution. That would mean finding that money somewhere else in general taxation, or by using some other mechanism. The Deputy wants to give me, as Minister, this, as he says quite rightly, enormous power and flexibility but under the control of the regulations, of course. This problem, which involves a major area, is not the kind of problem that I would like to tackle by regulation. The Deputy proposed yesterday a turnover tax instead, but accepted that there would be many complications involved. I have power to make the most necessary exemptions, short term, in respect of workers who have difficulties. As we said yesterday, one of the problems there is that one would have to ensure that they could continue to receive benefits.
The main thrust of the present amendment is to fix a lower earning exemption limit. If you take the figure of £2,000 which Deputy Mitchell mentioned, and reduce the employers' side of it which has been mentioned at this stage, the total loss to the Exchequer would be £237 million. The employers' element in that would be £160 million. In effect, what the Deputy is suggesting here is on the lines of exempting employers from the first £160 million and finding that by an alternative form of taxation.
This is where the Minister gives himself a bad name, by distortions like that.
Or by removing the ceiling. I presume the Deputy is talking only about removing the ceiling for the employers rather than the employees. I imagine he would not want to shift the burden on to the employees. Raising the ceiling with regard to employers would mean a return of a very small part of £160 million. Therefore, there would be need for some other form of taxation.
Or to increase the rate, as I said in my contribution.
Or to increase the rate, of course.
To get the same amount of money was the intention.
The increase in rate would be 5.5 per cent if one were excluding the first £2,000. The Deputy will recognise that, again, we are talking about something very major. We discussed this at considerable length yesterday and agreed. I thought it was a very major development which would need much consideration and I undertook to look particularly at that aspect of the power to exempt particular people. I can assure the Deputy and the House that at present I have power to exclude particular categories of people, or people with particular kinds of incomes — lower incomes, in other words. I am satisfied I have that power.
If I were to accept this amendment it would indicate some intention of applying such a limit. That would create some expectation, particularly on the part of employers, that there would be a reduction in the current rate. I pointed out yesterday that our rate for employers is in the lower level of rates across Europe. It would be wrong to give the impression that employers are having to pay far too much in this respect compared with their competitors in Europe. At the same time, obviously we want to keep the amount as low as possible.
The introduction of the full pay-related system in 1979 was intended to be an equitable system of contributions at all pay levels and it has been generally accepted. At this stage, therefore, it is not contemplated that any major change should be made without very comprehensive consideration of the implications. When that is done, it will be possible to consider what new amendments are required in the Social Welfare Acts. For these reasons, I cannot accept this amendment.
I agree with some of the points made by the Minister although I know the amendments are well intentioned. I regard them differently from Deputy Mitchell in that I always want to know how amendments or legislation comply with ICTU policy. This amendment, however, reminds me of an FUE pre-budget submission and I have a gut feeling that it is aimed at relieving employers. I agree that the textile, clothing and footwear industries need help, indeed they needed help 20 years ago but successive Governments did not do much to assist them. The result is that there is now hardly any footwear industry left, only half of the clothing industry is left and there is no textile industry as spinning and weaving have disappeared. Those industries provided the lowest paid jobs and relieving employers at this stage is like closing the stable door when the horse has bolted. Any changes would not effectively assist the industries at which they are aimed. Even if a course of action was adopted which would cost about £200 million the PAYE sector would pay because when an employer gets relief the cost is usually transferred to an employee. Amendment No. 2 (5) states that when regulations are proposed, a draft of the proposed regulations shall be laid before each House of the Oireachtas. I agree with that but this issue is too broad and important to be dealt with by regulations. It is all very well to change benefit rates, conditions of benefit or qualifications for benefit by regulation but this is a major change and, in the hands of the wrong Minister or Government, a very heavy burden of taxation could be transferred to the employee. I am not suggesting for one minute that that is Deputy Mitchell's intention and obviously a lot of thought has gone into drafting the amendment. I appreciate that but it would not be in the interests of the people I represent.
This proposal is to exempt, by regulation, labour intensive industries. The Minister should remember that these industries employ large numbers and a very great degree of care must be exercised in this regard. Let there be no doubt about it, many industries are closing because of overheads and any further imposition of taxation in one form or another which affects employment is a further blow. If the Minister can see his way to alleviating a burden on a certain sector, the House should seriously encourage him to adopt such a measure.
I disagree with Deputy Bell because I am from an area where a large number of people are involved in the textile industry, although not as many as I should like to see. The staff attached to these firms are as anxious to work in the factory as the manager or owner is to keep it open. The Minister would be very wise to accept such a proposal to have power to exclude certain categories. It should not be a case of them and us and the fact that the ICTU and the FUE submit proposals to the Minister does not mean that people on different sides of the House should plump for one or the other. We all have a vested interest in ensuring that there is a proper balance and that commonsense should prevail. The basic point should be to ensure that employment is maintained in our industries and that should be foremost in our minds in arriving at any decision. In cases where the Minister has powers to exclude categories of people in industry, I strongly urge him to exclude some of them, which would be in everybody's interest. The maintenance of employment must be paramount.
Deputy Bell mentioned the textile and footwear industries. There is also a major problem in the bakery industry which is very labour intensive. They have to compete with multinationals and the importation of bread and other products. Many bakeries have closed and others are in difficulty. They should also be considered.
I am extremely disappointed at the Minister's response. He stands condemned as being totally apathetic in relation to unemployment. He also stands condemned as being dishonourable because he gave a commitment that he would be favourably disposed to an amendment along these lines provided it did not affect the increase in the limit. This raises very serious questions as to whether the Minister's word could ever be taken again but more serious is the fact that not only does this Bill do nothing to ease unemployment but that it also worsens the bias against employment in our social welfare and tax system.
Equally, I am disappointed with the response of Deputy Bell. His response emphasised and highlighted once again that the Labour Party are one of the most conservative parties in this country and that they are not ready to contemplate change. They are frozen in outdated ideas. Earlier I made it clear that the Minister could raise the same amount of money in different ways but the Minister disputed this and said that our amendment, if implemented, would cost between £150 million and £200 million. Of course, no Deputy would make such a proposal and if he did his amendment would be ruled out of order because a private Member cannot propose an amendment which would impose a charge on the Exchequer. A number of amendments have been ruled out of order.
Why does the Minister try to mislead the House and the public as he has repeatedly tried to do during the passage of this Bill? Leaving aside my umbrage at the lack of honour in the Minister the fact of the matter is that we have a grave unemployment problem which is going to get worse as this year progresses and in future years unless there are radical changes in policy on employment. Fine Gael in their amendments to this Bill have proposed radical changes and make no apologies for doing so. I concede that legitimate queries can be raised and that our proposals are not perfect but I strongly argue that they would be a hell of a sight better than our existing arrangements which are so heavily biased against employment. I cannot emphasise that fact enough. Let me repeat once again what the OECD have said — we have the most biased social welfare and tax system in relation to employment among those countries in the OECD.
The criticisms which were expressed yesterday by both Deputy Bell and Deputy De Rossa were legitimate and I concede that our proposals are not without flaws but I would argue that they would be considerably less flawed than our existing arrangements and would afford us the opportunity of easing greatly the tax effect on employment. I am disappointed that the Deputies were not able to support the overall thrust of our proposals. Furthermore, I would like to point out that no other party have put forward proposals. The proposals we made yesterday in relation to a social security levy in lieu of part or all of the employer's contribution, and our proposal contained in the amendment before us, will form a major part of the Fine Gael employment policy which will be expanded on greatly in the coming weeks. Once again, let me say that I am bitterly disappointed at the attitude of the Minister and at the lack of any proposals from either the Minister or anyone else on employment.
This disappointment is all the greater in that we are not forcing the Minister to do anything. We are giving him enabling powers. Deputy Bell mentioned that he was reluctant to agree to regulations but the entire 1981 Consolidation Act is full of regulations. At least in this case while the regulations would give the Minister radical powers to manipulate the labour market in favour of employment he would need to have the prior approval of the House before doing so. I hope that by our putting forward these proposals we will raise the consciousness of the House as regards unemployment in general and will alert the public that the Government have no proposals which will in any way alleviate unemployment.
May I take it that the Deputy is not pressing his amendment?
No, you may not.
I will now put the question in respect of amendment No. 1. The question is:
"That the words proposed to be deleted stand."
Question put and declared carried.
Amendments Nos. 2 and 3 not moved.
I move amendment No. 4:
In page 6, to delete lines 9 to 22 and substitute the following:
"‘reckonable income' in relation to a self-employed contributor means gross income;".
Amendment No. 4 seeks to alter the definition of reckonable income in relation to a self-employed contributor. Reckonable income is dealt with in great detail on page 6 of the Bill in lines 9 to 22. It provides for a certain number of exclusions. Our amendment simply seeks to say that reckonable income should mean gross income. The reason we are proposing this is that we are concerned that on the one hand while self-employed persons are brought into the scheme on the basis of gross income they are then allowed certain exclusions of income for the purpose of deciding the contribution they will pay. At present the PAYE employee pays PRSI on gross income less any superannuation he might pay. Indeed many employees do not pay a superannuation at all. The Bill proposes an unfair discrimination. I will deal later when discussing amendments Nos. 5 and 6 with the actual level of the contribution. It is a question of whether it should be 3 per cent or 6.6 per cent. There is an injustice in the Bill in that many of the people who will be covered by this scheme while they will have quite large incomes will be in a position to opt to pay a far lower contribution than perhaps an employee with the same level of real income. The main purpose of my amendment is to counter that aspect.
I would draw the attention of the House to the explanatory memorandum which points out on page 5 that
The rates of contribution to be paid by self-employed persons will depend on whether, after the deductions referred to above, they have income assessable to tax. Where they have, they will be liable for contributions at a percentge of that income —
A PAYE worker pays a contribution to the social insurance fund whether or not he is liable to tax and in fact he may not be liable to tax in many cases but is still obliged to make a substantial payment from his income based on his gross pay. It is on that basis that I am proposing this amendment.
This amendment proposes to define reckonable income as gross income. Gross income is not defined in the proposed amendment and it could mean all the income of the self-employed person that is earned before any deductions have been made for expenses incurred in earning that income. It would be totally inequitable not to make allowances for such expenses. There is an argument as to the extent of the expenses but most people would agree that certain expenses must be allowable because of the different situation. More likely, the term is only intended to encompass income after the deductions have been made, but before deductions for capital allowances.
Capital allowances are given to compensate for the fact that no deduction from trading income is allowable for capital expenditure or for the depreciation of capital assets. It is accepted that capital expenditure for example on a farm shed or tractor is incurred for the purposes of farming in the same way as expenditure is incurred for the purchase of seeds, fertiliser and other such inputs. Accordingly, such expenditure cannot be regarded as income and for that reason deductions for capital allowances are made to take account of this.
When the Government announced their intention to extend social insurance to the self-employed it was stated that the self-employed would pay contributions which would be related to income. In the Programme for National Recovery which was adopted by the Government and the social partners an undertaking was given that farmers and the self-employed would pay social insurance contributions on the basis of income as assessed for income tax purposes. The National Pensions Board in their report also recommended that capital allowances should be deducted in calculating reckonable income for PRSI purposes. The definition of reckonable income proposed in the Bill is fully in line with these undertakings and recommendations. The Government also decided that the same principles regarding the income base should in future govern the health contributions and the employment and training levy. However, it has also been recognised that after deductions for capital allowances a person with a relatively substantial income could end up paying a very small PRSI contribution. For that reason a minimum contribution of £208 per year has been provided for. For the same reason in calculating the prescribed amount, below which no contribution is payable, it will be the annual amount of income before deductions have been made for capital allowances, which will be taken into account. It has also been decided to include unearned income in the income base for the self-employed. This includes income from rents, interest and dividends. There will be differences, but the differences arise because of the different circumstances. They arise in other countries as well. Other countries which have brought in a scheme for the self-employed have found that they too have had to make similar arrangements because of the different circumstances of self-employed people. In those circumstances I do not support the amendment.
Is the Deputy happy with that?
But the Deputy is not so unhappy as to press the amendment?
Yes.
Amendment, by leave, withdrawn.
I move amendment No. 5:
In page 7, to delete line 52 and in page 8 to delete lines 1 to 14 and substitute the following:
"(i) with effect from 6th April, 1988, to be of an amount equal to 6.6 per cent of the reckonable income or the amount of £208, whichever is the greater.".
Does the House agree to take amendment Nos. 5 and 6 together? Agreed.
This amendment relates to the level of contribution. The Bill proposes that in 1988 there will be a contribution equal to 3 per cent of reckonable income. By 1989 it will increase to 4 per cent and in 1990 it will increase to 5 per cent. At some point in 1990 there will be a review of the operation of the scheme presumably with a view to seeing if the contribution can be increased further. The National Pensions Board recommend a 6.6 per cent contribution and my amendments Nos. 5 and 6 propose a 6.6 per cent contribution.
There has been much debate about the level of contribution. Those representing the farming community and the self-employed have argued that they should be on level pegging with employees. They argue that the level for employees is 2.4 per cent and that therefore their contribution should not be any higher than that. The Minister has opted for a 3 per cent level. I would argue that that is not adequate because it does not take into account that there is not an employer's contribution involved in the self-employed sector. Indeed, the National Pensions Board indicated in their assessment of how much the scheme would cost that something over 11 per cent would have to be paid by the self-employed and the farming community in order to come up to the level which employer and employee pay to cover their pensions. Obviously that would be an extremely severe level of contribution. I am not seeking to have that imposed but in fairness the 6.6 per cent should be applied. General taxation means usually that the PAYE sector pay the bulk of the social insurance fund in any event. Rather than having an increased burden on the general taxpayer the level of contributions from the self employed and the farming community should be on a par with that paid by the employer and employee in relation to the pension fund.
These amendments propose that the rate of contribution for the self employed should be 6.6 per cent from 6 April 1988 subject to a minimum of £208. It is at the moment, as the Deputy recognises, subject to a minimum of £208 in any event. On that side we are in agreement. The National Pensions Board in their report drew attention to the need for the Government to take into account the ability to pay of the self employed contributors in setting the rate of contribution. The Government did so and concluded that imposing a relatively high rate of contribution straight away could give rise to hardship for many self-employed contributors given the present economic difficulties they experience. It was decided, therefore, to phase in the contributions to be paid over a three year period and provide for a review of the cost of the scheme at that stage. I contend this was a reasonable, pragmatic approach to the question. Because it is a major change, phasing in over the three years was a reasonable way to do it and that is the way the Government have decided to go about it.
On the basis of the returns from the self-employment contributions it will be possible to determine the adequacy of the rate of contribution set, and by the end of the third year the actual returns will be known. We will be away from all the calculations, first the calculations theoretically in actuarial studies, then the calculations being done now by the Revenue Commissioners and from there we will review the position at the end of three years and see whether it is necessary to have any further increase in the rate. At that stage the National Pensions Board will have reported on the projected cost of social insurance pensions overall including the cost of pensions for employees. In that context the necessary measures can be taken to put the financing of the entire system of social welfare pensions for employees and the self-employed on a sound financial footing in line with the principle of equalised contributions recommended in the National Pensions Board report.
This is an important element of what we are planning. We are bringing the self-employed into the scheme. Various questions have been raised by Deputies here in the course of the debate about aspects or what they would regard as anomalies or whatever, but these questions fall to be considered in the context of the social security arrangements generally for employees and the self employed. The National Pensions Board are considering those questions and will be reporting in due course.
The 6.6 per cent rate of contribution referred to in the amendment is the rate recommended by the National Pensions Board on the grounds of equity and is the equivalent of the combined employer and employee rate at this time for old age and widow's and orphan's pensions. The rate is not based on the principle of equalised contributions but corresponds to the proportion of the overall cost of social insurance currently being spent on pensions. When the review referred to is being carried out full regard will be had to the views of the National Pensions Board which will be available at that stage on the overall financing of social welfare pensions, and in particular to what the appropriate equalised rate of contribution should be for the contributors generally. That is the question I referred to, that at the appropriate stage of the review the whole question of social welfare security pensions will be considered.
A 4.5 per cent rate was proposed by the National Pensions Board as a break even rate. In providing a rate of 5 per cent together with a minimum of £208 the Government are ensuring that the scheme will at least break even, even in the long term. This rate is associated with a wider income base which includes unearned income and a new collection system. We must bear in mind that when the NPB talked about 4.5 per cent as the break even rate they were not talking about the wider income base which the Government have included and which includes unearned income and a new collection system which will have a major impact on collection. Collection was regarded as one of the major problems and is being tackled in the course of the introduction of the extension to the self-employed of social insurance. The rate contemplated did not include these arrangements in relation to collection. It was simpler for them to say that the Government should work out how they were going to do it, and say, assuming 100 per cent collection on the income base that 4.5 per cent would be a break even.
We are not going to assume that the collection will be 70, 80, or 90 per cent; that is a matter for the practical management and will depend on what other things are done by the Government at the same time. Three major things have been done by the Government which affect that. One is the extension of the wider income base to include unearned income. The second is already the increase from £15,500, the figure used in the studies, to £16,200 as the upper income limit. The third is the collection system required. These steps have been taken to ensure that the arrangements being made will at least break even. We will be in a much better position to make judgments on that in a practical way at the review stage at the end of the three years.
The self-employed would claim that the income base would be greater than estimated. This is one of the arguments they make in favour of the rate being lower. Factors that affect the income base chosen are, for example, poor harvests of the last number of years which were used in computations by the National Pensions Board. They say incomes will be considerably higher because we were back to more normal levels of income last year and they would expect that normally the people concerned would be in that sort of income bracket. They reckon that the income base, even without including unearned income, just taking the main income base and the calculations done by the board, would not reflect the true income and that the true income will be higher. I would be delighted to see that in practice because it means that the fund will be even more strongly funded.
Taking all these considerations into account as the Government do around the table — all sorts of people draw all sorts of theoretical possibilities and the practical problems are identified and recognised — but at the end of the day someone has to decide on the reasonable, practical thing to do. It is on that basis that the Government made the decision in regard to three, four and five per cent with the minima set as they are.
It is reasonable in all those circumstances to accept the 5 per cent levy especially since there is the possibility of a review at the end of three years. I read things that economists and others say, and I can see straight away that they are missing the point; they are missing a whole element that is included in the Government's calculations. That is because they may take a figure from, for example, the National Pensions Board report and, unless they carry out very extensive consultations and spend a good deal of time on it, they do not realise that certain other things have been changed in the meantime, so what the Government are doing is not on the same base. These are changed in a practical way to ensure that the scheme is financed adequately and properly.
It is on all those grounds that the Government believe the scheme being introduced at the moment is reasonable and fair to the self-employed contributors, and the Government would not expect that these calculations would be out to any real extent at the end of the day. Nevertheless we are providing for a review at the end of three years. In those circumstances I believe that what is here is reasonable and satisfactory and I would not accept an amendment to increase to 6.6 per cent at this time.
What Deputy De Rossa is proposing is totally unacceptable. The PRSI contributions are set too high and will cause considerable problems for a large number of people. Farmers and other self-employed people feel very badly done by since people employed in the Civil Service pay 0.9 per cent in PRSI and other people on PAYE, after various deductions and so on, will be paying 2.4 per cent. The farming community and the self-employed would agree to paying at the same level as every other section of the community, and by that I mean people on PAYE. Having different categories and different rates of payment is not in the interests of justice and fair play. There have been tensions between urban and rural people because of being asked to pay at different levels. Even at this late stage, perhaps the Minister will try to achieve the implementation of the same level of payment for all sectors. That would be in the interests of all. The farming community are now paying income tax so it would be a great advantage to all sections of the community if this scheme were structured so that the farming community and the self-employed paid the same amount as the people on PAYE.
On an earlier section my colleague, Deputy Mitchell, proposed excluding people in some of the labour-intensive industries. That is something that must be borne in mind in regard to this section as well. A considerable number of firms who were employing many people have closed not because they were unable to pay wages but because they could not pay VAT. Another issue that caused problems was arrears of PRSI. I am not condoning the non-payment of PRSI when it is lawfully imposed or the withholding of VAT but it is a fact that people have major problems in meeting their PRSI payments. We have one of the highest rates of payment of PRSI in Europe and this is one area that is causing firms to close.
Not so long ago a self-employed person took his own life because of threats from the sheriff. I listened to his widow on Marian Finucane's programme and was saddened to hear her explain how her husband had been relentlessly pursued by the Revenue Commissioners because of his failure to pay VAT and PRSI. This was somebody who had worked hard all his life, a sensible businessman who, for one reason or another, was unable to meet the demands and had made every effort to reach an accommodation with the Revenue Commissioners. He had tried and failed to meet the payments, and when the pressure got too much he decided there was only one way out and took his own life.
There are huge numbers of business people living in terror of the sheriff and the Revenue Commissioners. They have tried and are continuing to try to meet their PRSI and VAT payments but for one reason or another they are unable to do so. In my constituency recently the sheriff visited a firm because it was not able to meet its commitments. That business is now closed and the ten people employed there have lost their jobs. As we speak, there are pressures on people throughout the country to make PRSI and VAT returns. Businesses will have to close because sheriffs will seize their goods when they are unable to make their tax returns. If this matter is pursued without a certain amount of commonsense, it will further increase the number of unemployed and the numbers emigrating. That is a point that we should not overlook because if we do, it will be to our detriment.
Most firms are well able to pay their wages and their normal taxes and are able to meet their ESB charges but the imposition of PRSI on many of these employers will cause further problems for them. Many of these people, including farmers and the self-employed, have their own pension schemes. They have been paying into these schemes continuously over the years. They are now faced with a problem in meeting their commitments to their pension funds and if they opt out they will lose the advantages of the pension funds. On the other hand they will have to pay PRSI at a rate of 5 per cent. Whether or not they will be able to pay the full 5 per cent and meet their other commitments as well is questionable in many instances and I worry about this problem. The Minister knows that the National Pensions Board recommended that there be a break-even situation at 4.5 per cent. It is unwise and wrong for the Minister to raise the rate to 5 per cent. This tax should have been introduced at the same rate as for PAYE workers.
I have spoken about businesses facing the threat of the sheriff. Let there be no doubt about it, the farmers have also suffered tremendous difficulties in the past number of years. As the Minister mentioned earlier, bad harvests have been the cause of serious problems. In 1985 and 1986 when the weather was very bad many farmers lost crops and got into financial difficulties. Farmers also experience major problems at present in regard to milk quotas and surpluses. To impose this rate of 5 per cent will cause even further problems for those people. A number of farmers have received demands from the sheriff and this is causing them enormous stress and worry. It has been the cause of some people having nervous breakdowns and seriously considering taking their own lives. There is a very high rate of unemployment at present and industries are unable to meet the demands made on them. The Minister should have excluded certain industries where there is intensive employment such as footwear, textiles, bakeries and so on. This House should not overlook these types of industries. We should ensure that these industries are maintained. We all have an interest in maintaining them.
I ask the Minister to let us know his views on excluding people from this scheme who are already fully committed to pension schemes. That matter should be considered. It is in everybody's interest that we ensure that there is the same rate of PRSI for all sectors of the community. That would ensure equity, fair play and commonsense and the scheme would have the overall approval of everybody. At present there are many schemes and charges such as land tax, water charges and so on and some people in the community pay them but others do not.
They will not get anything if they do not pay.
They will get non-contributory pensions.
The shoe is on the other foot.
It is the same shoe and the same foot that is being squeezed all the time and that is why there are over 250,000 people unemployed at present. If there was a certain amount of commonsense, co-operation and dialogue among people they would be able to come to some agreement. If there had been discussions with the National Association of Tenants Organisations in regard to bringing in water charges, some agreement might have been reached. Similarly, in regard to this matter if there had been proper discussions with the farming community and the self-employed, agreement might have been reached.
I want to warn the Minister that there is a serious backlash developing among the farming community and the self-employed to those charges being imposed. I can forecast that the Minister will have tremendous difficulty in collecting these charges. He will have major problems on his hands. It is unwise of him to proceed with this measure in the way he is doing. I ask the Minister to use commonsense in this instance and to impose the same level of PRSI on the farming community and the self-employed as that imposed on the PAYE sector. All sections of the community should pay that tax at the same rate. If this is done there will be co-operation and the scheme could be a success. The farming community, people in industry and the self-employed are anxious that the scheme should succeed but it must be brought in at the same level as for everybody else.
I have listened to a number of contributions on this Bill and I am reminded of the saying that doctors differ and patients die. The Minister says the Bill has been well teased out and that the economics are right. I wonder what Members of this House will be saying about this Bill three years from now? We have expressed our views about the collection of these contributions. We are now trying to pinpoint some kind of example. Let us take the case of a person with £20,000 a year, not a substantial income in these days, paying 5 per cent in three years's time. When he has made 156 contributions he will be at the 5 per cent rate. His contributions will amount to £1,000 a year, but he can opt out by declaring himself to be no longer self-employed. The business can keep going and he can continue his subscription at £4 per week by going into the lower contribution rate.
He would be opting out of his business as well.
A farmer might decide he had worked for long enough and wanted to hand over the farm to his son. Actually the farmer would be still there and the farm would not really be handed over to the son.
I do not believe a farmer would do that.
Take the case of a man who runs a small family business and pays 5 per cent for three years. He can then opt out and go into the lower category where he would pay £4 per week. We are creating opportunities for abuse of the system. That man can say he is no longer in the business, although that will not actually be the case.
The Minister has ways and means of finding out.
He would no longer be in the scheme in that situation.
But he is paying 5 per cent for three years and he can opt out then.
And give up his business.
All he would then have to pay is £4 a week.
He could become a voluntary contributor but otherwise he would be charged on his business, unless he gave up altogether.
The amendment before us proposes a rate of 6.6 per cent as recommended by the National Pensions Board. Assuming that this proposal had been accepted by the Government and assuming 100 per cent collection, the subsidy for self-employed pensions would be 60 per cent, compared to a subsidy of 38 per cent for existing contributory pensions. This assumes 100 per cent collection, as does the National Pension Board's report, which the Minister has dismissed. I intend to quote extensively from that report to highlight the madness of the Minister's proposal.
We are dealing with an amendment, not Second Stage.
I do not need to be reminded. We are dealing with an amendment from The Workers' Party which gets to the core of the issue. This proposal is typical Fianna Fáil nonsense. It is 1977 all over again. It will bring in the quick few bob now and cost tens of millions in later years.
Chapter 4 of the report of the National Pensions Board contains projected costs and gives a very detailed analysis. On page 20 there is reference to the principle of equalised rates of contribution.
I am getting very confused.
Perhaps Deputy Bell would wait until I have finished? The principle of equalised contributions is in the eye of the beholder. Some take the same view as Deputy Enright that the self-employed contribution should be the same as the employee contribution. If that were the case the cost to the Exchequer would be a great deal more and would not be sustainable. To that extent I do not agree with the suggestion by Deputy Enright. Deputy De Rossa proposes a contribution rate of 6.6 per cent. That is his view of equity and it is also the view of the National Pensions Board. It is their calculation of the combined employer and employee rate for the benefits under consideration, that is, old age pension and widow's and survivor's pension. The 6.6 per cent contribution would still leave a subsidy of 60 per cent on these pensions in future years compared to a 38 per cent subsidy for an existing contributory pension. The third view is that there should be the same subsidy towards the contributory pensions of those in the employed class and in the self-employed class. If that were the case the contribution rate required would be a great deal higher than 6.6 per cent.
One alternative is that the self-employed contribution would be at a different rate from the employed contributory rate. Of course, the Minister has not enlightened the House on whether he proposes that the level of pensions payable to the self-employed will be the same as those payable to the employed. That has not been stated by the Minister at any stage. If we are to assume that they will get the same pensions then it means, as I have maintained all along, that the proposal before us is going to have the effect of costing the taxpayer tens of millions of pounds in future years. That is why I have the most serious reservations against the proposal.
I am all in favour of seeking a contribution from the self-employed class towards the cost of existing non-contributory pensions and thereby reducing the net outlay from the Exchequer on non-contributory pensions. In his statement on 29 July last year the Minister said that that was his principal aim. I and my party concur with the proposal that there should be a net contribution from the self-employed sector. As it is proposed, that is not going to be the case, regardless of the claims made by the Minister. I challenge the Minister to refer his proposal to the National Pensions Board, with the adjustments he claims he has made, so that they can do an actuarial report on it. I have absolutely no doubt that the Minister is wrong in his figures and that the economists whom he decried are more correct. In one case their figures may have been exaggerated but certainly they were more accurate than the Minister's figures.
The Minister said that the National Pensions Board did not take into account unearned income, the new collection system or the increase in the upper income limit from £15,000 to £16,200. I will deal with the last point first. The Minister is totally wrong in relation to this. The National Pensions Board used constant figures in assuming both the income and the outlay from the system. Therefore, the normal indexation which the increasing of the upper income limit virtually entails makes no difference whatever to the calculations. The Minister is trying to bamboozle and confuse the House by importing that assertion. It does not change the figures one iota.
In relation to the new collection system I ask, what new collection system? Throughout their report the National Pensions Board emphasise that their calculations are done assuming a 100 per cent collection rate. They also say that if we have the same success collecting the self-employed contributions as we have had in collecting the health contribution levy and the youth employment levy, we would need vastly increased rates of contributions to cost the proposal. All the evidence shows that there will be enormous difficulty in collecting contributions from the self-employed sector — and it is important to refer to a point that was made by Deputy Bell in his interjection — until it is propitious for the self-employed to contribute. In his interjection Deputy Bell said that this is different from the health contribution and other levies because they will not get anything if they do not contribute. That is not true.
Yes, it is.
No, it is not. A person of 66 years who has not contributed will get the non-contributory pension as of now.
It is only for a small category in the short term.
All the dynamics will be to evade or to at least understate income. We dealt with this earlier under the question of ministers of religion, many of whom have substantial income from stipends, mass offerings or whatever.
They get £312 million at present and they pay nothing.
I agree with that but what I am saying is that the net result of this is that overall they will get more. The increase in the outlay will amount to more than the contributions and under the proposal, the PAYE sector are again going to be left holding the baby. I am fearful that once we start this, entitlements will be engendered which, in subsequent law, we will not be able to write out because any attempt to do so would be open to challenge in the courts on the basis of equality and equity with the employed sector. We will be faced with the liabilities of the system and the only advantage will be the few bob the Government will have got in during the early years. This is a monstrous proposal which has enormous implications for the years ahead.
I want to refer to the interjection of Deputy Bell which expressed much of the attitude of the Congress of Trade Unions, of the Labour Party and, I think, of The Workers' Party also, whose view is that there should be a contribution from the self-employed sector. I want to emphasise that I absolutely agree with that view but we do not want to end up in the position where it will cost us more. Anybody who has a basic understanding of mathematics will know that this proposal, if implemented, will cost us more.
What are the variables in the proposal? The first variable is the rate of contribution, the second is the income base and the third is the success rate of collection. The Minister or the Government can decide to vary the rate in future years but not to such an extent that would bring in an equal contribution from the self-employed sector as might come from the employed sector. That would represent a penal imposition which would be totally unsellable and the reason for this is that, according to the National Pensions Board, the average earnings of the self-employed are less than the average earnings of the employed sector. When it comes to pensions — the Minister has not clarified this but it has to be assumed — the self-employed sector will get the same pensions as the employed sector rather than a pro rata pension. One reason for the gulf is that the Minister can vary the rates.
The second variable is the income base. This can be varied by the self-employed themselves because they have a much greater opportunity for treating income in a different way than have the employed sector. The employed sector have no way of understating their income. Between employers and employees there may well be arrangements to provide benefits in kind which do not attract pay-related contributions, but in the main there is not remotely the same opportunity for understating income in the employed sector as there is in the self-employed sector. The self-employed sector will have the incentive to understate their income because contributions are pay-related but benefits are not. No matter how low a person's contribution he will get the same benefit at the end of the day.
That is right.
Why pay £30 a week if you can get away with £10 a week? The tendency will be to understate income, if it cannot be avoided altogether. If a person avoids paying these contributions, contrary to what Deputy Bell thinks he will not be left without an income when he reaches 66 years having passed on his farm or business. He will go to the health centre and get supplementary welfare, pending his application for a non-contributory pension——
It is like that at the moment.
The only people who will contribute are those for whom it will be profitable to do so. There is a third factor. A person could evade paying these contributions until he reaches 54 years. If he joins just before his 55th birthday he will get all the benefits after ten years' contributions rather than after 30 or 40 years' contributions. This scheme is riddled with this type of loop-hole and clearly has not been properly thought out.
Now we come to the rate of collection. What evidence is there that we will have any greater success collecting these contributions than we have had with the health contributions, which were supposed to have some influence on a person's health entitlement? People have evaded paying their health contributions in the self-employed sector and they will do likewise here.
I have the gravest apprehension about the proposal before us. For that reason, I see Deputy De Rossa's proposal as an opportunity to tease out in more detail than has been possible up to now the pros and cons and the projected costs of this proposal. Chapter 19 of the report of the National Pensions Board, page 21, Income Base, subsection 4.4, reads:
In order to express the cost of the proposed arrangements as a percentage of reckonable income it is also necessary to establish an appropriate income base. Using information in Appendix C we have estimated the total reckonable income of those liable to make contributions, which exclude those in Category A, to be of the order of £1,200m.
The percentage costs set out in the remainder of this Chapter are based on this estimate of income.
And here is the important line——
It has been assumed that all contributions due will be collected in full and no provision has been included for any possible shortfall.
I repeat, no provision has been included for any possible shortfall. One would have thought it prudent and reasonable to make provision for a 10 per cent or 20 per cent shortfall. The report goes on to say that on a break even basis, and assuming 100 per cent collection, we need a 4.5 per cent contribution rate. The effective rate the Minister is proposing is 5 per cent. That means we need a 90 per cent collection success rate and that is what the Minister is implying he will get. How does that compare with the collection success rate in relation to health contributions or the youth employment levy? For some reason it is very difficult to get by way of parliamentary question or other methods accurate figures of the collection success rate in those areas, but one thing is clear and that is that the collection success rate is less than 30 per cent, and probably a great deal less.
We now come to the income tax paid by the self-employed sector. The National Pensions Board judged the average figure in respect of a self-employed person to be £1,200. From that sector I think we got £36 million last year, a very tiny proportion of the tax collected. One thing we can be certain is that the collection success rate of income tax from the self-employed sector is way below that from the employed sector, and is way below 90 per cent.
It is indisputable that the end result of the Minister's proposal will cost the Exchequer tens of millions of pounds, especially after year ten. Costs will start to accrue after year three when the first widows of the self-employed will be able to draw the widow's contributary pension. The problems I have outlined are not the only ones, there are also problems in relation to retirement. There are no retirement conditions and that has enormous implications for handing over farms and businesses to the younger generation, which I presume we would all regard as a desirable objective, but we will not go into that now.
The Minister and the Government are going for the quick buck, to hell with tomorrow, grab a few bob today. It is 1977 all over again. I have been in this House long enough to remember what was said in 1977 and the implications of those promises. I remember Deputy McCreevy, a Fianna Fáil Deputy, saying that as a result of those policies there would be 250,000 people unemployed. At that time we had 80,000 people unemployed and his colleagues laughed at him. Those policies did lead to 250,000 people unemployed. As a result of this proposal in ten years' time the Exchequer will be worse off by tens of millions of pounds per year.
The problem is to get a proportionate contribution based even on the figure of £1,200 in respect of the self-employed. One would need a contribution rate way in excess of 6.6 per cent which would almost certainly have the effect of worsening the rate of collection success, and that would not solve the problem. This is a very defective proposal from the Minister. Deputy De Rossa is proposing we give effect to a recommendation by the National Pensions Board but, that would not ameliorate the adverse aspects of the proposal to any significant degree. I challenge the Minister to put his money where his mouth is and refer the proposals back to the National Pensions Board to ask them to assess the amount of unearned income, to reassess their estimate of earned income and to do a recosting on the basis of the changes the Minister said have been made and present to us the actuarial cost of this over the next 40 or 50 years. I accept that it will be dearer over 40 years.
Debate adjourned.