On this section there is amendment No. 1, in the names of Deputies De Rossa, Mac Giolla, Sherlock and McCartan. I am submitting to the House that amendents Nos. 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12 and 13 are related and should be discussed together. Is that satisfactory to the House? Agreed.
Finance Bill, 1988: Committee Stage.
NEW SECTION.
I move amendment No. 1:
In page 7, before section 1, to insert the following new section:
1. —As respects the year 1988-89 and subsequent years of assessment, the Finance Act, 1980, is hereby amended—
(a) in subsection (2) of section 1, by the substitution of "£5,830" for "£5,300" (inserted by the Finance Act, 1985), and of "£2,915" for "£2,650" (inserted by the Finance Act, 1985), and
(b) in subsection (6) of section 2, by the substitution of "£6,930" for "£6,300" (inserted by the Finance Act, 1986), of "£8,085" for "£7,350" (inserted by the Finance Act, 1986), of "£3,465" for "£3,150" (inserted by the Finance Act, 1986), and of "£4,042" for "£3,675" (inserted by the Finance Act, 1986),
and the said subsections (2) and (6), as so amended, are set out in the Table to this section.
TABLE
(2) In this section "the specified amount" means—
(a) in a case where the individual would, apart from this section, be entitled to a deduction specified in section 138 (a) of the Income Tax Act, 1967, £5,830, and
(b) in any other case, £2,915.
(6) In this section "the specified amount" means—
(a) in a case where the individual would, apart from this section, be entitled to a deduction specified in paragraph (a) of the said section 138, £6,930:
Provided that, if at any time during the year of assessment either the individual or his spouse was of the age of seventy-five years or upwards, "the specified amount" means £8,085;
(b) in any other case, £3,465;
Provided that, if any any time during the year of assessment the individual was of the age of seventy-five years or upwards, "the specified amount" means £4,042.
This amendment deals with income tax allowances. In my contribution on Second Stage I made it clear that The Workers' Party were most dissatisfied, once again, at the lack of any attempt to reform the overall tax code. I pointed out then, and reiterate, that tax changes — of which there have been many since the famous tax marches of March 1980 — do not amount to tax reform. The tax changes proposed in this latest budget give no indication whatsoever of tax reform. In fact, the PAYE taxpayer today pays more than he or she did at the time of those tax marches. At that time PAYE taxpayers were paying 87 per cent of all income tax whereas now they pay in excess of 90 per cent. Therefore, it will be seen that their position has worsened, that they still pay the greatest amount and there is no indication of any attempt to effect any substantial change in that respect.
The reliefs allowed under the provisions of this latest budget will not reduce the total tax take from those PAYE taxpayers. In referring to the need for a cut in the take from the PAYE taxpayers, I wish to make it clear once again that we do not mean a cut in the total tax take. We do not believe that we as a nation are overtaxed but we do believe that workers are overtaxed. As the Minister has admitted and as international reports have made clear, in comparison to other European countries and most western States, we pay the lowest amount in capital taxes and many other taxes.
I want to clarify what the purpose of this amendment is. In our submission on the budget we proposed to the Minister that the total tax take from PAYE workers should be reduced by 10 per cent. We believe that that would be an indication of the Minister's concern and recognition of the need for reform in that area. We propose that the total tax take should be cut from 90 per cent to 80 per cent of income tax, not so as to reduce the amount the Minister receives but to spread the balance over other taxpayers. We propose that the burden of tax should be spread over other areas, which was the purpose of the tax marches, and of the Tax Commission, whose many reports dealt with that area of tax reform.
On Second Stage I said again that we wished to have a 10 per cent cut in the total tax take from PAYE workers. This amendment is not in any way going to meet that target but we believe that all allowances should be increased by 10 per cent at least. That will still not reduce the tax take by 10 per cent or anything of that nature but it would be a help and also be an indication that the Minister is serious about what he says. Our amendment proposes in subsection (2) of section 1 to increase the allowance of £5,300 by 10 per cent to £5,830, in other words add £530 to the amount stated by the Minister. Similarly we propose that the amount of £2,650 should be increased by 10 per cent, that is £265, to bring it up to £2,915. Our proposals are put fairly concisely in this amendment and each amount is specified. We also propose that the sum of £6,300 should be increased by £630 to £6,930. I notice that the figures given in the amendments tabled by the Labour Party are specific. For example, they propose that the sum of £5,500 should be increased to £6,000, which is a nice even figure. We put forward our amendment because there is a meaning and purpose behind what we are trying to do and if it is accepted it would be seen publicly as a serious attempt by the Minister to reduce the burden of taxation by a specific amount. There are many other areas where we propose increasing allowances by 10 per cent. It is important for the House to indicate that there is a definite desire by it to reduce the burden of taxation and increase allowances and to give a specific commitment to do this.
I have not examined all of the Fine Gael proposals in detail but on my first reading it seems they are going after one particular group, the highest earners, which I suppose is only their due. They are going after the people who support them, their own friends.
(Limerick East): That is not so.
That is the basis of it. I notice that on the last occasion a tax band was reduced from 65 per cent to 58 per cent there was a loss to the Exchequer of £41 million which meant that the highest earners paid £41 million less. However, I do not want to go into that on this occasion. What I am saying is that instead of going for a Thatcher approach and saying "Let us have a 25 per cent and a 40 per cent rate", the Minister for Finance should give an indication of his intention. I do not think there is any indication of intent or policy in the Minister's tax proposals. It is a bit of fiddling up and down but there is no indication of intent, purpose or clear policy. Is it intended to reduce the tax take in one area and increase it in other areas or is it intended, as Fine Gael propose, to reduce the tax take all around and then reduce health and education services because there will be less money coming into the Exchequer? That would be a clear indication of policy. If the tax take from the highest earners is reduced and the services available in health and education are also reduced so that people have to pay more for them, that will allow the higher earners to have sufficient money to pay for their health and education services but those at the bottom will have to do without. That is a clear indication of Fine Gael's policy and intent but unfortunately the Minister has made nothing clear with regard to his policy. This is one small thing which we feel could be done in this area. There should be an indication of an intention to spread the burden of tax. The burden of tax has consistently increased on PAYE workers and, in fact, it increased by £300 million last year in spite of some reductions announced by the Minister.
We are simply asking in our amendment that all allowances in this section be increased by 10 per cent. I do not want to pursue this any further because we have a lot of amendments to get through by 7 o'clock and I hope to deal with the other items as they arise.
(Limerick East): I should like to comment briefly on The Workers' Party amendments and the other amendments which we are taking now.
There has been universal approval in this House for the concept of tax reform. We have heard it from the Minister, from this side of the House in my Second Stage speech, from the Progressive Democrats who have been talking about it longer and with more consistency than anybody else, and from The Workers' Party also. On Second Stage the Minister said we were a bit short on specifics and that is why I came back and gave him certain specifics. I do not regard tax reform as simply a way of facilitating taxpayers. The way we run our economy is seriously out of line with that of our competitors and, in particular with the United Kingdom, our nearest neighbour and still our biggest market. I have argued previously that our cost factors are out of kilter with our competitors, whether they are wage costs, energy costs, telecommunication costs, transport costs or a variety of other costs.
Personal taxation can be included in that group of uncompetitive ways in which we run our economy. In modern economies both capital and labour are highly mobile. Labour is particularly mobile between countries with a common language. Movements in Canada are reflected in the personal tax system in the US and vice versa. That is a historic fact of recent note. Movements in the UK on the personal tax front will affect our labour market here and there is no doubt that highly skilled young people in particular who are mobile will be attracted out of our economy if a more benign tax regime exists close to our shores. It exists now a £70 or £75 return flight away depending on who you travel with. That has to result in a serious road block to growth in our economy. The very people we need to maintain here with the skills which could make this economy grow are being attracted out. I know from my experience as Minister for Industry and Commerce that, when it comes down to the last line and the board in the US, whatever state or city they are in, are making the decision whether it will be south-east England, Edinburgh, Waterford, Geneva or Brussels, quite frequently they consult the people who have explored the sites here and the man they intend to appoint as plant manager.
We have a most benign corporate tax regime, 10 per cent maximum rate, one of the finest in Europe, but it is matched with the most disadvantageous personal taxation system one could possibly have. As a consequence, people who would come here for the corporate tax advantages set up elsewhere because of the disadvantages of personal income tax. The Minister's colleague, Deputy Reynolds, Minister for Industry and Commerce can confirm this.
There is also tremendous upward pressure on wages when there are high marginal rates. If somebody is looking for a wage increase in any company in this city at the moment and wants to maintain the net value of his spending power, instead of a wage increase which matches inflation, 3 per cent, he will have to get a wage increase between 7 per cent and 8 per cent if we are to apply 58 per cent tax to it. Tax of 58 per cent up to £15,000 in effect means 65.75 per cent because of PRSI on top of PAYE and high marginal rates.
As I have said, the greatest problem facing our country is combined unemployment and emigration. The Government estimate that 256,000 people on average will be unemployed during this year and they estimate in the Programme for National Recovery that 30,000 persons will emigrate and this will continue. A fair summary of Government policy is that if the Exchequer borrowing requirement is reduced to stabilise the debt-GNP ratio, this will reduce interest rates and increase business confidence. That is the theory behind present Government policy. If this is paralleled by effectual sectoral policies, especially in financial services, the food industry, the tourist industry or forestry, we will have growth in our economy and our problems will be solved.
This is fine as far as it goes, but this strategy alone will be insufficient to give us the growth rates to cut the dole queues and stem the flow of emigrants. There is little or no hope of reducing unemployment next year, the year after or in the first half of the nineties unless we achieve growth rates in excess of 4 per cent of GNP per annum. I am sure the Minister will agree with that and I am sure the people who advise him will give him similar figures. There are various studies, now, some pessimistic and some optimistic, but we will not be in the ball park in cutting the dole queues and reducing emigration unless we get growth rates at that level, and I am talking about net growth rates. The present policy will not achieve this.
I have enumerated various road blocks to growth and foremost among these is the problem of personal taxation. An independent body of economists out there support that view. I have talked about high marginal rates. Even after the Minister's reforms here a person will pay a combined rate of tax and PRSI of 55.75 per cent on a gross income of £8,550. I do not know what the arithmetic is now. Perhaps Deputy Mac Giolla will have it but that is just about the average industrial wage. If the same person progresses to just under £11,500 he goes on to the marginal rate of 65.75 per cent. In the meantime in the UK a single person can earn up to somewhere in excess of £19,000 and pay 25 per cent on it.
Is it reasonable to think that this will not damage our economy in future or that it is not damaging it already? If we did not have the enormous emigration problem at the moment, what I am talking about would be quite clear, but the dynamic people who are being attracted out by the pull factors of emigration to a benign regime in the UK are hidden in the overall statistics and we do not notice them because of the thousands who are being pushed out due to adverse economic circumstances. The high marginal rates rather than the allowances referred to in Deputy Mac Giolla's and Deputy Desmond's amendments are the problem. In reform of income tax we must move on the high marginal rates rather than on the allowances. Our party's opinion is that income tax reform is as essential to growth as is control of the national debt.
Several countries have attempted to reform tax. I would like to draw the attention of the House to articles in the Financial Times of Saturday, 9 January and Tuesday, 12 January 1988 written prior to the budget in England. They talk in general terms about the necessity for tax reform and how to do it. Generally those countries who tried to reform tax in a major way in the past five or six years fall into two categories, those who tried it incrementally, bit by bit as the Minister did last year and is doing this year and those who rolled it into a package and did it all together. Those who tried it incrementally did not succeed because, when you adopt a gradual approach to tax reform and proceed incrementally, as in any tax reform system there are winners and losers.
On a point of order, is the Deputy entitled to make another Second Stage speech? We are dealing with an amendment which I think he has not dealt with at all yet. He has not mentioned it.
Deputy Mac Giolla did exactly the same.
(Limerick East): Deputy Mac Giolla has moved an amendment and the amendments put down by Deputy Desmond are also under discussion. They are all being advocated as a method of reforming the income tax code. The method of reform being suggested in Deputy Mac Giolla's amendment is increasing allowances by 10 per cent. I am arguing that we need reform of income tax but increasing allowances on an incremental basis is not the way to do it. We need to reduce the overall rates of tax, and I believe I am in order.
I understand you are in order. Amendments Nos. 1 and 13 are being taken together. Amendment No. 1 is inserting a new section and amendments Nos 2 to 13 are more or less doing the same in a different way.
(Limerick East): People who proceed incrementally fail. People who seek to reform income tax tend to look at it always as an economic or financcial issue when it is a political issue. As politicians we should be arranging the politics of the package rather than its finances. Many people who represent excellent Departments could arrange the finances of it, but the politics of it are different as anyone in Government knows. If you reform tax there are winners and losers.
You are in it yourself.
(Limerick East): The winners pay less tax and the losers pay more tax. If you try to do it incrementally piece by piece in three, four or five years. immediately you move the losers identify their losses and as soon as they do so they form pressure groups. The pressure groups try to get the Opposition parties in behind them and as soon as the Opposition parties align themselves with the pressure groups tax reform grinds to a halt. That has been the experience particularly in Australia.
Why are the winners not so smart? Frequently the winnings are more widely dispersed. The winners do not form a coherent group. Since the winnings are distributed incrementally over four or five years they do not make a lobby anyway. The Government of the day combined with those who gain from tax reform are not strong enough to resist the pressure from the Opposition of the day combined with the losers under tax reform and consequently the attempts grind to a halt. The Minister brought it in last year and this year and if Deputy Mac Giolla were Taoiseach and tried to move incrementally towards increased allowances he would be doomed to failure as well. On the other hand, in the USA and New Zealand we have seen tax reform in a package and Deputy Mac Giolla speaking on Second Stage said he supported the idea of a package.
We have always operated as if tax were the only ultimate variable. The Government decide how much to spend on agriculture, health, education or the roads and decide that the expenditure must be covered by a combination of tax and borrowing. Since we are now reducing borrowing, tax becomes the ultimate residual and thus the ultimate variable. Of course it only varies in one direction — upwards.
I am borrowing successful ideas from other countries. In Massachusetts and California they put statutory obligations in place by referendum to which legislatures had to respond. In those instances property tax was the main issue but the same can be done with personal income tax. I do not believe there will be any real reform of personal taxation here if it becomes an issue where the Government propose and all the Oppositions oppose and align themselves with those who do not like the changes. To get away from the idea of tax as the ultimate variable, if we were to agree during the next fortnight that we would have two rates of tax — a standard rate of 20 per cent and a higher rate of 40 per cent — and if that were written into the legislation, we would be doing by statute what they have done in the USA by referendum. Then there would be a statutory direction to us and to the Cabinet to live within those parameters.
If we were to adopt this proposal the loss of revenue would be £661 million, an enormous amount of money. I am grateful for the answers I received from the Department of Finance to questions which were judicially placed to cost this proposal. The answers were given on Tuesday, 2 February in reply to written questions and I am sure I am interpreting them correctly. Wherever we find this huge sum of money, we cannot borrow it. There is no question of increasing the debt. We must keep the Exchequer borrowing requirement on a downward trajectory, as well as the current budget deficit. These very large financial resources will have to be found somewhere.
The Minister has experience of the difficulty of identifying cutbacks and presenting them to the House. He has been helped by the attitude of the Opposition, in particular by the Fine Gael Party since the announcement of the Tallaght strategy and also by the Progressive Democrats. Progress has been made in reducing the debt burden. The national debt is still rising but not at the same rate. The trend is towards stabilisation. This has been done by consensus politics. I do not believe that the Minister could have got through this House the Book of Estimates produced last October were it not for the Opposition parties, particularly Fine Gael and the Progressive Democrats. We should apply the same strategy to tax reform. If we do not there will be no tax reform.
Where do we find the resources? We should have an all-party committee. I have heard Deputy Mac Giolla's party talking about extending the tax base, the paltry sums collected in capital taxation and the need for property taxes. I have heard Deputy Desmond's party doing the same, inside and outside Government. Why not do it within a formal structure and let us see if there is consensus in the House on this matter? If it is done in an informal way with the Minister proposing and an Opposition opposing, the Minister will be pushed back before he gets to the first gate. One crowd will roar about a diminution in allowances and another will shout about further tax impositions on the capital side. All the Opposition parties will support them and we will not proceed any further. The nerve of the Government will falter. They will ask why they should bother and give another incremental increase in allowances the next year.
Allowances are interesting. I put down another question on 2 February 1988 and got some interesting information. On mortgage interest relief the expectation in 1988-89 is that foregone tax will amount to £160 million. Tax foregone in respect of medical insurance will amount to £48 million, life assurance £44 million, PAYE employment £286 million and PRSI £84 million. On those allowances alone the total tax foregone is £622 million, according to information supplied by the Department of Finance.
Deputy McDowell's party have advocated a property tax and he has suggested that ultimately it would yield a return of between £400 million and £600 million. A well-known economic journalist, Mr. Tansey of the Sunday Tribune, has recently looked at the whole area of allowances and has added the tax foregone in the allowances to which Deputy Mac Giolla is drawing attention and the tax foregone on the corporate side because of the benign tax regime. He has calculated that the tax foregone on allowances, both personal and corporate, is between £2 billion and £2.5 billion.
I am confused as to whether we are on section 1 or section 3.
(Limerick East): I am talking about the issue of tax reform which arises in section 1. Deputy Mac Giolla has made proposals to reform tax by increasing allowances by 10 per cent. I believe that is the wrong way to do it.
Acting Chairman
I understand we are discussing amendments Nos. 1 to 13. Am I correct?
(Limerick East): Yes. I am speaking to amendment No. 1 from The Workers' Party who are advocating a form of tax reform.
Acting Chairman
My impression is that the Deputy is discussing part of section 3. I would ask the Deputy to continue speaking on section 1.
(Limerick East): It is very difficult to discuss allowances without discussing bands and rates. One drifts from one into another. I take the advice of the acting Chairman.
Acting Chairman
Otherwise we might be repeating when we come to section 3 most of what the Deputy is saying.
(Limerick East): With respect, you called me to order at a time when I was quantifying the tax foregone on allowances. Section 1 is about allowances. I would be out of order to discuss allowances under sections 2 and 3.
Acting Chairman
The Deputy may continue.
(Limerick East): Thank you very much indeed. I am saying that there are resources in the tax area which are available for transfer to other areas of the tax system. The allowances I have nominated amount, from the Department of Finance figures, to £622 million. I said that calculations have been made, too. Speaking from memory the tax foregone on all allowances, other than those I have nominated, together with the tax foregone on the corporate side, would amount to in excess of £2 billion and I believe it would be nearer to £2.5 billion than to £2 billion. There are ways of finding the resources necessary to dramatically reform income tax in one year, two years or half a year or whenever we want to do it. The problem is not a financial one because we are not talking about identifying revenue from North Sea oil which might accrue to us. We are not talking about borrowing. We are talking about identifying resources which are in the system and applying them in a different way. It is not a financial or an economic problem but it is a political problem. It is the politics of adversarial decision making which makes it impossible for any Minister for Finance to move in a dramatic way to reform tax.
For the first time in the history of this State we have shown that a certain amount of consensus across this House and less game playing can achieve sound economic results. If the same formula is applied to tax reform and if there is a meeting of minds between the parties here, or between a majority of the people in this House as represented by their parties, we can identify the kind of resources I am talking about, and, having identified them if we can apply them to reducing the marginal rates of tax, we will have removed one of the main roadblocks to growth in our economy. That is well worth doing. The only thing that prevents us from doing it at present is because the Minister is on that side of the House and we are on this side. Traditionally whatever the Minister proposes is wrong and whatever we say is right and if I say it the Minister says it is wrong. You cannot move forward on that basis.
What I am suggesting is that this was not dreamed up casually. It is something that I have examined carefully. I thank the Department of Finance for providing me with the basic information necessary, by way of reply to written questions, as far back as 2 February. I think this is achievable but it is achievable only on a cross party basis and if the kind of consensus that applies to stabilising the debt-GNP ratio is applied to the reform of income tax. The resources are there if the political decision is made to apply them in a different way. Once that is done one has to stick to it. I had intended to quote very briefly from the article to which I referred and which appeared in the Financial Times of 12 January 1988 but I will leave it. I will bear in mind what the Minister has said and that would drift into section 2 and to the amendment I have put down subsequent to that.
I believe there is a better understanding in the House now of what I am talking about. It is not a proposal against anybody. It is a proposal to see if we can extend the consensus which has formed on the debt to the area of tax reform and if we can extend it, certain things can be done.
I will make one last point. Deputy Mac Giolla who objects to the way I have gone on referred to the Fine Gael proposal. He said it was a proposal for the rich, but of course it is not. While we are talking about the top two rates of 58 per cent and 48 per cent reducing to 40 per cent, we are also talking about the 35 per cent rate reducing to 25 per cent. Anybody who works is paying tax at at least 35 per cent. The overall cost of reducing the 35 per cent rate of income tax to 25 per cent would be £449 million according to the figures supplied by the Department of Finance on 2 February. To reduce the top rates to 40 per cent, in my calculation, would cost £212 million and I am sure I am not out very much in that calculation. We are talking about £450 million for the ordinary worker who is paying tax at 35p in the £.
That takes from high and low.
(Limerick East): Of course it takes from high and low. It takes from everybody who is paying tax.
(Interruptions.)
(Limerick East): If I wanted to construct an amendment to serve the rich, as Deputy Mac Giolla charges, I could construct an amendment which would reduce the top rates down to 35 per cent. We could abolish all the top rates and it would cost less than £300 million gross. The net cost would be around £200 million. The Minister's proposals which are undramatic — they have not been acclaimed on the streets; we have had no marches to Merrion Street yet applauding the Minister and meeting him with torches — would cost £152 million in a full year. If we wanted amendments to ease the top rates, and do that alone, they are quite within the ball park of what the Minister is doing this year, and the Minister knows that. If the Minister took the £152 million and applied it to the top rates, I believe that if he had another £30 million or £40 million he would come very near to abolishing the top rates and having one rate of 35 per cent. Deputy Mac Giolla is right. That would be inequitable and I do not think we should proceed in that way.
One of the reasons I am on my feet and one of the reasons I put down this amendment is that a lot of nonsense is spoken about tax. There is a perception out there that everyone is paying the 58 per cent rate or the 65 per cent rate and that that collects billions of pounds. It does not. It is the 35 per cent rate that collects the significant sums of money and it is in reducing the 35 per cent rate that there will be much benefit and that is where big costs are involved. To talk about proposals in ease of the rich is only the kind of class politics which we avoided in this country for a long time until the emergence of The Workers' Party. That is not meant as a compliment to the Labour Party. I hope I will be able to return to this topic. Because of the way in which the debate is being taken today all sections, I understand, will fall at 7 o'clock. I would like some guidance before I sit down.
(Interruptions.)
(Limerick East): I said very relevant things. Is it in order to refer in the section to sections 6 and 7 which, in my opinion, we are unlikely to reach today? If it is not in order to do that, will it be in order to re-enter amendments to those sections on Report Stage even though we have not even had a passing reference to them on Committee Stage?
Acting Chairman
I am not in a position at present to give you an answer to that question but I will seek an answer and I will convey it to you as soon as possible.
(Limerick East): Thank you.
I wish to refer to amendments Nos. 2 to 13, inclusive. My colleague, Deputy McDowell, wishes to contribute, subject to the Minister's agreement. The only point I want to make about my amendments is that they relate, in a very fundamental way, to the general exemption limits from tax. It is of critical importance that we proceed down that road as far as we can within the scope of Exchequer resources.
The Minister has given a small increase in the general tax exemption limits in his Bill from £5,300 to £5,500 for a married couple and from £2,650 to £2,750 for a single person. As a result of that change a very small number of persons, only about 16,000 out of the many tens of thousands who are liable, will be taken out of the tax net altogether, and about 5,000 become entitled to the marginal relief. That is a very small annual conservation because, come next year, with changes in income they will parachute back into the net again. Therefore, I am endeavouring in this series of amendments to take anything up to 50,000 persons out of the tax net, mainly those on quite low incomes. I am also endeavouring, by applying the tax ememption limit to ensure greater equity overall within the system.
That is the import of our amendments. They are quite simple and there is no reason the House should not consider them. It is within the framework of this budget and of the general taxation system to find the resources, which I admit would be substantial enough, to meet the cost of those amendments, bearing in mind that the overall structure of the taxation, the tax mix, has changed in effect. For a decade at least tax components as a percentage of GNP have remained virtually unchanged other than income tax itself. It is necessary to bring that back into line with other levels of taxation.
I reserve my other comments. I just want to make those opening brief comments on these amendments to ensure that all the amendments from 1 to 13 are now before the House. I look forward to hearing the Minister's view on the matter. I will be particularly interested in hearing his view as to what this would cost, because there is an air of direct reality about our discussions. Then I will have an opportunity to respond further, suggesting alternative ways of meeting a challenge of that nature, suggesting fundamental changes in the general tax exemption limits which are required if we are to have a radical relief from income taxation for those on low incomes.
I want to thank the House and all the parties represented by their spokespersons here for their co-operation in agreeing all the procedures we have embarked upon here today on the financial resolutions and on the timescale for dealing with the Committee Stage. I want to put on record my appreciation of the co-operation of all parties involved in that regard because we all know the detailed provisions of the Finance Bill can take endless hours to debate. We will do our utmost to ensure that each item that is raised is responded to and that all items get some coverage in the course of the debate.
For that reason I will not spend too much time replying in a wider fashion than the amendments would have allowed normally in a debate on tax reform and so on. I will get the opportunity to make a few points on that matter on section 2 where there is a wider series of amendments proposed. I do not tend to respond to all the queries that were raised other than to cover two points. Deputy Mac Giolla raised the question of the 90 per cent of income tax receipts coming from the PAYE sector which is not absolutely accurate. It is 81 per cent that comes from this sector, just to keep the record straight.
There is a suggestion made by Deputy Mac Giolla that the cost of a 10 per cent reduction for the PAYE sector alone would be roughly £220 million, so one can see the kind of figures we are dealing with. I do not want to spend too much time when I get up to speak. I would prefer to leave the opportunity to all the Deputies opposite. I will be coming back to many of the points that were made on this section and on this amendment later on section 2.
Let me deal specifically with, first of all, amendment No. 1. As we know, the purpose of the amendment is to increase general income tax exemption limits and the exemption limits for aged persons proposed in the Bill. It is proposed to increase the general exemption limits as set out in the Bill by a further £330 for married couples and £165 for single and widowed persons. It is also proposed to increase the exemption limits set out in the Bill by £430 for married couples and £215 for single and widowed persons aged 65 or over but under 75 years and by £485 for married couples and £242 for single and widowed persons aged 75 or over. Acceptance of this amendment would result in an additional cost to the Exchequer of £4.1 million in 1988 and £6.8 million in a full year and would exempt some 11,500 taxpayers from tax liability. That is just in relation to amendment No. 1.
Section 1 of the Bill already provides generous increases in the exemption limits — £200 in the case of a married person under 75 years of age and £100 in the case of a single or widowed person in this age category; £250 in the case of a married couple where either spouse is aged 75 or over or £125 in the case of a single or widowed person in this age category. These increases and the associated marginal relief will cost the Exchequer £2.3 million in 1988 and £4.1 million in a full year, and will exempt a total of 9,100 persons from liability to income tax. A further 33,200 persons will have reduced liability because of the operation of marginal relief as a consequence of the increases. The increases in the exemption limits provided for in section 1 of the Bill are the most generous that can be afforded at this time, especially as other significant reliefs, meaning the increases in the rate bands and the main personal allowances and the renewal of PRSI allowances beyond what was promised in the Programme for National Recovery, are provided for in the Bill. Accordingly, the amendment must be opposed.
Turning to the similar amendments, amendments Nos. 2 and 3, 8 and 9 propose to increase the general exemption limits set out in the Bill by £500 for married couples and by £250 for single and widowed persons, etc. Rather than reading through the different ones let me just say that the cost of amendments Nos. 2, 3, 8 and 9 to the Exchequer would be £4.5 million in 1988 and £7.6 million in a full year, and would exempt some 10,600 taxpayers from tax liability. Amendments Nos. 4, 6, 10 and 12 would cost the Exchequer £1.4 million in 1988 and £2.1 million in a full year, while some 4,200 taxpayers would be exempt from tax liability as a result.
Amendments Nos. 5, 7, 11 and 13, if accepted, would cost the Exchequer £0.4 million in 1988 and £0.6 million in a full year and approximately 1,200 taxpayers would be removed from tax liability. The total cost to the Exchequer of amendments Nos. 2 to 13 combined would be £6.1 million in 1988 and £10.3 million in a full year. As I have already indicated in relation to amendment No. 1, it is not proposed to accept these amendments. The allowances already provided for in the Bill are as generous as we can afford at the present time.
In relation to a general question raised by Deputy Desmond about exemptions and who has been exempted as a result of the budget and what is proposed in this Finance Bill, under the various proposals the personal allowances will exempt 2,200; PAYE allowance, 4,900; PRSI allowance, 13,000. The overall effect of the allowances exempts 20,000 people approximately.
On exemption limits, the general limit is 6,700 people. The exemption limit among people aged 65 to 75 years is 1,700 and for those aged 75 years or over it is 700. The overall effect is 9,000. The total exempted by the budget is 29,000 people and that is not too bad in the context of our difficult budgetary situation.
Because of what I have said and what is already proposed in section 1 of the Bill, I cannot accept any of the amendments Nos. 1 to 13.
I had hoped to keep to the sections dealing with the specific thing they are dealing with. As far as I am concerned I was not considering tax reform when I was proposing changes in the allowances. What we are dealing with is the Finance Bill that is before us. I dealt with the issue of tax reform in my contribution on the budget and on Second Stage of the Finance Bill. We are trying now to do the best we can with the Finance Bill put before us by the Minister. We are talking about people in the lowest bracket of tax exemption limits. How could anybody pay any worker £55 a week in this day and age? It is unbelievable. Should anybody offer that little to anybody? Having got a job at this miserable wage, it is incredible to have the Minister for Finance taxing such people. Could anybody feed and cloth himself and keep a roof over his head for £55 a week?
There have been many references to farmers. I am called anti-farmer but I have to refer to them. Farmers will say that their average income is £2,600 or £2,700 a year and that they should not be taxed. In fact, 120,000 of them are not in the tax take. A very interesting point in that regard is that, according to a reply I received only last week, 12,000 CIE workers paid £36 million in income tax last year, plus £10 million in PRSI. That was greater than the total income tax taken from all farmers. That puts the matter in perspective, that one group of workers pay more than all the farmers. Let me not be told that there are not farmers capable of paying a little more.
We are trying in our amendment to take out the lowest bracket and increase the exemption limits a little. I want to tell Deputy Noonan that none of these matters would be seen by me as tax reform. We are trying to do the best we can. I appeal to the Minister to give consideration to the effect of the Bill, or lack of effect of it, in the area of taxation. I am asking him to take the people out of that low bracket and bring in others. I understand that he is trying to bring in others and he will have no problem in getting another 29,000 people out there who are not paying tax and should be, to make up for the 29,000 people, the miserably lower paid workers he is asking to pay tax because the others will not pay it. To find that if a worker is paid £56 a week, 82p is taken out of that sum is incredible.
With regard to the exemption limits, we have to look at the area of poverty. This is a time of increasing poverty and low levels of pay, with more and more employers paying less and less in wages. Lower levels of pay are becoming a very common factor in employment now. The purpose of this amendment is to take such people out of the tax bracket. I ask the Minister to have another look at the limits and see if he believes that people can live on those amounts and pay income tax, when it is further money they should be getting. I am strongly of the view that amendments should be made to these exemption limits and I am pushing this amendment.
It is all very fine for Deputy Mac Giolla to cry crocodile tears in relation to tax exemptions. The fact of the matter is that this year we are giving £91 million in tax concessions and £152 in a full year. These are enormous amounts. The Deputy and his party — and I do not want to be personal here — have trotted in here for the past 13 months, put down motions and opposed every single item of saving put forward by this Government, to the extent of defeating the Government on many issues, even with regard to amounts as low as £500,000. Notwithstanding that, this Government were in a position to find sufficient savings, with the support and co-operation, rightly acknolwedged by me, of Deputy McDowell and Deputy Noonan and their respective parties.
Who got the £91 million?
This was right across the board, including the people we are talking about, as I have already said on the Deputy's amendment No. 1.
Right across the board?
I do not want to be the person jumping up and down delaying contributions, because we have much to do. We have had co-operation and agreement. I cannot accept amendment No. 1 put forward by Deputy Mac Giolla and The Workers' Party.
Am I correct in assuming that amendment No. 1 has been withdrawn?
No.
Acting Chairman
I am putting the Question: "That the new section be there inserted."
(Limerick East): On a point of order, since we are taking amendments Nos. 1 to 13 together, are we going to vote on all those amendments now?
Acting Chairman
No. We are taking amendment No. 1 to section 1 now.
(Limerick East): If Deputy Desmond pushes his amendment, will that be taken separately?
Acting Chairman
We shall see, but I am taking amendment No. 1 to section 1, now.
Question put.
The Committee divided: Tá, 17; Níl, 72.
Tá
- Bell, Michael.
- De Rossa, Proinsias.
- Desmond, Barry.
- Gregory, Tony.
- Higgins, Michael D.
- Howlin, Brendan.
- Kavanagh, Liam.
- Kemmy, Jim.
- McCartan, Pat.
- Mac Giolla, Tomás.
- O'Sullivan, Toddy.
- Pattison, Séamus.
- Quinn, Ruairí.
- Sherlock, Joe.
- Spring, Dick.
- Stagg, Emmet.
- Taylor, Mervyn.
Níl
- Abbott, Henry.
- Ahern, Bertie.
- Ahern, Dermot.
- Ahern, Michael.
- Andrews, David.
- Barrett, Michael.
- Brady, Gerard.
- Brady, Vincent.
- Brennan, Matthew.
- Brennan, Séamus.
- Briscoe, Ben.
- Browne, John.
- Burke, Ray.
- Byrne, Hugh.
- Calleary, Seán.
- Conaghan, Hugh.
- Connolly, Ger.
- Coughlan, Mary T.
- Cowen, Brian.
- Daly, Brendan.
- Davern, Noel.
- Dempsey, Noel.
- Dennehy, John.
- de Valera, Síle.
- Doherty, Seán.
- Ellis, John.
- Fahey, Frank.
- Fahey, Jackie.
- Fitzgerald, Liam.
- Fitzpatrick, Dermot.
- Flood, Chris.
- Flynn, Pádraig.
- Foley, Denis.
- Gallagher, Denis.
- Gallagher, Pat the Cope.
- Geoghegan-Quinn, Máire.
- Hilliard, Colm Michael.
- Jacob, Joe.
- Kirk, Séamus.
- Kitt, Michael P.
- Kitt, Tom.
- Lawlor, Liam.
- Leonard, Jimmy.
- Leyden, Terry.
- Lynch, Michael.
- Lyons, Denis.
- McCarthy, Seán.
- McCreevy, Charlie.
- MacSharry, Ray.
- Mooney, Mary.
- Moynihan, Donal.
- Nolan, M. J.
- Noonan, Michael J. (Limerick West).
- O'Dea, William Gerard.
- O'Donoghue, John.
- O'Hanlon, Rory.
- O'Keeffe, Batt.
- O'Keeffe, Ned.
- O'Kennedy, Michael.
- O'Leary, John.
- O'Rourke, Mary.
- Reynolds, Albert.
- Roche, Dick.
- Stafford, John.
- Swift, Brian.
- Treacy, Noel.
- Wallace, Dan.
- Walsh, Joe.
- Walsh, Seán.
- Wilson, John P.
- Woods, Michael.
- Wright, G.V.
Tellers: Tá, Deputies McCartan and Sherlock; Níl, Deputies V. Brady and Browne.
Question declared lost.
We now come to amendment No. 2 in the name of Deputy Barry Desmond. Is the Deputy pressing his amendment?
No, we will only be pressing the section. We will not be pressing amendments Nos. 2 to 13, inclusive.
Amendments Nos. 2 to 13, inclusive, not moved.
Question put: "That section 1 stand part of the Bill."
The Committee divided: Tá, 72; Níl, 16.
Tá
- Abbott, Henry
- Ahern, Bertie.
- Ahern, Dermot.
- Ahern, Michael.
- Andrews, David.
- Barrett, Michael.
- Brady, Gerard.
- Brady, Vincent.
- Brennan, Matthew.
- Brennan, Séamus.
- Briscoe, Ben.
- Browne, John.
- Burke, Ray.
- Byrne, Hugh.
- Calleary, Seán.
- Conaghan, Hugh.
- Connolly, Ger.
- Coughlan, Mary T.
- Cowen, Brian.
- Daly, Brendan.
- Davern, Noel.
- Dempsey, Noel.
- Dennehy, John.
- de Valera, Síle.
- Doherty, Seán.
- Ellis, John.
- Fahey, Frank.
- Fahey, Jackie.
- Fitzgerald, Liam.
- Fitzpatrick, Dermot.
- Flood, Chris.
- Flynn, Pádraig.
- Foley, Denis.
- Gallagher, Denis.
- Gallagher, Pat the Cope.
- Geoghegan-Quinn, Máire.
- Hilliard, Colm Michael.
- Jacob, Joe.
- Kirk, Séamus.
- Kitt, Michael P.
- Kitt, Tom.
- Lawlor, Liam.
- Leonard, Jimmy.
- Leyden, Terry.
- Lynch, Michael.
- Lyons, Denis.
- McCarthy, Seán.
- McCreevy, Charlie.
- MacSharry, Ray.
- Mooney, Mary.
- Moynihan, Donal.
- Nolan, M. J.
- Noonan, Michael J. (Limerick West).
- O'Dea, William Gerard.
- O'Donoghue, John.
- O'Hanlon, Rory.
- O'Keeffe, Batt.
- O'Keeffe, Ned.
- O'Leary, John.
- O'Rourke, Mary.
- Reynolds, Albert.
- Roche, Dick.
- Stafford, John.
- Swift, Brian.
- Treacy, Noel.
- Tunney, Jim.
- Wallace, Dan.
- Walsh, Joe.
- Walsh, Seán.
- Wilson, John P.
- Woods, Michael.
- Wright, G. V.
Níl
- Bell, Michael.
- De Rossa, Proinsias.
- Demond, Barry.
- Gregory, Tony.
- Howlin, Brendan.
- Kavanagh, Liam.
- Kemmy, Jim.
- McCartan, Pat.
- Mac Giolla, Tomás.
- O'Sullivan, Toddy.
- Pattison, Séamus.
- Quinn, Ruairí.
- Sherlock, Joe.
- Spring, Dick.
- Stagg, Emmet.
- Taylor, Mervyn.
Tellers: Tá, Deputies V. Brady and Browne; Níl, Deputies Howlin and Pattison.
Question declared carried.
SECTION 2.
Amendment No. 14 is out of order.
Amendment No. 14 not moved.
I move amendment No. 15:
In page 8, to delete the Table and substitute the following:
"Table
Part I
|
Part of taxable income |
Rate of tax |
Description of rate |
|
(1) |
(2) |
(3) |
|
The first £5,700 |
33 per cent. |
the standard rate |
|
The next £2,900 |
45 per cent. |
the higher rates. |
|
The remainder |
50 per cent. |
Part II
|
Part of taxable income |
Rate of tax |
Description of rate |
|
(1) |
(2) |
(3) |
|
The first £11,400 |
33 per cent. |
the standard rate |
|
The next £5,800 |
45 per cent. |
the higher rates |
|
The remainder |
50 per cent. |
The reason this amendment was tabled on behalf of the Progressive Democrats was to bring into issue in the debate on the Finance Bill the structure of the taxation system with which we are dealing and to raise the question of fundamental tax reform.
(Limerick East): Is my amendment being taken?
There is a somewhat similar type of amendment to Deputy McDowell's amendment put down from Deputy Noonan.
I would prefer to see it moved.
I wonder if both are being taken together. Amendment No. 16 is different but amendment Nos. 15 and 17 are somewhat related and I wonder if they are being discussed together.
I have no objection.
(Limerick East): I have no objection to that.
Then we shall discuss amendment No. 15 in the names of Deputies McDowell and O'Malley and amendment No. 17 in the name of amendment No. 17 in the name of Deputy Michael Noonan together, with separate decisions if required.
The purpose of this amendment is to bring into sharp focus the question of tax reform in the context of the Committee Stage of the Finance Bill, 1988. It is in that spirit that I move this amendment. For reasons which will become apparent afterwards, I may not be enthusiastic about pressing it to the ultimate conclusion.
First, the effect of the amendment is to reduce rates of income tax from 58 per cent, 48 per cent and 35 per cent to 50 per cent, 45 per cent and 33 per cent respectively. The measures which are encompassed in such an amendment would, I appreciate, cost very significant sums of money in terms of revenue foregone to the Exchequer. My own estimate is that the 2 per cent reduction in the standard rate of tax from 35 per cent of 33 per cent would mean a loss of about £90 million in Exchequer revenue; the reduction of the 48 per cent rate to 45 per cent would involve about £25 million forgone in revenue and the reduction from 58 per cent to 50 per cent would mean a sum in the region of £60 to £65 million foregone in revenue, giving a total figure of £165 million approximately as the gross cost of such a proposal.
I would also point out that there would be some corresponding buoyancy, usually calculated, I think, in the region of 25 per cent or 30 per cent. Therefore, in net terms the proposals would cost the Exchequer in the general region of £125 or £130 million. I appreciate that is a very large sum of money and is not one that can be tossed off the pen lightly as a proposal for tax reform.
It is not lightly done either, but it is done in the spirit of forcing this House to address itself to the implications of a radical tax reform package. I am conscious — and I want to assure the Minister of this — that in proposing such figures I am not suggesting that the moneys necessary to fund the shortfall thereby created can be conjured up out of thin air. It is a sad fact, however, that the rules of procedure of this House lay down that no Member who is not a Minister can propose an amendment of any kind to the Finance Bill which imposes a charge on the Exchequer or a charge on any person. Therefore, the only kind of amendments that can be tendered to the Finance Bill which are not merely procedural in nature are ones which involve tax cuts. On occasions this leads to the general perception that Opposition amendments to Finance Bills are uncosted and unbalanced by corresponding provisions elsewhere, and on occasion it can be the case that people perceive them in that context as irresponsible.
I am stating quite clearly that I am not tendering this amendment as an uncosted measure or one which I suggest should be taken on board by the Government without regard to its consequences. As I have said, the rules of procedure of this House require me to abstain from making any corresponding proposal as to where the money could otherwise come from. I am bound by the rules of this House. That is a somewhat antiquated procedure and is regrettable in my view. However, it is the rule of the House and it binds all parties and has done so for many years. I am not suggesting that it should be lightly cast aside. I see its purpose. Its purpose was to give the Government a monopoly of carriage of financial resolutions in the House and its purpose was to accord to the Executive under the Constitution the right to determine the course of budgetary policy. It is implicit in our system of Government that the Executive takes responsibility for it and is not divested of that responsibility on a transient basis by the Dáil.
In that context I believe this House has totally failed in its duty to establish a responsible forum for considering alternative tax systems. The House approved a motion establishing a Commission on Taxation under Dr. Miriam Hederman-O'Brien and has since in substance ignored and shelved the recommendations of that learned commission who were so long involved in valuable and detailed analysis of the taxation system. The House has not established any means whereby Members of this House who engage in debate on budgetary matters are obliged to consider the exact consequences of the proposals they make. As I have said, Opposition in this House is confined on financial matters to effectively proposing tax cuts. It is in ease of the Opposition that they are never required to balance their amendments to the budget, so to speak.
I believe there is a need for an all-party committee of this House, not simply to do what the Committee on Public Accounts do, that is, to consider whether the moneys which we vote in this House are spent in accordance with the mandate given to Government and not simply to do what the Committee on Public Expenditure did, simply to ascertain whether each individual item of expenditure is good value for money, but to look at the whole substance of budgetary politics and the fiscal underpinnings of the State and to make recommendations on a cross-party basis for reform. I believe that committee is necessary and, for reasons to which I will revert in a few moments, it is also something which the Government should seriously consider establishing. It would have the effect of obliging politicians in this House, from whatever party, to address the consequences of their proposals. It would be an occasion on which conflicting ideas or fiscal ideologies would be mediated and examined in circumstances which force some responsibility on those who suggest change. With all of that I am in agreement. I note that Deputy Noonan so suggested earlier in this debate. I am in agreement with him that such a committee should be established.
That, effectively, is where I must part company with Deputy Noonan. If anybody is in the business of suggesting radical tax reform to this House, the Government or the electorate, it is absolutely essential that those people should speak from a base of integrity, that it should be clearly understood that suggestions which are thrown out for political consideration are really attainable. It should be an ethic among politicains that unattainable objectives should not be thrown out lightly just for the purpose of creating a headline, striking a political pose or affecting the next opinion poll.
The subject of tax reform is much more serious. Indeed I welcome the change of heart on the part of Fine Gael in relation to the question of tax reform. I welcome the fact that Deputy Noonan's amendment has been tabled here today as indicative of that change of heart. But there are several points about it which disturb me. First, the suggestion that this House should seriously set about changing the entire nature of our taxation system in one year appeals to anyone with a drop of radical blood in their veins. But, in so far as it is something which is not attainable, in so far as it is something which is unrealistic, I have to say that it devalues the political process if it is seriously put forward in that knowledge. It is all right to put things forward with a sense of reality. I do not believe it is obligation to maintain about oneself a sense of reality. I do not believe it is possible. If I did believe it I would say so immediately and concede the issue absolutely without demur. It is not possible to change the nature of our income tax system in one budget. It is not possible to turn about the tax system in one year to the extent of £660 million. Figures, such as the one implicit in my amendment, would be very difficult to attain, would require considerable alteration of the tax base and curtailment of public expenditure in one year to bring them about. I must part company with Deputy Noonan's suggestion on this basis, that I do not accept — neither do the Progressive Democrats — that it is possible to bring about the radical change needed in our taxation system in one budget.
In substitution we propose now — as we have proposed at all times since the foundation of our party — that a five-year strategy be put in place to turn around our taxation system. Central to the question of a five-year strategy is an identification of the goals and targets of that strategy. Unless you can ascertain, in advance, where you want the taxation system to go, where reform should take the tax system, the kinds of reforms suggested cannot be achieved. Unless the end product which is in view is spelt out there is no point in talking in vague terms about lightening the tax burden or reforming the tax system.
Woolly talk about reform does no good. In this respect I believe that the targets set out by Fianna Fáil in their Programme for National Recovery, which formed the basis of their manifesto for the last general election and which suggested a plausible-sounding target, of putting two-thirds of people on to the standard rate of income tax, was political candyfloss, if I may use that phrase. What was wrong with it is this: when they came into office 43 per cent of people were paying tax above the standard rate. They proposed to reduce that figure to 33 per cent which could be achieved by altering the tax status, the marginal tax rates, paid by 10 per cent of taxpayers. Therefore, what appeared, on the one hand, to be radical tax reform, what undoubtedly would cost very substantial sums of money, is so variable internally because one must think in terms of what is to be the standard rate of tax, how the structure of allowances underneath that standard rate is to be changed in order to bring it about, that kind of concept of bringing X-percentage of people onto the standard rate, which means or involves altering the marginal tax rate of 10 per cent of taxpayers — does not constitute a radical tax reform programme.
I believe absolutely in the proposition that the Single European Act will transform this country. I said so on Second Stage so I will not repeat myself at length here. I believe it will transform this country in terms of not simply our obligations, duties and capacity to manoeuvre in respect of indirect tax but also in respect of direct tax itself. We are in close proximity to a low tax economy. The general trend among OECD economies is toward lower taxation rates on personal income and simplification of those rates.
I believe that our party's proposal for a 25 per cent standard rate of income tax, and an upper rate of 40 per cent, is not simply a luxury, a bauble, a distraction, an ideal or a political mirage put before our people some where on the horizon to be aimed at. Establishment of a tax system, incorporating substantially that structure of tax rates, is an absolute essential if this country is to survive within the Single European Act régime. We cannot go on as we are with the highest initial tax rate of any OECD country, that is 35 per cent, and that does not take into account PRSI contributions to which I will revert later. We cannot go on as we are, with the most sharply progressive tax system going up to rates of 58.5 per cent for people who are on or about the average industrial wage, single people earning in or about that amount. It is deluding ourselves to think that we have, in the last analysis, a choice not to radically reform our taxation system. The Single European Act is coming down the tracks at us like a train; implicit in it is a radical reform of our personal régime of income tax. We cannot avoid it; it is coming at us. The sooner this House gets together, on a cross-party basis, and realises that that is the case, the better it will be for all of us. There is no point in pretending or wishing away what will be the consequence of an integrated European market: once labour, capital and enterprise become fully mobile — as is implicit in the further development of the EC — you cannot have a radically different tax structure in relation to personal, corporate or capital taxes obtaining in one area of the community. Most of all, one cannot have such a system within a small, open economy from which everything can go in and out without hindrance, and from which everything has shown a disposition to move over the past 20 to 30 years. In this House we simply must face up to the question of tax reform. There must be established an all-party committee on tax reform. There appears to be an unwillingness to move unilaterally.
In relation to my proposals I have to say this: I appreciate that any radical tax reform programme, such as that I propose, is one requiring a widening of the tax base. It requires also — and this is most important — a willingness among the political parties in this House to be honest with the electorate about what widening the tax base means. It means either, in general terms, imposing new taxes, bringing areas now exempt from tax into the net, or, alternatively, eliminating areas rendered exempt by means of the tax allowance system we currently enjoy. On all of those fronts there is a requirement for honesty. In that regard I have to say that it is not good enough for political parties to suggest all the good sides of a radical tax reform, including reduction of marginal rates of taxation, if they are not willing to deliver on the other side, that is to express the bad news as well in clear understandable terms to the electorate.
That is why when it came to tax reform the Progressive Democrats made it very clear that we acknowledged that property tax would have to be part of a radical tax reform system which involved widening of the tax base. It was not an easy thing to do. We did not wait for an all-party committee to indicate our willingness to impose a different form of taxation. If Fine Gael are to come this far on radical tax reform they must take the next step and show a willingness — quite apart from what Fianna Fáil do or do not do or what the Progressive Democrats do or do not do or say or do not say — to put up their own model of a taxation system, warts and all, the down side as well as the up side. That is what this amendment is calculated to do. It is to provide an opportunity for those in this House who believe in radical tax reform to state that that is the case and to give some indication of some of the less popular aspects of how they would defray the shortfall to the Exchequer.
I listened to the debate on the last few amendments and it was very clear to me that Deputy Mac Giolla and Deputy Desmond were effectively tinkering around with the present system of tax allowances. They were doing so from the commendable point of view that those at the bottom of the heap should get some kind of relief. However, I have to say that such a marginal incremental approach which leaves it being the highly progressive nature of our tax system is precisely the route this House should not adopt. We must tackle the other end — the rate structure of taxation — and that is what this amendment is about.
We should avoid tinkering around with the system and providing incremental reliefs because all the same problems are postponed and inflation takes care of every allowance that is given. Inflation does not take care of standard rates being 35 per cent or 25 per cent. The chemistry of the tax system, if I may say that, is much more likely to be profoundly affected by a cross-party consensus, which I believe exists between Fianna Fáil, Fine Gael and the Progressive Democrats, on the nature of the progressivity of our tax system than on a surrender to incrementalism, if I may use that word, which is coming in this House from the Left Wing parties.
If you want the ideological split in this House it is that the Progressive Democrats, Fine Gael and Fianna Fáil — I think Fianna Fáil because we do not hear the soul of Fianna Fáil speaking often, we only hear the ministerial line — take the view that progressivity in Irish taxation is exaggerated, destructive and needs reform. I expect that that is the general view of Fianna Fáil Deputies. The three major parties who represent 80 per cent of the voters and who have a clear consensus on the pattern tax reform should take should speak out and be willing to talk in terms of attacking the highly progressive marginal rates of taxation rather than the incremental reforms which have occurred yet again in this budget.
Implicit in tax reform is a frank acknowledgement of the relationship between PRSI and the tax system. The Taoiseach announced on radio that he now accepted that PRSI was effectively a tax on work. If it is a tax on work it is a tax paid on the first £15,500 of income without allowance. It is the most regressive, anti-work, anti-poor, poverty trap ridden system of taxation that we have. It requires to be taken on and dealt with in conjunction with tax reform. This is the second basis on which I would differ from the remarks attributed yesterday by the press to Deputy Noonan. Unless you tackle PRSI and income tax together, first you will create injustice because if you reduce the rates and fiddle around with the tax allowances there will be so many losers at the bottom of the heap who are paying PRSI that you will find a popular revulsion against radical tax reform.
Secondly, in their approach to this issue the Progressive Democrats dealt with PRSI as if it was a part of the general tax structure. We decided that it should be, as the Commission on Taxation suggested, merged into the general tax structure as an integrated component part, that it should effectively be the social security element of taxation, apply on all incomes and not have an upper limit. We also decided that, in the process of dismantling PRSI as it presently applies, for various technical reasons to avoid there being too many losers in a programme and strategy for tax reform, you had to concentrate on employees' contributions first even though economically it might be preferable to go to employers' contributions. By giving relief on employees' contributions you can, in fact, give the poorest people at the bottom of the heap a concession which reducing the higher rates of tax and consolidating them at 40 per cent and 25 per cent does not allow you to do.
That is why we took that decision and why, in the papers we have used politically and internally in our party, the PRSI element paid by employees has been brought to centre stage in the tax reform equation. It would be a mistake to think that we could go about the business of radical tax reform without considering the employee's contribution on PRSI because you would do precisely what Deputy Noonan was talking about — create a considerable group of losers at the bottom of the heap. Anybody's view of social justice will revolt against a system that ends up giving more to the 58 per cent men, the 48 per cent men and the 35 per cent men and hammering the people who are at the bottom of the heap.
I also want to say something about another aspect of the amendment that I proposed. The House will note that there is not a radical proposal in respect of allowances or bands in it. I have to say to the Minister — and I hope he will allow me wear my lawyer's wig as well as my politician's hat on this — that the Murphy decision was interpreted by the late Mr. George Colley when he was Minister for Finance as a very significant constraint on the way in which you could restructure allowances. In the event, a highly simplistic model of doubling the band on the allowance at any given stage to a married couple rather than to a single person was the model chosen. That was a highly simplistic view of the requirements of the Exchequer laid down by the Supreme Court in the Murphy decision. I do not accept that it is necessary to give a married couple twice a single person's allowance. I do not accept that that is the case because I believe the way around it is to bring in the concept of earned income.
The Murphy decision is only authority for the proposition that, if two working people get married, they should not be worse off than two working people who stay single and cohabit. That is the high tide mark of that decision and it does not mean — and this is very important from the point of view of Irish taxation, philosophy and policy — that a married man, because he is married to a woman, or a married woman because she is married to a man, gets double the allowance and bands that a single person gets. That is not implicit in that decision and failure to understand that at that time contributed to the general pressure for a highly progressive system of taxation. Once you got to the stage where you felt compelled, by a Supreme Court decision, to double tax bands for married people over what is available to single people, it put immense downward presure on the tax system generally and prevented the widening out of the tax bands and the dismantling of our highly progressive system.
Therefore, one component I suggest for radical tax reform is a reassessment of the effect of the Murphy case. In that context the approach I am adopting here should be applied, but perhaps this is too generous as well. We need to reintroduce the concept of earned income relief and make that central to our tax system. I believe from what Deputy Noonan says that he accepts our fundamental tenet that the tax system must be conducive to work, to economic participation and, in that context, to give double the tax allowance to a dependant over a single participant in the economy is flying in the opposite direction.
Deputy Noonan in speaking about The Workers' Party amendment — but I think he was talking more about his amendment here — used the phrase: "Tax should no longer be considered as a residual". I agree with him fully on that. It should not be considered as the residual in the public accounts, nor should it be considered as a residual as far as the individual earner is concerned. In relation to the individual earner there is a tendency on the part of the tax establishment — if I may use that phrase — to see income as something determined separate from tax. The tax driven level of renumeration is not a concept which this House has really played around with or grasped fully. The fact that people make their decisions as to remuneration, as to what they offer other people to work or what they seek for their own work, conscious of the tax element, is a point which seems to have been lost on what I refer to as the tax establishment. They feel income is not driven by taxation; I believe it is. It is governed to a substantial extent by levels of tax which prevail at any given time and on that basis many fundamental mistakes have been made.
We have put in place a system which between PRSI and PAYE has changed the climate for enterprise and work dramatically in the past 20 years. Deputy Bruton put forward a White Paper at the time of the last budget for which he was responsible in which he pointed out that in the 20 years from 1965 to 1985 the amount of tax on work, payroll taxes, PRSI and PAYE, the predecessor being the stamp, PAYE and tax on income, had doubled from 23 per cent of our tax take to 46 per cent and that in those two decades the amount of taxation on property, for instance, had gone down from 16 per cent to less than 4 per cent.
Those figures are frightening because unconsciously this community through their Legislature doubled the emphasis of tax on work. Look at the amounts of money income tax accounts for expressed as a percentage of GNP. From 1977, halfway through that period, to 1988 it has effectively doubled from 9.3 per cent to 15 per cent odd, and that is only half the story because it was worse before that.
The point I am making is this. According to the NESC's strategy report up to 1991, a person on one and a quarter times the average industrial wage, which would include many bank clerks, people at £14,000 level, teachers starting and the like, will represent a payroll cost to his employer for every £1 he takes home in pay of £2.10 approximately. That is the ultimate sign of a society that has turned its back on enterprise and employment. I agree with what has been said from the left — and not only from the left; it has been said by many distinguished academics such as Dr. Seán Barrett of Trinity College — that this country gives huge subsidies to capital, property and industry, but, any society which says that if you want to give a man £1 to take home in a relatively modest income you must lay out £2.10 has indicted itself as an anti-work economy. That figure is probably higher now.
The essence of radical tax reform is a willingness to accept honestly the implications of broadening the tax base. It is a willingness to accept that there will be costs, to take on vested interests which most certainly will be there, to flout taboos such as the sacrosanctity of real property which as a community we have shown unwillingness to do until now. The essence of tax reform is a willingness to be radical. The purpose of tax reform must be to open up this economy and ensure that everyone has an incentive to participate.
In the 25 per cent and 40 per cent rates I believe as a matter of intuition that nobody should be asked to give up out of his last marginal £1 more than 40 per cent. Bear in mind that if he spends it on luxuries, higher rated VAT things or whatever, he is going to give more tax to the State. Every £1 everyone earns at the margin should be worth more to him than to the community. A society that forgets that fundamental ethic gives up on the work ethic.
If Fine Gael are coming aboard the ship of radical taxation I say, without rancour, they had better face up to the fact that there is a down side. You have to put your head above the political parapet and risk getting it shot off, or at least injured, if you are going to be a proponent of radicalism. You cannot seek an all-party committee as a panacea for all the problems attached to radicalism in tax reform. You must be willing to spell out the general thrust at least of where you believe change must occur. Deputy Noonan has brought Fine Gael a significant length and I congratulate him on it. He has brought Fine Gael around to a viewpoint different from the one they had. I remember standing on platforms and outside churches being told in scornful terms by Fine Gael people that 25 per cent and 40 per cent tax could never be achieved, was wishful thinking and should not be attempted. I also remember some speeches from the then Minister, Deputy Bruton, attacking us in the most merciless way as electoral fraudsters for being willing to propose radical tax reform. We survived that and we are here in this House changing the view of this House. We have put pressure of a kind on Fine Gael and they are now changing their attack. That is what politics is all about and I accept the Deputy's right to hunt about in our clothes rack if he wants anything that he thinks will suit or fit him, but I suggest that if he is going out on a clothes buying expedition he should come out with a full wallet politically and be willing to pay for the clothes he takes.
For instance, those who have taken the initiative and suggested a property tax should not find their courage on the matter circumvented cutely by Deputy Noonan who says he is in favour of everything they are in favour of but that an all-party committee will tell him how it can be paid for. He has to come one stage further than that if the all-party committee are to be of any use. It cannot be an occasion when those who are really radical are outmanoeuvred by those who are only faint-hearted radicals.
I am asking Fine Gael on this occasion to continue with the good work, to continue to approximate to Progressive Democrat policies, to continue to make party political co-operation this way and across the House more possible. I am asking the Minister to take on board that fact that there is now a consensus for radical tax reform. Curiously enough, he would not have it if there was a snap election now and his party got more seats. With Fianna Fáil, Fine Gael and the Progressive Democrats he has 80 per cent of the support of this country and he has more room to manoeuvre than ever he will have in future. I am asking him to take advantage of that opportunity because, even if it goes for another year without being taken up, political circumstances will set in which will make it much more difficult for him to attend to it.
There is no doubt that 25 per cent tax and 40 per cent tax are coming in and will be either shoved down our throats or accepted willingly. It is up to us as legislators to decide.
(Limerick East): I welcome Deputy McDowell's speech, which is very supportive of the arguments I have been making. I should like everything I am about to say to be taken as following from the contribution I made on amendment No. 1. There is no point in repeating the same arguments when other Deputies want to become involved.
I draw the attention of the House to an article by Cedric Sandford in the Financial Times of Tuesday, 12 January 1988 which states:
Ironically, the worse the tax system to begin with, the more the chance of successful reform. The more discontent with a tax system, the more tax reform will be welcomed, or at least accepted. This goes some way to account for the degree of success in the US, where tax shelters had got out of hand; and in Australia and New Zealand, where very high marginal rates of income tax were being paid by the ordinary working man.
Does that not sound very familiar? Could we not substitute Ireland for the United States, Australia or New Zealand? Certainly we have fulfilled the first requirement. We have a very bad tax system to which the majority of taxpayers object and, consequently, there is a movement of people who are willing to examine proposals for reform. The article continues:
Broadly speaking two approaches to tax reform can be distinguished — the incremental and the package. To civil servants the incrementalist approach is always attractive. It means working in known territory; less danger that tax revenue will fall; less fear of congestion and overwork in the Revenue department. But incrementalism has its disadvantages. It is necessarily slow; and it may be much less successful. Unless a Finance Minister has money to give away, an incrementalist approach invariably means some clear losers. Often the benefits are spread but the losses concentrated; and the losers will shout loudly while the beneficiaries will hardly be aware of their good fortune.
That makes the point for a package approach to tax reform rather than an incremental approach.
I welcome Deputy McDowell's acceptance of the idea of an all-party committee. He has said this is unattainable on a one-year basis. Unless tax reform is approached in a very definite timescale which is not too long, then the impetus for it and the political support will dribble out as the years go by. To introduce a series of proposals now which would only be effective over a five-year period is to take the incremental road. There are so many crossroads, turning points and milestones along that road, politically, economically and financially, which could occur over the next five years that the initial impetus would not last and we would not achieve the reform we are talking about.
Deputy McDowell has asked where the resources are to be found. I have never suggested that there are hidden resources out there which we have not identified, some crock of gold which will yield over £600 million to be applied to tax reform. That is not the position. I am talking about identifying resources in one area and applying them to reduce income tax to a 25 per cent standard rate and a 40 per cent higher rate. I have indicated the areas for examination. Enough time and enough words went into the report of the Commission on Taxation. A variety of options are identified in the first report on direct taxation. I have already said that in respect of personal allowances, mortgage interest, medical insurance, life assurance, employee and PRSI allowances the total tax foregone is £622 million, according to a reply I received on 2 February 1988. I am not advocating this as the area where we should find the resources but I am open to suggestions.
Deputy McDowell talks about a property tax. We have put down a marker on property tax. We do not think the rates work very well. The old rates were iniquitous but that is the only thing which our spokesman on the environment, Deputy Boland, has ruled out in that area.
Deputy McDowell talks about the courage to put the head above the parapet. We put the head above the parapet 12 months ago when we forced on a very reluctant electorate and a reluctant Opposition who are now in Government the reality that the magnitude of the national debt and the problems of servicing it were inhibiting growth in our economy and that we had do deal with that problem, regardless of what happened. Deputy McDowell says we will not put the head above the parapet because it might be blown off or injured. We put the head above the parapet during the last general election and we had 19 people who were shot to death because they lost their seats.
It was not done lightly to put at the centre of the debate the key issue of the control of debt. Deputy McDowell in that war ended up with 14 commissioned officers. When one has gone through war and has had casualties one knows the risks of putting the head above the parapet. That is not the reason we are not itemising where this money is to be found. We are saying there are areas to be considered. The Minister might have different views and Deputy McDowell's party would have some different views. The left-wing parties certainly would have different views.
Tax reform is not so much an economic or financial problem as a political one. We need a political structure to deal with the taking of resources from one area to apply to another. That is what I am trying to construct here. The best way to do it is to apply the strategy which has been successful for the past 12 months in this House. We need to extend to the area of tax reform the consensus which exists on the control of debt and the need to reduce the Exchequer borrowing requirement. That consensus has been achieved between Fianna Fáil, Fine Gael and the Progressive Democrats who make up over 80 per cent of the membership of this House. Let us see in Committee if we can agree strategies which we could not agree unilaterally for fear of one side bushwacking the other. Has this not been the problem which has faced us for years? As soon as Party A propose any policy which offends some, Party B support those who are offended. It is one of the great truisms of Irish politics that Mary does not vote for you because you kicked Mick. If the Government kick Mick, the Opposition back Mick.
Can we apply the obvious resources in this House to the idea of an all-party committee? We need reform and I have outlined the kind of reform that is necessary. The resources are available but we must identify them and then take the political decisions to apply those resources to reduce the rates. It is not a job for accountants but for politicians. All the information is there but we must apply it for political decision-making. If there is no consensus, the committee will break down and then we will know it is not possible to get tax reform by consensus in this House. On the other hand, if it succeeds we might go part of the way or all of the way, or we might even go beyond the targets I have set. Really we have to match the UK system where the standard rate applies right up to approximately £19,000 for a single person.
The second political input which I have in mind is something that Deputy McDowell took up as well. As I see it, and our experience in Government would support this, the ultimate variable is the tax system. The process of decision-making decides what will be done with health, what will be done with education, with agriculture, in industrial policy and so on. There was great fun and it was marvellous in the late seventies in that Government where people with undeserved high reputations served as Ministers. Then the variable was borrowing, so one could decide what one liked inside in Cabinet and it did not get chucked across on top of the taxpayer but filtered out into increased borrowing. It was marvellous sport altogether and it was grand making decisions in those days. The economics of digging holes and filling them up again was great fun; directives were sent out to the health boards and county councils all around the country asking why they had not taken on their 30 extra workers for the month of July.
Deputy Desmond who is a great man for having Government memoranda to which he refers on occasions can, I am sure, produce the correspondence from the various health boards around the country. The county councils receive a letter asking why they did not take on the 30 extra employees for that month. Back comes the reply that first they have no tables for them, second, no chairs on which they can sit, third, no offices in which to put the chairs and tables if they had them and, fourth, there is no work for them anyway. Another letter then goes down from the Minister for Health saying that it is Government policy and they must be taken on anyway. That was the economics of the late seventies and I am quoting an actual example without naming the health board.
Or naming Deputy O'Malley.
(Limerick East): Did that hurt the taxpayer? Not on the day anyway, because all that happened was that more borrowing was done and the borrowing paid for it. We have departed from those heady days now. We do not have the alternative variable of borrowing; we are controlling the borrowing. So there is only one variable left — tax. It varies in one direction, upwards. Even the Minister's modest proposals would cost £91 million this year and £152 million in a full year. If one runs the table of little tax increases which the Minister has introduced in this budget it works out at around £90 million.
The reduction in the rebate of VAT to farmers, the 5 per cent VAT on electricity, the proposal on cash cards which is now dropped and will be substituted for by the bank levy, the £30 million which came across from the ESB which is not a tax but a once-off payment from the ESB, the imposition on pensions work out at around £90 million as well, and I am sure would reach £150 million too if we could extend them over the full year. So there is no give away on tax. It is substitution of one form of tax for another. My question is: why should tax be always the variable? One would not run one's own house that way. One would not decide to make all the spending decisions first, to buy a microwave, a new video, new furniture and carpets and then decide on the level of pay to pay for all these things.
One would not have an all-party commitee either.
(Limerick East): Not in my house anyway. No one could operate on that basis. I know analogies between domestic situations and affairs of State are frequently fallacious and I accept all that, but it makes the point. Why not do as has been done in other countries? When, in the teeth of the most massive opposition, the people took it into their own hands in Massachusetts with proposition 2½ and in California with proposition 13 to take property taxes down by 50 per cent, the politicians and the interest groups and the lobbies all said it would break the State, that it could not be done. It was done and it did not break the State and the impetus for growth that was put into places like Massachusetts and California gave them the greatest growth rates in the United States as a result of tax reform, and Dukakis is a very strong contender for the Presidency.
So the proposition I am seeking to write into the Finance Bill that for the 1989-90 tax year we should have tax rates of 25 per cent and 40 per cent is an attempt to introduce by statute the kind of obligation on a Government which was introduced by referendum in some of the States in America. I am doing this in an attempt to point out that tax does not need to be the variable, that we could decide our tax rates and the amount we collect in tax, and expenditure decisions would become the variables; it is a reversal of the abymsal approach to governing this country.
Other people want to get in here. Deputy Mitchell wants to contribute to point out to Deputy McDowell and the Progressive Democrats that we have not forgotten about PRSI. Deputy Mitchell outlined a very significant package of proposals on PRSI here in this House on the Social Welfare Bill. The proposals on tax and the proposals we have made on other cost factors in the economy are to be taken as part of a package to try to relieve the road blocks to growth in this economy and to increase employment, reduce the dole queues and cut emigration. It is a continuum of policy. There are no contradictions; one is the development of the other. I take Deputy McDowell's point. I know exactly what he is talking about. Unless something is done for the lower paid there will be a lot of traps put in and we will guarantee that in any tax reform system we will create a myriad of losers which will make it politically impossible for the decision to be taken.
To sum up, I am trying to construct a political framework within which we can take decisions to reform tax. I believe those decisions are absolutely necessary to growth in the economy and consequently they are absolutely necessary in fulfilling our objectives of having more people at work and fewer people unemployed. To do that we need consensus in this House. We have it applying to the debt problem already; let us apply it to tax reform. Let us go further and borrow from the experience elsewhere and underpin that by a statutory obligation to achieve targets. Then let us examine all areas including all the proposals of the Commission on Taxation together with areas of public expenditure if people think further cuts can be made in ease of tax rates, and let us see if there is consensus between that side of the House and this side of the House and the Progressive Democrats. I am sure Deputy Desmond, whose heart is in this, will encourage us from the sidelines if he cannot come along with the proposition. That is what I am talking about. It is not fancy footwork. It is an attempt to apply a political solution to what is a political problem.
In essence the amendments before us today are about tax, but what lies behind the import of the amendment is jobs. It is clear that one of the greatest impediments to job creation here is the level of taxation, as has been so eloquently stated by Deputy Noonan here today and yesterday in his statement and, indeed, by Deputy McDowell. The penal levels of taxation when combined with the PRSI charges both on employers and employees are the single biggest impediment to jobs and to enterprise. That is why we have never got the levels of growth here that have been achieved throughout the rest of northern Europe.
It is worth recalling that not just in the past five or ten years but over the past 60 years since independence, we have never achieved even half the level of growth of the rest of northern Europe, even in the heady days of high growth in the sixties. We are alone among the 13 countries in that league. There are high fliers in Northern Europe and there are middle fliers but there is only one low flier and that is ourselves. That is the reason we have never been able to create full employment. It is why we have had to rely on emigration as a solution to our unemployment problems for so long. Admitteedly, there was a short period when emigration actually stopped and there was the reverse, there was some immigration for a few years. If we do not get growth we will not get jobs. It has been estimated that we need at least a 4 per cent growth for the true unemployment figures to remain static, that is assuming no distortions of emigration, no distortions of Jobsearch type schemes or no distortions of, for instance, pre-retirement schemes — taking people off the register — so that one is not comparing like with like.
Given that we have 250,000 people unemployed and still have a very low female participation rate we would need much higher rates of growth if we were to take up all the slack in this economy and to relieve much of the hopelessness and despair which is now a fact of life. Therefore, the proposals contained in the amendment tabled by Deputy Noonan are not, as The Irish Times stated today in its editorial, half thoughts. In the light of what Deputy McDowell has said, the agreement of the Progressive Democrats to the all party committee suggested by Deputy Noonan, is a very significant step. I hope that The Workers' Party and the Labour Party will also agree to it so that they will not feel excluded and that there can be a genuine effort at an all party solution.
There are precedents for this. In Denmark where they have had a minority government for many years they have managed to create tens of thousands of jobs. That minority government recognised that they were a minority government and set up a very effective all-party system in their parliament to the extent that before Ministers can agree to anything at Council of Ministers meetings in Brussels they must revert to their all party parliamentary committee. That has worked wonders for Denmark where in excess of 100,000 extra jobs have been created over a short period. Regarding job creation we need to be speaking in terms of at least that scale, if not greater.
The OECD has said that Ireland has the income tax cum social welfare system which is most biased against employment. It can be no surprise, therefore, that we have the highest unemployment rate of all of the OECD countries. Why is this? It is because of the way we have done things. Certainly it is because there has been excessive borrowing in the past which now has to be repaid at high levels of interest although these rates have reduced significantly compared with what they were. That means the pre-emption of money which could otherwise be used to invest in the economy. Much of the borrowing in the past was used for purposes which showed no return and therefore yielded no income to pay off the debt. That debt is an albatros around our neck and a continuing difficulty though, as Deputy Noonan has said, very welcome progress has been made in the past year because of the strategy laid down at Tallaght by the Leader of the Opposition, Deputy Dukes, and because of the magnificent U-turn the Fianna Fáil Party made on assuming office. We now need to develop that consensus.
As Deputy Noonan has said, we should not see this particular amendment in isolation. If it were to be treated in isolation a number of adverse things could be said about it. It could be said that it favoured the better off but if it is taken in conjunction with the PRSI and other amendments which we put down to the Social Welfare Bill a few weeks ago in this House, it will be seen that the overall package is a very significant one. It is not yet complete because there are other areas that have to be addressed particularly in the area of social legislation where the changes are not having the effects they were designed to have.
In those amendments to the Social Welfare Bill we addressed precisely the question of the penal imposition on the lowly paid of PRSI and how that affected them compared with those in the social welfare system. We proposed an amendment to allow the Minister to exempt by regulation the first £1,000, £2,000 or £3,000 or whatever of income and we also allowed him to compensate for that by increasing the upper limit, if he so wished, rather than have the £16,200 limit we have at present. The Minister did not take on board that amendment even though it would not have forced him to do anything. It would have given a great deal of flexibility to the Government. I thought it was a very sensible amendment — I tabled it. On reflection the Government might wish to bring in a measure of that sort even this year. It gives a great deal of extra flexibility in the area of the imposition of PRSI, on how PRSI affects particularly those on low pay and affects the relativity and replacement registers as between low pay and social welfare.
These amendments were connected with our amendments on the family income supplement which is assessed on the basis of gross pay and not net pay, thereby creating a major anomaly. A person on social welfare gets into his hand a social welfare allowance. A person in employment does not get gross pay into his hand, he gets his net pay and that is what has to be compared. Very frequently because of the anomaly of using gross pay rather than net pay, under the family income supplement, a person on social welfare, especially if they have a family, can be better off on social welfare. Therefore there is an impediment to work because you cannot expect someone to go out and work for less than he will receive on social welfare.
Similar amendments are needed to measure the differential rent and general medical services card areas so as to affect relativity between work and social welfare. Those changes would have greatly helped the lower paid.
Our second proposal — and this is not original because it was proposed by the Commission on Taxation — was that we should not tax labour in our circumstances, even though people will rightly argue that the social security contributions of employers here are not at a particularly high percentage compared with some other countries. That is not the point. Other countries do not have the huge unemployment problem we have. Because of the 12½ per cent tax on payroll there is an enormous incentive for employers to move expenditures off payroll so that it will not attract the 12½ per cent tax, and pay it in allowances such as travelling allowances, meal allowances etc. or, perhaps, to employ people in the black economy. We proposed a social security levy on company turnover in lieu of part or all of the present payroll tax. That was a very radical proposal. It was not new, though the idea of using the company turnover as a base was new. The idea of a social security levy rather than an employer's contribution on payroll was not new.
Those amendments to the Social Welfare Bill were the first instalment and these amendments today are the third instalment of a developing radical policy in relation to employment. It will not work unless it is very radical. Without being churlish I have to say on that point that we did not get the support of those parties on this proposal, nor were there any amendments from any other parties although there were very worthy contributions from Deputies Bell, De Rossa and Wyse. The all-party committee — if it is agreed on, as I sincerely hope it will be — ought to look at all the areas creating road blocks to the generation of growth and the generation of jobs.
I was talking yesterday to an economist, in the aftermath of the announcement of Deputy Noonan.
Was Deputy Noonan talking to the economist?
Girls, behave yourselves.
When discussing Deputy Noonan's proposal, that economist, who would probably admit to a left of centre disposition, has been posting the question——
Maybe he is dead.
(Limerick East): Is there any self-respecting economist of that disposition left in the country?
Left of centre disposition people are very rare in Ireland. I would love to know who he is.
The Deputy can say that, yes.
(Limerick East): That is like double-jobbing, Barry.
I want to make a serious point here, although I always enjoy conversation, even of a public nature, with Deputy Desmond. The point that that economist was making, which was also made by another economist, I think in The Sunday Tribune, some weeks ago——
Right of centre.
Yes, he was right of centre. The point that they were both making was that if we are getting an increases in industrial production and getting inflation down — this was an achievement of the last Government — and if we have a balance of trade surplus, which was achieved by the last Government——
A great job altogether.
——why then is all this economic growth——
Two hundred thousand unemployed is the achievement of the last Government.
——and if our State companies are all making profits compared with losses in 1982, which was achieved by the last Government, why then is the benefit of this not being reflected out on the street? Why is it not being reflected in much lower unemployment figures?
Higher opinion polls.
The Minister for Finance will want to hazard a guess at the answer——
If I get a chance, I will.
——but no economist has come up yet with the answer to why it is not reflected in increased jobs. The answer must be what the OECD have already identified as our total bias against employment in our social welfare and taxation systems. I hope that the proposals made by Deputy Noonan will enjoy the support of other parties, including that of Deputy McDowell, who has already indicated a general willingness to participate in an all-party committee. Unemployment is the major problem that faces us.
It is running very late and we finish this debate at 7 p.m. First, I agreed with many of the points made by Deputy McDowell in regard to high tax on labour as against low tax on capital. This is a point that we have been making for many years. It is time that it was addressed. However, I am afraid I cannot support Deputy McDowell's amendment which is simply, particularly in the higher bracket, reducing the rate of tax from higher incomes.
Deputy Noonan's amendment, apart from his proposed changing of the tax bands, proposes an all-party taxation committee. In his opening remarks on my amendment to section 1, he dealt with many issues. He made gestures about agreeing with the possibility of a large amount to be taken in property tax and such like. It sounded quite good, that he was prepared to look at all the areas where tax could be taken, to make up for lower amounts taken from the PAYE taxpayers. We have always said that that is precisely what we would like to see done. We would like tax bands of the nature proposed by Fine Gael for workers. However, we would clearly not want to see that amount made up, as Deputy Noonan was suggesting at his press conference and subsequently, by cuts in Government expenditure, more people now being allowed to do overtime or take a second job. Double-jobbing would be all-the-go for people on the higher tax band. When they would not have to pay so much on tax, they would be doing a lot more overtime and taking second jobs, which would mean fewer rather than more jobs being available for the unemployed.
I am worried about the proposals on what the all-party taxation committee should be doing: specifically, first, not to increase the current budget deficit — and we would go along with that — but, secondly, to examine the overall levels of public expenditure. When he was speaking on this amendment Deputy Noonan said much about the variables and changing the attitudes of Ministers for Finance. Instead of collecting enough money to keep things going, you decide to collect a standard amount of money and then see what you can do with that. Deputy Noonan should realise that the variables are in our society, that the variables are there before us. More people are becoming unemployed, and does he say that from now on if there are another 100,000 unemployed we shall not give them anything, we shall allow the Minister for Finance to have the standard amount as now? Does he say there is no variable in social welfare, that we will not increase benefit as unemployment increases, that we will stop at 100,000 people, that any number over that gets nothing? Does he say that there are no variables in education, that with increased the numbers of children you do not increase the numbers of teachers, but just manage on what you have? Similarly, if there is more poverty and more health problems, you do not increase the services to those people, but just carry on with what you have? That is absolute nonsense. That is not how you run a society. It is how you might like to run a business, with ruthlessness, where you do not care what happens to anybody so long as you make profits.
That raises the point about which Deputy Mitchell was talking, that when there are increased profits and low inflation, how is it that there is not change in the number of jobs? A very good example of that, Deputy, would be to look at the Fitzwilton report published recently. Their profits went up from £176,000 in the first six months of last year to £1,008,000 in the second six months of last year, all without the increase of one job. That profits go up does not mean an increase in jobs. That sort of nonsense is being peddled to us here all the time. We are being told all the time that we should allow the climate to be right. The climate is great for making money, but it is not great for making jobs. When people get the right climate in which to grab money they will do so.
Deputy Noonan referred to the amount of tax foregone by the State and said that it amounted to about £600 million in reliefs for employees. There was also £900 million at least in tax foregone for reliefs to businesses and industry and so on. They also get a further £400 million in grants and subsidies. That amounts to £1,300 million in tax reliefs, grants and subsidies to private sector industries. That is never noted. All we note is the few hundred million pounds that goes to the semi-State companies. The private sector, instead of investing this money and developing new industries, agriculture, the seas and the forests, want to grab and privatise the public sector enterprises that are doing well.
The State is wide open for development and expansion but the reason we cannot develop and expand is because of the attitude of the private sector which is to take whatever money is going and shout about getting the State off their backs. How would they feel if the State got off their backs and did not give them the £900 million in tax reliefs and the £400 million in grants and subsidies? In that event we would have money for education, for health services and for social welfare. Only for the State the private sector would not be in business at all. We must keep that fact before us when talking about tax reliefs, benefits and jobs.
Everybody says that what they are doing relates to jobs but I am saying it is not about jobs. Tax relief for somebody going into the new financial services centre should be based on the production of jobs. Since last year the Minister began thinking like this, that all grants and subsidies should be on the basis of projects and on the basis of results. A firm might get a grant this year but if they do not show results they will not get it next year. That attitude should also prevail in relation to tax reliefs and benefits and then we would see jobs created.
I cannot accept that Deputy Noonan in his amendment is going to make up the £600 million tax which would be foregone from some other sectors if this amendment is accepted. The Deputy did not show in his amendment where he would increase taxes to make up the £600 million which would be foregone and that is where the amendment falls.
I would go along with the idea of a taxation committee as there are a number of areas in which agreement could be reached, but——
A Deputy
Hear, hear.
——it is not feasible to get into that on this Finance Bill. If the Deputy cannot show where tax can be increased in another area, the amendment is out the window. The budget has already been passed and the plans are made for the year. If the Deputy suggests an amendment cutting £600 milliion he must balance it up in some other way.
(Limerick East): The date in the amendment is 1989-90. It is not a current year proposal.
The Deputy has not given any indication where even in the future we might make up this £600 million. The cut will probably be made up in public expenditure. I cannot go along with the prospect of more cuts on top of the cuts already implemented by both the Minister for Health and the Minister for Education.
I will keep an open mind on the proposal for an all-party committee on taxation as some benefits can come from it. However, I cannot support this amendment on the basis of the programme put before us by Deputy Noonan and on the basis of the other amendments which are being put to this Finance Bill.
Many things have been raised since we started this debate at 4 p.m. not only on these amendments but on others to section 1. First, I refuse the criticism of this Bill that there are very few tax reform measures. We have gone a significant way in tax reform, in relation to income tax, corporation tax, capital taxation and the problems of tax evasion, tax collection and enforcement, despite all the difficulties we face in the budgetary finances. In the case of income tax we have given more than three times greater than what was contained in the Programme for National Recovery and when £30 million would have done we have given £90 million this year and £152 million in a full year, bringing nearly 63 per cent of taxpayers to the standard rate when we gave a commitment just over a year ago to have 66 and two-thirds of the population on the standard rate as soon as is possible. We have come as far as 63 per cent in just one year. Indeed, this is the first year for a considerable number of years when there has been a significant reduction in the number of people on the higher rates of tax. Apart from a short lived period in 1980-81 due to the implications of the Murphy decision, the trend has been moving up from about 3 per cent of taxpayers on the high rates in 1974-75. Following the Murphy decision this went up to 12 per cent and represented 14 per cent in 1981-82, 40 per cent in 1983-84, 42 per cent in 1984-85 and in 1985-86 there was a marginal drop to 40 per cent, moving to 42 per cent the year after and rising to 45 per cent in 1987. This year the figure will drop to 37 per cent, a drop of 8 per cent. That is significant progress, not to mention the corporation tax, the self-assessment collection system, power of attachment and all the rest.
Turning to Deputy McDowell's amendment and discussions about the consensus that exists in the Dáil for radical tax reform, that would exist if one asked a child in the street but where are we to get the money? Not one person in this debate so far has told us where to get one pound of the amount of money needed. The amendment proposed by Deputy McDowell would cost £107 million this year and £179 million in a full year. It is out of the question and it could not be tolerated. The proposals put forward in Deputy McDowell's amendment which now does not include any committee or anything else——
(Limerick East): Deputy Noonan, you mean.
Deputy Noonan's proposal only proposes to reduce the tax rates to 40 per cent and 25 per cent and it would cost £660 million.
(Limerick East): £661 million.
This is a prime example of the thinking which got this economy into such serious trouble in the period up to 1987. There can be no return to self-delusion. Fine Gael are giving the impression that we can now afford to relax to some extent in dealing with the borrowing and debt problem.
(Limerick East): That is unfair.
Nothing could be further from the truth. While considerable progress has been made since this Government came to office, we are not out of the wood yet. A major gap remains to be bridged to reduce Exchequer borrowing and debt to sustainable levels. This year we will borrow £1,457 million and the debt-GNP ration is still rising. Against this background a sizeable budgetary adjustment, probably of the same order of magnitude as in 1988, will again be needed in 1989. The proposals in this amendment have to regard to the budgetary position.
(Limerick East): They have.
Even if all of us were in full agreement on the precise tax reductions to be made, and on the measures to be taken to finance them, the proposed package would not reduce the Exchequer borrowing by even £1.
(Limerick East): That is correct.
That is the reality. We must now begin to look at what would be needed to come any way near implementation of this proposal costing £60 million. Mortgage interest relief would be gone — £160 million. Deputy Noonan and Fine Gael opposed a modest reduction in that last year. The VHI relief costing £48 million would be gone. Life assurance relief which cost £44 million would be gone and lump sum retirement allowance would be taxed which would cost £49 million. Is this what Fine Gael have in mind or do they envisage imposing a 15 per cent VAT rate on food? An alternative option would be to charge social welfare to tax which would bring in £76 million. If we were to put a VAT rate of 5 per cent on food it would bring in £101 million and a property tax could bring in between £150 million and £250 million.
I will conclude by repeating again what Deputy Dukes as Minister for Finance said in 1984. He said however desirable it may be to reduce taxation this cannot be done on a significant scale, if at all, until current expenditure is reduced and the current budget deficit eliminated. We are a long way from that and I must say that I am disappointed that such glib proposals in relation to tax reform have been put forward. The greatest efforts on tax reform in recent years, definitely in my time in the Dáil, have been made by this Government.
(Limerick East): On a point of order, for procedural reasons, I am withdrawing all amendments down to sections 1 to 7, inclusive, in my name and I give notice that I will be resubmitting them on Report Stage.
As it is now 7 p.m. I am required to put the following question in accordance with the Order of the Dáil of this day: "That the amendments set down by the Minister for Finance to Chapter I of Part I of the Bill and not disposed of are hereby made to the Bill and in respect of each of the sections undisposed of in the same chapter that the section or as appropriate, the section, as amended, is hereby agreed to.
Question put and agreed to.