(Limerick East): Before I reported progress I was urging the Minister to take whatever policy measures are necessary to reduce the differential between Irish interest rates and German interest rates. I had only one final point to make and it arises from what Deputy McCreevy said this morning, something that has been reported by many commentators. I would like the Minister to tell us if it is true that the differential between deposit rates and lending rates in the Irish banking system is significantly wider than that which pertains in the United Kingdom and in continental Europe. That has been said time and time again both in this House and outside it in the last 18 months or two years. If that is so, it is one of the reasons interest rates are higher here than elsewhere, especially in Germany. Should the banking system, either under stress of competition or through better management, be narrowing that margin to bring the practice into line with that in other countries?
Finance Bill, 1990: Committee Stage (Resumed).
I think Deputy Noonan has as good an idea as anybody else as to the differential in interest rates in this country and elsewhere, and the reasons for it. The inflation rate in the UK is very high at 9.7 per cent while the Irish inflation rate is about 4 per cent. Considering that one inflation rate is low and one is high, we are not comparing like with like.
Deputy Noonan is clearly aware of the reasons for the high interest rates. As our reserves continue to improve — as they have done over the past couple of months — undoubtedly the Central Bank will take the first available opportunity to reduce interest rates on the basis that at present there is not turmoil in international exchange rates. There is a downward trend in the United States, and let us hope that world interest rates continue in that direction. Some members of the EC — such as France, Belgium and Denmark — have in recent times made slight reductions in their interest rates and I have no doubt that the Central Bank will take due cognisance of that. It has already been reflected in the short-term reductions in the price of money on the market and no doubt the Central Bank will take the opportunity to reduce the rates at the most opportune moment.
(Limerick East): What about the second point I raised? Is it a fact that the margin between deposit rates and lending rates in our banking system is wider than that which pertains in EC countries? That charge has been made innumerable times here.
I will have it checked.
(Limerick East): That has to be clarified because the charge has been laid several times.
I will get the exact figures and I will give them to the House during the debate.
The House will agree that we got value for money in debating the amendment before us. Is it proposed that I put the question?
(Limerick East): Yes.
Tá
- Ahearn, Therese.
- Barnes, Monica.
- Barry, Peter.
- Bell, Michael.
- Belton, Louis J.
- Boylan, Andrew.
- Bradford, Paul.
- Browne, John (Carlow-Kilkenny).
- Bruton, John.
- Bruton, Richard.
- Byrne, Eric.
- Carey, Donal.
- Connaughton, Paul.
- Connor, John.
- Cosgrave, Michael Joe.
- Cotter, Bill.
- Creed, Michael.
- Crowley, Frank.
- Currie, Austin.
- D'Arcy, Michael.
- Deasy, Austin.
- Doyle, Joe.
- Dukes, Alan.
- Durkan, Bernard.
- Farrelly, John V.
- Fennell, Nuala.
- Ferris, Michael.
- Finucane, Michael.
- Flanagan, Charles.
- Foxe, Tom.
- Garland, Roger.
- Gilmore, Eamon.
- Gregory, Tony.
- Harte, Paddy.
- Higgins, Jim.
- Higgins, Michael D.
- Hogan, Philip.
- Howlin, Brendan.
- Kavanagh, Liam.
- Kemmy, Jim.
- Kenny, Enda.
- McCartan, Pat.
- McCormack, Pádraic.
- McGinley, Dinny.
- Mac Giolla, Tomás.
- McGrath, Paul.
- Moynihan, Michael.
- Nealon, Ted.
- Noonan, Michael.
- (Limerick East).
- O'Keeffe, Jim.
- O'Shea, Brian.
- O'Sullivan, Gerry.
- O'Sullivan, Toddy.
- Owen, Nora.
- Pattison, Séamus.
- Quinn, Ruairí.
- Rabbitte, Pat.
- Reynolds, Gerry.
- Ryan, Seán.
- Sheehan, Patrick J.
- Sherlock, Joe.
- Stagg, Emmet.
- Taylor, Mervyn.
- Taylor-Quinn, Madeleine
- Timmins, Godfrey.
Níl
- Ahern, Dermot.
- Ahern, Michael.
- Aylward, Liam.
- Barrett, Michael.
- Brady, Gerard.
- Brady, Vincent.
- Brennan, Mattie.
- Brennan, Séamus.
- Briscoe, Ben.
- Browne, John (Wexford).
- Calleary, Seán.
- Callely, Ivor.
- Clohessy, Peadar.
- Connolly, Ger.
- Coughlan, Mary Theresa.
- Cowen, Brian.
- Cullimore, Séamus.
- Daly, Brendan.
- Davern, Noel.
- Dempsey, Noel.
- Dennehy, John.
- de Valera, Síle.
- Ellis, John.
- Fahey, Jackie.
- Fitzgerald, Liam Joseph.
- Fitzpatrick, Dermot.
- Flood, Chris.
- Flynn, Pádraig.
- Gallagher, Pat the Cope.
- O'Toole, Martin Joe.
- Power, Seán.
- Quill, Máirín.
- Reynolds, Albert.
- Roche, Dick.
- Smith, Michael.
- Harney, Mary.
- Hillery, Brian.
- Hilliard, Colm.
- Hyland, Liam.
- Jacob, Joe.
- Kelly, Laurence.
- Kenneally, Brendan.
- Kirk, Séamus.
- Kitt, Michael P.
- Kitt, Tom.
- Lawlor, Liam.
- Leonard, Jimmy.
- Leyden, Terry.
- Lyons, Denis.
- McCreevy, Charlie.
- McDaid, Jim.
- McEllistrim, Tom.
- Molloy, Robert.
- Morley, P. J.
- Nolan, M.J.
- Noonan, Michael J.
- (Limerick West).
- O'Connell, John.
- O'Dea, Willie.
- O'Donoghue, John.
- O'Keeffe, Ned.
- O'Kennedy, Michael.
- O'Leary, John.
- O'Rourke, Mary.
- Stafford, John.
- Tunney, Jim.
- Wallace, Dan.
- Wallace, Mary.
- Wilson, John P.
- Wyse, Pearse.
An Leas-Cheann-Comhairle
Amendments Nos. 2 to 4, inclusive, are out of order in so far as they would involve a potential charge on the Exchequer.
Amendment No. 5 in the name of Deputy Rabbitte. I ask the indulgence of Deputies while I indicate what it is proposed to do in respect of this amedment. Amendments No. 7, 15 and 17 are consequential on amendment No. 5. Amendments Nos. 6, 8, 16 and 18 are alternatives to amendments Nos. 5, 7, 15 and 17 respectively. Amendments Nos. 12, 19 and 22 are consequential on amendment No. 9, and amendments Nos. 11, 14, 21 and 24 are alternatives to amendments Nos. 10, 13, 20 and 23 respectively. In short, it is proposed to take amendments Nos. 5 to 24, inclusive, together for discussion. Is that agreed? Agreed.
I move amendment No. 5:
In page 11, paragraph (a) (ii), line 22, to delete "£6,500" and substitute "£10,000".
We have just spent a long time dealing with the question of interest relief on mortgages in the context of a wide ranging debate on tax reform. I submit that the subject matter of amendment No. 5 deals with tax reform at the other end of the spectrum. In other words, we are dealing with the exemption limit that one is permitted before one is dragged into the tax net. We are talking about tax reform in this context as an instrument of tackling poverty in our society. I submit that it is not possible to talk about tax reform without dealing with the question of poverty and the fact that, ludicrous as it may sound, a great many people are caught in the tax net who are at or below the poverty line.
The Workers' Party amendment proposes roughly that one ought not to be liable for tax on an income just below £100 per week. If Members think about that amendment they will agree that it makes eminent good sense. It is inconceivable that people earning £100 per week or less should be liable for income tax and PRSI payments. A fair amount of literature has been produced on this point. I should like to refer to the recent ESRI report. I do not know if that report was prepared for the Conference of Major Religious Superiors or delivered at a conference organised by them, but it made the point that between 11 and 18 per cent of our people living in poverty pay PAYE and PRSI, and more than half of those people are paying £20 per week income tax. The report made the point that that amount was very significant relative to the total earnings of those people. That may not seem in absolute terms to be a large amount of money but in relative terms the earnings of people with a weekly pay of £100 or less, it is a significant amount of money. The report estimated that between 56 and 66 per cent of those living in poverty and paying tax would be lifted out of the tax net if the measure we have suggested applied.
The figure generally accepted as being the cut off point for low pay — it emerged in consensus discussions on the Programme for National Recovery— is that any person on £140 per week or less is in the low paid category. I should like to draw the attention of the House to the fact that the average industrial wage is £220 per week. What I am proposing may seem at a glance to be a signficant shift from what the Minister is proposing but in the context of the average industrial wage being £220 per week, and the low pay net being £140 per week, any person on £100 per week or less ought not be paying tax. That is reasonable. How could one possibly consider raising a family on an income less than that?
Members will recall the recommendations of the Commission on Social Welfare. Their updated figure would be £68 per week as the absolute subsistence minimum. If one takes that figure and reconciles it for a person who went back into the workforce and was subject to PAYE and PRSI, anything less than £100 per week being free of tax would not constitute an incentive to work. I do not wish to go over the debate we had this morning but it must be said that I would like to be dealing with this phenomenon by way of tax credits rather than allowances. However, the rules of the House constrain us in what we can do in regard to that debate.
It seems to me that there has not been any refutation of the argument that tax credits are more equitable. Basically, the same amount of money is allowed to everybody, irrespective of whether a person is on the 53 per cent band or the 30 per cent band. Allowances, no matter how one tries to tinker about with them, necessarily benefit disproportionately the person paying tax at the 53 per cent rate. No matter how one does it, the benefit under the allowances system goes to the higher paid. Tax credits are worth the same to the person paying 53 per cent on most of their income as they are to the person paying 30 per cent on the top slice of their income. For that reason tax credits are more equitable, apart from the fact that it is conceivable in that situation to reconcile the PAYE and PRSI systems.
I should like to refer to a quotation by the Minister on the question of tax credits. One learns to note carefully the language used by Ministers in answer to parliamentary questions or on occasions like this. The Minister shot down Deputy Noonan's comments on tax credits on the basis, as he said, that if we were to switch to tax credits "based on conversion of existing allowances" and so on. I suspect, if one had time to study that phrase, "based on conversion of existing allowances", one would find a great deal in it. I am not necessarily arguing for such a simple switch based on a conversion of existing allowances. The matter is more complex than that. A whole range of issues needs to be looked at.
It is important to underline that poverty in this society is not merely a feature of people out of work, it is not merely a feature of social welfare recipients. There are many people on low pay in a whole range of employments and the phenomenon is growing. I am not just referring to part-time work but to low pay trades and a myriad of low paid employments. Some of them are in the black economy but that is a different matter. It is ridiculous to keep those people in the tax net. It is ridiculous that a person who goes off the dole, who goes off unemployment benefit and returns to the workforce for a low wage, should get as his or her reward, as the earning parent in the family unit, a demand for tax at the absurdly low rate that applies.
If we did not change anything else the acceptance of our amendment would go a long way to constituting real tax reform as distinct from tax improvements. There is nobody in the PAYE sector, no matter what his or her earnings, who would not accept tax improvements if they were forthcoming, but we are talking about the people at the lowest end of the earnings profile. We are talking about giving them some relief, using taxation in a limited way to take some of the burden off their backs in terms of the kind of measure envisaged here.
I referred to the ESRI report earlier in the context of the submission of the Conference of Major Religious Superiors on that matter. The author of the report commented that correcting anomalies in the impact of the PRSI system, exemption limits from tax and family income supplement, could still "be of major significance for certain households". I strongly support that view. Perhaps the Minister will respond by asking how he will pay for it. We have already discussed that today but I should like to mention in passing that there are a couple of amendments down in the name of The Workers' Party which propose to address that question. For example, I have sought — perhaps quite imperfectly — to adapt in respect of corporation tax the notion which is applicable in some states of the United States concerning an alternative minimum tax applicable in the case of the corporate sector.
Mr. John FitzGerald, the author of the ESRI report to which I referred, opined that a more broadly based property tax could bring in £300 million which should be wholly devoted to reforming the income tax personal tax allowances and that there should be a higher tax take from companies if we were to seek to implement what they recommended in respect of the lower paid.
There are a number of areas which would yield more tax, for example, a more broadly based property tax and a wealth tax. I have a specific amendment in relation to wealth tax which would take the 1975 1 per cent and make it a 2 per cent wealth tax. Those who are wealthy could just about manage to bear a 2 per cent wealth tax. Later we will be debating whether the corporate sector could make a bigger contribution. If there is a political will there are ways of balancing the cost of alleviating the tax burden on the people who are most in need. That is basically the thrust of this amendment.
I am not necessarily referring to Deputy Rabbitte's contribution but I thought it proper to advise the House that there are one and a half hours left during which Deputies are obliged to debate amendments Nos. 1 to 48. I will leave it to the good judgment of Deputies and Ministers as to how that time can be best employed.
I will be brief as I do not intend to go over the ground referred to by Deputy Rabbitte. He is correct when he said that people on very low incomes are being caught for income tax, which is a disgrace. In a modern society it does not reflect credit on any of us.
I have provided in my group of amendments for what is no more than a token increase in the exemption limits, an extra £500 in the case of a married couple. It is a token figure to probe the Minister's thinking and to see if there is a chink of light in the armour plated front he puts up to us here. It is a very small amount, considerably lower even than that proposed by Deputy Rabbitte. It would cost a relatively small amount which could be recouped without any difficulty on the capital or corporate taxation side. Even the tokenism which I propose would at least show some indication of a change of heart by the Minister in trying to provide for those at the lower end of the income scale.
As I said during the budget debate, this is a rich man's budget. Having further reflected on it — and looked at the figures in detail — my opinion on that occasion has now been borne out. If one looks at a comparison of the benefits in relation to take-home pay which the Minister is giving, we can see that the position of the single person with a gross annual income of £8,000, as a result of the Minister's amendments to this Bill, will improve by only £97 per year. On the other hand, a person earning £40,000 will benefit by £1,000 per year. Even on a pro rata basis that does not add up.
A married couple with two children, who have a gross annual income of £8,000, will benefit by £56 per year as a result of the Minister's manipulations in the budget and in the Finance Bill. The position of a couple with two children earning £40,000 per year will improve by almost £900 per year; a couple earning £60,000 a year improve their position by almost £1,500 per year. That shows where the Minister's real benefits are falling, clearly in this budget he is giving to those at the upper end of the scale. There is not much point in the Minister coming in here and saying that he is trying to even up matters and that he is looking after those on the lower end of the scale. That is easily said but the facts and figures do not bear out his remarks. They show quite clearly that those on the lower end of the scale get little or nothing, the higher up you are on the scale the bigger the boost.
Ernst and Whinney, the well known accountants, analysed the matter in detail and they summed it up by saying that, without question, the more you earn the more the Minister has allowed you to take home. The Minister's munificence is directed at the couple earning £40,000 or £60,000 per year. They can improve their position by £30 per week and the unfortunate couple earning £8,000 per year must be content with an improvement of £1 per week.
Ernst and Whinney also did research on the effects the budget would have on real purchasing power. Here again the same trend comes through. The so-called benefits, tax reductions and tax reform are shown up for the sham they are. In the case of a married couple with two children on a salary of £8,000 per year the change in real income is a reduction of .6 per cent in their purchasing power when all factors are taken into account; in the case of a married couple with two children on £20,000 per year the effect of the budget and the Bill on their real purchasing power is 1.58 per cent. That is nothing to get excited about either. In the case of the couple earning £25,000 per year the effect of the budget is 1.62 per cent. When these figures are examined in detail it is clear that the increase in purchasing power is negligible, 1.6 per cent. It is only when one reaches an income of £60,000 per year that the increase and purchasing power takes on something even approaching respectable proportions of 4.19 per cent.
Those who most need an increase in their purchasing power get virtually nothing and those who need it least get the lion's share; they get 4 per cent and the former 1 per cent. This is the reality of what this Government stand for, the sham they attempt to put across by these exemption limits. Those are the realities that are thrown up quite clearly when these figures are examined in detail. I could discuss this matter at greater length but, as you rightly say, a Leas-Cheann Comhairle, we have a lot to get through. That is the basic point I want to make here, that the entire thrust of the benefits of this budget is thrown on those who need it least.
The amendments I have tabled within this group are modest in the extreme and would cost relatively little in budgetary or financial terms. I would ask the Minister to show his good intent in this regard by conceding on these amendments.
(Limerick East): If I understand them correctly all of these amendments seek to increase the exemption limits up to which people would have no tax liability. I take many of the points made by Deputy Rabbitte, that the number of people who would be classified as poor — whichever source one resorts to in order to draw the poverty line — are liable to income tax. The ESRI have undertaken some studies — again depending on whichever source one uses — showing that somewhere between 11 per cent and 18 per cent of low-paid workers who would be classified as being the main earner in families in poverty would have a tax liability. When resources become available we would all have an interest in removing such people completely from the income tax net.
That takes us back to the debate we had this morning, that if we concentrate exclusively on reducing marginal rates somebody with a modest tax liability — in receipt of an income which has been below the poverty line — gains very little if pulled from a standard rate of 30 per cent down to a standard rate of 25 per cent. They should be totally excluded from the tax net.
The way to exclude the low paid from the tax net is by increasing the personal allowances rather than simply raising the exemption limits. There is a very big problem when exemption limits are way in excess of the total of the personal allowances. Then we encounter the problem of the clawback provisions when people's incomes go above the exemption limit. I am glad the Minister is reducing the clawback from, I think, 60 per cent to 53 per cent; that is helpful. Again the perception and the reality are different. People at present in receipt of, say, a retirement pension from a job together with a contributory old age pension above the exemption limit have a perception that they are paying tax at 60 per cent; that perception is widespread. People have commented and written articles on it to the effect: is it not dreadful that the Minister is penalising people on pension and taxing them at 60 per cent? They are confusing the claw back provision above the exemption limit with the actual tax rate.
I agree with the arguments being advanced about totally removing low-paid people who are in poverty from the tax net but the means selected to do so by the Deputies in whose names these amendments are tabled is wrong. When resources become available I would prefer that the Minister would, by increasing personal allowances, take low-paid workers out of the tax net completely. I know his resources are limited at present; I am not advocating that it be done this year. I recognise that progress has been made in lifting the exemption limits.
Perhaps the Minister could request the Revenue Commissioners to provide people who are just above the exemption limits, especially the retired, with some type of clear, explanatory leaflet showing that they were not paying tax at 60 per cent in the last tax year, or are not paying tax at 53 per cent in the current tax year; that it is the clawback for those to whom the exemption limits apply in the first instance and who are slightly above it with regard to a tranche of their income.
I have no amendments tabled on this section. I was proposing to approach this in another way. I had an amendment down which was disallowed and which would have abolished the exemption limits altogether. I am going down the road taken by Deputy Noonan, which is advocating increasing the personal allowances although, funnily enough, there is no Fine Gael amendment to that effect.
(Limerick East): The Deputy was advising us this morning to be prudent with limited resources.
I accept that. I had a proposal to increase personal allowances, which has been disallowed, it having been scrambled up with another proposal of mine to introduce a standard rate of tax in respect of all allowances. On that account it was ruled out of order, making a total mess of the overall position.
We are faced with circumstances in which we still have the exemption relief unless the Government change their minds about it. Then the question is: at what level should it be? Obviously it should not be at the existing level. The Government have made a reasonable effort to increase these amounts significantly. Nonetheless they fall short of what is needed to take a lot of low-paid people out of the tax net.
The Minister should listen very carefully to what Deputies Taylor and Rabbitte said, because it made a lot of sense. When we come to the actual figures I contend that Deputy Rabbitte's are somewhat on the high side and Deputy Taylor's somewhat on the low side. Perhaps a figure of £8,000 for a married couple and £4,000 for a single person would be appropriate.
I will settle on that for the moment.
Good. There is one other matter to which I might refer, that is children's allowances. I see that children's allowances, for the purposes of the exemption relief, are proposed to be increased from £200 to £300 annually. That is all very well but there is still no child allowance granted to the ordinary taxpayer. In my amendment which was disallowed I proposed the reinstatement of the children's allowance at £300 for all taxpayers. In view of the very small amount paid in respect of child benefit, the very least the Minister can do is reintroduce children's allowances. I suggest that that be done at the figure of £300 per allowable child.
I am sorry I missed most of this debate.
I might inform the Deputy in the hope that contributions be limited that we have to deal with amendments Nos. 1 to 48 by 6 o'clock.
Deputy Noonan anticipated the point I was going to make in relation to the clawback. I should like to add my voice to what he said in that respect. I wonder if there is any way of resolving this problem in order to get rid of that perception? I take the Deputy's point about an explanatory leaflet. Deputy Noonan knows as well as I do that we have had a proliferation of leaflets on tax allowances, exemptions and reliefs. I contend the more leaflets produced the greater is the confusion created. No matter how simple a leaflet the Department may produce, people will continue to ask the same questions; that is the unfortunate reality. I cannot see a way out of this problem immediately but if there is any technical way around it I would ask the Minister to give it his attention.
I have been looking briefly at this group of amendments, principally those in the name of Deputies Rabbitte and Taylor. Basically they are seeking more money, more tax relief. But we must remember that, if it is taken off one source, it must come from another.
I congratulate the Minister on his record in the Department of Finance. Since he assumed office just over two years ago he has reduced the basic rate of income tax by over 14 per cent and the top rate by almost 10 per cent. The tax bands have been widened by approximately 10 per cent and the tax exemption limits below which people are exempt from tax have been increased considerably. I debated many Finance Bills from that side of the House also when we sought more money, better allowances, extra reliefs, the raising of exemption limits and so on. We were given very short shrift by the then Government. That was at a time when income tax rates were far more penal than they are now. This should be recognised and I did detect in the latter part of Deputy Noonan's comments a recognition that that was the case.
There is one technical point I would like to raise in relation to marginal relief. It is my experience that in cases where people are over the exemption limits but not by a significant amount the income tax office often apply the ordinary allowances in issuing the certificate of tax free allowances even though it might be quite evident, and I am talking here about cases where returns of income have been submitted, they are in the marginal relief category. Deputies, accountants and others often have to contact the income tax office to ask them to take this into account. In some cases we have had to look for a tax rebate at the end of the income tax year.
I ask the Minister to contact the Revenue Commissioners to see if something can be done about this and to see if some reference to the fact that the taxpayer is in the marginal relief category can be included in the certificate of tax free allowances. Those who fall into this category should be entitled to get relief throughout the year and should not be obliged to wait until the end of the income tax year before getting this relief by way of a tax rebate. It is quite clear, given their low incomes, that they are living at a marginal rate of subsistence.
I ask the Minister to communicate with the Revenue Commissioners to see if something can be done about this matter. It may be possible for the Revenue Commissioners to apply a rule of thumb or other rought mechanism in dealing with such cases. Having said that I am happy with the allowances outlined in the Bill we are all aware of the financial and economic background against which we are discussing this Bill. The Minister is to be congratulated for reducing income tax rates given that economic background. While one expects the Opposition to oppose, debate and question, it should be recognised on all sides of the House that we are moving in the right direction in the area of taxation, in other words, income tax rates are moving downwards instead of upwards as was the case in the four years prior to the Minister's accession to office in 1987.
I thank all those who have contributed. There is always some benefit to be gained from debate and dialogue. I will deal with the points raised by the Deputies after first giving a general response to the amendments grouped together for discussion purposes.
The purpose of these amendments is to increase the general income tax exemption limits and the exemption limits for aged persons proposed in the Bill.
Amendment Nos. 5 and 7 propose to increase the general exemption limit, as set out in the Bill, by £3,500 for married couples and by £1,750 for single and widowed persons. Acceptance of these amendments would result in an additional cost to the Exchequer of £143.1 million in 1990 and £238.6 million in a full year and would exempt some 173,600 persons from tax liability.
Amendments Nos. 9 and 12 propose to increase the age exemption limits set out in the Bill, by £500 for married couples, and by £250 for single and widowed persons, aged 65 years or over but under 75 years. Acceptance of these amendments would result in an additional cost to the Exchequer of £1.7 million in 1990 and £2.9 million in a full year and would exempt some 3,900 persons from tax liability.
Amendments Nos. 10 and 13 propose to increase the age exemption limits set out in the Bill, by £300 for married couples, and by £150 for single and widowed persons, aged 75 years or over. Acceptance of these amendments would result in an additional cost to the Exchequer of £0.2 million in 1990 and £0.4 million in a full year and would exempt some 370 persons from tax liability.
The total cost to the Exchequer of amendments Nos. 5, 7, 9, 10, 12, 13, 15, 17, 19, 20, 22 and 23 combined would be £145 million in 1990 and £241.9 million in a full year.
Section 1 of the Bill already provides for very generous increases in the exemption limits: £500 in the case of a married couple under 65 years of age or £250 in the case of a single or widowed person in this age category; £700 in the case of a married couple where either spouse is aged 65 years or over but under 75 years or £350 in the case of a single or widowed person in this age category; and £700 in the case of a married couple where either spouse is 75 years or over or £350 for a single or widowed person in this age bracket.
In addition, in recognition of the difficulties faced by low-income families, the special addition of £200 per dependent child which was introduced last year is being increased by £100, a 50 per cent increase, to £300 per child. This child element is intended to target relief at a group which has been identified as particularly in need of State support and, together with the increases in the basic exemption limits, will go a long way towards alleviating the tax burden on low-income families. The increases provided by section 1 and the associated marginal relief will cost the Exchequer £14.2 million in 1990 and £23.7 million in a full year and will exempt 30,900 persons, with 58,100 children, from liability to income tax. A further 65,000 taxpayers with 123,100 children, 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, i.e. the reduction in both the standard and top rate of tax, the increases in the rate bands and the renewal of the PRSI allowance, are provided for in the Bill. Accordingly, the amendments must be opposed.
I now turn to the less costly amendments proposed by Deputy Taylor and the questions raised by Deputy Rabbitte on The Workers' Party amendments. I will also deal with one or two other questions he raised. He stated that a married couple on £100 a week will find themselves caught in the tax net. I should point out that the exemption limit for a married man is £125 per week, and not £100 per week, plus £6 per week for each child. Therefore if married with four children he will be entitled to earn £149 per week tax free.
The Minister is taking one reference to the allowance for a single person and relating it to the allowance for a couple.
Let us put the facts on the table. Perhaps Deputy Taylor went to some corner and found somebody above the limit but we have to look at the totality. We can pick out examples. In fact I could pick out an example to show how well somebody is doing.
All I am saying is that the Minister misunderstands my amendment.
I hope not but all I am trying to do is put the record straight. The exemption limit for a married couple is £125 a week plus £6 a week for each child. This limit is also applied in the case of small traders, shopkeepers and farmers. A specific new approach was adopted to try to target the low paid.
Deputy Rabbitte stated that he rejected most of what I said on tax credits and felt that tax credits could be used in such a way that people would not suffer. To put it into ordinary layman's language, what this means is that if someone wants to do this they can. If we convert everybody to the top rate nobody will suffer but it will cost us a fortune. I have not got the exact figure but it is an area I have looked at. When we have the full figures I will give them to the Deputy. The debate will not finish here today or tomorrow.
Basically the amendment is targeted at the poor. That is the nub of the matter.
The road I set out to travel is to target the poor. If I had unlimited resources, which I do not have, I would have done that. I will come to some of the other arguments raised by Deputies. I am just dealing with a few specifics that were raised.
The Deputies also spoke about the US approach of a minimum corporate tax rate. It does not matter which way one travels. One pays 5 or 10 per cent of minimum corporate tax irrespective of what reliefs are there. I am doing it the other way round. I am taking away the reliefs bit by bit. We have already reduced the accelerated allowances from 100 per cent to 50 per cent. This year's budget and Finance Bill are providing for a further reduction from 50 per cent to 25 per cent and from 25 per cent to zero. That refers to the accelerated allowance which is one of the major reliefs in the corporate tax area. The other one is section 84 which has also been dealt with.
The Minister has rowed back on it since budget day.
I have rowed back to an extent. I am very open and realistic about this. Deputy Rabbitte is the very man who will come in here talking about jobs and that is what this is really about, that is the challenge. Where the IDA, SFADCo or Údarás na Gaeltachta are entering into, are on the point of entering into or have already concluded an agreement I will honour that. We cannot change the deals that are concluded or that agencies are negotiating, especially where jobs are concerned.
(Limerick East): That is a long way down the Bill.
I am just making the point in passing. Deputy Rabbitte raised the question about paying for this £140 or £150, if I got it from corporate tax. I am just answering that argument. I do not know what other way the Deputy thought it might be paid for, but I am sure we will come to it later.
The question is how does one arrive at a minimum corporate tax rate? One arrives at it by ignoring the allowances or by doing away with the allowances. We are on that road. Of course, I have the same view as Deputy Rabbitte in trying to approach the low paid and the people caught in the poverty trap. It will be seen that I have come quite a distance since I started. This is only my second budget and I intend to bring in quite a few more while I am around and I think I will have made a lot of progress by that time.
The Minister will have moved on to greater things by then.
I might have moved over there. Politics is a dangerous game, a high risk job. Insurance companies charge a lot of money to cover our activities from time to time.
I did not hear that. I am trying to concentrate on my business here. The exemption rate for married couples was £5,500. It is now £6,500. Taken on its own, without any children, that is an increase of 18 per cent; taken with one child it is an incrase of 24 per cent; with two children, 29 per cent; with three children, 35 per cent; with four children, 40 per cent and with five children it is 45 per cent. They are the facts. That is the improvement for the low paid that I have brought about. I would be the first to admit that it is not as far as I would like to go——
Twenty four per cent of very little is very little.
If the Deputy thinks that £7,500 of £8,000 tax free is a little let him go back to the mess he left the public finances in on leaving Government when nobody could even dream of doing anything about those people. I have come a long way in a short time but I am prepared to admit that I have a long way to go, and as resources become available I will do that. I cannot understand Deputy Taylor coming in here and making that charge. At least I have to say this much; his amendment would only cost £22.9 million. That is small in relation to the other people's suggestions.
Why not accept it?
To say that this Government aimed this budget at the rich is ridiculous. Take the fellows on £50,000 or £60,000 a year. I have an interesting figure that will change the Deputy's mind a little on that. The number of people earning over £50,000 in this country is 4,400. It might not even elect one to Dublin Corporation or to Dublin County Council in the highly populated areas that the Deputies over there come from. So if they say that any Government is foolish enough to build a budget and a Finance Bill targeted directly at people earning over £50,000 a year, which is basically what they said, they would not get themselves elected to a county council or a corporation in Dublin.
They are the guys who pull the strings and the Minister knows that better than I do.
We are not so foolish as to think that 4,400 people can elect a Government, keep them in power and re-elect them. We are not that stupid and the Deputy should not make rash statements without having the facts.
We know who pulls the strings. Let us be clear about that.
We know who shovels the money into the party funds.
Who?
Do not take us to be naive.
I am only taking up the argument. I did not make the argument; the Deputy made the argument that this Government tried to bring in a Finance Bill and a budget for the rich people earning over £50,000. All I am saying is that the Revenue Commissioners gave me the figure of 4,400. That is all that is there; it might give one a quota and a half for Dublin Corporation but it certainly would not elect a Government.
They control a lot of people's lives.
They have only one vote, the same as the people who vote for the Deputy.
If we could believe that.
I put Deputy Taylor in the picture as to what the score is. He can have his £50,000 people; they will not put him back in Government or elect him.
I would agree with Deputy Noonan and others who say that there is a perspective out there about the marginal rate of tax. We have gone on a publicity campaign. We put out leaflets with headings "How I fare if my income tax is over the limit", "No tax to pay" or "Less tax to pay" in as simple a form as could be and sent it to those people. As the debate progressed I mentioned it to the Revenue Commissioners who will now take it up with the Department of Social Welfare. The people who are most affected are probably old age pensioners, and maybe contributory old age pensioners where there are two in the house. There are quite extensive reliefs for them of which they may not be aware. We will look at the possibility of getting the Department of Social Welfare to distribute these leaflets.
(Limerick East): Would the Minister supply a couple of those to every Deputy?
We have no trouble supplying them. We will get them printed for everybody. They are a help but they are not the full story. Another leaflet points out where families fit in in relation to the family income supplement which is difficult for ordinary people to understand. Hopefully we will improve communications in that regard. As a result of applications arising out of that publicity campaign, by the end of April last exemptions on marginal relief had been granted in some 14,000 cases for 1991. We are making fairly good headway. It has been a heartening response and I would like to take this opportunity to urge every taxpayer who thinks he might be eligible, but has not yet claimed, to do so without further delay. I will be glad to have extra copies printed for distribution in the House to Deputies so they can assist us in trying to bring this message to the people.
Notice of the reliefs, including the family income supplement, with the notice of tax free allowances were issued to some 130,000 PAYE taxpayers identified by the Revenue Commissioners as being possibly eligible for the relief. I have already dealt with that aspect of it. What is marginal relief anyway? It is not 60 per cent of the total. Take, for example, a married man with five children earning about £8,300 a year. It is only the £300 that is subject to the marginal rate of tax and not the £8,000. As Deputy Noonan rightly says maybe people do not understand this as well as they should.
The question of poverty traps was addressed by the Commission on Taxation in their first report when, in chapter 23, they looked at the area of negative income tax. Deputies will be aware that since the 1960s the concept of negative income tax was perceived as a means of achieving a number of objectives, one of which was the removal of poverty traps which face taxpayers in certain income ranges and occur when a rise in income is associated with withdrawal of certain benefits and an additional payment of tax.
The conclusion of the commission was that any attempt to solve the problem of poverty with a single comprehensive system of income maintenance which was integrated with the income tax system would be very costly. In fact, the commission recommended that the direct tax and income maintenance systems should continue to be separate.
The Government, however, are not unaware of the burden of personal taxation on persons with low income and in framing the budget last year and this year we were very conscious of the need to help those on low incomes, particularly families, and consequently we introduced a child allowance of £200 which was increased to £300 this year and we increased the exemption limits not only for those on low pay but for pensioners, small shopkeepers and small farmers.
Deputy O'Dea made the point of trying to communicate this message to the taxpayers, as indeed did Deputy Noonan and we are all agreed that it is desirable to do so. Provision has been made to include information on the appropriate entitlements in the tax free allowance in the 1989-90 tax year.
I have dealt with all the points raised. As I have already said, significant reliefs have been provided, although I would like to provide more. I am very conscious of the direction in which I am going and I intend to keep going in that direction. The Workers' Party amendment would cost £145 million to implement in 1990 and £241.1 million in total to implement in a full year. It would cost £13.7 million to implement Deputy Taylor's amendment this year and £22.9 million in a full year. I do not have those resources available to me. We have been very generous with the resources available and if I have more resources they will certainly attach to those on the lower end of the income scale.
Consequently I oppose both sets of amendments.
I am acutely conscious that we are operating with a guillotine over our heads so I will not prolong this discussion. However, amendment No. 5 is the substantive amendment and I am sorry that the Minister could not at least take the spirit of the amendment on board by having a look at it before Report Stage. Notwithstanding what the Minister has said, I think this ought to be possible, if the political will was there to do it. It is a question of choice and I repeat that it is an absurd situation that up to 18 per cent of people living in the poverty trap are subject to PAYE and PRSI. Priority ought to be given to taking them out of the tax net. While the Minister was speaking I was looking for the figures he gave on budget day. I could not lay my hands on them but I think the Minister said that 31,000 people would be taken out of the tax net as a result of the measures he announced in the budget. I am certain that that figure has already been widely eroded. We dealt with that at another stage of the debate. It is crazy that people who are scrounging a living at subsistence wage levels are liable to taxation. That position ought to be rectified as a priority of tax reform.
Deputy Rabbitte likes to ignore the additional expenditure of £241.9 million which would be needed to take his amendments on board. He has given no indication as to where the money should come from.
I do not wish to ignore that point. I have already dealt with it. There is quite an amount of flexibility between the existing exemption limits and what I propose, and it is open to the Minister to adapt that as he chooses.
The Deputy is ignoring the question of where the money is to come from.
In proposing the amendment I dealt with where I would propose to find some of the money. It is simply a question of what are one's political priorities. I am not relying on my political perspective or my expertise to advance my argument. I instanced the ESRI report and the comments of one of its authors Mr. John FitzGerald where he indicated that the take from more broadly based property tax would result in a contribution of £300 million. That would cover the cost of the substantive amendment. Mr. FitzGerald is a reputable economist, known to all sides of this House, and I believe that his submission is reasonable. I am not glibly ignoring the cost of implementing my amendment but I think it is a question of whether one wishes to give tax relief that is targeted at the poor or as Deputy Taylor has said whether the bulk of tax relief goes to people who are better paid. A Cheann Comhairle, I am anxious to put the amendment.
(Limerick East): I agree with the arguments being put forward by Deputy Rabbitte in so far as we all agree that there is a number of people on low pay, whom we would all like to see taken out of the tax net. I appreciate that the money that would be required to implement this package of amendments, a total cost of £241 million, is simply not there. Therefore, I will not be supporting the amendments.
If we are to address the problems of the low paid I think PRSI payments have as high if not a higher priority because PRSI is paid from the first pound onwards whereas people who are just in the tax net will pay 30 per cent on a small margin of income. If we are to be logical in the argument, I do not think we can address the problem of the burden of tax on those below the poverty line without looking at PRSI. I wonder why the Minister has not taken on board the suggestion we made as far back as the last election, to exempt the first £3,000 of income from PRSI payments and remove the income ceiling in this regard. A reply to a parliamentary question tabled by me to the Minister shows that the same amount of money is recovered by removing the ceiling as is lost by exempting the first £3,000 of income. Perhaps there is a problem in assessing peoples' eligibility for benefit if they are no longer paying PRSI but there are ways around that, for example, it could be brought down to a notional amount if there was a problem about establishing weekly credits against which eligibility for benefits could be measured. It could be levied at 0.5 per cent or at a nominal sum of 10p per week so that people would continue to be insured if a payment is required to maintain their insured status. Levies and PRSI payments of £7.75 on every £100 of income is a much heavier imposition than income tax at 30 per cent on the tranche of income just above the exemption limit or the sum of the personal allowances, the PRSI allowance and the PAYE allowance.
I agree with Deputy Noonan when he says that PRSI is part of the wider debate and cannot be taken in isolation. It is a matter for a debate that can involve PRSI, social welfare and tax, etc. When we look at where we stand in the scale of contributions of PRSI in European terms we are by no means anywhere near the top. There is a certain fallacy that PRSI is a tax on jobs or a cost to employment. However, when we introduced a scheme last September to allow new employees to be taken on without PRSI contributions having to be made, there was a very small take-up. This is a deep subject that needs to be gone into very carefully. We have only had an additional 1,000 people at work as a result of that scheme. That was a poor response and is an indication that PRSI payments——
(Limerick East): Is it you, Minister or the Minister for Social Welfare is having the question of PRSI payments examined.
It is the Minister for Social Welfare but we have an input into it. The question has to be looked at in greater detail. Some people label PRSI as a tax, but in fact it is a contribution towards benefits. I know that workers think of deductions from the pay packet as tax whether it is for PRSI or PAYE but at the end of the day PRSI should not be meddled with too easily because it is a contribution which people make for benefits they will receive.
My position has to remain the same on the two sets of amendments.
Is amendment No. 5 in the name of Deputy Pat Rabbitte being pressed?
Yes.
I observe that amendments Nos. 26 and 28 are related and amendments Nos. 29 and 30 are consequential on amendments Nos. 26 and 28. I suggest therefore that amendments Nos. 26, 28, 29 and 30 be discussed together, by agreement, with separate decisions of course if required and time permitting. Is that agreed? Agreed.
I move amendment No. 26:
In page 12, in column 1 of the Table, to delete "£6,500" and substitute "£7,000".
The purpose of this amendment is to increase the part of taxable income payable at the standard rate from £6,500 to £7,000, thus giving a modest increase to people paying tax on the standard rate. Much of the arguments that applied on the earlier group of amendments also apply here and I do not intend to repeat them. It has to be pointed out and commented upon that when it came to reducing the income tax rates the Minister chose to take 3p in the pound off the top rate — he reduced the rate from 56 to 53 per cent — but only 2p in the pound was taken off the standard rate, thereby reenforcing my statement earlier, which I stand over, that this is a Finance Bill primarily directed towards the better off and the wealthy.
I am rather puzzled by the Minister's statement to the effect that there are 4,400 people in the £50,000 plus income bracket. I accept the figure the Minister gives — I assume it comes from the Department — but he seems to be asking how could he possibly be bringing in a Bill that would be directed towards improving the position of the better off since they are so few in number that they would not elect anybody to a county council. That is a strange argument. If, as he says there are only 4,400 people in the country earning over £50,000 a year, why does he go to such lengths to improve their position substantially as against that of the people who are further down the scale?
(Limerick East): The Deputy is going for a £60,000 a year job himself.
The facts speak for themselves and the Minister should explain why he took that action.
It is only the Deputy who thinks so.
It is no good saying he could not have done it or he would not do it because it would not make political sense. I say he has done it because it makes political sense from his point of view but for what reason, I do not know. A couple with two children whose income is £60,000 a year would have taken home £31,371 in the 1989-90 tax year while in the current tax year, as a result of this bonanza from the Minister, they will be taking home £32,849, an incease of £1,478, £30 a week extra in net take home pay. I do not care whether there are 4,400 such people or what the number. Why did the Minister see the need to direct the resources available to him to those people while giving an increase of only £1 a week in take home pay to a married couple with two children whose gross annual income is only £8,000 a year? Even though the cost in net tax terms may be relatively small, from the eye of the couple on £8,000 a year, they are benefiting by a miserable, measly £1 a week. They see that their neighbour in another estate whose income is £50,000 a year and whose need is non-existent is benefiting by £30 a week while their need is so great. The indecency has to be commented upon. The Minister should not tell me that as resources become available he will support this. That is plámás. There are a lot of resources available if one is minded to use them. There are resources to increase the exemptions on CAT and to reduce the take on capital gains tax. There are resources not to bring down the top rate by 3p but to increase it by 10p if one is minded to do it but, of course, the Minister is not minded to do that. There are only 4,400 people who would be affected by it. It would not affect the books all that much so that cannot be the reason the Minister is not providing for it so please do not give me the excuse that resources are not available.
There is no great fortune that I can see.
Massive resources are available in the State from all kinds of sources if one is minded to apply them where the need is greatest but when the Minister is not minded to apply them where the need is greatest he should not try to pull the wool over our eyes by trying to suggest otherwise. Deputy Rabbitte put down an amendment — it was ruled out of order — which would have increased the top rate and so on. I would have put down an amendment on those lines but I knew it would have been ruled out of order. I simply put down amendments that would bring some small improvement to those at the lower end of the scale. If the Minister is realistic in saying he wants to help those on the lower end of the scale he has the opportunity now and can say he will look at this proposal. The cost involved would be modest and could be made up easily by adjustments upwards on the capital side. This is precisely what I am asking him to do.
The amendments Deputy Taylor proposes would widen the standard rate band proposed in the Bill from £6,500 to £7,000 for single or widowed persons and from £13,000 to £14,000 for married couples, and would increase the 48 per cent band from £3,100 to £3,600 for single and widowed persons and from £6,200 to £7,200 for married couples. The cost of the proposed changes to the Bill is estimated at £28.1 million in 1990 and £46.9 million in a full year. The measures already incorporated in the Bill propose that the standard rate be reduced from 32 per cent to 30 per cent, that the band of incomes chargeable at that rate be widened from £6,100 to £6,500 for single and widowed persons and from £12,200 to £13,000 for married couples. In addition the top rate of tax is being reduced from 56 per cent to 53 per cent. Deputy Taylor seems to suggest that that rate is only for the smaller number of people but what I am trying to get at, and what he should appreciate, is the number of people who get into that high tax bracket so quickly. That is what we are all concerned about. The Deputy is putting forward ideological arguments and trying to create the impression that there is a huge pot of gold out there and that there is a fortune to be made from imposing higher taxes on the people earning in excess of £50,000 and £60,000. That is a myth.
What about the amnesty?
That is only a myth and please accept it as such once and for all.
That is what the Minister told us about the amnesty.
It brought in £500 million.
I am giving the Deputy facts he is not interested in hearing. It suits him to have that nice argument for his constituency that if you tax people who are earning in excess of £50,000 to £60,000 at a 70 per cent rate, so many things could be done with the revenue generated. When I give you the facts you do not want to accept them. The position is that there are 4,400 people earning in excess of £50,000 per year. We know where the burden of tax is and that is what I am trying to get at but I do not have all the resources to do it in one day or in the one year.
The cost of the income tax changes I have made in this Bill, not to talk about VAT and so on, is £171.4 million in 1990 and £280.9 million in a full year. The total cost of the income tax reliefs provided for the period of the Programme for Government is in excess of £800 million compared with our commitment of £225 million for the period of the programme. The changes I have talked about will benefit 760,000 taxpayers and not merely the few Deputy Taylor would want us to believe are getting money from this budget. Those are the facts. If the Deputy cannot accept it I cannot help him. If the Deputy thinks I am not dealing with corporate tax he should be aware that, at a later stage in the debate, we will have an opportunity to talk about capital allowances, section 84 exports sales relief being abolished and a myriad of other things by way of endeavouring to get a wider tax base so that we can introduce reliefs. That is my approach and that is how we are proceeding.
I will give a few other examples. We have brought relief to 760,000 taxpayers. If a married person with two children, taxed under PAYE and on the high rate of PRSI — assuming that only one spouse is earning had an income of £5,000 in 1982-83 and got pay rises in line with inflation he would be earning in the region of £7,253 in the current tax year. I will outline how his tax, as a percentage of income, would have developed over the years.
We believe it.
Then we need not waste time going any further.
We believe it but it does not undermine the basis of the argument.
Why does Deputy Taylor come in to make such a song and dance, having spent four and a half years in Government and having seen the position of the PAYE worker deteriorate so much in that time with so little having been done about it. That is his problem with his electorate.
(Limerick East): The question of only 4,400 people having an income in excess of £50,000 is a very interesting statistic. What it means is that there are only 4,400 people with a taxable income——
Of course.
(Limerick East):——over £50,000 which is a different matter altogether.
That is exactly what it means.
(Limerick East): It is only when you look at the BES schemes, the write off of capital, the distribution of dividends tax free from certain locations in the country that you can see how people can keep their liability below £50,000. It is not in any way a true profile of the distribution of income. I do not want to get into the ideological debate. I am not supporting these amendments because there is a high cost involved but I agree with the emphasis being placed, we should widen the standard rate band significantly. In trying to be consistent with what I said this morning I do not think we should get hung up on the targeting of low marginal rates and of a 40 per cent and a 25 per cent rate. The emphasis must go on taking low income people out of the tax net and out of the PRSI net. The second thing is to widen the standard rate band. I would urge the Minister when he is preparing for next year's budget to make those two items his objectives.
How stands the amendment in the name of Deputy Taylor?
It is being pressed.
I move amendment No. 31:
In page 13, between lines 2 and 3, to insert the following subsection:
"(2) Notwithstanding anything contained in the Tax Acts, Part II of the Table to section 2 of the Finance Act, 1984, (inserted by this section) shall apply to persons with dependants who are widows, widowers or single parents.".
Effectively we have had the discussion already. I merely want to make the point that of all the groups we have talked about who are discriminated against under the present tax code the discrimination that is most unjustifiable is the discrimination against single parents, i.e. widows, widowers and unmarried parents. For the life of me I cannot understand why a man should lose the benefit of the double tax allowance on the death of his spouse. Why should his conditions change so drastically in those circumstances? If one parent of a large family dies the other parent, if he or she wants to stay in employment, has to employ somebody as a childminder or housekeeper or whatever. It is an incredible anomaly. The cost may be around £3 million, but the Minister ought to rectify this and I appeal to him to do so.
I support Deputy Rabbitte's amendment. Widowers especially who have young children have to employ somebody when the wife dies and the fact that they are taxed as a single person puts them at great financial disadvantage. I know the Minister is aware of this problem and has given it consideration. I am sure he will, if at all possible, look favourably on this amendment and if the cost allows he will see his way to change the bands so that widowers and widows with dependent children will not be at such disadvantage. I earnestly request the Minister to look favourably on this.
(Limerick East): Would this amendment have constitutional implications if one were to extend the allowances in the manner the Deputy suggests to single parents? Would there be a consequential argument for doubling that allowance then for married people?
This area would command the sympathy of everyone in the House, including myself. We have done a great deal of work on it. Deputy Noonan touches on one of the complexities, that is the possibility of constitutional implications and that is being examined in detail. People have different views as to whether it would have such implications. The concern expressed by Deputy Rabbitte, Deputy Ahern and others, would find no disagreement here because we all recognise this is an area of difficulty. Whether it is the mother or father of the family who dies, overnight the whole circumstances change for the surviving parent especially if the children are to go to second and third level education and so on. While the tax code provides some help for taxpayers in the position described here, a special widowed person's allowance is given to widowed taxpayers which stands at £2,550 compared with the single person's allowance of £2,050, an extra £500. There are also the widowed and single parents' allowances which, taken together with the relevant personal allowances, give widowed and single parents the same overall basic personal allowance as a married couple, that is £4,100. Extending the double rate bands to widows and single parents would cost about £3 million in a full year. Of course, these costs would be much higher in a full year if married couples opting for single treatment could not be successfully excluded. It could get into the high realms of cost in various other areas. Then, of course, the other reliefs could possibly be legally challenged to expand them. I refer here to mortage interest, life assurance etc. It is not just what we are talking about here but the implications it has that are of concern. I assure the Deputy I am working on this in an effort to find solutions.
The more we improve the whole tax situation the more the position of the people we are talking about will improve. Nevertheless, I am aware of the problems faced by widowed parents and I have looked at the possibility of making some concession for them in the short term since the budget up to now. I am sure the House will appreciate that conceding double bands would raise difficult and complex issues which do not lend themselves to very easy solutions. I am continuing to look at the position and I will bear in mind the point made by Deputy Rabbitte and others here today.
(Limerick East): Will the Minister be in a position to come back and increase that £500 on Report Stage? There seems to be fairly unanimous agreement that it is desirable to do so. Pending his final word on the matter, say, in next year's budget, will he look at it between now and next Wednesday?
I will have a look at it. I am making no commitment. We have a number of matters in this area being examined by legal people at the moment.
I strongly support the argument made by the other Deputies who have spoken on this issue. The widowed person's allowance the Minister referred to of £2,550 remains unchanged. It is the same amount as for 1989-90. As an interim measure the Minister might consider providing some increase in that allowance which would be of some help in the current year pending examination of the question of an increase to the married level as proposed.
Is amendment No. 31 being pressed?
I am pressing it.
Do you want me to put the question on it?
If the Minister is indicating that he will have a look even at the limited area Deputy Noonan suggested for Report Stage next Wednesday, I will take him at his word.
I take it you are not pressing the amendment.
I wish to repeat that it is very complex. It has certain constitutional implications. We would all like to do something about it. I cannot guarantee that we will have anything ready for Report Stage but I will try to accelerate the effort. The complexities are there. We will not get easy solutions but I will look at it again and report back to the House on Report Stage.
I move amendment No. 33:
In page 13, before section 3, to insert the following new section:
"3. —(1) Where a deduction falls to be made from the total income of an individual for the year 1990-91 or any subsequent year of assessment in respect of relief to which the individual is entitled under a provision mentioned in column (1) of the Table to this subsection and the amount of the deduction would, but for this section, be an amount specified in column (2) of the said Table, the amount of the deduction shall, in lieu of being the amount specified in the said column (2), be the amount specified in column (3) of the said Table opposite the mention of the amount in the said column (2).
TABLE
|
Statutory Provision |
Amount to be deducted from total income from 1989-90 |
and subsequent3Amount to be deducted from total income for 1990-91 years |
|
(1) |
(2) |
(3) |
|
£ |
£ |
|
|
Income Tax Act, 1967 |
||
|
Section 138 |
||
|
(married man) |
4,100 |
4,400 |
|
(widowed person) |
2,550 |
2,750 |
|
(widow bereaved in the year of assessment) |
4,100 |
4,400 |
|
(widower bereaved in the year of assessment) |
4,100 |
4,400 |
|
(single person) |
2,050 |
2,200 |
|
Section 138A |
||
|
(additional allowance for widows and others in respect of children) (widowed person) |
1,550 |
1,650 |
|
(others) |
2,050 |
2,200 |
|
Section 138B |
||
|
(employee allowance) |
800 |
1,000 |
|
Finance Act, 1969 |
||
|
Section 3 |
||
|
(housekeeper taking care of incapacitated person) |
2,500 |
5,000 |
(2) Section 3 of the Finance Act, 1986, shall have effect subject to the provision of this section.".
Again having regard to the very inadequate time we have to discuss this section — and this is likely to be repeated for the rest of the night and tomorrow on other sections — I do not want to rehash the argument that has been made because there are a number of important amendments to follow. Let me select from the range of provisions listed in column (1) the very last which relates to section 3 of the Finance Act, 1969, which deals with the housekeeper allowance for taking care of an incapacitated person. I do not know when that figure of £2,500 was last increased, but I was reminded of this entire area and I included it in the course of researching how one might take some measures to alleviate the suffering and now financial penalty imposed in a very recent topical case, that of the Dunne baby, that I raised in this House. I raised it here last week on the Adjournment, and I was amazed to hear from the parents directly that their entire entitlement as a result of a settlement made in respect of that minor suing through his mother for the awful infirmities endured now by the child was the £2,500 housekeeping allowance referred to here, in other words, effectively £50 per week. That amount of money will be paid out to look after an infant who has to have everything done for him. The story has been written in very graphic and real terms by Gene Kerrigan in his book Nothing But the Truth. He details what looking after an infant as incapacitated as this boy involves. The parents may draw down £50 per week and that is the limit imposed.
I do not know how long it is since the limit was increased but I suggest that for any person looking after an incapacitated relative, a son or daughter, £50 per week is no compensation at all, if "compensation" is the correct word to use bearing in mind the dimensions of the task that have to be undertaken. Is the Minister sympathetic to this request? If he acceded to the £5,000 limit I am not sure it would necessarily change the circumstances in the case I have referred to because the father would probably lose his entitlement to unemployment benefit. That would not lead to any net improvement in the circumstances.
I should like to refer to my amendment No. 39 which is related. Will the Minister indicate if he is sympathetic to the content of that amendment which deals with the issue in a more specific way in that it relates to wards of courts? Effectively, wards of courts should be considered to be exempt from tax liability where infirmity is visited on the ward of court, as happened in the case I have referred to. That case warrants a compassionate response from the Government. I anticipate that the Minister may be in sympathy with the essence of the case and he might wish to indicate at this stage whether he would be able to do something for this family. I accept that this cannot be left open-ended but where heartbreak and hardship are inflicted on a family it is absurd to suggest that such a person should be taxed as a single person as if he had won the national lottery. It is extraordinary that that is the position in this case. The eight year old minor is being taxed as a single person with no dependants. A sum of £12,500 is being taken out of the interest on the capital yields. That was never intended.
I understand that this has only arisen since the changes to self-assessment. The ward of court office have suggested to me that before this might not have come to light inasmuch as at present the liability is on the taxpayer to make the return. Up to now if this had not come to the attention of the Revenue Commissioners they would not have pursued it. In the climate of self-assessment the liability is on the taxpayer to make a return and, as such, the award involved came to light. There is no option under the existing law but to impose the tax liability in the fashion that it has been imposed. In terms of the compassion that this case deserves I should like to ask the Minister to be sympathetic to the points I have raised.
I have listened to the case put by Deputy Rabbitte and looked at the amendments before the House. I appreciate the thinking behind the amendment which was submitted in the last day or so. The whole area of wards of court is complex. I am aware of a case a couple of years ago which brought the problems involved home to me. In that case a ward of court was made an award and the amount, as is always the case, was invested on behalf of the ward of court by the court. The family in question did not receive any income although there was income accruing. They went into court at various intervals and had certain capital allowances paid to them. Out of the capital sum the court paid out certain figures, £500 or £1,000. I can see the point the Deputy is making about such cases but I am not certain I understand his entire case.
If a child did not receive the money until he or she was 18 years of age and the family were not in receipt of income and, consequently, were not making a return of income received, there would be a roll-up of income tax assessments, demands, penalties and interest added. The family would not have been getting the income and, consequently, it would not have occurred to them that they should have been making a return although income would be accruing on the capital sum. This is a complex issue and I do not think the case referred to by Deputy Rabbitte covers everything, but I undertake to have a look at this matter between now and Report Stage.
Some of the areas referred to, and the circumstances which prompted the amendments, are not subject to income tax. The Deputy will note that I am making provision by means of a new section to be inserted before section 5 to exempt from income tax payments made by the Haemophiliacs HIV Trust. They are not payments made on foot of court awards. What is happening there is that payments are made and they will not be treated under the Income Tax Acts as income because they are payments made out on a monthly basis.
Deputy Rabbitte's amendment raises a second question which concerns not the amount of the court award but the income which would arise from investment of it. The Deputy will appreciate that this raises much wider issues and while I am sympathetic with the terms of the amendment, I am anxious to have it examined in more detail before Report Stage next week. Other questions must be answered and I am not sure that the way Deputy Rabbitte suggests we should approach the issue is the way to solve the problem he has raised. For example, what is to happen in the case of an out of court settlement? We will have to examine the issues in more depth. I am not arguing against the principle the Deputy has in mind but I will see what can be done between now and Report Stage. However, I cannot give a firm commitment at this stage in relation to the wards of courts issue. The Deputy can be assured that I will have a full report for him next week.
I should like to tell the House that the housekeeper allowance was not raised since 1985. I will look at this issue sympathetically between now and Report Stage. The House will be aware that the carer's allowance was increased from £28 to £47 per week in an effort to keep people out of institutions and in their home environment if at all possible. What has been suggested is on the same lines and I can assure the House that I will look at it sympathetically.
I should like to thank the Minister for his positive and sympathetic response to the issues raised. I did not appreciate that the housekeeper allowance was not raised since 1985. The Minister seems to acknowledge that that required some improvement at this stage. It is an onerous responsibility and if the Minister looks at the alternative — institutional care — it would be prudent housekeeping by him.
Similarly, in the case of the Dunne baby — and I am sure the Minister is aware of this — it is a positive inducement to put him into care because in that case the hospital or the caring institution would effectively use the tax capacity so that the same yield would not accrue to the State. It is because the parents want to look after him, especially while he is a minor, that they are subject to this tax liability. My information from the ward of court office is that about 250 people are involved. I accept that the Minister will have to tighten up the amendment but if he could come back on Report Stage with a positive reply I would be very grateful.
As it is past 6 o'clock I am required by the order of the House to put the following question: "That the amendments set down by the Minister for Finance to Chapter I of Part I of the Bill, if not disposed of, are hereby made to the Bill and that the sections undisposed of in the said Chapter are hereby agreed to."
Tá
- Ahern, Bertie.
- Ahern, Dermot.
- Ahern, Michael.
- Andrews, David.
- Aylward, Liam.
- Barrett, Michael.
- Brady, Gerard.
- Callely, Ivor.
- Clohessy, Peadar.
- Coughlan, Mary Theresa.
- Cowen, Brian.
- Cullimore, Séamus.
- Daly, Brendan.
- Davern, Noel.
- Dempsey, Noel.
- Dennehy, John.
- de Valera, Síle.
- Ellis, John.
- Fahey, Frank.
- Fahey, Jackie.
- Fitzgerald, Liam Joseph.
- Fitzpatrick, Dermot.
- Flood, Chris.
- Flynn, Pádraig.
- Gallagher, Pat the Cope.
- Harney, Mary.
- Hillery, Brian.
- Hilliard, Colm.
- Hyland, Liam.
- Jacob, Joe.
- Kenneally, Brendan.
- Kirk, Séamus.
- Kitt, Michael P.
- Kitt, Tom.
- Lawlor, Liam.
- Lenihn, Brian.
- Brady, Vincent.
- Brennan, Mattie.
- Brennan, Séamus.
- Briscoe, Ben.
- Browne, John (Wexford).
- Burke, Raphael P.
- Calleary, Séan.
- Leonard, Jimmy.
- Leyden, Terry.
- Lyons, Denis.
- McCreevy, Charlie.
- McDaid, Jim.
- McEllistrim, Tom.
- Molloy, Robert.
- Morley, P. J.
- Nolan, M. J.
- Noonan, Michael J. (Limerick West).
- O'Connell, John.
- O'Dea, Willie.
- O'Donoghue, John.
- O'Keeffe, Ned.
- O'Kennedy, Michael.
- O'Leary, John.
- O'Toole, Martin Joe.
- Power, Seán.
- Quill, Máirín.
- Reynolds, Albert.
- Roche, Dick.
- Smith, Michael.
- Stafford, John.
- Tunney, Jim.
- Wallace, Dan.
- Wallace, Mary.
- Wilson, John P.
- Wyse, Pearse.
Níl
- Ahearn, Therese.
- Barry, Peter.
- Bell, Michael.
- Belton, Louis J.
- Boylan, Andrew.
- Bradford, Paul.
- Browne, John (Carlow-Kilkenny).
- Bruton, John.
- Bruton, Richard.
- Byrne, Eric.
- Carey, Donal.
- Connaughton, Paul.
- Connor, John.
- Cosgrave, Michael Joe.
- Cotter, Bill.
- Creed, Michael.
- Crowley, Frank.
- Currie, Austin.
- D'Arcy, Michael.
- Deasy, Austin.
- Deenihan, Jimmy.
- Doyle, Joe.
- Durkan, Bernard.
- Farrelly, John V.
- Fennell, Nuala.
- Ferris, Michael.
- Finucane, Michael.
- Flanagan, Charles.
- Gilmore, Eamon.
- Gregory, Tony.
- Harte, Paddy.
- Higgins, Jim.
- Higgins, Michael D.
- Hogan, Philip.
- Howlin, Brendan.
- Kavanagh, Liam.
- Kemmy, Jim.
- Kenny, Enda.
- Lowry, Michael.
- McCartan, Pat.
- McCormack, Pádraic.
- McGahon, Brendan.
- McGinley, Dinny.
- Mac Giolla, Tomás.
- McGrath, Paul.
- Mitchell, Gay.
- Moynihan, Michael.
- Nealon, Ted.
- Noonan, Michael. (Limerick East).
- O'Keeffe, Jim.
- O'Shea, Brian.
- O'Sullivan, Gerry.
- O'Sullivan, Toddy.
- Owen, Nora.
- Pattison, Séamus.
- Quinn, Ruairí.
- Rabbitte, Pat.
- Reynolds, Albert.
- Ryan, Seán.
- Sherlock, Joe.
- Stagg, Emmet.
- Taylor, Mervyn.
- Taylor-Quinn, Madeleine
- Timmins, Godfrey.
(Limerick East): I move amendment No. 49:
In page 17, subsection (2), line 27, after "effect." to insert "Persons whose basis of assessment has been changed by the provisions of this section, may claim a personal tax free allowance of £800 and PRSI allowance of £286, where they pay the full rate of PRSI applicable to case I or II of Schedule D taxpayers.".
Chapter II to which we are now moving deals with a change in the basis of assessment for people who formerly paid their tax on the preceding year's income and who will now be paying on the basis of their income in the current year. It appears to me that if one is liable to pay tax on a current year basis then one should receive the same allowances as all other taxpayers who pay on a current year basis. At present a special allowance of £800 is applicable to PAYE taxpayers. This was provided for in the 1980 Finance Act. The Minister of the day stated that those who paid their tax on a current year basis do not have the use of that money.
The purpose of my amendment is to give an allowance along the lines of the PAYE allowance of £800 to people who pay their tax under Case I or Case II of Schedule D. It was fully justified when introduced as a £400 allowances in 1980 to distinguish between people who paid tax as they earned as against those who paid their tax a year later. When the Minister introduced the PAYE allowance in 1980 he pointed out that Schedule D taxpayers had the use of their money for 12 months before having to pay over money to the Revenue Commissioners. That position is to change as Schedule D taxpayers are now going to be taxed on a current year basis. The Commission on Taxation had some observations to make on this matter in their report on personal taxation. They pointed out that the Minister was justified in introducing the PAYE allowance for the very reasons he gave when introducing it in the first instance. They went on to argue that if Schedule D taxpayers were to be taxed on a current year basis the justification for granting a special PAYE allowance would not be as strong.
I am talking about the extension of the £800 allowance to farmers liable for income tax, to sole traders, to all Case I and Case II Schedule D taxpayers who include professional workers such as engineers, doctors, lawyers and so on who pay tax on a current year basis. If one pays tax half way through the year one pays six months in advance and six months in retrospect. This would seem to be exactly the same as paying tax on a current year basis. Therefore, I do not take the point made by the Minister on Second Stage that major advantages are still available to Schedule D taxpayers. Liability in the current year will be 90 per cent rather than 100 per cent but this does not justify the Minister's refusal to accept this amendment.
A stronger case can be made for extending the PRSI allowance. Any self-employed person paying PRSI at the full rate, along with levies in accordance with the Social Welfare Acts, finds himself in exactly the same position as any PAYE worker paying PRSI at the full rate. Therefore, they should be allowed to receive the £286 allowance. Once everybody pays tax on a current year basis there will be a very little difference between PAYE taxpayers and farmers, other self-employed and professional people. I ask the Minister to consider very carefully granting an allowance of £800, similar to the PAYE allowance, as well as the full PRSI allowance to farmers and other self-employed persons.
Frequently the case is made that the self-employed have a number of advantages over other sectors when it comes to paying tax. If there is evasion then it is the responsibility of the Revenue Commissioners to collect any tax due but I do not think it is reasonable to advance the argument that allowances should be refused to those who are legitimately paying their taxes because there is a greater possibility of a Schedule D taxpayer evading his liability than there is of a PAYE taxpayer doing so. I do not think that argument stands up. Therefore, I commend this amendment to the House.
Deputy Taylor on behalf of the Labour Party had an amendment down to the Chapter we have just disposed of in which he sought the extension of the £286 PRSI allowance to Schedule D taxpayers but that fell following the division. I know Deputy Taylor would want to be associated with this amendment for the simple reason that half of this amendment was included in his amendment. However, we did not get the opportunity to debate that amendment.
There is undoubted logic in what Deputy Noonan has said on his amendment which seeks the extension of this allowance to all taxpayers. Having said that, the Minister for Finance, who I presume has computed the figures for 1990 will not agree because of the cost involved in granting the allowance to all self-employed persons, but that is not to say he will not do so in the future. The Minister will probably say it will not be possible to do so this year, but in my humble opinion it will not be possible in future Finance Bills, having regard to the fact that self-employed persons will now be taxed on a current year basis, to argue against all taxpayers having the same allowances. I think the Minister will have to concede on this in the 1991 Finance Bill.
We need to recall, as Deputy Noonan pointed out, the purpose behind granting the special PAYE and PRSI allowances. My memory sometimes fails me, but I do recall the purpose behind granting these allowances. After hundreds of thousands of people had taken to the streets the Fianna Fáil Government, following the hullabaloo which had been kicked up, decided to make a concession and granted a special allowance of £175 to PAYE taxpayers. This figure has been increased during the years and now stands at £800. Some time later another carrot or special allowance was granted to PAYE taxpayers in the form of a PRSI allowance which now stands at £286. If I recall correctly at one stage this figure stood at £312 but it has since been reduced.
The reason for differentiating between taxpayers was that the self-employed had one advantage in that, depending on the year, they could have the use of their money for up to 20 months before having to pay any money over. This is of tremendous benefit when profits are rising but can have the opposite effect when profits are going the other way as any practising accountant is aware.
Chapter II represents a major change but I wish to reiterate that this allowance was granted to PAYE taxpayers on the basis that they had to pay their tax on a current year basis whereas the self-employed did not. The self-employed will no longer have this advantage. Despite what may be said by the Minister and other politicians in arguing that the self-employed have advantages in computing their taxes in that they are able to claim for expenses which PAYE taxpayers are not allowed, there will be no justification for denying one section of taxpayers this special allowance in future Finance Bills.
There are two ways of doing this. The first is, having regard to the fact that everybody will now be taxed on a current year basis, we could scrap the PAYE and PRSI allowances for PAYE taxpayers and grant each married person an allowance of, say, £4,100. However, it would be a brave Minister for Finance or politician who would advocate that course of action. The other alternative — which is the one I hope the Minister will go for in the Finance Bill, 1991 — is to increase tax free allowances. At present a married person is in receipt of a married allowance of £4,100, a PAYE allowance of £800 and a PRSI allowance of £286, making a total of £5,186. I suggest the Minister should increase the allowance by £1,000 for everybody. That is the other alternative but everyone would have to receive the same allowance.
I am sorry to interrupt the Deputy but I have to advise the House that in accordance with the order we are expected, requested and obligated to endure or enjoy a sos until 7 p.m. I ask Deputy McCreevy to report progress.