Dáil Éireann díospóireacht -
Tuesday, 9 Mar 1993

Vol. 427 No. 6

Finance Act, 1992 (Commencement of Section 15) (Disability Benefit and Injury Benefit) Order, 1993: Motion.

Minister for Finance (Mr. B. Ahern)

I move:

That Dáil Éireann approves the following Order in draft:

Finance Act, 1992 (Commencement of Section 15) (Disability Benefit and Injury Benefit) Order, 1993,

a copy of which order in draft was laid before Dáil Éireann on 24th February, 1993.

Section 15 of the Finance Act, 1992, provided for the treatment as income for tax purposes of certain short term social welfare benefits. These are disability benefit, injury benefit, unemployment benefit and pay-related benefit. The section can come into operation generally or in relation to specific benefits or categories of recipients of benefits on such day or days as may be fixed by me by order.

As I announced in the Budget Statement, I propose to bring the section into operation with effect from 6 April 1993, in respect of disability benefit and injury benefit. I should emphasise, as I have done in the past, that the taxation of these benefits is essentially a matter of equity. The reason for treating disability benefit as income for tax purposes is simply to treat people in similar circumstances, with similar amounts of incomes, in the same way. In other words, it is to make sure that where two people in similar circumstances have the same amount of income, one does not pay less tax than the other simply because the first person's income contains disability benefit and the second person's does not.

Of course, the extent to which taxation will actually arise in a given case as a result of this change will depend on the level of other income that a recipient of disability benefit or his or her spouse has in the same tax year. In this context, I should like to draw attention to a paper published in 1991 by the Economic and Social Research Institute titled "Income Tax and Welfare Reforms". This paper demonstrated the flaw in the argument that taxation of disability benefit would impact unfairly on the lower paid. The study found that the vast bulk of the benefit from the non-taxation of certain short term social welfare benefits, including disability benefit, went to the better paid. In particular it found that 70 per cent of those tax units affected by taxation of disability benefit are in the upper half of the equivalent income distribution and that removing the exemption would affect fewer than one in ten of the lowest paid workers. These figures are based on a study carried out in 1987; the increases in the income tax exemption limits since 1987 and the introduction of substantial child additions to them should mean that the effect on the lower paid would be even less now.

This change in the treatment of disability benefit for tax purposes has been recommended by, among others, the Commission on Taxation, the Industrial Policy Review Group, better known as Culliton, the Commission on Social Welfare, the National Planning Board. It is a desirable co-ordination of the income tax and social welfare systems. It should also ensure that persons are not better off sick than working, and so diminish the attraction of disability benefit, especially for higher paid workers.

When introducing the enabling legislation in the 1992 Finance Act, I outlined the way in which it was envisaged the measure would operate. A limited, interim, form of taxation of disability benefit for those in employment — to be operated by their employers — was being considered for introduction in the autumn of 1992. The intention was that full taxation of disability benefit, to be operated by the Department of Social Welfare, would be introduced from 6 April 1993.

In the event, the interim arrangement was not proceeded with last year. Because of various operational constraints the Department of Social Welfare will not now, as originally envisaged, be in a position to operate taxation from 6 April 1993. However, it is hoped that they will be able to do so from as early as possible in 1994. In the meantime, the full taxation system which it had been intended to introduce with effect from 6 April 1993 is being modified for the year 1993-94. The system will involve the Department of Social Welfare continuing to pay disability and injury benefit gross, that is, without deduction of income tax. Where the recipient of disability benefit is in employment, the employer will reduce the tax-free allowances of the employee by the amount of the employee's disability benefit. The Revenue will notify employers, by way of a general notice which is to be issued shortly, that tax-free allowances are to be automatically reduced by the personal rate of disability benefit or by such an amount as is notified to the employer by the Department of Social Welfare where the amount of disability benefit is other than the personal rate.

In addition, employees in receipt of those benefits will have tax deducted under the non-cumulative basis of PAYE, which is generally known as the "Week 1" basis, from any payments made by the employer. Normal cumulative PAYE takes account of the employee's cumulative position from the beginning of the tax year up to the pay week that is being dealt with. In a disability benefit case, what happens, at present, is that disability benefit is not taken into account by the employer at all, and, unless the employee has occupational sick pay in excess of his tax-free allowances, he can get a tax refund each week he is on disability benefit to the extent that he has previously paid tax in the year.

"Week 1" non-cumulative PAYE, on the other hand, looks only at the employee's position in the pay week that is being dealt with and does not, as a consequence, incorporate the refund procedure. In the context of the taxation of disability benefit through the reduction of tax-free allowances by the employer, it would not be possible for employers to continue to operate the cumulative system of PAYE in respect of the employees concerned. Under the proposed system, therefore, what will happen is that the employee's tax-free allowances will be reduced by the amount of his disability benefit and the "Week 1" basis will, at the same time, prevent any refunds of tax being made to him.

Notice taken that 20 Members were not present; House counted and 20 Members being present.

Mr. B. Ahern

Under the proposed system the employee's tax free allowances will be reduced by the amount of his disability benefit and the "Week 1" basis will at the same time prevent any refunds of tax being made to him.

A number of different situations may thus result and I want to indicate how each will be dealt with. If the tax-free allowances exceed disability benefit, the excess will be set by the employer against any occupational sick pay that the employee may receive. If there is no occupational sick pay, the excess tax-free allowances will remain unused but the employee can recover any tax overpaid if he applies to the Revenue for the restoration of cumulative PAYE system after resumption of employment or on review at the end of the tax year. If disability benefit exceeds the available tax-free allowance, the generally small amounts of tax payable in respect of the excess may be identified on review after the end of the tax year or, if the employee applies to Revnue, on restoration of cumulative PAYE after resumption of employment.

In a situation where disability benefit and occupational sick pay exceed tax-free allowances, the employer will deduct tax from the excess of occupational sick pay over tax-free allowances as reduced by disability benefit.

Turning to the position of disability benefit recipients not in employment, what will happen in the case of such persons who are in receipt of benefit for more than 12 months is that the Department of Social Welfare will notify Revenue of relevant details and Revenue will, as far as possible, restrict by the amount of their expected disability benefit, their tax-free allowances against any other PAYE source of income they or their spouse may have. Where the other source of income is from a non-PAYE source, the disability benefit will be directly assessed along with the other income under the self assessment process. This is the same procedure that currently applies for those in receipt of taxable social welfare pensions.

In the case of non-employed disability benefit recipients who have received or are receiving disability benefit for less than 12 months, the disability benefit will be taken into account by the Revenue by either a restriction of tax-free allowances, where appropriate, during the course of the year or on review of the employee's tax liability after the end of the year.

One point that must not be lost sight of — indeed it is one I have made before but one which I must stress once again — is that the extent to which taxation will arise under this measure will essentially depend on the amount of other income which the person or the person's spouse has in the tax year. If there is no other income in addition to disability benefit, the exemption limits — the levels of which I increased in the budget — will generally ensure that there is not tax to pay. The yield that is estimated will arise from this measure is £10 million in 1993.

Finally, I want to mention unemployment benefit which was among the short term social welfare benefits covered by section 15 of the 1992 Finance Act. While it is not covered by the present order, the intention is that unemployment benefit payments will be taxed under the PAYE system, operated by the Department of Social Welfare. It is hoped that the necessary preparations will be completed so as to enable taxation to commence in 1994.

Mr. Yates

The taxation of sick benefit represents another typical attack by the Government on the middle income sector. Since April 1992 pay related benefit was abolished for anyone who got sick. The case that was rightly made before that, that people in the latter half of the tax year would be better off going on disability benefit, getting pay related benefit and the tax rebate, has changed. This tax represents a levy in a full year of £20 million on insured workers and will impose undoubted hardship on many families. In effect, it is another tax on sickness. That is in line with Government policy. Hospital charges have been increased. Inpatient charges are now £20 a day up to a maximum of £200. The same group of people are constantly hit by the Minister for Finance and the Government. The same people will pay the 1 per cent income levy and are hit by the lack of proper adjustment to the PAYE tax bands. The same people have mortgages and will have to pay higher VHI charges.

In the budget the Government did not bring forward any measures to alleviate the cumulative effect of all these measures on ordinary workers who are genuinely ill. It is ironic that this Government, in its new taxation proposals, should perceive two groups to be well off, the sick who happen to go to hospital and those on disability benefit who now have to be taxed. Another category are the dead. The Government have introduced a death tax in the form of a probate tax. That is ironic.

Fine Gael recognises that there must be equality in the income tax code and that income from all sources must be taxed equally. At present there are many anomalies in the tax code and I will give an example which relates to married couples. Take for example a postman who is earning £240 per week. If his wife has a part-time cleaning job and is earning £60 per week he will use up all the personal tax free allowances and her only tax free allowance will be a PAYE allowance. If she were on disability benefit she would not be taxed on it, whereas if she is in a cleaning job with the same level of pay she will pay his marginal rate of tax which could be 48p in the pound. Clearly that is unjust. Other social welfare payments in the form of invalidity pension and disablement pension, are also taxed at present whereas short term social welfare is not.

Claimants of disability benefit during the past three years averaged 180,000 per annum at a cost of £173 million. The most common duration of claim is between two and three weeks. This clearly indicates there is not abuse but genuine illness. At any one time — I understand it fluctuates — the likely number of recipients at a snap-shot in time is around 50,000. These figures show that for employers and employees this proposal — and this is the reason we are proposing this measure today — would represent a bureaucratic and administrative nightmare of unprecedented proportions for those who would have to implement it in cases where there is no occupational sick pay scheme. In other words, when somebody goes sick they send in their doctor's certs and await their claim from Store Street. In those cases employees will be faced with the prospect of further delays in the issuing of their disability benefit. Even worse, however, is the prospect that there will have to be a continual adjustment of tax free allowances for people who return to work after sickness. This will be truly a nightmare.

The ESRI report on taxation of disability benefit, Policy Series No. 8, which came out in March 1988, makes instructive reading. It itemises clearly that this is not a new idea. In the Finance Act, 1979, a provision was introduced to tax short term social welfare benefits from April 1980. We were told it would raise £13 million in the income tax year 1980-81 but a year later it was dropped. Why? The matter was subsequently dropped for administrative reasons. It has been estimated that an extra 650 employees would be required, between the Revenue Commissioners and the Department of Social Welfare, to make the revisions in tax allowances. At the time it was estimated that the only way it could be implemented was to impose a flat 20 per cent deduction at source tax on pay-related benefit with subsequent refunds for overpayments for which the claimants would have to apply.

Fine Gael are opposing this order to introduce this measure in three weeks. It is clear that the Revenue Commissioners have not yet issued to employers or employees the necessary guidelines for the implementation of this measure. The reprogramming of computer software will be expensive as will be the element of retraining for personnel staff. The worst burden will apply to small employers who do not have occupational sick pay schemes. Already we have had a plethora of complaints and representations from the small firms' association, people in the service sector, the construction industry, that they are overburdened with red tape in regard to employing somebody.

What we are doing today is creating a whole new layer of continual adjustments in tax free allowances. Today's measure will create a huge additional administrative burden on such employers. It is not clear whether this taxation measure will apply to the basic rate of benefit only or to dependants' allowance payments as well. Perhaps the Minister would clarify that point. This will add to the bureaucratic nightmare for such employers. Given the existing delays with the Department of Social Welfare, where many disability benefit claimants are only paid long after they have returned to work, there is little likelihood of quick information from that Department now to implement this measure.

I understand this measure is to be implemented in two phases — as outlined by the Minister. In the first phase employers are to reduce the weekly tax free allowance of benefit claimants by the amount of the personal rate of disability benefit. Subsequently the Department of Social Welfare is to notify employers as to whether the benefit payment exceeds the personal rate; they will then have to make the necessary adjustments in the employer's tax free allowance. An employer with a staff of 30 people will need to assign someone almost full-time to changing tax free allowances as nearly always somebody is out sick. The second phase — this is the most incredible part — presupposes that computerisation in the Department of Social Welfare and the Revenue Commissioners will be integrated. I understand this will allow excess benefit over the tax free allowances to be taxed at source; in other words they will never get the cheque. This will bring a whole new complexity into our social welfare code. For the first time there will be a gross social welfare pay and a net social welfare pay. This is farcical. Is there no limit to the complexity being introduced into our system? Will gross reckonable earnings in future show a gross and net social welfare figure? Will people subsequently be entitled to a tax rebate on their social welfare tax? I would urge the Minister to exercise caution in treading too far down this road as each new departure will bring its own anomalies.

The Minister should also clarify whether he proposes to extend the taxation to other social welfare short term payments such as unemployment benefit. I want to assure him that my party will oppose this measure because the last thing the unemployed want is another kick in the teeth. It is bad enough being employed and having a derisory rate of social welfare but now it will be taxed. There is a world of difference between someone who can return to work and someone who has no such prospect.

Finally, it is clear that this measure has not been adequately thought out. It is being rushed through this House in a smash and grab raid on the pay packets of ordinary workers to the tune of £10 million this year. It should be deferred until there are adequate safeguards in place to protect vulnerable employees who are genuinely sick and all employers have had an adequate opportunity to understand and administer its implementation.

Ms O'Donnell

It would be disingenuous of the Progressive Democrats to oppose this order since we were involved in the Finance Act, 1992, and we are supporting this order today. It is difficult to disagree with the principle underlying the proposed taxing of disability benefit and occupational injuries benefit, that is that similar levels of income, irrespective of their source, should be taxed similarly under our taxation code, in other words, a basic equity under the tax system as recommended by Culliton and other agencies, as stated by the Minister. That is the principle that the Progressive Democrats have consistently supported as the exemption from the taxation code of various benefits or payments gives rise to anomalies not only in the tax system but also in the workplace and can also give rise to unemployment traps.

The non-taxing of disability benefit or sick pay, as it is more generally termed, has given rise to various anomalies in the workplace, most notably towards the latter part of each tax year, because workers may be going on to a higher tax rate or simply to recoup some tax already paid. It is an opportune time to go sick and everybody in this House knows this means there has been an abuse of the system. In those circumstances people get disability benefit and they can also qualify for a rebate of tax paid. This proposed measure should help to tackle that abuse. However, it would appear that this measure could create fresh anomalies. I know that the order which proposes to tax disability benefit and occupational injuries benefit is based on section 15 of the Finance Act, 1992. However, it is interesting to note that in addition to the proposed taxing of disability benefit and occupational injuries benefit it is envisaged that unemployment benefit and pay-related benefit would also be taxed. I note from the Minister's speech that he intends to introduce measures to deal with this in 1994. When one takes into account that the payment rates for disability benefit and unemployment benefit are identical it would be illogical to exclude those two items along with the new measures being introduced today.

Another abuse in the workplace which is not unheard of relates to unemployment benefit where some employers and employees collude in layoffs towards the end of the tax year. The net effect of this practice is to create further inequities between people under the tax system. There is a need to ensure equity across the tax code. However, I would be much more satisfied to see the measures envisaged by this order coming into effect if the anomalies in the system were already being tackled and tax equity was to become a guiding principle for the entire taxation system.

The Progressive Democrats support this motion. It has to be seen in the overall context of the integration of the tax and social welfare systems, which I believe the Minister of State at the Department of Social Welfare, Deputy Joan Burton, proposes to deal with in the near future. I would welcome such a move.

Proinsias De Rossa

Not having been a Member of the previous Government I do not have to support this motion. Indeed, I wish to indicate quite clearly that I will be opposing it, not simply because I was not a Member of the previous Government but because I believe it is inequitable to start applying tax at the bottom of the ladder to people who, in many cases, already find it difficult to survive. The Minister sought to justify this proposal by quoting from the ESRI report which indicated, based on the 1987 study, that only 10 per cent of those involved might be adversely affected. Of course, the Minister gave no indication that he intended to do anything to assist those 10 per cent who would be adversely affected. He gave no indication either as to the actual number of people involved. The Minister in his speech expressed the hope that the effect of this measure might be ameliorated somewhat by the slight rise in the exemption limits which have occurred since 1987. Of course, that again is a vain hope: he offers no specific statistics or indication of precisely who will be hurt and how it will hurt them.

The proposal to start taxing disability and injury benefit cannot be separated from the series of social welfare cutbacks introduced last year by the former Minister for Social Welfare, Deputy McCreevy. This point was made by Labour Party speakers during the debate on the Finance Bill last May when they voted in favour of an amendment tabled by the Democratic Left which would have allowed for the continued exemption of the social welfare payments for tax purposes. Nothing has changed since then. I wish to draw attention to a statement made during that debate on 19 May by the Minister for Enterprise and Employment, Deputy Quinn, I quote from column 1903 of the Official Report:

The principle of persons earning income or getting income from any source and then paying tax on it is not one with which the Labour Party disagree. With the present low threshold of income tax allowances, and bearing in mind the tax rebate as a result of redundancy or illness in one year, and in one year only, the Minister is being unnecessarily harsh and uncharacteristically cruel if that is all he going after. There are other ways of collecting revenue, as the Minister has shown. I should like to hear the Minister's comments on that.

A slight increase in the exemption limits was offered in the Minister's Budget Statement but even those have yet to be——

Mr. Yates

The points Deputy De Rossa is making are so good that the Labour Party should be here to listen to them.

Mr. Ferris

I am here.

Notice taken that 20 Members were not present; House counted and 20 Members being present.

Proinsias De Rossa

Nothing has changed since the Minister for Enterprise and Employment, Deputy Quinn, made that statement in this House less than 12 months ago when he opposed the taxation of disability benefit, as proposed here today. The cutbacks introduced by the then Minister for Social Welfare, Deputy McCreevy, have not been reversed. On a number of occasions I have drawn attention to Circulars 14/92 and 18/92 introduced by the then Minister for Social Welfare during the middle of last year. These decisions have not been reversed by the Government, and, despite promises that additional money is being provided for the supplementary welfare allowance scheme, there are people living in this city at present who cannot get assistance from community welfare offices because of the continued existence of these circulars. I got half a promise from the Minister for Social Welfare two weeks ago that community welfare offices had discretion and could, in fact, give help. However, the community welfare offices have pointed out that they are constrained by these circulars and cannot act outside them unless they get a countermanding circular. I would again draw the attention of the House to that matter — at present people are living under the threat of having their light and heat cut off. Action needs to be taken on this measure, one of what I think was referred to by the Labour Party during the last election as the McCreevy dirty dozen. The arguments made by both Democratic Left and the Labour Party last year still stand. In order to be consistent, the Labour Party should not only come in here for a quorum today but should vote against this proposal.

Much has been made of the recommendation by the Commission on Social Welfare that these benefits should be taxed. That proposal was clearly part of a major package of reforms put forward by the commission, many of which have still not been implemented. The principle of taxing short term benefits is unacceptable while we have an unreasonably low tax threshold. People come into the tax net at a ridiculously low level, far below the levels in most other EC countries.

The result of the implementation of this order will be to take more tax from those on low and moderate incomes and to reduce the living standards of those dependent on social welfare. People who are ill very often have substantial additional expenses. A visit to the doctor can cost as much as £15 and the cost of drugs is particularly high. Some allowance should be made for those extra expenses. It should not be forgotten that those in receipt of disability or injury benefit already suffer a substantial decrease in income and this is being whittled away each year as pay-related benefit is progressively cut.

There are many potential sources of tax revenue but the Government does not have the political will to go after them. Farmer taxation remains a joke, the average tax paid by farmers having come down from £786 to £537 between 1989 and 1991, a decrease of some 30 per cent. The Revenue Commissioners can apparently find only 5,000 self employed people who will admit to earning more than £25,000 per year, despite the fact that most of the high earning professions are included in this category. These are the people who should be pursued, not those who are unable to work due to illness.

Both, the Commission on Social Welfare and the Commission on Taxation have referred to the complexities in introducing an equitable taxation system in respect of short term social welfare benefits. Since those reports, successive Governments have depressed the level of payment of disability benefit below the minimum adequate income stipulated by the Commission on Social Welfare and have further abolished pay-related benefit for disability benefit. It has also made it more difficult to comply with the qualifying conditions.

On all these grounds I urge this House to reject the motion put forward by the Minister for Finance. I do so in the interests of fair play and equity in our tax and social welfare systems.

Mr. Ferris

The interests of the Labour Party are, apparently, of primary concern to most Members. The Labour Party has never shirked its responsibility and if it was to do so on this occasion I am sure that Fine Gael, the Progressive Democrats and Democratic Left would welcome a general election in the week after St. Patrick's Day. That would be the inevitable result.

This provision was framed last year and supported by the Progressive Democrats and Fianna Fáil. We said then that there is something wrong with the concept of taxing people on benefits to which they contribute. There is a counter argument that if one is allowed tax relief for the PRSI element of one's contributions towards disability benefit and unemployment benefit, there must be some measure of equity and taxation might be considered where the benefit exceeds the tax free allowance. This will be presented by the Opposition as taxing disability benefit but that is not what the order is about. It means that income from disability benefit will be considered with other income as being subject to consideration for tax.

The vast majority of people who draw disability benefit are not during that period in the income tax bracket and will not therefore be taxed on their disability benefit. Some employees are fortunate enough to be employed in enterprises which have sick pay schemes, such as local authorities, parts of the private sector, the co-operative movement and so on. These sick pay schemes indemnify families for up to six months in the case of loss of earnings due to illness. If income from social welfare is added to the balance of the income from the employer, this income would be taxable. The normal procedure is to transfer to the employer the social welfare payment so that the employee receives the equivalent of a normal rate of pay.

No tears have been shed by the Opposition for people such as old age pensioners, invalidity pensioners, or recipients of disablement benefit who are already included in the tax net. My 88-year-old mother who has a contributory old age pension is paying income tax because she has a small county council pension resulting from my late father's employment as a road worker. I do not need lectures from the Opposition about the facts as they affect ordinary working class people. My mother has been paying income tax for 15 years. I have not heard a word today which identifies that section of social welfare recipients who have to pay tax on their income. All pensions are considered to be incomes. There are exceptions, of course. If two spouses are working and one of them is ill and drawing disability benefit but not in the tax code, the total income for both spouses will be subject to tax. That is one of the anomalies. It penalises the working spouse who would normally hope that the income would be treated separately. Equity in the taxation code means that spouses can separate their tax allowances. There is no imposition if they want to remain separate. There are anomalies throughout the tax code, but this measure makes sense to people like old age pensioners whose income from social welfare is already subject to tax.

I would prefer not to have to address these minimal areas of revenue but if we address inequity in the system we are moving forward. Let us hope that people will accept that if their income is above the level of their tax free allowance they should pay their fair share of income tax.

Mr. Allen

It is sad, and sickening, to see the Whip of the Labour Party squirming to explain his party's U-turn in recent months.

Mr. Ferris

I have never squirmed in my life.

Mr. Allen

To bring in his 88-year-old mother to defend this action adds insult to injury.

Mr. Ferris

It is the truth. Did the Deputy's father work for the county council?

Mr. Allen

The Deputy had his opportunity to speak.

Mr. Ferris

I am proud of my mother.

Mr. Allen

The Minister for Social Welfare is implementing in a very selective way one of the recommendations of the Commission on Social Welfare published in 1986, while largely ignoring the other recommendations of that report. The move by Ministers of a Fianna Fáil and Labour Government to tax disability benefit can be seen as a move against the PAYE sector because those in receipt of disability benefit are PAYE contributors. This decision comes hard on the heels of the decision by the Minister for Social Welfare to disqualify disability benefit recipients from pay-related benefit. The Minister is now expecting more from social welfare contributors while offering increasingly less. We only have to look at the restrictions that were put on social welfare beneficiaries in recent months to see how this sector is being squeezed more and more by the Minister.

The Minister's refusal to deal with many of the key recommendations in the commission's report leaves the social welfare system a very complicated and confusing one which is anti-family and creates unbelievable barriers to work. The lines of communication between the Department and the public are still very unsatisfactory. There is an urgent need for these lines of communication to be harmonised and for the whole service to be made user friendly. The Minister should realise that persons availing of social welfare are victims of either economic failure or of ill health. The Minister has failed to ensure that the guiding principles of the social welfare system are successfully met, even at this stage. To date the Minister and his Department have failed to address the principal features of the report. The effects of the "dirty dozen" provisions over the last number of months are now being added to as people who are affected by bad health, stress and short term unemployment due to illness will be adversely affected by this added burden.

In short I am asking the Minister not to go ahead with this recommendation, even at this late stage. I am absolutely amazed that the Labour Party who projected themselves over the last number of years as a pro-worker party are now party to introducing an anti-worker provision. The Minister goes even further today by sneaking in, in the last paragraph, another attack on the workers of this country. People who are contributing at the moment are now being told that in the event that they become victims of the present recession their unemployment benefits will be taxed. I am asking the Labour Party who are supposed to be the "proud protectors of the working people of this country" to stand up now and be counted. To say the least, I am amazed that less and less has been heard from the Tánaiste and the members of his party over the last days when these measures were tabled in this House. If all Deputy Ferris can offer this House is the threat of a general election, I can only assume that he is afraid of losing his job or of the job of his advisers being lost.

Mr. Ferris

I am ready at any time.

Mr. Allen

The Labour Party should stand up and add its voice to what we are saying here this evening by voting against these provisions.

Minister for Finance (Mr. B. Ahern)

Let me reiterate what I said at the outset.

The reason for treating disability benefit as income for tax purposes is to treat people in similar circumstances with similar amounts of income in the same way. It is to make sure that when two people are in similar circumstances with the same amount of income that one does not pay less tax than the other by virtue of the fact that one person's income contains disability benefit and the other's does not. This is to introduce equity into the system.

Proinsias De Rossa

It is not to get money from it, of course.

Mr. B. Ahern

The Labour Party policy, which Fianna Fáil accepted, of increasing child benefit was precisely to deal with this matter and it is families in need who are targeted. All of the various bodies, including the Conference of Major Religious Superiors have argued for years that we should tax——

Mr. Allen

The Minister is taking one of 100 recommendations and using it against workers.

Mr. B. Ahern

It is not the Labour Party that has changed on this. I want to congratulate Deputy Yates on taking over an onerous task and to wish him well. When we debated this in the House in autumn 1991 and at length last year Fine Gael supported this measure. The Commission on Taxation supported it. It is part of the Culliton report and the Commission on Social Welfare recommended it. It is not a selected piece. The overall thrust is that income, from wherever it comes, should be taxed, that we should get rid of the shelters, the exemptions and the thresholds. Tax should be levied and whatever is raised from that tax should then be channeled towards people in need. That is precisely the policy of Deputy Ferris and his colleagues. We have accepted that and that is why child benefit has been increased.

Proinsias De Rossa

That is not what is being done with child benefit.

Mr. B. Ahern

It is. This is to do with taxing the various benefits. There is one further point. Deputy Burton is working on integrating the social welfare and tax systems and that has yet to be completed. I am disappointed that it has taken so long but it is a major job that must be done.

To answer Deputy Yates's question, disability payments from the Department of Social Welfare will not be delayed but will continue to be paid gross. The system is designed to integrate all of the administrative burdens on employers. The instructions to employers will be issued soon. However, they received notice back in the autumn of 1991 so they are well aware of the implications.

On the point made by Deputy Ferris, all social welfare pensions are taxable. In talking about people in need we are talking about some of the categories mentioned by Deputy Ferris and there is no need for me to go back over them. This will apply to all disability payments including dependant allowances. The proposal mooted in 1979 was dropped not because it was unworkable but because it was part of the National Understanding worked out in 1979. However, it subsequently came back into all of the reports that took place during the eighties.

Deputy De Rossa argued the case of people on low incomes. Generally, we all agree with that. However, the categories Deputy De Rossa is talking about would have medical cards.

Proinsias De Rossa

I was talking about low and middle income people.

Mr. B. Ahern

Even in that category expenses would qualify for income tax relief. A number of Deputies have mentioned the post budget annual rates of disability benefit, unemployment benefit etc. in the context of the income tax exemption limits. The personal rate is £2,891; the exemption limit is £3,600. The benefit for a person with an adult dependant is £4,737 and the exemption limit is £7,200. For a person with one dependant it is £5,402 and the exemption limit is £7,550 and so on up to five and six children. For a person with six children the benefit is £8,797 and the exemption limit is £10,400. I think the concerns of the Deputies have been clearly answered. We will continue in the other areas to try to bring equity into this system.

Question put.

The Dáil divided: Tá, 88; Níl, 32.

Tá

• Ahern, Bertie.
• Ahern, Dermot.
• Ahern, Noel.
• Bell, Michael.
• Bhreathnach, Niamh.
• Bree, Declan.
• Brennan, Matt.
• Brennan, Séamus.
• Briscoe, Ben.
• Broughan, Tommy.
• Burke, Raphael P.
• Byrne, Hugh.
• Callely, Ivor.
• Clohessy, Peadar.
• Connolly, Ger.
• Costello, Joe.
• Coughlan, Mary.
• Cullen, Martin.
• Dempsey, Noel.
• Ellis, John.
• Ferris, Michael.
• Fitzgerald, Brian.
• Leonard, Jimmy.
• McDaid, James.
• McDowell, Derek.
• McDowell, Michael.
• Moffat, Tom.
• Molloy, Robert.
• Morley, P.J.
• Moynihan, Donal.
• Moynihan-Cronin, Breeda.
• Nolan, M.J.
• Noonan, Michael.
• (Limerick West).
• Ó Cuív, Éamon.
• O'Dea, Willie.
• O'Donnell, Liz.
• O'Donoghue, John.
• O'Hanlon, Rory.
• O'Keeffe, Batt.
• O'Keeffe, Ned.
• O'Malley, Desmond J.
• O'Rourke, Mary.
• O'Shea, Brian.
• Fitzgerald, Liam.
• Flood, Chris.
• Gallagher, Pat the Cope.
• Gallagher, Pat.
• Geoghegan-Quinn, Máire.
• Harney, Mary.
• Haughey, Seán.
• Hilliard, Colm M.
• Howlin, Brendan.
• Hughes, Séamus.
• Jacob, Joe.
• Kavanagh, Liam.
• Kemmy, Jim.
• Kenneally, Brendan.
• Kenny, Seán.
• Keogh, Helen.
• Killeen, Tony.
• Kirk, Séamus.
• Kitt, Michael P.
• Kitt, Tom.
• Lawlor, Liam.
• Lenihan, Brian.
• O'Sullivan, Gerry.
• O'Sullivan, Toddy.
• Pattison, Séamus.
• Penrose, William.
• Power, Seán.
• Quill, Máirín.
• Reynolds, Albert.
• Ryan, Eoin.
• Ryan, John.
• Ryan, Seán.
• Shortall, Róisín.
• Smith, Brendan.
• Smith, Michael.
• Spring, Dick.
• Stagg, Emmet.
• Taylor, Mervyn.
• Treacy, Noel.
• Upton, Pat.
• Wallace, Dan.
• Wallace, Mary.
• Walsh, Eamon.
• Walsh, Joe.
• Woods, Michael.

Níl

• Allen, Bernard.
• Barrett, Seán.
• Bradford, Paul.
• Browne, John (Carlow-Kilkenny).
• Bruton, Richard.
• Carey, Donal.
• Crawford, Seymour.
• Crowley, Frank.
• Deasy, Austin.
• Deenihan, Jimmy.
• De Rossa, Proinsias.
• Doyle, Avril.
• Dukes, Alan M.
• Durkan, Bernard J.
• Finucane, Michael.
• Fitzgerald, Frances.
• Flaherty, Mary.
• Flanagan, Charles.
• Foxe, Tom.
• Gilmore, Eamon.
• Gregory, Tony.
• Harte, Paddy.
• Higgins, Jim.
• Hogan, Philip.
• Kenny, Enda.
• McGahon, Brendan.
• McGinley, Dinny.
• Noonan, Michael.
• (Limerick East).
• O'Keeffe, Jim.
• Owen, Nora.
• Rabbitte, Pat.
• Yates, Ivan.

Tellers: Tá, Deputies Dempsey and Ferris; Níl, Deputies E. Kenny and Rabbitte.

Question declared carried.