Vol. 439 No. 7
1 Mr. Yates asked the Minister for Finance the anomalies, if any, in the residential property tax that he intends to rectify in the forthcoming Finance Bill; and if he has given consideration to those cases where householders have a high mortgage or where the combination of the family income leads to liability or the clear discrimination against joint ownership of houses.
The Government on 8 Februay 1994 announced that any anomalies with the residential property tax scheme would be examined and dealt with in the forthcoming Finance Bill. In accordance with this undertaking the Government is considering anomalies which could cause unreasonable hardship. The aim is to preserve the essential features of the budget proposal, particularly in terms of its contribution to the wider pro-employment thrust of taxation policies, while at the same time catering for the more deserving anomalies in the scheme which have been highlighted in recent weeks. Any such anomalies have, of course, been inherent in the basic structure of the scheme as it has existed since its introduction and which has not been altered by the budget extensions.
The Government remains convinced that the RPT as extended is fully justified as a modest contribution towards tilting the balance in the tax code more in favour of productive investment, which helps in creating and safeguarding employment, and also giving a greater measure of equity in the tax system. From the employment viewpoint, the relative tax advantages of investment in dearer housing can only be to the disadvantages of industrial and commercial investment which is essential for employment growth.
Does the Minister hold the view that those objecting to residential property tax are a well-heeled minority, as he is supposed to have said in Brussels? Is it fair that people are asked to pay what is in effect a home tax on houses that are owned in the main by the banks or building societies, for example, one could have a £60,000 mortgage on an £80,000 house? Is it fair that pensioners with sons or daughters living with them will have to pay the tax because the total household income is above the income limit? Is the Minister aware of the specific anomaly with joint ownership? People who have two houses in separate names each worth £75,000 would pay no tax but should they pursue Government policy and have the properties in joint names, the tax yield would be £1,250. Will he give a specific commitment either to abolish the tax and withdraw his proposals or remove these anomalies?
The Government almost a month ago announced that any anomalies would be examined. Deputy Yates mentioned a number of the anomalies at which I am looking. The Government has no intention of abolishing residential property tax, which was brought in by the Deputy's party. I supported such a tax for many years. It is neither equitable nor reasonable that people living in houses worth between £500,000 and £1 million should pay the same service charges as those in more modest houses. Is the Deputy suggesting that we move away from the principle of residential property tax, which is already on the Statue Book? The yield from this modest tax is under £10 million. The argument about the numbers is a separate question, but only 14,000 households pay it.
Deputy Yates, his former and present leader and current and former spokespersons——
And the Government's current partnership.
——have argued in favour of a modest tax. That is the principle. No doubt there are some anomalies in the system, but they have been there since day one and not since January 1994. The anomalies will be dealt with. The anomaly arising from joint ownership existed from the start and I am not sure how Deputy Yates proposes we should deal with it.
He specifically asked how people over 65 years would be affected and I am having that examined.
The Minister referred to £1 million homes but ordinary householders in suburban Dublin feel they will be penalised by being brought into the net because modest homes in areas of high residential value are now in the net.
Will the Minister clarify the definition of income? Will higher education grant payments, VHI refunds and income before DIRT all constitute gross income under the extended residential property tax income threshold? What does he mean when he says he will remove the anomalies? All I have heard is a defence of this tax, which is fundamentally an attack on home owners.
It is difficult to understand why Deputy Yates is so opposed to a tax that his party introduced.
With the help of the Labour Party.
The then Leader of the Deputy's party still defends it. I share the Deputy's concern about anomalies and I will try to deal with them. It is sad that people make such an argument about the definition of income when it relates to high cost houses but when it relates to differential rents for houses and flats nobody seems to care.
That is a red herring.
Neither is it true.
2 Mr. Yates asked the Minister for Finance in view of the phased reduction of income tax relief on mortgage and VHI expenses for middle income earners, the commitment, if any, he will give over the same time period to widen the standard tax band so that those affected will not be worse off.
12 Mr. Cullen asked the Minister for Finance the appropriate increase to the standard rate band each year if all the Exchequer yield from the curtailment of mortgage interest and VHI relief to the standard rate was used exclusively to expand the standard rate of tax band as it becomes progressively available.
28 Mr. M. McDowell asked the Minister for Finance, in relation to the curtailment of mortgage interest relief and VHI relief to the standard rate of income tax, the amount of additional revenue that will accrue to the Exchequer each year in the interim period until the changes proposed are fully implemented; and the value of the full and final worth of these changes.
I propose to take Questions Nos. 2, 12 and 28 together.
The additional full year yields to the Exchequer, expressed in 1994-95 terms, which are expected to arise from the phased restriction of mortgage interest relief and medical insurance relief to the standard rate of income tax over the years after 1994-95 are estimated at a further £26.5 million for 1995-96, a further £26.5 million for 1996-97 and a further £13 million for 1997-98. With the estimated 1994-95 yield of £14 million, this gives a total yield of £80 million from the measures when fully in effect.
Assuming the enactment of the changes proposed in this year's budget, the increases in the standard tax band which could be provided over the next three years for these amounts of revenue are estimated as follows in 1994-95 terms: for 1995-96 — further increases for £260 for single and widowed persons and £520 for married persons; for 1996-97 — further increases of £270 for single and widowed persons and £540 for married persons, and, for 1997-98 — further increases of £150 for single and widowed persons and £300 for married persons.
These estimates of yield and cost are, of course, provisional. As stated in the Programme for Competitiveness and Work, future strategy in relation to income tax will focus resources on improving the position of lower and middle incomes and, in particular, will have two priority goals: (i) alleviating the burden of taxation on workers with low incomes, particularly those with families; and (ii) raising the income threshold at which the higher rate comes into play. It is the Government's intention that the progressive increase in the yield from the standardisation of discretionary reliefs will be used, as a priority, to expand the standard rate band.
The Deputy will be aware of course, that the recent budget already provided for an increase in the standard band of £525 for single and widowed taxpayers and £1,050 for married taxpayers at a cost of £58.2 million in a full year.
Will the Minister confirm that it is Government policy, taking the family home tax and the changes in VHI and mortgage interest relief together, to make a direct assault on middle income earners paying more and more for fewer benefits? Will he also confirm that middle income earners will lose £20 per week when the changes in mortgage interest relief are put into effect and up to £7 per week when VHI relief is restricted to the standard rate of 27 per cent rather than 48 per cent? Does the Minister have any regard for these people, 350,000 in number, who support approximately one million people? They are very bitter that they will progressively pay more tax during the next three years.
I reject everything the Deputy said. When the Deputy's party was last in power the rate of tax was 58 per cent.
The Minister and his party have been in charge for the past six years and they cannot keep harking back.
They are paying the price for being in Government with the Labour Party. It is a high tax and high spending Government.
Let us hear the Minister's reply. Interruptions at this stage are unwelcome.
The Deputy cannot talk about a high tax and high spending Government; his party's policy when in Government was to tax, borrow and spend. It did nothing to control the national debt and the EBR was out of control. It made a hash of it. The IMF had to intervene to save the country——
The Minister should answer the question.
If the Deputy stopped interrupting I could answer it.
I do not mind if the Minister attacks us.
I will not sit here and listen to nonsense. The Government intends to use the yield from these measures to widen the standard rate tax band to ensure that those on lower incomes pay tax at the standard rate of 27 per cent rather than at the higher rate of 48 per cent as is the case at present. We want to move from the position where two people living side by side, one on an income of £15,000 and the other on £75,000, both pay tax at a higher rate of 48 per cent. It is the Government's priority to remove this anomaly to ensure the person on low pay pays tax at the standard rate of 27 per cent.
It is significant that the Minister in making his argument has to go back ten years to a Government of which I was not a member.
It is not my fault the Deputy's party has not been in Government for ten years.
And it will not be for a long time to come.
Will the Minister widen the standard rate tax band to ensure middle income earners will not be affected? When does he intend to implement the promise Fianna Fáil made before the last election that single people would pay tax at the standard rate on incomes of up to £20,000 per year and married people on incomes of up to £40,000 per year?
The Government announced a tax package costing £200 million — £330 million in a full year — to ensure that most of the people about whom the Deputy and I are concerned will pay less tax this year. Any resources saved by way of these measures will be used to widen tax bands. A saving of £80 million will accrue when they are fully in effect. We are anxious to ensure that those on low incomes do not pay tax at the higher rate. A single person earning £12,000 and a married person earning £20,500 pay at the higher rate. We will use available resources to widen the tax bands as quickly as possible.
Unless the Minister has to include them in the National Development Plan; the Tánaiste mentioned "own resources".
To pick up the bill.
