Supplementary Estimates, 1996. - Finance Bill, 1996: Report Stage.

We come first to amendment No. 1 in the name of Deputy Michael McDowell. I observe that amendments Nos. 6 and 7 are consequential, that amendments Nos. 1, 2 and 4 form a related composite proposal and that amendments, Nos. 3, 5 and 8 to 11, inclusive, form an alternative related composite proposal. I suggest, therefore, that we discuss amendments Nos. 1 to 11, inclusive, together. Is that agreed? Agreed.

Let me also mention that if amendment No. 1 is negatived, amendments Nos. 6 and 7 cannot be moved.

I move amendment No. 1:

In page 11, line 19, to delete "‘£7,800' and ‘£3,900'" and substitute "‘£8,000 and ‘£4,000'".

My approach to amendments Nos. 3, 5, and 6 to 11, inclusive, is similar to my approach to amendment No. 1. Similar amendments have also been moved by our party spokesperson on Committee Stage. I formally move the amendment again in order that it may appear on the record of the House. I do not intend to press it to a vote.

Amendment No. 2 is in my name. These amendments relate to the same area of activity, which is to increase the exemption limits as they currently apply. There are several exemption limits within the tax code. From the point of view of simplicity and good administration I suggested to the Minister last year, and suggest again this year, that there should be a single exemption limit. There is a total income exemption limit when one reaches the age of 65, another when one is 75 and there are some limits relating to people over 80 years of age. In the interests of good administration I suggest that there should be a single exemption limit.

Also, many taxpayers in that age group are quite amazed to find that they have a tax liability post the end of the tax year. This usually arises in the case of people with a small income, usually from a former employment, which, when added to the State social welfare old age or retirement pension, brings them into the tax net and over the exemption limit. This would apply mainly to former employees of local authorities. In my constituency there are also former employees of Bórd na Móna or the ESB. Such people generally do not return their P60s at the end of the tax year and after a few years receive a balancing statement from the Inspector of Taxes which shows that they have some liability.

In fairness, the Revenue Commissioners adopt a pragmatic and humane approach to those who may be in arrears through no fault of their own. However, some people find it difficult to understand how their very low incomes when added to their pensions from their former employments and their few pounds invested in institutions can result in their having tax liabilities. A straightforward approach would be to introduce a single higher exemption limit. I am well aware that increasing the exemption limits will affect Exchequer finances, but an overall exemption limit would limit that effect. While an exemption limit at age 65 would be considered a lower one, now that people are living longer a more realistic exemption limit at age 70 has much to commend it. People who live to that age are entitled to whatever benefits accrued from longevity. Given the type of lifestyle the Minister of Finance and I live, we will probably never see ripe old age.

Others are more fortunate.

Other Members have reached old age. Deputy Molloy told me the secret of his long youth is the wonderful green looking stuff he drinks regularly which has had a great effect on him. I expect him to live to the age of 90 or 100.

Perhaps we should introduce a penalty for longevity.

We may have to in the case of some Members. There are many good reasons for extending income thresholds and I ask the Minister to do so.

Before the Deputy concludes and in case there is any doubt or ambiguity about the procedure at this time, while we are discussing amendment No. 1 let us not forget that amendments Nos. 1 to 11, inclusive, are being debated. I remind the Deputy of that because of the formality that applies. Members may speak once only on Report Stage with the exception of the mover of the motion, in this case Deputy Molloy, who has the right of reply at the end of the debate. If Deputy McCreevy wishes to advert to any of the other amendments, he may do so now.

I thank the Chair, but all the amendments relate to the same point. They seem complicated but relate to single thresholds, married thresholds, etc., and I have made my point in that regard.

I support what the previous two speakers have said, particularly my party colleague. I have had experience of this point lately. My aunt's husband died suddenly. When everything was sorted out my aunt, who is aged 72 or 73 years, was left with a pension and a small yearly income of approximately £1,500. It was traumatic for her to discover that she was put into the tax net for a small tax liability. I discussed the matter with officials in local Revenue office, but the bottom line was that she had a small tax liability. As I said on many occasions, I do not believe we or the State want to penalise people of that age with a small income who have worked all their lives and made a substantial contribution to society. It is not right that they should be in the tax net. We must find some way to deal with the matter. I appreciate that some people of that age may be very wealthy and have large incomes, but that is a separate matter. I am sure the Minister will agree that it is not the ambition of the State to use its long arm to take £2 or £3 a week from elderly people on low incomes. The single rate at a higher level proposed by Deputy McCreevy would move some way towards addressing the problem. The Minister should consider the amendment in that spirit.

I welcome Deputy Molloy to the House. He may wish to refer to some of the other amendments that may be discussed with amendment No. 1. I understand that was the spirit in which the Chair made its observations.

The Deputy will have a chance to reply shortly.

I have made my position clear and I will wait to hear what the Minister has to say.

It must be understood that what we are talking about here is the taxation of income above certain thresholds, irrespective of age. Deputy Cullen made the observation that some elderly people are quite wealthy and I do not believe he was making a case for those people. We are dealing with exemption limits that take people out of the tax net irrespective of the source of their income or, in most cases, the age at which they derive or earn it or, in the case of retired people, whether it is derived from a pension. It must be understood that the 1996 budget and the provisions of this Bill give exemption limits which in a full year cost will amount to £25 million. The additional full year cost of what is proposed is approximately £6.7 million. On budgetary provision grounds alone I am not prepared to agree to the amendments because we have made a fairly substantial and generous provision, but self-evidently one can never be generous enough. Taking account of exemption limits, the relative increase takes most people above what they would derive from a normal social welfare income. People with the relatively small pensions to which Deputies McCreevy and Cullen referred should be outside the tax net.

A two-tiered exemption limit applies because the social welfare system provides for an additional increase in pension for people over the age of 80. It is recognised that people over the age of 75 have associated costs. That is recognised in the social welfare code and should be reflected in the income taxation system also. I do not accept the arguments proposed by Deputy McCreevy and I am not prepared to accept amendment No. 1 or the ten other amendments being discussed with it.

I call on Deputy Molloy to reply to the debate if he so desires.

I have indicated I do not wish to do so. My party's position on this matter has been put on the record of the House and I do not wish to repeat the points made by Deputy McDowell on that occasion. I want this Report Stage to record formally my party's position on this proposal.

Amendment, by leave, withdrawn.

I move amendment No. 2:

In page 11, line 24, to delete "‘£9,000' and ‘£10,200'" and substitute "‘£11,000' and ‘£11,000'".

Question, "That the words proposed to be deleted stand", put and declared carried.
Amendment declared lost.

I move amendment No. 3:

In page 11, line 24, to delete "‘£9,000' and ‘£10,200'" and substitute "‘£9,500' and ‘£11,000'".

Question, "That the word and figures proposed to be deleted stand" put and declared carried.
Amendment declared lost.
Amendment No. 4 not moved.

I move amendment No. 5:

In page 11, line 27, to delete "‘£4,500' and ‘£5,100'" and substitute "‘£4,750' and ‘£5,500'".

Question, "That the word and figures proposed to be deleted stand" put and declared carried.
Amendment declared lost.
Amendments Nos. 6 to 11, inclusive, not moved.

I move amendment No. 12:

In page 12, to delete lines 17 to 32 and substitute the following:

2. —Section 2 of the Finance Act 1991, is hereby amended—

(a) as respects the year of assessment 1996-97, by the substitution of the following Table for the Table to that section:

"TABLE

PART I

Part of taxable income

Rate of tax

Description of rate

(1)

(2)

(3)

The first £9,400

25 per cent

the standard rate

The remainder

45 per cent

the higher rate

PART II

Part of taxable income

Rate of tax

Description of rate

(1)

(2)

(3)

The first £18,800

25 per cent

the standard rate

The remainder

45 per cent

the higher rate

(b) as respects the year of assessment 1997-98, by the substitution of the following Table for the Table to that section:

"TABLE

PART I

Part of taxable income

Rate of tax

Description of rate

(1)

(2)

(3)

The first £10,000

23 per cent

the standard rate

The remainder

42 per cent

the higher rate

PART II

Part of taxable income

Rate of tax

Description of rate

(1)

(2)

(3)

The first £20,000

23 per cent

the standard rate

The remainder

42 per cent

the higher rate

(c) as respects the year of assessment 1998-99, by the substitution of the following Table for the Table to that section:

"TABLE

PART I

Part of taxable income

Rate of tax

Description of rate

(1)

(2)

(3)

The first £12,000

21 per cent

the standard rate

The remainder

40 per cent

the higher rate

PART II

Part of taxable income

Rate of tax

Description of rate

(1)

(2)

(3)

The first £24,000

21 per cent

the standard rate

The remainder

40 per cent

the higher rate

(d) as respects the year of assessment 1999-2000, by the substitution of the following Table for the Table to that section:

"TABLE

PART I

Part of taxable income

Rate of tax

Description of rate

(1)

(2)

(3)

The first £14,000

20 per cent

the standard rate

The remainder

38 per cent

the higher rate

PART II

Part of taxable income

Rate of tax

Description of rate

(1)

(2)

(3)

The first £28,000

20 per cent

the standard rate

The remainder

38 per cent

the higher rate

(e) as respects the year of assessment 2000-2001, by the substitution of the following Table for the Table to that section:

"TABLE

PART I

Part of taxable income

Rate of tax

Description of rate

(1)

(2)

(3)

The first £15,000

20 per cent

the standard rate

The remainder

35 per cent

the higher rate

PART II

Part of taxable income

Rate of tax

Description of rate

(1)

(2)

(3)

The first £30,000

20 per cent

the standard rate

The remainder

35 per cent

the higher rate

This amendment sets out a five year programme of tax reform under which rates would be progressively reduced so that there would be a basic rate of 20 per cent and higher rate of 35 per cent. It also proposes that the bands should be increased from £9,400 to £15,000 for a single person and to £30,000 for a married couple. This proposal, which would cost £200 million-£300 million annually, could be funded by the application of firm discipline to public spending. The present economic climate presents a unique opportunity to achieve major reforms in the tax system. It would not have been possible eight years ago to implement a major tax reform programme without substantially reducing public expenditure, in other words implementing cutbacks. When my party previously published policy documents on how to achieve tax reform, which included major reductions in the levels of personal income tax and bands, it identified areas where expenditure could be reduced and cutbacks implemented in order to achieve the level of savings necessary to reduce the rates of taxation.

The huge burden of personal taxation has been identified on many occasions as a major obstacle to job creation. As a result two separate societies are being developed, one of which is being guided towards dependency on the State for themselves and their children with very little prospects of moving into the real economy and sharing in its success. This horrific prospect did not emerge over a short period; rather it had been signalled for a long time. All the major studies and reports undertaken by the Government and private outside agencies have identified the necessity of implementing radical taxation reform so as to increase the opportunities for investment which will result in an increase in employment and give people a greater opportunity to play a part in the economy. It is astonishing that the Government has made no major effort to deal with the calamitous situation in which more than 350,000 people find themselves.

We now have an opportunity to reform the tax system through the control of public expenditure rather than having to go through the painful exercise of implementing cutbacks or eliminating services. In recent days the Minister for Finance has sought to scare people about my party's proposals in regard to tax reform by stating that if we were in Government hospitals would be closed. A senior member of the Government who tells such a lie is beneath contempt. It is a distortion of the truth and I find is extraordinary that a man of his intelligence, ability and experience should seek to fool people about this matter.

The Deputy should avoid what might be regarded as a Second Reading speech on Report Stage. He is embarking on a long speech more appropriate to the Second Stage of the Bill which is long since past.

Is there a limit on my time?

No, but one has to distinguish between a Second Stage speech and a Report Stage contribution.

I am commenting on the amendment which sets out a five year programme of tax reform which can be achieved as a result of the levels of growth in the economy, an achievement that has been greatly helped by the continued massive European Union transfers to this country and which can reasonably be expected to continue after the current operational programme expires in the year 2000.

While we have a unique opportunity to make this transfer, thus benefiting more people within our economy, the Government has refused to avail of it. The only opportunity open to my party to promote its implementation statutorily is through this Bill because, at any other time of the year, we would be deemed to be adding to public expenditure and ruled out of order.

That is the basis on which my party's amendment has been tabled — to demonstrate that there is another way, that the discipline of having our figures included statutorily possibly constitutes the best manner in which these levels of changes in the taxation system can be achieved. When in Government previously with Fianna Fáil, my party included targets in regard to taxation changes in its programme for Government. Had such proposals not been advanced, it is indeed doubtful that the reductions in personal income tax rates implemented within that period would have been attained.

That is the type of discipline that will reap results which will benefit people generally. The alternative is that this Government's high spending-high taxation policy will continue, with excuses being advanced that nothing can be done. The growth of £2.2 billion in public expenditure between the years 1992 and 1995, over which the Minister and his predecessor presided, with inflation accounting for some £0.6 billion of that overall rate of growth, meant that this Government was afforded a unique opportunity to effect reductions in taxation. The Government had the opportunity to maintain State expenditure at a reasonable levelvis-à-vis the prevailing rate of inflation, now at its lowest for a long time, but has not availed of it.

If the Minister could accept this amendment we would be on the road to major economic recovery, and people would eventually be given an opportunity of participating in our improved economic performance. Its purpose is clear and was expounded by Deputy Michael McDowell in the course of a Private Members' motion last evening and in the course of our Committee Stage debate on this Bill. We want to merely incorporate in statutory form what all the major economic commentators have been saying in recent years but whose comments have been totally ignored by successive Ministers for Finance since 1992 when tax reform ceased.

The approach adopted in this amendment would be agreed by any prudent administration. It specifies appropriate levels of taxation over ensuing years. However, in implementing any such approach one must also agree overall levels of public exenditure for the same period.

In the past decade or so people have become sufficiently wise and realise there is a direct correlation between levels of taxation and public expenditure. They know that to reduce taxation levels, the Government must also reduce levels of public expenditure. The crunch arises whenever a Minister for Finance attempts to put a ceiling on the levels of public expenditure to be incurred by other Government Departments, when those affected — more often than not including one's political supporters — begin to shout "foul". Always the problem has been to endeavour to control public expenditure while simultaneously attempting to reduce taxation.

In reply to parliamentary questions and in a speech last week, the Minister said he will go along with the idea of multi-annual budgeting, of a three-year type, which will allow him to plan tax reductions. In the last couple of national agreements such tax reductions had been signalled——

Signalled but not specified.

Yes, signalled but not specified which, if one can agree multi-annual budgeting, is a logical step. Everybody wants public expenditure cuts but not effected on their doorstep.

On how any Government and Minister for Finance should control public expenditure, I have had experience on the Opposition Benches over many years and was part of an Administration so that I was enabled to view the matter from both sides. Irrespective of their best intentions, I have come to the conclusion that, any Government or Minister for Finance, finds controlling expenditure an impossible task. At the beginning of the year the Department of Finance specifies what it considers to be appropriate levels of public expenditure. In July, the Minister for Finance issues a circular to all other Government Departments, informing them that they must maintain their current levels of expenditure in line with the preceding year's policy decisions. The Minister and his departmental officials should not bother to issue such a circular as it is generally ignored.

In the event of a 2 per cent increase in public expenditure being agreed, each Government Department contends it must not be allocated an increase of less than that amount, otherwise its schemes will have to be abolished and, more importantly, its political head will appear stupid. It has become almost a badge of honour for stupid political commentators to suggest a person is a great Minister because of his or her ability to wheedle 6 per cent out of the Minister for Finance whereas another Minister may have had to accept a reduction in his departmental allocation. All Ministers and their Departments fight their case on that basis. Rather than commenting that a Minister was good at reducing some departmental expenditure such a reduction will be used as a political stick with which to beat him for being weak. Not only do politicians engage in such practice but so also do civil servants.

Having perceived that practice from the outside and inside, I suggest the total public expenditure and finances of the preceding year should be aggregated. Some group, led by the Minister for Finance should early in the year agree on priorities in terms of Government expenditure.

Whenever the Minister's multi-annual budgetary proposals are increased, say, between 2 and 4 per cent, it must be borne in mind that nobody representing the State will have begun from the wrong base. As the Minister and others will agree, because any changes in our taxation system will have knock-on effects on 90 per cent of the myriad schemes of relief, concessions, exemptions and tax breaks the task is impossible. The same principle applies to controlling public expenditure. If the Minister gets his way with multi-annual budgeting, representing some improvement, it will not work effectively unless my suggested approach is adopted. Experience has taught me that. I was a Minister in two Departments but I did not adopt the approach of seeking the statutory increase and I got considerable brickbats for trying to control expenditure in a Department without much pushing from the Department of Finance. I thought the Department of Finance was right about one of the Departments because expenditure could have been curtailed and spent more effectively. Multi-annual budgeting will not work effectively unless that approach is taken. Successive Ministers for Finance have the same intentions but it is most frustrating that even though a letter countersigned by the Taoiseach is usually sent out in the months of June and July, it is blindly ignored by Departments. It is a waste of time and paper. The only ones making money from it are the paper manufacturers because everyone ignores it. It is taken seriously only by officials in the Department of Finance who believe in their innocence that others will give credence to it. The document is often leaked to newspapers to show that the Minister for Finance is really getting tough. It is a sort of plea from the Minister for Finance to Departments to control themselves but the problem is that each Department will go along on its own.

Deputy Michael McDowell proposes to set a tax rate for a number of years and the obverse is to set out the expenditure thresholds for a number of years as well. Deputy McDowell has set out that in another document but as Deputy Molloy will know, having been in Government, unless some action is taken on the lines I suggest it will not work effectively.

As I said last night during the debate on the Private Members' motion the bulk of Government spending is predetermined. The cost of servicing the national debt, £2,200 million, public service pay and pensions which come to nearly £5,000 million and gross social welfare expenditure which is in the region of £4,500 million, make up the bulk of Government expenditure. Ministers for Finance spend all their time trying to skim £2 million, £4 million and £500,000 from here and there but an organisation in the private sector would start by cutting back on the largest item of expenditure. There must be a realisation in those three areas. Social Welfare payments are the demand-led schemes; for example if people get sick they will be paid their entitlement, the 800 workers in Tallaght who will be laid off will be entitled to unemployment benefit and they will be paid. One does not know at the start of the year the exigencies that may arise but everyone will be paid. That is predetermined expenditure which the Government can do nothing about. The Government can do little about the cost of the national debt. Who would suggest that we renege on the cost of servicing the national debt? That is another area that we cannot do anything about. However, the Minister for Finance does have control of public service pay and pensions because he is dealing with the employees of the organisation. In the private sector, employers make deals with the employees' trade unions. They know their cost base and their output so they know what they can afford. I have had consistent doubts about national wage agreements as they relate to the public service because effectively the public service is negotiating with itself. This has been a problem for successive Governments and I am not too sure what the answer is. I suggested a formula last night which might go some way to dealing with it but it is not an easy matter to resolve. The Government effectively is negotiating with itself. If the employer gives in to the demands of private sector workers who look for higher wages, he gets over the problem by increasing the cost of his product or reducing the number of staff. The Government does not have that luxury in that it does not have a product to sell. This is the dilemma which has bedevilled national agreements and the negotiating process between the Government and its own employees for a long time.

Last night I suggested that a possible way out of the dilemma is to allow the private sector to negotiate pay levels and then import them into the public service. The danger in negotiating national wage agreements is that the public sector unions carry an inordinate amount of clout in deciding the vote of the trade union movement because of strength of numbers. We might as well face up to this reality whether it is popular or not.

Pay and pensions this year will amount to nearly £5,000 million. The total gross State expenditure will be about £14,000 million and that gives some idea of what we are facing. Whereas Deputy McDowell's motion relates to setting tax rates as objectives, we cannot do it honestly and openly unless we are prepared to look at the expenditure side. In fairness to the Deputy he has addressed that problem in another document but he has not said how he would actually do it. I am putting forward proposals from my limited experience which I think are the only way forward. How does a Government get over the problem if, in European speak, an asymmetric shock hits the system and it may have to adjust some of the expenditure targets? At least it would be an improvement if we moved in that direction.

I have adopted a consistent approach to the levels of taxation. I have always linked expenditure to taxation and I have always said I am not in favour of a society that has low rates of taxation, because I do not want a society that does not make provision for those in need. The United States is always held out as a great example, but if one gets sick there one has to sell one's house. About eight or ten years ago a young fellow in the construction business with whom I was friendly decided to go to America for a few months. To my surprise about two months later I met him in Naas and both his arms were in slings. I had thought he was in America, where he had been until the previous Friday. He had fallen from a roof and could not afford to go into hospital there. He was an illegal immigrant and had to fly home to be treated in hospital here. That is a reality of life in the United States.

My view is that we have to decide as a society the level of services we are prepared to pay for. A society may take a democratic decision that it is not prepared to pay for services for the old, sick, the unemployed, but I do not believe Irish society wants to be like that and I have never supported that. On the other hand I have consistently said that we can only pay for a level of services we can afford as a society. There is no point thinking we have the same level of income as Germany when we do not. Chancellor Kohl is in some difficulty because changes will have to be made in the German welfare system. He is getting flak because he is putting forward proposals for change in that area.

The Deputy's contribution is very entertaining, but I am anxious to make progress. He should speak directly to the amendment and, perhaps, draw his remarks to a conclusion.

The point about Mr. Kohl was interesting.

It was. This amendment which sets out the levels of taxation to which Deputy McDowell aspires cannot be taken in isolation because one cannot decide on levels of taxation without also setting the other fiscal parameters. We should espouse the view that it would be more economically beneficial to the country if people had more money. I have always subscribed to the view that people are entitled to decide how they should spend their money, be it on health, education and so on, with the State providing services for those who cannot afford to pay for them.

I know of no better way than providing people with an incentive. I do not think there is another economy where the state takes more than half of earned income in taxation and levies. We must lower levels of taxation on the premise that it would be better economically in the longer term if everybody was better off as there would be more money available to provide services for the underprivileged and other groups in society whom we must look after. I support the amendment on that basis.

I presume what we have in front of us is PD policy. It becomes more radical by the minute, certainly by the week. I have a copy of their policy document An End to Tax and Spend which proposes phased reductions in taxation in the period 1996-2000. A basic rate of 26 per cent and a top rate of 46 per cent is proposed. However, the rates proposed in the amendment are 25 per cent and 45 per cent. There is, therefore, an extra percentage point of radicalism in the space of one or two months since the publication of its policy document.

Deputy McCreevy made an interesting contribution in which he made a number of useful and important points. What is being proposed would result in the order of £300 million being taken from the budget figures. This begs the question of what would be cut back. It is not acceptable to propose such cutbacks without first saying where they would fall.

Let us give a favour of what would be involved. Under the agreement reached with teachers £67 million is available while £40 million is available for the package offered to nurses. According to reports in the newspapers this morning, this is not acceptable. How can one reconcile this proposal with the demands that have been made? People, such as the Progressive Democrats, have to level with the public because, unfortunately, two plus two will continue to make four. This proposal is highly dangerous to the extent that it gives people the impression there can be reductions in taxation and they can have more money in their pockets without cutting back on services. It is inevitable that reductions in taxation will be followed by cutbacks in services, as happened in the 1980s. When the public were appalled at standards in the health service which it considered unacceptable it voted for change.

The general idea behind the five year plan proposed is a good one, but if one works through the figures, in the order of £1 billion, at present day values, would be taken from the budget figures. How would we be able to cope with this type of change? As Deputy McCreevy said, we are stuck with the national debt and significant expenditure of £4.5 billion on welfare and the public sector pay bill. The scope for change is limited. As a consequence, this proposal is unrealistic. The public would recoil from its full implications.

In many ways this plan is similar to what was proposed by Mrs. Thatcher in Britain which was turned into a squalid society made up of individuals who think only of themselves. I am opposed to the concept of a society made up of people who only think of themselves with little or no regard for the rest of the community.

The Labour Party in Britain has proposed a rate of 20 per cent.

That would be the inevitable consequence of what is being proposed. A sum of £1 billion, at present day values, would be taken from budget figures by the year 2000. This would give rise to social mayhem. How would teachers and others in the public sector be paid?

It is assumed also in the Progressive Democrats policy document, which I carry around with me more or less all of the time as it makes wonderful reading, that cutting taxes would lead to a reduction in the number on the dole. It states that a fall of 50,000 in the live register would result in £175 million being saved in unemployment compensation. It does not state, however, that Progressive Democrats policies would result in a fall of 50,000 in the live register as this would present an enormous challenge given that in the short-term a significant number will join the jobs market and will have to be catered for.

A plan such as this has superficial appeal, but is highly dangerous. I caution against going down this road as two or three moves on cutbacks would again have to be made as happened in the late 1980s. I do not want to visit this on the public.

The Deputy is happy with an unemployment figure of 350,000.

I remind Deputy Upton that the Labour Party in Britain has proposed a tax rate of 20 per cent. It seems it is not satisfied that the Tory Party went far enough. Most of its counterparts throughout the world are among the greatest proponents of low tax rates. This is not peculiar to any particular philosophy. It is accepted nowadays that people should have more control over the way they spend their incomes. This is not an ideological hang-up, but a fact of life.

What does the Deputy suggest should be cut back?

As we live in a market economy, the more control people have over the way they spend their income the better. The notion put forward by the Deputy that the State should always be responsible for making decisions and for providing the full range of services is incorrect and one to which I do not subscribe. I agree with Deputy McCreevy that there should be a floor, set at the proper level, in terms of the services that should be provided by the State for those who cannot afford to pay for them.

This amendment outlines a set of tax rates over a period of years to which we would all like to subscribe. In opposing it the Minister forgets that it does not have to be done by way of cuts. One issue that has not been addressed is curtailing the level of growth in Government spending. Since 1987 there has been much change in the levels of taxation but it happened over such a long period of time that people have not felt its benefit in increased disposable income. However, it was achieved and in difficult circumstances. Coupled with that was a change in attitude towards public expenditure.

The argument now is that, as a result of the economic growth achieved after the hard work of the last few years, the Minister is in a better position than previous holders of that office to bring about the necessary changes in tax rates. I subscribe to the view that people should have more money in their pockets and in a position to decide how to spend it. We must control public expenditure but this does not mean, as the Minister said, cutting back all the time. It involves adopting a new approach to handling growth in public expenditure in the years ahead.

The inflow from taxation to the Government coffers this year is extraordinary. I did not expect the same kind of inflow as we had in 1994 and 1995. While inflows to the Government have increased substantially tax breaks have not been given, particularly to the PAYE sector. Such workers are frustrated. They gave the productivity demanded of them, curtailed income growth and accepted a reasonable increase in salaries. However, the failure of successive plans, as they perceive it, is that their efforts have not been rewarded and they do not see the benefits in their take-home pay. The Government does not face up to that.

We can argue about the figures in Deputy McDowell's amendment but we should have a strategy which would form a central part of any successor toProgramme for Competitiveness and Work. If it does not form part of any future negotiations with the social partners we will not have an agreement. Instead of increased wage rates we should concentrate on securing substantial reductions in personal taxation and in the cost to an employer of giving employment. While there has been growth in employment we have not done anything to reduce unemployment levels.

The amendment is useful as it is clear the Government has not addressed this area. We need lower rates of taxation and far better control of public expenditure but we must not go down the road of high public expenditure as the Government has been tempted to do. The wrong choices were made.

We have had extensive discussion of a comprehensive amendment. Underpinning that is a comprehensive policy position enunciated by the Progressive Democrats. I support the idea of multi-annual planning and accept the desirability of having three, four and five years planning. It can be argued that the concept of trying to plan an economy flies in the face of the free market thinking normally associated with the Right. Therefore, from our political and ideological vantage point, planning and managing an economy, even an open market one such as ours, is desirable and, if properly handled, as in French planning in the 1950s and the 1960s in marked contrast to what happened in the United Kingdom, can deliver substantial economic gain. Deputy McCreevy is correct when he says we must plan both sides of the equation, that is, expenditure and tax reduction.

While I accept the concept behind the idea of multi-annual planning from the point of view of finance and specifically in relation to a phased reduction in current levels of personal income tax, that cannot be done unless the expenditure side is right, which cannot be achieved until there is a multi-annual budgeting process in place. That is what we are now doing. I remind the House that the colleague on whose behalf Deputy Molloy is now speaking entertained us to an ideological rant last night and a subdued version of the same song during the Committee Stage discussion of the Bill as to the culpability of the Labour Party in the failure to introduce tax reform.

The State was founded just over 70 years ago. As a party we have had control over the Department of Finance for less than 18 months. In that time we introduced a commitment to the multi-annual budgeting process, to which the Opposition is now committed. We also provided for consolidation of the income tax Bill which will simplify the process considerably. Most importantly of all, we introduced a policy of numbers in terms of fixing the establishment size of the Civil Service. That has been agreed at Government and will be announced in due course. Within that we will fix establishment sizes for each of the Departments.

I was restrained in the comments I made to Deputy McDowell on Committee Stage because he was on the sideline, if not on the benches as a reserve, while his colleagues were in Government. Deputies Molloy, O'Malley and Harney as Minister of State were in a Government that presided over an annual net increase of 3,500 people in the public service, between the public sector and the Civil Service, from 1989-92. At an average cost of £20,000, which is the unit cost currently applied by the Department of Finance, we are talking about £70 million gross per annum.

Deputy McCreevy is correct when he says that the room for manoeuvre in budgeting is limited. There are certain fixed given costs: social welfare demanded driven costs of £4.5 billion, the wage bill which is numbers driven and statutory obligations, such as interest payments and so on. The amount of discretionary money in the national budget is limited. For the Progressive Democrats to suggest that we could finance a massive reduction in personal income tax without reducing public services but merely by prudent management or curtailing growth, is fiction. Deputy Upton is correct to challenge the Progressive Democrats. What hospital, school or Department would it close because that is what it would amount to? The scale of numbers implicit in achieving these kinds of expenditure reductions or savings on the income tax side is of that order unless we want to go over the Maastricht 3 per cent reference value. I presume that is not the case. There was a ceiling when we went into Government with Fianna Fáil in 1992 but because the Fianna Fáil-Progressive Democrats Administration reneged on its promises underProgramme for Economic and Social Progress and its pay commitments we had no option but to introduce the 1 per cent levy as a temporary measure to meet the pay agreements which Deputies Molloy and O'Malley, as representatives of the Progressive Democrats Party in Government, entered into and at the same time meet the Maastricht reference value of 3 per cent.

In the 18 months we have been in the Department of Finance we have decided to address the questions of multi-annual budgeting and numbers. We have also engaged in a process which, if we are successful, will allow us to say to a specific Department that the size of its team is 15 players and if it wants to improve the game or the delivery of the services it is charged with delivering to the public, it will have to do so, not with 17 or 19 players, but with the same 15. Every company and organisation is learning to do that. The Revenue Commissioners have set an example for the rest of the public service in the way they have improved the quality of their service, but not without considerable number gains as well. There has been a relaxation in relation to some numbers but only because there have been changes in the Internal Market.

The Fianna Fáil Minister for Finance, Deputy Reynolds, introduced a three year administrative budget procedure, designed by the Department of Finance but signed off by the Minister responsible, which was so incapable of managing control in Departments that this time last year we did not know how many civil servants were on the payroll. Secretaries in various Departments continued to hire people after they had received the type of letters from the Department of Finance, to which Deputy McCreevy referred.

The internal control systems are not there, but I propose to change that. If we want to put a multi-annual budgeting process in place and make people accountable, then the Secretary and the Minister of each Department must be accountable for its administrative budget. They will have a salary allocation in terms of numbers and they must decide what type of team they want. They can either have one extra principal officer or four clerical officers, or they can arrange the team in terms of the level of skills and activity required. However, if they do not meet that budget, two things will happen. They will not get any extra money, which is happening at present in that certain Departments have been bailed out, and the Secretary of that Department will be accountable to the Comptroller and Auditor General and to the Committee of Public Accounts. They will have to state why they did not manage their Department within the budget parameters set for them.

For too long we have been obsessed with people accounting for the honest, not the efficient and effective disbursal of money. We have been blessed — I do not take it for granted — with an extraordinarily honest public service relative to other European countries. However, that blessing has obscured the fact that its scrupulousness as regards accounting for the disbursal of money has, perhaps, blinded them to the need to be efficient in its dispersal as well. The changes we are making will allow Secretaries of every Department to be brought before the Committee of Public Accounts, if necessary, to account for why they did not manage their budgets on the personnel side so as to stay within the existing parameters.

We will not be able to curtail public expenditure or to achieve the consequent improvements desired by everybody unless we introduce such management changes. The Labour Party, despite protestations by the Progressive Democrats, has not been in the Department of Finance for more than 18 months. We are in the process of putting these common sense management mechanisms in place which will enable us to do what should have been done many years ago.

On the bias implicit in the way the proposed reduction in taxes would impact on our society, we would all like to pay less income tax. However, the bias in the schedules set out by Deputy Michael McDowell and endorsed by Deputy Molloy today means that the reduction in tax would favour the rich. That is the niche from which the Progressive Democrats come and at which that party has decided to toss its cap. However, to suggest that reducing tax levels would benefit the 280,000 unemployed and not the 350,000 to which Deputy Molloy referred is misleading. All the studies of long-term unemployment show that we must deal with the tax wedge for the long-term unemployed where it impacts, not at the 48 per cent rate. Deputy Michael McDowell's mantra on Committee Stage was that if an average industrial worker works overtime on a Saturday and gets £10, the State would take £5.70. I stated last night in the House that a single industrial worker pays a total of 30 per cent tax relative to what they earn.

If we want to deliver a system which favours helping the long-term unemployed back into the workplace or, alternatively, ensures that low paid workers do not lose their jobs or that they retain more of what they earn, we must, as I have done in my last two budgets, address the issue in the non-sheltered side of the Irish economy — the class A PRSI contributors. We provided an exemption for the first £50 of income last year and we raised that by £30 to £80 this year. Somebody does not pay PRSI in that sector which he or she paid before.

While I accept the desirability of such five year planning comes naturally from someone from a socialist background who believes that any economy is capable of being managed, even a market economy, it cannot be planned in the way that people tried in the United States or in Britain during the war. A social market economy can be planned and managed in a coherent way. Part of that is to balance the two sides of the equation so that we can get the type of commitments required and the projections on which to base our figures. In that context, there are political and ideological choices about social prioritisation. It is clear from the detailed analysis of the impact which the Progressive Democrats' tax reductions would have on the labour market and on take home pay that their bias is unashamedly in favour of the rich retaining a larger percentage of their money. It would do nothing for the long-term unemployed unless the rich decided unilaterally to employ some of those people.

We have been down this road before of throwing money at the economy in an effort to create jobs — the scatter-gun approach to managing a market economy. It suggests that if we pour enough cash into the economy, it will generate so much activity that people will buy and trade and this will create jobs. In 1987 it created many jobs in Korea, Taiwan, Japan and anywhere else where consumer durables were produced and which the Irish taxpayer subsequently bought. It also happened in Britain. It is the curse of conservative economics which is not thought our properly and which suggests that money should be thrown at people, which they will spend and which will then create jobs. It is like sending an assassin to take out a specific distant target with a blunderbuss. It is guaranteed to fail and it is a costly failure. It happened in the French economy when the socialists took power in 1981. They ran amok with spending and three devaluations later they had to change it. They created many jobs in Italy, Germany and any other place where the French consumer spent their new found wealth.

I reject the Progressive Democrats' proposal on two grounds, while accepting the idea of multi-annual planning. It is biased in favour of the rich and it is dishonest to suggest that it would have a positive effect on long-term unemployment because it will not. By contrast, the Progessive Democrates have frequently made reference to the fact that tax reforms stopped in 1992. What do they call the changes in the capital acquisition tax for small business? If they are in any doubt about it I suggest they get a view from the Small Firms Association or ISME. What do they call the changes in corporation tax? If they are in doubt I suggest they consult the business associations. The former leader of the Progressive Democrats, who was also its founder, was the longest serving Minister for Industry and Commerce, yet at that time small businesses felt they had no voice and were not being heard. When the new Department of Enterprise and Employment was established — I had the honour to serve in it for two years — for the first time small businesses were asked what they wanted and when they made their request through a task force of 14 small business practitioners, it was delivered. Deputies should not take my word but should ask those people how they feel about it.

We have had a long, discursive debate on this issue. The amendment is economically flawed, ideologically biased, politically misleading and does not recognise the changes that have taken place in tax reform, including personal income tax reductions. None of us is talking any more about tax reform but about reducing the rates of taxation where possible and fine tuning their focus and application. This amendment in its present form would result in the closing of hospitals or in blowing us out of the water in terms of the 3 per cent Maastricht figure. It would be an unmitigated disaster for working people because it would increase the income of those who already have a lot of money.

The working people have already begun to articulate their judgment of the Labour Party's performance in Government. We have only to look at the results of the recent by-elections when the people had a chance to express their views in a practical form and at the opinion polls during the period since the Labour Party went into Government to see that is the case. It is the best way to judge the thinking of the ordinary working person about the effectiveness of the policies pursued by the Government since taking office.

We will not have Government by opinion polls.

It is most depressing to have to listen to a diatribe from the Minister in terms of his attitude and approach to the way the economy should be developed. I have heard before from the Labour benches about what cannot be done. They seek to create images about the disaster that would befall this country if a major move was made to reduce the burden of personal taxation on the workers.

Has the Minister ever looked at the major economies across the world? Is it not clear in economies where there are low levels of personal taxation there are also low levels of unemployment and that in general those with high levels of personal taxation have high levels of unemployment? We are classically one of those countries with a high level of unemployment, and the figure is not 250,000 as mentioned by the Minister; the real figure is closer to 350,000 taking into account those who have been steered into artificial employment schemes to keep them off the official register of unemployed.

Is the Deputy against those schemes?

I am not against any scheme. I am against falsehood, attempts to create an image of something which is not true and figures that do not reflect the true position. Up to 350,000 people are being denied the opportunity to participate in the economy, to go out every morning to work at a satisfying job and bring home a decent disposable income.

To seek to stand up here and say that my party is interested only in benefiting the rich people is ridiculous. Who are the rich people? That kind of propaganda from the Labour Party has been rejected across Europe, including Eastern Europe. It has been rejected in the socialist states where people are beginning to see through it. The number of rich people here can be counted on very few hands. Most people are struggling, even those in employment because they have mortgages and, therefore, have very little disposable income. They find it extremely difficult to provide for their families, to educate, clothe and feed them and give them a reasonable standard of living. All parents are under constant pressure to provide sufficient funds to meet the demands of their families.

That is the concern among the general community and what concerns the Progressive Democrats. We are not concerned about the few rich people. They are so well able to look after themselves that they do not even have to pay tax — they organised various schemes to avoid it and the Government also introduced schemes which benefit them. Rich people avoid their duty and liability to income tax under Government-sponsored schemes. I and my party are concerned about the ordinary worker regardless of his or her level of income and about those who have no job. The broad-sweep propaganda that hospitals will close and that a great disaster will befall us if we seek to reduce the size of the State sector to relieve the burden is false and will not be accepted by the people. The Minister is ignoring the reality in economies throughout the world. Countries who have achieved growth and rewarded investment are those with very low levels of unemployment, but for some strange reason the Labour Party seems happy in the knowledge that the greater the number of people on unemployment benefit and dependent on the State, the more votes it will get.

That is nonsense.

The day will come, however, when people will wake up and realise that the party that is driving them to unemployment is Labour, the party that has largely influenced coalition Governments in which it has participated to maintain a certain level of spending, with the consequent results. It is depressing and sad to listen to the denials of the Minister, Deputy Quinn, in seeking to create fears among people who want to free themselves from the burden of the State and who look to other countries where that has been achieved.

If the Minister looks at left wing parties in other countries he will realise that they are changing their attitudes and approach to these matters. We have only to look across the Irish Sea to see what is happening to his colleagues in the British House of Commons as a result of the policies they are adopting. Why should the Labour Party continue to live in the dim and distant past and allow this country to struggle, with many people burdened by the shackles of maintaining a large State sector and high levels of unemployment? We must break out of that cycle, and the only way to do so is to lay down the discipline of reducing the burden over a period of years. We are in the unique position where we have an opportunity to do that based on the levels of growth in the economy and forecasts of growth for the next five years. The levels of growth are encouraging but should not be exaggerated — some people mentioned 9 per cent, but our figures are based on a growth of approximately 3.5 per cent. We have seen a huge increase in State expenditure — £2.2 billion — since the 1992 election——

Over which the Progressive Democrats presided.

——which is not accounted for by inflation. The proposal in this amendment is costed on the basis that growth in the economy will sustain the shift in the burden of taxation. The Minister made little reference to all the major studies and reports that have been carried out over the past five to seven years which have identified clearly the need to tackle this area of the economy. He is throwing out all these reports and rubbishing and ignoring them. He is continuing the Labour Party policy of high expenditure.

My party has put forward the proposal. Obviously, we have a completely different approach. Having spent so many years in this House, I despair that this attitude exists today and that there is no enlightenment among those in Government, particularly when I know that the Taoiseach's party, if it were free of the Labour Party and the Democratic Left——

I thought the Deputy's party was courting the crowd opposite.

——would propose something exactly along these lines. That is not to be.

You would want to make up your mind whom you want to sleep with.

What about a merger?

It is called safe sex.

The Taoiseach wants to keep his party in office. We know that he languished on these Opposition benches for so long that unfortunately he is prepared to accept anything to keep his party in office and his troops happy. I do not know how they can be happy in their own hearts and minds when they see the approach adopted by the Minister and his colleagues.

They are all clamouring for public sector reductions.

Deputy McDowell often recalls the morning we spent with the Minister when we were supposed to be discussing the possibility of forming a Government. We heard the attitudes of his party and it was quite clear there was no way we could work with its approach. Not only did they want to maintain the State structure, they also wanted to protect it and allow it to grow to the extent that it becomes a huge burden.

Acting Chairman

I am conscious that there are 60 further amendments to be discussed. Is the Deputy prepared to have the question put in relation to this amendment?

I have not finished.

Acting Chairman

The debate is becoming repetitious. I am anxious that the Deputy conclude his remarks.

It has been depressing to listen to the Minister. The argument that it cannot be done just does not wash. If the determination and commitment are there, it can be achieved. My party in Government has shown that where that discipline is applied and the commitment exists——

Some 3,500 extra bodies a year.

——moves can be made. I was involved in the discussions which sought to ensure that the taxation programme would be achieved. There was an enormous mountain in front of us at that time because it meant cuts. We did not have the healthy situation the Minister has now which merely involves control of public expenditure. However, we had the commitment and, with the co-operation of our partners, progress was made.

No progress has been made on personal taxation since my party left Government in 1992. However, the people will have an opportunity to give a decision in this matter in the not too distant future. I do not expect there to be resounding approval from the electorate of the attitude the Minister's party has adopted in Government.

Question put: "That the words proposed to be deleted stand."
The Dáil divided: Tá, 66; Níl, 50.

  • Ahearn, Theresa.
  • Allen, Bernard.
  • Barrett, Seán.
  • Barry, Peter.
  • Bree, Declan.
  • Broughan, Tommy.
  • Browne, John (Carlow-Kilkenny).
  • Bruton, John.
  • Bruton, Richard.
  • Burke, Liam.
  • Burton, John.
  • Byrne, Eric.
  • Carey, Donal.
  • Connaughton, Paul.
  • Connor, John.
  • Costello, Joe.
  • Coveney, Hugh.
  • Creed, Michael.
  • Crowley, Frank.
  • Deasy, Austin.
  • Deenihan, Jimmy.
  • De Rossa, Proinsias.
  • Doyle, Avril.
  • Dukes, Alan M.
  • Durkan, Bernard J.
  • Ferris, Michael.
  • Finucane, Michael.
  • Fitzgerald, Brian.
  • Fitzgerald, Eithne.
  • Fitzgerald, Frances.
  • Flaherty, Mary.
  • Flanagan, Charles.
  • Gallagher, Pat.
  • Bell, Michael.
  • Bhamjee, Moosajee.
  • Boylan, Andrew.
  • Bhreathnach, Niamh.
  • Gilmore, Eamon.
  • Higgins, Jim.
  • Higgins, Michael D.
  • Hogan, Philip.
  • Kenny, Seán.
  • Lowry, Michael.
  • Lynch, Kathleen.
  • McCormack, Pádraic.
  • McGrath, Paul.
  • McManus, Liz.
  • Mitchell, Jim.
  • Nealon, Ted.
  • Noonan, Michael (Limerick East).
  • O'Keeffe, Jim.
  • O'Shea, Brian.
  • Owen, Nora.
  • Penrose, William.
  • Quinn, Ruairí.
  • Rabbitte, Pat.
  • Ring, Michael.
  • Ryan, John.
  • Ryan, Seán.
  • Shortall, Róisín.
  • Stagg, Emmet.
  • Taylor, Mervyn.
  • Timmins, Godfrey.
  • Upton, Pat.
  • Walsh, Eamon.
  • Yates, Ivan.

Níl

  • Ahern, Bertie.
  • Ahern, Dermot.
  • Ahern, Noel.
  • Andrews, David.
  • Brennan, Matt.
  • Brennan, Séamus.
  • Briscoe, Ben.
  • Browne, John (Wexford).
  • Burke, Raphael P.
  • Byrne, Hugh.
  • Clohessy, Peadar.
  • Connolly, Ger.
  • Cullen, Martin.
  • Dempsey, Noel.
  • de Valera, Síle.
  • Foley, Denis.
  • Geoghegan-Quinn, Máire.
  • Hilliard, Colm M.
  • Hughes, Séamus.
  • Jacob, Joe.
  • Keareney, Cecilia.
  • Kenneally, Brendan.
  • Keogh, Helen.
  • Killeen, Tony.
  • Kirk, Séamus.
  • Kitt, Michael P.
  • Kitt, Tom.
  • Lawlor, Liam.
  • Lenihan, Brian.
  • McCreevy, Charlie.
  • McDaid, James.
  • McDowell, Michael.
  • Molloy, Robert.
  • Morley, P.J.
  • Moynihan, Donal.
  • Nolan, M. J.
  • Ó Cuív, Éamon.
  • O'Dea, Willie.
  • O'Donnell, Liz.
  • O'Hanlon, Rory.
  • O'Keeffe, Ned.
  • O'Leary, John.
  • O'Rourke, Mary.
  • Power, Seán.
  • Smith, Michael.
  • Treacy, Noel.
  • Wallace, Dan.
  • Wallace, Mary.
  • Walsh, Joe.
  • Woods, Michael.
Tellers: Tá, Deputies J. Higgins and B. Fitzgerald; Níl, Deputies O'Donnell and Keogh.
Question declared carried.
Amendment declared lost.

We now proceed to amendment No. 13 in the name of Deputy Michael McDowell. I observe that amendment No. 17 is related and I suggest, therefore, we discuss amendments Nos. 13 and 17 together. Is that satisfactory? Agreed.

I move amendment No. 13:

In page 13, between lines 36 and 37, to insert the following:

"4. —The Revenue Commissioners may, with the consent of the Minister for Finance, from time to time make regulations for the purpose of exempting persons resident within the State from liability to taxation and levies in respect of earnings from employment in Northern Ireland to such extent as, in the opinion of the Revenue Commissioners, is reasonably necessary to create equal treatment as between such persons and other persons resident in the State and liable to taxation and levies on similar incomes earned in the State.".

The purpose of this amendment is to provide that the Revenue Commissiones may, with the consent of the Minister for Finance, from time to time make regulations for the purpose of bringing about equality between taxpayers resident in this State, some of whom work in Northern Ireland and some of whom work in this State. The purpose of the amendment is to provide that the Revenue Commissioners be allowed to relieve any taxpayer liable to a greater amount of tax by virtue of the fact that he or she is earning outside the State on any given income compared with a similar income being earned by a taxpayer within the State.

The proposal in my amendment is a modest one because, as the Minister pointed out on Committee Stage, gross wages for comparable work in Northern Ireland are substantially lower in many cases than in the Republic. Therefore, those who cross the Border to work are, in fact, working for lower nominal wages in Northern Ireland when compared with similar jobs in the Republic. I cannot, by way of any proposal, try to equalise that position. One must bear in mind that, under the next British Government the tax rate on earnings in Northern Ireland is likely to be reduced to 20 per cent. In those circumstances, the difference between gross wages and the tax wedge north and south of the Border is likely to expand, especially if the tax policies pursued by the Government continues into next year.

Many people in this State are adversely affected by our tax regime being applied to Northern earnings and are demanding justice. Members who think those people's just claims can be ignored will learn to their cost at the next election that those people will not tolerate continuing injustice of the kind they are now experiencing.

I urge the Minister to accept this amendment, modest as it is, and to begin to address the grievances of those people. After all — this point arose on Committee Stage — Northern Ireland is supposed to be part of this Statede jure, we are supposed to be involved in trying to increase cross-Border co-operation and EU policy encourages and facilitates the migration of workers. Irish men and women, who live not merely in counties adjacent to Northern Ireland but some distance further away — some people travel from even south of Dublin to work in Northern Ireland — are entitled to elementary justice. The first degree, and by no means the entirety, of elementary justice is that somebody who earns £100 in Northern Ireland should pay no more tax on his earnings because he works in Northern Ireland and resides in this State than he would if the same gross amount was given to him by way of remuneration for a job in this State.

I invite the Minister to accept this modest proposal which would go some way towards addressing the injustice being done to these people.

I support amendment No. 17, in the name of Deputy McCreevy, which deals with a different aspect and approaches the matter from a different perspective. Both amendments are clearly concerned with bringing about some kind of elementary justice for people who are being treated most unjustly by the State for no particular reason.

Those involved in the Donegal by-election will know that this was a thorny issue. The successful candidate in that by-election is present and I am sure she will speak on this issue.

If she did not, she could not go home.

Exactly. That would be a problem for her.

Many people are affected by the regulations. The issue has bedevilled successive administrations which have tried to bring about an equitable solution. I have tried, when dealing with members of the Fianna Fáil Party over the past 14 or 15 months since I was made spokesperson on Finance, to take a balanced view of the issue because if one was not careful one could easily create another set of anomalies for workers in the Republicvis-à-vis those who live beside them in the same street or townland and work in Northern Ireland.

My amendment goes some way towards addressing that problem and takes a provision from the 1994 Act, which the Minister could consider. In the 1994 Act, we recognised the position of employees within the State who spend a considerable amount of time abroad. When I was Minister for Tourism and Trade I met many such people who work for Irish companies abroad and are, frequently out of the country for a considerable period. Other workers would also be affected by the measure but the 1994 Act effectively put into operation a scheme which recognises the amount of time these people spend abroad with their work.

This is the same amendment that I tabled to last year's Bill. In the amendment I am attempting to use the provision in the 1994 Act to recognise the cross-Border workers' anomalies. As a result of his meetings in Donegal, and with Deputies from Border constituencies particularly those of the Minister's party, the Minister is aware that this issue will not go away. Therefore, it is worth considering this amendment.

Some complications would arise, however, because under double tax treaties it would be normal for the Minister to state that there is nothing unusual about this and successive Ministers have advanced this theory. Workers who work in Germany and live outside that country are in exactly the same position as these workers. However, there is a great difference due to the partitioning of our country more than 70 years ago and that unusual aspect does not affect other countries to the same degree.

People from Inishowen, County Donegal, where I canvassed during the by-election, must pass through Northern Ireland to go to other parts of the Republic and many of them work in Northern Ireland. The Minister should consider my amendment which suggests a reasonably balanced approach. It will not solve all the problems of cross-Border workers but, in the main, it will relieve the majority of them from any punishment they suffer at present.

I have been informed of cases and have met persons who have received huge tax bills and I do not know what their position will be. I appreciate that the Minister set up an interdepartmental committee after this was discussed on Committee Stage last year. Its report resulted in some changes being made to the levies, but they did not go far enough. My amendment seeks to create a reasonable balance.

The Minister should also consider Deputy McDowell's amendment which would allow the Revenue Commissioners to adopt that approach — it is another way of addressing the same problem.

I am convinced that if some realistic changes are made, there will be a spin-off, that is, a net gain, to the Exchequer because many cross-Border workers are outside the tax net. One of the advantages of canvassing and spending time in an area is that you hear what is going on. Perhaps you need to speak to lobby groups or TDs if you are not conversant with the problem. However, I am certain that the net gain to the Exchequer would compensate for any loss. I am convinced that the numbers are far in excess of the estimates of the Revenue Commissioners and the Department of Finance. It was an eye opener for me.

I will leave this matter to my Border colleagues who are in the front line. I had been involved with this matter for a number of years and I know the Minister has been trying to deal with it. I support everything Deputy McCreevy stated. However, I wish to stress his last point. When I examined this issue — I am sure it was the same with the Minister — I looked at it purely in the context of cash flows North and South and South and North and from the point of view of the white economy. There is no doubt that in the past year, not just in Donegal — I am not saying anything against the individuals concerned — people in Cavan, Monaghan and Louth have been living in a fool's paradise. An alternative economy has built up around it.

Some travel very far south with the help of Her Majesty's social security services.

In both the Minister's and my constituency we had the problem in the construction programmes. Clearly, if we do nothing about this issue people will find another way round it and that is what is happening. I have seen this in all counties since last September. Some people would probably advise us that there are not many involved but that is not the case. I have seen it at first-hand. It is no good arguing that if it is all right there is no need to fix it. It is not all right, it is inherently bad. I have done a lot over the years to try to make people tax compliant and to close loopholes but this one is being openly flouted. As Deputy McCreevy said, many of the people who were almost agitating for it are outside the net but many are uncomfortable because of the fear that some day they will be caught. Out success rate in catching people along the Border is not as good as in other parts of the country.

I hope it will be more successful than with cattle.

The argument that it would cost much or involve great difficulty is irrelevant as we cannot continue the present system. People in the legitimate economy have a good case and what irritates them more than anything is watching people who have adopted an alternative resolution. I urge the Minister either to accept this amendment or to suggest an alternative scheme to deal with the real problem, involving a great number of people in every village. I have great sympathy for people who are genuinely paying their taxes. As Deputy McCreevy said when one examines the figures, as I have done, particularly in Donegal but also in Deputy Dermot Ahern's constituency where I met some of the groups and analysed the figures, they have a good argument. When as legislators we fail within the revenue system to find a law to deal with it people find their own solution to deal with it which undermines the whole system. I urge the Minister to deal with this matter. I support the amendment and thank my Border colleagues for allowing me to contribute to this debate.

I call Deputy Cecilia Keaveney. I welcome the Deputy to the House and hope her stay here is a pleasant and successful one.

And a long one.

Thank you. The Minister, Deputy Quinn, said I could not go home unless I spoke on this issue. As a cross-Border worker I do not need any gun to be put to my head. I understand the position and I do not need pressure from any side to stress my point. Tax is a major problem for the whole country but it is worse for cross-frontier workers. Most of the arguments can be presented about the whole of Ireland but we are talking about a specific group of people. Unemployment in Donegal has increased by 1,100 in the past year. If we do not address unemployment by job creation within our own area we have to go where the work is available. That is the position at present: people are going where the work is. Because of our membership of the European Union we have freedom of movement and the right to go here, there or anywhere. Thousands of people cross the Border every day. How do we reward their initiative of looking for work? We do not give equal pay for equal work. People will say you cannot expect a person in Germany to get the same amount of money as a person in Cork. We are not talking about a paper exercise here, we are talking about, for example, a person in Strabane who earns 20 per cent less when he or she moves to Lifford which is only half a mile away. In some Border counties there is not even a half mile from one place to another. In my area people come from Derry to Muff, a distance of about three miles, where they immediately experience a huge difference.

We are not giving anybody an incentive to work. As jobs are scarce we should try to encourage people as much as possible to work wherever it is available. In the year 2002 the Euro will probably be our form of currency. As cross-Border workers we work with two different monetary systems and we pay a big penalty because the punt is worth more than the pound sterling. As well as a 20 per cent wages deficit we also pay a penalty when we change the money into punts. When you buy your car in the Republic you pay extra and then drive into the North every day. Petrol prices are increased in the budget so that one is paying more to get to work.

We are facing problems such as rural depopulation. Young single people who have no ties are going to Northern Ireland where they will stay. They will ask why they should leave an area where the tax is 25 per cent in favour of an area where the rate is 48 per cent? I am not saying that to knock our system but people must appreciate what is happening. As one who lives in the area, I know this is a major problem for everyone. If we continue to allow people to move away from our own area shops and schools will close and services will be torn apart. We will have mass rural depopulation and unemployment for those remaining. I am asking for parity. As Deputy McCreevy said, the spin-off economically could be substantial. I do not believe it would cost much to examine this issue seriously. The spin-offs down the line would be more substantial than any loss. I support both amendments.

In reference to the last amendment the Minister said the Labour Party had been in Government for 18 months.

In the Department of Finance.

It had been responsible for the Department of Finance for only 18 months. With respect to the Minister, while the Labour Party served a good apprenticeship with Fianna Fáil, it was not ready to take over that Department. A Minister normally likes to be remembered for something he or she did while in office. This is a golden opportunity for the Minister to be remembered as the Minister who did something for cross-Border workers. I have been involved in many heated debates on this matter and the Minister is not the most popular man in the world.

In the run-up to the by-election Deputy McCreevy and I met representatives of cross-Border workers who told us that Deputy McCreevy's proposal would be acceptable. The Minister should put this matter to rest once and for all. I acknowledge that he set up a committee and carried out investigations into the matter and I did not believe an acceptable solution could be found. However, the workers have said they would accept Deputy McCreevy's adjunct to the 1994 amendment. This is a golden opportunity for the Minister. In the run-up to the by-election the Minister's colleagues raised expectations in the Border region, many of them behaved like Deputies in Opposition. The Minister is aware of the problem and I look forward to his reply.

I understand a once off deal was worked out by the late Deputy Colley in 1978 for cross-Border workers and I think Deputy McDowell's amendment is similar to that. While I support his amendment, I would be concerned that future Ministers for Finance could be forced to make similar once-off deals.

I put my name to amendment No. 17 because, on the advice of an expert group associated with my party, we tabled a similar amendment to last year's Finance Bill. A number of Border Deputies from my party and people from outside the House tried to resolve this problem and the Minister acknowledged that. Last year he undertook to examine the matter and, while I appreciate what he has done in the Finance Bill, it is disappointing that he was unable to go the whole way. Research indicates that it would cost in the region of £12 million in a year. What is the Minister's view on this?

Paragraph (a) (i) of amendment No. 17 proposes the insertion of "5 consecutive days" as the length of time required for a person to work abroad to qualify for tax relief. This would take into account that cross-Border workers are generally out of the State for five days per week. Paragraph (a) (ii) proposes to remove the requirement that to qualify for tax relief a person should be regarded as being abroad for a day. This amendment proposes the insertion of "eight consecutive hours during the day" which would mean the person would not stay overnight in the North. Paragraph (b) proposes that a person should not be considered to be abroad for tax relief purposes if he or she is working in Northern Ireland. This would not alter matters for United Kingdom residents but it would include in our tax provisions people from the Republic who are employed in Northern Ireland.

These amendments propose that residents working in Northern Ireland should be exempt from paying tax here. The paragraph that proposes the substitution of "5 consecutive days" for "14 consecutive days" would mean that people who work in the Republic for the remainder of the week could be taxed at the normal rate here.

While I accept that the working group met on numerous occasions to examine this matter, we are disappointed the Minister did not accept our Committee Stage amendment and I am sure he will not accept this one. I urge him to fine tune the tax system to take account of cross-Border workers.

I agree this is a matter of concern for many people in Border counties. As chairman of the Labour Party Parliamentary Party, I welcome the new Deputy from Donegal. I wish her every success and congratulate her on a fine performance.

Like other Deputies from the Border area, I have been in touch with the Minister on numerous occasions about this matter. I am pleased he addressed it in the budget and I look forward to his response. The accumulation of tax arrears forces many people, particularly those in the building sector, to operate in the black economy. Many people receive social welfare in the North while earning money in the South but they do not pay tax. This is a major problem in the Border area. It is not what we are talking about, but it is linked, because it is forcing people to break the law not alone in Northern Ireland but in the Republic. Perhaps the Minister would bear that in mind in dealing with this very sensitive question of accumulation of arrears of tax and PRSI.

I would like also to ask whether it is possible to deal with this very difficult problem in the context of the development of the Euro-currency — it is hoped that Great Britain will relent and that a new Labour Government there will change the policy of the present Conservative Government so that we can have overall agreement on a Euro-currency. The Minister is very well aware of it. It has been raised at our parliamentary party meetings by Senators and Deputies representing the Border region. Perhaps some relief could be given, particularly on accumulated tax arrears.

I am aware of this problem. Donegal North-East was an intensive re-education, but it was not the first time the matter was brought to my attention. The matter surfaced in my first Finance Bill last year. I apologise to Deputy McDaid that my apprenticeship has been so inadequate to the task. I will try harder. As to this being a golden opportunity to go down in history, I am amazed that Deputy Ahern did not seize it when he was Minister for Finance, or Deputy Reynolds or Mr. Haughey when they were Ministers for Finance.

It was not a public issue then.

As the Deputy is so concerned about my place in history, let us proceed. Regarding what Deputy Bell has said about the problem of accumulated taxation arrears, I am prepared to enter into discussions with the Revenue Commissioners to see what can be done. Some of the people I met would not be able to address that issue with any degree of comfort. We can recognise that as a problem from the past and, without any commitment other than what I have just said, see if it can be dealt with in a positive and humane manner within the framework of the existing legislation.

Let me turn to the first amendment which proposes quite extraordinary powers of discretion for the Revenue Commissioners. The Chairman of the Revenue Commissioners comes from Tralee and the Secretary of the Department of Finance comes from Lisnaskea in County Fermanagh. I have to speculate, without in any way casting aspersions on the personalities of the two people involved, that were their places of origin and their roles changed, their attitude to this matter might be very much transformed.

Deputy McDowell is trying to be helpful in giving discretion to the Revenue Commissiones, but the scale of discretion is enormous. No sooner would they begin to exercise it than the same Deputy McDowell would be in court on behalf of litigants demanding under the Constitution that this discretion, exercised with judicious wisdom by the Revenue Commissioners on behalf of one group of citizens, should also be applied to the citizens of Dublin-South East. It is not just a gateway, it is a series of broad factory doors through which not only a coach and four could be driven but an entire cavalry, with devastating effects upon the Revenue Copmmissioners.

I do not agree.

The Deputy would take a brief, nevertheless, if he were asked. The Fianna Fáil amendment is more focused. In deference to the seniority of the party members opposite who spoke on this, let me first address the comments made by its leader, Deputy Bertie Ahern. There is a problem with the black economy, and with moving from the black economy into the legitimate or white economy. There are distortions north and south of the Border. Citizens living in the Republic of Ireland go to Northern Ireland and rip off the taxpayer in the North andvice versa. In the Finance Bill already introduced, there has been an attempt to address that issue, but we need much more co-operation between North and South in regard to people abusing their relative mobility to defraud taxpayers North and South. I suggest that we do it at official level between the Revenue Commissioners on our side and the appropriate bodies on the UK side. I suggest also that parties on all sides of this House raise this matter in the Anglo-Irish parliamentary tier because this is a matter of concern to everybody. That is a related but separate issue and should be addressed independently of what we do here.

I cannot accept the Fianna Fáil amendment because it is not capable of being ring-fenced exclusively to people in Northern Ireland. Notwithstanding the extraordinary linguistic dexterity of Articles 2 and 3, when we come to the hard reality of law we cannot separate Northern Ireland from the United Kingdom. For the purposes of legality and the application of law they are one entity. Therefore, any concession we would give to somebody living in Lifford and working in Strabane would have to be given to somebody living in Dublin and working in Liverpool.

The overnights concession is a distinct and different type of concession given to workers who are, for a period of time, discommoded by being away from the comforts of home and all that goes with that, as opposed to people who drive across the Border to work and come home, in some cases for lunch but certainly for their evening meal, and sleep in their own bed. Most modern states have a tax system that recognises that dimension when one is away from one's family support system in the full sense of that word. We cannot distort that very clear principle and apply it to people who are commuting from Inishowen to Derry. It would turn logic on its head. We have a written Constitution with access to the courts, and that nonsensical logic would be torn apart by way of a carefully selected case.

What we can try to do — I referred to this on Committee Stage — is to see if under Article 18 of the tax treaty between our two countries we can restore the position that existed for public sector employees in Northern Ireland who were deemed there to be Government employees and treated differently for tax purposes. That will address some of the problem. I do not know the answer to the problem, but I am prepared to sit down and discuss it with Deputies and perhaps set up an all-party committee to examine the problem. I appreciate the point made by Deputy Dermot Ahern that Fianna Fáil got expert advice on this and is now proposing it. I cannot but make the point that the Deputy had many opportunities when there was a Fianna Fáil Minister for Finance in office but his argument seems to have fallen on deaf ears.

It was not an issue.

I do not accept that it was not an issue.

It was not a public issue.

It has become a more loudly articulated issue. The issue became acute when the interpretation of Article 19 was changed by the British authorities in relation to some workers. I will defer to the wisdom and experience of Deputies Keaveney and McDaid in this regard. With respect to Deputy Ahern, the problem is not as acute in County Louth as it is in Donegal.

I accept that.

I have some familiarity with that area. My father's family come from Newry and my mother's family from Dundalk. Maximising Border opportunities is something I grew up with from day one. What we are hearing is the negative side of this. There would be no issue if things were going the other way. If the rate of tax in Derry was higher than the rate of tax in Letterkenny there would be no procession of people volunteering to equalise in the interest of justice because they felt aggrieved and somewhat guilty about living in the Republic of Ireland and getting services and paying less tax than they would be paying if they were living in Northern Ireland where they were earning their money and that maybe they should cough up and pay the Republic of Ireland the money they would otherwise pay to Her Majesty's revenue service.

Of course, that silence is stunning. For a long time people working across the Border reaped advantages on the other side. Deputy Keaveney spoke about the problem of paying for petrol. There was not a word to be heard from anybody when petrol was cheaper north of the Border or, in the case of Deputy Dermot Ahern, east of the Border. These advantages and disadvantages flow in different directions but we hear about them only when the wind is blowing in our faces. In this instance the wind is blowing in our faces and it appears it will persist for some time.

I cannot accept Deputy McDowell's amendment, I think Deputy Dermot Ahern anticipated my reluctance to do so — we do not know what it would cost. The Deputy gave a figure of £12 million. We do not know the full extent of the numbers of people working; let us assume it is of that order. It is not that we could actually ring-fence its cost but legally speaking, we could not draw a distinction between Northern Ireland and elsewhere. That is my present advice and I doubt it will change.

If there are other ways of equalising or addressing this issue, I am not closed to examining them; on the contrary, I am open to doing so. A working party of technical specialists have been working on the matter and recommended the abolition of the health, employment and training levies which, in the case of somebody with an annual income of £15,000, would mean £340 back into their pocket, not a lot of money but more than they were receiving two years ago. If there are other methods by which we can deal with this, I am prepared to examine them.

If the two Deputies opposite, with some Border Deputies and Senators, wish to establish a small working group to examine this in the context of next year's budget, I am prepared to facilitate them, on the basis that these would be all-party discussions. I will make technical assistance from the Revenue Commissioners and my Department available to them but that is as far as I can go on the matter.

Having personally met some such people, I know there is great anguish and worry about accumulated tax bills, the amnesty in respect of which has been extended to 31 May. In this respect I will enter into discussions with the Chairman of the Revenue Commissioners an independent, autonomous body charged with the collection of taxes due, it is not for me as Minister to interfere in that process — on foot of the representations made to me from all sides of the House to ascertain what can be done in respect of historic accumulated tax debts in respect of some, from what I saw, the prospect of recovery is remote. All one would do would be to drive people across the Border permanently with all the anguish associated therewith.

The Minister's attitude is over-relaxed because the black economy is very substantial, assisted by the very existence of the Border. I hope my next remark will not be regarded as flippant but, perhaps if we took a different attitude to the previous amendment on which Deputy Molloy called a vote and actually did something about our tax rates, this problem could be avoided. If we sat down and addressed that issue, we would be getting somewhere.

That would take a little more time.

I am merely saying the Minister appears to have a very relaxed attitude to this matter, not one about which many people would be relaxed. I know of one solicitor, who briefs me, who lives in Northern Ireland and practises in the South. I never asked him why but it occurs to me there must be some legitimate advantages to be gained from doing so.

Deputies McCreevy and Dermot Ahern are right, our Exchequer will probably end up losing right across the board because of the inequalities in the taxation treatments north and south of the Border. When one adds it all up, failing to grasp this issue and deal with it probably impoverishes this State rather than the other, driving people into the black economy, persuading them to suppress their real place of residence. As Deputy Keaveney said, people now move across the Border to avail of the more benign fiscal climate there. On every front we are paying a high price for our high taxation system.

I must revert to the point — that if Packard had been located in Newry or Dundalk its annual profits would have been approximately £500,000 greater.

The plant would still have closed, as it did in Coventry.

Probably, but it would have been approximately £500,000 more profitable annually. The peace dividend will not transpire to be a positive advantage for the Irish Republic while this inequality of tax treatment prevails north and south of the Border. As Deputy McCreevy said on Committee Stage, people behave rationally, as do economic entities such as companies and employers. They spend much time weighing up the precise implications of where to invest in employment-intensive industry. Therefore, as a society in the South, we must face up to these serious problems and the injustice suffered by cross-Border workers is one aspect only of a major problem for the Irish Exchequer caused by the differing tax systems.

The Minister seemed to suggest that the lower gross incomes in Northern Ireland result from the many years of Tory rule. However, lower gross incomes in Northern Ireland yield higher take-home pay, which is what ordinary people care about. One of our problems here is that we have higher gross incomes and lower take-home pay in comparison with our counterparts in Northern Ireland. Frankly, I salute the Tories on that achievement.

I would not expect anything different from Deputy McDowell.

I salute their achievement and am glad to note that the British Labour Party whose followers are increasing promises to reduce the standard rate of taxation even further after the next general election there. That is the kind of politics the Labour Party in New Zealand and in Britain have engaged in — the Labour Party knows what to do with an economy. It is an awful pity that the Irish Labour Party does not.

Amendment put and declared lost.
Amendment No. 14 not moved.

I move amendment No. 15:

In page 14, line 14, after "a" where it secondly occurs to insert "son or daughter or".

The objective of this amendment was somewhat negatived by changes the Minister effected in the Bill before publication. The Minister in his Budget Statement announced that elderly people would be eligible for tax relief for the installation of an alarm system. That proposal was greeted with considerable amusement by the vast majority of the electorate, knowing well that usually the only source of income of elderly people is a Department of Social Welfare pension so that they would not be caught in the tax net anyway.

For future reference, I must point out that despite the bona fides behind that proposal — undoubtedly this was a good one——

Incidentally, suggested by a constituent.

——a couple of the Minister's budgetary proposals, of which that was one, angered people.

Debate adjourned.
Sitting suspended at 1.30 p.m. and resumed at 2.30 p.m.