Vol. 495 No. 2
37 Mr. Deenihan asked the Minister for Finance if his Department has reviewed the effects of the income tax measures which he introduced in the 1998 budget on lower and middle income groups; if he has satisfied himself that there was a substantial benefit for both income groups; and if he will make a statement on the matter. [19704/98]
I introduced a significant personal tax package amounting to £517 million in this year's budget. The main elements of this package were a sizeable increase in personal allowances, reductions in both the standard rate and higher rate of income tax and an increase in the weekly PRSI allowance.
Measures of particular benefit to lower and middle income groups accounted for most of the package and included, in addition to those already listed, widening of the standard rate bands, increased exemption limits and an increase in the threshold for the payment of levies.
The effects of these measures were fully considered in advance of the budget. However, in assessing the impact of these measures, it is important to take account also of the change made to the family income supplement which will now be calculated on a net basis. The tables included in the budget documentation set out the impact of these measures on a range of income groups. These show clearly that all taxpayers will gain from the changes described — with the improvements for those on low to middle incomes ranging from 2 per cent to 6 per cent when account is taken of FIS.
I am satisfied that the lower and middle income groups derived substantial benefit from the income tax measures introduced in the last budget. The increase in personal allowances succeeded in bringing a substantial number of people — about 30,000 — out of the marginal relief system and into the normal tax code. This measure is in line with the proposal by the expert group on the integration of the tax and welfare systems to effectively abolish the marginal relief system over time, because of its potential to generate poverty traps. This cohort of 30,000 low earners will now face a marginal tax rate of 24 per cent rather than the 40 per cent rate in the marginal relief system.
The reduction of 2 per cent in the standard rate of income tax to 24 per cent is of significant benefit to workers on low and middle incomes. For instance, single people earning an annual income of £15,000, around the average industrial wage, actually received an increase of £8 in their weekly pay packets. Many families on low earnings cannot be assisted by tax measures as they are outside the tax net. Such families will benefit from the increases I announced in the thresholds for the payment of FIS. Low and middle income families who are in the tax net will benefit significantly from the move to calculate FIS payments on a net income basis. For instance, a two-child family with annual earnings of £12,000 will get an increase in their weekly FIS payment of £16 — from £5 to £21 per week.
The reduction of the top rate of income tax to 46 per cent, although the focus of much attention, cost just one fifth of the overall income tax package. Many middle income earners will benefit from the reduction in the rate of income tax applying to any additional earnings arising from pay rises or overtime.
When comparing gains from budgetary measures, account should also be taken of measures, outside the basic tax packages, to restrict tax reliefs used mainly by people on higher incomes. In this context, I point to restrictions on the use of BES and capital allowances. These measures limit the tax shelters available to those on higher incomes.
Will the Minister agree that the Partnership 2000 agreement on pay and tax clearly set out that whatever concessions provided will be for the lower and middle income groups by increasing tax bands and personal allowances? How can he reconcile the figures, provided by the Conference of Religious of Ireland, which indicate that 4,198 single persons in the £40,000-£50,000 income bracket benefit three times more than the 84,000 single people on the £10,000 income bracket and that 36,253 married taxpayers, earning between £40,000 and £50,000, benefit twice as much as 78,375 married income taxpayers on incomes of between £20,000 and £25,000? The figures show there was a disproportionate benefit to people in higher income groups.
I am delighted the Deputy quoted from CoRI, which is one of my favourite lobby groups, as Deputy McDowell and Deputy Noonan know. I do not agree with the figures put forward because, as I said in my reply, when account is taken of the budget changes to the calculation of FIS, people on low and middle incomes received increases of between 2 per cent to 6 per cent. I do not subscribe to the view that the only way to deal with taxation is through bands and allowances. I am on record both inside and outside the House on this issue and there is no need to restate my views. Partnership 2000 envisages that over three budgets total personal tax concessions would amount to £900 million. That has been achieved over two budgets, the 1997 budget and my budget of last year. Having fulfilled the terms of Partnership 2000, in the forthcoming budget I intend to concentrate my attention on low and middle income earners and to fulfil the programme as set out in An Action Programme for the Millennium, a joint document produced by Fianna Fáil and the Progressive Democrats.
Will the Minister explain why 39 per cent of taxpayers are paying at the higher rate after his budget, whereas only 37 per cent did so before it? The programme for Government stated that 80 per cent of taxpayers would pay at the lower rate, but the Minister has some way to go if the last budget resulted in an increase in the number of higher rate taxpayers. How does he reconcile this?
That is a stated objective of An Action Programme for the Millennium. The main reason for the increased number of taxpayers in the higher bracket — which is now a lower rate than when I became Minister for Finance — is the growth in the economy and the consequent growth in incomes. The Deputy is aware of the great strides the Irish economy has made in recent years.
Everyone will pay tax at the higher rate.
The rate will be so low they will not mind.
