Amendment No. 1 is in the name of Deputies Burton and Ó Caoláin.
Finance Bill 2003: Report Stage.
I move amendment No. 1:
In page 11, between lines 14 and 15, to insert the following:
"Increases in Tax Bands, Exemption Limits and Tax Credits
1.–The tax bands, exemption limits and tax credits relating to income tax set out in the Finance Act 2002 are hereby increased by 7 per cent with effect from the tax year 2003.".
The purpose of this amendment is to ask that this Government give some kind of justice and fair play to PAYE taxpayers who have had minuscule recognition in the Finance Bill and who have failed to be compensated for inflation, despite the fact that a range of price increases has been visited on working families by this Government. More than half of the rate of inflation we are currently experiencing, which is the highest in the European Union, arises from price increases, levies and charges and stealth taxes imposed by this Government on a range of charges. College registration fees have increased by €274. That is even before the reintroduction of fees as promised by the Taoiseach at the weekend, despite the partners in Government, the so-called watchdogs – the lapdogs in the Progressive Democrats – having put up posters in third level colleges stating that the Progressive Democrats will fight the reintroduction of fees. Additional prescription charges will cost an extra €200 per annum, approximately. There is an extra €78 on ESB bills and an extra €170 in VHI charges. It costs an extra €30 to tax a small family car and there has been a €69.50 increase in stamp duties on credit cards and bank cards. We have had an unceasing range of Government stealth taxes. In this amendment we are asking that a sense of fairness and justice be restored in rebalancing the tax system in favour of the PAYE sector and the ordinary worker.
I draw attention to a number of stealthy moves the Minister has made in the Bill before the House. One of those is to give more concessions to private hospitals in the form of capital allowances. This amendment was not introduced on Committee Stage where it would have been subject to detailed examination and discussion. Instead, it was sneaked in a few hours before the Bill came before the House for Report Stage.
There are also detailed amendments which again favour corporate taxation. While the Minister has talked about helping the PAYE sector, those in employment and working families, the reality is that his Finance Bill is a monument to the continued unfairness of our tax system. For instance, the closure of loopholes in relation to holiday cottages is postponed for at least two further tax years, if not longer. The closure of the loophole is postponed until people have secured planning permission. Unlike first-time buyers, people have until 31 May to lodge a planning application on their holiday cottage.
Last week the Minister argued in favour of low direct tax rates. He defends a 20% capital gains tax rate while ordinary working families are hit with probably the highest rates of indirect taxes in Europe. In this Bill he is increasing the standard rate of VAT from 12.5% to 13.5%. As a result, a range of additional price increases in areas like ESB and gas charges have been visited on ordinary families in the past month alone.
Let us contrast that treatment with what has happened to people in business or those who have significant earnings in excess of €0.25 million to €0.50 million. They have a loophole, which the Minister has not chosen to close, whereby they can create a company, funnel the bulk of their income into that company, close it down after a number of years of operation and create a large capital gain on which they are subject to tax at a rate of 20%. The Minister talked about the ten or 12 loopholes he would close but I told him that was the Augustinian principle – close the tax loopholes but, like St. Augustine, not just yet.
Some of the most glaring anomalies have not been addressed, particularly in the case of management companies into which very wealthy individuals channel their income. The biggest loopholes have been left untouched. The Minister defended the retention of the 20% rate while refusing to give even a modicum of relief to ordinary families in the PAYE sector.
The purpose of the Labour Party amendment is to ask that the PAYE sector be compensated by an expansion of tax credits to compensate for the increases brought about by inflation, at least half of which are driven by the Government.
The Minister's so-called crackdown on tax loopholes is a very slow process and some of the major loopholes have not been addressed by him. We continue to be a two-tier society, both in relation to education and taxation. The Labour Party's approach in this amendment is to demand a fair deal and justice for the working family and the PAYE taxpayer.
I support Deputy Burton's amendment which I supported also on Committee Stage. She has presented a cogent and sustainable argument. The same argument was presented to the Minister, Deputy McCreevy, during the course of Committee Stage but the Minister, in his cold and callous disregard for those most in need, many of whom are struggling to bring up their children in dignity and with the prospects of a future that offers them the opportunity to reach their full potential, has refused to accept even one amendment presented by the collective effort of all of the Opposition finance spokespersons over three days. With all respect, the Minister's yawn says it all. In my previous experience in the area of the environment and local government, I have never seen anything quite like the Minister's obstinacy in continuing to refuse to accept the validity of the arguments presented by Deputies Burton, Richard Bruton, Boyle, myself and others.
Amendment No. 1 reflects the spirit of amendment No. 2 and seeks to address the crucifixion – I repeat the word "crucifixion"– of the PAYE sector by the Minister and the Fianna Fáil-Progressive Democrat coalition. This must end but the only way that can happen is by addressing what has been done. To stop now would not be adequate; we need to reverse the situation but that can only be done by increasing tax bands, exemption limits and tax credits. One would expect the Minister to do that but the reality, as I have said, is that he shows scant regard for those facing the cold reality of trying to make ends meet. The Minister is happy to see corporation tax drop from 16% to 12.5% and capital gains tax is now 20%. However, there is no talk of taxing wealth or taxing on the basis of ability to pay. Most disgraceful of all, those on or below the minimum wage are still in the tax net. That is a scandalous condemnation of the Minister and Government.
There is a notion that as this is the first year of the Government's term, by the time of the next general election these dark, dismal days will have been forgotten through the announcement of a series of small goodies in order to cajole the wider populace. That will not be the case as those people have been screwed repeatedly by the Government. People have demonstrated time and again that they feel cheated and that they were given false promises by the Government before last May's election. The final act has been performed not only in the Minister's introduction of the budget on 4 December but in this Bill, which confirms the worst ravages of what he announced. Much of what the Minister intends to do was not announced in his statement on budget day. I urge the House to support this amendment and the spirit it reflects. However, I have no hope of the Minister having a change of heart. What we need is a change of Minister and of Government.
The logic of this amendment exposes what is at the heart of this numerically challenged Minister's philosophy about fooling people about the reality of their tax situations. Real tax reform would not only accept an amendment of this nature, which seeks to take high levels of inflation into account, but would also introduce indexation on a year to year basis. Just as with general Government expenditure, people understand that if they are promised a certain amount but the resulting figure turns out to be lower, even if that figure is an increase on the previous year's allocation but less than the rate of inflation, it is a cut. They understand that the opposite also holds true when it comes to tax liability. If people's tax bands, exemption limits and tax credits remain unchanged, then they realise that any increase in pay in a given year will immediately be eaten up by a tax liability that is higher overall.
This is the biggest deceit in the Finance Bill, just as it was in the budget itself. The Minister used smoke and mirrors on the tax rates for the past few years and he has not dealt with the real issues of income tax reform: the levels at which people come into the tax system, the rate at which they pay the lower rate of tax and the level at which they come into the higher rate. There is also the question of what PAYE workers can write off as opposed to the general benefits enjoyed by people with higher levels of capital and who do not work directly.
If the Minister were interested in the idea of equity he would not only accept this amendment but subsequent amendments which seek to introduce indexation to all elements of our tax code.
This amendment requires a general increase of 7% to be applied to all tax bands, exemption limits and tax credits for 2003. The cost of this measure, at €392 million in 2003 and €537 million in a full year – almost three times the full year cost under the 2003 budget income tax package – is not possible in the current economic climate. This year I have made only limited changes to the personal tax system which will have a total cost of €186 million in a full year, and are all that can be afforded in the current circumstances.
When the resources were there we made the corresponding improvements, as the following facts confirm. The value of the personal credit increased by almost 16% in the period 2000 to end 2002, while the value of the PAYE credit, or allowance as it was then, increased by over 136% in the same period. The value of the standard rate band for a single person increased by over 29% in the same period, while the exemption limits aged 65 and over increased by over 57%. By comparison, in the same two year period, the consumer price index rose by less than 10%. The Government is committed to sustained economic growth, strengthening and maintaining the competitive position of the economy and maintaining full employment. Responsible fiscal policies are central to the achievement of these aims and the proposals outlined by the Deputies would be inconsistent with this approach.
I will give some examples of what has happened since 1997. A single person on the average industrial wage as projected for 2003 will have an average tax rate of 16.6%, compared to almost 28% in 1997. I will outline some international comparisons; the most recent data available from the OECD, which is the document "Taxing Wages 2000-2001", relates to the year 2000 and, although there have been significant changes since then, in the case of a single person on the average production wage Ireland has the lowest tax wedge in the EU. The EU average tax wedge is 42.4% while the Irish figure is 29%. Provisional data from the EU, also relating to 2000, shows that the average EU tax wedge for 2000 for a single low-paid person on 50% of the average industrial wage is 35%, while Ireland's tax wedge for that income is 14.8%. For a married couple on 50% of the average production wage, the tax wedge in Ireland is 3.8% while the EU average is 32.3%.
If Deputies pick up The Economist this week they will see a chart on page 98 outlining economic and financial indications – it is there every week and details output, demand and jobs all over the world. This week, one chart outlines household direct tax burdens and goes through a list of countries. It states that the direct tax burden on industrial workers with a family has fallen in most countries over the past two years and that the decline has been greatest in Ireland, where an employee on an average blue collar wage, with two children, now gets more in cash benefits than he pays in direct taxes and social security contributions. Ireland is therefore the only country below the line on the chart, in that it is the country where the average blue collar worker with two children gets more in cash benefits than he pays in direct taxes and social security benefits.
The election was held on 18 May and the people liked the approach the Government has taken to taxation. Deputy Ó Caoláin will have to update his script. He is talking about another age when he speaks of the crucifixion of the PAYE sector. Not even Deputy Burton refers to that anymore. Whatever justification there was for saying that before 1997, the main criticism of my tenure as Minister has been the opposite, that we have done too much to reduce the tax burden at the expense of other areas. The Deputy's script factory reflects another era.
The Minister should face the electorate in that case.
The Deputy might have been justified in saying it before the advent of the Fianna Fáil-Progressive Democrats Government in June 1997 but it no longer holds true. In that time there have been significant changes to the tax system and people recognised the differences at the last election. They recognised that there has been major tax reform and that I have undertaken a series of initiatives that have worked well. I do not accept the Deputy's criticism. The proof exists in the figures.
There was a cast of characters at the back of the Minister's Budget Statement – Liam and Georgina, John and Stephanie and Duncan and Mary.
The Deputy is very fond of Duncan and Mary.
I feel I have got to know them. I expect any day to canvass them and see how they and their lovely children are getting on. The reality, for all the Minister's hyperbole, is that Duncan and Mary, on €40,000 per year, with two children whom Mary stays at home to mind, gained €96 in the budget.
The Deputy should look at how much they gained since 1997.
By increasing the charges, stealth taxes and levies, they are facing €1,050 in extra charges per year. God forbid the two lovely children should decide to go to college any time in the near future. If they have enough disposable income, as the wealthy do in Australia, they will have to pay the fees up front. We are told the Minister for Education and Science will introduce such a system. He told The Irish Times that he earns €150,000 per year and can afford to pay. The average family, Duncan and Mary, will have to pay for their children, or the children will have to take out loans for their college years of between €8,000 and €20,000 – even more if the heads of the universities get their way and the Minister cannot restrain them.
This amendment would return some fairness to the equation for all the Duncan's and Mary's, Liam's and Georgina's and Stephanie's and John's in the State.
The writer for The Economist clearly lives in the same distant, low density residential area as the Minister because he or she is far removed from the reality of life for many in society.
Far from the descriptive language of my opening contribution being outdated, all too sadly it reflects the truth, as Deputy Burton and others have pointed out. The reality is that many people are continuously bombarded with direct and indirect taxation in a range of guises. The significant increases they face mean that the greater number of ordinary families do not have the spending power they had some time ago. It is biting most at those who can least afford it and who have the least ability to absorb the new demands being placed upon them.
The Minister has put in place the necessary protections for the most well off in society as we face a time of more stringent economic circumstances and, by his neglect over six budgets, left floundering those least able to defend themselves against the ravages of inflation and increased demands and charges. If he is so confident, the Minister should face the electorate and listen to their story.
Deputy Burton will not be surprised to note that I have put together an example for Duncan and Mary, the married, one earner couple with children on €40,000 per annum. In 1997, Duncan and Mary would have paid €9,645 in tax while in 2003 their liability is €4,050. They have gained over €5,500 in that period, coming from an average tax rate of 29.2% to 15.5%. That shows the extent of the reform of the tax system and gives some idea of the generous tax reductions that have been made.
The case has also been made about higher inflation and higher indirect tax charges and VAT. We have a reasonably high rate of VAT but there is a zero rate on a wide variety of products, principally food, which other countries do not have. We have a higher rate on those items subject to it but a large proportion of household expenditure is exempt from it. Duncan and Mary have done exceptionally well during my stewardship as Minister for Finance.
Duncan and Mary got €96 out of this budget. That is the key point. There were hidden extra charges of €1,060 on average for this year, and there will be more as the increase in VAT bites in the raising of ESB and gas charges. As our respective parties go to Duncan and Mary's door we will see that eaten bread is soon forgotten. They are finding the stealth charges introduced by the Government difficult to live with.
I move amendment No. 2:
In page 11, between lines 14 and 15, to insert the following:
"1.–From a date prescribed by the Minister, the exemption limit for income tax shall be increased to a level equal to the hourly rate of the minimum wage for the time being multiplied by 40 multiplied by 52."
This amendment asks the Government to live up to its election promises and take the action in the Finance Bill that would remove those on the minimum wage from the tax net. It has been promised by the Government. The Minister was just talking about how well people have done from his successive budgets but the fact remains that people on very low incomes are still paying significant amounts of tax. I will contrast that situation with the evidence available from a parliamentary question I put down to the Minister and the relevant supplementary papers which I was able to access under the Freedom of Information Act – a facility which will not be available very much longer unless the Minister reconsiders his position and adopts the Labour Party's proposal for a one year cooling off period. With regard to the example quoted by the Minister a few moments ago in relation to Duncan, Mary and their two children, the study by the Revenue Commissioners on effective tax rates for high earning individuals, showed that, of 400 top earners, the effective tax rate had fallen to 16.5%—
Fifteen and a half per cent.
—to 15.5% from a much higher rate in 1999. The officials of the Revenue Commissioners who produced the study on effective tax rates for high earning individuals found that 18% of the highest earning individuals in the year 1999-2000 had an effective tax rate of 15% – the same rate which, some years later, has become applicable to Duncan and Mary. The information available from the Revenue Commissioners' study, limited though it may be, shows that, through tax loopholes and avoidance methods – many of them property-based and only due to be closed several years hence – 117 of the 400 individuals concerned had an effective tax rate of 30% in 1999-2000. One quarter of those 400 people paid no tax at all, usually because of property based tax avoidance schemes available with Government approval and 54%, or more than 200 of them paid less than 10% of their income in tax. That is the dilemma which faces society in creating a fair tax system for people in the PAYE sector.
As I have said on previous occasions, I welcome the reduction in high marginal rates of income tax and I hope we can maintain that. However, we can only do so if everybody pays his fair share and people at the lowest level of income, on the minimum wage, are taken out of the tax net completely. Although the Minister has certainly brought down PAYE tax rates from the high marginal level – and I agree with that – he has not closed down the loopholes available to the very wealthy, such as the 400 we have been discussing just now. As accountants, the Minister and I know that in the case of a client with an income of about €500,000, either of us could design a scheme to reduce that individual's tax liability to a very low level by using a device such as a management company or the property reliefs and loopholes which the Minister has left open. That favouritism of the Progressive Democrats and Fianna Fáil – the Progressive Democrats in particular – towards the very wealthy is not good enough.
We will not achieve acceptance that everybody is paying his fair share unless the Minister can show that those in the category of the 400 people to whom the Revenue Commissioners' survey referred are paying their fair share. The scandalous situation whereby some of that group pay no tax must be brought to an end – not in two years time but now – and people on the minimum wage must be taken out of the tax net. Those are essential requirements in any just, equitable and fair taxation policy but, unfortunately, they are absent from this Bill.
I support the case made by Deputy Burton in relation to this amendment. As she has pointed out, a significant percentage of the highest earners in this jurisdiction pay no tax at all. That fact alone demands that the core objective of the amendment must be addressed, namely the removal from the tax bracket of those on or below the minimum wage. The Minister mentioned a figure of 10% in relation to people on less than the minimum wage. In reality, the percentage could be much higher. Although 90% of those on the minimum wage are outside of the tax net, there could be much more than 10% of those on or below the minimum wage who are still caught in that bracket. It is a significant percentage. It will make a critical difference to people who most need the support of the Minister and the Government in trying to cope with the demands they are facing in society at present. It is scandalous that people at that level of income are still in the tax net, having regard to the disgraceful situation vis-à-vis those among the highest earners in the land who do not pay. No further comment is necessary on this self-sustaining argument. I appeal to the Minister to accept the amendment, recognising that he has failed to do what he should have done earlier.
Referring to the examples of Duncan and Mary or Liam and Stephanie, I wonder what happened to Seán and Máire – did they fall out of the tax net? Should we inform the Garda missing persons bureau?
There are 398,000 persons outside the tax net.
I am sure they are very happy about that.
They were particularly happy at the time of the election anyhow.
The figures quoted by the Minister in relation to Duncan and Mary were very interesting. Apparently, Duncan and Mary were earning €40,000 in 1997 and €40,000 in 2002. That does not say very much for their upward mobility. He also failed to take into account that the cumulative effect of inflation, even over that five year period, was at least 15%. Even if one takes it at a cumulative 2% per year, that amounts to 12% or 13%. Accordingly, the value of the original €40,000 in 1997 is down by €6,500, which is less than the tax the Minister has given back to them over that period. That is a critical argument in terms of indexation. The Minister is paying people with their own futures and is really not giving them any additional money.
I turn to the specific amendment, in the context of the minimum wage. The Minister stated that the cost of implementing this would be in the region of €500 million in a year. Coincidentally, that is the sum he is prepared to give to people who have invested in the special savings investment account scheme, which is benefiting people with disposable income. That is something which people on the minimum wage most decidedly do not enjoy. In order to get any benefit from the SSIA scheme, a person on the minimum wage would have to invest up to 25% of his or her income of no more than €225 per week. Those are the balances which the Minister has put into the system and for which he must be held to account. It is disconcerting that he has not taken this opportunity to remove everybody on the minimum wage from the tax system. It is an anachronism that the State, through family income supplement, provides some form of supplementary income for people who find themselves in that situation. In reality, that is not a supplementary income for people on low wages. It is a subsidy for employers who wish to pay low wages. There are numerous inconsistencies and inequities in the system which the Minister had an opportunity to address in the budget and in this Finance Bill, but he has chosen not to. The arguments he made today, on Committee Stage and indeed on Second Stage are inconsistent and do not address the reality of many people in society forced to live on the minimum wage.
As I pointed out during the Committee Stage debate on this issue, I cannot accept the amendment proposed by Deputy Burton for a number of reasons which I will reiterate.
The Government's approach to exempting the minimum wage from tax is already well established. We stated in An Agreed Programme for Government that the objective is to be achieved as a priority over the next five years subject, of course, to the overarching requirement for sound economic and fiscal policies and for keeping the public finances in order.
In 2002, we achieved a position where 90% of the minimum wage annualised was exempt from tax and we have maintained that position in 2003 with limited resources even though the wage increased again towards the end of 2002. In 2003 workers earning at or below an annualised figure of €11,600 –€223 per week – will pay no tax. I might add that, thanks to the increases I have provided for in personal credits, a single person on the average industrial wage has benefited to the tune of €39 per week due to tax changes alone in the period 1997 to date.
As I mentioned during the Committee Stage debate, I would not favour the approach suggested by the Deputy for exempting the minimum wage from taxation, that is, the use of the general exemption limits. Such an approach would be complex to implement, not only for the Government but also for employers because of the large numbers of people – almost 100,000 – who would be brought into the system of marginal relief. In addition, it would run contrary to the thrust of Government policy over recent years. This stems from the recommendations of the expert working group on the integration of the tax and social welfare code with which Deputy Burton is very familiar and which was to move away from use of the general exemption limits as a means to remove lower paid individuals from the tax net.
I might remind the Deputy about the scale of the costs involved in exempting those on minimum wage through the preferred route of increasing the personal tax credits. To complete the process using an increase in the personal credit alone would cost about €420 million in a full year. To achieve the same result through an increase in the PAYE credit alone would cost about €286 million in a full year and to do so using equal increases in the personal and PAYE credits would cost about €353 million in a full year. Having regard to the scale of these costs, the Government will address the issue over the full period of its present term of office. In the circumstances, I cannot accept the amendment.
I am disappointed by the Minister's reply. Notwithstanding the points he made about technical difficulties of implementation, we cannot have public confidence in the tax system until we have parity of treatment for different classes of people. The reality is that very low paid people are in the tax net, including people on or near the minimum wage. As I said, the study carried out by officials in the Revenue Commissioners shows clearly that 400 of the highest earning individuals were paying rates of tax which were exceptionally low. Half of them were paying nothing and 54% were paying a rate of less than 10%.
My point is that such unfair disparity in treatment between the very low paid who are in the tax net and very wealthy individuals who are out of the tax net altogether is not sustainable. The Minister should bear in mind that those in the Revenue Commissioners' study were people in the tax system. We are not even talking about the people with foreign residency for tax purposes who can still manage to drop in for every race meeting, opera opening etc., 30 or 40 times a year as they choose, and who pay little or no tax in this country. We are not talking about the stallion owners because they will not be required for another two years to even fill in a tax return on their income. We are talking here about very high income individuals in the tax system.
The Minister, an innovative accountant, and I could sit down and, between us, on one sheet of paper set out how very high earners with income of more than €500,000 could shield about half of that from tax through the existing loopholes. That contrasts with the situation for very low income earners.
The Minister, in his concluding remarks, stated: "In the circumstances, I cannot accept the amendment". I could not note his reason. The Minister quoted figures of X millions for the cost of the measure. For what reason can the Minister ignore the daily living conditions of people struggling in poverty? He gave no reason for not adopting this amendment. He quoted the figure in terms of its effect, but he is not examining the reality of the effect of his failure to act on ordinary families in society. He is only measuring it on one hand and is not looking at it on the other, which is a story as starkly different from his own that he would not believe it.
It is a fact that families are living in poverty. Those who are existing on the minimum wage, and providing for children, in particular, are living in poverty in this day and age. It is to the children of these low earners the Society of St. Vincent de Paul referred in its pre-Christmas report which described children going to school under-nourished and ill-clothed. Those are children in our society today. These are the families for whom this amendment offers hope. It offers the prospect of improved financial resources, improved family circumstances and a better prospect of reaching a better standard of living within their communities.
As I pointed out on Committee Stage, the idea of a minimum wage came from the Fianna Fáil Party. We incorporated it into our policy platform for the 1997 election and set about putting it into effect when we got into Government with the Progressive Democrats. Exempting the minimum wage from taxation was not part of the Fianna Fáil manifesto in 1997. It became part of the review of the programme carried out half way through the period of that Government and became an objective at that stage, one which was carried over into the PPF.
Regarding the minimum wage, some 681,030 income earners or 36.12% of all income earners will be outside the tax net post-budget. In 1998, before my first budget, that figure was 25% of income earners or approximately 380,000 people. This illustrates the progress that has been made for those on lower pay. As a recent study highlighted in Irish newspapers has shown, we have the best, most effective and lowest tax burden on low income earners of all EU countries and, as far as I know, of nearly all the OECD countries as well. I am sure Deputy Ó Caoláin will be familiar with that.
Deputy Burton referred again to the Revenue Commissioners' recent 2002 study on the effective tax rates of high income earners, but the study indicates an increase in the effective rate of high earners in 1999-2000 compared with the findings of a similar study carried out by the Revenue Commissioners in 1997 on the effective tax rates of high earners in the tax years 1993-94 and 1994-95, a copy of which I placed in the Library on 26 February 1998. The more recent study was placed in the Library on 11 December 2002.
In part, that change occurred as a result of changes I made in the Finance Act 1998, when I restricted the use of capital allowances on buildings and made many other changes in that regard. Some of the changes I have made since had a further effect and, in this budget, I have done even more.
I thank the Minister for his reply. It is an absolute disgrace that in this new century there is still a tax burden on families on minimum wage or just above it. The Minister should bear in mind that those families are facing all the price increases, charges and stealth taxes we talked about earlier. At the same time, 400 of the most wealthy people in society are paying little or no tax. By any interpretation, that is a scandal.
I noted carefully what the Minister said. He has not indicated that those on extremely high incomes will pay higher effective tax rates at any serious level in the foreseeable future. As the Minister knows, most of his loophole closures are being postponed for at least two years. Welcome as the restrictions on these loopholes are, the result is that the lower income earners get little or nothing while the high earners get lots of time to ease into contributing tax at the same rate as the average working family.
Allen, Bernard.Boyle, Dan.Breen, Pat.Broughan, Thomas P.Bruton, Richard.Burton, Joan.Connaughton, Paul.Connolly, Paudge.Costello, Joe.Coveney, Simon.Cowley, Jerry.Crawford, Seymour.Durkan, Bernard J.English, Damien.Enright, Olwyn.Ferris, Martin.Gilmore, Eamon.Gregory, Tony.Harkin, Marian.Higgins, Joe.Higgins, Michael D.Hogan, Phil.Howlin, Brendan.Kehoe, Paul.Kenny, Enda.Lynch, Kathleen.McCormack, Padraic.McGinley, Dinny.
McGrath, Paul.McHugh, Paddy.McManus, Liz.Mitchell, Olivia.Morgan, Arthur.Moynihan-Cronin, Breeda.Neville, Dan.Ó Caoláin, Caoimhghín.Ó Snodaigh, Aengus.O'Dowd, Fergus.O'Keeffe, Jim.O'Shea, Brian.O'Sullivan, Jan.Pattison, Seamus.Penrose, Willie.Perry, John.Quinn, Ruairi.Rabbitte, Pat.Ring, Michael.Ryan, Eamon.Ryan, Seán.Sargent, Trevor.Sherlock, Joe.Shortall, Róisín.Stagg, Emmet.Stanton, David.Timmins, Billy.Twomey, Liam.
Ahern, Dermot.Ahern, Michael.Ahern, Noel.Andrews, Barry.Ardagh, Seán.Aylward, Liam.Blaney, Niall.Brady, Johnny.Brady, Martin.Brennan, Seamus.Browne, John.Callanan, Joe.Callely, Ivor.Carey, Pat.Carty, John.Cassidy, Donie.Collins, Michael.Cooper-Flynn, Beverley.Coughlan, Mary.Cregan, John.Curran, John.Davern, Noel.de Valera, Síle.Dempsey, Noel.Dempsey, Tony.Dennehy, John.Devins, Jimmy.Ellis, John.Fahey, Frank.
Finneran, Michael.Fitzpatrick, Dermot.Fleming, Seán.Fox, Mildred.Gallagher, Pat The Cope.Glennon, Jim.Grealish, Noel.Hanafin, Mary.Haughey, Seán.Hoctor, Máire.Keaveney, Cecilia.Kelleher, Billy.Killeen, Tony.Kirk, Seamus.Lenihan, Brian.Lenihan, Conor.McCreevy, Charlie.McDaid, James.McEllistrim, Thomas.McGuinness, John.Martin, Micheál.Moloney, John.Moynihan, Donal.Moynihan, Michael.Mulcahy, Michael.Nolan, M. J.Ó Cuív, Éamon.Ó Fearghaíl, Seán. O'Connor, Charlie.
O'Dea, Willie.O'Donnell, Liz.O'Donoghue, John.O'Donovan, Denis.O'Flynn, Noel.O'Keeffe, Batt.O'Keeffe, Ned.O'Malley, Fiona.O'Malley, Tim.Parlon, Tom.Power, Peter.
Power, Seán.Ryan, Eoin.Smith, Brendan.Smith, Michael.Treacy, Noel.Wallace, Dan.Wallace, Mary.Walsh, Joe.Wilkinson, Ollie.Woods, Michael.Wright, G. V.
Amendment No. 3 arises out of Committee Stage and amendment No. 5 is related so they may be discussed together by agreement. Is that agreed? Agreed.
I move amendment No. 3:
In page 11, between lines 19 and 20, to insert the following:
"2.–Section 15 of the Principal Act is amended by the insertion after subsection (2) of the following subsection:
‘(3) The amounts specified in column (1) of this table shall be automatically increased for each year of assessment by a percentage equal to the annualised rate of increase in the Consumer Price Index last published by the Central Statistics Office before the commencement of the year of assessment.'.".
The purpose of these amendments is to reintroduce the basic concept, which should be present in a tax code, of indexation of thresholds and credits. It is extraordinary that after so many years of economic success, the Minister cannot even give indexation to people on the most basic credits and allowances to ensure the ravages of increased costs of living do not erode their living standards.
In the course of this debate, I have listened to the Minister's self-congratulatory tone as he puffed out his chest and said what a wonderful fellow he was for having reduced taxes on various bodies over the last five years. However, the reason we are debating indexation is that, for the last two years, the Minister increased spending by 40%, but increased tax by just 6%. He increased spending at seven times the rate of growth of tax revenue and brought the public finances to a state where severe cuts and stealth taxes had to be imposed so that people dependent on the most basic tax allowances cannot get indexation. Not providing for indexation means the Minister is putting his hand in the pocket of the average family and taking €400 from them over the course of the year.
The Minister should be coming here crestfallen. Perhaps we should have some humility from the Minister in advance of tomorrow, given it is Ash Wednesday. He went to the country last year, telling us that hospital waiting lists would be abolished in two years, that first-time buyers would be protected from unfair competition from investors, that another 200,000 people would have a medical card, that another 2,000 gardaí would be walking the streets ensuring people were not subject to violent attack, and that consumers would be protected from rip-offs during the euro changeover. All of these promises, which were at the heart of the last election, have gone up in smoke. On the last amendment, we quibbled about the pennies that should be made available to people at the bottom of the scale and now the Minister is saying that indexation cannot be provided. The Minister has moved from having a strong economy in which revenues were strong to one in which revenues are about one third of what he predicted. Already this year, income tax is falling short of what the Minister predicted. The Minister should be telling us how he proposes to manage the economy to ensure that decent services can be provided for those who depend on public services.
The reality in my constituency is very far removed from the lavish promises contained in the Fianna Fáil manifesto. Today I learned of the closure of a crèche in Darndale, one of the most disadvantaged areas of my constituency, for want of funding. Nursing home subventions are being cut and the accident and emergency department at Beaumont Hospital is in continual chaos. I met a person at my clinic recently that spent five days on a trolley in Beaumont Hospital waiting to be attended. Essential repair grants and supports for people at the bottom of the scale have also been cut back.
There is an air of unreality about the Minister's self-congratulatory tone. The Minister has mismanaged public spending in recent years and we are seeing the cruel consequences of short-sighted cutbacks. The Minister has maintained the entire State bureaucracy. Public pay will be increased by almost 12% this year while the non-pay element of his spending, when ruling out social welfare, will be increased by 1.5%. This means beds and crèches will close, nursing home grants will be cut and the little things that make life possible and decent for those who depend on public services have been axed. That is the reality of the Finance Bill we are debating and it is time the Minister cottoned on to this.
He tells us the electorate made its decision. If one cares to ask the electorate today, it will say what it thinks of the decision it made. The electorate believes it was conned and having been conned, Ministers are now going to bury the evidence by changing access under the Freedom of Information Act. The Government exudes a great whiff of arrogance for which it will ultimately pay dearly.
The Minister is deciding that inflation will be the force that rescues the public finances. As Deputy Burton has already spelled out, there have been increases at every turn. While pensioners received an additional €10 per week to their pensions, medication charges paid by them increased by €7 per week. Increases have also been introduced for casualty charges, motor tax, diesel, VHI contributions, bus fares, gas costs and college registration fees. We now hear that college fees are to be reintroduced through a loan scheme. Every day the Minister is finding new ways to increase the cost of living for people who are struggling to get by. He is using inflation as the tool to rescue him from the financial problems he has created. He is taking €400 by stealth from every household.
The trouble is not that people are being cheated; the consequences are very serious. Manufacturing prices have fallen by 4% in the last nine months. Those trying to compete in the trading economy are seeing the price they can get for their goods and services falling sharply. The pressure the Minister has created through these stealth taxes means that people are rightly looking for pay increases to compensate for this. Business people are seeing their energy and transport costs increase and this will result in the loss of jobs. It has been little remarked on that in the last two years one in five IDA or Enterprise Ireland created jobs were lost. This is a dramatic meltdown and much more rapid than anything we have seen for at least a decade.
Many companies are close to the brink and we cannot afford this inflationary management of the public finances and short-sighted approach to public spending. A proper programme of reform in public spending should be introduced that looks at the delivery of health and education services in a radical way. The Minister has the right instincts but he has not been able to have other Ministers address this. He sat on his hands while Ministers increased spending without reforming the delivery mechanisms. Unfortunately, that is the legacy of the previous Government and we will pay dearly for it.
This Bill is built on a hoax. People have been let down by it and the least we can do is make the provision that I have suggested in my amendment. It will provide that people on ordinary tax credits and allowances would see them indexed to take account of the cost of living.
The Deputy is proposing the indexation of bands of certain tax credits. As I said on Committee Stage, such a move would be very costly. For example, if a figure of 4.6%, representing the best available estimate of the rate of growth in the CPI for 2002 over 2001 was to be assumed, the full year cost of indexing the standard rate band would be about €192 million. In addition, a similar increase in the main personal credits and allowances would cost about €165 million in a full year. Overall, at such a rate of annual increase, costs of almost €363 million per annum could be expected to arise. Clearly, tax expenditure on such a scale would severely limit the Government's flexibility in determining budgetary priorities having regard to the economic realities in any given year.
It is important that the Government retains flexibility as to the size of the personal income tax package as against other priorities and the composition of any package. In this year's budget, reflected in the Finance Bill, the employee credit is being increased by 21% to ensure, given the limited resources available, 90% of the increased minimum wage is exempt from taxation even though it was increased in October 2002 and now stands at €6.35 per hour. It would be more difficult to target resources in this way if limited resources were spread equally across all bands and credits.
The overriding aims of the Government's budgetary and economic policy, as set out in An Agreed Programme for Government, are clear. It is committed to sustaining economic growth, strengthening and maintaining the competitive position of the economy and maintaining full employment. Responsible fiscal policies are central to the achievement of these aims and it is not clear that making statutory provision for the indexation of bands and credits would be consistent with this approach. For a single worker on the average wage, Ireland has the lowest tax rate in the EU and the tax burden is much lighter for the ordinary taxpayer than it is for our closest neighbours.
I remind Deputies of the fundamental changes in the tax system in recent years. Tax credits have been introduced and increased, tax rates have been substantially reduced and the standard rate band has been significantly widened. All of these make the tax system inherently fairer and all taxpayers have benefited from these measures. The Government has clear policy priorities for its term of office regarding personal taxation. This includes the removal of all those on the minimum wage from the tax net and ensuring that 80% of all earners pay tax only at the standard rate. The achievement of these aims is subject to the overarching requirement for sound economic and fiscal policies and for keeping the public finances in order.
The Minister is on autopilot; his word processor is great at wheeling out replies. The Minister is using prices as a means of levering extra money to the Exchequer. People feel let down by this and will see the toll it takes as the year wears on.
I move amendment No. 4:
In page 11, between lines 23 and 24, to insert the following:
"3.–Section 446A of the Principal Act is amended in subsection (2) by the substitution of ‘€1,540' for ‘€770'.".
The purpose of this amendment is to double the home carer's allowance. Members will recall that when individualisation was first introduced by the Minister and the position of two earner couples was made considerably more attractive than that of one earner couples there was some unease, not least among Fianna Fáil backbenchers, that this would bear heavily on those who choose to stay at home to look after children or a person who requires long-term care. This element of tax relief was introduced as an afterthought to that budget. Since then it has remained frozen at its original level and this is an opportunity to increase it. Increasingly, pressures are coming on families in relation to caring both for their children and for older and infirm people in the home. We need to give recognition to people who decide to take on those significant burdens.
The only provision now afforded in the tax code is where somebody employs a person to carry out these home caring responsibilities for a disabled person. However, if a family member chooses to do it, there is no commensurate recognition other than the small €770 allowance. I am advocating that this be increased to €1,540. It would be a significant gesture. That is not to say there is some superiority about the choice of people who decide to stay at home over the choice to go out to work. However, we should not so tilt the balance that the choice of those who decide to stay at home is severely penalised. The maximum penalty for the stay at home spouse some years ago, when the Minister started individualisation, was €330. Under successive budgets the maximum penalty has increased to €4,200. It has gone too far.
We need more sensible recognition of the pressures on families. That should be a general principle in the tax code. The Minister in his budgets has been too narrowly focused on the needs of the economic engine to have people to serve it rather than looking at the pressures on families at different stages of their life cycle, whether it be the period when they must support child care, the period when they guide their children through college or the period when they are taking care of elderly relatives. The tax code should include more recognition of those burdens, as should labour law.
The Minister's preference for Boston rather than Berlin means this type of thinking is generally hostile to the thinking in Boston, although Boston is probably the most European of American cities. It is certainly hostile to the thinking in Los Angeles with its rugged economy and where the needs of the economy rule above all. A different approach is needed to family responsibilities in labour law and the tax code in terms of the supports available to people. This amendment is just a small element of the reforming approach we ought to introduce in our tax, welfare and labour regimes.
The Minister indicated on Committee Stage, during the debate on this amendment, that its full cost in a full year would be approximately €100 million. It is a substantial cost to the Exchequer.
I wish to focus on people who are full time in the home and have specific caring duties in respect of handicapped children or elderly or infirm relatives. They are in a particularly difficult and onerous situation. If the children or adults with a disability were in a State institution or if the elderly or infirm relatives were in a nursing home, the cost to the State would be far greater. I am disappointed that there has been no additional provision in the Finance Bill for such needy situations. Due to the reduction in finances available to the Government, nothing substantial has been done for carers in either the social welfare legislation or in this Bill. I urge the Minister to reconsider and perhaps target this relief to those who have specific caring responsibilities.
Caring for children with a disability or for infirm elderly relatives is an onerous responsibility. The carers get little or nothing in the Social Welfare Bill or in the Finance Bill. Every week Members meet individuals who have just had a child born with significant disabilities and who will require lifelong care. One or both parents are working and they make a decision that one of the parents will either significantly curtail or, in many instances, give up work to become a full-time carer. They are shocked to discover that they can get little or nothing due to the means test rules which apply to carer's allowance. They are even more shocked when they find out that when one of the spouses gives up working, their income tax situation will disimprove dramatically as a result of the push in previous years to encourage more women into the workforce.
This element of the tax code has become increasingly unfair while the carer's allowance is severely means tested under social welfare rules. I would have expected more ingenuity from the Minister on this issue. He indicated on Committee Stage that the cost of the relief proposed in the amendment would be €100 million and €163 million in a full year. However, the amendment has great merit. A targeted improvement for people at home who have specific caring responsibilities would be even more welcome.
I support the amendment. The case regarding the needs of those who offer caring support in our society has been well made time and again in the House. The Minister has heard the arguments of Opposition Deputies through a succession of budgets and debates on Finance Bills in the past six years. Here is a simple action the Minister could take to improve the situation of, and make a gesture to, a sector of the community which provides critical support which increasing numbers of people require. When one sees the costs of supports such as nursing home subventions, it is not only desirable but there will also be a greater need of care being offered in the home.
This amendment, which seeks to double the allowance, is just a small measure, despite its effect across the board. It will only offer minor relief to some of the most wonderful people in society, those who offer care and support in the home to those who need it.
I support the amendment. The sum involved is €100 million but let us compare it to other areas of spending. It is only one fifth of what the Minister is putting aside for special savings investment accounts, one tenth of what has already been lost in the national pension reserve fund and an infinitesimal amount of what has been overspent by the National Roads Authority in implementing national development plan projects. The Minister should be showing more foresight in those areas. This should be seen against the modest increase in the respite care grant that the Minister for Social and Family Affairs provided for in the Social Welfare Bill.
If the Government wants to send out a clear signal on where it stands in relation to carers, it should have introduced a combination of measures. Lack of action on this issue sends out a message that the Government does not care enough.
This amendment proposes to double the home carer's tax credit from €770 to €1,540. It is estimated that to increase the home carer's credit as proposed would cost in the order of €72 million in the first year and €103 million in the full year. Given the resources available to me in budget 2003, I made only a limited number of changes in the personal tax system with a total cost of €126 million in a full year. Apart from the increase in the employee tax credit, which is designed to ensure that 90% of the minimum wage would continue to be exempt from tax, there were no increases in the generality of personal tax credits, nor in the standard rate band; the budgetary position would simply not allow for it.
As Deputies will appreciate, I will not accept this amendment. The name given to this allowance – the home carer's tax credit – has allowed Deputies to speak about carers generally. However, the original purpose of the credit is as set out by Deputy Richard Bruton. He will recall that when I proceeded to widen the standard band, in the first year I had to bring forward an allowance which became known as the home carer's tax credit. I am sure the Deputy will have noted in the Fianna Fáil tax document that I addressed that problem before the 1997 general election. I promised that if we were to widen the standard rate band we would introduce a home allowance of £2,000 at the standard rate. I widened the standard rate band in that famous budget which became known for that unfortunate term "individualisation". I probably should not have used that term because the individualisation tax code is completely different from widening the standard rate band. Be that as it may, however, I brought forward that allowance which had been promised in the manifesto and it converted into a €3,000 allowance at the then standard rate of 22%, even though we had not fully introduced tax credits in that budget. It was part of the Fianna Fáil tax document, which I am sure the Deputy studied before the 1997 election, and we introduced it.
This debate has spilled over into the whole area of caring, although that was not the initial purpose of the relief – it was a counterbalance to widening the standard rate band. Significant changes to the carer's allowance were made by successive Ministers for Social Welfare. I do not think, however, that this relief is the appropriate mechanism by which to deal with the problems about caring that speakers have raised. Deputy Burton referred to many instances involving newly-born children, and she quoted chapter and verse about that. In my extended family there was such an occurrence in the past year, in very difficult circumstances.
It is very tough on people.
I know the circumstances very well but I do not think this tax credit – even though it is called a home carer's tax credit – should be associated with that element of social policy. The tax credit for handicapped children has increased from €408 to €500 per annum. In the second last Finance Bill I increased the incapacitated person's allowance up to €30,000 in order to take on people.
It is the aim of Government policy, and that of the social partners now, to widen the standard rate band. It is currently €29,000 and I have not been in a position to change it in this Finance Bill, but it is the goal to do so over time. There was tremendous opposition to it when it was first introduced. In the following two Finance Bills I increased it steadily by widening the standard rate band. There was some opposition in my party, a great deal of opposition from the Fine Gael benches and, strangely enough, much opposition from the Labour Party. I have, however, detected a shift in emphasis by Deputy Burton, not with regard to this amendment but with regard to Labour Party policy on this matter. She reiterated today that she is in favour of lowering tax rates, which is a step away from the position adopted by her predecessor. As the new party spokesperson on finance, she is perfectly entitled to change the policy.
Unfortunately, my friend of long standing, Deputy Burton, was not in the House from 1997 to 2002, but I would like to know what her views are on widening the standard rate band. I would be very surprised if she was not in favour of it, as nearly all trade unionists from time immemorial have been. People such as the equality officer of the Irish Congress of Trade Unions have always been in favour of it. In the middle of all the angst at that time, that person issued a statement supporting the idea, even though she would have been totally opposed to my political views then, as now. At the time, I readily appreciated the fact that she was not afraid to come out and say what she did on behalf of the ICTU.
This issue was not debated that much on Committee Stage but I would like to know what Deputy Burton's views are in this regard.
The Minister has been extremely selective in his quotation of facts surrounding this amendment. I know of no other recognition in the tax code for people who are caring for the infirm. In fact, the only recognition in respect of the social welfare code is rigorously means tested. Furthermore, if one happens to have a pension one will not receive a carer's allowance. I have not thumbed through Fianna Fáil's manifesto of late, but its provisions for carers seem to be extraordinarily mean and it appears that it cannot come up with better ones.
The Minister is right in saying this came about as a result of individualisation but he is not correct in suggesting, as he did, that the tax bands cannot be widened without introducing individualisation. That was a conscious choice by him to add on to the expansion of the tax band. This is a different issue but at the time the Minister's colleagues realised he had gone too far. I do not detect any indication from his reaction as to how he now views this provision going forward. Is this to be frozen as a relic of a rather difficult budget when he had to produce a sop to his backbenchers, or does he believe it has a long-term role in the tax code? I would like to hear his response.
We should recognise people who choose to care in the home for whatever reasons and their work should be recognised for tax purposes. We should make it easier for people to move in and out of work, obtain support for child care while they are at work, and have time off. Generally, we should have a more supportive code of welfare, labour and social supports but the Minister does not seem to have indicated any interest in that area. His narrow concentration on the issue of individualisation misses the wider point of what we are trying to achieve for responsible people who are rearing children and looking after their extended families. This issue is part of a wider debate and I am disappointed that the Minister has narrowed the focus by recycling the history of past budgets.
The Minister said this would cost €100 million in a full year. Can we focus on those who are providing care for children with an intellectual or physical disability, or caring in the home for an elderly, infirm relative? If even half that amount, €50 million, was spent – which is about 75% of the cost of one of the Government jets – it would be a significant step towards helping such people. The Minister has acknowledged it himself. We all regularly come across cases where someone has a child with a specific disability and if both parents have been working, their entire financial structure is completely upended. Not only does one spouse have to give up work to look after the child with special needs, but they are hammered also by the tax code. I am sure the Minister would be the first to acknowledge that the specific allowances available in respect of children with a physical or intellectual disability are relatively low. I am sure he would be generous enough to acknowledge that. He might say this is an issue that all parties must address. However, there is an opportunity in this Bill to build on a measure which had an awkward birth. Saturday is International Women's Day. I will ask some of the people to whom the Minister referred what are their views on this issue and I will report back to him.
I offer the Minister a constructive and positive approach and support what Deputy Bruton has said and put forward in his amendment in order to target a particular group of carers in the home. These carers usually do not qualify under a means test for any sort of State support but nevertheless wish to look after their children or elderly relatives at home, and some carers are often devastated in the aftermath of a trauma such as a child being born with very special needs. I expect the Minister to be a little bit more ingenious and to offer something special.
The social welfare code and allowances and programmes under the remit of the Minister for Health and Children and other Departments are the appropriate mechanisms to deal with these problems.
When carers are means tested they do not qualify for the allowance.
If one is means tested, one is probably not in the tax net. Therefore, changing the tax credit would not benefit such families to any considerable extent. I certainly have sympathy for the circumstances of the people to whom the Deputy referred, but the tax code is not necessarily the mechanism to address those problems.
I move amendment No. 5:
In page 11, between lines 23 and 24, to insert the following:
"3.–Section 448 of the Principal Act is amended in subsection (1) by the insertion of the following paragraph after paragraph (b):
‘(c) For the purpose of this section the deductions and allowances, as appropriate, specified in sections 461, 461A, 462, 462A, 463, 464, 465, 466, 466A, 467, 468, 472, 472A and 473, shall be automatically increased for each year of assessment by a percentage equal to the annualised percentage rate of increase in the Consumer Price Index last published by the Central Statistics Office before the commencement of the year of assessment.'.”.
I move amendment No. 6:
In page 11, line 26, to delete "€800" and substitute "€1,000".
This is what I would describe as the "ah, go on" amendment. Having anticipated the Minister not being willing to consider adjusting for the rate of inflation in terms of tax bans, tax credits and exemption limits or an exemption in respect of people on the minimum wage or their home care allowance, in regard to the one mitigating factor he produced in the budget and in this Bill, he might consider extending the PAYE credit, which at least would have the benefit of being most responsive to those on low pay. I ask the Minister to consider extending the value of this one small benefit.
This amendment proposes to increase further the annual value of the employee tax credit from the €800 proposed in section 3 to €1,000. The Deputy's proposal would cost an additional €172 million in 2003 and an additional €221 million in a full year on top of the costs already arising for the level of increase already provided for in the Bill.
The increase already provided for maintains in 2003 the position achieved after budget 2002 where 90% of the minimum wage annualised was made exempt from taxation. This takes account of an increase in the minimum wage in October 2002. It provides for an increase in the entry point to the tax system for a single worker from €209 per week to €223 per week. I considered that this was appropriate in the context of the resources available to me in this year's budget.
In the debate on the earlier amendments, I referred to the changes made over almost the past six years in the tax code. The accusation that I skew the tax code in particular areas to benefit the rich has been stridently leveled against me on Committee Stage, to a lesser extent on Report Stage and particularly over the previous five years. I have refuted that accusation time and again, quoted chapter and verse and my assertion that this accusation is not correct has now been backed up by OECD reports.
I am indebted to a Fianna Fáil backbench colleague who passed me a letter from T. Davies. I assume this person is a man, although that may not be the case. This person is Professor of Accounting and Chair of the University of Dakota. This person wrote a letter about how taxes work in response to those complaining that Bush's tax reductions only favour the rich. It struck a chord with me, having regard to my position on taxation. The letter reads:
They understand this stuff in South Dakota. Shouldn't they be able to understand it in Washington D.C.?
A straightforward look at taxes from an Accounting Professor at The University of South Dakota:
Let's put tax cuts in terms everyone can understand. Suppose that every day, ten men go out for dinner. The bill for all ten comes to $100.
If they paid their bill the way we pay our taxes, it would go something like this: the first four men (the poorest) would pay nothing; the fifth would pay $1; the sixth would pay $3; the seventh $7; the eighth $12; the ninth $18; the tenth man (the richest) would pay $59. That's what they decided to do.
The ten men ate dinner in the restaurant every day and seemed quite happy with the arrangement until one day, the owner threw them a curve (in tax language a tax cut). "Since you are all such good customers," he said, "I'm going to reduce the cost of your daily meal by $20." So now dinner for the ten only cost $80.00.
The group still wanted to pay their bill the way we pay our taxes. So the first four men were unaffected. They would still eat for free. But what about the other six, the paying customers? How could they divvy up the $20 windfall so that everyone would get his "fair share?"
The six men realized that $20 divided by six is $3.33. But if they subtracted that from everybody's share, then the fifth man (who was paying $1) and the sixth man (who was paying $3) would end up being PAID to eat their meal.
So the restaurant owner suggested that it would be fair to reduce each man's bill by roughly the same amount and he proceeded to work out the amounts each should pay. And so the fifth man paid nothing; the sixth pitched in $2; the seventh paid $5; the eighth paid $9; the ninth paid $12; leaving the tenth man with a bill of $52 instead of his earlier $59.
Each of the six was better off than before. And the first four continued to eat for free. But once outside the restaurant, the men began to compare their savings. "I only got a dollar out of the $20," declared the sixth man, but he, (pointing to the tenth) got $7!". "Yeah, that's right," exclaimed the fifth man, "I only saved a dollar too . . . it's unfair that he got seven times more than me!". "That's true!" shouted the seventh man, "Why should he get $7 back when I got only $2?.""The wealthy get all the breaks!". "Wait a minute," yelled the first four men in unison, "We didn't get anything at all. The system exploits the poor!"
So, the nine men surrounded the tenth and beat him up. The next night he didn't show up for dinner, so the nine sat down and ate without him. But when it came time to pay the bill, they discovered a little late what was very important. They were FIFTY-TWO DOLLARS short of paying the bill! Imagine that!
And that, boys and girls, journalists and college instructors, is how the tax system works. The people who pay the highest taxes get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy and they just may not show up at the table anymore. Where would that leave the rest? Unfortunately, most taxing authorities anywhere cannot seem to grasp this rather straight-forward logic!
I am indebted to the backbench colleague who gave this letter and to T. Davies in South Dakota.
South Dakota would not know anything about the fact that the highest earners here pay no tax.
I thank the Minister for expounding a clear socialist principle, from each according to his or her ability, to each according to his or her need. I cannot understand how the Minister is defending the tax system on the basis of the anecdote he outlined.
Surely the four people on the South Dakota system or the system that operates in this country would not even be allowed in the door of the type of restaurants to which the Minister refers. We do not have systems where people share food. This is not even crumbs from the table.
This will form the backdrop to the next Fianna Fáil manifesto.
This is where people would not even be allowed to sit at the table.
I am sure we would all like a copy of the Minister's comments—
I will supply it.
—because they were difficult to follow at speed.
Deputy Richard Bruton followed them.
I will take the example of 500 taxpayers who go out to dinner. This is like the little pigs going to market. Some 400 of these pay tax. They are very well-off taxpayers in this economy who not only can go out to dinner occasionally, they can do so every night. This is based on the Minister's officials' figures. We had better call over T. Davies because I wonder what he would think. Of the 400 little pigs who go out to dinner, 117 pay less than 30% of their income in tax, one quarter do not pay any tax, and 54% pay less than 10% tax. How would T. Davies see that?
There is another 100 outside the 400. Let us say that 20 of these are stallion owners. Not only do they not pay tax, they do not even have to make a tax return. Let us say a few are promoters of private hospitals. The Minister has rushed in an amendment to ensure they can enjoy a bigger and better dinner in future because they will get a better deal on capital allowances. Let us say a few are individuals who are in high profile jobs that earn them a great deal of money, perhaps €500,000 a year in income. They are able to establish a small management company or companies. As a consequence of that, their effective rate of taxation will be somewhere between 10% and 12%, should they choose to pay tax.
While the people eating in McDonald's or wherever in South Dakota paid some tax, I am concerned about the 500 diners in this country going out to fancy restaurants who pay little or no tax. I will contact T. Davies and he will explain that to me and the Minister.
I move amendment No. 7:
In page 12, between lines 19 and 20, to insert the following:
"6.–Section 112 of the Principal Act is amended by the insertion of the following subsections after subsection (2):
‘(3) Without prejudice to subsection (2) an award under the provisions of the–
(a) Organisation of Working Time Act 1997,
(b) Maternity Protection Act 1994,
(c) Adoptive Leave Act 2001,
(d) Carer's Leave Act 1998,
(e) Parental Leave Act 1998,
(f) Protection of Employees (Part-Time Work) Act 2001, and
(g) Employment Equality Act 1998,
shall not be deemed to be an emolument except to the extent that a Tribunal, Rights Commissioner, the Labour Court or a Judge of a court so declares.
(4) An award for the purposes of subsection (3) shall include a settlement of an action or proceedings approved by a Tribunal, Rights Commissioner, the Labour Court or a Judge of a court.
(5) An award under the Unfair Dismissals Acts 1977 to 1993 shall be presumed for all purposes to be an award in respect of which tax has been paid and no further liability shall attach to either the employer or employee.'.".
We discussed this on Committee Stage. It relates to the decision by the Revenue Commissioners in the past 12 months to tax the compensation element of settlements made under various labour laws. Most of these settlements would have some element of compensation for lost earnings, which has always been taxable, and another for damages, which has never been taxable. The Revenue Commissioners have introduced a rule whereby they deem the entire settlement taxable.
The Minister undertook on Committee Stage to check this out to see if he could allow for the amendment to clarify that the existing practice, which is the same for other compensation elements which are non-taxable, would continue and that this would be put into law so that there would be no doubt. I hope the Minister has had the opportunity to check with the Equality Authority and others working in this field.
This amendment seeks to exempt from income tax various types of compensation payments made to employees under the list of provisions in respect of discrimination, harassment, etc. There has been some discussion recently regarding the tax treatment of equality awards. In a recent article in Irish Tax Review it was incorrectly suggested that the Revenue Commissioners had changed their position and were proposing to tax these awards. I am assured there has been no change in their view of the tax treatment of such awards. I understand they have always held the view that general awards of this nature are taxable under the Tax Acts. This is in line with case law where the courts have consistently ruled that anything received from being, having been, or becoming an employee is taxable under schedule E as part of the remuneration of the office of employment.
The amendment proposes the exemption of awards unless the relevant authority – for example, a tribunal, rights commission, Labour Court or a judge – declares them to be taxable. This would effectively mean that such an authority would have absolute discretion, without any objective criterion, in deciding whether the payments were taxable. I could not accept this procedure.
I indicated on Committee Stage that I am not convinced that the awards in question should not be taxable. I can see the argument for exemption in some cases, but certain difficulties are involved. Any exemption would have to be considered in the context of the nature of the payment of those awards. Many are settled out of court and often involve a global sum in full and final settlement of all actions. The element of the award related to harassment, etc., would have to be isolated from any other compensation element, for example, loss of normal remuneration or earnings.
As I indicated on Committee Stage, I am willing to give further consideration to this matter. I will ask my officials and the Revenue Commissioners to examine the matter in the context of next year's budget and Finance Bill.
I can see that my amendment is perhaps not perfectly drafted and would be happy that the Minister might consider this during the next 12 months. If we do not change it, individuals will lose out or, over time, the cost of insurance cover will increase, neither of which is desirable. I welcome the Minister's willingness to examine the issue next year.
Amendments Nos. 8, 9, 10 and 11 are related and may be discussed together by agreement.
I move amendment No. 8:
In page 12, lines 44 and 45, to delete "solely or mainly".
These technical amendments relate to section 6 which, together with the corresponding provisions of the Social Welfare Bill 2003, provides for the direct application of PAYE, PRSI and the health contribution levy to benefit-in-kind from 1 January 2004. The amendments are technical in nature and ensure that the definition of a car is more comprehensive for benefit-in-kind purposes.
I move amendment No. 9:
In page 12, line 45, to delete "alone".
I move amendment No. 10:
In page 14, line 40, after "area" to insert "or areas".
I move amendment No. 11:
In page 14, line 44, after "area" to insert "or areas".
Amendments Nos. 12 and 13 are related and may be discussed together by agreement.
I move amendment No. 12:
In page 26, line 47, to delete "€8,000" and substitute "€9,000".
I am sure the House will agree that, over the past two budgets, one group that has drawn the short straw has been first time house buyers. The House will recall that, in the previous budget, the Minister reversed the stamp duty provisions for investors so that they received a substantial concession, probably about €12,000, on the purchase of a standard house. Full interest relief at the 42% rate was also restored to them with no ceilings or thresholds. Generous concessions were given to investors in the 2002 budget.
Having read the Fianna Fáil manifesto which explicitly stated that the party would take measures to ensure that first time house buyers would not be squeezed out by investors, people looked to the 2003 budget with some hope that first time buyers would see some relief. On the contrary, they were victimised. Not only was their grant of €3,810 withdrawn, a 1% VAT increase was imposed without any transitional arrangement. On the day of the budget even though contracts were signed, this was payable whereas elsewhere in the Finance Bill we see very generous transition concessions given to people buying holiday homes, not homes for their own primary residence. A niggardly concession of €330 over a few years was made to offset a cost of about €6,000 imposed on first time house buyers in the budget. That was a bad bit of work and reflects a very strange approach to the housing market by the Minister.
On Committee Stage, he told us this happened as a result of pressure from others who were advising him to adopt it and that it was against his better instincts. It is a pity he did not pursue his instincts. In the past two years we have seen the investors given a free ride back into the marketplace and first time buyers heavily penalised. It is not producing a healthy housing market. We need to achieve equity and address the whole issue of supply in the housing market and in proposing this amendment I am going a small way to trying to give back to first time buyers a more generous concession in the first seven years of their mortgage.
I welcome the allocation of the relief over a seven year period rather than in an up front lump sum, which was easily grabbed by the builders during a strong sellers' market. That element would have been good if it was a straight switch of a grant into a tax based subsidy over a number of years, but that has not happened. There are very severe problems. People from my constituency are going to places like Carlow, Navan and Mullingar to live. They are entirely separated from their families. Issues of child care and baby-sitting are acute, as are the commuting problems. The Minister's approach, based on the Bacon reports, of remote manipulation of the price signals – or whatever they thought they were doing – is entirely counterproductive to providing a decent housing environment.
I would like to have seen a much more hands-on policy, a much more traditional policy of building public housing and making provision for those who could not afford houses and pushing radically the affordable housing scheme. In the city of Dublin, I believe only 20 affordable houses have been built four years after the initiative was introduced. The housing policy we have had to endure in recent years is pathetic. People in traditional income segments who expected to buy their own homes find they cannot do so.
This was a bad bit of work in this budget, but it is not the whole problem. Reversing this, as I propose here, would not resolve the problems with the housing policy, but as the key economic Minister, the Minister needs to take a much more serious look at housing than he has in the past. It is all about supply and he needs to develop policies that drive supply. He and his colleagues have not been doing that and the consequences are there for all to see. We may now see prices stabilise, but solely because job creation has ceased, which is the worst way to bring such stability. A more enlightened policy by Government could have addressed this issue.
On Committee Stage I made it clear that my objection to what the Minister did to first time house buyers was particularly focused on the issue of unfairness. The Minister abolished the first time buyer's grant overnight without notification and failed to provide any kind of traditional transitional relief. On top of that the basic rate of VAT on building services and supplies went from 12.5% to 13.5%. People who had signed valid contracts got no relief.
This is in contrast to schemes for holiday cottages, where the proposal in the Bill to close the loophole is delayed to the end of December 2004 and people only need to have submitted a planning application – not even have planning permission – by May 2003. Why should groups of well-off hospital consultants, top-earning tribunal lawyers be allowed invest in schemes of holiday cottages, which the Minister has kept open for a further two years, while the same budget has hit many first time house buyers by as much as €6,000 or €7,000, particularly those in the city areas of Dublin, Cork, Waterford or Galway?
It is all very well for the Minister to say that on the nod and wink Fianna Fáil basis, builders would produce invoices, as his colleague the Minister of State, Deputy Noel Ahern, said, to conclude the deal by 31 December or get the grant up front. That is not possible for large estates in big cities and towns, as the Minister knows. Yet, he has kept open the loophole for the well-off lawyers and consultants for a further two years while eliminating in a very savage way the first time buyer's grant affecting young couples earning an average salary who are hoping to have a family and live in some economic contentment.
On Committee Stage, I tabled two similar amendments, but have not tabled such amendments on Report Stage. However the principle remains the same. I had looked to increase the limits. The Minister needs to accept the tax credit offered to first time house buyers does not nearly compensate for the loss of the first time house buyer's grant. The amount offered has already been eaten up not only by the VAT increase but by house price inflation in the interim. I might even agree with the Minister that the first time buyer's grant had an effect on house prices. It might even have benefited developers as opposed to first time house buyers. While that was his excuse for eliminating it, first time buyers depended on the grant in making up the house price. The Government should have made alternative arrangements to help those who have undoubtedly been affected by this decision.
I approve of the extension from five to seven years. I suggest, as I did on Committee Stage, that the Minister should push that boat further to cover a ten-year period. He has ruled that out on cost grounds. Many first time house buyers now have mortgages of at least 30 years in duration of which some are second generation and others are even grand parenting in terms of house mortgages depending on the equity of their parents' households. The Government needs to be far more responsive in this than it has been to date. On all these grounds I am prepared to support Deputy Bruton's amendments. I hope the Minister has a last minute change of heart.
In one of the earlier contributions a Deputy talked about the Minister maintaining loopholes for particular sectors. In reality the Minister has opened doors for property speculators once again. These are the people who helped force the cost of housing beyond the reach of so many potential first time buyers today. For a very short period we saw a marginal drop in the cost because of the measure the Minister previously introduced, and for which we applauded him. However, 12 months later he reversed that. It is unforgivable that at a time when there is such a housing crisis the Minister is a facilitator of measures that continue to put the price of housing beyond the reach of so many aspiring young couples and families. The measures proposed in Deputy Bruton's amendments are not the panacea for the housing crisis, nor will they make a serious impact—
I ask the Deputy to move the adjournment.
—in terms of the needs of many today. Nevertheless, they are measures and I support them.