I wish to inform the House that recommendation No. 5a in the name of Senator Costello and recommendation No. 6 in the name of Senator Doyle are out of order as they involve a potential charge on the people.
NEW SECTION.
Finance Bill, 1990 [Certified Money Bill]: Committee Stage.
I move recommendation No. 1:
In page 11, before section 1, to insert the following new section:
"1.—Section 6 of the Finance Act, 1987 and section 7 of the Finance Act, 1989 shall not have effect as respects the year 1990-91 and subsequent years of assessment.".
The purpose of this recommendation is to secure that the restrictions on mortgage interest relief proposed by section 6 of the Finance Act, 1987 and section 7 of the Finance Act, 1989, currently standing at 80 per cent of the amount which would otherwise be allowable, would not apply from 1990-91 and subsequent years of assessment. In other words, the recommendations seeks the restoration of mortgage interest relief to its pre-1987 level. To restore mortgage interest relief to the levels which obtained prior to the introduction of the restrictions would cost an additional £31 million in 1990 and £55 million in a full year.
The reduction in mortgage interest relief to 80 per cent must be seen in the context of the major progress made in reducing income tax in recent years. Taking the 1988, 1989 and 1990 budgets together the general exemption limits have been increased from £2,650 to £3,250 for a single person and from £5,300 to £6,500 for a married couple. Child addition was introduced in conjunction with these limits and now stands at £300 per child. This innovation was aimed specifically at low income taxpayers with family responsibilities. The standard rate tax band has been widened by £1,800 for a single person and £3,600 for married couples. Therefore 63 per cent of taxpayers are paying tax at the standard rate compared with less than 56 per cent in the 1987-88 tax year.
Finally, a substantial step has been taken in cutting tax rates. The top rate has been cut by 5 per cent and the standard rate by 5 per cent to 30 per cent in two budgets. These reliefs have benefited every taxpayer. It is against this background that the restriction on mortgage interest relief must be reviewed. The Government's commitment in the Programme for National Recovery was to introduce income tax reliefs to the cumulative value of £225 million. In fact the cumulative value of the reliefs introduced by the Government exceeds £800 million or more than three times the programme commitment. There is also a commitment in the programme to reduce further the standard rate to 25 per cent by 1993 and to move towards a single higher rate.
The recommendation is no doubt prompted by the rises in interest rates over the past year or so but the fact remains, as I have stated, that the gains from the restriction have been used to pay a small part of the cost of the major income tax improvements made in recent years. In addition, mortgage interest relief is already a very expensive tax relief and it is estimated that it will cost some £220 million in the current tax year in terms of tax foregone. This represents a very substantial Exchequer subsidy for house purchase. Restoring the relief to 100 per cent would add another £55 million a year to the cost. The Senator has not indicated how this cost should be met.
The fact is that the cost of mortage interest has already risen by some £50 million over the last year: in the 1989-90 tax year, mortgage interest relief cost an estimated £170 million, whereas this year it is estimated that its cost will be some £220 million. The vast bulk of the extra £50 million arises from interest rate movements, and this demonstrates the support being received by mortgage holders from the Government in the light of the increases in interest rates which unfortunately have occurred.
Of course the Government are concerned about those paying mortages. The increase in interest rates has occurred mainly because of international factors over which we have little control. The role of the Government is to provide, by their domestic, budgetary and other policies, the economic background conducive to maintaining interest rates which are as low as possible, and this is what we have been doing. I should add that domestic market conditions have shown considerable improvement in recent months and inter-bank interest rates have also eased considerably from their peak levels attained in mid-March. Against this background, the Central Bank, the primary decider of interest rate levels, are more optimistic about the general trend of domestic interest rates than they were in their February monetary policy statement.
In all the circumstances, I cannot accept the recommendation.
I would like to ask the Minister does he not accept as factual that interest rates are not just related to external factors, they are in fact a direct function of his own Department's fiscal policy? When the initial steps were taken to reduce mortgage interest relief justification was on the basis of reduced interest rates at the time. Does it not follow that now that interest rates have increased, notwithstanding the four page essay the Minister has just read to us at 100 miles an hour, that the relief should be restored? I would just like him, in plain man's language, to explain to the huge number of mortgage holders out there why we cannot restore mortgage interest relief to them given the problems they are experiencing with high interest rates.
I accept that domestic fiscal policies have a bearing on interest rates to a limited extent. Over the last 15 months the first three interest rate increases were clearly as a result of international upward movement in interest rates. The fourth one was to curtail the outflow of funds from Ireland into what was then being seen as a very weak sterling situation. It was also part of leading and lagging by exporters and importers to protect their situation, their profit and loss accounts and their own bottom lines in relation to the rates pertaining in sterling at that time. The Government's policies are right. The indicators are right. The basic fundamentals as far as the Irish economy is concerned are right as well but, as I said on Second Stage, interest rates now are being used somewhat differently from how they were used ten or 15 years ago when we were always told that low inflation automatically brings lower interest rates. We have a very low inflation averaging for the full year, just a little over 3 per cent. We should be down to inflation figures approaching 2.5 per cent by the end of the year. Nevertheless we have high interest rates. Interest rates are now being used as an instrument to stop outflow of funds between one economy and another and is not the same instrument that used be used for different purposes some years ago.
It seems that low inflation inflates interest rates. It seems to be an anomaly compared to what one would expect, but that is the way it operates. I want to refer to the very large number of householders who are in the process of purchasing their homes. So many of them are in the middle income levels. In that context would the Minister consider that 100 per cent relief should be granted at the standard rate at least or even the first and second rates, the 30 per cent and the 48 per cent rates? There are a lot of people caught in the squeeze at that level where the Minister could certainly give the 100 per cent mortgage relief.
The cost of restoring the mortgage relief would be £55 million. The numbers that would benefit from it would be 325,000. The average benefit would be £169 a year each. We all know exactly what the position is with the high mortgage interest bearing down on the people who are paying it. It is not just restoring the mortgage interest relief from 80 per cent to 100 per cent that is the real problem because if we restored it in total it would give an average benefit of only £169; a mortgage taken out is at a certain level but the interest rate increases are not the main enemy, but only a factor. There were four increases in interest rates. All I can do is compare that with the average benefit. We can all put out extremes and give the example of somebody with a mortgage of £35,000 which has increased by so much. Everybody's circumstances will be different. The only comparison I can make, comparing like with like, is on the average benefit to the numbers involved. The cost of the tax relief in the budgets of 1988, 1989 and 1990 is £553 million and the numbers that benefited from mortgage interest relief is 830,000. The average benefit was £666, so while I have an average of £169 taken off as a contribution towards tax reductions, nevertheless we have an average benefit of £666. That is the average benefit from the concessions given in the budget in the last three years. We are still winning but the real problem is the high interest rates as a result of the increases. Restoring the mortgage interest relief will not solve the problem.
I am not sure that the Minister has answered the point I raised. Would he not consider extending the 100 per cent mortgage relief in relation to the standard rate of tax?
I have not got the figures here in front of me but I looked at them a couple of months ago and, from memory, the numbers that benefit are nothing like what one might think they would be. The figures surprised me. In another sense it is not surprising if one looks at the number of people on the standard and the 48 per cent rates. Because of the narrowness of the bands there are a lot of people in the other bracket. By giving the relief at 30 per cent one does not get to the numbers of people one thinks one might get to. I do not have the details with me but I know from memory it is a small number.
Would the Minister agree that in solving one problem for himself in relation to income tax relief he is actually creating another one because so many people, particularly young couples who might have tried to buy their own home, will now be forced to move onto local authority housing lists? They will join the queue and the Minister will exacerbate the problem. By saving in one area the Minister will create a social problem in another area and a financial problem for himself at the end of the day. He will also remove that sense of entrepreneurship and sense of industry of people who would like to go out and make that leap into managing their own affairs rather than be on the waiting lists for local authority housing and being dependent on the State.
Before the Minister comes in, I would like to support my colleague, Senator Jackman's point and tie it, perhaps, to the point that Senator Costello was making. It would appear that a lot of those who might now be pushed to local authority housing would, in the main, be those on the standard tax rate. Would the Minister look at both the points that have been made and consider whether there is any way full mortgage relief can be restored? Could I have an assurance from the Minister that he has no plans to decrease mortgage interest relief further?
This stands on its own feet and I do not write the budget nine months in advance for anybody, not even for Senator Doyle.
Especially not for Senator Doyle.
We will not argue about the words used.
Tell Senator Costello and I will promise not to listen.
I do not think people, when they signed a mortgage when the rates were down, said to themselves that that was their rate, that was their committment for the next ten, 15 or 20 years or for whatever period the mortgage was taken out. We have to face into the kind of uncertain world in the future anyway with free capital movement in 12 member states. Capital will flow in and out and the interest rates instrument will be used to bolster up that situation from time to time. There will be fluctuations. The roof does not fall in on any economy in one year, but it certainly puts a strain on it. There is no doubt about that. It probably leaves them with a lot less money, or maybe none, in their pockets for consumer spending. I have already demonstrated that reserves have increased substantially, that many of the economists who were writing three months ago that there would be a 2 per cent increase in interest rates by March or April, and some Opposition spokespeople said that as well, but that does not seem probable at the moment. Let us hope that towards the end of the year we see an improvement. There is no immediate solution to it unless we have plenty of money to spare, but we do not have that. I think Senator Doyle would be the first to accept that she cannot on the one hand talk about soft targets and on the other about amendments that might cost £55 million. That is contradictory.
Is the recommendation withdrawn?
Yes.
Recommendation, by leave, withdrawn.
Section 1 agreed to.
SECTION 2.
I move recommendation No. 1a:
In page 12, in column 1 of the Table, to delete "£6,500" and substitute "£7,500".
This is a modest proposal which I hope is in line with the Minister's thinking on reducing the level of taxation. The propose of taxation is to create equity and to eliminate, so far as possible, the situation where large numbers of people are paying a very significant proportion of their earnings in tax. The figure of £6,500 at the standard rate band of tax is quite a low figure. The ESRI indicated that in the region of 11 per cent to 18 per cent of the people who are regarded as being in the poverty trap pay PAYE and PRSI at the standard rate. Obviously we would not expect that people on the standard rate of tax would be in an impoverished condition. In that context, this is a modest request to raise the standard rate band to ensure that people at the bottom of the pile would not be drawn into the poverty trap.
This recommendation proposes to increase the standard rate band for a single person from the £6,500 contained in the Bill to £7,500. The cost of the recommendation would be £20.8 million in 1990 and £34.7 million in a full year and would benefit 186,500 taxpayers.
Because of the fact that the recommendation does not propose any increase for married couples, it would be in conflict with the Supreme Court judgement in the Murphy case. The necessary pro rata increases required by that judgement — from £13,000 to £15,000 — would cost £27 million in 1990 and £45 million in a full year and would benefit 125,400 married couples. The overall real cost of the recommendation would, therefore, be £47.8 million in 1990 and £79.7 million in a full year and would benefit 311,900 taxpayers in all. I do not think I could agree with Senator Costello that £79.7 million is a modest recommendation.
The focus of Government policy in recent years has been, and will continue to be, to reduce income tax rates while keeping at 63 per cent, the percentage of taxpayers paying tax at no more than the standard rate and making special provision for the low paid. In keeping with this focus the highest rate of tax has been reduced from 58 per cent to 53 per cent and the standard rate from 35 per cent to 30 per cent. The changes proposed this year alone will cost £171.4 million in 1990 and £280.9 million in a full year. This is the most that can be afforded in the present budgetary situation, and as far as I am aware, it is the biggest package in memory, and I must, accordingly, oppose the recommendation.
I know how badly the single person is hit but the Murphy case decided that if you take that route for the single person, you must double the band for married couples, otherwise you are in conflict with the Supreme Court judgment. I think we all recognise that the single person with small allowances are hardest hit in the tax code. I have been looking at certain sectors — such as widows, and single parents — to see if there is any way within the system to help them when they are trying to raise their families and give their children the opportunity of second level and third level education. However, we are bound by the constitutional case but I will continue my search to try to find solutions to the problem.
I thank the Minister for giving us the figures. Certainly the numbers affected by the change would be very substantial — that is 186,500 single taxpayers and 125,400 married couples making a total of 311,900. Obviously the sum involved of £79.7 million is greater than the Minister would be prepared to spend. If we were to divide the increase by half, and give an increase of £500, it would still, according to the Minister's figures, benefit the same number of people, if it is required under the Supreme Court judgment that the married couples would benefit. If the standard rate band was increased from £6,500 to £7,000, the benefit would extend to the same number of people. Would that not be a modest proposal?
Whether it is modest or not, one would have to double the cost anyway. The Deputy has produced an amendment that benefits single people which, as I said, is in conflict with the Supreme Court judgment in the Murphy case. Last year I tried to focus resources on the low paid by introducing the exemption limits, by increasing them substantially, and by bringing in an exemption limit per child of £200, and raising to £300 this year, so that a married man with four children could earn £143 a week without paying tax. That is the road I am travelling in trying to focus on the low paid. The changes in the exemption limits apply not only to PAYE taxpayers but to farmers, small shopkeepers, the self-employed. I know it is not enough, and I would be the first to recognise that, but it is a fair distance to travel in two budgets and I hope to continue in that direction.
Acting Chairman
Is the recommendation withdrawn?
No.
Recommendation put and declared lost.
Section 2 agreed to.
Section 3 agreed to.
SECTION 4.
Question proposed: "That section 4 stand part of the Bill."
I welcome the introduction of this section and I commend the Minister on sections 4 and 5 — this will save me standing on my feet when we get to section 5.
I would like the Minister to develop what he has in mind when he used the expression "totally incapacitated"? How does he define "totally incapacitated" because I can see difficulties arising with what might be considered different degrees of incapacity. Does it mean the person must be so damaged physically or mentally that he or she will need care from another person for the rest of his or her life? In other words must a person be incapable of an independent existence? If we do not clarify this point — perhaps the Minister can do so quite simply — we will be giving the legal pundits a field day in terms of the contestation of this section. I welcome very much the spirit of both this and the next section and the provisions they make for those concerned.
I acknowledge, and thank Senator Doyle for acknowledging, the social conscience that the Fianna Fáil Party have always possessed and which in this instance has been portrayed by a very caring Minister and Government.
The first provision the Senator is talking about is the increase in the housekeeper allowance from £2,500 to £5,000. That dates back to 1969 and has not been updated since 1985. If an incapacitated person employs somebody to look after him — the employer would have to be in the tax net — he will be able to claim the allowance of £5,000. It also applies if one spouse is incapacitated and the other spouse employs somebody to look after him or her. Similarly, if both spouses are incapacitated they can employ somebody to take care of them and take advantage of the £5,000 household allowance.
I am sorry, but I obviously did not make myself very clear. My concern is with what the Minister will consider as incapacitated. The expression "totally incapacitated" is in both this and the next section. While I welcome very much these two sections I would like the Minister to indicate to the House what he has in mind as total incapacitation. Is it incapacitation to the extent that the person is no longer able to have an independent existence, in other words that he will always need a carer, or does it include mental or physical incapacitation?
Section 5 states that a person must be permanently and totally incapacitated from maintaining himself. Is that clear? I think it is self-explanatory.
Is it sexist? I take it "herself" is included, too.
Yes. There are two definitions of incapacitation. The first one states that the use of the words "totally incapacitated by physical or mental infirmity" suggests that it is a severe type of illness that is to be considered but it is not required that the illness should be such as to prevent the incapacitated person from being able to maintain himself. Thus, for example, a blind person who is able to earn a living would get the allowance if he employed somebody to take care of him. That is the definition in section 4. Section 5 states that a person must be permanently and totally incapacitated from maintaining himself, in other words he is not capable of going out to earn a living. The court award is computed to provide an income for the person for the rest of his or her life.
A ward-of-court-type situation.
Yes, or a settlement out of court. It takes both into consideration. Before the adjustment was made, the baby in the Dunne baby case, who would be deemed to be the taxpayer because he is getting an income which is taxed, could claim the allowance of £2,500. As a result of this adjustment he can now claim £5,000. On top of that I went a step further and exempted from income tax the person who is totally incapacitated and not capable of maintaining himself. That section does not apply in the Dunne-type case because those people are totally exempt from income tax on their earnings, but it is applicable to incapacitated people in the other cases I talked about, such as blind people.
Question put and agreed to.
Section 5 agreed to.
NEW SECTION.
I move recommendation No. 2:
In page 14, before section 6, to insert the following new section:
"6.—Section 138B of the Income Tax Act, 1967 (inserted by the Finance Act, 1980) is hereby amended by the deletion of all words from and including`, save that it does not include' in the definition of `emoluments' in subsection (2), down to the end of the section."
The purpose of this recommendation is to extend the PAYE allowance to certain categories of persons such as proprietary directors, their spouses and children and the spouses and children of self-employed individuals, who are at present excluded from the allowance even though they are taxed under the PAYE system. The PAYE allowance is, and always has been, intended to be available only to ordinary employees. When the allowance was introduced it was made clear that it was aimed at improving the tax progression for these ordinary PAYE taxpayers and was in response to the case made by ICTU that the general scheme of allowances then in existence discriminated against employees and in favour of other taxpayers.
Proprietary directors were originally excluded from the allowance on the basis that they were in a position to control their own remuneration or that of their spouses. Proprietary directors are in most instances the self-employed in an incorporated form. Spouses of the self-employed and proprietary directors ar excluded from the PAYE allowance to avoid a repetition of the abuses of the working wife's allowance. When that allowance existed it was commonplace for the self-employed to set up nominal employments for their wives, sufficient to attract the full measure of the allowance without incurring any extra tax. It was very difficult for the Revenue Commissioners to challenge a wife's entitlement to this allowance because the husband invariably produced evidence to prove that she was entitled to it.
Children of the self-employed and proprietary directors are excluded from the PAYE allowance because the experience of many years has shown that if a tax advantage can be gained by creating artificial income or employment for children, that devise will be used. Furthermore, the wages of many people who carry out duties in their parents' business, or indeed their spouses' business, are not subject to the proper operation of PAYE. In such cases there would appear to be no justification for granting the PAYE allowance.
Following the Finance Bill debate on the issue in 1980, the possibility of extending the allowance to spouses and children on the self-employed was examined in response to an undertaking given in this House by the then Minister. However, no satisfactory means could be found of identifying the causes to which the allowance should be extended. Whatever criteria might be decided upon, they would require that the Revenue's income tax staff would be involved in elaborate investigation and policing procedures in order to work the scheme in practice. A diversion of the Revenue's scarce resources to such work would be highly undersirable. Even if the problem of identifying the cases to which the allowance should be extended could be solved, it was found that it would still not be possible to devise a scheme that would not be open to widespread abuse and avoidance. Apart from the foregoing, there remains the important question of cost. It is estimated that the cost of extending the PAYE allowance on the basis proposed in the recommendation would cost about £59 million in a full year. In the circumstances, I must reject the recommendation.
I take it the bottom line is that the advice from the Minister's officials, who continue to increase in number as the evening goes on, is that this sector — the proprietary directors and/or their children — cannot be trusted to make honest returns and thereby the PAYE allowance is not being extended to them. Is that not the Minister's message in layman's terms?
The bottom line is that when allowances such as those were available in the past, the track record from the Revenue Commissioners is such — it is hard to beat experience and to argue against it — that they were open to abuse. It was not possible to devise a scheme to give the allowance to certain sectors, and the human resources involved in trying to deal with it would be out of proportion with the return to the Revenue.
Should we legislate for the lowest common denominator? Are we legislating on the basis that we cannot trust a certain sector? Surely every piece of legislation has been abused. It seems rather strange that a whole sector should be denied what is available to other PAYE payers, on the basis that we cannot trust them to be honest in their returns and not to abuse the system, which is basically what the Minister has said. He agreed with the first point I made.
What surprised me is that in the debate on this section in the Dáil, Deputy Noonan said he was not interested in extending this allowance to spouses. Obviously he could see the logic of the arguments I was making. He said he would like me to consider the question of children between now and the next budget. I have undertaken to do that and I will undertake in the Seanad to do it as well. He was not even pursuing the question of spouses. He did not give the reason but I must assume he accepted the logic of my argument or is it a question of two different policies being pursued by the same party?
No, we are not pursuing two different policies. I do not think we should exclude bona fide spouses who are genuinely working and paying tax under the PAYE system as I would not exclude children who are in the same position. I am delighted to hear that the Minister has given my colleague an undertaking to look at the position of children. In this case I request that when the Minister is considering the case he would look at bona fide spouses also because there is no reason, bar a lack of trust on behalf of us as legislators, that these people are not included now.
Perhaps between now and the time I am considering the case, the Senator would send me some recommendations and in that way have an input into devising a system. The Senator expects the Revenue to supervise every system they have set up.
Aon, dó, trí, ceathair, cúig, sé, seacht, ocht, naoi, deich. I note that the Minister has sufficient officials to help him devise a scheme. Unlike us, he has professional assistance.
I am surprised at the attitude adopted here by Fine Gael. This is totally different from the attitude of that party in the other House where I was complimented for extending the opportunity for good open debate and for taking suggestions from all sides of the House. Apparently, that is not acceptable to Fine Gael in this forum.
On a point of order, may I say that for a former Minister of State to come into this House and make reference to the presence of senior officials from the Department of Finance is wrong. The Senator did it twice, she counted them. I do not think it is her business to do that.
Chairman, on a point of order, I understand you are chairing this session. Can you, on my behalf, tell the Cathaoirleach in waiting that I will be pulled to book by the Chair and corrected by the Chair but there is only one Chair in any one session. I named no individual and I feel I am not out of order.
The Chair would like to inform the House that both Senators are out of order.
Recommendation put and declared lost.
Section 6 agreed to.
SECTION 7.
Question proposed: "That section 7 stand part of the Bill."
I congratulate the Minister and I welcome the provisions in the section which are long overdue.
Question put and agreed to.
NEW SECTION.
I move recommendation No. 3:
In page 14, before section 8, to insert the following new section:
"5.—The amount of rent which tenants aged 55 and over of private landlords can claim against income tax under section 142A of the Income Tax Act, 1967 (inserted by the Finance Act, 1982 (as amended) is hereby increased from £750 (single and widowed persons) and £1,500 (married couples) to £2,000 in all cases.".
This recommendation proposes to increase the allowance to individuals aged 55 years and over in respect of rent paid for private accommodation, from £750 to £2,000 in the case of single and widowed persons and from £1,500 to £2,000 in the case of married couples. The cost of the recommendation is estimated at £0.9 million in 1990 and £1.5 million in a full year and would benefit some 3,800 persons. As drafted, the recommendation would be in conflict with the Supreme Court judgement in the Murphy case. To accord with that judgment, the allowance for married couples would have to be set at double that for single persons, that is £4,000. In that event the cost would be £1.35 million in 1990 and £2.25 million in a full year. While the cost of the recommendation may be small, the focus on Government policy in recent years has been, as I have already indicated, to reduce income tax and make special provision for the low paid. In keeping with this focus, we have continued to reduce the rates of tax and in addition to the income tax relief there are, I accept, a number of other areas in which a reasonable case for relief could be made as is evidenced by the large number of recommendations to the Bill requiring additional relief including the current reliefs. However, there is no way the Government could, in the present budgetary situation, accept the resultant cost involved in addition to the costs already involved in its own proposals. I gave an undertaking on Report Stage in the Dáil to look again at the level of this allowance in the context of next year's budget, recognising, of course, that every improvement one makes in rental accommodation, as is the case to a large extent in the building trade, is likely to be pulled back again by the landlord. I undertake to have a look at it between now and then.
I thank the Minister for his response and his assurance that he will look at this point before next year. Would the Minister agree that people aged over 55 years have particular difficulties, especially in the larger urban areas, in finding suitable private rented accommodation because of the exorbitantly high rents being charged by landlords? Anything we can do to relieve this problem will, in the long run, relieve the State of the burden of providing extra local authority housing for our elderly people and, at least, relieve the pressure where it now exists. I accept what the Minister said in relation to the precedent of the Murphy case and the knock on effect that would have on married couples but I feel very strongly that as long as we have exorbitant rents for what are often appallingly bad flats and private apartments which effectively ransom our old people in terms of extorting everything possible from them — often they are hungry and cold and are unable to provide the basic necessities for themselves after they have paid their rent — any relief which the Minister can give, and which we can encourage him to look at, would be well justified.
I want to repeat that I am seriously concerned, as many people would be, with the exploitation of people at that age. If no reasonably good accommodation at a reasonable price is available, these people will automatically come on to the local authority list. It is not in our interest to see that happen and that is the reason I have undertaken to look at the problem between now and the next budget.
I had a similar type amendment down which was ruled out of order as being a cost on the Exchequer. I want to argue in favour of this amendment and I support Senator Doyle in what she has said in respect of this issue. People over the age of 55 years are particularly vulnerable. Because of the decontrolling of rents, they can be increased every five years. The average increase which has taken place has been of the order of 35 per cent. The suggested increases in terms of the ceiling would be approximately 33 per cent. In the context of the Murphy case, I am not sure if it is entirely applicable but what we would be talking about here is where a partner would have died and where the rent would still be the same but there is no consequent increase in the allowance. It is a particularly onerous problem for elderly people. Likewise, the cost would be minimal for people in this respect. It is not something that would create an enormous burden on the Exchequer and the Minister could, as he has suggested, look into the matter. This is something that should be done urgently because it refers to a particular age category who are old.
Perhaps I should bring to the notice of the House that the Minister for Social Welfare administers a scheme of rent allowances for tenants of formerly controlled dwellings suffering hardship as a result of an increase in rent. To be eligible for a rent allowance the rent must have been fixed by the rent tribunal or by the District Court under the 1982 Act and the tenant must have means below specified levels. In all such cases the tenant will be required to pay the excisting rent of £4.10 per week, £4.60 from 24 July 1989, whichever is the greater. Rent allowances are not payable in respect of rents fixed by agreement between landlords and tenants. Details of the scheme for those who may not be aware of it can be received from the rent allowance section of the Department of Social Welfare.
Acting Chairman
I would like to inform the House that the names of Senators Costello, Upton, Harte and J. Ryan have been added to recommendation No. 3.
Is the recommendation withdrawn?
No.
Recommendation put and declared lost.
Sections 8 to 13, inclusive, agreed to.
NEW SECTIONS.
I move recommendation No. 3a:
In page 20, before section 14, but in Chapter I, to insert the following new section:
" .—(1) The Minister may make regulations under this section providing for the assimilation of the treatment under the Income Tax Acts afforded to parties to a non-marital relationship to that which would be afforded to a husband and wife.
(2) Regulations made under this section may provide for such consequential, supplementary and ancillary provisions, including provisions modifying any provision of the Income Tax Acts, as the Minister considers necessary or expedient.
(3) For the purposes of this section two persons shall be regarded as being parties to a non-marital relationship if they prove, in accordance with the regulations, that they have entered into a voluntary union which is intended to endure for their joint lives to the exclusion of all other persons.
(4) Where the Minister proposes to make regulations under this section a draft of the proposed regulations shall be laid before each House of the Oireachtas and the regulations shall not be made until a resolution approving the draft has been passed by each such House."
I am proposing that the same treatment be granted in the context of parties in a non-marital relationship as would be granted to a husband and wife. The purpose of the recommendation is to take cognisance of modern developments. Many people are not necessarily in a marital situation but they are in what might be described as a significant life partnership. The same regulations would apply therein and that would be taken into consideration in this section. It is in the context of social, personal and economic relationships and it would be reasonable to take cognisance of that type of relationship when dealing with the tax laws. Will the Minister consider that in regard to the Income Tax Acts?
Similar amendments to this recommendation were fully discussed in the other House in relation to capital acquisitions tax and income tax. In the course of that debate I indicated, and repeat here, that there are serious objections to tax law leading general law in this manner. Any movement on general law and tax law will result in the appropriate action, but it is not accepted as a good legal principle that tax law should lead general law. As a matter of policy the Revenue Commissioners should not be seen to be leading in this respect.
Provisions regarding the status of parties to a non-marital relationship should be contained in the general law relating to marriage which would then be reflected in relevant tax legislation. As the Senator will be aware, there is a necessity to adhere to the precepts of the Constitution in framing changes to the tax code. The Constitution binds the State to safeguard the institution of marriage, a requirement which the courts found to be applicable in tax law in the case of Murphy v. the Attorney General. If I were to introduce a provision to allow for the assimilation of treatment under the Income Tax Acts to parties outside the legal marriage contract, this could cause constitutional difficulties. In these circumstances it would not be desirable to make any special provision in the Income Tax Act in respect of voluntary unions such as those identified in the recommendation. From a practical point of view the difficulties which would be encountered by the Revenue Commissioners in administering such an exemption would be almost insurmountable. What kind of evidence of residence, cohabitation etc. would be required? Does the Senator expect the Revenue Commissioners to ask detailed questions about the parties' private and personal arrangements?
Finally, although it is not possible to estimate the immediate impact of this recommendation on tax revenue, it is likely that the cost to the Exchequer would be considerable over a period of time. That is not to say that there is not a solution to the problem under the present tax law. There certainly is. If a man has joined in a relationship with a woman and they have two or three children and there are problems there, there are ways and means of overcoming them, as I have explained very extensively in the House. An annuity could be set up. In the case of capital acquisitions tax the house could be left to the children. The spouse could be regarded as, set up or constituted as the guardian of the family, and the family could employ her to look after them. There are solutions within the tax code or within tax legislation to the problems that are highlighted by this type of recommendation. It may be said it is not all that desirable, but there are solutions to the problem.
That is perhaps an Irish solution to an Irish problem.
We are discussing tax law. There is a difference between general law and tax law. That is accepted by everybody.
The Minister is saying the general principle is that tax law should follow the general law and he would not wish to depart from that, but there seems to be no great alacrity to move the general law in this direction. It is a wide range of areas.
That is a debate for another day in another context.
It is, but no doubt the Minister would like to see himself as a reforming, an imaginative Minister, moving in a direction in which perhaps others would not dare to tread. The suggestion is reasonable in regard to social developments that have taken place. The Minister has quoted the Murphy case and the Constitution. I am not sure that all these are applicable. We are talking about a non-marital relationship but a relationship which can be proven as stated in subsection (3) of the recommendation in that "they have entered into a voluntary union which is intended to endure for their joint lives to the exclusion of all other persons". We have all sorts of movement in the area of self-assessment at present. Why can we not take it a step further in the context of a social and personal relationship which is also an economic relationship, so to speak? Even though it is not blessed in a formal marital arrangement, it is still valid. Where there is satisfactory evidence of that we could act accordingly and they could be given the same treatment as a couple in a marital relationship.
I am not taking away one iota from what Senator Costello said about the problem. It exists, but under the Constitution and under the Supreme Court judgment I cannot extend to the non-marital relationship the same as I extend under law to the marital relationship. It is as simple as that. It is a core point. It is general law that must take the lead in this area, otherwise what is the point in doing it and having it upended by the Supreme Court in jig time? That is not the sort of exercise we should be engaged in. It is up to the State and the people to decide whether they want to give the recognition sought to such a union. We had a referendum, the people voted. One may agree or disagree, but that is democracy. It will have to start from there. All the good wishes in the world from the Senator or me will not change it overnight.
Recommendation put and declared lost.
I move recommendation No. 4:
In page 16, before section 14, but in Chapter I, to insert the following new section:
"14.—Notwithstanding anything in the Tax Acts, appropriate tax within the meaning of Chapter III of Part I of the Finance Act, 1987 shall not be deducted from relevant payments, within the meaning of the aforementioned Chapter, to medical practitioners in respect of out of pocket expenses in connection with the employment of a secretary, locum or receptionist.".
This recommendation is to exempt certain payments received by medical practitioners from the withholding tax on professional fees. The withholding tax applies to the full amount, including payments for expenses, paid to a practitioner in respect of the rendering of medical services. In the operation of the existing withholding tax scheme, interim refunds are paid when the amount of withholding tax deducted exceeds the tax liability on the income of the previous accounting period. In calculating the amount of any interim refund, an amount of withholding tax equal to this liability is retained and any excess over that amount is repaid. Thus, tax actually retained for credit later against income tax liability of the year of assessment itself is determined by reference to taxable income rather than to turnover.
Taxable income would, of course, reflect all allowable deductions in respect of trading expenses, not just payments made to a secretary, locum and receptionist but also travelling expenses, heating and lighting as well as general tax reliefs such as personal allowances, retirement annunities, life assurance etc. As I have just indicated, the existing procedures take into account the items mentioned in the Senator's recommendation. In these circumstances I am not convinced of the necessity for this recommendation.
It would not be possible to confine the effect of the recommendation to medical practitioners; other professionals would also in equity have to be covered. While it is impossible to be precise, the overall effect would be a significant reduction of the £15 million in the annual gross withholding tax yield.
From an administrative point of view I would also point out that the level of expenses incurred by individuals within a particular profession and among the professions generally varies so much that to determine some artificial standard level would not result in greater equity. The differences which exist are best resolved by applying the withholding tax to the full amount of all payments and where necessary making interim refunds by reference to actual tax liabilities and thereby to incomes net of expenses in individual cases.
I noted carefully what the Minister said and the difficulty in determining a proper level of expenses throughout the different professions that might be involved. I also accept that if he were in a position to accept this recommendation it would have to be extended beyond the medical profession. If that is the only difficulty he has with my recommendation I will immediately include other professions and we will have no difficulty in overcoming that problem.
The recommendation is self-explanatory. There have been among large numbers of the medical profession serious cash flow problems because of the operation of Chapter III, Part I of the Finance Act, 1987. I think the Minister is aware of this. No medical practitioner can operate without a basic service in his surgery such as a secretary/receptionist — I do not mind what title is put on the job. Somebody must be there to look after patients, answer the phone and keep medical records and do all the other jobs which have to be done. It is a genuine expense and it should be easy enough to compute minimum expenses. There may be others who will make a case for having two or three receptionists in a large practice involving several doctors. I am asking the Minister to consider allowing minimum expenses before the deduction in the relevant payment. There are major cash flow difficulties in parts of rural Ireland where a doctor may not have a very large practice. It takes too long for the credit system to work. We will be discussing this matter again at a later stage. I am asking the Minister seriously to consider allowing genuine expenses in the cases I have mentioned.
It is possible that the withholding tax does create difficulties for the practitioner, a high proportion of whose income arises from the GMS. The General Practitioners' Wives' Association recently made the point at a meeting with representatives from my Department and the Revenue Commissioners that practitioners in this position effectively have to pay one year's tax in the first few months of the tax year and this causes serious cash flow difficulties. However, I have not been able to establish yet just how widespread or real this problem is. The view of the inspectors of taxes concerned is that the operation of the tax has settled down and they have no evidence of a significant number of practitioners experiencing cash flow problems.
The suggestion that a practitioner who is dependent primarily on the GMS will have paid his tax liability for the current year and the following year by October-November of each year does not fully represent the position. In fact, in an ongoing case the current year's preliminary tax liability payable by 1 November will reflect the withholding tax deducted in the preceding accounting period. For a doctor whose main source of income is from the GMS this would mean that he would in fact have very little liability, if any, to pay by 1 November. Thus the notion that the practitioner has to pay tax twice in the same year does not stand up to examination.
It is recognised that the interim refunds procedure might not be sufficient in extreme cases to mitigate the particular hardhship suffered in those cases and the existing legislation provides for these cases by giving the Revenue Commissioners power to waive the ordinary interim refund conditions in these circumstances. The interim refund and particular hardship provisions are unaffected by the current year basis proposal and continue to operate. I have asked the Revenue Commissioner to issue for the information of the public a set of guidelines covering the more commonly met circumstances of particular hardship and they have agreed to do so.
Recommendation put and declared lost.
SECTION 14.
I move amendment No. 5:
In page 17, subsection (2), line 27, after "effect" to insert "Persons whose basis of assessment has been changed by the provisions of this section, may claim a personal tax free allowance of £800 and PRSI allowance of £286, where they pay the full rate of PRSI applicable to case I or II of Schedule D taxpayers.".
The purpose of this recommendation is to extend the PAYE allowance and PRSI allowance whre the full self-employed contribution is paid to those taxpayers now being placed on a current year basis of assessment. I propose to deal with each of them in turn.
As regards the PAYE allowance, I should like to make it clear again that this allowance is and always has been viewed as an allowance for employed taxpayers, those who pay their income tax weekly, fortnightly or monthly through the PAYE system and who, generally speaking, discharge their tax liability within the year of assessment. The primary reason for the introduction of the allowance was to improve the tax progression for PAYE taxpayers and notwithstanding the change to a current year basis it is my view that this consideration is still valid. I have made this argument already today and I do not want to take up the time of the House by going through it again.
The main beneficiaries of the extension of the PAYE allowance as proposed in this recommendation would be self-employed taxpayers. As I state on Second Stage in the Dáil, notwithstanding the change to a current year basis for self-employed and certain other taxpayers, important differences still remain between the income tax regime for PAYE and self-employed taxpayers. It is worth while to identify the main differences again.
Even on the current year basis the self-employed will in general still not be taxed on a current year basis, unlike PAYE taxpayers. They will be taxed on the profits of their accounts ending in the current tax year. Those who have accounting periods ending early in the tax year will in effect remain on a preceding year's basis. Secondly, the tax treatment arrangements will continue to be different. Persons on PAYE will satisfy their full tax liability for the year by the end of the tax year. By contrast, under the new arrangements self-employed taxpayers need only pay by the end of the tax year either 90 per cent of their current liability or the full amount of their liability on the previous year. The balance will not be due until close to the end of the following tax year. Thirdly, the self-employed have the advantage of a considerably more liberal system in relation to the deductions they can claim for business-related expenses and loan interest than is available to PAYE taxpayers. This facility enables them to reduce significantly their income tax liability. Farmers have further advantages, including the right to stock relief, which are not available to the PAYE sector.
The case could be made that the other categories of income now being placed on a current year basis, mainly investment and rental income, should qualify for the PAYE allowance. As regards investment income, I would point out that over the years the income tax code has deemed it appropriate to distinguish between the taxation régimes applicable to earned and unearned income. Moreover, the PAYE allowance does not apply to investment income already chargeable on a current year basis. Regarding the recipients of rental income, it should be noted that these taxpayers enjoy the same liberal expenses regime as self-employed taxpayers who are taxed under case one or case two of Schedule D.
Finally there is the question of cost. The extension of the PAYE allowance could not be confined to the self-employed but would have to be granted to others such as proprietory directors who, although on PAYE, are not entitled to the allowance. In these circumstances the full year cost to the Exchequer would be almost £85 million. The overall effect would be a major reduction in the tax burden of the self-employed and farmers.
In this regard it might be useful to draw the attention of Senators to the breakdown of the total income tax yield for 1990. The breakdown is as follows: the PAYE sector paid £2,298 million or 88.8 per cent of tax; farmers paid £50 million or 1.9 per cent, while other self-employed paid £240 million or 9.3 per cent.
As regards the PRSI allowance, the switch to a current year basis does not affect the PRSI rate levied on the selfemployer, the employer element of which is well below that paid by full rate PAYE workers. The employee element in the self-employed contribution rate is 1.8 per cent for 1990-91. This compares to the employee main rate of 5.5 per cent, to which the PRSI allowance relates. Other groups such as public servants who do not pay the full employee rate do not qualify for the PRSI allowance. The cost of granting the PRSI allowance as proposed in the recommendation would be £33 million in a full year.
I would find it easier to accept the Minister's explanation if he had confined it solely to the fact that the cost this year to the Exchequer would be £85 million. I have sympathy with that aspect of his response but I have little sympathy with the rest of it. Could the Minister explain to the House how he views the various reports of the Commission on Taxation? They recommend the point I am making in my recommendation.
All the groups the Minister referred to, including proprietary directors, the self-employed and farm families, deserve treatment under the tax code which equates to treatment of all other PAYE sectors, particularly as they are now on a current year basis of assessment. There are those who would go so far as to claim that there are farm families where the husband and wife have an equal input. There is no such thing as a 40 hour week on a farm.
Neither is there for a politician.
There is not and perhaps the Minister could look at our allowances in that context as well.
The Senator made a good start.
(Interruptions.)
Let us keep to the points we are discussing. I ask the Chair to remind the Government side of the House that self-praise is no praise and allow me to continue?
It is hard to be humble.
Acting Chairman
Senator Doyle without interruption, please.
Thank you for your protection.
Acting Chairman
I wish Senator Doyle would not encourage some of the more rowdy elements on that side.
I take your point.
The Senator would try anyone's patience.
Apparently some more than others.
With regard to the very important point I am making in this recommendation, I ask the Minister to look, for example, at the situation on most farms where a husband, wife and older children are putting in hundreds of hours of work between them. The Minister pointed out certain advantages the self-employed sector enjoy over, for example, the PAYE sector, but he did not point out the disadvantages on the other side of the coin, particularly in regard to farm families. The Minister seemed to suggest, as he did earlier when we were talking about proprietary directors and their children, that the real reason he cannot concede is that they are all fiddling anyway and they get enough out of the system without giving them this advantage as well. That is putting it in plain man's language.
It sounds about right.
That is putting what the Minister said in the man's language. When you take away the flowery parliamentary drafting of his reply, that is more or less that he is saying.
There is no danger of it happening to the public service so.
What I am saying is that there is another side to certain sectors involved in this recommendation. For example, farm families work long hours and there is no such thing as holiday relief or holiday pay and there is no guaranteed pension, particularly for those over 56 under the system the Minister has introduced. There are a lot of other difficulties on the other side of the coin which the Minister has conveniently chosen to ignore. I am asking him, in the interests of justice and equity, to grant what I have proposed in this recommendation and to give similar tax treatment to all sectors now they are on a current year basis of assessment.
I want to repeat a point I made on Second Stage which is directly relevant to this recommendation. The decision by the Government to propose the introduction of a current year basis of assessment for farmers and other self-employed people removed the justification put forward for it in 1980 by the then Minister for Finance when the PAYE allowance was first introduced. On 20 February 1980 the then Minister for Finance stated in Volume 318 of the Official Report.
The purpose of the PAYE allowance is to take account of the fact that the self-employed generally have at present the advantage of paying tax on a previous year basis.
If the then Minister for Finance could justify the introduction of the PAYE allowance for the PAYE sector and not extend it to the self-employed on the basis that they were not on a current year assessment, surely it would not be too difficult a step to get to the point we are now——
The Senator should quit codding us and read out the whole quotation.
That is all I have.
I know that is all the Senator has.
The Minister can finish the rest of the quotation. I quoted what I have in front of me.
I will enlighten the Senator in a minute.
I welcome the Minister's response but what I have said is factually correct——
Partly.
——that is, there was justification for the Minister for Finance in 1980 to introduce the PAYE allowance. Furthermore, the Commission on Taxation recommended that when all taxpayers were brought on to a current year basis of assessment they should receive the same overall personal allowances regardless of what schedule they are assessed under. Why has the Minister chosen to ignore that recommendation? I hope he will not tell me that previous Governments, including my colleagues who were Ministers for Finance, chose selectively to ignore bits of various Commission on Taxation reports. I accept——
They ignored everything when they were there; they did nothing at all.
I am talking about a specific point here. We have taken on board half of what the Commission on Taxation recommended but this specific point has been ignored.
I will do it when all the conditions are fulfilled, but we are a long way off that yet.
Perhaps the Minister will indicate how he will progress to fulfilling all the conditions, what he has in mind, and what he projects in this area.
I understand the difficulty involved and I have sympathy with the Minister in terms of the cost implied by this recommendation, but if we genuinely want to be fair to all taxpayers, given that they are all assessed on a current year basis, we should extend the allowance. If the Minister really understood the problems of the farm family and the long hard hours of work put in by both spouses and older children he would not indicate that because they were in some way fiddling and get a bit under the table he could not justify extending the allowance. This question needs to be looked at further.
I rise to rush to the defence of the Minister in this matter. I hope Senator Doyle puts her recommendation to a vote so that I can be seen to be even handed by voting with the Government on the odd occasion.
As I understand it, Senator Doyle is proposing a recommendation which would cost £85 million. Obviously this is required or she would not be looking for it. I have an awful feeling the proposer of the recommendation did not tell us the harsh reality, that is, the money will have to be found from the PAYE sector if it cannot be found elsewhere, and that it will have to come from the income tax area in any event.
If there was less of the fiddling the Minister referred to there would be more buoyancy in taxation.
I could justify that anathema at this stage. One of the points made by the Minister in his response made me so queasy that I want to ask him to develop it. The Minister referred to "generous expenses". I should like to know what "generous expenses" are because those of us on PAYE — there are some decent people here tonight——
Including me.
Indeed, and all of us here. We would like to hear more about these generous expenses. Perhaps we are approaching this in the wrong way and we should be considering extending some of the generous expenses to the people who will be asked to pay the £85 million if Senator Doyle has her way. The acceptance of this recommendation is just not on and would make the position worse from the point of view of the PAYE worker. I should like the Minister to explain what "generous expenses" are. There seems to be a nod and a wink there and people are getting something they are not entitled to.
We keep hearing from the Government side that the PAYE sector are getting the best possible treatment but it now seems they are further down the list. The inference in what the Minister said leads me to believe that there is something about generous expenses which needs to be looked at very closely. I oppose this recommendation. I do not think Senator Doyle thought about the effect it would have on people who do not have the luxury or benefit of being self-employed and who have to take what is given to them. This is just not on at this stage.
I have so much information here I do not know where to start.
It is called the snow effect.
We would have the snow effect even if the Senator was not here. The Senator may think she is the only one working long hours but the civil servants here with me are working long hours tonight and have worked long hours for the last couple of months. The same group of civil servants were expected to take on the full rigors of the Irish Presidency, to produce a budget and Finance Bill and to be here at any hour of the night. We all should recognise that they are not in any special category in relation to the PAYE allowance either.
On a point of order, it is regrettable then that the Government should seek to reduce their numbers and further worsen their work practices.
It shows their level of commitment that they are doing this amount of work even with 20,000 staff gone out of the public service. That is even a better plug for them. I know they are stretched and strained but they recognise that if we want to get tax down, to eliminate our current budget deficit and reduce our borrowing everybody must make a contribution, and they are making theirs.
The contribution of public servants is above and beyond the call of duty.
(Interruptions.)
The Minister has a constitutional right to refer to his officials.
Acting Chairman
Members should attempt to inject a certain decorum into the proceedings.
The case for extending the PAYE allowance to self employed was advanced on equity grounds. The equity of the tax regime applicable to any particular sector cannot be determined by reference to one particular item in the package. In other words, we cannot have an á la carte menu; we either take it all or do not take any of it. A PAYE worker, to get any expense allowed in the tax code, has to prove it beyond any shadow of doubt that it is wholly, exclusively and necessarily in the performance of his duty. The self employed, or the farmer, must only show that the expenditure was wholly and exclusively for the purpose of his business. In essence, the necessary condition is absent and that makes a difference. As a result the farmer, or the self employed, is in a position to claim deductions in respect of many items, including outgoings on his house and farm which the PAYE taxpayer cannot.
Farmers are treated in the tax system as businessmen and, therefore, benefit from the more liberal rules about deductions of expenditure than are applicable to the PAYE workers to qualify for an expenditure deduction. For instance, farmers can avail of the averaging of their profits over a three-year period. They have stock relief and special privileges in relation to capital acquisition tax which some people say is not enough. How can any person say there is inequity there, that the other sector which does not have access to those privileges are on the same basis? How can one say that because of this I should level the playing pitch.
We are talking about income tax, not capital tax.
We are talking about all taxes. I am giving an example.
My recommendation refers to income tax.
We can leave out the capital tax. I have been giving an example of the privileges enjoyed by other sectors. The Senator must take them all into account. The numbers can average. There is stock relief and unregistered farmers are permitted to charge a flat rate of VAT at 2.3 per cent. When the PAYE allowance was introduced in 1980 average tax was paid as follows: PAYE paid £22 per week and farmers paid £11 per week. The corresponding average tax yields for 1990, following the introduction of the current year basis, are as follows: £59 per week from PAYE and £14 per week from farmers. It is disappointing that this claim is being tagged on to what has been largely accepted and recognised as a well balanced administrative adjustment in the tax system designed to make things easier for taxpayers and their advisers, and to reduce the amount of contact needed with Revenue officials for the self employed. The central fact is that if I had not brought forward the present proposals it is estimated that the self employed sector, including farmers, would pay income tax for 1990 at £279 million. Under this proposal the yield is estimated at £290 million, a moderate increase of £11 million. It is also estimated that farmers will contribute to part of that £11 million increase from the change from a current year basis because farm incomes for 1990 are expected to be largely the same as they were in 1989.
In return for this modest increase which comes about as a result of the non-PAYE sector being placed on a similar but still advantageous basis with the basis of assessment applied to PAYE taxpayers 30 years ago, I am asked to reduce this sector's contribution for 1990 by £83 million. Given the PAYE and PRSI allowances such a proposal can only be described as extraordinary and suggests to me a distorted view of equity.
I cannot, with respect, accept the logic of the Minister's argument. My recommendation was reasonably broad-based but he seems to have concentrated on the farming sector. With regard to the Minister's response to farmers' incomes I should like to say that I hope he understands the profit crisis in the main farm sectors last year and this year. I am referring in particular to the tillage and dry stock sectors. Any changes in the tax code must move towards equity and I do not consider it equitable if we are not giving the allowances we are referring to all sectors who are on a current year basis. I urge the Minister to reconsider the whole principle involved. I note that he did not refer to the report on the Commission on Taxation and explain why he did not take on board their recommendation in regard to this. I accept that many other recommendations have not been taken on board.
I am glad the Senator accepts that. Her party were in power for more than four years and they did not accept many recommendations. Self-employed people, in whatever category, are under consideration. I should like to ask the House to concentrate on farmer taxation for one moment. The exemption limits I introduced for the low paid apply to small farmers, small traders, shopkeepers and everybody else. I do not have the up-to-date average income for small farmers but I can recall figures that were tossed around two years ago. At that time the average income was between £5,500 and £5,700 and that figure may have risen to £7,000 today.
I should like to tell the Minister that 75 per cent of the farmers in Wexford earn under £5,000.
That proves my argument. If 75 per cent of farmers earn less than £5,000 then those farmers, and their wives, without any children, are out of the income tax net under the exemption limit. There is no argument in regard to that. At the top end of the scale we are talking about 29,000 farmers who pay tax. They are on an accounts system. If they make money they pay tax and if they do not they do not pay any. They can average their income over a three year period and they have their stock relief, expenses allowances and so on. The equity argument does not stand up in practical terms. I cannot be convinced about that argument. When I look at the other self-employed people, excluding farmers, the argument is even stronger. If all their advantages were taken away the Senator would have a good argument on equity but there is no argument on equity.
What about the disadvantages?
I support the Minister's argument. The figures the Minister has given us are astounding. I must ask him what is being done in the Bill to create tax equity if 88 per cent of tax revenue comes from the PAYE sector less than 2 per cent from the farming sector and 9 per cent from the remainder. My suggestion of an increase of £1,000 on the standard tax band was even more modest when I consider what is being discussed at present. There has been reference to a figure of £79 million but we must consider the enormous contribution made by the PAYE sector. I accept that there have been some concessions to them such as the reduction in the standard tax rate and a reduction in the top rate. However, the position has not changed; almost 90 per cent of tax revenue comes from the PAYE taxpayers. We should put the emphasis on that. The Minister should ensure that there is greater equity
I am forced to enter this debate as a PAYE taxpayer and a farmer's daughter. I am aware of the plight of farm families. When the Commission on Taxation issued their recommendations they were aware of the huge sums of money being paid by the PAYE sector. This boils down to the question of equity. I am amazed that the Minister, being aware of the high level of poverty and the aspiration to keep people on farms, does not take into consideration that many of them will leave the land if things continue as they are. I do not like the divisive note that usually enters these debates with PAYE workers being set against farmers. It is a question of equity and not of one versus the other. There has been an emphasis on farmers because we hear on the media, day in and day out, about the tremendous traumas associated with being a farmer, a farmer's wife or a farm family. Is the Minister really telling us that that is all propaganda and that we should not believe there is a crisis in farming? Surely the amount of money being given to them in relation to equity will not break the bank? I cannot see the PAYE workers being up in arms because they realise the position in which farmers and their families are in at present. I have to support Senator Doyle in relation to this. If the Commission on Taxation have already recommended this, who are we to say that they are out in their assessment?
I am amazed because I cannot understand what this argument is about. Ordinary common sense should make Members realise that if farmers are under a certain threshold they do not pay any tax. As the Minister said, something in the region of 28,000 or 29,000 farmers pay tax in the same way as anyone else who is liable. A vast number of people in other areas do not pay tax either and, therefore, we should not discriminate against any group.
If there was a simple income tax structure for the whole country there might be validity in the argument by the proposer of the recommendation but that is not the case. One group get what the Minister described as generous expenses which they can set off against their income and there are other differences in the method of calculation. The PAYE worker does not have any of these advantages. I have said for years that the simplest way of dealing with this is to tax all income — from whatever source — in the same way and then there would not be a problem. I do not understand Senator Jackman's point of view. For the first time since I came into this House, I am in total agreement with my colleague, Senator McKenna, that it is not practical to make a special arrangement which will worsen the position vis-á-vis the PAYE and the self-employed.
I want to make a point which is relevant to Senators Jackman, McKenna, Costello and me. A sum of £80 million is double the total amount of cuts made in primary education two years ago but this is the level of money about which we are talking. It must all come from the PAYE worker and it is just not on. It is the same old story; if something has to be paid for, it is put on the backs of the people who are already carrying more than their fair share of the burden.
It is very unfair to say that the Government are not doing anything about the report of the Commission on Taxation because the Coalition Government were in power when it was published. I pleaded with the Ministers in the Coalition Government to do something but nothing happened.
Will the Senator support my recommendation?
Everything relevant has been said about the farming community. I sympathise with them because I have tremendous respect for them. They are a hard working community but the self-employed also work 16 and 18 hours a day and a special case is not being made for them. Very often they work for 100 hours a week for very little return.
The case seems to stand on the recommendation from the Commission on Taxation which made wide-ranging recommendations. As I said, you cannot have an á la carte menu. I reject the arguments of the Deputies because they have been selective. You cannot tax all income on the same basis because it is totally impractical. Let nobody tell me that all income should be taxed on the same basis. It has been recognised in the income tax system for the past 150 years that there are different types of employment which must be treated differently. The best that we can do is to try to narrow the gap. On the other hand, Senator O'Toole and his colleagues tried to push the other argument in relation to PAYE workers too far because I heard Members of the Labour Party saying that the answer is to tax everybody at 70 per cent. Indeed, they put down recommendations to that effect. I told them that 4,400 people in this country have a total income of over £50,000. Therefore, the arguments of the Labour Party do not make sense. The pot of gold does not exist. I agree with Senator Doyle that 75 per cent of farmers are in a very low income bracket but, because of the exemptions they are not paying tax.
We applied special exemptions and child allowances to the low paid but we have a further distance to go. One must also recognise that there are expenses attached to running a business. We cannot take a simplistic approach. The small businessman, small farmer and small income earner in the PAYE sector are treated the same under the exemption limits which is the best way to use scarce resources.
I must comment on the reference by the Minister to the Labour Party wanting to tax everybody at 70 per cent. If we could get 70 per cent from every institution, corporation and other big companies the national debt would not be long disappearing. However, the Labour Party did not suggest any such thing, they have been talking about equity.
The figure of 70 per cent was mentioned in the Labour Party amendment.
The Labour Party have been talking about equity across the board so that the areas which are undertaxed at present — and which have been under-taxed for years — can pay their fair share. The Minister knows that the major amount comes from the PAYE sector, so that even after all the talk about equity there is still that disparity. That is the nub of the problem, we are only talking about a cosmetic exercise, a bit of a change here and there. We want to see a substantial improvement in relation to the PAYE sector. As we heard, 25 per cent of the farming community are well within the tax range. Are they paying their fair share? What about corporation tax? Look at the incredible number of tax incentives in the Finance Bill. The Minister said in the Dáil that the number who claimed under section 31 in the 1989 Finance Act benefited to the tune of £10,000.
We were told that there was no money but when there was a tax amnesty we knew the difference. Why can we not talk in terms of greater equity?
That is what I have been talking about.
Well, we have not seen it in practice.
I can give the Senator a whole list if he likes. That is what the Labour Party are talking about — equity across the board. While we agree with the Minister in the context of this recommendation — whether what is proposed here is implemented — it still comprises a very small part of the tax system. But, in terms of overall equity, there is nothing in this Bill which constitutes any termination or any move to end the disparity within the tax system.
Lest the wrong impression had been given I should like to emphasise that my recommendation No. 5 refers to extending the personal allowances to case I or case II of Schedule D taxpayers right across the board of those schedules. I did not specifically pick out any one category or sector. I want to make that abundantly clear to the House lest another impression be given.
I should also like to make the point that, at no stage, did I propose that the PAYE sector should personally bear the burden of extending this allowance to the sector now going onto current year basis of assessment. There are other options. I do not have the expertise or personal experience to be able to advise the Minister. The only sympathy at all I have with the Minister in his defence — as I have already placed on the record — is his difficulty in trying to achieve what we all want him to achieve in balancing the budget and acceding to what we consider to be equitable requests from certain sectors — such as the one I mention here today. I accept that as presenting a difficulty. If there were a willingness to take the problem on board and resolve it, there are options in other areas where the source of the requisite money could be investigated. I really do not want to pretend that I have the expertise or wisdom to advise the Minister; I do not and I am not in that game.
Therefore, I am not saying, nor do I think it would be equitable for the PAYE sector to personally bear the burden of extending these allowances. We should be realistic in this matter. All of these recommendations and the different points being made highlight the lack of consolidation of the tax code and the overall integration of the social welfare and tax codes more than anything else. We will all tend to pick our own issues, push different recommendations, when ideological differences will emerge between the Government and the Opposition, and within the Opposition side of this House——
We are Independents.
I have news for the Senator, they are still in opposition.
I have to state clearly that these are the Independent benches.
Independent of what?
Independent of all others.
Acting Chairman
I do not wish to interrupt the little tête a tête between Senators Doyle and O'Toole but might I suggest that the Chair be addressed?
I am quite correctly reprimanded on that.
Acting Chairman
Might I remind all Senators that they are straying into making Second Stage speeches on the entire income tax code? Perhaps they would adhere strictly to the terms of the recommendation before the House.
I will be pursuing this recommendation to a vote. I personally feel very strongly about it, as I do about many others on the list. I reckon a couple of votes this evening will establish the voting strength of the House; there is no need to be dragging Senators backwards and forwards from Setanta all evening, unless they all decide to take the evening off.
I do feel strongly about equity in this area. I reject fully that the sectors concerned here — that is case I and II of Schedule taxpayers — because they are on a fiddle of any kind should not receive equitable treatment from the Minister.
I equally reject the equity argument. There is no equity argument. I have advanced the argument, plain and square. In relation to the 88.8 per cent yield from the PAYE sector I would say that the statistics, as compiled, do not reflect the various categories of people envisaged. There are people in business who fall within the PAYE net. Indeed there are people in politics who fall within the PAYE sector as well which some people tend to forget. There are many other categories which, for one reason or another, fall within the PAYE sector. Consequently the 88.8 per cent always appears somewhat over the top. In saying that I am not pretending that there is not more to be got elsewhere. I am merely stating the facts. Again taking into account the numbers in the PAYE category as against the small numbers of self-employed and farmers liable to tax, it becomes a totally unbalanced argument.
It is distorted.
I have been endeavouring to devise some different method of presentation so that at least people could argue the basic facts. But to retort and say: this is an equity argument needing £55 million or £85 million — whatever is the figure — clearly demonstrates that the Opposition are not in the business of having to find the requisite money. It is the old story: give somebody more but do not ask me to pay. Another example is the contention that every itinerant should be housed but do not put him beside my back door. It is the same old story, it is not realistic, but that is how it is.
Recommendation put.
The Committee divided: Tá, 10; Níl, 31.
Tá
- Cosgrave, Liam.
- Doyle, Avril.
- Howard, Michael.
- Jackman, Mary.
- McMahon, Larry.
- Manning, Maurice.
- Naughten, Liam.
- Neville, Daniel.
- Raftery, Tom.
- Staunton, Myles.
Níl
- Bohan, Eddie.
- Byrne, Hugh.
- Byrne, Seán.
- Cassidy, Donie.
- Conroy, Richard.
- Costello, Joe.
- Cullen, Martin.
- Dardis, John.
- Fallon, Sean.
- Farrell, Willie.
- Finneran, Michael.
- Fitzgerald, Tom.
- Foley, Denis.
- Honan, Tras.
- Hussey, Thomas.
- Kiely, Dan.
- Kiely, Rory.
- Lydon, Don.
- McCarthy, Seán.
- McGowan, Paddy.
- McKenna, Tony.
- Mooney, Paschal.
- Mullooly, Brian.
- Norris, David.
- Ó Cuív, Éamon.
- O'Donovan, Denis A.
- O'Keeffe, Batt.
- O'Toole, Joe.
- Ryan, Eoin David.
- Upton, Pat.
- Wright, G.V.
Tellers: Tá, Senators Howard and Jackman; Níl, Senators Wright and Fitzgerald.
Recommendation declared lost.
Section 14 agreed to.
Our colleague, Senator Dick Hourigan, was involved in a car crash today and I would like to wish him on behalf of all Members of the Seanad a speedy recovery.
On behalf of this side of the House, I would like to be associated with those remarks.
I would also like to be associated with those remarks.
Sections 15 to 26, inclusive, agreed to.
NEW SECTION.
Recommendations No. 5a not moved.
Section 27 agreed to.
NEW SECTIONS.
I move recommendation 5b:
In page 39, before section 28, to insert the following new section:
"In this Section—
‘agency' means a charitable body providing development aid or emergency relief in developing countries and designated by the Minister for Foreign Affairs by order made under this section;
‘tax' means income tax or corporation tax, as the case may be.
(2) This section applies to a gift of money which, on or after the 6th day of April, 1990, is made to an agency and is not deductible in computing for the purposes of tax the profits or gains of a trade or profession or is not income to which the provisions of section 439 of the Income Tax Act, 1967, apply.
(3) The Revenue Commissioners may consult with an agency in relation to any question which may arise in connection with subsection (2).
(4) Where a person proves he has made a gift to which this section applies and claims relief from tax by reference thereto, the provisions of subsection (5) or, as the case may be, subsection (6) shall apply:
Provided that in determining the net amount of the gift for the purposes of those subsections, the amount or value of any consideration received by the said person as a result of making the gift, whether received directly or indirectly from an agency or any other person, shall be deducted from the amount of the gift.
(5) For the purposes of income tax for the year of assessment in which a person makes a gift to which this section applies, the net amount thereof shall, subject to subsection (6), be deducted from or set off against any income of the person chargeable to income tax for that year and tax shall, where necessary, be discharged or repaid accordingly; and the total income of the person or, where the person is a wife whose husband is assessed to income tax in accordance with the provisions of section 194 (inserted by the Finance Act, 1980) of the Income Tax Act, 1967, the total income of the husband shall be calculated accordingly:
Provided that relief under this Act shall not be given to a person for a year of assessment if the gift (or the aggregate of the net amounts of gifts) made by him in that year, being a gift or gifts, as the case may be, to which this section applies, does not exceed £100.
(6) Where a gift to which this section applies is made by a company—
(a) the net amount thereof shall, for the purposes of corporation tax, be deemed to be a loss incurred by the company in a separate trade in the accounting period of the company in which the gift is made, and
(b) the references in subsection (5) to a year of assessment shall be constructed as references to an accounting period of the company.
Senator Costello proposes tax relief on donations to charities which provide development aid or emergency relief in developing countries. I am sure that all Senators will join with me in paying tribute to the tremendous work done by such charities. As Deputies will be aware the incomes of these charities, whether from donations or otherwise, is exampt from taxation in their hands as long as that income is applied for charitable purposes.
However, to go further, as Senator Costello suggests, and allow relief to persons who make donations to charities would mean that the Exchequer would find itself funding, at anything up to 53 per cent, organisations which currently operate on voluntary and unrelieved contributions. This cost, which could be substantial depending on the extent to which use is made of the relief by both existing and new subscribers, would be additional to the State's own contribution for development assistance of over £34 million. The cost of the recommendation could not be afforded in the present budgetary situation and if conceded would of course have to be made up elsewhere. I think everybody will agree that current levels of tax are far too high and I am very reluctant to look for more revenue from any source to make up such deficiencies. In the circumstances I am sure the House will appreciate that I am not in a position to concede the tax reliefs sought in this instance by Senator Costello.
I will not delay on the point but perhaps the Minister would agree that the proposal is reasonable. Would he explain how he came by the figure of £34 million. It seems an exorbitant figure.
That is the cost of overseas development aid. It is the existing State contribution.
I thought the Minister said that would be the extra cost.
The cost of the tax relief or the tax incentive to charities the Deputy is talking about would be in addition to the £34 million.
I am still not clear about the matter. I want to find out from the Minister whether he thought that this would be an excessive cost, that is, in excess of the amount that is at present being given.
There is such a widespread number of voluntary organisations that it is extremely difficult to put any figure on what would be involved so any figure given would be purely speculative. There is a very large number of organisations and of course organisations which are one step away from charitable organisations. Where would one finish? It is easy to put down recommendations.
It is a reasonable recommendation.
Every recommendation is a reasonable one. I heard them all in the House. When I added the whole cost up it came to £937 million. The cumulative cost could not be said to be reasonable even though individually everybody would argue that the costs are reasonable. It is a question of priorities and making one's choices at the end of the day. I am not saying I have a monopoly on wisdom but I make choices and I stand over them and that is all I can say.
I am sure Senator Costello would be one of the first to admit that if extra money was available for overseas aid without imposing extra taxation, the Government, because of the criticism that was levelled at them, would have added that to the figure mentioned just now without an amendment having to be put down by Senator Costello aimed at giving additional money to this area under another heading, namely, reliefs on donations to charity. Several times in the last few months the Government have been criticised in respect of the amount of overseas aid they are giving but it is easy to criticise when one does not have to find the money for the additional aid being proposed. For every amendment that is put down one must ask what it will cost and who is to pay for it.
The Minister is, as always, admirably lucid and reasonable. When I say that, I mean I understood what he meant. It seemed quite clear that he was dealing with the total contributions by the Government to overseas development aid. I also believe that the implication of the Minister's statement is correct, that while he regards overseas development aid as a praiseworthy area of the Government's operation this is not the appropriate machinery by which to achieve that aid. I have to say that I agree with him.
However, there is another argument which has been presented in this House on other more appropriate occasions with regard to overseas development aid and I will again be happy to enter that argument at the appropriate time.
I have one further comment to make and that is with regard to the vagueness I see intellectually in this recommendation which I think is rather dangerous although the intention, the principle and the political affect of it is very good. I congratulate Senator Costello on drawing out from this Minister a statement that perhaps we could even look at doing a little more in regard to overseas development aid, but it is not precisely his bag, so to speak. My reservation would be this: if one does take on board this particular machinery for apparently extending aid to the developing world, one may not be doing them all that much of a favour because there is such a wide spectrum of organisations, not all of whom are reputable, and there is also a situation where it becomes increasingly difficult to monitor precisely who is getting this tax relief. I think it would open up a dangerous loophole although I do not think there would be enormous haemhorraging of funds. People who, perhaps, do not deserve to be encouraged would be as encouraged as people who are deserving of encouragement in this field so perhaps it is just as well to reject this recommendation.
I find myself entirely in support of the sentiments and intentions of this recommendation. If the wording is causing particular difficulty or is the only reason the Minister can not take the recommendation on board, I am sure the movers of it would be quite happy to have it amended. The Minister will know that on Second Stage I referred to our ODA. Perhaps other Members did also. However, I feel strongly about the effective reduction in ODA this year. Governments and Ministers for Foreign Affairs have had agreements over the last ten or 15 years about what percentage they would contribute to ODA.
It is 10 o'clock. I would ask the Senator to report progress.
With respect, a Chathaoirligh, we did agree — the Leader of the House and I, and I think Senator Costello and others — that if we took the half hour sos when we did, that if necessary we would continue, and add that half hour to the end. We do not intend to go on longer; we just want to finish this section today and I propose we finish this section.
Certainly I am at a disadvantage in that regard because that was not communicated to me and I do not know if it was communicated to the House.
It should have been communicated to the Chair. We agreed we would go a little over 10 o'clock if we had a half hour sos. I do not think we said a further half hour but if it has to be five, or ten minutes——
I propose we finish section 28.
That is what I proposed. I was making the point that if our ODA contribution could not come directly from the Exchequer, the proposers intention here is to help with aid in this area. Also, as the Minister will be aware, I made the point during Second Stage that there is wonderful support from the people of Ireland generally for Third World and developing world causes generally. The difficulties caused by civil wars of one kind or another, famines or whatever the particular cause of the difficulty, even the eastern European situation, met with a wonderful response. I would like the Minister to respond positively to the sentiments of this recommendation before him. I would also like him to explain to the House how we can justify an ODA contribution of 0.158 per cent of GNP? The Minister himself in his budgetary speech pointed to the economic growth we could expect this year. He put a figure of 4.5 per cent on the increase in GNP.
Having done that, we still reneged on our Exchequer contribution commitments to the Third World and the developing world. This is very hard to justify. The Minister gave the ball park figure of £35.35 million as this year's contribution. In fact, in the Estimates last November the Minister promised an allocation of £35.46 million. This was subsequently reduced by £1.1 million because of an over-estimate of our contribution to the Lomé Convention in 1990.
This is a debate on overseas aid.
I am satisfied with the Senator's——
Thank you, a Chathaoirligh. In view of the fact that the Exchequer has not directly——
I want the debate to proceed along lines that are in accordance with the rules of the House. I am asking Senator Doyle to continue.
Thank you. The point I am making — which I feel is quite pertinent and I thank you for your support a Chathaoirligh — is that in view of the fact that we are not giving it directly through the Exchequer in ODA that perhaps the recommendation before the House would be a way of augmenting the other meagre official contribution of this country. There was wonderful voluntary work done through the NGOs in this particular area and the recommendation before us is to augment the work done by the NGOs in this area. I would ask the Minister in responding to the recommendation to assure this House that when it comes to next year's Estimates that we will be looking at a minimum of 0.2 per cent of GNP in ODA. I think the Minister knows what the target should be and as, hopefully, our economy improves as GNP increases I think this would increase our ODA contribution.
I, too, ask the Minister to deal with this recommendation with greater generosity than he has indicated so far, because I do not think we can accept the opinions of Senator Norris. Indeed, I am afraid he was giving the impression that many of these voluntary organisations are not reputable organisations. I would have to say there are very many reputable organisations giving much needed aid to the Third World. The Government are reducing their share of contribution to the Third World and I am afraid they are now inclined to lean on many voluntary organisations to make up the shortfall. I think the least that could be done would be to consider giving them this tax relief. This is hard-earned money by all of the voluntary organisations. If one or two are not reputable — I am not suggesting they are — but if they are, could they not be weeded out, as we have done in other areas, for example, tax concessions to manufacturing firms? We have a definition as to who will get the tax relief, and we can do the same here.
I ask the Minister to give every consideration to allowing tax reliefs to the voluntary organisations who are working in this area. May I say also it is hard enough for them to collect the money and make that contribution to the Third World without collecting money to help the Minister balance his budget.
I cannot agree with this recommendation because effectively what we would be doing is giving the opportunity to a large range of other individuals who would use this as a loophole to claim tax relief on different aspects. We have to accept the fact that while there are quite a number of reputable development and charitable organisations, there are quite a number who are not. It has been proved in the past, there are charitable organisations who have been defrauding the public over a considerable period of time. I am not suggesting for one moment that there are no reputable organisations, there are a vast number of them, but if we accept this particular recommendation what is going to happen? There would be quite a number of other ones who would start up in the future and who would be looking for this tax incentive as a means to get around being taxed. We would have to accept that that is a fact and I totally reject this recommendation.
I press the Minister to respond to the generosity of voluntary organisations. It is obvious we are top of the league as regards the Irish people's response to Third World aid. I could not agree with Senator Honan's statement that the Government's little bit could be topped up. That is extraordinary, we have no guarantee that the moneys that could be got would actually be used in that particular direction, seeing that it is not being done now despite our commitment to even an average amount that should be paid. I feel very strongly on this and I do not believe that there can be all this abuse of the system. It is operated in the United States, granted that they are not top of the league as regards their contributions.
Far from it.
If you go through the table of donors to Third World aid, it is extraordinary that it is a Third World country that is top of the league from its Government response to Third World poverty, and it is quite a poor country.
I join with Senator Costello in urging the Minister to accept this recommendation. There will be always those that will abuse the system, but it certainly is not 99.9 per cent abuse and at the end of the day if the recipients are going to benefit from extra money, surely the end will justify the means at that stage. Particular agencies might have erred in the past but I do not think we are going to have a proliferation of agencies setting out to abuse the system. Their hearts will be in the right place, as past events have shown. It is just unfortunate that the Government have not responded in the same way. It is one way of showing that the Government and the Minister are absolutely sympathetic to the need to have more aid for Third World countries.
Virtually everybody who has spoken has agreed with the sentiments of the recommendation. I do not think the Minister has disagreed with that at all. Irish people have a tremendous record in making contributions to Third World causes, famine relief and so on. As a Government, unfortunately we are well below the recommended UN statistic in relation to gross national product. We have seen that the Minister has introduced in his Finance Bill all sorts of tax concessions and incentives to various companies and corporations, and indeed individuals. There is no problem about that but now that we are talking about tax concessions to make more funds available for Third World relief, we seem to have a major problem, and I cannot understand that. It is not unreasonable that consideration be given to granting tax relief to persons or companies who earmark money for Third World aid. To say the money might be abused is just not acceptable. Would Irish people be making the contributions they are at present if it was the view that money is being abused at Government level. We have to recognise that the vast majority of agencies, certainly in this country, involved in the distribution of relief money, do not abuse it. They have an excellent record. Rather than putting up obstacles we should be arguing for implementing this recommendation. I would be happy if the Minister took it on board, even if he is not happy with all the wording, and sought to implement its provisions.
One must accept that charitable institutions are not there because they feel there would be an incentive to save tax on their behalf; they are there to do a specific job and they will continue to do that job. What I would be afraid of is that if this recommendation goes through, a number of individuals and organisations will get involved in this area for other motives. We would be doing a disservice to the existing organisations if we implement this recommendation.
My reservations remain. I am very much inclined to agree with the Minister. However, I am sure the Minister could probably entertain informally some of what Senator Costello has said. I am sure that he, being a sensitive man, will take the same attitude as that adopted by the Seanad, which appears to be universal, that is, that this country is not doing enough in terms of overseas development aid. I repeat, I do not believe this is primarily a matter for the Minister for Finance; it is a matter primarily for the Minister for Foreign Affairs. Perhaps at Cabinet level the Minister for Finance will have the opportunity to appraise the Minister for Foreign Affairs of this as a result of the debate. However, while I have great regard for many of the charitable organisations, I actually disdain the whole notion of charity. There is something patronising about it and some of these people, with the best intentions in the world, actually do damage.
It would be naive in the extreme — you would need to live on a desert island with or without your eight or ten discs — not to be aware that there have been investigations and financial scandals in a number of these organisations. Be that as it may, this can happen in any area of life and I am not pointing the finger principally at charitable organisations. I still think this is an inappropriate mechanism for the distribution of this finance. I will put aside altogether the ideological argument but there seems to be one very good political argument, that is, that a variable is being introduced into an important equation of foreign policy, and I do not think that is appropriate. In other words, no Government will be in charge of the amount of money involved: it could be small; it could be astronomical; it could become a black hole. I am not an economist but I very much doubt that the sums will be enormous or are going to haemorrhage the Irish economy.
In principle, if we are serious and if we regard it as our moral responsibility to contribute as a people and as a Government who lead the Irish people, to overseas development aid, it is incumbent upon us and all sides of the House appear to agree — to set a target and to meet it. They should not be this jiggery pokery with these strange tax devices. Although I laud the sentiments expressed — I believe the Minister has taken them on board — I am as unconvinced as I was at the beginning of the discussion about the appropriateness of this device.
I think Senator Norris came right to the core of the problem. It is a question of foreign policy. It is a question for the Minister of Foreign Affairs. The decision will be taken not in the Seanad, not on my sentiments, but around the Cabinet table at Estimates time. That is the appropriate way to deal with it. There is concern in Government circles about the proliferation of charities and the control of charities, and that whole area will have to be considered. It would be foolhardy at this stage to even express a sentiment in favour of this type of suggestion until that exercise is carried out by the Government and the Minister for Justice.
I do not want anyone to think — some people seem to give the impression here — that Ireland is alone in reneging on our responsibilities because the opposite is the case. There are very few western developed countries — there are a few in Europe — reaching the target the Senator spoke about. I do not have the statistics with me because I did not expect, on a Finance Bill debate, to get involved in a geographical debate that led us to a desert island and the Revenue Commissioners would not be expected to have that type of information. However, Senator Doyle said this country should be subscribing in the region of 0.2 per cent of GNP. We are subscribing about £34 million at present and the estimate of contribution from the voluntary organisations is about £16 million, which would be a total of about 0.22 per cent of GNP. This country makes this contribution irrespective of whether it is made through Government taxation or through a charity. I am not here to talk about the contributions made by other countries but it would do people good to read the contributions made by countries far richer that ours — the United States is one such country that has been mentioned. As I have said, we have been the most generous nation and we showed that when Bob Geldof launched the Live Aid concert. I do not believe it matters whether the money is given on a voluntary or Government basis. Our total contribution is over £50 million, or 0.22 per cent of GNP. I cannot accept the recommendation on the basis that the Government are not satisfied with the whole position in regard to charities. Until we look into them in greater detail I would not proceed to offer any more observations.
The Minister cannot have it both ways.
Neither can the Senator, with all due respects, because every deficiency has to be made up from somewhere else.
The Minister was inclined initially to pass the buck, aided by my colleague behind me, to the Minister for Foreign Affairs.
And correctly so.
He then goes on to add the contribution from voluntary organisations to the State's contribution and boasts about the figure.
This debate is turning into one on overseas aid. We are dealing with taxation and we should stick to that.
The Minister should not pass the buck. He has the opportunity to take on board this recommendation. It is within his responsibility to relieve these charitable organisations of the heavy burden of collecting tax for his purse when they are collecting for third world assistance. I believe the State should consider channelling more of its contribution to many of these charitable organisations. In deference to what has been said by Senators sitting behind me, there have been far greater amounts of money channelled through many of these voluntary and religious organisations to Third World countries for decades. They know the scene and the people——
You are not speaking about taxation.
——to whom they are giving the aid whereas the Government are not too sure where much of the aid is going.
Senator, you are engaging in a Second Stage speech.
I am pleading with the Minister to give serious consideration to granting tax relief in this area. I do not accept the argument that many people will jump on the bandwagon.
I will have to ask you at this stage to resume your seat. You are engaging in a Second Stage speech and I am not going to allow it.
I just want to make a point.
You must make it along the lines I have recommended to you.
There are abuses, and serious abuses in social welfare and if we were to accept that argument we would not get social welfare. The Minister should give an undertaking that he will give serious consideration to giving tax relief to these voluntary organisations, many of whom are religious and who are giving far better value to the people of the Third World.
I think you, a Chathaoirligh, put it very well when you said this is a matter about taxation. The Minister is here to discuss taxation, and therefore, we do not want to see any red herrings being drawn across it by referring to the responsibility of the Minister for Foreign Affairs. We are not taking about voluntary contributions which are made by Irish people from time to time to events organised by Bob Geldof etc. What we are talking about here is taxation structure whereby more money can be made available within the boundaries and parameters of the Minister's powers. The Minister has the means to provide it. If the Government produce a certain percentage and if we can find another structure, through taxation and through giving money to agencies, that can be kept within the boundaries of this legislation, we should embark along those lines and not talk very strongly about abuse. That can be controlled and regulated. The Minister talked for a long time about abuses in various sectors in relation to self-assessment and the difficulty in dealing with the matter. That is the purpose of legislation by a Minister for Finance. In conclusion, we will be seeking a vote on the entire section. Since we agreed to take the action in toto— there is another recommendation to be dealt with — perhaps we could complete this recommendation at this stage and proceed to the final one.
Is the recommendation withdrawn?
No.
Recommendation put and declared lost.
I move recommendation No. 5c:
In page 39, before section 28, to insert the following new section:
"Section 243 of the Income Tax Act, 1967 is hereby amended by the insertion after `allowance for assets of short life' of the following:
‘and there shall be granted a particular and specific allowance for assets used for the purposes of trade, which by virtue of technological advance or development have a short useful life and are rendered obsolete, this allowance to be equivalent to 25 per cent of the cost of the asset on a reducing balance basis.'."
This recommendation is self-explanatory. I referred to it in my Second Stage contribution. This refers to the allowance for assets of short life. It is a reflection of the times in which we live. It fits in well with the policy of the Government and of the Department in supporting small companies in particular. I should like to give two examples of what I have in mind. In the normal system of taxation a company with certain assets of short life can write them off over a period of years. This is a straightforward operation. Whatever the item is, there is an agreement between the Revenue Commissioners and the company that the asset has a useful life of about six or seven years and graded depreciation is built into the system. There is a general consenus that that is not only useful but imperative for many companies, and therefore they write the assets off over a period of years. However, since the Income Tax Act, 1967, was enacted 23 years ago times have changed. In the meantime, unfortunately, that does not reflect the changes which have taken place in technology. Since that time there have been three or four generations of computers. I gave the example today of a company who put in a new computerisation system last year and now find that the new Unix method — which is now being sold worldwide and is obviously enjoying a worldwide boom — would be far more appropriate to the needs of the company and have decided to replace the whole lot within three years. In that case the company will never be able to set off against tax the real depreciation because these are items that will be written off over a period of three or four years or even two years. Because of the present situation they will never to able to credit that below the line in terms of their accounting. It is unfortunate and it is self-evident. That is one aspect of the problem.
The other aspect relates to the developing company. Let us say a company is set up, is quite successful and instals a computer in order to deal with the needs of the company and anyone who has used computers and soft computers is aware that they can be easily outgrown. No matter how careful one is, one finds that at the end of a year or two that either, say the software is no longer able to fulfil the needs of the company or, more importantly, that the total computer system, is not large enough to deal with the needs of the company. In that case the company must get rid of it and have it replaced. It is unfortunate for growth companies that because the need for replacement arises after two years as opposed to five, six or seven years, the depreciation, which is a real depreciation, cannot be written off below the line. The point is clear. I do not want to labour it because I think it is a reasonable recommendation and I would ask the Minister to respond to it accordingly.
If an item of plant is sold because technological developments have rendered it comparatively inefficient and the sale proceeds are less than the tax written down value, a balancing allowance will be given to the trader to make up the difference. In this way the full cost of the machine is written off and the trader suffers no loss. Section 243 of the Income Tax Act, 1967 — referred to in the recommendation — provides a deduction for the replacement cost of obsolete machinery or plant and applies only where the original asset was provided before 15 April 1959. The section has been superseded by the standard capital allowance provisions. I am satisfied that the normal writing down and balancing allowance provisions cater adequately for the situation contemplated in the recommendation.
I do not want to delay the House but as the Minister has presented the case it appears to meet my particular need. Can the Minister clarify in the example I gave that where a company instals a computer — a major investment for the company — which the company outgrows and has to replace it in toto——
In a couple of years.
Is the Minister saying that can be written off completely against it?
If the Senator is talking about this year there is accelerated capital allowance of 50 per cent which applies up to 1 April next year. For the following year there are 25 per cent accelerated capital allowances that could be used. At all stages there is the balancing factor, to which I have referred, so that no trader loses.
I am aware of the 25 per cent.
If one must get rid of the computer, and only portion of it has been written off, the balancing figure makes up the written down value for the remainder.
That is precisely the point about which I was concerned. In other words, in the first year in this kind of operation they could write off 25 per cent under the provisions of section 243 of the Income Tax, 1967, as it exists. The Minister is now saying that if, in the second year, the company replace the 75 per cent outstanding in terms of the capital asset value can be totally written off at that point?
In a balancing situation where the technology has been supreseded and is presented in that way, there is provision for a balancing allowance. It is not for me to tell anybody how to make up their accounts.
I am perfectly happy with that.
Is the recommendation withdrawn?
Yes.
Recommendation, by leave, withdrawn.
SECTION 28.
Question put: "That section 28 stand part of the Bill."
The Committee divided: Tá, 28; Níl 12.
Tá
- Bohan, Eddie.
- Byrne, Hugh.
- Byrne, Seán.
- Cassidy, Donie.
- Conroy, Richard.
- Cullen, Martin.
- Dardis, John.
- Fallon, Sean.
- Farrell, Willie.
- Finneran, Michael.
- Fitzgerald, Tom.
- Foley, Denis.
- Honan, Tras.
- Hussey, Thomas.
- Kiely, Dan.
- Kiely, Rory.
- Lydon, Don.
- McCarthy, Seán
- McGowan, Paddy.
- McKenna, Tony.
- Mooney, Paschal.
- Mullooly, Brain.
- Norris, David.
- Ó Cuív, Éamon.
- O'Donovan, Denis A.
- O'Keeffe, Batt.
- Ryan, Eoin David.
- Wright, G. V.
Níl
- Cosgrave, Liam.
- Costello, Joe.
- Doyle, Avril.
- Howard, Michael.
- Jackman, Mary.
- McMahon, Larry.
- Naughten, Liam.
- Neville, Daniel.
- O'Toole, Joe.
- Raftery, Tom.
- Staunton, Myles.
- Upton, Pat.
Tellers: Tá, Senators Wright and Fitzgerald; Níl, Senators Howard and Costello.
Question declared carried.
Progress reported; Committee to sit again.
When is it proposed to sit again?
It is proposed to sit at 12 noon tomorrow.
The Seanad adjourned at 10.45 p.m. until 12 noon on Friday, 25 May 1990.