The opening paragraph of the Minister's speech states: "This Finance Bill underpins the Government's priority objective — to maximise, on a sustainable basis, the job potential of our economy in two respects". This statement is inaccurate and untrue because the Finance Bill does the opposite: it imposes taxes on work, energy, initiative and enterprise.
The Finance Bill was the opportunity to tackle the problem of having 300,000 people out of work. It is the vehicle which enables the Government to tackle the endemic problem of unemployment. The Minister could have reduced unemployment by reducing tax on workers, employers' PRSI and VAT on products produced by sensitive industries. Regrettably, the Minister has taken the wrong direction. That is why I consider his opening statement to be inaccurate and untrue.
The Minister's proposals for VAT increases will cause job losses because they will affect a number of labour intensive industries. The increases will affect the ordinary worker in many ways as, combined with the new 1 per cent levy, they will cause job losses instead of maintaining existing jobs or creating job opportunities. To add insult to injury, the Government will give a total tax write off of all arrears of tax due to the Exchequer from people who have defrauded the system.
The Government's proposal to increase the VAT rate on hotels, holiday accommodation, newpapers and building supplies from 10 per cent to 12.5 per cent is a serious mistake. The VAT increase on newspapers is a charge on information and is a retrograde step. Irish newspapers are printed in Ireland, their staff are employed in this country and they are competing against imported newspapers from Great Britain. Some of our national and provincial newspapers are in serious financial difficulties at present. This VAT increase will exacerbate an already difficult situation for some of those newspapers. Visitors from Great Britain, Europe and America compliment the quality of our newspapers and we can be proud of the standards they have maintained.
Newspapers compete with RTE television and radio for advertising revenue. RTE is publicly funded and the removal of the cap on its advertising will adversely affect newspapers and periodicals. People in the newspaper industry estimate that the proposed changes in VAT will cost the industry at least £200 million. This will affect jobs and the important role of newspapers in education and in providing access to detailed information.
The increase in VAT rates demonstrates that the Government has little knowledge of the difficulties being experienced in the clothing and footwear industries. In 1991 VAT on clothes and footwear was 12.5 per cent. In 1992 the Minister increased it to 16 per cent and in this year's Finance Bill he has increased it to 21 per cent. The Minister must be aware of the damage these increases will do to our hard pressed clothing and shoe industries which are already under pressure and how they will affect jobs. The Minister is, no doubt, aware of the number of clothing and footwear firms which have closed and that further increases in VAT on clothing and footwear will cause additional hardship.
The VAT rate for shoes and clothes in the North is 17.5 per cent. In the Twenty-six Counties it will now be 21 per cent. VAT on clothing and footwear is charged at the same rates in the North and in Great Britain. The higher rate of VAT in the Republic will lead to an increase in sales of clothes and footwear in the Six Counties and in Britain. I am sure the Minister is aware of the serious job losses in the footwear and clothing industry. Between 1989 and the end of 1992, 2800 people working in the clothing and footwear industries lost their jobs. I am certain that the Minister does not fully realise the effects of those job losses.
I can supply the Minister with a list of the name and addresses of firms which have already closed. At Gardeur, 180 employees lost their jobs. At Cavan Fabrics, 80 were made redundant while at Babygro, the figure was 350. At Bonaventure, 450 jobs were lost. Cosmo closed with a loss of 40 jobs, and Mitzi closed with a loss of 180 jobs. At Irish Blouses, 30 were made redundant, at Robert Usher, 150 and 200 at Laura Ashley. The list is extensive, and the total number of jobs lost is 2,800. Since the Minister's recent announcement, two more firms have gone out of business, Wexman in Wexford, with a loss of 109 jobs, and Beeline in Dublin with a loss of 120 jobs. A number of retail fashion outlets have closed or made staff redundant since the budget. For one reason or another, these firms are in difficulties, and the increase in VAT will exacerbate an already difficult situation.
Best Menswear in the Square in Tallaght is about to close. Three jobs will be lost in a small firm in Galway. Clery's have made 60 staff redundant and Duggan's have made 40 staff redundant. The list is long, and, unfortunately, these VAT increases will make a difficult situation worse. The Minister stated he is increasing VAT on clothes and footwear because the revenue is needed. The revenue accumulating from these increases will be offset by an increase in payments of unemployment benefit, and the loss of PRSI contributions and income tax. This is short term economics and the Minister should think seriously before he takes this action.
I read this Bill during the last few weeks, I noted the situation in regard to the building industry and the decrease from 21 per cent to 10 per cent for poured concrete and concrete blocks. The Minister has acted on representations to him by different groups in the building industry and his proposal is welcome and wise. I ask him, even at this late stage, to consider further the situation in regard to the clothing and footwear industry.
Workers pay too much tax, I am certain the Minister is aware that, for example, a married man with six children receives approximately £180 unemployment assistance per week. If this person obtained a job with a county council or a local authority, he would earn approximately £186 a week. When the loss of benefits is taken into account, that person is financially better off drawing unemployment assistance. The 1 per cent income levy make this situation worse. Many workers pay tax at 48 per cent and a 7.5 per cent health levy. They are now asked to pay a further 1 per cent levy. PAYE workers may be taxable at the top rate of income tax, if they are single and have no benefits, on a figure as low as £11,000 per year. They must also pay 7.5 per cent PRSI, and the 1 per cent income levy. I cannot understand the attitude of the Government in bringing in this 1 per cent levy. Most of the people in the PAYE system are outraged that such a levy should be imposed. The Minister has taken bad advice. If the Minister and the Government hope to maintain the goodwill of workers and trade unions, the imposition of this 1 per cent levy is an unwise step and I cannot see the sense of imposing it now. Will the Minister consider withdrawing this levy?
I wish to raise another matter with the Minister. When the Taoiseach was Minister for Finance he promised a review in 1990 or 1991 on the issue of disabled drivers. People suffering from severe arthritis and permanently disabled cannot obtain exemption from tax on importing a car and other such allowances for disabled drivers, because they have not lost a limb or do not suffer from a similar physical disability. Somebody with chronic arthritis should get the same exemptions; the cost to the Exchequer would be minimal and it would be of tremendous help to many who are permanently incapacitated. I ask the Minister to examine this matter.
I also ask the Minister to examine taxation on lunch vouchers. Under the lunch voucher scheme tax must be paid on all but the first 15 pence of the cost of the meal. This figure was set in 1965 when three shillings was the price of a meal and is unrealistic now — it would not even buy a cup of coffee today. The Minister should examine how this allowance could be increased because it would be of immense benefit to small cafés and restaurants. Many of these are having difficulty staying in business: such an increase might help some of them and it would not be of great cost to the State.
The Minister spoke about the changes he made in relation to the probate tax. I note that the family residence and the normal house contents will be exempt. The Department and the Government have not thought out the probate tax sufficiently or given it the required study. When the matter was debated in this House I made the point that the probate tax is a return to death duties — it is a form of coffin chasing. The Minister said that he wishes to broaden the existing narrow base for taxing inheritances. There are already heavy tax liabilities on death in the form of inheritance tax and these changes will cause hardship in many case where there are no liquid assets.
Inheritance tax is chargeable at a basic rate of 20 per cent rising to 40 per cent and, while the thresholds vary considerably from £11,450 for a non-related person to £170,000 for a son or daughter, it can be a severe tax burden on a family property. The Minister said that on a transfer: "a young farmer will be able to acquire over £420,000 worth of agricultural property from his father or mother before any tax liability arises". That is correct if one is referring to transfer only but if a property is transferred to a bachelor who dies suddenly inheritance tax will have to be paid. In this area the probate tax has not been given sufficient thought.
Although the probate tax is dressed up as being of benefit to PAYE workers, thousands of people — or their dependants — will be caught by it in years to come. In the past parents advocated thrift; setting aside moneys for education, health and many other good reasons. The probate tax goes against such thrift. The PAYE worker pays tax on everything earned and more tax on savings. On death he will have to pay a further 2 per cent probate tax. This is the wrong direction for our system of taxation.
Until now tax was not payable on many small estates, but probate tax will be payable on most estates. As pointed out in the explanatory memorandum to this Bill a dependent child with an income in excess of £3,877 per annum, for example, a married man with children living in the family home, will now become liable for probate tax.
This probate tax is a retrograde move and it not something with which the Government should proceed. The section that says the tax must be paid at the time of the filing of the inland revenue affidavit prior to the grant of probate being issued is something that the officials in the Department have obviously not explained fully to the Minister, otherwise he would not proceed with this section. I am certain that the Minister and Senator O'Kennedy are aware that on somebody's death no property can be interfered with, assets cannot be touched, all bank accounts are closed and that all dealings with the estate are suspended and frozen until the grant of probate is issued by the principal probate office. When the grant is issued the beneficiary in the estate can divide up the assets or deal with them in the form outlined by the deceased person. A person may have money in a bank account but the beneficiary or executor cannot deal with the assets without obtaining a loan from a bank to pay the tax due because it is a type of self-assessment. This is an iniquitous approach and unfair when there is a bereavement in a family. The penalty of 15 per cent interest is very severe, particularly when interest rates have now been reduced. Will the Minister again examine this situation?
I previously outlined a situation where business people would have to pay this tax and I thought that the Minister would have taken the points I raised into account. The Minister spoke about exemptions being granted to farmers which are double those granted to businesses. As job losses are so high the same exemption limits should apply equally to farmers and businesses. They could apply to a small business, a shop, a small trading company, a restaurant or a pub. Where people are employed or in a family business and where there are no liquid assets, there should be an increased exemption. Many people experience great difficulties in meeting inheritance tax payments. Where a business is trading and discharging its liabilities, taking a sizeable sum of money, £10,000 or £15,000 out of it, could be the difference between surviving and going to the wall. Too many businesses fail and we have a duty to see how we can keep them afloat. I ask the Minister to examine this matter because it is important.
I had hoped that my comments in the Seanad would have had some effect on the Minister and would perhaps have convinced him and his colleagues that furniture should be exempt. I note the Minister's comment that normal contents of a home have been exempted. If a revenue return is made on land, the Revenue Commissioners and the valuation office have power to inspect the farm or land. If a normal return is made for a dwelling house, who decides what is a "normal" amount of furniture? Will the Minister or the Revenue Commissioners send officials to inspect dwelling houses to see what is "normal"? This is a serious issue because many people have their houses and the contents of the house insured, because of the average clause in insurance contracts, many properties are insured at a higher level than the realistic market value of the property. If the Revenue Commissioners ask for the insurance policy on a house and furniture, they may say that if a person dies and has furniture worth £50,000 included on an insurance policy that person is liable for 2 per cent probate tax or they may give an allowance of £10,000 and then charge tax at 2 per cent on the remainder.
I will give the Minister a simple example and ask him to bear it in mind in regard to this probate tax. A retired national school teacher dies. He has been reasonably successful and, perhaps irrespective of whatever scheme this House has put in place to try to deprive him of his savings, he has succeeded in saving some money. He may have received a gratuity on retirement and would perhaps have an insurance policy and some money saved. He passes away at 70, those moneys are part of his estate and are taxable at 2 per cent. If his wife had predeceased him and his son was living in the house and earning in excess of £3,800, he is liable for probate tax on the estate. I do not think that is what the Minister had in mind and what was intended in this scheme.
Probate tax is particularly difficult as it arises at the sensitive time of a bereavement in a family. We are aware of the existing powers of the Revenue Commissioners; under section 181 of the Finance Act, 1992, the Revenue Commissioners have extensive powers and it worries me how these powers may be used in regard to probate tax. The Revenue Commissioners' powers are much more extensive than in Great Britain and in most other countries yet many of those available have not been utilised. If they had many of the scandals in the recent past would have been avoided. Year after year, additional powers are granted to the Revenue Commissioners, this House has never carefully considered the extent of these powers and the dangers that can occur in the future. Consideration should be given to their extent.
In spite of all these extensive powers, the Minister now sees fit to grant an amnesty to people who have already defrauded and cheated the system. I believe the proposal to grant this amnesty will be anathema to the ordinary PAYE worker. Most workers who are trapped in the PAYE system will be outraged when they realise that people who have cheated and defrauded the system will now get off, subject to a 15 per cent interest penalty. This proposal will bring Irish tax laws into disrepute at both national and international level. I am certain that many foreigners living and paying tax here must be wondering what sort of a country we have when they see people defrauding and cheating the system and getting away with it.
This type of amnesty is different from the 1989 amnesty under which all taxes due had to be paid although penalties were waived. In the current case, people who have defrauded and cheated are being allowed to avail of their ill-gotten gains subject to the payment of a 15 per cent penalty. It is my view that this amnesty will be proved to be unconstitutional because there cannot be one law for a law abiding citizen and another for the tax cheat and defrauder.
We are heading down a dangerous road and future taxation policy could be seriously damaged by such an approach. I would ask the Minister to be careful, I believe he is not totally in favour of the amnesty. However, irrespective of who is or is not in favour of it, we are heading into dangerous territory and I would ask the Minister to seriously examine the situation.
