I move:
Noting the buoyancy in the National Revenue, Seanad Éireann urges the Minister for Finance and the Government to pursue poli cies, over the next two budgets, that will ensure that everyone earning the national minimum wage will not be liable for income tax.
I welcome the Minister to the House. The motion principally deals with taxation, specifically the tax treatment of those on the national minimum wage. Before putting the case for the motion, however, we should welcome the fact that the national minimum wage was introduced on schedule at the start of this month. Progress on the implementation of the national minimum wage has been impressive by any standards.
The original commitment was set out in the joint programme for Government in June 1997. The Commission on the National Minimum Wage was established a few weeks later and it reported in less than a year. Less than three years since the Government took office, the Tánaiste has steered the necessary legislation through the Oireachtas and the national minimum wage is a reality for hundreds of thousands of people.
It is remarkable that the Labour Party, which was in Government from 1992 until 1997, never got round to the minimum wage. Deputies Quinn and Rabbitte were both Ministers in the Department of Enterprise, Trade and Employment, but no progress was made in their time on this very important social initiative. The introduction of the national minimum wage represents a huge step forward in the affairs of this State. It will directly benefit 160,000 of the lowest paid workers in society, those most in need of a boost from Government, those to whom one would think the previous Administration would have paid attention.
We hear many people talking about sharing the wealth of the State but this Government is doing something about it. By introducing the minimum wage, it is ensuring that those on the lowest rung of the employment ladder can secure a greater share of the prosperity we as a nation are now enjoying. Setting the minimum wage at the right level is not a simple matter. If the rate is too low the initiative will have no effect and if it is too high it will put people out of work. The objective is to set a reasonable floor below which earnings should not fall and the Government has got it right. The initial rate of £4.40 per hour will rise to £5 an hour, just under £200 per week, by the time the Government has completed its term of office.
There have been some complaints that the rate is set at too high a level. The main gripe from employers at present, however, concerns the difficulties they are experiencing in recruiting workers. No firm will go broke paying £4.40 an hour in the current era of economic success. Indeed, if there are jobs which are only sustainable below that level, we should question if they are the kinds of jobs we want as we move toward a high wage, high skills economy. Concerns have also been voiced about the policing of the national minimum wage. The issue should be dealt with in a spirit of fairness and maturity and people should accept the introduction of the national minimum wage as a measure designed to help the least well off.
The introduction of the national minimum wage is the first step in a two part process. The next step will be the exemption of the minimum wage from income tax. The progress made in tax reform over the last three budgets is spectacular by any standards, as are the results. The Minister for Finance and the Government are to be congratulated on that. The rate of corporation tax has been slashed and revenue has gone up; the rates of personal income tax have been slashed and revenue has gone up; the rate of capital gains tax has been slashed and revenue has gone up. A commentator in yesterday's edition of The Irish Times, writing about capital gains tax, stated, “In spite of all the evidence that the rich have managed to avoid or evade their fair share and every other kind of tax, McCreevy has made sure that one kind of tax they do pay has been massively reduced.” It seems to have escaped the notice of this commentator that under the present Government the yield from capital gains tax has increased massively. There are people, however, who would be happy to see the rate of capital taxes doubled, even if the revenue accruing was halved and everyone would be worse off.
It is no coincidence that virtually every major change in the tax system in the last 15 years has taken place while the Progressive Democrats Party has been in Government. During our two terms in Government nine points have been taken off the basic rate of income tax and 12 points taken off the top rate. We have seen the introduction of tax credits and massive increases in the value of tax allowances and bands, over 100,000 people on middle incomes removed from the top tax rate, and over 100,000 on modest incomes taken out of the tax net entirely. We are now well on target to deliver on the taxation commitments set out in the joint programme for Government. Two more budgets should see to that.
The resources are now available, however, to do much more. The extent to which these resources would accrue to the Exchequer was not even envisaged when the Government was formed. Many commentators are critical of the Government's fiscal policy in allocating these resources. We hear it said regularly that no Government has had so much money and so many resources available to it. Such comment fails to recognise that such budget surpluses are a direct result of tax cutting policies pursued by this Administration.
I am aware of the significant cost of this measure. It will cost approximately £1 billion in nominal terms to exempt the national minimum wage from income tax. I said "nominal terms" because the tax cuts contained in the past three budgets effectively have cost the Exchequer nothing. Income tax revenue is higher than it was when the Government took office. In terms of the revenue available to the Government, it is also possible to do what I propose, even with regard to last year's budget in terms of what the Minister allocated by way of tax reduction and tax credits.
I concede the cost of this measure is significant. It is the type of figure by which we used to measure our indebtedness in the 1980s. Times have changed since then. We are now running substantial budget surpluses on the current account due to the prudential policies followed by the Government. Those surpluses are of a magnitude that allows us to contemplate tax reform and tax reduction on a scale that was not imaginable previously. Because of the buoyancy we have experienced, we need a leap of imagination well beyond that to which we have been accustomed regarding the allocation of those resources. From what was contained in the past few budgets, I am aware the Minister has that type of imagination and can contemplate those types of leaps.
If we are prepared to think big, we can deliver big. The resources exist to exempt those earning the minimum wage from income tax. The objective can be attained within the lifetime of the Government. Provided the political will exists to do it, there is no reason the minimum wage cannot be exempted from tax over the course of the next two budgets. If this Administration can deliver that, it will have delivered one of the most significant political initiatives in the history of this State.
Exempting the minimum wage from income tax would have numerous advantages. It would have an impact on the labour market. At a time when employers are finding it increasingly difficult to recruit workers, a tax free minimum wage would serve as a major attraction for people to enter the workforce. That attraction would not be confined to those on or near the minimum wage, as all taxpayers would benefit from the substantial increases in basic allowances required to facilitate exemption.
Such a measure would also have an impact on social partnership and social cohesion. We are now in our fifth partnership arrangement. A major tax initiative on the minimum wage coming to fruition in about two years' time would smooth the way for a sixth agreement and help us to maintain our impressive and enviable record of attaining rapid economic growth while still keeping inflation under control.
There is also a social justice element attached to the introduction of this measure. The rationale for introducing the national minimum wage is to enable those on very modest incomes to enjoy a greater share of the national cake. Making the minimum wage tax free would represent further substantial progress in the same direction.
When this coalition took office in 1997 it would have seemed fanciful in the extreme if the new Administration started talking about a tax free minimum wage. That relates to what I said about the undreamt of resources that are now available. At that time there was not a minimum wage nor had preparatory work been done on the issue by the outgoing Administration. The Minister for Enterprise, Trade and Employment, Deputy Harney, had to start from scratch when she took office. Even if there had been a minimum wage or some semblance of the preparation for one, the structure of the tax system would have made it virtually impossible to take the type of initiative that is contemplated in this motion.
The working people of this country were heavily taxed on modest incomes in the dark days of 1997. A single person entered the tax net after earning £70 a week. It is difficult to believe that two left wing parties were prepared to preside over that type of situation, but they were because they had no real commitment to tax reduction or tax reform. Their performance is in stark contrast to the major progress that has been made over the past three budgets.
The introduction of tax credits in the 1999 budget gave effect to one of the most important political commitments in the Progressive Democrats' election manifesto. The introduction of the tax credits represented one of the most significant changes ever made to the structure of our tax system. That change provided us with a mechanism for targeting the benefit of tax reduction measures at lower paid workers. Given it is such a good idea, I wonder why the previous Administration never got around to doing it. Talking about tax reform is one thing, but delivering it is a different thing. Building on tax credits, we have created a situation where a single person does not enter the tax net until his or her income reaches £110 a week and then he or she pays tax at 22%, not 26%. With tax credits it is realistic to aspire to raising the tax threshold to around £170 a week, the level at which the minimum wage has been introduced.
The social and economic achievements of the Government are remarkable by any standard. We have increased the number of people in employment by almost 270,000. We have reduced the level of unemployment by 70,000, long-term unemployment by 50,000 and are well on course to eliminate unemployment within the lifetime of the present Administration. These are major achievements by any standard.
The reduction in the level of long-term unemployment is particularly welcome. Long-term unemployment is one of the fundamental causes of deep-seated poverty in our society. It is a problem which for a long time we thought we would never solve and it is great that we have now put that type of thinking behind us. It would be in keeping with this record of outstanding achievement in the social and economic area if, now that we have succeeded in introducing the minimum wage, we were able to exempt it from income tax.
Some members of the Opposition have been tentatively formulating the bones of a tax policy for the next general election. I have heard a few Members put forward a proposal of a tax free minimum wage as the centrepiece of their policies. My advice to them is to go back to the draw ing board and think again because I can assure them that will be a reality by the time the next general election is held in 2002.