Amendment No. 2 is in the name of Deputy Rabbitte. Deputy Yates raised a question with regard to the grouping of amendments. The list of the amendment groupings has been circulated to Deputies. Amendments Nos. 3, 4, 12 and 13 are related. It is proposed, therefore, to take amendments Nos. 2, 3, 4, 12 and 13 together. Is that agreed? Agreed.
SECTION 1.
I move amendment No. 2:
In page 10, paragraph (a) (i), line 21, to delete "‘£7,200' and ‘£3,600"' and substitute "'$10,000' and ‘£5,000"'.
This amendment seeks to tackle the question of tax thresholds or the exemption level that one is permitted before being liable for tax. While nobody argued that the first amendment constituted any major tax reform I would argue that this amendment constitutes very real tax reform in any approach one wishes to take to the term. In the amendment we are seeking to establish the rate at which a single person becomes liable for tax. It is not acceptable that a single person should theoretically become liable to pay income tax on an income of less than £70 per week. In other words, I seek to have the Minister's figure of £3,600 increased to a figure of £5,000.
I have tabled similar amendments in previous years. The sum of £5,000 is not a figure off the top of one's head, it is just less than £100 per week. Does anybody seriously argue that it is somehow unreasonable to suggest that an income of less than £100 a week is an unreasonable threshold before one is sucked into the tax net? I cannot understand how people on low incomes manage to survive. By designing a tax code, such as we have, we are ensuring that some people are maintained in destitution because low tax thresholds, by definition, mean that people on low incomes become liable for tax and as a result are caught in the poverty trap. That is the vicious circle. There are hundreds of thousands of people in the economy in service jobs, general operatives, in sections of the building industry, in grocery and allied trades, etc. who, by definition, are on very low incomes and liable for income tax. As a result poverty is not a phenomenon of social welfare recipients only. Poverty is just as much a phenomenon of people on low pay.
If I recall correctly the Minister told me last year that this amendment would cost £100 million for the remainder of that fiscal year. I would be interested to know whether that cost included subtraction of the cost to the State of the number of families who qualify for family income supplement because the State officially acknowledges that people with families cannot exist on the very low incomes they are being paid at present. It will emerge, notwithstanding the similarity of amendments at this stage, as we progress through Committee Stage that not all of us are agreed on what constitutes tax reform; it means different things to different people. I would urge strongly that up to now it has meant tax reductions for people on higher incomes relatively speaking. If we are to have genuine tax reform it must start at the bottom and we must take people who are surviving on low incomes out of the tax net.
This is the first year, that I can recall, that the Minister did not give a figure in his budget speech for the number of people who have been taken out of the tax net. I have consistently argued that it is an artificial figure.
It is.
It is an artificial figure for reasons of fiscal drag and for people who are due to get their 3 per cent under the Programme for Economic and Social Progress. As soon as the ink is dry on the Finance Bill the people are once again back into the tax net when the particular phasing of the Programme for Economic and Social Progress falls due.
There has been a great deal of discussion in the House and outside about the tax system acting as a positive disincentive to work. Figures have been adduced in the House on a number of occasions to give specific examples of where it is contended that it is better for someone to remain on social welfare than to enter the workforce. We are discussing precisely the area where that disincentive operates. If we tackle the question of tax exemption levels we will remove a good deal of that disincentive which undoubtedly exists. Where somebody is in receipt of low income and is liable to tax they are compared to a person on social welfare who, in addition to the basic level of social welfare, also qualifies for various supplemental payments. For example, they qualify for fuel vouchers, medical cards and so on. They are offered a job at what, admittedly, is low pay. However, that is a fact of life in this economy. As a result they lose their medical card, their fuel vouchers and other supplemental payments. Their last situation is now worse than their first. It is in the interests of the economy. It is in the interests also of getting in more tax revenue to put more people to work because it is becoming almost impossible — I concede that — to balance the books in this economy when we have more than 300,000 people unemployed and a great deal more on different kinds of social welfare payments. An intolerable burden is placed on the backs of the people who pay tax to support that system. Our priority should be to put some of these people back to work, albeit on low incomes. If we could do that through the tax system much of the disincentive to work would be removed. I commend this amendment to the House.
I note the amounts suggested in these amendments. Relief of £37.6 million was given in the budget, 13,500 taxpayers were removed from the tax net and a further 18,000 from the higher marginal rate.
Amendments like this have a cost factor and there will be a substantial cost factor in regard to it which would have to be made up elsewhere.
There is a cost factor to not doing it.
The Minister for Finance introduced his budget at a time when the market was very unstable. These amendments would probably cost £100 million in a full year. If the Opposition want to do that, and at the same time keep finances in line and pay our way, then they must name the areas where they want a reduction in expenditure to meet the cost. If these allowances are granted there will be a shortfall on the expenditure side, and we must finance the national debt and meet the demands of the various Departments.
My amendments Nos. 2 and 4 are identical to those of Deputy Rabbitte. Of all the income tax amendments, these are the most important because they target the relief directly at the low paid. An increase in the general allowance is worth more, pro rata, to the well off. Because they are paying tax at 48p in the pound a general tax allowance is worth more to them than to people paying 27p in the pound. The amendments target all the relief to take the low paid worker out of the tax net.
Deputy Connolly said that 13,500 taxpayers had been removed from the tax net. We have to nail that immediately, unless Deputy Connolly believes the propoganda emanating from his side of the House. Last year the exemption limit was £3,500 and it has been increased by £100 to £3,600 and pro rata for married couples. That works out at about £2 per week. It is not unreasonable to assume that many people will get a pay increase of the order of £2 per week so, as those 13,500 taxpayers move out of the tax net, they will move back in when they get a pay increase. The notion that people are actually exempt from income tax is, therefore, illusory. We are dealing with the lowest of low paid workers such as the women who take up part-time jobs because their husbands are unemployed or on invalidity pensions. We are dealing with young people who left school early and are getting their first job, perhaps as petrol pump attendants. The Government wants to tax those people. What sort of message does that send to young people and others about the work ethic?
Deputy Rabbitte is correct. All assessments for rent, for medical cards and so many things are based on gross income. They disregard what one gets into one's hand. So many people are assessed as having an income that they do not have because of the impact of the tax code on low paid workers.
I am shocked to hear in regard to this amendment, providing that one should not pay income tax on amounts up to £100 and which would cost £100 million, the Labour Party try to justify this level of taxation on that level of pay. It strikes me as quite extraordinary. Ordinary workers do not separate PAYE and PRSI. They look at their gross pay and their net pay. PRSI deductions must be factored in and, for some unfortunate people further up the scale, the 1 per cent levy is added. We now have a youth levy of 1 per cent, a health levy of 1.25 per cent and a PRSI levy of 5.5 per cent.
One can go from earning about £70 per week and paying no tax to paying tax at 27 per cent and 8 per cent on top of that. Therefore, one is paying an effective rate of 35 per cent of 36 per cent on the first £1 over that. In other countries there is a lower rate; one would start at 15 per cent and then move up to a higher figure. This has created enormous poverty traps.
Let us be honest and admit that our tax system is totally unworkable. There is huge collusion between employer and employees, and there is evasion.
Workers at this rate of pay are not prepared to pay this level of tax and it is all a cash business. The casual employment sector here is thriving simply because the rates of tax on low levels of income are untenable. The revenue audits show that this clearly is the case in regard to casual work, for example, in the tourism area those doing unskilled work such as helping in hotels, in pubs, amusement arcades and so on.
These levels of tax are unsustainable for people in short term seasonable work. If the Minister wants to make a lasting impression he should exclude low paid workers from the tax net. The Minister included provisions for more generous mortgage relief. If difficult choices must be made, we should consider the less well off. If the Minister wants to make a meaningful contribution towards restoring the incentive to work and assisting employers in creating further casual part-time and seasonal work in the white economy he should exclude those earning £100 per week from income tax. They would still have to pay their PRSI contributions. Could any of us live on £100 per week? Certainly, a young person could not live independently of his or her parents and pay rent on £100 per week. If people go to a community welfare officer to seek rent relief they will be asked if they are working and if they are they will not receive any assistance, irrespective of their income. The low paid worker is forgotten as far as the Government is concerned. The increase of £2 per week is pathetic. The Minister's first priortiy in any tax relief measures should be to assist low paid workers.
I tabled amendment No. 11 which appears to have been forgotten in regard to amendment groupings. However, I presume it is grouped with amendments Nos. 2, 3, 4, 12 and 13 because it deals with exemption limits. In relation to the issue of taxation and low paid workers, I agree with the views of Deputies on this side of the House. I have not tabled amendments in that regard for a particular reason which has nothing to do with Deputy Connolly's point in relation to budget costs because all amendments involve some cost which must be balanced in deciding priorities.
The process of how low paid workers enter the tax net and leave the welfare system is crucial. On behalf of the Progressive Democrats I hope that before next year's budget a greater effort will be made to integrate the tax and social welfare systems than has been the case up to now or evident in this year's budget. I recall making the point on budget day that the process of using the exemption limits to take people out of the tax net is an illusion because people will discover that even a £2 per week increase may put them back in the tax net. Far from taking people out of the tax net who should never have been paying tax in the first place because their incomes are so low, we are creating an illusion that we are removing them. In effect, those people are being doubly counted if we take one year with another and trebly counted if we take two consecutive years. The difficulty is that the exemption limits are part of a package which may include fuel vouchers, local authority rent allowances, medical cards, social welfare payments and family income supplement which has an enormous withdrawal rate if one hits a certain level of income. Taken in that context, the Department of Finance needs to do some serious thinking about the question of exemption limits, not alone because we want, in theory and in practice, to take the low paid out of the tax net, but when the present exemption system is married to the family income supplement, the local authority subsidy system and the medical card system, there is a disincentive for people who might otherwise take up low paid employemnt. We are locking them in a poverty trap. I agree with every point made by Deputies in that regard. We need to go back to the drawing board in regard to exemption limits.
My amendment is modest. I am aware that the practice is to go through the ritual of moving amendments which are not taken on board. However, I would ask the Minister to consider this amendment which proposes a change explaining how the current system operates. People above the exemption limit and go on to the marginal relief system have come to my clinic to have the system clarified. When they earn £100 more than the limit they are taxed at 48 per cent. I find it difficult to explain to such people why that is the case, I tell them that the marginal relief is defined in law at 48 per cent. It is difficult to explain to people earning £75 per week why they are paying tax at 48 per cent. The system should be changed to reduce the first rate to 27 per cent. I do not disagree with any of the points made on this side of the House about taking low paid workers out of the tax net. The interaction of the current exemption limit system, the family income supplement system and so on is confusing in terms of the dependency process. In examining the tax and social welfare systems, this should be the first priority because it is through this system people are brought into the tax net. It is wrong to bring people into that tax net at such low levels of income and, combined with the other welfare and family income supplement systems, it is a disaster in terms of locking people into a position of welfare dependency. Therefore, I urge the Minister to go back to a blank sheet in regard to the system, to examine the question of taking people on low pay out of the tax net and creating a genuine incentive for people to take up productive low paid employment so that they will not have to choose between welfare or idleness in terms of which makes more economic sense for themselves and their families.
I support this amendment on the basis of realism. Many people working in companies in Limerick are earning £8,000 to £12,000 per year and employers have told me they find it difficult to recruit male employees, particularly married men. The Minister has frequently been asked on Question Time about the difference between the take-home pay of a person earning £10,000 or £12,000 a year and someone in receipt of social welfare. We are all aware that that differential is getting narrower every year in terms of the incentives — if I may use that word — offered by the social welfare system. A medical card may be valued at £500 per year and people in receipt of social welfare are entitled to many other concessions. However, it is no longer conducive for many married men with a family to work here, which is regrettable. How can one justify encouraging a married man with three children to work 40 hours a week for an extra £10, £15 or £20 per week if he will lose the concessions he would otherwise have received on social welfare? This amendment would create an incentive for people in low paid employment to continue to work. It is a positive amendment and I would like the Minister to accept it.
Research has been carried out in regard to the take-up of the family income supplement scheme. There are many people who are eligible but who have not taken up this scheme. A commission researched and produced a booklet on the scheme last year. It revealed that the family income supplement scheme has not been taken up by many people. I ask Deputies to support this amendment to change our tax system and to provide an incentive for people to work.
I support the amendment, which has a number of important aspects. The general aim of the budget was to get people back to work and create jobs but the budget does not provide for that. The problem of low pay is more manifest in rural than in urban areas. A person beginning work who comes from a rural area with limited transport services will require a car to get to his or her place of employment. How can a young person run a car on such a low income? It is possible for young people living in urban areas with bus services to get to their place of employment. Good bus services are not available in rural areas and in many cases young people go on the dole, to which they become accustomed. To move people from the dole into the working environment is practically impossible because of the added benefits available to those people on the dole. Indeed, many people who are on the dole get married and they receive added benefits not available to people in employment. It is unfair to say young people are not anxious to work. Most young people are ambitious to have jobs, get on in life, provide homes, marry and raise families. However, they are not being given the encouragement to do this because they are not being allowed start their working life with an adequate income that will provide them with a standard of living comparable to that of people in receipt of social welfare benefits. By not addressing this problem we are missing the point in our efforts to solve this problem. I support this amendment.
I am sure no Deputy would disagree with the principle of what has been said by Opposition Deputies in this area. I welcome the debate because it has moved away from the objective of the former political party in Government, the Progressive Democrats, whose obsession, when in Government was to index allowances for taxpayers at the higher rate, while they forgot the penalty placed on lower income taxpayers.
The Deputy should get off the fence.
It is a welcome change that people are now concerned about lower paid workers. There is a commitment in the Programme for Government that this Government will cater for those people. There is a major case to be made for those who are very low paid.
Not this year.
Deputy Ferris without interruption.
The Government was formed and the Finance Bill had to be introduced in difficult circumstances.
We have been told that the present economic circumstances are the most favourable for over a decade.
The Deputy's party was not particularly helpful in this area when it had access to the books. There is a Government commitment to adddress an anomaly where people on loweer incomes are subject to tax. It is difficult to understand why people in the exemption categories earning low income are allowed an exemption which is twice the normal level of taxation. Last week at my clinics I met old age pensioners who are in receipt of small county council pensions in addition to their social welfare pension and they were being penalised because they were on table A, the lower rate of tax. They were asking to be put on table B to ensure that some level of their income would be tax free. At the end of the year people on tax table B on the exemption threshold have found that they are better off. It is difficult to understand that a person whose income is taxable at 26 per cent would pay less tax on the higher rate at the end of the year. I ask the Minister to examine the area of exemption thresholds as this is one area which could be loosened in a system that has become bureaucratic particularly in respect of taxation and the low paid.
It is all very well to say we should exempt various categories from tax, but the problem is to obtain the income to run services. People cannot afford to pay for those services though some people are in privileged positions and they do not need to worry unduly about whether tax is at this threshold or another. However, there is an obligation on Government to provide services for people, for example, hospital services, social welfare services, and they must be paid for.
We are being lectured by people in this House about fiscal rectitude, the need for living within the Maastricht guidelines and they say that the Labour Party, in particular, are a party of taxers and spenders. Every week in the other House, they introduce resolutions which call for expenditure under every heading. Tonight and tomorrow Opposition Deputies will call for more money to be spent on all areas and when we try to be realistic and provide for people in disadvantaged areas to benefit from increased spending we are criticised that the amount being provided is not enough. At budget time and on public television Opposition Deputies are critical that we spend too much but at least we give priority to people in the community for whom taxpayers money must be spent to provide services, for example, in education, social welfare, health etc., and, therefore, there is a balance. I agree with the arguments that the thresholds are too low.
In accordance with the Programme for Government I ask the Minister to ensure this area is given serious consideration. I see nothing wrong with debating amendments in this way. Similar amendments were rejected last year by the Progressive Democrats in Government but I presume they will now vote on these amendments or support them — that is what democracy is about. However, we must be realistic and realise that there is a cost factor involved.
If the Deputy follows the logic of his argument, that is what the Labour Party did last year.
We will do what is appropriate and we will be constructive. We realise that there are people in lower paid categories and their positions must be considered. This is provided for in the Programme for Government. I do not expect our programme to be operational within weeks of going into Government. However, we will work to achieve the objectives in the programme. I remind my colleagues who are heckling me that they have no influence in the creation of next year's budget and I am thankful for that.
Deputy Ferris is riding two horses at the one time.
Hear, hear.
It is what is known as a split personality.
Deputy Connaughton without interruption even from his own side.
I would like to make some points in support of the amendment. Everyone will agree that we should tilt the balance towards people in employment and that is something we have not been able to do here. Unemployment is a cancer that has grown not just in the last few years but in the last 15 to 20 years. It is perceived that it does not pay to work. I have heard that said many times in the ten to 12 years I have been in politics, the dice is loaded against people who get up on a Monday morning and go to work. On the one hand people in employment are revolting and on the other, people who are on the dole long term are revolting. Those people have no hope of a job because they may be considered to be living in the wrong place.
Whatever we may say about those on social welfare, not too many people here today would live on the amount of money social welfare recipients are required to live on. A man with a wife and three children must live on £136 per week. People in this House could spend that amount of money on an evening meal. There is anger amongst the general public who must work for a living but who are taxed to the hilt. The work ethic no longer exists. On the other hand, we have people for whom the State provides the only assistance available to them. The problem lies in between those two areas. There is a certain type of individual who, for selfish reasons, can cream off the various social welfare entitlements available without the possibility of being discovered.
I will return to the "Golden Circle" in a moment. This problem in Irish life started at the top. When one talks about the Finance Bill it must be assumed that everyone will be required to pay their fair share. Any objective observer examining Irish life in the past two or three years would say that it is not what you know that matters but who you know. Whether one is selling flats, Greencore shares or whatever, if it transpires that one is in the right circle at the right time one will do well and if not one is at the wrong end of the rope. We will never build a true community on that basis. Over the next few years I hope that a certain degree of fairness will be introduced to the system so that even if people are not as well off as they would like they will know that the system is fair in that they will get the same opportunities as everyone else. We are a far cry from that. Through these amendments we are trying to introduce a degree of fairness to the system. I hope this debate today will go some small way towards that.
Because of the way politics works I am aware that those who were most vociferous in Opposition are playing a different tune at present. I was amused by Deputy Ferris's contribution because only a few short years ago, in both Houses of the Oireachtas, he made a strong case for what we are trying to achieve today. He continues to make the same case despite the fact that his party is in Government.
I am a progressive democrat.
I can only assume that the Deputy wants to have the best of both worlds, which is a difficult objective.
The Deputy has the same problem.
Many people are of the opinion that Deputy Ferris has a certain influence at this level but it would appear that the Minister for Finance and his colleagues have won this round in that they have decided what is true Fianna Fáil policy. I see no change arising from the Deputy's involvement but I hope he is more successful when the next Finance Bill is introduced.
I will try to be brief. We are taking amendments Nos. 2, 3, 4, 12 and 13 together. We will return to Deputy Cox's amendment No. 11 later.
Deputy Rabbitte and Deputy Yates both propose to increase the limits asset out in the Bill by £1,400 for a single widowed person and £2,800 for married couples. The cost of this at present is £53 million in 1993, £95.6 million in a full year and would exempt approximately 108,840 persons fron tax liability. Section 1 of the Bill already provides for the increase of £100 for single and widowed persons and £200 for married couples. In addition, in recognition of the difficulties faced by low income families, the special child allowance which operates in conjunction with the exemption limits has been already increased by £50 per child and now stands at £350 per child for the first two children and £550 per child thereafter. The child benefit element is intended to target relief at the group which has been identified and which a number of Deputies have referred to as being particularly in need of State support, namely, the low income married couples with large familes. These benfits, together with the increases in the basic exemption limits, will go a long way towards alleviating the tax burden on many of these low income families.
The increases provided for in section 1 of the Bill and the associated marginal relief will cost the Exchequer £5.4 million for this year and £10.6 million in a full year and will exempt approximately 13,200 persons. This answers the question put by Deputy Rabbitte. A total of 12,000 children will be exempt from liability to income tax and a further 14,200 taxpayers and 14,700 children will have reduced liability because of the operation of the marginal relief as a consequence of the increase in the exemption limit.
As Deputy Connolly, Deputy Ferris and others have said, the increases are what can be afforded at this time and maintain the trend of increases in exemption limits which have been implemented in recent years. I join with those in this House who believe that the exemption limit is the means whereby we can take people out of the tax net. I replied to questions put down by Deputy Cox in the Dáil recently concerning the poverty trap and the marginal relief and in those replies I went to a great deal of trouble to outline some of the arguments. I could have answered those questions in a different way but I wanted to indicate the difficulties in rergard to this. Deputy Cox has eloquently explained some of the facts concerning those matters and I do not disagree with his interpretation. However, the poverty trap, which is a phrase that has been bandied around a great deal outside this House and not by Members of this House, refers to the position where net income declines as gross income increases. This can come about as a result of the application of taxation on the increased pay simultaneously with the withdrawal of benefits such as family income supplement, differential rent, medical card and so on.
It is important to bear in mind that benefits are generally reviewed annually and once awarded will not be withdrawn for 12 months. In those circumstances the theoretical reduction in net pay to which I have referred may never happen. That takes place in many individual cases. In fact, various estimates of the potential occurrence of the poverty trap put the total numbers affected — and I carried out this examination recently in reply to Deputy Cox's questions — at between 1,500 and 6,000 people. That is 1,500 and 6,000 too many but those are the figures we are dealing with. The Government is totally committed to improving the position of the low paid and the substantial increases in recent years in the net pay of people exposed to the poverty trap bear witness to that commitment by successive Governments since 1987.
Furthermore, this is the first Government to appoint a Minister of State with specific responsibility for the co-ordination of the tax and social welfare systems referred to by Deputy Yates and Deputy Rabbitte. Until we achieve the co-ordination of the tax and social welfare systems we will continue to experience major difficulties. Deputy Cox and myself debated this issue at some length on another occasion and both of us came to the same conclusion so I will not argue a diffrent line here today.
The Programme for Government promises a detailed study into the integration of the tax and social welfare systems. Deputy Joan Burton, in her few months as Minister of State, has carried out a great deal of work in this area and will shortly proceed with a detailed study, if it has not already commenced. I am aware she is examining precisely the type of areas which Deputy Yates dealt with concerning people who reach the thresholds.
I do not think we can do any more in this regard. The study may point out ways in which we can deal with the poverty trap, the tax wedge and other issues. Apart from that, the best way of taking people out of the trap is through the exemption limit. Deputies should not forget that many thousands of low paid workers have benefited greatly from the reduction in the standard rate of tax over the past number of years from 35 per cent to 27 per cent. Since the 1988 budget, the general exemption limit has risen by 31 per cent for single people and a married couple with no children and by 64 per cent for a married couple with four children. This was done during a period when inflation was 17 per cent. My argument proves to the House that successive Governments since 1987 have been aware of this matter. However, I am not saying that all the problems in this area have been resolved. This is why we are trying to integrate the two systems.
Deputy Rabbitte wanted to know the number of people who will be exempt after this year's budget. Under the general exemptions, 52,900 people were exempt; under the child addition, 17,200 people were exempt, under the 65 year age exemption 17,600 people were exempt and under the 75 year age exemption, 5,600 people were exempt, giving a total of 93,900. He also asked how many people were entitled to marginal relief after the budget. More than 106,000 will be entitled to this relief. I will not go through the other figures I have unless the Deputy wishes me.
The Minister referred to the poverty trap and the scenario which gives rise to this — net pay decreases while gross pay increases. If I understood him correctly, he said that supplemental benefits, for example, a medical card, once awarded should be left in place for 12 months. That is not my experience, and I do not think it is the experience of many Deputies. In law the onus is on the recipient to inform the relevant authority — in the case of a medical card, the health board — if their wage, salary or employment status has changed in any way, that they have an increased wage, and their eligibility for the benefit should be reviewed. This is not my experience of how the system operates. I should like the Minister to clarify that point.
On the question of poverty traps, the Minister, in addition to examining the threshold limits, should consider assessing eligibility to supplemental benefits of every kind on net pay, as distinct from gross pay. There is a lack of incentive to take up low paid work and this is one of the areas of greatest contention. The threatened loss of a medical card, on which so much more than medical services now hinge, is an enormous disincentive to take up low paid work. Urgent consideration needs to be given to the present system of assessment of eligibility to supplemental benefits. Some reference has recently been made to this issue but we have seen no changes in effect on the ground. In my health board area a medical card and rent allowance are not given to anyone at work. This means that agricultural workers and low paid manufacturing workers with a take-home of £125-£130 a week are debarred from receiving these benefits while a social welfare recipient with four or five children who receive £130-£140 per week can receive these benefits.
The Minister needs to introduce urgently a system under which supplemental benefits of every kind are assessed on net pay, the equivalent of the disposable income of a social welfare recipient. If this is not done there will not be any incentive to people to take up low paid jobs. This would lead to a huge change in attitude among people. One cannot expect people to take on a low paid job which will leave them worse off than if they were on social welfare. They cannot put their families at such a disadvantage. It is not realistic to expect people to do this — none of us would do it — and we cannot any longer peddle the myth that people are better off in low paid jobs than on social welfare. Even if he does no accept these amendments — I am not very optimistic that he will take them on board; we discuss these matters every year in the debate on Finance Bills — the Minister should consider introducing a system under which eligibility for supplemental benefits is decided on net pay. This would go some way towards eliminating poverty traps for people on low pay.
I appreciate that we are working to a time limit and we have to deal with some other important amendments in regard to income tax. Therefore, I will be very brief. This group of amendments is very important as it gets to the heart of the inequity in the tax code for people caught in the poverty trap. I take the point made by the Minister that the commission examining the interaction of the social welfare and tax codes will be instructive for all of us. Whatever its findings, hopefully its recommendations will be acted upon. I am not exactly a stranger as to how this has emerged in the Programme for Government so I support it.
We are dealing here with priorities. We are obliged to the Minister's officials for giving us the technical definition of the "poverty trap", which is that net income declines as gross income increases. While that is fascinating, many of my constituents do not see it that way. The poverty trap for them is whether they will have enough food to put on the table the day before pay day, when they cannot pay their rent or a family crisis is provoked and the family has to go without food. Deputy Connaughton asked a very good question: how do we think — no matter how far we might like to think we are all removed from this — we could live on these kinds of low incomes? As Deputy Doyle said, the loss of a medical card can make the difference between one's children going to school in the morning or otherwise. If a family loses its medical card it has to pay for medicines, visits to the doctor and so on.
This is critically important. I do not wish to go on at length but I feel strongly enough about this to call a vote on my amendment. We will deal later with other important amendments, but reform of our tax code should start by taking people on low incomes out of the tax net. Deputy Connolly asked what all this would cost. The Minister has given us an array of figures as to the cost of changing various elements. I wish to ask Deputy Connolly what will be the cost of not changing the system. How many people are operating in the black economy because they become liable for tax at such a low level of wages? As Deputy Yates said, here is collusion between employers and workers because of that phenomenon. How many people would be brought back into the tax net if this anomaly was corrected? How much does it cost the State in the provision of social services for the various illnesses and other phenomena that research has established are due primarily to poverty, low pay and deprivation? These impose a cost on the health boards and other social services. Indeed, illness is also a major cost to both the State and industry. A number of factors need to be taken into account in balancing the scales other than the Minister simply saying, "If I were to concede this it would cost £X million in this fiscal year and £X plus £Y million in a full year". There are other factors involved. This is a fundamental question of justice in the tax code. I wish to press my amendment to a vote.
I seek the guidance of the Chair. I am quite happy for Deputy Rabbitte to press his amendment. Can I withdraw my amendments Nos. 3 and 4 and resubmit them on Report Stage? This will mean that I can have my cake and eat it.
I am amazed at the points made by Deputies on the Government side. It seems that we are in total agreement on this matter, which is interesting. Since this Government was formed Deputy Ferris has amused me. Even when Ministers are lowering their heads on certain aspects of Government policy Deputy Ferris steps into the breach every time.
Why not?
Even when the engines are reversed Deputy Ferris steps into the breach. Perhaps he would have a word with some of his Labour ministerial colleagues because I note in the last few weeks that expenditure in the Department of Health is hurtling out of control and that his colleague in the Department of Arts, Culture and the Gaeltacht——
Does the Deputy object to that?
Of course I object to it. I want to see order brought to public expenditure.
Will the Deputy be looking for more of that tonight?
Deputy Yates should be allowed to continue without interruption.
The result of the failure to control public expenditure is that people on £70, £80 and £90 per week must pay PAYE, which is wholly unjust. If we win an Oscar we must have a film board, if we win the Eurovision Song Contest a Supplementary Estimate must be introduced and if GPA is in trouble and all the shareholders walk away, the Labour Party will insist on £16 million equity for that company. If the Deputy had a word with his colleagues as opposed to trying, as Deputy Connaughton said, to ride every horse——
What is the Deputy now trying to do?
We should try to control public expenditure and ensure that the low paid do not have to carry such a great burden.
The last of the big spenders.
Income tax is a double-edged sword. On the one hand there is the employee and on the other the employer who, on a monthly basis, has to return PAYE and PRSI. Marginal businesses and a low level of economic activity and turnover result in low paid jobs.
Perhaps employers are just too greedy.
That could be the case. To take the example of public houses, supermarkets and so on which open seven days a week, it is not possible to get people to work more than 40 or 50 hours. I have no doubt that the level of compliance would increase if more order and commonsense was brought to these exemption levels.
The Deputy is suggesting there is non-compliance. Is he defending the black economy?
I have already said that the level of compliance for low paid workers is unsatisfactory, I make no bones about that.
Whose fault is that?
It is the Deputy's fault for the simple reason that he has made no attempt to improve the lot of low paid workers in intolerable positions in terms of tax.
Deputy Yates has not read——
Deputy Ferris should allow Deputy Yates to continue without interruption.
I welcome Deputy Ferris's interruptions because it is important that he understands the difficulties of low paid people. I dispute the Minister's comments on annualised benefits. People are explicitly told that if there is any change in their circumstances, such as an increase in rent, they must immediately notify the relevant authority. In relation to rent allowance and medical cards, these benefits are changed automatically and are not annualised. I will withdraw amendments Nos. 3 and 4 and resubmit them on Report Stage.
My reference to the annual review related to family income supplement. From experience in my constituency, I know that the Eastern Health Board gives a medical card for a year and sets a date for review — I do not know whether the position is similar in other areas.
The position is similar in the South Eastern Health Board area where the Deputies opposite live.
The onus is on the recipient to notify a change in circumstances.
A review date is set.
Deputy Doyle referred to the experience in her constituency; my experience is——
The onus is on the recipient to notify the health board of a change in circumstances.
Yes, but there is an exception in the case of family income supplement.
I accept that, but the medical card is the main area of concern.
No, it does not relate to medical cards.
In conclusion — I know we are anxious to deal with other amendments — I restate that the first tax reform objective in the Programme for Government is to take low paid families out of the tax net. As I said, this is the first Government to appoint a Minister of State with responsibility for examining issues such as thresholds, poverty traps and tax rates. I look forward to such an examination, which I believe will be completed before we prepare the 1994 budget.
Is Deputy Rabbitte pressing his amendment?
Yes.
Amendment put and declared lost.
Will there be one vote at the end of the discussion?
Yes.
If a vote was to take place now it would bring a sudden end to the largest majority Government in the history of the State.
The answer to that is very simple: by an Order of the House of 20 May voting times have been set with the full agreement of all party Whips. The vote will be taken at 1.30 p.m.
Amendments Nos. 3 and 4 not moved.
We now come to amendment No. 5 in the name of Deputy Rabbitte. Amendment No. 6 is related and it is proposed, by agreement, that Nos. 5 and 6 are taken together.
I move amendment No. 5:
In page 10, paragraph (a) (ii), line 26, to delete "£350" and substitute "£500".
This amendment relates to the allowance for the first two children and thereafter for the third child. The Minister proposes to increase the allowance for the first two children from £300 to £350 and thereafter for the third child, to £550. I do not wish to take up the time of the House on this matter except to say that the thrust of this amendment is similar to that of the last one. Anybody who knows anything about children knows that £350 is a very small sum on which to rear a child. The cost of feeding and clothing a child and so on is very poorly compensated for by the Minister's provision and I am merely trying to set a more realistic figure. For people who are not in the PAYE trap, for example, the self-employed, there are various ruses open to them. In a country that values children and the family so much — I am not inviting Deputy Ferris to get up on the stirrups again at the battle of Aughrim and get his head shot off——
I have children too.
I am quite sure the Deputy agrees with me and will support this amendment.
Amendment No. 23 in my name takes a different approach from this amendment. Instead of increasing the child exemption allowances it proposes to convert them into tax free allowances. It is utterly indefensible that under the present system for each child allowance is increased while you do not get one penny by way of a basic allowance. For people with five or more children there is an enormous problem because the cost of rearing children, particularly at second level education and higher, is enormous. One of the clearest poverty traps is the lack of a basic child allowance. I do not believe child benefit solves this problem. Larger families suffer greatest in terms of poverty traps. While I support Deputy Rabbitte's move in this regard, the key issue is to convert the exemption allowances for children into a basic tax free allowance, which was the case up to recent years.
We hear much rhetoric about the family and children, yet the basic principle in the tax code, which is recognised across Europe, is not accepted here. In other words, the tax free allowance for a married couple on £20,000 with no children is the same as for a married couple on the same income with ten children. That is wrong, because they are completely different situations and hardship is arising because of that. Child benefit is not the answer to that and, particularly for middle-income Ireland, this is a source of grave disquiet.
The amendment proposes to increase the additional child exemption limits over and above those set out in the Bill by £150 for each child and, in recognition of the difficulties faced by low-income families, the child addition which operates in conjunction with these exemption limits has already been increased by £50 per child and now stands at £350 for the first two children. The child element is intended to target a group which has been identified as particularly in need of State support, that is low income couples with large families. Together with the increases in the basic exemption limits, these will go some way — in some cases, quite a long way — towards alleviating the tax burden on such low-income families.
The increases provided by section 1 will cost the Exchequer £5.4 million this year, £10.6 million in a full year and will exempt 13,200 persons with 12,000 children from liability to income tax. A further 14,200 taxpayers with 14,700 children will have reduced liability because of the operation of the marginal relief as a consequence of the increases. As I indicated in reply to the earlier amendments on the general exemption limits, the increases provided for in this year's Bill are as far as we can go. The process to remove low paid will continue as one of the priorities contained in the Government's programme. These measures would involve a cost of £4.1 million in 1993 and £8.2 million in a full year.
Is the amendment being pressed?
I withdraw the amendment and reserve my right to reintroduce it on Report State.
Amendment, by leave, withdrawn.
Amendment No. 6 not moved.
Amendment No. 7 is in the name of Deputy Yates. Amendments Nos. 8, 9 and 10 are related and it is proposed, therefore, to take amendmens Nos. 7 to 10, inclusive, together. Is that agreed? Agreed
I move amendment No. 7:
In page 10, paragraph (b) (i), line 31, to delete "£8,200" and substitute "£11,300".
These amendments deal with the elderly. In particular, the 65-75 years age group are dealt with by amendments Nos. 7 and 9 and over 75 years are dealt with by amendments Nos. 8 and 10. They seek to increase the age exemption allowance by about 40 per cent. I am particularly mindful of the retired person who has a small county council superannuation pension and finds himself or herself each year having to pay tax, sometimes on a lump sum basis by getting notice of a preliminary tax. In other cases, people, for example, with an Irish Life pension, have had a superannuation scheme and have worked hard all their lives for this. The elderly have particular needs. They have extra heating requirements, are often in ill-health and all these people will be over the income limit for a medical card. Not all of them can afford to be in the VHI.
A mark of a civilised society is the way it treats its elderly people. We have a growing number of eldery people and it is important that they be self-supporting and self-reliant where possible, and not depencent on the Department of Social Welfare. The modest increases I suggest would allow them some comfort at the end of their days. The will have worked hard all their life to have this level of pension and my figures are not unreasonable.
I note the Minister has not accepted any amendment yet from this side of the House nor indicated any willingness to do so at any stage in the debate. These modest, low-cost items are worthy of favourable consideration.
Without committing myself to the actual figures, I have been looking for a letter I received this morning which supports Deputy Yates' general argument. I cannot find it, but it concerns an 82-year-old constituent of mine, a neighbour, whose wife died early last year and who is in receipt of a pension for £71 per week. This person receives £96 per fortnight as a pension from the Gas Board and has now received a bill that is the equivalent of £27 per week in income tax as a result of his new situation. There were costs associated with his wife's death, and as one can see from the level of pension, after working for 40 years with the gas company, at £96 a fornight he is a man of meagre means. He is liable for £27 per week income tax and there is no way I can explain that to him. He does not qualify for marginal relief. The amount of the old age pension almost exhausts his exemption limit, because when the modest pension and the old age pension are combined he gets a tax bill of £27 a week. He thinks it is a disgrace at this stage of his life, and so do I.
The amendments propose to increase the age exemption limits over and above those set out in the Bill. Deputy Yates said the Government is not conceding on these issues and I think he understands the reasons. They were all set in a budgetary situation so that, if we were to change them all, we would be building up quite massive expenditure. The cost of the proposals would be £7.8 million for this year and £14.2 million in a full year and would exempt about 27,000 persons from tax liability. In relation to the general exemption limits, the increase provided is the maximum affordable according to what was set out at budget time. There are, however, significant reliefs for taxpayers contained in changes in the rate structure in section 2, personal allowances in section 3 and the renewal of the PRSI allowance in section 4. To go any further at this stage is not possible.
Needless to say I am very disappointed that the Minister has seen fit to reject these amendments even though the cost is only, in overall tax terms of £9.5 billion, a meagre £7 million this year and £14 million in a full year for the elderly. I am surprised Deputy Ferris has not contributed to the debate on this section.
The Deputy does not like my support when I agree with him.
While it makes no difference, we listened to what Deputy Ferris said.
Would Deputy Yates refrain from drawing fire on himself?
Under the Minister's proposal someone receiving £91 per week, which I do not think is an unreasonable sum for an elderly person over 75 years of age, would be liable for tax. In other words, someone could be 94 years of age and would we think it appropriate that they would be taxed? The contributory part of such a person's social welfare pension would probably be £57 or £60 a week for a single person, or a little more. So even a pension of £33 a week will now be taxed. That is reprehensible and I do not know how Deputy Ferris could justify it.
I intend to withdraw amendments Nos. 9 and 10 and press amendments Nos. 7 and 8.
The Minister should reconsider his attitude to the amendments. I listened to the Minister's case and while small amounts generally add up, we are talking about a very small amount. We are talking about people who have given their lifetime to this country, who have worked hard and procured for themselves an income, a small pension at the end of their days. Surely this country is big enough to leave those people in the meagre comforts they have.
Deputy Connaughton made a very relevant point about the type of money that is swirling around and for which there is no accountability. We seem to be able, however, to go after people who are not in a position to defend themselves. Deputy Rabbitte mentioned a letter he received this morning. Such letters are not unusual. I received numerous representations from people in the same position and they are annoyed. They were totally independent and never looked for anything from the State. They gave their lives to this country and the Government's response is to tax them.
This debate is depressing. First, people cannot start work because they would be penalised. They will not have an income. Whatever few pounds they have accumulated by way of their contributions to a pension they are entitled to will be taken from them. I ask the Minister in the interest of honesty and decency to consider this amendment.
In case my colleagues think I am living in a cocoon, my mother is an 89 year old widow who receives an old age pension and has a local authority pension from my late father. She has been paying tax since the time of the Tallaght Strategy. The Programme for a Partnership Government has promised changes in this area.
I am not happy my mother is taxed at her age but that is the system we inherited and we are working to change it. Deputies should not preach at me as if I was not aware of it. I will refrain from mentioning any one contribution. Anybody who suggests we are unaware of these problems or that they started four months ago when the Labour Party went into Government is not living in the real world. Those problems have existed for a long time. My mother has been paying income tax for as long as I can remember. She did not object to paying tax.
This is your opportunity to change that. You are now in a position of influence.
Deputy Ferris should be allowed to continue without interruption.
She has been paying tax and like the Queen of England has always resented it. Perhaps I should not refer to the head of another state.
It is inappropriate.
The Queen has recently said it is appropriate she pay tax but she does not like doing so. My mother has the same attitude and I do not disagree with her. Now thankfully I am in a position to change that for my mother, if for nobody else.
Amendment put and declared lost.
Amendments Nos. 8, 9 and 10 not moved.
I move amendment No. 11:
In page 11, between lines 6 and 7, to insert the following subsection:
"(2) In respect of the system of marginal relief applied to incomes close to the exemption limit a revenue neutral formula shall be devised such that the standard rate of tax would be substituted for the current practice of taxing at 48 per cent."
I have already spoken to this when discussing exemption limits and marginal relief. I am interested to hear the Minister's response.
This amendment proposes to replace the existing rate of 48 per cent for marginal relief tax by a rate equal to the standard rate, as outlined earlier by Deputy Cox. Where an individual's total income does not exceed the appropriate exemption limit there is no liability for tax. If the income does not greatly exceed the exemption limit it is liable. To ease the transition from non-liability to full liability at the standard rate, marginal relief is provided. That has been the basis of this discussion for some years.
While some taxes suffered under the marginal relief system, that number is less than would otherwise be the case. Much of the focus on the rate of marginal relief fails to recognise this fundamental point. Taxpayers are taxed at the marginal relief rate when their total income does not greatly exceed the exemption limits.
The point of income after which marginal relief ceases to apply is called the break-even point. This can vary depending on the combination of income and the entitlements to allowances and reliefs. The break-even point, which operates automatically, is the amount of total income where the tax liability is the same whether calculated by reference to the normal rates system or by reference to the marginal relief system. The standard arithmetical form can be used to establish the break-even point.
The current legislation provides that marginal relief cannot apply beyond double the exemption limits. This limitation is usually well in excess of the break-even point. I can give examples to the Deputy if he so wishes. I will give him a detailed note on this point.
The marginal relief is intended to benefit only those taxpayers whose income does not greatly exceed the exemption limit. To achieve this the relief must be terminated at some break-even point on the income scale. If the tax rate for marginal relief was reduced to the standard rate, as suggested by Deputy Cox this morning, the relief would continue indefinitely without reaching a break-even point until it reached an income level equivalent to double the exemption limit which is the final cut-off point for marginal relief currently in force. The failure to reach a break-even point would occur because all taxpayers would effectively become standard rate taxpayers with the exemption limits being substituted for allowances. This would cost the Exchequer some £95 million in a full year despite the operation of the cut-off point.
Dealing with this effect to ensure revenue neutrality would involve either setting arbitrary limits to marginal relief in tandem with even more complicated formulae for calculating the tax. Alternatively one would have to artificially depress the value of the exemption limits to ensure tax bills under marginal relief remain unchanged. Either way reference would still have to be made to the tax as computed at the current 48 per cent rate which would still ensure its continued existence in the proposed rates.
I will withdraw the amendment. I put it down for two reasons. I am interested to see the arithmetic the Minister has. The operation of the tax is impossible to explain to someone who sees 48 per cent on the tax form when they reach the relief rate. I thought it should have been possible to change it without costing £95 million because the Minister will note the amendment talked about revenue neutrality.
Everyone here has argued in favour of the current exemption limit system and marginal relief system, because we do not want low paid workers inside the tax net. I accept that. However, in the context of the family income supplement, rent allowances and subsidies, the medical card and other schemes, the two combined produce the many disincentives.
I put down a series of amendments on the exemption limit question not because of indifference to it but because I believe the problem is more complicated than the exemption limit alone. That must be addressed urgently but in a wider context.
A simple version of the marginal relief at 48 per cent tax rate is given to people affected by this. Perhaps they are not all aware of it. I will make this table available to the Deputy. It is a very short description of a complicated area.
I fill the forms every week at my clinics.
Amendment, by leave, withdrawn.
Amendments Nos. 12 and 13 not moved.
I move amendment No. 14:
In page 11, between lines 31 and 32, to insert the following subsection:
(2) A tax free allowance will be claimable for child minding services in the home, where approved by FÁS, to the value of £500 per year.
This amendment is slightly different from the basic changes. A number of families, mostly those where both spouses are working, require some form of child minding service. FÁS has developed a training course to bring some order to this area. I therefore propose that a £500 tax-free allowance be made available to people who employ child-minders from an approved FÁS scheme.
Child minding services have been part of the black economy. This amendment would regularise the situation and help provide much needed part-time employment for married women and others. Employment in the manufacturing and services sectors has declined due to technology but is growing in the personal services sector.
The measure I am proposing would not be a very costly measure and would create jobs. It would also help many double income families who are working to pay mortgages and are not necessarily well-off or on high incomes and are possibly paying a large amount of tax at the top rate of 48 per cent. I ask the Minister — I know it is not his form to take imaginative steps in Finance Bills — to consider this measure favourably because of its job creation potential.
I agree with my colleague, Deputy Yates, but I do not think he has even gone far enough on this issue. When both parents are working the child-minder is, effectively, a substitute for the mother while she is at work. I see no reason why the expense of hiring a child-minder should not be allowed against the mother's tax. FÁS runs excellent child-minding courses but benefits should not be restricted to those who employ child-minders who have completed FÁS courses or who have been approved by that agency.
The salary, PRSI and so on of the man employed by my husband are allowed against my husband's tax. There is no reason I should be treated differently. I employ a child-minder because I spend three or four days in Dublin each week and three or four nights out on political business also.
Child-minding should not be treated differently as long as it is legitimate, white economy, properly structured employment with proper conditions, hours and pay. We talk a great deal about equality and we now have a Minister for Equality and Law Reform.
This measure would reduce dramatically the numbers on the dole because it is an open secret that the vast majority of home helps and child-minders are either pensioners who are earning an additional income a few days a week or are people drawing unemployment assistance while doing this work. They do so because of the difficulty in finding properly paid and structured employment in the personal services area.
This measure would instantly create a whole range of jobs which would be more attractive than similar existing employment. Over the years work in the house has become debased mainly because it was not properly structured or paid and the hours spent on duty were not acceptable by today's standards. More and more women would aspire to work outside the home if they were able to obtain employment. The education system is encouraging women to continue their careers in tandem with raising a family and I support that.
I would like to see this amendment go further. This amendment would encourage employers to create jobs in the legitimate economy in the home to which young women for whom third-level education is not possible could aspire. These jobs would provide dignity. There is a huge amount of work waiting to be translated into jobs if only we adopted measures such as this.
I appeal to the Minister to look seriously at this proposal because it would increase employment in the legitimate economy and reduce the black economy. It would help provide properly structured hours of work and pay to those working in the home at present. It would encourage girls, and maybe boys also, to look on work in the home as a career with great job satisfaction because its pay and conditions match the times in which we live.
If equality means anything it should mean that those who work in properly paid and structured jobs in the home and as child-minders should be treated in the same way as those who work elsewhere. The wages paid by me, other women Members of the Oireachtas and women who work elsewhere outside the home to child-minders, who are our substitutes in the home and give us freedom to follow the careers of our choice, should be treated as tax allowable expenses in the same way that the wages paid by my husband to his employees are allowed against his tax.
This area needs urgent attention. It has been briefly mentioned over the years but it is high time we dealt with it. This measure would help to contract the black economy and reduce the numbers of those who are both signing on and working. Few have any concept of the extent of this sector of the black economy, every woman who can afford it depends on the black economy today.
Like Deputy Doyle, I broadly agree with the thrust of this amendment although it is greatly stifled by the reference to FÁS. There is a grave anomaly in that a woman who works outside the home and employs a child minder from outside the black economy is not entitled to any allowance whereas the wages paid by a firm to is employees may be allowed against its tax.
This is a vicious circle, it has to do with attitudes to women in our society where three quarters of lower paid workers are women. The fact that we are referring in the debate to "women" rather than "parents" is indicative of the whole attitude towards inequality in our society. Unfortunately, such attitudes are only beginning to change. We should examine this amendment, although I do not like the way it is framed, and at least listen to any suggestions of the Minister for Equality and Law Reform in this regard. My attitude to remarks by Deputy Ferris in relation to earlier amendments is that I will believe what the Government says when I see what it does next year.
We all know that there is a vast black economy in his area. My view, although it is empirical rather than based on data, is that approximately three quarters of childminders operate in the black economy. If the Minister does not accept the amendment he should work towards implementing such a measure in the future. Those who work within the legitimate economy and pay their taxes should receive tax allowances for employing people.
Like other speakers, I believe this amendment is worthy of consideration. The last speaker expressed, more or less, my sentiments, with the exception of her disparaging remarks about my party. The Deputy's party had a number of years to influence the content of Finance Bills and failed to do so.
In our offices each morning it is noticeable that a whole underclass of people, mainly women, carry out some of the work on those offices. The amendment seeks to deal with them. Recently the Public Accounts Committee discussed the enormous size of the Irish black economy. Some people would consider it even bigger than estimated by the Comptroller and Auditor General and others. Perhaps we are in the Italian league in that regard. This amendment would go someway towards reducing that and bringing a large number of women in particular into the real economy while also contributing positive action in an area of education in the economy where action is needed. This is the area of childminding, particularly of young children, which at present is informal and is a low paid part of the black economy.
I support this amendment. A strong argument has been made on the basis of equality why an allowance such as is contemplated here ought to be introduced. It is not only with regard to our attitudes towards equality that there is a need for rethinking but also in regard to our attitude towards the black economy and the culture that fosters it.
Everybody here knows that someone paying for home help, for example, does not want to have to pay social insurance if they are not getting credit against tax for doing so. As with the debate we have had about exemption levels and the low pay trap, which unfortunately predominantly involves women, the Minister should give consideration to the thrust of this resolution. With the sophisticated methods available to the Revenue Commissioners people who would claim such a tax-free allowance against their tax liability can very easily be cross-checked to see whether they are paying social insurance and regularising the position of the people who are doing these essential duties for them.
With regard to Deputy Yates's reference to FÁS being used for childminding services in the home, as I understand it FÁS schemes can only be used for non profitmaking purposes. I am aware of FÁS schemes being used in providing cr�che facilities in communities, thus allowing parents, mothers in particular, to go to work. There is merit in giving an allowance towards the cost of providing facilities for their children. It raises the broader question of women in the home who, even if they do not go out to work may need help in the home. Some Deputies made the point that this amendment may not solely concern people going out to work but also those working in the home, which although unpaid is an important contribution to any home. If somebody needs assistance to do it, then that is a ligitimate expense in running the home.
Social welfare recipients or their dependants are descriminated against when they are used by employers on the basis that if they earn more than £55 per week, they no longer qualify as a dependant of the husband, for example. They are locked into a system whereby, no matter how they work as caretakers, childminders, home helps or parish priests' housekeepers, they must not earn more than £55 per week because, if they do, their husband loses £35 per week on the dependency allowance from social welfare.
The amendment raises many fundamental questions relating to equality, equality for women and fair pay for word done by whichever sex. Any expenditure involved in looking after the home should be a legitimate expenditure in claiming tax-free allowances. Registered employers can claim social insurance costs against tax and perhaps there is inequality in that people who for instance, employ a home help cannot claim tax relief.
It is important to note that this amendment involves FÁS. We must encourage young people to take up the maximum education available to them since we have a good system of education. Too many young girls are being encouraged to work for the neighbour down the road for handy money as soon as they leave national school. It is sad that if there is some money to be gained they drop out of school.
I do not understand Deputy Ferris' point. If the childminder is approved by FÁS there would have to be a standard. It is important work since minding children is rearing children and it is important that people can leave their children in good care. We have a duty in this regard to ensure that a young person who is going to take up this job is properly qualified. It is not exclusively a question of parents who leave the home in the morning. The working mother can also be the housewife carrying out an extremely important and busy job, so much so that she may also need help. Not only should a tax allowance be given for the home help, but the home help should be FÁS-sponsored or have sufficient qualifications for the job.
I have the impression that Deputy Ferris, with regard to FÁS, is labouring under a misapprehension. My impression is that Deputy Yates is referring to some kind of cr�che course with FÁS.
I wish to make some points about the cost. I thought Deputy Yates was being prompted by one parent families but that is not the case. I will mention one parent families since it is an issue which seems to crop up very often. The Government is not insensitive to that the tax code already provides an additional personal allowance for single parents, to give them allowances equivalent, in aggregate, to that of a married couple. This allowance was intended to cover childminding costs at the time for single parent families.
With regard to married couples, an allowance on the lines proposed would give rise to discrimination between categories of married persons. A married couple with both spouses working would get an allowance for employing a child-minder whereas a married couple with one parent working and the other remaining at home to care for the child would not. Thus the amendment could benefit, amongst others, better off, double income taxpayers who could afford to employ a child carer.
The select committee is aware that the Government's income tax policies are geared towards reducing tax rates which helps all taxpayers, while at the same time making special provision for the low paid. The cost of introducing tax relief proposed in the amendment could be as high as £9 million in 1993 and £15 million in a full year.
How was that calculated?
Presumably on the basis of what the take-up might be.
How does the Minister know how many women work in the black economy in this regard?
We are talking about childminders and I will come back to the Deputy's point in a moment. The net cost of the main income tax reliefs provided for in the Bill is £19.1 million in 1993 and £31.9 million in a full year. It is a substantial amount of money.
Deputy Doyle made some interesting points on Deputy Yates' amendment. We are aware of the potential size of the black economy, but, it is hard to define. Deputy Doyle suggested that if, for example, one paid a childminder £1,000 one would be allowed claim that amount as an additional allowance. On that basis, the childminder would come into the tax net and would have to pay tax on what they were earning. A substantial number of people would come off the dole.
A system will have to be devised. Although it is a good idea it would be of no benefit if the child-minder did not come into the tax net and off the dole. One would have to devise a system which takes both elements into account. I may give this matter consideration. However, it would be necessary to look at the broader issue of personal services. The child-minding service is substantial compared to other personal services.
The beneficiary of the allowance would have to ensure that the individual in receipt of the money would come into the tax net and off the live register.
These people are traceable. If they are signing on and working one can catch them.
One would be identifying the individual.
It would be a tax allowable expense, as an employee.
A number of individuals are partially eligible for allowances while remaining outside the tax net. I would consider such a scheme if it was workable. However, an amendment would not be ready for Report Stage.
Deputy Doyle has asked me to consider the availability of a personal allowance for people who assist in a policing arrangement to try to reduce the live register. I will examine this suggestion to see if it is feasible.
It is clear, from the debate we have had, that this is a women's issue. It would bring in revenue, in terms of PRSI, from those employed as child-minders. I included FÁS in this amendment because I understand FÁS is trying to develop a career in child-minding. I did not envisage a situation where, if one's mother-in-law babysat she would be eligible for tax relief. Obviously, some parameters must be set. It is possible to tailor the scheme according to the level of tax relief one requires. Perhaps the Minister will table an amendment on Report Stage. I may be able to improve this amendment for Report Stage.
Amendment, by leave, withdrawn.
May I raise one point? We agreed to take amendments Nos. 1 to 6 until 1.30 p.m. However, I note that in the Minister's list of amendments there is a new section dealing with redundancy payments to which Opposition Deputies have tabled a number of amendments. Would it be possible, subject to the agreement of the select committee, when discussing the section dealing with the income levy between 2.30 p.m. and 3.30 p.m. to discuss redundancy payments for ten minutes?
We are obliged by the order of the House to follow the timetable but we will be as flexible as possible.
This, like Digital, is an important issue. However, it will not be dealt with.
Section 1 agreed to.
NEW SECTION.
I move amendment No. 15:
In page 11, before section 2, to insert the following new section:
"2.—For the purposes of income tax assessment, married person shall mean—
(a) a man and woman who are married to each other, or
(b) a man and woman who are not married to each other but are cohabiting as man and wife.".
This amendment recognises divorce "Irish style". It is a fact of life. For assessment purposes, couples whether legally married or cohabiting as common law man and wife, should be treated similarly. I ancitipate that the Minister will say that tax law ought not precede civil law. However, the State has no difficulty with the law as it applies to social welfare preceding the civil law.
In terms of social welfare entitlements, couples cohabiting are regarded as common law man and wife yet they receive the same entitlements as a married couple. The fact that a different law or approach is adopted by the State, in respect of people being assessed for income tax purposes, is difficult to defend. When the State gives out money it adopts one approach and when it is in receipt of money it conveniently adopts another. This is a fact of life whether we approve of it or not.
This amendment does not attempt to change marital laws, an issue which must be addressed, and it confronts the area of fiscal law.
Deputy Noonan of (Limerick East) gave the House some statistics last year when I tabled a similar amendment last year. He said that in his health board area births to unmarried mothers exceeded 13 per cent. He pointed out that in Denmark the figure was 51 per cent, in Sweden 49 per cent and in Britain 29 per cent. These are the social mores and law-makers are falling behind. If we punish people under the social welfare code then why we ought not to reward them under the tax code. Is the Minister in a position to implement this overdue reform? I anticipate that his colleagues in the Labour Party will be supporting me. It is my view that, when the historians are writing up the genesis of the history of the partnership Government, they will say it began in this Chamber on the Finance Bill. They will say it is here that the courtship started and eyes were being cast across the Chamber——
The fatal attraction — The indecent proposal.
——between the Minister for Enterprise and Employment, Deputy Quinn and the Minister for Finance. At that stage, membership of this House was only a gleam in the eye of Deputies Broughan, Walsh, Penrose, Gallagher and indeed, Deputy Kemmy. Now that it has been happily realised, I am sure those Deputies will take up the same position on this question as Minister Quinn did last year, when he was especially enthusiastic about it. He was a bit backward in coming forward in supporting some of my other amendments, but he broadened this one into the area of capital acquisitions tax and a whole area of complex corporate law that I know nothing about. I would be happy to get this for the unfortunate people paying PAYE and income tax and I hope my colleagues in the Labour Party will support me here.
I strongly support this amendment. I have tabled amendment No. 190, which will probably not be discussed, in relation to capital acquisitions tax.
We have an anomalous situation at present in that we do not recognise those who are living together as man and wife. If one partner who is divorced marries in a foreign country, and the couple effectively live together as man and wife, this is not recognised by the State. If one of them dies, the allowance threshold for inheritance tax in that situation is about £11,500, whereas in all other tax law — stamp duty, inheritance tax and gift tax — there is no tax, except the probate tax, between spouses. There is a total exemption from such property transfers to a penal tax, which is a judgment or a mortgage on the house. If they own a valuable house, 40 per cent tax would have to be paid on it, which is equivalent to a mortgage of £25,000. The surviving spouse cannot afford to pay, it attracts interest and the dependants are left with the problem.
The Minister, given the myriad of advice and the strength of resources he has for tabling amendments, should look at amendment No. 190 — it is inadequately worded, I must admit — to see if it is possible to treat, as Deputy Rabbitte said, a man and woman who are not married to each other but are cohabiting as man and wife, for the purposes of the capital acquisitions tax. Other wording, such as a man and woman living together as man and wife might be better than cohabiting.
A series of liaisons, marriages in every sense, that are not recognised by the State. If it is Government policy to introduce divorce — we already have judicial separation; people are entitled to a second chance at marriage — in those cases, our tax law should follow. I am aware that Minister Quinn made a strong case in this regard last year and it is worthy of support.
Many women receiving the unmarried mothers allowance come to my clinics saying that a vigil is being conducted outside their caravan to see if they are cohabiting so that they might lose their lone parent allowance. Many on unemployment assistance are advised to make a claim for the woman as a dependant of theirs because they are cohabiting. The social welfare system encourages them to be treated as married couples, because the latter is commonplace. It is totally inequitious and anomalous that our tax law has not moved with the times in this regard.
I ask the Minister, particularly in relation to capital acquisitions tax, to amend the 1976 Act and allow these couples to be recognised under the tax law. The Minister can choose a wording that suits him, even if it is a narrow as foreign marriages that are not recognised by the State or where there was some civil ceremony. It is totally unfair and wrong, that couples should be treated as strangers in the tax code.
I support Deputy Rabbitte's amendment and I will refer to capital taxes on the Schedule. I also support Deputy Rabbitte's view. The Minister does have a case to answer on the tax treatment of individuals who de facto live as married couples, irrespective of whether they are de jure married. It is a legal reality, but a social nonsense. Deputy Rabbitte made the point about the willingness of the welfare system to regard such people as married to all itents and purposes, from the point of view of the social welfare Acts. In a society, and more especially in the Legislature, that is contemplating defining a condom as not being a contraceptive it must be possible to define those living in common law marriages as married for taxation purposes.
I fully support this amendment.
I wonder whether it is the amendment in regard to condoms the Deputy is supporting.
Deputy Ferris, we are dealing with the Finance Bill.
I am not sure how condoms fit into this, but if I think about if for a moment, I might.
I fully support Deputy Rabbitte's amendment. Ministers have — not this Minister — sheltered behind the excuse that one cannot precede the civil law in this issue but, as the mover of the amendment eloquently pointed out, that message does not appear to have reached the officials operating the social welfare code. They aggressively, and with great vigilance, try to prove that people are cohabiting, because they might save the State a few pounds. The State cannot have it both ways. If we are going to shelter behind the civil law and not precede it, how will the Minister treat — this time next year, once homosexuality has been decriminalised — such couples under the tax code, as the civil law will be changed at that stage? Are we going to be consistent on this? I support my colleague in relation to the same treatment of couples in relation to capital acquisitions tax. We may not reach amendment No. 190, and I should like to ask the Minister to consider the wording of Deputy Yates' amendment because the present situation is a complete anomaly in relation to the 1976 Act.
We should not dwell too much on this. I support Deputy Rabbitte's amendment. There is almost a Jonenistic throwback in the attitude we have in this area. On the one hand, the social welfare system supports the notion of a man and woman living together and recognises them as being married, but we are in a different situation in relation to the tax system. This is ludicrous. Many people often tell us in our clinics that they cannot understand this anomaly. We should support this amendment and I would be delighted if the Labour Party would do so also.
I would like to draw attention to an item that the Minister for Equality and Law Reform, Deputy Taylor, will be dealing with in his reform of legislation in this area and I look forward to that change when it takes place. It will be much broader and more comprehensive than the taxation code and will take account of points made by Deputies on the other side.
Will the Deputy support the amendment on that basis?
We had this debate before Chairman, and Deputy Rabbitte has almost given my reply for me. He knows precisely what the position is. The only good news I can give him since last year is that there have been two important developments. Both Deputies Rabbitte and Quinn asked last year from the Opposition side of the House that a review be undertaken in the Department of the definitions and criteria and a way be found to deal with the matter. A definition of cohabiting couples has to be found that is recognisable and usable in law. This has to be based on some criteria. Cohabiting couples could be people cohabiting for the weekend and that would not entitle them to what Deputy Rabbitte is proposing.
I can see where condoms come into it now.
That is one example. I could give another 50 that have arisen. This is fraught with complexities. Deputy Rabbitte will be glad to hear a major review has been undertaken. As it relates to social welfare there are arguments to distinguish it but they are irrelevant. There is no point in me giving the reasons it is considered separately for social welfare. The paper prepared in the Department is with the Attorney General, and has been for some time. It will form part of the legislation, Minister Taylor hopes to have ready for the spring of next year. At that stage we will deal with this matter. Based on the examination and work being undertaken it is clear it is not a simple issue as it is not in relation to social welfare. The matter will be dealt with next year. We are not waiting on the Department of Finance to do that as it has already undertaken a review.
Will it extend to capital acquisitions tax?
Minister Taylor is making progress on legislation which will include the issue of property which is very complex. I spoke to him last week and I know in a short period he has moved a substantial way towards resolving the blocks in that legislation for the last six or seven years. He hopes that legislation on the property aspects will be before the House in the autumn. It is his firm intention that the legislation should be passed by both Houses before any referendum and, based on what happened previously, that would be wise. I will consider the amendment that is to be discussed later.
If I understand the Minister, this is the last time I will have to table this amendment because the situation will be regularised in the Finance Bill next year. In respect of the phrase I use the man and woman who are not married to each other but who are cohabiting as man and wife — that is taken from the Social Welfare Act, 1991. I will allow Minister Taylor worry about it but I am not exactly sure how it is good enough for the social welfare area but not for the income tax area. I will withdraw the amendment on that basis.
Amendment, by leave, withdrawn.
Section 1 agreed to.