Amendment No. 1 is in the names of Deputy Yates and Deputy Rabbitte. Amendments Nos. 2, 3 and 4 are related. We will take amendments Nos. 1 to 4, inclusive together by agreement. Is that agreed? Agreed.
SECTION 1
I move amendment No. 1:
In page 11, paragraph (a), between lines 21 and 22, to insert the following:
"(ii) by the substitution in subsection (2) (inserted by the Finance Act, 1989), of ‘£10,000', and ‘£5,000', respectively, for ‘£7,200' and ‘£3,600' (inserted by the Finance Act, 1993), and".
This first period for consideration of the Bill is until 1.30 p.m. and in that time we have to deal with amendments Nos. 1 to 24, inclusive. If we are still discussing the first seven amendments by 12.30 p.m., I suggest we proceed with the remaining 17 to enable all the amendments to be debated. I think we followed that procedure last year.
At that stage we will have to put the amendments individually.
I appreciate that must be done at 1.30 p.m. but I suggest we debate the other amendments earlier.
I hope the Minister agrees.
I agree with that because last year this committee debated the entire Bill, something which never happened in the Dáil Chamber. I would like if we could do that again.
Are we dealing with amendments Nos. 1 to 4?
Yes.
These amendments, which deal with exemption limits, are significant in so far as they seek to increase tax relief for the low paid. Although tax relief is expensive, it helps to remove the lower paid from the income tax net. I am disappointed the exemption limits were not changed in the Budget Statement, apart from a modest change in child exemption allowances. I am also disappointed that no change was made for the elderly. Amendment No. 4 seeks to increase the age exemption allowance by up to £100 per week for a single elderly person between 65 and 75 years of age. Last year Deputy Ferris referred to his relative who had to pay tax on a county council superannuation pension. I ask the Minister to sympathetically consider the amendments related to the elderly. They are perturbed because they have paid PRSI contributions and tax throughout their working lives and are now being further penalised by the lack of proper exemption allowances.
I was at the national conference of IBEC last week and heard one of the speakers compare our labour costs to those of the United Kingdom. It is acknowledged that there is a regional labour market between Northern Ireland, the Republic and the United Kingdom and that people move between Ireland and England. However, we have a labour surplus. Approximately 24,000 students leave school each year looking for jobs. Yet we tax labour more heavily than the United Kingdom. The figures for the basic allowance, the exemption limits and the rates of tax and PRSI are staggering. Without boring the committee with figures, the net effect is that the gross cost to employers is between 12 and 15 per cent higher here. That is significant and proves we must reduce the tax burden.
If the exemption allowances were changed, it would create an incentive to work. People who have been unemployed for some period, or have been on the social employment scheme often tell their TDs they have accepted a job, but that the changes in the tax and social welfare systems mean it does not pay them to work, especially if they have more than three children. This is wrong and the exemption limits should be changed to deal with it.
The purpose of amendment No. 1 is that if a married person earns less than £200 a week they should not pay income tax. Amendment No. 4 seeks to increase the age exemption allowance for the elderly by £400. I acknowledge that the Minister made a minor adjustment in the child exemption limit, which Deputy Rabbitte is seeking to increase in amendments Nos. 2 and 3. I support that, but I would prefer the introduction of a basic tax free allowance. Amendment No. 10 refers to the introduction of a basic tax free allowance of £400 per child for every dependent child. On budget day the Minister said he was increasing the child exemption limit by £100 and people thought this applied across the board. However, it only applies to a small number of workers outside the tax net.
I received figures from the Revenue Commissioners which are striking in terms of the number of taxpayers in each income bracket. There are 60,000 people earning less than £5,000 per year; 80,000 people earning between £5,000 and £7,000; 80,000 people earning between £7,000 and £9,000 and 50,000 people earning between £9,000 and £10,000. This means that approximately 270,000 people are earning less than £10,000 a year. The purpose of this amendment is to give those people, who are working hard in low paid jobs and trying to rear their families without depending on the State, extra tax relief.
My amendment, which is identical to that tabled by Deputy Yates, has been tabled on a number of occasions.
The Deputy should claim copyright.
It is not a question of claiming copyright, but of focusing on the limbs which are important in the area of tax reform, including tax exemption, or exemption limits or thresholds, the rate bands and the broadening of the tax base. The Minister may feel aggrieved because although he has made some minor improvements in the Bill, and since he became Minister for Finance, he has received little thanks. He said he has given away £330 million in tax concessions this year. However, that figure is distorted by the inclusion of the refund of the 1 per cent levy imposed last year. Nonetheless, he has received poor public recognition for these concessions because this is not the way to approach tax reform.
This amendment is concerned with the first important aspect of any genuine tax reform, the tax exemption limits, which would get public recognition and political dividend. The Minister has not changed the exemption limits this year and this is probably the first time he has not done so. The man with the pint on the bar stool will become liable to pay tax as a single man if he earns more than £71 a week. Is it sensible or reasonable for a single man or woman who earns more than £71 a week, or a married couple who earn double that amount to become liable to pay tax? It helps to contribute to those aspects which Deputy Yates spoke about and to the creation of poverty traps in this society.
I tried to address this matter differently during the general election by arguing for a basic income and for the integration of the social welfare and taxation codes. While acknowledging the fact that this has not happened — the Minister has established a committee on the integration of the taxation and the social welfare codes — we must deal with what is before us. Some £100 per week for a single person is a reasonable threshold below which one is not liable to pay income tax. The Minister would get a lot of kudos if he accepted these amendments. I estimate the cost of implementing them at approximately £100 million. This would be a better way to use £100 million rather than the way the Minister scattered his £330 million.
A £100 threshold is eminently reasonable. If the Minister calculates this along the lines of £100 million, other things must be taken into account. Family income supplement is payable to low income families. Some of these families are thrust into deeper poverty and have lower incomes if they become liable to pay income tax at a low threshold. Tax reform should start with those who need it most, those on the bottom rung of the ladder who are earning the lowest incomes and who should not be in the tax net.
I notice the Minister has departed from convention in successive budgets by no longer giving a figure of those he professes to have taken out of the tax net. That was always a regular budget day figure. Ministers would tell the House that they had taken a specific number of people, for example, out of the tax net as a result of an alteration in the tax threshold. That procedure seems to have been discontinued. It was artificial for reasons we dealt with on a number of Finance Bills. Nonetheless it is interesting that the practice has been dispensed with. I suspect that is because it was never meaningful and did not last much longer than the Minister's budget speech.
I addressed the question of children's allowances because I want to be consistent with amendments which I previously tabled. I acknowledge the Minister has moved towards the amendment I tabled last year by increasing the allowance by £100 in both cases. Having regard to the fact the Minister makes no distinction between rearing children of three or four years of age compared to children of 15 or 16 years of age, £500 is a reasonable figure. As costs associated with rearing young children compared to teenagers are different, perhaps there is an argument for a tiered structure there.
The thrust of my three amendments is contained in amendment No. 1 relating to exemption limits. Whatever about amendments Nos. 2 and 3, I recommend that the Minister accept amendment No. 1 because it should be the focus of genuine tax reform.
I reaffirm the policy which this and successive Governments have tried to pursue and which I want to pursue over the next few years which is — this is stated Government policy — to reduce the tax burden progressively on low to middle income taxpayers. Unfortunately one can never acquire enough resources to undertake that. Deputies Yates and Rabbitte acknowledged that there has been some movement and I have tried to focus on that. Even if one deducts the 1 per cent levy — that is the argument colleagues would make — it is still a substantial tax package. I tried to focus on bands, rates and exemption limits because there are and will always be problems in these areas, especially for those on low pay. I accept what Deputy Rabbitte said, that there are still people on low pay who are hauled into the tax net. Both the exemption limit and marginal relief, in particular, help many of these people.
As I said on budget day, over the next few years we must try to generate the resources to continue with this reform. To the individual on the bar stool or in the supermarket trying to achieve something, tax reform means paying as little tax as possible on what they earn. The best way to achieve this is to have as many people as possible paying the standard rate and that those on the bottom of the ladder will not pay any tax. This year most of what was available for tax reductions went to widening the tax bands, allowances and on marginal relief. If we had given £100 million or £200 million all over the place it would have been a different package.
As regard amendments Nos. 1 to 4, inclusive, Deputies Rabbitte and Yates propose an increase in the general exemption limit of £1,400 for widowed and single persons and a pro rata increase of £2,800 for married persons. The cost of the proposals would be £71.7 million in 1994 and £127.8 million in a full year. Approximately 105,000 persons would be exempt from tax liability as a result of the measures.
Section 1 already provides for an increase in the general exemption limits in the case of taxpayers with dependent children. The special child addition, acknowledged by Deputy Yates, which operates in conjunction with the exemption limits has been increased by £100 per child, from £350 to £450 for the first two dependent children and from £550 to £650 for each child in excess of the second child. The child element of the exemption limits is intended to target relief at a group which has been identified as particularly in need of State support — low income married couple with families.
The section also provides for a decrease from 48 per cent to 40 per cent in the tax rate applied where a taxpayers' income is above the appropriate exemption limit but he is entitled to marginal relief.
Both these measures will cost the Exchequer £10.2 million in 1994 and £20.9 million in a full year. Deputy Rabbitte asked about the number affected. The number affected by that measure totals 3,400, while the number affected by the child addition measure totals 2,900. Some 500 will be affected by the personal allowances measure. The number of taxpayers who have moved to the more beneficial system of marginal relief rate lowering in the budget totals 25,500. Those benefiting from the child addition totals 800. The total in that category paying less tax is 33,800.
Deputy Rabbitte will appreciate that the reason I did not read out these figures was that I was tired reading out the number of people we were moving out of the system. I read a report during the year which stated that if you added up all of the people over the ten years who had moved out of the tax system, there would be nobody left in it. I decided, rather than confusing myself and everybody else, to leave that out. However we have the figures.
That category only refers to the residents, which we will go into later.
Both these measures will cost the Exchequer £10 million in 1994 and £20 million in a full year. Some additional 2,900 persons will be exempted from liability to income tax as a result of these two measures and a further 33,800 taxpayers with 180,000 children will have a reduced liability. A substantial group of people will gain from that. The cost of the changes in the exemption area already contained in the Bill are the most that can be afforded, as was said on Second Stage, and maintain the trend of reducing the tax burden on the low paid which has been in train in recent years. I hope to continue this trend which is in line with what is in the Government's programme and in the Programme for Competitiveness and Work.
Whoever is in Government over the next number of years will have to continue this line. When one looks at the costs one realises it will take many years, the same process has to be followed every year to make an impact.
The increase in the child additions effectively increases the exemption limits in the case of the taxpayers with dependent children. Deputy Yates said he believes that the resources should go into that area. I agree and that is why we have done so. The amount of the income will depend on the number of children. Those with greatest need, based on the number of children, will receive proportionately bigger increases and it is fair from that point of view. In the case of other taxpayers, while the actual exemption limits have not been increased, the marginal relief rate has been reduced and this will be of benefit to all taxpayers in marginal relief. In addition, people with incomes not greater than £173 per week are exempted from the health and employment levies and the training levy. Amendments Nos. 2 and 3, propose to increase the child additions to the exemption limits by £50. In order to assist low income families I have provided the special child addition in section 1.
On amendment No. 4, the cost of the proposal would be £4.1 million in 1994, £7.5 million in a full year and approximately 8,000 persons would be exempt from tax liability as a result of the measure. I make the same points in this regard that I made regarding the other three amendments, that the child addition operates in conjunction with the exemption limits. The section also provides for a decrease from 48 per cent to 40 per cent in the tax rate applied where a taxpayers income is above the appropriate exemption limit. Those in greatest need based on the number of children will receive proportionately the bigger increases. Insofar as this point is an issue, the changes have assisted the targeted group.
I wish to point out that the Opposition Members in this committee are prohibited from tendering any amendments the effect of which would be to put an additional charge on anybody else. Lest it is said at some stage during these proceedings that we are great at suggesting concessions and are not very creative in terms of taxation base widening, the ludicrous rules of this Parliament are that nobody on this side of the House can suggest anything which might have the effect of worsening someone's situation, so we are forced by a statutory straitjacket to be irresponsible. Some people may be happy with that situation but in case we hear the usual chant about the irresponsibility of the Opposition, it is because we are prohibited from making any suggestions as to how the tax base might be widened.
In fairness to Deputy McDowell, I have no doubt that he would probably put forward some increases, but while he is not allowed do so in committee, if at any time during the year any of my Opposition colleagues want to send me some ideas I will very gratefully accept them.
I may wait for the next election.
As I recall in the last Dáil Deputy McDowell used to do that regularly and I do not think the Minister enjoyed it then.
Deputy Rabbitte, we are playing this game in the present tense now.
In relation to exemption from income tax, I am not happy with the combination of tax allowances and exemptions. It does not make sense. We have two competing systems at the bottom of the tax system. One is a system of allowances which is largely a mathematical function in computing tax liability and the second is a semidetached notion of allowing people to be completely exempt from taxation in circumstances where their incomes are low. It should be possible in the context of a radical reform of our taxation system to move towards a system in which there is a unitary system of credits rather than allowances which would obviate the necessity for this complex system of exemptions at the bottom end of the income ladder.
I do not agree with the suggestion that this is the way to help the lower paid. As the Minister well knows the reason those cumulative totals became embarrassing to announce in the budget is that people slipped from exemption back into the tax net because of inflation or increased earning power. Those figures were entirely notional and if they had ever been added up there would be no taxpayers. People were fluttering on the edge of various exemptions, they moved in and out as the year went on and if they got an increase in wages or whatever they fell back into the tax net. That is not appropriate.
The allowance made by the Minister for children in calculating exemption limits is in my view entirely inadequate. By allowing £100 the Minister is effectively saying that they are entitled to earn £100 more without being plunged into the marginal relief area. Anybody who knows the cost of rearing a child knows that this figure does not meet the need. Nobody could bring up a child on £1.90 a week. That allowance does not adequately meet a couple's needs under those circumstances. I accept fully that this is not supposed to be children's allowance and that there is child benefit which was increased in the budget. This is an entirely notional way of dealing with people and saying they are on one side of a line or another side of a line depending on how many children they have and deciding that we will move the limit this way if they have another child is wrong. The Minister can say that a couple with two children who fall into this category at the beginning of the year are better off as a result, but can Members imagine the position of a couple who have an extra child during the year and what their situation will be as a result of this change? It is minimal, it is a pittance. I am unimpressed by that.
I will reserve what I have to say about other issues until later but I do not agree with Deputy Yates' suggestion that the answer to this is to introduce children's allowances for taxation because they are worth twice as much to a wealthy person as they are to a person at the bottom of the ladder. We have to get away from allowances. Much of this, although we pretend it is not, is to do with widening the tax base. We are nibbling away at the tax base at the lower end here instead of doing what is necessary which is to introduce a comprehensive radical tax reform programme which is favourable to the lower paid. In that context we cannot do it unless we take on board the inter-relationship of PRSI, taxation, and, as Deputy Rabbitte said, social welfare.
The motivation behind these amendments is laudable and nobody would have any great difficulty with them. What is being argued is the rate at which they should progress and the capacity of the Exchequer to finance the changes. Deputy McDowell's last point referred to the broadening of the tax base. The legislative restriction here allows him off the hook in terms of having to come up with solutions. It is clear that in advance of an election members of the Opposition will not be advocating any "comprehensive or radical tax reform programme", to use Deputy McDowell's words.
Watch this space.
It is the phraseology of which I am getting tired. The bottom line is broadening the base which requires taking taxation from income and putting it onto property or rates, or transferring it to indirect taxation. People should be more honest and acknowledge that the room we have for manoeuvre is confined. People have to outline from where the extra revenue will come within the taxation system and in what way they favour a broadening of the tax base to finance more radical and rapid income tax reduction at the lower end of the scale if they want reductions to come quickly. We are talking about taking people out of the net and reducing the rates of income tax. That is the ideal but Members of Dáil Éireann — myself included — are coming up with hard solutions. Irrespective of what measures the Minister for Finance or the Government put forward there will be howls of protest from the Opposition.
At this stage tax reform is a misnomer; what people really mean is tax reduction across the board. Changes made in recent years, the BIK changes in a previous Finance Bill, for example, or the move on mortgage interest relief in this Bill, any moves in line with the recommendations of the Commission on Taxation to reduce reliefs to fund reductions in the basic rates have met with significant protests from lobby groups and sectoral interests in the economy, supported politically by Members in the House. It comes back to the fundamental point that there is a lack of consensus on tax reform. People are becoming tired of the catch-all phrase "until we have a comprehensive, radical tax reform programme we will not move forward". There is little evidence from the composition of Dáil Éireann that such a programme is in the offing.
The Minister might look again at taxation of the elderly with a view to improving their position. There should be a significantly generous tax break for people who have worked all their lives when they are coming toward the end of their lives. We should consider measures to alleviate the tax burden on the elderly.
The last two speakers referred to the Opposition and its responsibility and although I do not often have palpitations I felt one coming on last night when I heard the Tánaiste state that the programme for Government would have to be reviewed in the context of further economic justice in the light of economic improvements. That can be decoded as meaning more tax and more spending. This runs counter to what I understand to be economic justice which is, in this context, the low paid being given some incentive to go to work, some opportunity to take home more of the pay they earn and to get more rewards for their efforts, while at the same time reducing the costs to employers for creating jobs. Given that the Minister has the opportunity at Cabinet to resist temptations that arise with improved macroeconomic circumstances, I hope he will do so.
The Minister did not reply to the point about the elderly. He said that 8,000 people would benefit at a modest cost of £7.5 million in a full year out of total tax receipts of well over £10 billion this year, yet no change is made. The point has been made by a number of speakers that people move in and out of the tax net through changes made every year. This year, because there is no improvement in the basic exemption allowance for anything other than children people are only coming into the tax net.
Not only is there a basic discrepancy in that we have to pay more tax than people in Britain, but significantly once one goes £1 over the exemption limit —£72 a week for a single and £144 a week for a married couple — one goes straight onto the standard rate of tax, effectively a marginal rate of 33 per cent. In Britain one pays 20 per cent on the first £3,000 of income, 25 per cent between £3,000 and £23,000 and 40 per cent thereafter. In Britain there is a rate other than the standard rate to recognise the difficulties of the low paid. Here, not only does one cut into income tax more quickly but at a harsh rate of 27 per cent; in other words one goes from 0 per cent to 33 per cent including levies.
What about marginal reliefs?
There is some marginal relief but there is no tiering of the rates at the lower end and that is why exemption limits are so important. These amendments are reasonable and I regret that we have got off to a bad start in that the Minister has rejected them out of hand.
Deputy Yates should not get too concerned about the Tánaiste's comments last night.
We are hearing from the members of that committee already.
He was not suggesting more tax although he might have been suggesting more spending. My reading of it is that he was getting in first with his ideas on how to spend the £100 million from the Trustee Savings Bank. Our esteemed colleagues always have all the ideas when it comes to spending.
Nobody is denying that great improvements were made in the budget and most people profited from them. Although there has been a fairly good discussion the Minister did not clarify the point about the elderly. It is easy to agree with any amendment that financially improves one's position but everything cannot be done at once. Various figures have been given for the number of people who would be excluded from the tax net if this amendment was accepted and the cost of it, but we do not have a figure for the number of people who will come into the tax net as a result of the budget.
It is extraordinary that we have all done well out of the budget except for the elderly who do not have children. The Minister did not really explain the Department's thinking on that. Perhaps the amendments tabled seek too much, but it seems extraordinary that the ordinary exemption limits were not increased in line with inflation or the improvements which benefited the rest of us.
Will the Minister indicate his Department's thinking on those points? Was it a genuine omission? Is it deliberate policy? Is there a feeling that the exemption limits for the elderly have been too generous in recent years? It is not a case of the cost factor. There has to be equity in the matter and I would like the Minister to comment specifically on the elderly who do not have children.
Does the Minister know how many of the elderly people referred to are in the tax net?
Will the Minister address the conjunction of the social welfare and taxation codes in terms of the acknowledged fact that it is this conjunction that keeps many in the poverty trap? If this was adequately addressed, perhaps there would not be a necessity for this type of amendment. Can the Minister tell the House when this committee will make its recommendations? Must we await the 1995-96 Finance Bill to see those recommendations, assuming the Government is willing? Questions such as rate bands will be addressed later, but those at the bottom rung of the ladder must be helped.
I agree with the points made by Deputy N. Ahern and other speakers about the elderly. It is a cause of some concern. I am sure all of us have got letters from elderly people explaining how difficult it is to make ends meet. Other than that, I noticed that Deputy Noel Ahern is a member of the Seán Haughey school of politics——
Shin kickers.
——and one wonders how that will progress in the weeks ahead. It is unfortunate that it is left to me to defend the Labour Party here, as it is so frequently in the House. I have——
I am sure they will thank Deputy Rabbitte for it.
——participated in a number of radio programmes informing the public about the setting up of the new committee structure and how the bright young Labour Party backbenchers are rolling up their sleeves and getting stuck into them. I have yet to see any of them at any committee I have attended. If any Labour Party Members are watching, could they come over and help me on the divorce question which will soon come up and I know they will want to help me put forward these amendments.
With all due respect, Deputy Rabbitte, you are a long way from the amendments under discussion.
I am at the heart of the matter; the Labour Party is in Government. In the absence of any Labour backbenchers, I will fight off Deputy Noel Ahern's attack on the Tánaiste and the Labour Party.
Deputy Noel Ahern gave the impression that most people were pleased when they saw their tax allowances after this budget, but I have found the opposite was often the case. People got a sharp surprise when they received their tax free allowance certificates, especially where mortgage interest relief was concerned. If one takes the budget as a whole, people are worse off in many cases.
Many speakers have referred to the elderly. Under the old taxation system, a person claimed allowances which were automatically included on the tax free allowance certificates. The tax free allowance in the cases of widows, widowers and the elderly, often does not reflect the age allowance to which they are entitled. Is this because forms that were previously filled in are no longer being filled in on a yearly basis due to the advent of the computer whereby tax free allowances are being renewed automatically each year? Although the age allowance is small I have recently discovered that it was not included, when I referred individual cases to the Revenue Commissioners. There is a weakness in these tax free allowance certificates being sent out.
The age allowance of £200 per widow or widower, in emotionally sensitive times, is a small amount. Many people, especially the elderly, who are not great at filling in forms, often lose some of the tax free allowance concessions available within the system.
Deputy Finucane is being condescending.
I am not being condescending. I fill in many forms for these people. I respect them and am raising this point for that reason. I resent Deputy Brendan Smith's comment that I am being condescending. I am stating the facts.
There was no bias against age allowances or their value to people but since we are trying to focus on, and help, those on low pay, the combination of the exemption limit and the marginal relief means those on the bottom end of the scale will gain. Admittedly, a person on a pension would not gain financially this year if he was not at the bottom of the scale. There was no motive behind this measure other than to put as much as I could into marginal relief because many studies have shown that the poverty trap is affecting mostly people at the bottom end of the scale.
Deputy Rabbitte asked about the report of the Commission on Social Welfare. The Minister of State at the Department of Social Welfare, Deputy Burton, is chairing the working group on that report. It has produced preliminary documents over the last few months and it hopes to finalise its main report this year. I will confirm that later to Deputy Rabbitte. Earlier reports on this matter from the Commission on Social Welfare and the Commission on Taxation oppose the integration of the two systems. I am not sure what the conclusions of the pending report will be, but these other major reports, which reflect what has happened over the last 20 years, have opposed that proposal.
On the question of special child additions to the income tax exemption limit, I wish to correct Deputy McDowell because he gave the impression that it would constitute giving approximately £100 per child per annum or £2 per week. I increased the special child addition from £350 to £450 in respect of the first two such children and from £550 to £650 per child for the third and subsequent children. I accept Deputy McDowell's point in that it does not relate to the costs.
Britain does not operate a general exemption system. Their approach towards dealing with the lower paid is through the rates structure. The purpose, however, is the same in both cases. In Britain the low rate benefits everybody, including the wealthy. I accept Deputy McDowell's point in this regard. For many years, I have been seeking ways to help those at the bottom end without it percolating through the whole system, because that is where the costs arise. Half of the good ideas end up being dropped because they would get caught up in the system.
Deputy Yates asked about the introductory low tax rates. The introductory rate of 15 per cent on £1,000 of taxable income for single taxpayers and £2,000 for married couples would cost £128 million in one year. Lest the committee conclude that child additions are not useful, taking the child additions and the exemptions, the saving made per year is considerable. For example, a person with two children on a yearly income of £8,500 would save £360 and with four children, £520.
The system works in that the child addition provision successfully target and assist such people. Those who have children and are in receipt of child additions are paying less tax, and that is the purpose of the exercise.
Deputy Rabbitte inquired about tax exemptions. These have been a feature of the tax code since 1980. The example I quoted earlier illustrates that they are an effective and focused way of conferring relief on the lower paid. The tax exemption approach has been supported by successive Governments.
Deputy McDowell raised the matter of tax credits. These are of equal value to all taxpayers. I am not directing this at Deputy McDowell because I am aware that his views are to the contrary, but whenever a move is made in this direction in the House, on the basis suggested of making the position equal for all taxpayers, it is opposed.
There will be an opportunity to discuss this issue again later, but much could be done if it was accepted that it was income and benefits that are treated in that way.
Is the Minister aware that he has roughly 100 seats in the Dáil and that this gives him a lot of clout? It is amazing how afraid the Minister is.
As Deputy McDowell will appreciate, my party did not do quite as well as that in the 1992 general election to enable us to implement all these measures.
The Minister has his own internal opposition.
The total number of cases with age exemption is almost 18,000 and almost 57,000 taxpayers have the age allowance. There is a total of 75,000 tax payers receiving tax concessions due to age. In this respect the tax certificates include a simple claim from which taxpayers can make any necessary adjustments and the age allowance would be automatically granted on that basis.
On the issue of people missing their entitlements we always try to ensure that these are well advertised.
Amendment put and declared lost.
I move amendment No. 2:
In page 11, paragraph (a) (ii), line 24, to delete "£450" and substitute "£500".
Amendment put and declared lost.
I move amendment No. 3:
In page 11, paragraph (a) (ii), line 26, to delete "£650" and substitute "£700".
Amendment put and declared lost.
I move amendment No. 4:
In page 11, between lines 31 and 32, to insert the following:
"(c) in section 2, by the substitution, in subsection (6) (inserted by the Finance Act, 1989)—
(i) of ‘£9,000' and ‘£10,200', respectively, for ‘£8,200' and ‘£9,400' (inserted by the Finance Act, 1993), in paragraph (a), and
(ii) of ‘£4,500' and ‘£5,000', respectively, for ‘£4,100' and ‘£4,600' (inserted by the Finance Act, 1993), in paragraph (b),".
Amendment put and declared lost.
Section 1 agreed to.
NEW SECTION.
Amendment No. 12 is an alternative to amendment No. 5 and it is proposed to take amendments Nos. 5 and 12 together by agreement.
It is now 12.05 p.m. and we must deal with 24 amendments by 1.30 p.m., therefore brevity is important if Members wish to reach their amendments.
I move amendment No. 5:
In page 12, before section 2, to insert the following new section:
"2.—For the purposes of income tax assessment, married persons 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.".
I acknowledged the need for brevity, but this is an important amendment and it will not be necessary to take up too much of the committee's time in explaining it. For the purpose of tax law and tax assessment I am seeking to have the definition of a married person regarded as either:
"(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.".
I tabled this amendment in previous years and the Minister always advised me that if only I were to bide my time the situation will arise whereby the civil law will precede the tax law and that this is the correct order in which to address this matter. He acknowledges the inequity regarding the present situation whereby a man and woman in a common law relationship are effectively discriminated against in the tax code and are treated differently to similar couples under the social welfare code.
I am not aware if we are any closer to dealing with the civil law now than this time last year when the committee discussed this precise amendment. While I do not wish to address that debate, the time has come for the Government and the Minister to accept the amendment.
The wording of the amendment is taken directly from the Social Welfare Act, 1991. This is precisely the yardstick used under the social welfare code. Therefore when the State is giving out money it applies one rule of thumb, but when the State is collecting money in the form of revenue in taxation it applies a different rule of thumb.
The State goes to inordinate lengths under the social welfare code to establish if a person is cohabiting. For example, there are inspections and people are driving around in cars in my constituency seeking to establish whether a woman is cohabiting. If so, the joint income will be taken into account and her benefit will be cut accordingly.
However, cohabiting taxpayers, are assessed as single persons, notwithstanding the fact that we know the extent of divorce, Irish style, as it operates at present. The latest figures from the Minister for Equality and Law Reform is that there are 60,000 persons whose marriages have broken down. These figures are not necessarily directly analogous to this situation, but there could be more than 60,000 because a great many single persons are in the kind of relationship where they would not feature in the figures for marital breakdown as they were never married.
This is an injustice and it is a case of the law lagging behind the social mores in this society, although, strangely enough, the law does not lag behind these mores with regard to the social welfare code. I put it to the Minister, therefore, that this is an inequity which must now be tackled. The Minister has advised me over the past three years that as the question is about to be addressed.
When the absent Labour Party comrades on the committee were in Opposition they vigorously supported this amendment. I recall the party's then spokesperson on Finance, Deputy Quinn, dragging the issue into complex areas of corporation and other law, which I would not be knowledgeable on but on which Deputy Quinn knew a great deal, and elaborating in great detail as to why the issue should be immediately addressed. However, now that the Labour Party is in Government it does not appear able to support the amendment. I regret this as it is important that the matter be addressed.
Let us deal with the divorce question and the changes in the civil law as expeditiously as possible, but let us not wait until we deal with it in order to address this question of assessment for tax purposes.
I agree with Deputy Rabbitte. My amendment, No. 12, is identical with amendment No. 5 , with an additional paragraph asking that the same regulations which apply to the social welfare code would apply to the tax code.
I studied the debates of Committee Stage of last year's Finance Bill on this matter and the Minister gave a commitment to review this matter and acknowledged the principle of justice involved. I regret there was no movement on this issue in the budget.
I came across a case recently which is an example and a practical expression of the type of difficulty which arises. A person who wrote to me from Clonmel was a partner in a previous marriage, had a foreign divorce and could not get married again here. The person had children from both the first marriage and the second union. She was receiving lone parents allowance. The Department of Social Welfare insisted that her present partner was receiving unemployment assistance and would claim for her as a dependent wife and for the children. They were given one payment. He participated in the social employment scheme. When he was given his tax free allowance he was told he could not claim for the wife or children and was taxed as a single person. He had to opt out of this scheme as it did not pay him to participate in it. It is the ultimate farce that somebody interacted with the social welfare and tax codes and had to refuse a job because of this.
I do not know what flexibility the Minister has on Committee Stage to accept logical and reasonable amendments. This amendment is in order as legislation goes, is worded to fully act in unison with the Social Welfare Act, 1991 and recognises the practical facts that people who have been in one marriage cannot remarry here. The Department of Social Welfare's active policy is to ensure that cohabiting couples claim adult dependant allowances. This seems very simple and straightforward to me and I appeal to the Minister to accept the amendment because many people who are in second unions, and for one reason or another are not married, need to be able to claim tax free allowances.
There is an anomaly at present. I do not know if the amendment deals with it but if it is as easy as this to do so I am inclined to ask why not accept the amendment. I am not expressing a view on divorce, there will be other days for that. I have come across some cases, particularly in Ballymun, where previously, because of the shortage of local authority houses and flats, people receiving lone parents allowance would have received accommodation but now they cannot. In order to increase their points and improve their prospects of getting accommodation, they apply in the name of two people. This may give them the opportunity of getting a flat but in some cases the girl has had to give up her lone parents allowance. This is a huge sum to forego. In addition, if the other person is working, they do not get the married person's allowance. The present system encourages dishonesty. We all know there are people claiming lone parents allowance who are not living as lone parents. This is heading in to another argument which is not for discussion today. Under the present system, if one is honest one is discriminated against. The remedy may not be as simple as the amendment suggests but if it is it would solve many problems.
I believe it is not as simple as the amendment suggests. I am amazed that this proposal has been made. If one stopped for ten seconds to consider its implications, it would be clear that single people, by moving in their girlfriends or boyfriends into their houses, could double their tax allowances and bands. This would be lunacy. Whatever system we have, the notion that one could move a partner into one's house, claim that one is cohabiting and on that basis double one's 27 per cent tax band and personal allowances is absolutely crazy. I have no difficulty in saying that whatever injustices exist cannot be remedied in this way. Our present system is bad enough but if the amendment is accepted those who have the neck, or some other part of their anatomy, to move in their girl or boy friend will receive a massive State subsidy. I cannot imagine a more foolish proposal in terms of our tax law than this.
The decision in the Murphy v. Attorney General tax case stated that married people could not be worse off than those who are unmarried and cohabiting. Unfortunately, the late George Colley, when he was Minister for Finance, responded to this decision in the wrong way. In his judgment, because the Revenue Commissioners were very attached to the aggregation of spouses incomes, the right way to deal with this was to double all allowances, which would make it possible to aggregate incomes as heretofore. As things stand, the difference between being married and single for tax purposes is cruel on many single people. I am against the present method of dealing with the decision in the Murphy case. I do not believe it required a doubling of tax allowances. All it required was a disaggregation of income and that people’s incomes, when they married, could be considered separately. In that context, a married couple could be given a bonus of some kind. The Murphy decision was badly implemented by the Department of Finance at the time. It was implemented in this way because the Revenue Commissioners wanted to continue to aggregate spouses’ incomes. The result is that there is a huge and disproportionate gap between the tax status of single and married persons.
To accord the benefit of doubling allowances to everybody who can prove to the Revenue Commissioners that they have cohabited during a particular year — God knows what the Appeals Commissioners have to go through every year to prove this and one can imagine what will happen when certain minorities demand that they be treated in the same way — is daft and I oppose the amendment.
I do not agree with the amendment and cannot see how it would operate. It is not practical. Does it mean that somebody can come and go as they wish and claim allowances here there and everywhere? I do not think this is what is intended by Deputy Rabbitte but that would be the case because the amendment does not contain any commitments in relation to the persons about whom he spoke. It seems more people are moving in and out of relationships. Is this what Deputy Rabbittee is trying to cater for in this amendment? I do not think he wants his amendment to be a recipie for this kind of operation and I would be surprised if he did. This is not the road I would like to go down. The amendment needs to be classified. We have to meet many commitments which are outside our control.
I see the reason for the amendment. There are problems but I agree with Deputy McDowell that this amendment is not the solution to them. The Minister may have some solution for those who are genuinely in a bind and deserve to be granted allowances.
It may be helpful to focus on last year's debate. Deputy McDowell is, needless to say, correct on the general point. I made the point last year that it would be impossible to cover every two people whether they were sharing flats or whatever. It is not too difficult to categorise and identify people who are debarred from marriage under existing law. They are the people about whom we are talking here.
Under the provisions of the social welfare code cohabiting couples are explicitly given the same treatment as married couples in determining the level of entitlement in cases where both partners are receiving unemployment assistance or where one partner is receiving unemployment assistance and the other is receiving social insurance payments. This ensures that cohabiting couples do not receive better treatment than married couples although this is not how the argument is being put here. This restriction followed the Supreme Court decision in the Hyland case in 1989 where the court decided that the social welfare provisions in question in that case were unconstitutional in that they treated a married couple living together less favourably than an unmarried cohabiting couple. Some of the members of the committee see that working the other way around.
The current treatment of cohabiting couples for income tax purposes arose out of the Supreme Court decision on the Murphy case in 1980. It was held that where a married couple might pay more tax than two single persons living together it would be repugnant to the Constitution. Thus, a married couple is entitled to double tax free allowances and bands whereas in the case of a cohabiting couple, each person is entitled to only the single person's allowances and bands. The members of the committee will appreciate that tax law should in principle reflect the general law on marriage. The Government is committed to holding a referendum on divorce in the near future after which we must review the law.
Deputy Yates asked if I considered the implications of current tax law if we do not have a referendum in the short term. I did, but at that stage, we thought that we might even have had the referendum by now. Deputies Rabbitte and Yates asked whether we could give an allowance to people who are debarred from marriage under existing law. I asked the Attorney General whether I could introduce a special allowance to be restricted to cohabiting couples who could not legally marry. I got the clear, unambiguous answer that I could not as it would be unconstitutional.
I am very surprised by the Minister's last point. However, first I would like to set Deputy Connolly's mind at ease. I do not seek to cater for the very mobile sector of the community to whom he referred. The amendment specifically says "a man and woman who are not married to each other but are cohabiting as man and wife". Deputy McDowell demonstrated the dexterity of the barrister in taking up an argument and advocating it with great vigour, although it was not pertinent to the point. As I said when I moved the amendment, this refers to a common-law relationship. I do not suggest that any two young people who move in together in order to exploit the tax code ought to be given the benefit as if they were a married couple. There must obviously be criteria. I have every confidence in the Minister's advisers and that the criteria will be well defined and very strict in terms of assessing a common-law relationship.
The Minister has admitted that there is an inequity afflicting people who cannot remarry under the law as it stands. However, there is an additional category of people— I do not know the figures— who are in a common-law relationship and who intend to remain in them.
How does the Deputy define a common-law relationship?
Deputy Rabbitte without interruption.
I would like to know that because I am ignorant about this. The Deputy will have to allow for me in that respect.
I accept that the question is bona fide. There would have to be regulations to govern this. For example, three weeks' cohabitation manifestly does not constitute a common-law relationship. However, does three years' cohabitation with the intention to continue in that relationship constitute a common-law relationship?
Under current Irish civil law a serious injustice is imposed on a considerable number of our citizens. The Minister's point about the purpose of this amendment in the social welfare code being to ensure that a more favourable social welfare regime is not applied to cohabiting couples than to married couples is fair enough. However, in this case a common-law couple have an inferior tax regime imposed on them as a result of the State's unwillingness to face up to this. The scenario Deputy McDowell envisages, of every two single people in the country forming a unit for the purposes of claiming the dual advantage of a married couple is clearly not realistic. As Deputy Connolly suggested, the common-law relationship must be defined and I am quite open to looking at whatever construction the Department of Finance and the Revenue Commissioners come up with in that regard.
However, this is a real problem in the absence of divorce. Irish style divorces are, unfortunately, plentiful and these people are disadvantaged under the tax code. We should try to address that. As Deputy Yates pointed out, the Minister indicated last year that he accepted the inequity, would like to address it and that he anticipated the civil law being addressed. I do not know if that is still the case. I am merely pointing to the fact that this is an injustice which we ought to remedy.
I will be very brief because we have less than an hour to deal with the next 18 amendments. The net issue is whether rules can be devised to deal with bona fide common-law couples as opposed to people shacking up for a weekend or whatever. It is possible to draw up rules so that genuine second unions can have the tax treatment applied to the social welfare code. I acknowledge what the Minister said about the Attorney General's advice but it strikes me as utterly unfair not to treat people who are living as man and wife accordingly under the tax code.
There has been a considerable amount of consensus as to where we are in dealing with inequity in relation to certain people. Like debate on many of the amendments, the analysis is reasonably solid and we know where Deputy Rabbitte wants to focus attention. The definition of the solution is where the problems arise yet again. The amendment runs into difficulty where it relies on the capacity of the Minister's advisers to come up with a formula to define a common law relationship. I would not like to be the official to have to define a common law relationship. It will not be as easy as people suggest to leave it to officials to come up with a solution, because inevitably in future Finance Bills we would have amendments to whatever regulations officials would initially propose.
I accept the bona fides of Deputy Rabbitte's amendment and what he is trying to do but there is a problem in defining how we are to resolve the matter under the present law.
The intention behind the amendment is good but how will it operate? Co-habiting couples would find it very difficult to get a loan from any financial institutions. What will be the guidelines here? Cohabiting couples have not made a legal commitment and either partner can walk away in the morning.
Having listened to the debate I accept that there are some people in what could be termed de factomarriages and their circumstances are indistinguishable from married people’s. Whatever injustice they are suffering at the moment—and there is no doubt that they are suffering injustice—I am quite confident that the Revenue Comissioners are doing very strange things as the law stands. If one produces a certificate from a Catholic priest who has remarried people whose marriages were annulled in the religious sphere but not in the civil sphere, one gets ones tax-free allowance and nobody blinks an eyelid about it.
I have often wondered why Irish truck drivers do not invent a wife or husband — I have to be correct these days — in Italy or Turkey and then produce a certificate to the Revenue and claim double the allowance and double the bands. I am always mystified by the present situation. The real question that Deputy Rabbitte's proposal and Deputy Yates' proposal puts up to the Minister is what are we going to do now if there is divorce? Will we carve up the allowances? Will three people effectively be on the same rate as two? If a marriage between me and my spouse is dissolved, will I lose all my dependancy allowances for her and the children even though I am paying her maintenance? If I move another woman into my house and marry her, will I then be in the position to claim extra relief? I have never heard that. I looked at the White Paper on Marriage Breakdown and there was not a beep from the Department of Finance or the Revenue Commissioners on how they intended to deal with this. I would like to have a rational solution proposed rather than have what Deputy Connnolly called the huge difficulty in defining what one is dealing with.
A common law marriage does not exist in legal terms. One can use the phrase de facto marriage but there is no way, apart from asking people about their future intentions and how long they have been together, that one can isolate in law, whether a person is or is not in such a category. The mind boggles as to the effect of this. If this type of thing became law I would advise a couple who were going to become engaged for three years, as they used to in the past, and save up for a house to start co-habiting immediately so that they could get the benefit of the extra mortgage interest relief or assemble their savings so they would pay less in tax.
With the greatest respect, we are dealing with an injustice arising from the absence of a divorce law. Divorce law will have to deal with the question of allowances in the context of family breakdown but I have not heard a single word from the Government as to how it proposes to deal with it.
There are many anomalies particularly where sombody on social welfare is co-habiting with somebody who is working. In that circumstance the Department of Social Welfare takes the income of the working partner into account when assessing the non-working partner for social welfare. On the other hand, the Revenue Commissioners will not take the non-working partner into account when looking at the tax liability of the working partner. That is obviously a huge difficulty.
The solution proposed is a bit simplistic and Deputy McDowell has pointed out some of the possible consequences that may not have been contemplated for instance that it would be much better for people to say that they were co-habiting, be they or not instead of trying to prove that they are not co-habiting. The problem cannot be treated in isolation. It goes back to the whole social welfare/tax interface and whether one treats people as individuals or as couples. This problem can only be tackled in conjunction with the review of the interface between social welfare and the tax system. There is not as big an issue where two people cohabit, one on the 27 per cent rate and the other on the 48 per cent rate. Where it really gets inequitable is in the case where one partner is on social welfare and one is being taxed. Something should certainly be done but without a comprehensive review of the whole problem, including the social welfare implications, we will create more anomalies than we solve.
There are administrative difficulties in proving that a stable relationship exists in the absence of any legal recognition of co-habitation. As a number of members of the committee have made clear, to try and get a criteria for that would be extremely difficult. Deputy Rabbitte is broadening the case I outlined, where people would be debarred from marriage under the existing law, to include co-habiting couples not in that category. Whatever about the first case, I do not know how one would deal with the second. I have enough difficuties with what Revenue Commissioners and inspectors get up to, but I would certainly not like to introduce legislative provisions for a criteria that would involve tax inspectors intruding into the intimate personal relationships of a large proportion of the population. We have to be sensible about this. What the Attorney General has already said was with a view to those who are debarred from marriage. Until we have a referendum, I cannot see us devising the criteria to deal with that.
On Deputy McDowell's interesting point as to what happens to the couple who are separated and whether there are two allowances? The 1980 law — the Murphy case — starts from the position that people are single and only where people are living together do they achieve the marriage allowance. If that principle is followed the allowance is only available in one case. If people were married and not living together they would not have the allowance even under that mechanism. That practice would inevitably follow.
Nobody would have an allowance in respect of the divorced spouse?
It would have to be worked out. That would be the position if the principle of 1980 were followed. Under the 1980 system two people are on single allowances even if they are married. Living together gives them the allowance.
If they revert to single status——
They are treated as two single people.
That would be a disaster for most——
Under the 1980 law that is the position.
People should be aware of this.
That is the difficulty if the 1980 law is followed. It will have to be worked out in due course.
Deputy McDowell asked about the views of the Revenue Commissioners. The Revenue Commissioners assume that people are honest. If people offer evidence to show that a marriage exists the Revenue Commissioners accept the evidence of the certificates. The circumstances outlined by Deputy McDowell would probably be correct. Under the tax code it is not a matter for the Revenue Commissioners to look beyond these certificates.
Reference was made to the late Deputy Colley's decision to provide double allowances and tax bands. That was introduced to protect the position of the family where one spouse worked in the home. Otherwise, single income married couples would have been worse off from the taxation point of view than a married couple with a double income.
With respect, that is not so. You could have made available, in addition to the two single allowances, a marriage or family allowance to a family, within the rubric of the Murphy judgment. The two to one ratio between a private person's tax situation and a married person's tax situation was not ordained by the Murphy case. It was ordained by the practice of aggregating incomes.
That is what Deputy Colley did at the time. That is the position and we cannot do any more.
As we are pressed for time, I do not wish to continue the argument. However, the Minister should, on another occasion, elaborate on the Attorney General's view that the amendment is constitutionally infirm.
Amendment put and declared lost.