We discussed this issue in Private Members' time. The tax reliefs, breaks for small business and assistance for the PAYE sector in the budget were favourably received. However, there is always one item in a budget which is singled out and it is residential property tax in this case. It is an item which is raised on every platform and particularly with canvassers on the doorsteps.
There are 900,000 houses in the State and the tax will apply to 30,000 of them. It represents a small proportion of houses. If I did not make any change, the tax would have brought in £15 million. It will now bring in between £11 and 12 million. That is a one-thousandth part of the total revenue the State will collect this year. The equivalent in the UK or the US would be about 4 per cent, that is recurring house taxes as a percentage of total taxes. Here it is .001 per cent. That is what we have been arguing about. Even if we had received the £15 million it would not have surpassed VAT on ice-cream which brings in £17.5 million. However, it is an item in the Finance Bill and we must treat it seriously.
The Government responded to the criticisms made following the budget announcement by removing any anomalies in the tax which would cause unreasonable hardship to families. I listened carefully to all Members. Deputy Yates and others sponsored a Private Members' motion and I received deputations from my colleagues in the Government parties. Following that I extended the marginal relief up to £35,000 of income —£40,000 in the case of the elderly — and modified the definition of household income in the case of the incapacitated, elderly and widowed persons. I provided the option of a phased payment facility and gave relief where a house needed to be extended or adapted to cater for a disabled or incapacitated person. I have also provided for hardship cases and an appeal system which was not included in the 1993 Act or introduced under any amendment since then. Under this system people in genuine hardship may make an appeal to the Revenue Commissioners who will have broad powers to deal with such cases.
It should be remembered that the marginal relief and child relief substantially mitigate the impact of the residential property tax on households. Most households, particularly new households, will qualify for one or other of these reliefs. Deputy McDowell referred to banded charges. I have introduced banded charges for houses valued under £100,000. He also referred to self assessment. Last year I introduced a clearance system for houses which are sold. This change will be of some assistance.
Reference is always made to the hardship which will be caused by any taxation measure. In the debates which have taken place on radio and television and elsewhere reference was made to the income limit of £30,000 but no reference was made to the marginal relief and child relief. As I have repeatedly pointed out, the number of people earning £30,000 accounts for only a small proportion of the total number of taxpayers. However, I will use the figure of £30,000 in order not to distort the argument which has been made up to now.
A couple earning £30,000 with two children and have marginal relief of 15 per cent, will pay £10 per annum on an £80,000 house; £50 per annum on a £90,000 house; £70 per annum on a £95,000 house and £400 per annum on a £150,000 house. Reference has been made to hardship cases, but I do not honestly believe that a £10 per annum charge on an £80,000 house is excessive for a married couple with two children who have marginal relief at 15 per cent. Later in the year when people's attention will be focused on another issue no reference will be made to the residential property tax. The 1 per cent income levy caused terrible hassle when it was first introduced but less attention was devoted to it as the year went on. The only point which worries me is whether it will be worthwhile employing people to collect this £10 per annum charge. No one has asked about the cost of collecting this tax.
The residential property tax is a modest measure which will introduce some equity into the tax system. Deputy Dukes, who introduced the concept of a residential property tax in 1983, acknowledged that this tax was not a money spinner. The tax was introduced at that stage to tilt the balance in the tax code in favour of productive investment in an effort to create and safeguard employment. The present tax structure has tended to encourage more than necessary investment in housing. It has also given rise to tax driven trading up with an undue bias towards the purchase of houses as investments rather than homes.
Every major report has commented on this trend. Deputy McDowell has shown great courage in getting involved in this debate — normally an Opposition party would ignore it — and it would be wrong of me not to acknowledge this point. The two Labour backbenchers who spoke today said that this matter should be dealt with. It may not be possible for me to deal with this matter in next year's budget but it is necessary to deal with it. Otherwise future Ministers for Finance will still be dealing with the same issues in 20 years time — why do we not tax land and property and introduce a probate tax? — with the result that the base will never really be broadened.
I acknowledge the time spent by Deputies Rabbitte, McDowell and Yates debating the Bill, but I think they would acknowledge that one would need hundreds of millions of pounds to develop a totally equitable system and to remove tax from earned income. The reality is that we will never be able to do this if we do not broaden the base. Increasing the price of a pint by one penny will not correct all of the problems in the system. If we want an equitable system other measures will have to be taken and the base will have to be broadened.
The Commission on Taxation, the NESC, the Culliton report, the ESRI and the OECD have pointed out that the tax advantage of investing in dearer houses can only be to the detriment of industrial and commercial investments, which are essential to employment growth. People do not like to hear this, but it is a fact. Yesterday morning Gay Byrne referred on his radio show to the record prices being paid for houses, some of which were sold for £500,000. I am sure the people who bought those houses earn more than £30,000. However, having listened to various radio and television programmes over the years one would think that everyone who owns a house worth more than £500,000 earns only £10,000 per annum. If any of these people ever became Minister for Finance they would have no trouble eliminating the national debt, reducing income tax to 25 per cent and solving all the other ills in our economy. However, I am Minister for Finance and I am trying to introduce some equity into the system.
It has been argued that the residential property tax is an anti-Dublin tax. This is too simplistic an argument. I accept that a significant number of the houses valued at more than £70,000 are located in Dublin, but this simply reflects the fact that location has a major impact on the value of a house. House prices also vary in Dublin. For example, a house in Howth tends to be more valuable than a similar house in Tallaght or Clondalkin. It is also true to say that houses in Dublin tend to be dearer than houses in other areas. If one does not determine the level of tax on a house on the basis of its value, what criteria can one use? I am sure Deputies would agree that it would not be fair to determine the rate of tax on a house on the basis of the floor area, the number of rooms or the number of windows.
Amendment No. 172 proposes that any residential property tax paid in full should be credited against a person's income tax. The notion of a credit would be entirely circular; one would simply be taking with one hand and giving back with the other. By definition, this approach would cost the full residential property tax yield of £12 million. Even though Deputy Yates would like to do this, needless to say I cannot accept his amendment.
Amendments No. 173 and 174 would have the effect of abolishing the residential property tax, something I know Deputy McDowell does not want to do.
