Amendments Nos. 1 to 3, inclusive are related and may be discussed together by agreement. Is that agreed? Agreed.
Amendments Nos. 1 to 3, inclusive are related and may be discussed together by agreement. Is that agreed? Agreed.
I move amendment No. 1:
In page 11, before section 1, to insert the following new section:
1.— As respects the year of assessment 1997-98 and subsequent years of assessment, the Finance Act, 1980, is hereby amended—
(a) in section 1, by the substitution in subsection (2) (inserted by the Finance Act, 1989) of £9,000 and £4,500, respectively, for £7,400 and £3,700 (inserted by the Finance Act, 1995), and
(b) in section 2, by the substitution in subsection (6) (inserted by the Finance Act, 1989)—
(i) of £10,000 and £12,000, respectively for £8,600 and £9,800 (inserted by the Finance Act, 1995), in paragraph (a), and
(ii) of £5,000 and £7,000, respectively for £4,300 and £4,900 (inserted by the Finance Act, 1995), in paragraph (b),
and the said subsection (2) of the said section 1 and the said subsection (6) of the said section 2, as so amended, are set out in the Table to this section.
(2) In this section the specified amount means, subject to subsection (3)—
(a) in a case where the individual would, apart from this section, be entitled to a deduction specified in section 138(a) of the Income Tax Act, 1967, £9,000, and
(b) in any other case, £4,500.
(6) In this section the specified amount means, subject to subsection (3) of section 1—
(a) in a case where the individual would, apart from this section, be entitled to a deduction specified in section 138(a) of the Income Tax Act, 1967, £10,000:
Provided that, if at any time during the year of assessment either the individual or his spouse was of the age of seventy-five years or upwards, the specified amount means £12,000 and
(b) in any other case £5,000:
Provided that, if at any time during the year of assessment the individual was of the age of seventy-five years or upwards, the specified amount means £7,000.".
I preface my remarks with information which may be commonly known here, though it is not part of the record. I, Deputy McCreevy and the other Fianna Fáil Deputies are at a disadvantage in that we can only propose amendments which have the effect of excusing taxpayers from tax liabilities. We can never, under the rules of the House, come forward with any compensatory measures or measures which might impose a liability on any individual taxpayer. That holds no matter how big or small the taxpayer or if doing so would result in the reduction of the overall tax burden. That is just to ensure it is not suggested that nothing proposed by this side appears to be balanced by proposals on how it might be paid for. We are not allowed to make such proposals according to the rules of the House, which is an absurdity laid down not by the Constitution but by the Standing Orders.
This amendment is designed to revisit exemption limits from income tax. I am not particularly married to the sums of money set out in the amendment, but I am very conscious of the fact that, particularly in the case of the elderly, there are those who are living on very limited incomes. There is a constant stream of letters and visits to my clinic seeking that this tax burden be lifted. It is not just the elderly, but they in particular find it very difficult to see how they can be hit for taxation on small sums. They can say that they have been highly taxed all their working lives and now find themselves paying heavy rates of tax on reduced incomes. I appreciate that the present system affords them some relief that would not be available from the system of personal allowances, but when one gives a PAYE allowance to a working person and does not give the equivalent to a non-working or retired person, it is making a statement about the retired person. I am pro-employment, but there is something unjust about this. Deputy McCreevy's amendments are on the same lines as my own, if not decidedly more generous, but I presume he was trying to do the same. We want to know why elderly people on small incomes are paying significant levels of tax out of pension earnings when they could consider that they have made their contributions.
We have pursued this with the Minister and I put it that the exemption limits for those who have come to a certain age should be quite generous. Exemption limits were brought in for all taxpayers but there was a provision for aged people for a long number of years. My amendment refers to the exemption limits for people over a certain age. It is based on the premise that when one reaches a certain age, one should have a reasonable exemption from taxation. The Minister is probably aware of this from his own constituency, but I live in a county where many people are employed by semi-State bodies such as Bord na Móna and the ESB, who would have a State pension apart from a social welfare pension plus a pension from their former employer. It is difficult to explain to these people why they have to make tax returns every year. When people come to a certain age — 65, for example — the threshold limit should be greatly increased.
Regarding overall exemption limits, the Minister and his officials will be aware that there are severe anomalies being seen because of those exemption limits. If one is just above the exemption limits, one goes from 0 per cent to 40 per cent tax. This causes extraordinary anomalies and I am unsure of how to get out of it. It has been suggested that other allowances be given to people, but then one would meet oneself on the way back. Exemption limits were brought in originally to get those at the lower end of the scale out of the tax wedge and away from the disincentive. I understand the motivation behind the exemption limits but everyone should recognise the anomalies that are occurring.
One obvious solution is to increase ordinary personal allowances substantially, freezing exemption limits as they are and engaging in a programme over two or three years to get higher ordinary personal tax allowances. The Minister should take a bold step and state that the exemption limits have outlived their usefulness and that over three years personal tax allowances will have to brought up. If we keep on as we are, we will have an extraordinarily difficult situation. My amendment does what I proposed previously, which is to increase massively the exemption limits for aged persons. My other points will have to be tackled sooner or later.
With regard to the exemption limits for people over 75, either single or married, what numbers are we talking about?
We will see if that information is available. If it is not, we will come back to the Deputy.
I agree with these amendments and the views expressed about them. I found this year's budget extraordinary. There appeared to be an attack on those 27,000 pensioners on the exemption limits. There are 52,000 people claiming the exemption limit and 27,000 on the marginal rate. The ordinary pensioner over 75, if on the 48p rate, got an extra £500 tax free allowance and a £400 age allowance. The ordinary OAP couple paying 48p in the pound got an increase of £900 in their personal allowances. If they were on the marginal rate, they only got £200. Whatever about the amendments, if we are committed to the principle of exemption limits or looking after the elderly, the minimum increase for the exemption limits would have been £900. One could see neighbouring pensioners with one getting £900 and one getting £200. The Minister put a positive spin on the budget.
I was not going to put a negative spin on it.
Many people felt they did all right in the budget. Why did the Minister victimise 27,000 elderly people? He will probably quote the expert group on taxation which is not always driven by common sense. People have visited my clinics and showed me their tax free allowance forms which are lower this year than they were last year because they or their spouse got £3 if they had their own contributions record. Is there an attempt to do away with exemption limits? I cannot understand why 27,000 pensioners were treated so harshly. What will the Minister do for them? Many people are bitter because they got £200, while their next door neighbour got £900.
We must have regard for expert groups. Although clinics are important, we cannot be driven by clinic policy initiatives.
What about equity?
The Deputy discounted the wisdom of expert groups and opted for that of his clinics. There is a balance between the two. Our expert group is not a million miles away from clinics or the street culture associated with them.
As a result of the changes in the budget, the exemption rate of tax, as distinct from the normal tax allowances, will be reduced from 16 to 12 per cent. That is in line with the recommendation that pensioners should be treated the same as everyone else. The Fianna Fáil spokesperson made the point that we should move towards this for tax allowances generally; that we should widen the basic tax bands so they are treated the same as everyone else. Deputy O'Hanlon knows the experience of pensioners across the Border and he would be the first to testify that the treatment of pensioners in this State, not just in relation to tax because there are anomalies in the system, is more favourable than it was ten or 15 years ago. That reflects the work of various Administrations.
I accept Deputy Michael McDowell's point that there are limits to what can be done to the Finance Bill and that Members are constrained from tabling the type of amendments they would prefer to table. The technical groups and the tax and social welfare integration group recommended that we should minimise the reliance on exemption limits and that the pensioner category should be covered by the general tax provisions. Deputy Michael Ahern asked about the precise numbers. I am informed that the number affected by these measures between the age of 65 and 75 and above the age of 75 is 24,500 and 27,900, respectively, making a total of 52,400.
The direction in which we are moving to minimise reliance on exemption limits — there is a harsh transition once the limit is exceeded — and to bring people into the mainstream of taxation is correct. A general principle in income tax is that all income should be treated equally, irrespective of its source, and that people on low incomes should not fall into the tax net. However, if they do, they should pay tax at the 26 per cent rate.
If elderly people do not have medical cards but have a taxable income, they will get additional relief through the Med 1 form where such conditions and concerns apply. This generation of elderly people is well resourced in terms of capital assets and even better resourced in terms of savings, although this generalisation could be disproved by the illustration of exceptions. Age requires people to be more cautious and prudent in terms of making provisions for the future. I hope the same sense of caution will exist in my generation, although there is little evidence of it at present. The actuarial assessment of the resources many of them possess relative to their perceived needs by an objective third party, as distinct from their personally perceived needs, shows that the risk and scale of exposure is less than what they would argue. I respect the fact that clinics are sounding boards, but concerns expressed to Deputies may be slightly exaggerated.
Perhaps the Minister could tell us how much the proposals put forward by Deputy McCreevy and I would cost?
Deputy McCreevy's proposal would cost an additional £37.3 million in 1997 and £61.8 in a full year. Deputy Michael McDowell's proposal is more modest, as benefits the party to which he currently belongs. It would cost £29.2 million and £54.1 million.
Expert groups set up by the Government, which include experts from a wide range of Departments and Government agencies, are likely to arrive at the lowest common denominator in terms of cost. I sympathise with Deputy Noel Ahern's view that expert groups do not always come up with the best ideas because they spend their time protecting their interests. I am sure the Minister agrees that the job of the representative of the Department of Finance on such groups is to ensure they do not cost the State hundreds of millions of pounds.
I have argued that there should be generous income thresholds for people above a certain age. Although the Minister has introduced large increases, perhaps we should tackle this problem from another angle. We should exempt the State old age contributory pension at the personal rate as well as the adult dependant allowance. People have various types of pensions. Exempting the State old age contributory pension at the personal rate plus an adult dependant allowance for all people above the age of 65 years of age would get over many of the difficulties.
There are many expert groups, one of which recommended some years ago that we tax disability and unemployment benefits. All Governments have tried to run away from that since it was suggested. Some of these expert groups are not perfect.
Were there any other expert recommendations which could be gradually implemented? Increasing the age allowance was a help, and I hope that trend continues in future years. People often say to me that their next door neighbour got £900 while they got only £200. Elderly people get no pleasure from being taxed in the same way as everybody else — they are only concerned about what is in their pocket. We are all social beings and are happy to pay the going rate until we realise the person next door is being treated better. Could that have been eased for them in any way because 27,000 of them feel they were harshly treated this year?
In response to Deputy McCreevy, there is a perception that old people, by definition, are more hard done by than others. However, the profile of wealth possession in this country has shifted considerably from the characteristic images which have been put forward. To suggest that people by virtue of their age, and nothing else, should get a tax exemption is an anachronism and is not in line with statistical data. I am prepared to make the relevant information available. Age as a sole criterion for a tax exemption is misleading and offends against basic principles of tax equity, with which every party in the House, by and large, would be in accord.
I am referring to people who would have been lowly paid and now, in their elderly years, have a pension which is larger than they earned in the ten years before they retired because of a number of factors. I heard the Deputy refer to age as a sole criterion, but if I am doing him an injustice by saying that I will add a caveat. Treating everybody over the age of 65 as being entitled to an exemption does not fit into the reality of modern Ireland because of the collective success of the country, for which I am not claiming personal credit. Aside from physical fears and the other real problems of elderly people — and for which changes in the income tax code will provide no comfort there are elderly people in our society who are now, pound for pound, much more comfortable than they were ten years' ago which is not what our conventional image of them leads us to suppose.
We should not move away from the fundamental principle of taxing income as income irrespective of its source, including unemployment and disability benefit. We did not realise how many employers and trade unions had connived together to manipulate the system which we had constructed.
That idea came from the trade union movement which it tends to forget about now.
Yes, because they did not realise the extent to which it had been structured into the seasonality of employment.
Is that the taxing of disability benefits?
Yes, disability and seasonal payments.
People used to tell me they were £50 better off by being out sick rather than going to work.
The net point here is that I am being told age qua age should be a criterion for exemption which I dispute. There is, perhaps, an argument for enhancing entitlement to tax relief on Med 1 forms for elderly people with a taxable income who do not have VHI cover — which some of them do not — as they tend to have higher medical costs, which is their big fear. However, if, heaven forbid, Fianna Fáil and the Progressive Democrats ever made it to this side of the House and started to introduce 40 per cent and 20 per cent tax rates, they would have to cut out all this to finance such reductions, unless they breached the Maastricht guidelines in their entirety. I am trying to make the job easier for them should they ever get to this side of the House.
I fundamentally disagree with the Minister's point about age. Perhaps this is an old fashioned idea, but I think that when people get to a certain age they are entitled to certain exemptions and reliefs in the tax code and social welfare. I hear what the Minister is saying and there is no harm in arguing what I term the "new thinking". That line of thinking will have great resonance within the Department of Finance but I do not agree with it. There is logic and some justification in the Minister's argument but I fundamentally disagree with it.
I might have been brought up in the wrong generation but I think age should be respected and older people are entitled to extra reliefs and allowances. I stated on many occasions when I was Minister for Social Welfare, when it was not popular to do so, that there is a difference between a 20 year old and a 65 year old. Members of the Left — not the Minister's party but a party with which he is in Government — made a big issue of that. I have no hesitation in repeating that here. I differ with the Minister in that regard, although perhaps I will change my view in a couple of years time.
My case is built mainly on people on the marginal rate who receive the old age pension and also receive a relatively small private pension from their job. There is a clear argument for treating elderly people differently, which can be done by exemption limits or the age allowance. Somebody said earlier that £800 is being given to PAYE workers which might not be given to some other people. However, the age allowance will achieve the same aim by other means.
The only acceptable way to treat everybody equally would be to exclude the old age pension from tax. Many elderly people have a notion, rightly or wrongly, that one should not have to pay tax on an old age pension to which one has contributed to for 45 years. That is a deeply ingrained belief. The age allowance was originally introduced to try to get people to declare they were over 65 years because many of them were still working and claiming the old age pension.
I remind the Deputy we doubled the age allowance.
I know that. I hoped that was the trend for the future but what the Minister said frightens me and gives me the impression this is a one off provision which he will do away with as soon as he gets the chance. There is a perception that one should not have to pay tax on one's old age pension. If that was the rule, many people who are paying at the marginal rates might accept being treated the same as everyone else. At present, however, they have relatively small private pensions and a tax allowance of almost nothing because the old age pension is deducted. I hoped the trend in future years would be towards a bigger tax free allowance for the elderly, not what the Minister has suggested.
My position is between those of the Minister and Deputy McCreevy. I favour simple tax rules. The notion of an allowance and a high marginal rate is seen by some people in Merrion Street as a mathematical calculation and the age exemption operates to relieve people of the consequences of the system. The allowance is not seen as a sum which the State believes should be exempt from all tax; it is merely a method of starting the graph at a particular point. I would opt for a simpler form of taxation.
Much depends on whether we are discussing the traditional, pre-1987, 35 per cent rate from which people had to be protected, or the much lower 20 per cent rate which applies across Europe and the world, under which one does not have to protect people so vigorously from a much lower marginal rate. Views of the taxation system and allowances are coloured by the marginal rate in which one operates. The Minister's more intellectually pure approach appeals to me but it is much easier to support it in the context of a lower marginal rate of tax. Deputy Ahern and Deputy McCreevy make their case in the context of a high marginal tax rate but if one were structuring a tax rate from the beginning one would approach it differently. We are putting forward propositions in the context of the present tax system. We are like dogs barking at the wheels of a passing car. Nothing we say makes any difference and while we may impress other dogs we do not impress the driver.
Deputy McCreevy's amendment puts this into sharp focus. Under the present nutty tax conventions, to offer a pensioner £9,000 he must construct the idea of £18,000 as totally exempt for a married couple in the same circumstances. That raises the question whether a married couple in their 60s earning £18,000 should pay nothing while an average industrial worker who pays the 48 per cent rate at £13,000 is clobbered. If one is to take seriously the statements in the Partnership 2000 programme about tax credits, this is a prime example where one would make the equivalent of a credit available to a married or a single person in the form of a single, draw-down, age credit so that it does not have to double up for married people. One could make a strong moral case that no single pensioner earning less than £7,000 or £9,000 should pay tax. It is hard to make the case that a household earning between £14,000 and £19,000 should be exempt from tax simply because two pensioners live there.
This relates to the perennial issue of the 2:1 ratio which in a context like this produces a crazy result, as it does for single workers earning less than the average industrial wage. If the Minister ever questioned the 2:1 he might be accused of devaluing the role of spouses who work in the home but this is an example of where it renders a signal disservice and is unfair. The PAYE allowance is not available on a 2:1 ratio, whether one is married or not. Similarly, if we want to look after pensioners on low incomes, the ratio is a ridiculous constraint.
I agree with the Minister that the two competing systems of floors — one being an exemption and the other a mathematical allowance system — are at variance and produce strange results. The strangest is the one mentioned by Deputy Ahern, which is that one can earn less than £10,000 and pay an effective tax rate of 40 per cent. That is an extraordinary position. I strongly argue for a different approach, along the lines mentioned by the Minister as part of a planned progress to lower marginal tax rates. In that context I strongly argue that we follow through on the notion mentioned in Partnership 2000 that tax credits or standard rating allowances be looked at more extensively because that is a necessary ingredient in a farreaching tax reform. I agree with the Minister's point that, generally speaking, income should be taxed. A young person working for £3.50 an hour in McDonald's should be treated at least as generously as a pensioner.