Seanad debates

Wednesday, 29 November 2006

6:00 pm

Photo of Noel TreacyNoel Treacy (Galway East, Fianna Fail)

Is cúis áthais dom a bheith ar ais aríst chun cuidiú leis an díospóireacht thábhachtach seo faoi chód cánachais na tíre, agus go háirithe faoin dleacht stampála. Molaim gach aon Seanadóir a ghlac páirt sa díospóireacht.

I am pleased to have the opportunity to contribute to the debate on the Government's tax policy and its record on taxation. The Government's approach to tax policy is set out in the Agreed Programme for Government and in recent budgets and Finance Bills. In addition, the partnership agreement, Towards 2016, states the Government is committed to a taxation policy designed to maintain and strengthen the competitive position of the economy, foster improvements in productive capacity, economic and social development and equity, while maintaining a sound fiscal stance. That is a balanced statement of the goals we have set ourselves in Government.

Improvements in the tax system since 1997 have meant more than 776,000 income earners are out of the tax net compared with approximately 380,000 ten years ago. Those on the minimum wage are exempt from tax. In addition, the tax burden for the married one-earner on average earnings has fallen from 20% to 8% under our watch. The married one-earner on average earnings has seen his or her annual tax bill fall by almost €1,500 even though his or her annual gross income has increased by more than €12,000 in that time. Even for those whose tax is calculated at 42%, the effect of the new fairer tax credit system brought in by the Government parties in 1999, combined with the other income tax changes to rates and bands, means that four fifths of earners pay no more than one fifth of their earnings in income tax. Tax rates have reduced under most tax heads since 1997. At the same time, the tax yield to the State has continued to rise due to the extra economic activity accompanying this policy. In some cases, such as capital gains tax and corporation tax, the tax yield increased substantially after rates were cut by us. This additional tax revenue has been used, among other things, to reduce tax on the ordinary PAYE worker, remove lower income earners from the tax net altogether and fund the provision of increased public services. This Government's tax policies have been designed to promote the competitiveness of our economy, support enterprise and reward work. Full employment is tangible evidence of the success of these policies in delivering fairness and dignity to ordinary families.

Under the Government, people are earning more and paying proportionately less tax, there is greater equity in the tax system and more people paying no income tax. This is a record to be celebrated and a great statement concerning our country. To give some examples, approximately 80% of people pay less than 20% of their wages in income tax and a one-earner married couple with two children and earning two thirds of the average industrial wage has seen the proportion of its income paid into income tax, PRSI and levies fall from 7.8% in 1997 to 2.8% after budget 2006. A similar person on the average industrial wage has seen a fall from 20.3% to 7.7%. For a one-earner married couple with children and earning 150% of the average industrial wage, the fall has been from 24.4% to 16.8%.

Under the age exemption limit system, those aged 65 years or over are exempt from tax up to specified limits. In 2006, the limits are €17,000 in the case of a single or widowed person and €34,000 in the case of a married couple where at least one person is aged 65 years or over. For the first time, the highest earners are restricted in the extent to which tax relief can be used in any given year to lower their tax bills. Following an extensive review last year, most of the property-based reliefs are being phased out.

Our achievements were accomplished within the constraints of the overarching commitment in the programme for Government regarding the need to pursue a responsible fiscal policy and to maintain the public finances in a healthy condition. The Government has achieved its objective of exempting those on the minimum wage from income tax. Prior to the Government gaining power, there was no statutory minimum wage. The Government's priority in its current term has been to target the available resources for income tax changes at those on low pay, including the elderly.

In international terms, we have maintained a favourable position in recent years. In each of the years since 2000 for which comparative data are available, Ireland has had the lowest tax rate for a single employee in the European Union and one of the lowest in the OECD. On a comparative basis, we lead the EU and the OECD in our economic, interest rate, inflation, job creation and house-building performances.

If one examines who is paying tax, many who are nominally liable at the higher rate effectively pay no more tax than they would at the standard rate. Allowing for this effect, the latest data indicate that approximately 80% of income earners paid tax at the standard rate in 2006. Tax credits offset the 42% liability in the cases of all but approximately 20% of income earners. The data show there are approximately 237,000 income earners, or 11% of all earners, with a marginal tax rate of 42% who pay no more than 20% after their tax credits are applied. Average taxes paid by the typical worker have fallen consistently during the Government's term as a result of a combination of changes in allowances, credits, bands and rates, which has been made possible through careful management of the economy.

Tax rates have fallen to such a point that we have one of the lowest tax rates in the OECD. A person on the minimum wage is outside the tax net entirely, the average wage earner is on a marginal rate of 20% and taxpayers in the 20% and 42% bands are paying less on average, even as a percentage of their earnings, than was the case in 1997. For example, the combined effect of tax and wage developments is that after inflation, a one-earner married couple with two children on 67% of the average industrial wage has an extra €63 every week, a similar couple on the average industrial wage has an extra €118 every week and a similar couple earning 150% of the average industrial wage has an extra €139 every week.

Recently, stamp duty arising from residential property has attracted much notice. As it is levied on an ad valorem basis, the yield has increased as a result of the large increases in house prices that resulted from a number of factors, including the increased demand for housing and the lowering of interest rates, which allowed people to borrow greater amounts. This year, new house completions are expected to be in the region of 90,000 to 95,000 with a similar number in 2007. In general, no stamp duty is payable on these houses.

The House is aware that the 2005 budget introduced a stamp duty-relieving measure for first-time house purchasers who are owner-occupiers of second-hand houses by increasing the stamp duty exemption threshold from €190,500 to €317,500 and by reducing rates for houses valued up to €635,000. This measure assisted affordability for first-time buyers and helped some first-time buyers who might not otherwise have been able to do so to afford starter homes. It also helped to open the second-hand market more to first-time buyers who had been increasingly deterred by the impact of stamp duty.

The reductions in stamp duty for second-hand houses removed the distortion between the new and second-hand markets for first-time buyers by reducing the degree of concentration of first-time buyer demand on the former. The average price of a second-hand house is often quoted when commenting on stamp duty. In Dublin, the average price of a second-hand house is quoted at €516,589 in the second quarter of 2006. However, the fact that half the houses sold in Dublin were sold for less than €381,000 is more relevant.

I will respond to some of the points made by speakers. In his opening speech, Senator John Paul Phelan referred to how we abolished the first-time buyer's grant and stated that we should not meddle in the stamp duty market. We carried out a serious examination of the grant and, taking account of the house prices charged and the different taxes paid by purchasers, determined that the net maximum value per house was €500. Placing restrictions on sizes, capacities, income levels, mortgage developments and so on was unfair to the discretion of purchasers and the market. That we abolished the grant to free up the market and to ensure that people would have discretion in choosing houses in a modern economy was the proper action to take because it levelled off the market and eased the burden instead of inflating prices——

Comments

No comments

Log in or join to post a public comment.