Seanad debates
Wednesday, 2 November 2005
Tax Code: Motion.
5:00 pm
John Dardis (Progressive Democrats)
Link to this: Individually | In context
I move:
That Seanad Éireann,
—notes the Government's commitment to keeping the public finances in a healthy condition and keeping down personal and business taxes in order to strengthen and maintain the competitive position of the Irish economy;
—supports the primary aim of current tax policy to expand our economy, reward work and alleviate the burden on taxpayers especially for those on lower pay;
—commends the Government on creating the most generous tax and welfare system in the world for single income families on the average industrial wage;
—notes that over 656,500 income earners are now out of the tax net compared with 380,000 in 1997;
—recognises that the Government parties have delivered dramatic reductions in taxation over the last eight years, a policy that has helped to generate unprecedented growth in the Irish economy, a spectacular increase in the number of people at work and the effective elimination of long-term unemployment;
—welcomes the announcement last December of a thorough evaluation of the effect of all relevant incentive reliefs and exemptions and the intention to bring forward proposals, which would achieve the correct balance between the benefit to the investor and the good of the community;
—notes the intention of the Minister for Finance to include appropriate follow-up measures in the upcoming budget; and
—asks the Minister for Finance to examine measures to preclude some of the wealthiest individuals in Irish society from availing of property and other tax incentives so as to avoid paying any income tax while at the same time enjoying facilities and services provided by the State, and to consider capping the total allowances a person can claim from property and other relevant tax incentives.
It would be tempting to move the motion and then just sit down and see what might happen. I know that has happened in the past. I welcome the Minister of State at the Department of Finance, Deputy Parlon, and I hope his colleague, the Minister for Finance, Deputy Cowen, can join us at some stage.
I am delighted to move this motion. Virtually every topic discussed in this House, certainly in recent years, can be reduced to the issue of choices or priorities. What priority do we place on health spending above education, above social welfare, above child care, above infrastructure and many other competing issues?
The former US President Bill Clinton is famously said to have had a sign in his office reading "It's the economy, stupid". It may be debatable whether all politics boils down economics, but I doubt anyone in this House would disagree that the distribution of limited resources, by which I mean Exchequer funds, is at the heart of most political debate. It is also at the heart of this motion.
Under this Government, two fundamental things have happened, namely, the spectacular increase in the number of people at work and the effective elimination of long-term unemployment; and, consequently, the resources available to the Exchequer are not as limited as they otherwise might have been.
Among the explicit commitments in An Agreed Programme for Government between the Progressive Democrats and Fianna Fáil, is the one outlined at the beginning of this motion. This commitment is to "keeping the public finances in a healthy condition and keeping down personal and business taxes in order to strengthen and maintain the competitive position of the Irish economy".
From the public's point of view this must look like an odd commitment for a Government to make, or have to make. Should it be considered a given that the Government of the day would work to keep the public finances in a healthy condition? Why would there be a need for an express commitment? The answer is simple. As I stated, the resources currently available to the Exchequer are not as limited as they might have been, thus allowing us greater choice. This is a result of the careful and efficient management of the economy by the Progressive Democrats and Fianna Fáil in Government. The explicit commitment is in An Agreed Programme for Government, and is not considered a given because careful and efficient management of the economy by certain parties in Government cannot be always taken for granted.
Since 1970, there have been just five years when Ireland saw real income per head go backwards. Coincidentally, the Government parties in those five years were Fine Gael and the Labour Party. At the last general election, just one party proposed to increase public spending more than anyone else, and it is not widely recognised that this party is Fine Gael. The party planned in 2002 to spend €130 billion, €7 billion more than the planned spending under the 2005 budget. Today, however, Fine Gael talks about curbs on Government spending, without identifying a single specific area where it would cut spending. The Labour Party on the other hand wants to increase public spending.
These types of innate, inherent and irresolvable differences between the Opposition parties have led in the past to careless and inefficient management of the economy. That is why we have the explicit commitment in An Agreed Programme for Government. The record shows that careful and efficient management of the economy cannot be taken as a given when the parties in Opposition are in office.
In contrast, the years in which the Progressive Democrats have been in Government have been periods of unprecedented growth, coupled with tough steps to contain Government spending. This is unique to the Progressive Democrats. Establishing the Health Service Executive, ending prison overtime and disposing of surplus State assets are just some examples of measures we have taken to carefully manage Exchequer spending. One can compare this with the Labour Party's panacea of simply spending more money.
The Government correctly employs tax policy to expand our economy, reward work and alleviate the burden on taxpayers, especially those on lower pay. While parties opposite refuse even to say what exactly their tax polices would be, the record is clear. We have significantly cut tax rates. In 1997 the top income tax rate was 48%, today it is 42%. The standard income tax rate eight years ago was 26%, now it is 20%. The respective 1997 and 2005 figures for capital gains tax rate are 40% and 20%.
It is because of careful and efficient management of the economy that we have had the resources to do more for the vulnerable in our society. Spending on health has tripled while spending on education and social welfare has more than doubled. Notwithstanding these increases, the Progressive Democrats continue to argue that the best defence against poverty is a job. Government taxation policy over the past eight years has helped to generate unprecedented growth in the Irish economy, a spectacular increase in the number of people at work and the effective elimination of long-term unemployment.
While the Irish economy merely goes backward only under Fine Gael and the Labour Party ——
John Dardis (Progressive Democrats)
Link to this: Individually | In context
—— over 450,000 net new jobs have been created in Ireland under this Government. Total employment has grown from 1.4 million in 1997 to 1.9 million in 2005. In contrast, when Fine Gael and the Labour Party were last in Government together, unemployment was more than twice the present level.
John Paul Phelan (Fine Gael)
Link to this: Individually | In context
We were creating 1,000 jobs weekly when we left office.
John Dardis (Progressive Democrats)
Link to this: Individually | In context
I said at the outset that much of government comes down to choices. This Government has chosen and implemented policies that simultaneously generate growth, prosperity and employment while creating the most generous tax and welfare system in the world for single income families on the average industrial wage.
This is a question of fairness. The Progressive Democrats' income tax strategy is aimed at maintaining full employment and strengthening the competitive position of the Irish economy by keeping taxes on labour low. However, it is also a policy which includes a particular focus on the low paid and the elderly. The system must be fair, and that is the crux of the motion before us this evening. We must ensure that the system remains fair.
Government policy has allowed the export-oriented private sector to propel the growth we have experienced in recent years. At the same time, the sheltered private sector and the public sector can hinder further gains. I note with concern reports in the weekend's newspapers which imply that one particular party is considering economic policies to in some way counteract foreign investment and promote some form of self-sufficiency. That was a failed approach of the Ireland of the 1930s. Those of us old enough can remember the economic war and the consequences of protectionism.
The view of the Government is that while the system of tax incentives has made an integral and positive contribution to development of our economy and society, we must make sure it operates fairly. To this end, we must welcome the announcement last December by the Minister for Finance, Deputy Cowen, of a thorough evaluation of the effect of all relevant incentive reliefs and exemptions. Most importantly, we must look forward to the proposals that emerge to achieve the desired balance between incentivising investment and development, and the wider good of society. My colleague, Senator Minihan, will later expand upon this aspect.
On the general point of the tax burden, over 656,500 income earners are now out of the tax net compared with 380,000 in 1997. That is in the context of nearly 500,000 more people at work. We have uniquely managed the massive increases in social spending which I have mentioned, while continuing to reduce the tax burden. During their 11 years in office, the Progressive Democrats and its Government partners have delivered 12 tax rate decreases and no increases. In contrast, Fine Gael and the Labour Party in their combined 17 years in office delivered four decreases and 12 increases. The Green Party seeks a range of new taxes, such as carbon, site value and housing land taxes. Sinn Féin wants to tax everything that moves.
John Dardis (Progressive Democrats)
Link to this: Individually | In context
The policies of maintaining full employment and strengthening the competitive position of the Irish economy by means of low labour taxes has worked for Ireland. The take home pay for the average industrial earner has increased by more than €11,000, or 82%, since 1997 and far greater numbers of people are at work.
Strangely, the Opposition claims that this reduction in taxes has been detrimental to public services. When I first entered this House, the standard argument against tax reduction was that it would lead to the diminution of public services. No one accepted that it would lead to an increase in revenue, yet that subsequently transpired. The Opposition would allege that spending on public services will inevitably deteriorate if people keep more of their wages. It is a strange claim because, while take home pay has significantly increased, average annual health spending per citizen has also increased to €2,500, average annual education spending per person in full-time education now exceeds €7,500 and average annual social welfare spending per recipient now exceeds €12,500. This has been delivered by the careful and efficient management of the economy.
It is often easier to look at specific taxation policies in isolation or juxtaposed with the specific challenges that unquestionably still remain, such as those that arise in terms of poverty, exclusion and alienation. This will undoubtedly be the subject of many of this evening's contributions. However, it is a flawed approach and does nothing to allay the fears of the public regarding Opposition taxation policy, if such a policy actually exists. It is wiser, if more difficult, to take a nuanced view of tax measures by asking how they fit within the overall plan. Rather than staring at the trees, can one step back and look at the woods, that is, the goals for the economy and society?
Sustaining Ireland's strong economic growth and employment performance cannot and must not be taken for granted. The reduction in our unemployment rate over the past ten years from almost 15% to 4.4% is the single biggest political achievement of this generation. Among its positive effects on society were the opportunities it gave us to tackle the aforementioned challenges and to end the exodus of Irish people to other countries.
Contrary to some claims, the facts show we now have a tax system that benefits lower income earners over higher earners. Higher earners, rather than those who are on modest or low incomes, pay the majority of tax. The top 25% of income earners now pay 80% of all income tax raised by the State. The Government pursues a fair tax system. The Progressive Democrats support low taxes but not the payment of no tax regardless of high income.
It is in this context that I move this motion. I am proud to be associated with a Government that has transformed this society for the better so that we are now confident, outward looking and conscious of the needs of those who are disadvantaged and need protection. We wish to provide the resources made available from taxation to offer that protection.
John Minihan (Progressive Democrats)
Link to this: Individually | In context
I am delighted to second this motion but would like to expand on a few specific points. The motion, which is concerned primarily with taxation policy and issues of fairness, gives us an opportunity to inject some reality into the debates about our choices for society and sustaining our recent progress.
There is no doubt that a dose of reality is required. For example, the Opposition recently referred to the "PD-ification" of society. Apparently this refers to planning around the priority of getting everyone into the workplace and an electronic and closed gate society. The Opposition would have us believe that the Progressive Democrats should not be surprised that social capital has been broken up and the sense of community has been reduced because that was our intention. While this wacky view is more to be pitied than ridiculed, more sinister allegations have been made in the other House to the effect that tax breaks have been sold to consultants and developers by the Tánaiste.
This debate allows us the opportunity to clearly and unequivocally reject these sinister and erroneous claims. Most important, the public and taxpayers deserve to know which party's policies have served this society well and which have endangered the prosperity and progress achieved by the Irish public. The Progressive Democrats recognise the important role the tax system has played in transforming our economy. That economic transformation has brought increased employment, higher incomes and living standards and reduced poverty.
However, that same tax system should not permit a wealthy person to avoid paying income tax. For this reason, we seek the examination of measures to preclude some of the wealthiest individuals in Irish society from availing of property and other tax incentives so as to avoid paying any income tax while at the same time enjoying facilities and services provided by the State. Progressive Democrats also seek a cap on the total allowances a person can claim from property and other relevant tax incentives. As Senator Dardis clearly noted, we support low tax but not a situation where no tax is paid regardless of income.
The Opposition would have us believe that hard pressed lower and modest income families bear the tax burden in this economy and that hundreds, if not thousands, of fat cat high income and tax savvy individuals are availing of tax relief schemes to dodge tax. Who can blame it for these claims? It needs them to be true in order to convince the electorate, which I suspect is more sophisticated than the Opposition credits, to reverse our progress. However, the Opposition is wrong.
The Revenue Commissioners' annual statistical report reveals that higher earners pay far more than lower earners. By reforming the tax code, we have restored a situation last experienced in the 1960s. Higher earners, rather than those on modest or low incomes, pay the majority of tax. The top 25% of income earners pay 80% of the total income tax revenue.
Many of the tax reliefs referred to by the Opposition are inherent to the tax system and have been designed to provide some relief for the taxpayers in whose interests the Opposition claims to act. Examples of these include mortgage interest and medical expenses reliefs and pension contributions. Which of these tax loopholes would the prospective alternative Government close off? Other reliefs on depreciation, interest and accumulated trade losses protect and promote employment and enterprise. Which of these unjust tax schemes would the allegedly pro-business parties opposite discontinue?
No doubt the Opposition will call foul and will claim that the €8 billion cost of tax relief schemes is exploited exclusively by the aforementioned tax savvy individuals. The reality is that ordinary taxpayers and business people avail of these schemes. Nevertheless, there are schemes, reputed to cost €200 million per year, which are designed to incentivise economic and social development.
As the motion makes clear, we welcome the announcement last December of the thorough examination of the effect of all the relevant incentive reliefs and exemptions and the intention to bring forward proposals to deal with any problems. I remind Members of the call for "Low tax, yes, not no tax for the highest earners".
On the issue of high earners, I read with my usual scepticism of Sinn Féin's reported economic policies, which include a 50% tax rate for those earning more than €100,000 a year. Do these economic gurus realise that the economic progress and prosperity propelled by our tax system has seen the number of workers earning more than €100,000 a year multiply dramatically in recent years? There were 13,200 such earners in 2001. Now more than 50,000 workers earn more than €100,000 a year. We can imagine how thrilled those 50,000 individuals and their families must be to read Sinn Féin's proposal that they pay a 50% tax rate.
Derek McDowell (Labour)
Link to this: Individually | In context
Are they not the Senator's colleagues.
John Minihan (Progressive Democrats)
Link to this: Individually | In context
If the Labour Party wants to join it in respect of that proposal, that is fine.
To return to the real world, the schemes to incentivise economic and social development were introduced at a time when promoting such activity was a national imperative. Governments of all make-ups devised, operated and expanded these schemes. However, this fact does not suit the Opposition.
Policy point-scoring aside, there is a fundamental issue of fairness at the heart of this debate. No one party, group or section of society has a monopoly on fairness.
John Paul Phelan (Fine Gael)
Link to this: Individually | In context
The Senator's party has claimed it. Having listened to the last two speeches, he and Senator Dardis have claimed it.
John Minihan (Progressive Democrats)
Link to this: Individually | In context
Although the age-old debate of equality of opportunity versus equality of outcome rages on, equality remains the objective. The tax system is a central plank to achieving that objective.
I welcome the Department of Finance's work in examining the equity of these tax reliefs and support the Minister in his efforts to achieve the fairest and most equitable tax system possible. Unlike some others, I am satisfied that achieving that system does not necessarily mean either jeopardising our prosperity or allowing high earners benefit unfairly.
I gladly second the motion.
John Paul Phelan (Fine Gael)
Link to this: Individually | In context
I move amendment No. 1:
To delete all words after "Seanad Éireann" and substitute the following:
—notes the increase in stealth taxes introduced over the last three years;
—expresses concerns at the erosion of our international competitiveness as a result of the increase in our cost base caused by those stealth tax increases;
—notes that those on the national minimum wage remain in the tax net;
—notes that those on the average industrial wage remain in the higher tax bracket;
—notes that while the tax burden on low and middle income earners remains high, our tax system allows the extremely wealthy to avoid the payment of tax; and asks the Minister for Finance to,
—remove those on the minimum wage from the tax net;
—remove those on the average industrial wage and lower from the higher tax bracket;
—introduce measures to preclude the wealthiest individuals in Irish society from availing of property tax incentives so as to avoid paying tax while at the same time enjoying facilities and services provided by the State;
—cap the total allowances a person can claim from property and other relevant tax incentives; and
—examine the circumstances whereby Irish citizens are currently entitled to claim non-residency tax status under the existing Finance Acts.
I welcome this opportunity to speak on financial issues. A number of Private Members' motions have dealt with this area and Minister of State, Deputy Parlon, is back in the House to take this matter. He is a regular in the House at this stage. I welcome the opportunity to have this discussion.
To follow up on Senator Minihan's concluding remarks about no group or party being able to claim credit on the issue of fairness, it is clear from the context and wording of the motion and from what I have heard so far that one party is claiming sole credit for what has happened here over the past 20 years. We have achieved major economic success but that comes down to the work of ordinary decent individuals and taxpayers. The Progressive Democrats have been in Government for a period of that time but it is wrong for them to claim full credit for that, as its members seem to be doing tonight and have done on many previous occasions.
Senator Dardis referred continuously to efficiency and to the Government's efficient management of the economy. However, nothing could be further from the truth, particularly when the scandalous waste of public resources in various areas has been highlighted in recent months. During the last session we had a discussion with the Minister of State, Deputy Parlon, on a flood relief scheme in Kilkenny, which has since received notoriety. It is a good example of overspending. That scheme was originally estimated to cost €14 million but ended up costing almost four times that amount. Such overspending has been sadly repeated across the board in various sectors.
Senator Dardis devoted a large part of his contribution to outlining the increases in spending that have taken place. While there have been significant increases in spending on public services, the services have not improved to a corresponding degree. In some cases they have disimproved, noticeably in aspects of the health service. While spending on the health service has trebled in the past eight years, the service in many areas is worse, and in some areas much worse. It is unjustifiable for members of this component of the Government to congratulate themselves on those disimproving statistics.
I am disappointed at some of the wording of the Progressive Democrats' motion. It refers to the necessity to examine tax reliefs. Such an examination was announced by the Minister for Finance in last year's budget. The time for examining these tax reliefs is past, it is time to implement the changes that need to be made to them. Some of the property and other tax reliefs were introduced for an important purpose and I acknowledge they served that purpose, but they are now part of the problem rather than part of the solution in some cases. Those reliefs need to be seriously changed. Examining them indefinitely is not a substitute for their change and modification. There has not been enough of that during the past seven or eight years. The motion, as worded, is insufficient in that respect.
A subtle trick was played by the Minister for Finance when he announced in last year's budget that those earning the minimum wage would be removed from the tax net, knowing full well that the increase in the minimum wage during the year would bring those earners back into the tax net. That is the reason we included in our amendment a request that those earners would be genuinely withdrawn from the tax net. Furthermore, any proposed increase in the minimum wage should not result in those earners automatically re-entering the tax net in the next 12 months. It is also wrong that those people earning the average industrial wage and lower should continue to pay tax at the top rate, the rate at which millionaires and significant earners are supposed to pay but often do not pay because they avail of the various legitimate tax reliefs.
In recent years heightened emphasis has been placed on the number of high earners who avail of the various schemes and pay significantly reduced, if any, rates of tax. I urge the Minister for Finance to seriously examine and address that issue in the forthcoming budget. It is wrong that certain people who have significant earnings do not contribute any tax to the coffers of this State. The basis of any taxation system is that it is inherent that equality and fairness applies. It is not equal or fair that the highest earners do not pay any income tax.
A popular myth exists, and has been perpetuated by the Government, that this is a low tax country. This is a low direct tax country. Taxes on income are quite low and the Progressive Democrats Members who spoke prior to me outlined that fact. However, in terms of indirect taxation this is not a low but quite a high tax economy. Senator Dardis referred to the reduction in tax that took place during the time the Government has been in office. He failed to mention the increases in VAT and the price of fuel introduced in the budget a few years ago. There have been significant tax increases under the management of the Government while it has been in office and Progressive Democrats Members should be prepared to acknowledge that fact.
John Paul Phelan (Fine Gael)
Link to this: Individually | In context
There have been reductions in income tax but the myth that this is a low tax economy needs to exploded. This is not a low tax economy; it is low in terms of direct tax but quite high in terms of indirect taxation. Indirect taxation is the most unfair taxation of all.
The biggest scandal perpetrated by the Government in taxation policy and public finances is in regard to the tax bands. A commitment was given in the previous programme for Government that the tax bands would be index linked and that this would be done at every budget following on from that programme for Government, but that has not happened. That is another broken promise by the Government. I am disappointed at Progressive Democrats Members taking the high moral ground on this issue. There was a great deal of hot air before the last general election about what would happen following the election. The Government increased spending across the board. As soon as the election had taken place and it was re-elected, spending was significantly reduced across the board. Commitments were entered into in the programme for Government regarding medical cards and increasing the numbers of people eligible for same. Those commitments have not been honoured. Commitments were also given to increase the numbers of gardaí on the streets but they too have not been honoured.
It would be more realistic and appropriate to have a genuine discussion on the broken promises of this Government since re-election. I appreciate the opportunity to participate in this debate and fully support the Fine Gael amendment.
Frank Feighan (Fine Gael)
Link to this: Individually | In context
I second the amendment tabled by Fine Gael and welcome the Minister of State, Deputy Parlon, to the House.
I am an optimist by nature. I normally consider the glass to be half full rather than half empty. The Progressive Democrats' motion is aspirational in nature. However, if this discussion was taking place in five years' time, I would prefer to see the PDs in Government with Fianna Fáil rather than the latter party's favoured coalition partner, Sinn Féin. In that respect, the glass is half full and matters could be worse.
This Government is like a business and what it is doing, very often, is disregarding the core fundamentals of business. What this Government has done, with the PDs, is lease out everything. It has leased everything out to other interests and to consultants and is not dealing with the core business.
I come from a small business background and I see many small businesses which cannot compete anymore. They cannot compete because of high stealth charges. Bin charges rose by 29% in 2002 and have increased further. Yesterday I had to write a cheque for the private bin collection operator in my area, for 18 months service. The operator collects cardboard and general rubbish from small newsagents. The bin charge was €4,100. How can any small business survive in the face of such escalating costs?
Bank card charges have risen by 108%. The minimum wage was introduced, which I welcome, but it means that many smaller businesses cannot compete. Rates and insurance have also increased, though admittedly they have been scaled back somewhat in the past year.
In the past five or six years many small businesses, including pubs, shops; and small manufacturers, have gone out of business. If one looks around Ireland, and particularly Dublin, most of the small corner shop owners consider it better to lease their premises rather than continue in business. This Government has leased its responsibility to other departments. Now shop owners are lucky if they can lease their premises. They are deciding not to carry on in business and are leasing their property for apartment developments or to another agency to run a business.
If people visit me in my office and tell me they are thinking of setting up in manufacturing or setting up their own business, I tell them not to bother. I tell them if they can get elected, that is fine, but if they can get a job in the health service, the local authority or with the Government, they will have paid holidays, a pension and benchmarked pay increases, without anybody asking them to improve their service delivery. That is what is wrong. This Government has leased out responsibility.
Tom Parlon (Laois-Offaly, Progressive Democrats)
Link to this: Individually | In context
People are not visiting the Senator looking for a job. They all have jobs, unless they are one of the 30,000 foreign nationals who come here every year.
Paddy Burke (Fine Gael)
Link to this: Individually | In context
Senator Feighan, without interruption.
Frank Feighan (Fine Gael)
Link to this: Individually | In context
The Minister of State is being very flippant about the backbone of this country. As someone once said, Ireland is a nation of small shopkeepers. They are the people who created the employment ——
John Dardis (Progressive Democrats)
Link to this: Individually | In context
That was said about the British, actually, and it was Napoleon who said it.
Frank Feighan (Fine Gael)
Link to this: Individually | In context
They are the people who set up this country and who employ people. This Government has turned its back on small businesses and created an environment where bigger is better and only large businesses can avail of economies of scale. If there is a downturn in this economy, there will be no small businesses left, which are its backbone.
Irish competitiveness has been seriously eroded by a sharp increase in the overall cost base, according to Mr. Jim Power, chief economist with Friends First, in its quarterly economic outlook for February 2004. He went on to argue that it is essential that investment in education, to upskill the workforce, and a correction of the damaging infrastructural deficit are given immediate and real priority, not just lip-service. Yesterday, lip-service was given ——
Tom Parlon (Laois-Offaly, Progressive Democrats)
Link to this: Individually | In context
Did the Senator not hear about the €45 billion investment announced yesterday?
Frank Feighan (Fine Gael)
Link to this: Individually | In context
That was lip-service. I have heard it ——
Tom Parlon (Laois-Offaly, Progressive Democrats)
Link to this: Individually | In context
Investment of €45 billion was announced yesterday.
Tom Parlon (Laois-Offaly, Progressive Democrats)
Link to this: Individually | In context
It is easy to simply dismiss.
Frank Feighan (Fine Gael)
Link to this: Individually | In context
There are 156,400 people on the live register. How can the Minister of State explain that? I do not think he can.
Tom Parlon (Laois-Offaly, Progressive Democrats)
Link to this: Individually | In context
How many people?
Frank Feighan (Fine Gael)
Link to this: Individually | In context
There are 156,400 people on the live register as and from 7 October 2005.
Tom Parlon (Laois-Offaly, Progressive Democrats)
Link to this: Individually | In context
That is only 4%.
Frank Feighan (Fine Gael)
Link to this: Individually | In context
That is the CSO analysis of the live register.
Tom Parlon (Laois-Offaly, Progressive Democrats)
Link to this: Individually | In context
It is the lowest in Europe.
Frank Feighan (Fine Gael)
Link to this: Individually | In context
The figure is 156,000 and the Minister of State is trivialising the amount of people on the register. Some 30,000 manufacturing jobs have been lost over the past three years, by 23 August 2005 ——
John Dardis (Progressive Democrats)
Link to this: Individually | In context
What about the amount of people working in the economy?
John Dardis (Progressive Democrats)
Link to this: Individually | In context
An extra 450,000 people are working in the economy.
Frank Feighan (Fine Gael)
Link to this: Individually | In context
These are CSO figures with which the Senator cannot argue.
John Dardis (Progressive Democrats)
Link to this: Individually | In context
Yes, but they are for one sector. The job losses are only in one sector.
Paddy Burke (Fine Gael)
Link to this: Individually | In context
Senator Feighan, without interruption.
John Dardis (Progressive Democrats)
Link to this: Individually | In context
Sorry, there is the agricultural sector as well. I forgot about the job losses in agriculture.
John Paul Phelan (Fine Gael)
Link to this: Individually | In context
Senator Dardis forgot about agriculture?
Frank Feighan (Fine Gael)
Link to this: Individually | In context
Benchmarking should have been renegotiated to ensure real reform of the public sector. Years ago, politicians had an input, or at least people thought they had, into the health sector. Now they have no input. The Government has created a junta whereby Departments, health services and local authorities have their own power, which they can abuse. People in such bodies have given themselves extraordinary pay increases without any benchmarking against service delivery.
Everything is going fine at present, while we have an economy that is robust and is moving forward. However, if that economy suffers a downturn, who will watch the people who are running the Departments? I do not believe anybody can. The Government has let such people get out of control. If anyone approached me for advice on setting up a business, I would tell him or her to forget it and get a job where there is no responsibility, where he or she is answerable to nobody and will get pay increases every year.
Tom Parlon (Laois-Offaly, Progressive Democrats)
Link to this: Individually | In context
Does the Senator want to bring back the health boards?
Frank Feighan (Fine Gael)
Link to this: Individually | In context
I did not suggest bringing back the health boards ——
Tom Parlon (Laois-Offaly, Progressive Democrats)
Link to this: Individually | In context
He is giving the impression that is what he wants.
John Paul Phelan (Fine Gael)
Link to this: Individually | In context
The health boards are still there.
Frank Feighan (Fine Gael)
Link to this: Individually | In context
I cannot get through on the telephone to, or get a letter answered by, the Health Service Executive.
John Paul Phelan (Fine Gael)
Link to this: Individually | In context
The health boards are still there, with another layer of bureaucracy added.
Frank Feighan (Fine Gael)
Link to this: Individually | In context
At one time one actually received a reply from the health board and politicians had a say on those boards. Now we have transferred power to bureaucrats and people who have no responsibility to the electorate. This is another example of the Government's leasing out policy.
Tom Parlon (Laois-Offaly, Progressive Democrats)
Link to this: Individually | In context
Does the Senator want to bring back the health boards?
Paddy Burke (Fine Gael)
Link to this: Individually | In context
I must ask Senator Feighan to conclude.
Frank Feighan (Fine Gael)
Link to this: Individually | In context
The fee for a standard, ten-year passport has increased from €55 to €75. If a person wants to get a passport quickly ——
John Dardis (Progressive Democrats)
Link to this: Individually | In context
At least such people will be coming home, not leaving permanently as they were when the Senator's party was in power.
Frank Feighan (Fine Gael)
Link to this: Individually | In context
If a person wants a passport quickly, he or she must pay an additional €50. It is embarrassing.
John Paul Phelan (Fine Gael)
Link to this: Individually | In context
We created 1,000 jobs per week when we were in power.
Frank Feighan (Fine Gael)
Link to this: Individually | In context
I agree with the points made by Senator John Phelan and second the amendment.
Margaret Cox (Fianna Fail)
Link to this: Individually | In context
I am delighted to welcome the Minister of State and to take the opportunity to share my thoughts on some of the issues on which we should focus in the upcoming budget. First, however, I would like to address some of the points made by the Opposition in the past few minutes.
It is nice to hear indirect taxation actually described as indirect taxation. The use of the politicised term "stealth tax" is not fair. It creates a situation where people believe their money is being stolen from them. If we pay more VAT or more money to the Passport Office, we are paying indirect taxation. We need to stand up and say that. No one should be ashamed to say there is indirect taxation in this country. There is nothing wrong with it. We have a low tax base in terms of corporation and capital gains tax, of which we are proud. A significant percentage of people are outside the income tax net. There is a 20% standard income tax rate and a 42% higher tax rate, of which we are proud. These are the building blocks and the foundation for the success of the economy. There is nothing wrong with indirect taxation. People are now going on holidays three of four times a year. These people are buying passports at whatever cost. There was a time when people leaving the country had to pay €5 tax. This is no longer the case, but if it were, we would make a fortune because people are going on holidays several times a year.
John Paul Phelan (Fine Gael)
Link to this: Individually | In context
Will the Government reintroduce it?
Margaret Cox (Fianna Fail)
Link to this: Individually | In context
It will not reintroduce it. However, if I can pay €500 for a second holiday in the year, I will not mind paying €5 or €10 at Dublin Airport if I feel the tax is being well spent.
I would like to take this opportunity to share with the Minister of State some of the issues that are being raised with me on a daily basis. First, I would like to focus on stamp duty. Last year, the Government abolished stamp duty for first-time buyers of second-hand houses which cost up to €317,500. I suggest to the Minister of State and the Government that we should remove stamp duty on family homes or first homes. If an investor buys an investment property, that person should pay more tax. If one is lucky enough to be able to afford a €1 million family home, it is good because if one is working hard and making the money, one should be entitled to spend it. If it is a family home, it should not be subject to stamp duty. Abolishing this tax would protect families and young first-time buyers.
I would make no apology for increasing stamp duty on investment property. If one can afford to buy a second house, one should be able to pay the relevant tax. All I ask is that the family, first-time buyers, single people and young married couples who want to buy their first home are exempt from stamp duty.
I have no doubt that officials in the Department of Finance will be able to work out what this initiative would cost. According to the Permanent TSB-ESRI house price index, the cost of houses for first-time buyers is increasing at almost twice the rate experienced by second-time buyers. The price of houses for first-time buyers increased by 9.4% for the first nine months of this year. If we remove this false level of €317,500, there will be no increase in prices. When this figure was announced, first-time house prices increased from €250,000 to €260,000 and €270,000, and now it is practically impossible to buy a house for €317,500. This was a false inflation. If stamp duty is abolished, there will not be false inflation, and people will pay for the real value of the house rather than inflated prices as a result of stamp duty.
Senator Dardis's motion refers to the high rates paid under our fine welfare system. I would like to refer to maternity benefits. Paid maternity benefit has now been increased to a maximum of €249. If the maximum amount is not increased, I would like to see the payment extended. A plan should be put in place whereby paid maternity benefit is extended from 18 to 20 weeks, to 24 weeks and then to 26 weeks, even if it is increased by two weeks a year. By the end of 2010, people who have a baby should be paid maternity benefit for a minimum of 26 weeks.
In parallel with this, the issue of parental leave should be addressed. The Parental Leave (Amendment) Bill was debated in the Dáil last week. Parental leave is being amended so that one can take a minimum of six weeks of the 14 weeks unpaid parental leave. As in the case of carer's benefit and maternity benefit, parental leave should be capped at a small amount for six weeks to begin with. If children and the family are the core of our Constitution, we should be protecting them during the most important and vulnerable time in their lives. We should deal with the issue of child care during the first year of a child's life. I would like to put down a marker in regard to maternity leave and parental leave.
I would also like to refer to the environment for businesses, to which Senator Feighan referred. I was disappointed to hear him say he feels like telling people who say to him that they are thinking of setting up their own business that they should get a comfortable pensionable job in a local authority, the health service or whatever. I do not believe this is the Ireland of the future. We must continue to foster entrepreneurship by creating and maintaining the proper environment for all those involved in the economy.
I read with horror recent reports in The Irish Times regarding proposals to increase corporation tax from 12.5% to a possible 17.5%. I have no knowledge of this — perhaps the Labour Party is considering it. I am the owner and manager of a small business. I was involved in running a business in this country when corporation tax was over 50%. One had to work hard to make money, employ people, pay 65% in tax as a PAYE worker and then pay 50% to the Government on the profit. This will not work in the future. While corporation tax on manufacturing and foreign investment was increased from 10% to 12.5%, other taxes decreased. This is why I as a business person, or as an individual working in this State, have no difficulty paying tax at a rate of 12.5%.
I also have no difficulty paying indirect taxation, which is not stealth tax. At least I can now choose how I spend my money. I can choose whether to spend it on holidays, insurance or whatever, because I have a job and I am contributing. I do not mind working hard. People who run small businesses must work very hard. They make many sacrifices in their family and business life. They may not have 20 or 25 days holidays in a year like people who work in the public sector. They work very hard and pay a fair share of tax at 12.5%. I do not agree with the suggestion that we should increase corporation tax from 12.5% to 17.5%. That would ruin whatever economic gains we have made in this country over the past ten or 15 years.
We have moved away from a 50% tax rate. What did this prove? People were not happy to pay 50% tax. Those were the days of the cheats, when people made up stories and pretended they did not make that much money. Is this what we want to return to?
Margaret Cox (Fianna Fail)
Link to this: Individually | In context
Some of them are still hiding. Many of those in the construction industry are still hiding. However, while there is no place for tax cheats there should be a fair taxation system.
I do not think it right that a small number of people have not paid any tax on very high earnings. However, the Minister should not even think about the 17.5% corporation tax, which will ruin us. He should look at stamp duty, as well as the issue of parental leave and maternity leave.
Derek McDowell (Labour)
Link to this: Individually | In context
The main focus of interest this evening is on the Progressive Democrats motion. It gives an obvious flavour of what we can expect from them in the upcoming general election. There is merit in debating the individual issues, but it also entails debating a bit of history, which I find a bit tedious. At a recent debate in Trinity College with Senator Minihan, I made the mistake of allowing him have his way with the history, so I will not do it again. I want to stitch a few obvious historical facts into the record before I get into the meat of the debate this evening.
The Progressive Democrats would have us believe that everyone else has always made a mess of the economy and that they do it brilliantly. They would also have us believe that low taxes form a significant part of the economic growth that we have had in the past ten years. The stability in the national finances came about largely because of what happened between 1987 and 1992. During the Fianna Fáil and Labour Party Government of 1992 to 1994 — when the Progressive Democrats skulked on the back benches of the Opposition due to the row between Des O'Malley and Albert Reynolds — we got into a period of jobless growth. Economic growth was really high, but we did not get the growth in employment. Between 1994 and 1997, we began the current period when we had high levels of economic growth and serious levels of employment growth as well. I have been abroad with Senator Dardis and we have been regularly asked about the cause of the Irish economic miracle. We give the stock answer about social partnership, foreign direct investment, the low rate of corporation tax, the highly educated workforce that we had in the late 1980s which was largely unemployed, as well as the investment that was made in education prior to that.
By and large, there is consensus in this House about these issues. However, in the past two or three years, the Progressive Democrats have started retrofitting low income tax into this argument. It was not there previously and it should not be there now. Low income tax rates are a result of what we could afford because of economic growth, but they did not bring about economic growth in the first place. Any sensible economic commentator looking at the facts knows that is the case. The fact is that growth had started and was well under way long before we were able to afford to reduce income tax rates. Increases in employment levels were well under way before we were able to afford the reductions in income tax rates. We are into a serious chicken and egg business and the Progressive Democrats cannot be allowed to rewrite history in the fashion they choose.
Having got that out of the way——
John Dardis (Progressive Democrats)
Link to this: Individually | In context
Does the Senator feel better now?
Derek McDowell (Labour)
Link to this: Individually | In context
I do. I get very tired of this particular argument.
John Minihan (Progressive Democrats)
Link to this: Individually | In context
The Senator lost the debate in Trinity College and he cannot win tonight.
Derek McDowell (Labour)
Link to this: Individually | In context
Since the Progressive Democrats never tire of trawling through the history books, we must stitch the truth into the record every now and then. I have got bad news for them. The next election will not be about tax, because we will not let it be about tax. I am not telling them many secrets here as we are not stupid. Before the last election, the Labour Party committed itself not to increase the rates of income tax. Our leader said so in the meantime, as did my colleague, Deputy Burton. We will say it again before the next general that we will not increase the rates of income tax.
John Dardis (Progressive Democrats)
Link to this: Individually | In context
What about capital gains tax?
6:00 pm
Derek McDowell (Labour)
Link to this: Individually | In context
The Labour Party was party to the decision to set the corporation tax rate at 12.5%. It is true to say that some of us might have liked to see it at 15% or 17.5% and there was a debate in the Government at the time. The debate was settled and it is over. There will be no proposal from the Labour Party to increase the 12.5% rate of corporation tax.
I dispute the history of capital gains tax as written by the Progressive Democrats and Fianna Fáil. It is true to say that stockbroking revenues had already started to increase by a considerable amount before the reduction in 1998. It is also true to say that the number of people paying CGT in any given year has not increased as substantially as revenue. In other words, we are still getting only a relatively small minority of people paying CGT, but each individual files returns for much more. We must look into the issue to find out whether there is a migration of income tax into CGT, which can then be paid at a lower rate. I know that the Department of Finance is concerned about that and it should be. If something is a genuine capital gain, then well and good. However, there is no doubt that there are people who are hiding income and making it look like a capital gain so that they can reduce the rate of tax. I do not know what conclusion Deputy Burton will make when she looks at it, but we will let the Government parties know long before the next general election. The next election, as far as we are concerned, will not be about tax. The next general election will be about how we have used the tax. It will not be about whether we have €40 billion to €44 billion to spend in any given year, but about how it is used and what we can get for it.
It was somewhat depressing to read the economic commentators of the various stockbroking companies in The Irish Times today. They were again complaining that the Minister had €2 billion to give away and suggested various ways in which this could be given back to taxpayers, such as tax reliefs, social welfare benefits and so on. That is fine in so far as it goes, but we never seem to be capable of raising our eyes a bit. We should say that there are certain things we want to achieve, such as having a wider provision of medical cards. When will we hear these stockbroker types tell us that we can now afford to do this due to economic growth and because of increased tax revenues? Everything is debated in terms of money which the Minister can give back. I find that very frustrating in the way it determines the argument.
I do not take a deeply ideological view about tax reliefs and exemptions. One must be pragmatic and examine what these breaks are looking to achieve and decide whether they are achieving that. Nonetheless, there is now a consensus that we cannot allow a certain small percentage of high earners to pay no tax at all. That may be dealt with by limiting the scope of individual reliefs or the amount that can be claimed in respect of individual reliefs, or it may be dealt with by the American alternative minimum tax system. I do not have a strong view on that. It may have to be done with a mixture of both.
In 1998, the then Minister for Finance limited to £25,000 the capital allowances that could be written off against non-rental income. That was an important start, although there are still people who are claiming capital allowances which predate that measure. I suspect that we will need an underpinning provision that a minimum rate of tax will be payable. It must be a simple system and the minimum rate must be just that and not a maximum rate. The basic principle is extremely important and it is one of fairness. It must underpin the taxation system, because if it is not a generally accepted principle then people will cheat and will not pay their fair share of tax, or any tax at all.
I do not have any difficulty with the Fine Gael amendment to the motion, nor does the Labour Party. It is worth emphasising a couple of points that are made in the amendment. The Minister deserves to be commended in taking the minimum wage out of the tax net. It is important that that remains the case and as the minimum wage increases, the minimum tax credit and the exemption limits should also increase. It was always absurd that we would decide by law that it was unacceptable for people to be earning less than a certain amount, yet take some of that away from them. It took the Government seven or eight years to correct that position and it would be unacceptable if it now turned its back on that achievement before the next election.
Where does individualisation stand in the Government's tax priorities? The Labour Party and I opposed it at the time, but I must confess that my views migrated a bit and I no longer oppose it. However, we are now left with a hybrid system which is pretty senseless. I urge the Minister to finish off the job and to individualise tax completely, while individualising the social welfare system at the same time, where we still continue to treat dependants as just that, rather than as individuals in their own right.
I wish to come back to the point I made earlier. There is, by and large, agreement on where we stand in terms of income tax, corporation tax and capital gains tax. Whether or not the Progressive Democrats like it, the next election will not be fought on these issues. It will be fought on the basis of what we do with the €45 billion in tax revenues we have. On that issue, this Government is extremely vulnerable and will lose very badly.
Michael Brennan (Progressive Democrats)
Link to this: Individually | In context
I wish to voice my support for the motion. Previous speakers have spoken about the importance of our taxation system to sustaining our economic development. Reference was also made to the fundamental importance of a fair system. Rather than repeat what others have said, I wish to discuss fairness, especially for older people. As my colleague, Senator Minihan, correctly stated in the past, a progressive tax system is based on the ability to pay. We all recognise that some older people find themselves unable to pay all of the bills and charges with which they are presented.
The Government has committed itself to implementing a full range of policies aimed at supporting older people, including delivering decent pensions and greatly improved care services. Progress on this commitment is welcome — for example, the €12 per week increase for the old age pensioner in budget 2005, the proportionate increase for contributory pensioners on reduced rates, the additional revenue funding allocated to services for older people from 1997 to 2004 of €286 million and the additional €15 million allocated for services for older people in 2005. There are, of course, many other initiatives which benefit older people from various Departments and agencies.
I am concerned, however, that there are areas of expense for older people which need to be looked at again — for example, the cost of domestic waste disposal. There is now a wide range of charging regimes and costs in respect of waste management. The introduction of measures such as a broad increase in the old age non-contributory pension to address this issue is not feasible. The challenge is to design a system to assist older people who rely on private domestic waste collection which takes into account the different local arrangements.
The Minister for the Environment, Heritage and Local Government correctly states that the setting of waste management charges and the introduction of waivers in respect of waste charges is a matter for each local authority and I accept a number have done so. My main concern is the ability to pay. In an area where a private operator handles waste management, there may be no waiver available. This can place older people in a difficult situation. For many older people, they must have a physical disability to avail of this service. Where no waiver exists, we effectively have a regressive charge if ability to pay is not considered. The sense of fairness is diluted. There is a case to be made for old age pensioners. The Department of Social and Family Affairs should include a refuse charge allowance under the free schemes in operation such as free travel, ESB allowance, telephone rental, television licence and fuel allowance.
I applaud the Minister and his Department on the progress which has been made but I hope that in time when the balance of tax schemes and incentives are being evaluated, the difficulties of systems such as waste charges are also kept in mind. I would like the relevant Minister to look at local authority charges, especially where group housing is concerned, to question the eligibility of that scheme and to see if it is legal. I wish the Minister well in his forthcoming budget.
Brendan Ryan (Labour)
Link to this: Individually | In context
The trouble with following my colleague, Senator McDowell, is that he is so good at developing points in a logical and calm way that I must restrain my usual style and fit in with his logical and calm way of dealing with things.
John Minihan (Progressive Democrats)
Link to this: Individually | In context
The Senator is illogical.
Brendan Ryan (Labour)
Link to this: Individually | In context
When one is trying to deal with the massive contradiction which is the Progressive Democrats, it is very difficult to be logical because of its aspirations to be the party of social justice, of low taxes and its determination to be the party which looks after the rich. It is very hard to reconcile the three aspirations sometimes and, therefore, one is tempted to be illogical and follow it down the illogical cul-de-sac into which it has got itself.
There are two ways to look at taxation. One can look at it through the eyes of an economist or at the political realities. The political realities are that I do not believe anybody in this country with a serious hope of being in Government can do other than say income tax rates will not be raised. Therefore, I have no problems with my party's position on that. Similarly, we have come to a political consensus on the nature and rate of corporation tax, and I accept that. However, I do not believe there is an overwhelming or, indeed, an economic argument that there is a level of income taxation and of corporation tax below which one gets enterprise and above which one does not.
I am intrigued by two things which show up as huge deficits in our society. The first, incidentally, is the absence within the Roman Catholic Church of an educated laity. One of the scourges of the present problem is that there is no lay intellectual movement within the Catholic Church to challenge everything that has happened. The second is the absence of any real original thinking in our academic economics departments. We will not produce Nobel prize winners in economics because every academic economist of whom I am aware is a replicator of other people's thinking.
There are no universal laws of economics. There are things which work and things which do not. The things which work differ from country to country and society to society. The Swedish consensus on taxation would never work in the United States where well-off middle-class areas do not have public lighting because the public has decided it does not want to pay taxes to provide it. One cannot produce a single model. The naivety and the manifestation of the ideological rigidity of the Progressive Democrats is that it goes from particular successes to try to produce some general arguments. It is a logical flaw. In my first year of two years of a novitiate I was taught that moving from the particular to the general in an attempt to prove some universal law is nonsense. It continues to be nonsense.
John Dardis (Progressive Democrats)
Link to this: Individually | In context
There are universal laws of economics.
Brendan Ryan (Labour)
Link to this: Individually | In context
I do not believe there is a single universal law of economics. I will tell the Senator why——
John Dardis (Progressive Democrats)
Link to this: Individually | In context
Newton's law is a universal law of economics.
Brendan Ryan (Labour)
Link to this: Individually | In context
I am an engineer and, therefore, something of a scientist. I am sceptical as to whether science knows any laws of nature. All we have are the best approximations of what currently is known and many of those will be revised. Newton's laws are crude approximations of Einstein's E=mc2. We spend our lives relearning and rewriting. If it is not true in the physical sciences, it is most surely not true in the so-called science of economics. As somebody said to me, economics is related to science in the way astrology is related to astronomy. One is an abuse of the term, the other is something real.
The point I make is that economics is not something which can be picked. There are people, most notably in the IMF and the World Bank, who seem to believe there are universal prescriptions which one can apply everywhere. Over and over they have been shown to be wrong. It took a number of years for the World Economic Forum at Davos to begin to accept that one could not measure competitiveness by the level of public expenditure. It used to classify any country with a high level of public expenditure as being inherently uncompetitive until it discovered that some countries with high levels of public expenditure, such as Denmark, Finland, Sweden and others, were extraordinarily competitive. It accepts, therefore, there were different ways and its reports refer to good and bad public expenditure. Given the wasteful nature of the Government and the number of times it has got the timing and costs of projects, etc., wrong, perhaps it ought to accept it is on the wrong side of the argument regarding public expenditure and competitiveness. We will not hold our breath. Perhaps the Government will get it right this time on transport, as it makes a second attempt to do what it tried five years ago. One can only hope the Government will.
I am glad my colleague, Senator McDowell, mentioned capital gains tax. I do not know whether there is an optimum rate of CGT or whether there is a universally applicable rate. Varying rates of CGT could be charged in different circumstances to achieve different objectives in terms of revenue and incentive. The notion of a standard flat rate, therefore, is questionable while a standard low rate is even more questionable. Senator McDowell also raised the issue of income being declared as a capital gain because it can be taxed at a lower rate than, for example, the income of someone on the minimum wage, which is not right.
The graph of capital gains tax returns over a number of years highlights that revenue does not correlate with the CGT rate. It correlates with economic activity and other factors but CGT revenue increases and decreases. I examined this because a colleague on the Independent benches stated the greatest argument for the low rate was the increase in revenue. However, the figures indicate that it is a simplistic analysis to say the return on CGT is entirely a product of the rate at which it is set.
The amendment refers to Irish citizens who claim non-resident tax status. The US has taken the correct view whereby if one holds an Irish passport, one is taxable in Ireland. The State should not allow its citizens to be taxed twice. If one pays higher taxes in the country in which one lives, that should be recognised so that people are not taxed on the double. The notion that one can hold a passport without being obliged to pay tax is questionable. As a first step, the Minister should amend the law to ensure it is up to people claiming non-resident status to prove they are not resident rather than it being up to the State to prove they are resident. In other words, the burden of proof should lie with the person who is non-resident to satisfy the Revenue Commissioners that he or she does not reside in the State.
It is good that there is cross-party consensus that everybody in the State should pay a minimum rate of tax and that nobody should be able to use a combination of schemes, exemptions and incentives to avoid paying income tax. I am glad there is also an aspiration that people on the minimum wage should not pay income tax. It is a pity they were the last priority in the Government parties stage by stage reduction in income taxes. They commenced with the well off and concluded with a concession to those on the minimum wage. People earning €6.50 or €7 an hour were the last to receive a generous change in their income tax status whereas those on much larger incomes such as myself and most Members of the House benefited initially. That is a peculiar set of priorities for people who are strong on the rhetoric of equity and social justice.
Brian Cowen (Laois-Offaly, Fianna Fail)
Link to this: Individually | In context
I am glad there is a consensus that there should be a minimum wage in the first place since we introduced it. The Opposition parties had three years to introduce it but did not.
Brian Cowen (Laois-Offaly, Fianna Fail)
Link to this: Individually | In context
When they were in office, the entry point in the tax system was €98 per week, which is a little over €2 an hour.
Brian Cowen (Laois-Offaly, Fianna Fail)
Link to this: Individually | In context
Yes, and given that Senator Ryan brought the House through astrological eras, I can refer to the last few years as a more realistic timeframe in which to assess one's commitment to social justice.
I am grateful for the opportunity to address the motion. Over the past eight years, the Government's clearly focused tax policy has proven to be a remarkably successful economic tool and has undoubtedly been a major contributory factor to our economic growth. The move to a lower direct tax burden for individuals and for business was a key element of the fiscal approach outlined in the previous Government programme, An Action Programme for the Millennium. The present programme, An Agreed Programme for Government, maintains the momentum in this regard. The motion acknowledges the commitment set out in that programme to keep down personal and business taxes and to strengthen and maintain the competitive position of the economy.
While there is a consensus in the House on these low tax rates, they were opposed consistently following every budget in which they were introduced by a Fianna Fáil Minister. Perhaps we should not pass too many remarks on the voting records of Opposition Members, if that is their stated position.
To put the progress we have made in context we should examine a few facts. Between 1982 and 1988 the standard corporation tax rate was 50% while, during the same period, the top rate of income tax was never less than 58% and it reached 65% in 1984. When the Government parties took up office in 1997, the rates of business and personal taxes were still high compared with current rates. The standard corporation tax rate was 36% and income tax rates were 26% and 48%, respectively. Over the past eight years, corporation tax has been reduced to a standard 12.5% and the income tax rates reduced to 20% and 42%, respectively.
Senator Ryan stated he did not feel a specific rate denoted enterprise. However, as a member of the Government, I have met foreign direct investors in many countries over the past number of years. The corporate tax rate is a landmark issue for them. A move from a rate of 12.5% would be regarded negatively by international mobile investment in terms of how the country is viewed for further investment. There is a rate beyond which a strategic direction would be detected by international investors as being less favourable than the current rate. That is one of the reasons we have stoutly defended tax sovereignty in the European Union debate. That is of fundamental importance to us.
With regard to personal income tax, since 1997 the tax bands have been widened and the system of tax allowances has been replaced by tax credits, favouring those on lower incomes proportionately. The value of the main personal credits has increased significantly to take many more people out of the tax net. The Government introduced the minimum wage in 2000 and, consistent with the Government programme, exempted it from tax in the last budget. We increased the exemption rate in previous budgets until the last budget when we were in a position to take those on the minimum wage out of the tax net altogether. Last May, we further increased the value of the wage to €7.65 per hour, which is the second highest minimum wage in the European Union. In 1997, when Deputy Quinn was Minister for Finance, the entry point to taxation for a single PAYE person was under €98 per week. Following budget 2005 the entry point is €274 per week, an increase of almost 180%, a not inconsiderable achievement. By comparison, inflation since 1997 is projected to be approximately 31% to end 2005.
With regard to individuals on the average industrial wage, our tax policies have meant that take home pay has increased by more than €11,000 since 1997, an 82% increase, and the average tax rate for a single PAYE person on the average industrial wage has been reduced by more than ten percentage points from more than 27% in 1997 to less than 17% in 2005. The same person has seen his or her after tax income increase by about 40% in real terms since 1997. About half of this increase is due to lower taxes.
The motion before the House refers to the generous tax and welfare system for single income families on the average wage. The latest data available from the OECD relating to 2004 indicate that a married couple of one earner with two children on the average production wage in Ireland in fact receive more money in cash transfers from the State than they pay out in income tax and social security contributions. This is an important indication of the levels of social justice we are achieving through tax policies that have been misrepresented by the Opposition as against the poor or those on average wages. The contrary is the case.
Only Luxembourg is in the same league as Ireland in this respect. The OECD figures do not take account of the further improvements we made in the 2005 budget. Since 2000, Ireland has had the lowest tax wedge in the 15 EU member states before enlargement for the average single worker. Workers can keep more of what they earn and for employers the cost of employing staff is kept down. The tax reforms have been functional in providing more employment and dealing with the tax and wage problems inherent in our system from previous eras.
The motion also refers to the high numbers of income earners who are now out of the tax net. The latest information from the Revenue Commissioners indicates that over 720,000 income earners are likely to be out of the tax net this year. This is one in every three income earners and the lowest third of income earners are removed from the tax net. This compares with 380,000, or one in every four income earners, in 1997 when Fine Gael, the Labour Party and Democratic Left were in Government. This is clear evidence of our proven commitment to those on lower incomes and an indication of our commitment to and achievement in improving social justice.
For the economy, the impact of a lower tax burden at personal and company level, combined with a number of other factors, has contributed to higher levels of investment from abroad and to economic growth being sustained at levels higher than our EU counterparts. The other relevant factors include greater investment in education and training, favourable demographics, a well-developed social partnership process and a relatively light regulatory regime.
Allow me to outline some facts and figures that demonstrate the success of this Government's economic and taxation policies. As measured by GNP, the economy grew by almost 28% in the first five years of this decade up to 2004. This year my Department expects growth of around 5% meaning the economy will have grown by one third in cumulative terms since 1999, a significant achievement.
This economic growth, underpinned and supported by our employment-friendly taxation policies, has led to strong job creation. In the five years to the March to May quarter of this year, total employment in the economy grew by over 250,000 to reach almost 1.93 million. In the face of a rapidly growing labour force, now over 2 million, we have maintained close to full employment. Our unemployment rate stands at just 4.2%, compared with an EU average of approximately 9%. It is no wonder the Opposition has given up on the ideological battle and these facts show how the economy is doing.
We have consistently pursued a disciplined fiscal policy. Between 2000 and 2004, our average general Government balance was in surplus to the extent of 1.3% of GDP. Our general Government debt ratio has fallen from 48% of GDP in 1999 to an estimated 29% by the end of this year. This Government's economic policies have worked. The economy has performed very well and delivered in terms of growth, jobs and higher living standards.
This is not just my view but that of respected and authoritative international commentators. I was happy to hear the governor of the European Central Bank recently citing Ireland as a "magnificent performer" when he was making the argument for structural reform in the EU and euro zone economies. It is not a coincidence these taxation reforms have delivered the lowest unemployment rate in the European Union. The structural reforms necessary in many larger EU states are evident. We have observed the difficulties they have had in dealing with this issue. Ireland has an economic model that works far better by providing more employment, more take home pay, the second highest minimum wage in Europe and a taxation system that ensures the lowest third of the workforce is exempt from the tax net.
In its recent review of the Irish economy the IMF commended the continuing impressive performance of our economy which it said was "the result of sound economic policies". If the IMF or the European Central Bank governor were saying other things, these would be quoted to me. These statements give an indication of the comparative performance of the Irish economy vis-À-vis our competitors.
Economic developments have continued to be positive this year, especially in respect of jobs. The most recent data from the CSO show that employment up to May grew by some 93,000, or over 5%. Many of these jobs were in high-skilled, highly-paid sectors, for example, employment in the financial and other business services sector grew by 20,000. Another positive this year has been our inflation performance with the rate of increase in prices here likely to be no higher than the euro zone average for the year as a whole. This is an important milestone and one we need to build on in the years ahead.
The motion before the House also refers to the comprehensive programme of reviews of a broad range of tax incentive schemes and tax exemptions which I announced last December in my budget speech. The vast bulk of taxpayers in this country pay their fair share. It is unacceptable that some of the wealthiest residents in Irish society should be able to use property and other tax incentives to avoid paying any income tax while at the same time enjoying the services provided by the State. The tax system must be seen to be fair and must apply to everyone, regardless of their contribution to the development of the economy or more generally to society.
Accordingly, I put the programme of reviews in place last year. The purpose of the reviews is to evaluate the impact and operation of relevant tax reliefs, including their economic and social benefits for the different locations and sectors involved and to the wider community. The reviews are also examining the degree to which these schemes allow high-income individuals to reduce their tax liabilities. A number of the schemes are being reviewed internally within the Department of Finance and the Office of the Revenue Commissioners. Following a competitive tendering process, two external consultancy firms were retained to conduct reviews of the range of property-based tax incentive schemes. The complete report from the consultants is being finalised. On this basis, the reviews are being completed in time for consideration in the 2006 budget and the Finance Bill.
Let there be no doubt that properly structured tax incentives can make a positive contribution to economic and social development by directing private capital to areas of wider community benefit as well as providing a benefit to the potential investor, without which an investment would not be made. However, I have signalled that I intend to address any abuse of such property and other tax incentives in the forthcoming budget.
I will also consider the need for horizontal measures such as a cap on the total allowances which will limit the amount any individual can claim from these incentives. Any decisions in this regard will be taken in a thoughtful and balanced manner. I am glad to note the agreement in this House on the need to do this in order to minimise the impact on employment, particularly in the construction sector and with a view to ensuring that the positive role tax incentives can play in social and economic development is maintained.
There are grounds for cautious optimism in respect of the economic outlook for 2006 and beyond. This is not just my view but also that of other domestic and external commentators. In its recent world economic outlook the IMF projected GDP growth of 4.9% here in 2006. I am mindful of a number of risks facing the economy including: the possibility of further increases in oil prices from their current elevated levels which would adversely affect international trading conditions and inflation; the imbalances in the international economy including the twin deficits in the US economy and the risk of a sharp fall in the dollar and appreciation of the euro; and in the domestic economy, the rate at which the house-building sector adjusts to a normal or sustainable level of output remains an uncertainty.
We cannot do much about some of these factors, some of which relate to international conditions outside our control. We must retain the disciplined policy mix that has worked so well and won the endorsement of key international bodies, to which I referred earlier. We must also seek to reinforce and improve our competitive position.
When addressing this House last year, I made the point, which remains the case today, that low personal and business taxation have been good for economic growth. They are a key part of our overall economic policies which have been proven to work well and which make us the envy of other countries in Europe and elsewhere.
I am glad the old political canard is no longer being trotted out here by the Opposition — at least in that part of the debate I have heard so far — that is, the myth in Irish politics that if one wants to show a commitment to public services one must believe in a high tax economy. The fact is that lower taxes have brought greater resources and greater economic activity, as well as sustainable improvements in public services beyond our thoughts or dreams less than a decade ago. That is an important point and I welcome the fact that it is no longer being contested. The evidence is clearly against those who might seek to contest it. People talk about the difference in capital taxation rates, but I do not agree with the assertion that there was not much greater activity when the rate went from 40% to 20%. I can forward the details to the Senators concerned. From memory, however, if one goes back to 1995 or 1996 there were about 7,000 notices of assessment at the 40% rate bringing in £158 million. In the 2000-01 period, one is looking at 24,000 notices of assessment bringing in far greater amounts than that. Currently, we have a tenfold increase in capital taxation as a contribution in terms of volume, quite apart from the increase as a percentage of the tax take. That should be welcomed by those who want to see capital taxes making a greater contribution to the State's total tax take. The tax take, not the tax rate, is the issue. If I want to bring about a greater contribution of capital taxes, I want to know what it is as a percentage of my total tax take in any given year, and whether it is a greater tax take than was the case in the past. The answer to that question is "Yes, it is a considerable improvement".
If one goes back to the period when the Opposition parties were in office, only €1 in €25 was being collected in capital tax, whereas the current figure is approximately €1 in €11, or even less. I will have to check those figures, however, as I am working form memory.
Brendan Ryan (Labour)
Link to this: Individually | In context
It is not quite as clear as the Minister makes it out to be.
Brian Cowen (Laois-Offaly, Fianna Fail)
Link to this: Individually | In context
I can give the Senator the exact figures.
Brian Cowen (Laois-Offaly, Fianna Fail)
Link to this: Individually | In context
The reason I like coming to this House is that I can have a debate.
Brian Cowen (Laois-Offaly, Fianna Fail)
Link to this: Individually | In context
I can get the exact figures for the Senator, however.
Brendan Ryan (Labour)
Link to this: Individually | In context
It appreciate that and that is why I do not wish to interrupt the Minister.
Brian Cowen (Laois-Offaly, Fianna Fail)
Link to this: Individually | In context
The generality of my argument is correct. The tax take in capital taxes with lower rates is far greater than the tax take as a percentage of total revenue with higher rates.
Terry LeydenBrian Cowen (Laois-Offaly, Fianna Fail)
Link to this: Individually | In context
I would have thought that for those who espouse social justice, it is an argument that would allow them to change their minds.
Brendan Ryan (Labour)
Link to this: Individually | In context
We have heard the argument, but is it income masked as capital gains? That is the argument.
Brian Cowen (Laois-Offaly, Fianna Fail)
Link to this: Individually | In context
No, it is capital tax. I have indicated that the greater number of assessments accepted as capital gains, and liable for capital gains tax by the Revenue Commissioners, increased by a factor of almost four over an eight-year period from 1995 to 2002. I can forward the details to the Senator but the facts speak for themselves.
Our remarkable economic growth has enabled us to invest greater amounts in public services and infrastructural development. The major Transport 21 investment programme, worth €34.4 billion and launched yesterday by the Government, is one example. My aim is to get clear value for money for what we spend and the 12-point plan which I introduced recently has a key role to play in that regard.
When it comes to tax incentive schemes and reliefs, the Government is determined to get the balance right — to encourage worthwhile development on the one hand while at the same time ensuring that all high-income earners who can do so, make a real contribution to funding the national budget.
As a committed pragmatist, I agree with whatever gets me most money and that is why I agree with lower taxes.
John Dardis (Progressive Democrats)
Link to this: Individually | In context
Hear, hear. That is fair comment.
Mary Henry (Independent)
Link to this: Individually | In context
I thank the Minister for attending the House and I welcome his address, which was extremely clear. It would be churlish of me not to say that I have enjoyed the tax regime of the past few years. I was one of those who warmly welcomed Mr. McCreevy's individualisation plan, having for decades been assessed — as someone in the Revenue once said — as though I were a wholly-owned subsidiary of my husband. That was not a remarkably cheerful thing for a professional woman to be told. I welcome the fact that now I have never paid less tax proportionate to my income in my life. I do not know whether or not it is just that this should be so, but I have found it to be an extremely agreeable experience.
I wish to refer to a few matters that are sometimes overlooked. Some people get into difficulty when trying to follow the Government's instructions as to how they should lead their lives. Even though they may be well off, they find themselves in a serious situation regarding money and taxes. I am glad the Minister said he would try to ensure that some of the wealthiest individuals in the country, who are currently avoiding tax, will end up having to pay it. It has been said to me that the latter group is treated preferentially while others are treated badly.
I will cite a case in point for the Minister. It concerns an elderly couple, with a good income, where the husband worked all his life and paid a considerable amount of tax, while the wife always stayed at home. When both were in their mid-70s, the man suffered a stroke. We are advised to try to keep family members at home as much as we can. The Department of Health and Children certainly wants people moved out of acute beds into rehabilitation beds and then back home. This is what my friends tried to do. They sold their house for well over €1 million and bought a small ground floor apartment. The man is incapacitated, but his wife was keen to have him at home where she could look after him. When the money they had left over from the house sale was invested, even with his good pension, they had a totally inadequate income to pay for health services at home. Let us say that they had an income of €40,000, which is considerable, while their outgoings for health services alone were €50,000. It cost over €1,000 per week to pay an agency for help. I thought this was bad enough but this was not the poor woman's complaint. She is prepared to sell her shares and the income is declining and her husband may live for a very long time. Her complaint, however, is that she must pay 21% VAT on the agency fees, which I find almost unbelievable.
Their children are prepared to give their parents money. However, the children can only give €3,000 each from their taxed income towards the health care of their incapacitated father. After €3,000 that money is also taxed, which the woman involved is also upset about. Very wealthy individuals may be paying no tax, and while the couple I mentioned are not poor, their children are anxious to do the best they can for their father. Nonetheless, their children appear to be heavily penalised for what they are trying to do. Will the Minister examine why individuals must pay tax on attendance fees charged by nursing agencies or others who are not even nurses? In this situation, it appears that the money will run out at some stage whereupon the man will become a charge on the State. The woman is well able to maintain herself and her house but, as she told me, only 13% VAT is charged on hairdressing.
I wish to raise another point which is important from the point of view of international competitiveness and which should really come under the heading of stealth taxes. It is the question of encouraging people to take out private health insurance. The Minister for Health and Children, and her party colleagues, frequently point out with some satisfaction that 52% of the population is now paying for private health insurance.
That is not to be rejoiced in as it is a sign of a lack of confidence in public health care. Public health care, if one can get it in this country, is extremely good. It has been put to me that some firms are paying employees' private health insurance. When I mentioned this to owners of Irish firms, some of whose firms are small and employ 20 to 40 people, they said it is an absolute disaster and that it would amount to a terrible cost to them if they had to do so.
In the United States it is the norm when looking for a job to try to obtain from one's prospective employer a package in which private health insurance will be included. If this practice continues in Ireland we will run into very serious problems in terms of international competitiveness. I was in the United States some weeks ago and noted the cost of private health care is rocketing. The VHI is a not-for-profit organisation. BUPA has community rating at present but it is very important to remember it is not community-rated in the United Kingdom. If we start this race for the top in private health insurance, it will result in serious added costs for industry. I hope the Minister will try to calm the enthusiasm for making private health care part of the package that makes a job all that much more desirable. Private health insurance should be acquired by individuals if they want it. Public health care in the Republic should be considered adequate for everybody. Of course it has problems but it is good and will be supported.
Another area I hope the Minister will examine is the building of private hospitals. He must have noticed the concern expressed by some in the private hospital sector over the number of private beds we propose to build. At present, the private beds are being well-supported by taxpayers through the National Treatment Purchase Fund. The funding in this regard comprises a very important part of its income. I have been told by some of my colleagues that it is sometimes hard to accommodate paying customers of some of the health care organisations because the beds are taken up by National Treatment Purchase Fund patients. We should be very careful when considering the economics of this matter or we will end up paying on the double. We will be giving tax relief to the hospitals for which we are providing public land and at the same time we will be paying the very same people who built the hospitals for taking care of people who should be taken care of in the public system. While the current proposals in this regard might sound fine and dandy, it should be noted that certain people with much experience in this area are genuinely concerned. The Minister should reconsider the matter.
Martin Mansergh (Fianna Fail)
Link to this: Individually | In context
I warmly welcome the Minister and his officials. I agree with Senator McDowell that it is important to get the history right. Of course I welcome the motion under discussion and I am glad that keeping the public finances in a healthy condition is put first. In 1987 there was some argument as to whether one should cut taxes first in the hope that the public finances would return to a state of order because of the stimulus involved, or whether one should freeze all tax reliefs and concentrate on putting the public finances in order. The latter was what happened first. In 1989, Albert Reynolds, who was part of a Fianna Fáil minority Government, cut the standard rate of tax by 3% and the higher rate by 4%. This policy continued under the Fianna Fáil-Progressive Democrats Government between 1989 and 1992 and was resumed after 1997.
On the question of income tax, it is striking that there has been a reduction of 31 points in rates of taxation since 1987. Governments involving Fianna Fáil Ministers for Finance have been responsible for 30 of the 31 points. The Progressive Democrats, while in coalition with Fianna Fáil, have been responsible for approximately 25 points while Fine Gael and the Labour Party were responsible for just one.
Perhaps Senator Ryan is being a little optimistic. I accept that there is now much broader acceptance and consensus that low tax rates are to the benefit of the economy but it is clear that the Labour Party is making noises about capital gains tax that suggest it is not fully convinced it should remain at 20%. The party disliked it intensely initially. I am sure people in business will duly note that. Prospective partners such as the Green Party are very keen on carbon taxes and——
John Paul Phelan (Fine Gael)
Link to this: Individually | In context
The Senator's partners in Sinn Féin are very keen on a few things as well.
Martin Mansergh (Fianna Fail)
Link to this: Individually | In context
——rocketing up the price of transport and motoring. It is still advocating this despite the fact that oil prices have increased enormously. Confidence in who will keep tax rates low will very definitely be an issue in the next election.
I agree we are generating sufficient revenue to do what we need and want to do. Yesterday's Transport 21 investment plan is a clear illustration of this fact. Obviously, it is necessary that a tight rein be kept on expenditure to maintain its efficiency.
Sometimes I would like if Ministers boasted not about how much more than others they had spent but about the amount of taxpayers' money they had succeeded in saving. Apropos the transport plan, Senator Ryan mentioned that some of the ideas were delayed for five years. That may be so but much is happening. I do not remember any transport plans in the rainbow coalition's election manifesto. At least an enormous amount is being done.
I will use my remaining time to discuss a few matters relating to the forthcoming budget. The Minister was quite correct to point out that this Government, in its previous reincarnation, introduced the minimum wage in the first place. Last year a major priority was to take people on the minimum wage out of the tax net. Some of them fell back in. It would be worthwhile for the Minister to complete this process and, if possible, leave a margin of safety so employees do not fall back within the tax net. Having said that, it must be pointed out that not everyone on the minimum wage is poor. In some cases, they may be students trying to earn a bit of extra income and therefore one should not be too simplistic about the matter.
Child care is clearly a major priority for the budget, irrespective of how it is approached. I envisage reliefs in this regard as taking precedence over other tax reliefs. As the Minister is probably aware, many of us met IFA representatives in the course of the day. The first item on their agenda has a good deal of merit. They advocate that where landholdings are being consolidated, they should be free of capital gains tax, except where people are putting money into their pockets as opposed to restructuring those landholdings. This also has an animal health dimension.
We all wish the Minister well regarding his plans for tax incentives for the construction industry because it is booming and not all of these tax reliefs are needed. The Minister should carry through his intention to limit these tax reliefs.
The Minister should tighten up definitions in the artist's exemption scheme. I am not convinced that the scheme was intended to include political memoirs written by Members of the Oireachtas and there are other works that should not be included in the scheme.
Brian Hayes (Fine Gael)
Link to this: Individually | In context
It depends on how good these memoirs are.
Martin Mansergh (Fianna Fail)
Link to this: Individually | In context
Does Senator Brian Hayes mean that it depends on how fictional they are?
Brian Cowen (Laois-Offaly, Fianna Fail)
Link to this: Individually | In context
It depends on how creative they are.
Martin Mansergh (Fianna Fail)
Link to this: Individually | In context
Before a change is made in the stallion tax relief scheme, we should examine where tax sovereignty begins and ends and where State aid applies. We should bear in mind that this scheme has existed since the late 1930s rather than 1968 or 1969, when it was ring fenced. I am sure the Minister will approach the question of tax residency in a strictly pragmatic fashion because it is the economic interest of the country that counts. If the period of 180 days is reduced to, for example, 40 days, this is the amount of time people would have to spend their money.
Brian Hayes (Fine Gael)
Link to this: Individually | In context
I welcome the Minister to the House and look forward to this debate, which has been ongoing since 5 p.m. I thank Senator Mansergh for his advice, which we will follow closely, about our prospective partners. Fianna Fáil's prospective partners recently produced a very fanciful economic portfolio and list of proposals and I would be wary of their proposals regarding a new tax rate.
Martin Mansergh (Fianna Fail)
Link to this: Individually | In context
To which party is Senator Brian Hayes referring?
Brian Hayes (Fine Gael)
Link to this: Individually | In context
Sinn Féin, the other republican party.
Brian Hayes (Fine Gael)
Link to this: Individually | In context
I thank Senator Mansergh for his very useful advice. Everyone knows that average taxpayers saw their tax bills rise after the last general election. The reason for this rise in the first two budgets after the general election was the Government's failure to index the tax bands. It failed to do this because for an 18-month period before the last general election, there was a giveaway involving a ratcheting up of current expenditure, which had to be paid for and which was paid for in the first 24 months after the last general election.
In his first budget, the Minister took action regarding the indexation of tax bands but it was the largest single increase in tax after the last general election. As someone who did not favour tax individualisation, I was heartened when the Government initially introduced the home carer's tax credit. It introduced this measure as a compensation mechanism to help single-income couples who decide that one spouse should look after the children at home. Why has there been no increase in the home carer's tax credit in the five consecutive budgets since its introduction by the former Minister for Finance, Charlie McCreevy? There has been no increase in this tax credit for five years. Why has there been no increase in this benefit when we are supposedly serious about recognising some families who choose to have only one income?
While many workers gain financially through overtime payments, much of this money is taken back because the additional income is taxed at the top tax rate of 42%. ICTU introduced a proposal a few years ago to tax overtime payments at a rate between 20% and 42% as a means of cushioning additional payments received by less well-off workers throughout the year. This proposal was endorsed at the time by Fine Gael's finance spokesperson and I would like to see a debate on it. There is a considerable jump between 20% and 42%. It is not considerable for a person earning over €70,000 a year but it is for someone on a much lower income. If we are serious about having a fair and equitable tax system for working families and individuals, we must realise that the existing jump between 20% and 42% is far too significant and might well be overcome by the introduction of a third rate that is between 20% and 42%.
I agree with colleagues who argued that it is absurd that very wealthy people with Irish passports pay no tax, although I accept that the number of such individuals is quite small. At the minimum, we need a basic level of tax which every citizen pays. It is wrong that people can shelter and hide their income as a means of not paying tax. I ask the Minister not to carry out further examinations but to take decisive action in the next budget to ensure that people with very substantial incomes cannot offset their income against tax. From the figures cited this evening, it appears that the Minister will have somewhere between €1.5 billion and €2 billion to hand out on budget day.
There is a large degree of consensus on capital and income taxation. The issue has largely been put to bed because of the resources the State has at its disposal. When Fine Gael was last in Government, it had less resources to offset against reductions in tax than the Government which followed Fine Gael's economic platform after the 1997 general election. The success of the economy is based on trying to reduce taxation, thereby increasing the amount of revenue available on the capital side and for other worthwhile projects. Despite the efforts of our friends on the opposite side of the House, the focus in the next general election will on competence and how much has been wasted over the past nine years by a Government that has been unable to deal with all the demands our modern economy presents rather than on tax.
John Dardis (Progressive Democrats)
Link to this: Individually | In context
I am sorry I could not get my briefing from the Minister. I thank all those who participated in this debate, particularly the Minister for Finance and the Minister of State at the Department of Finance, Deputy Parlon, for their attendance and contributions to the debate. Several requests for a debate of this nature have been made over the past few weeks and I am glad that this evening's Private Members' business could facilitate it and raise some of the wider issues and philosophical questions surrounding the matter. I will not venture as far into philosophical matters as Senator Ryan did because one enters the existentialist spectrum at that point.
Brendan Ryan (Labour)
Link to this: Individually | In context
Senator Dardis should not insult existentialism by associating me with it. There are far more serious people involved in it.
John Dardis (Progressive Democrats)
Link to this: Individually | In context
I accept that economics is not an exact science but we can say with certainty that the reduction in personal tax rates led to increased revenue and economic activity and that the reduction in capital taxes also led to increased economic activity. I accept the point made by Senator McDowell that wider factors, such as the social partnership, also helped the economy. However, the reduction in personal tax rates was an essential brick in the edifice that created the economic miracle of modern Ireland.
When these arguments began in the late 1980s, there was a universal chorus that if personal tax rates fell, revenue would fall and the services the State provided for its citizens would be drastically affected. The opposite has happened. The reduction in personal tax rates allowed us to create the conditions which give us the capacity to deal with social problems and look after the most vulnerable people. I reject Senator Ryan's proposition that the Progressive Democrats or any other party was interested in looking after the rich. This is not true.
Brendan Ryan (Labour)
Link to this: Individually | In context
It is why they vote for the Progressive Democrats.
John Dardis (Progressive Democrats)
Link to this: Individually | In context
We attempted to create the wealth that would give the State the revenue to carry out the measures that are essential for the most vulnerable people in our society.
7:00 pm
John Dardis (Progressive Democrats)
Link to this: Individually | In context
There are two sides to the argument concerning capital taxes. One relates to capital gains tax, while the other relates to inheritance tax and other capital taxes. They are not at a level that would be a disincentive to farmers. The Minister rebutted Senator Ryan's point. There is a level, although I do not know what it is, at which taxation is a serious disincentive to people to act and put money into the economy, and to inward investment.
It is important that farmers are able to transfer property to the next generation, without undue burden, during their lifetime. The inflating value of land reflects developments in the construction industry and elsewhere and feeds back into rural society, which requires examination. A case ran for several years about siblings living in expensive dwellings in Dublin, whereby one sister died and the surviving sister, living in the house, was subject to such high capital tax that she would have to sell the house. That was remedied, rightly so, because there can be hardship in such cases. Anything that can be done to ensure the transfer of land and farms to the next generation, on the consolidation issue to which Senator Mansergh referred, should be done.
I come from County Kildare where the bloodstock industry is very important. There is a perception that the mega-wealthy gain from this. A few do but many small breeders have benefited from the tax exemption which applies only to stallion fees, although it is represented as an exemption on all the breeders' activities. This is a flagship industry. It is mobile because the stallions can travel around the world, and it would be unfortunate to lose good stallions by removing the exemption.
While I understand the pressure coming from the European Commission on this matter, the exemption is positive. Perhaps the way to deal with it is as the Minister has suggested for other exemptions, namely, by applying a cap. Everything above the ceiling would be liable for tax and everything below would be exempt.
This has been a useful debate. Senator Feighan seemed to suggest that the minimum wage affects our competitiveness. The converse is to abolish the minimum wage, which I am sure Senator Feighan would not do. We saw on television last night children in Bangladesh breaking bricks. That is a good example of what could happen if the minimum wage were abolished. That is where unfettered competitiveness leads.
John Dardis (Progressive Democrats)
Link to this: Individually | In context
It is proper that we have a minimum wage and it has not affected the competitiveness of the country.
The Dail Divided:
For the motion: 18 (James Bannon, Paul Bradford, Fergal Browne, Paddy Burke, Paul Coghlan, Noel Coonan, Maurice Cummins, Frank Feighan, Michael Finucane, Brian Hayes, Mary Henry, Michael McCarthy, Derek McDowell, Joe McHugh, David Norris, John Paul Phelan, Brendan Ryan, Sheila Terry)
Against the motion: 25 (Cyprian Brady, Michael Brennan, Peter Callanan, Margaret Cox, John Dardis, Timmy Dooley, Camillus Glynn, Brendan Kenneally, Tony Kett, Michael Kitt, Terry Leyden, Marc MacSharry, Martin Mansergh, John Minihan, Tom Morrissey, Pat Moylan, Labhrás Ó Murchú, Mary O'Rourke, Ann Ormonde, Kieran Phelan, Eamon Scanlon, Jim Walsh, Kate Walsh, Mary White, Diarmuid Wilson)
Tellers: Tá, Senators Cummins and J. Phelan; Níl, Senators Minihan and Moylan.
Mary O'Rourke